Signet Jewelers cuts profit forecast, shares lose shine

(Reuters) - Signet Jewelers Ltd SIG.N reported an unexpected drop in quarterly comparable sales as demand fell for its Sterling, Zale and Jared businesses, and the company cut its full-year profit forecast.

Shares of the company, which posted its first fall in quarterly total sales in more than six years, plunged 17.6 percent in early trading to $78.71, their biggest single-day percentage decline since November 2007.

Stores in areas closely tied to the energy industry, such as Texas, Louisiana, Oklahoma and Alberta “dramatically underperformed”, Chief Executive Mark Light told Reuters.

He also blamed underperformance in the company’s Jared business for a “material part” of the miss.

Texas-located Jared stores accounted for nearly half of the unit’s sales decline in the second quarter ended July 30, he said.

Nomura analyst Simeon Siegel said he expects weakness in the business to persist.

However, Light expects sales at Jared business to improve in the fourth quarter, boosted by Signet's initiatives like the new in-store Pandora A/S PNDORA.CO boutiques and its 'Chosen' line of diamond jewelry.

Most of the company’s stores in the UK are in the rural areas, but London stores benefited from a lower pound following the Brexit vote, Light told Reuters.

“Our UK business was pretty resilient through the Brexit vote,” he said.

Sales at Signet’s stores open for more than a year fell 2.3 percent, compared with a 1 percent rise expected by analysts polled by research firm Consensus Metrix.

Excluding items, the company earned $1.14 per share, far short of the $1.45 expected by analysts, according to Thomson Reuters I/B/E/S.

Net sales fell 2.6 percent to $1.37 billion, also missing estimates of $1.44 billion.

Signet cut its full-year adjusted profit forecast by $1 to $7.25-$7.55 per share.

The company's results come at a time when upscale jeweler Tiffany & Co TIF.N reported an unexpected rise in second-quarter profit as it also saw higher tourist traffic at its UK stores and benefited from lower costs of gold and other precious metals.

Separately, the company said affiliates of private-equity firm Leonard Green & Partners LP will invest $625 million in the form of convertible preferred shares.

Jonathan Sokoloff, managing partner of Leonard Green & Partners, will join Signet’s board as part of the deal.

Signet said it would use the proceeds to buy back shares.

The company’s shares were down 13.5 percent at $82.56 on Thursday.

Reporting by Subrat Patnaik and Abhijith Ganapavaram in Bengaluru; Editing by Sriraj Kalluvila and Shounak Dasgupta