By ANN ZIMMERMAN

Signet Jewelers Ltd. swung to a loss in its fiscal fourth quarter, hurt by an impairment charge, as a disastrous holiday season that shuttered numerous jewelry establishments across the U.S. hurt sales at the country’s largest jewelry chain.

The owner of Kay Jewelers and Jared the Galleria of Jewelers, however, said the first seven weeks of the new year, which included strong Valentine’s Day sales, showed encouraging signs with sales at stores open at least a year down 2.7% in the U.S. and 3.8% in the U.K. Still, Signet Chief Executive Terry Burman warned the year will remain “very challenging.”

Since Christmas, several regional and national jewelers have sought Chapter 11 bankruptcy-court protection and closed all or some of their stores, including Shane Co. and Christian Bernard. Finlay Enterprises Inc. is closing about 30 Bailey Banks & Biddle stores and 500 jewelry counters at department stores. Tiffany & Co. said Monday that its world-wide same-store sales fell 20% for the same period.

Despite a tough economic climate where consumers have shied away from making discretionary purchases and credit is harder to access, Signet said gross merchandise profit margin improved by 2.4 percentage points in the U.S. It attributed the better results to good inventory control, measured discounting and growth of exclusive merchandise, including a new “Open Hearts” collection by actress Jane Seymour.

While the company had higher margins on what it sold, it was not able to offset higher expenses and as a result gross margin fell 5 percentage points to 33.7% of sales. Included in the cost of goods sold are store rental costs and bad debt provision, which increased. When sales fall, the proportion of store costs go up, more than offsetting the improvement in gross merchandise margin.

Signet said it expects to reduce debt by $200 million and lower costs in its U.S. operations by $100 million in the current year. Capital expenditures for the year are targeted at $55 million — half of the previous year’s expenditure. The company has cut costs by reducing staffing levels in stores and at the Akron, Ohio, home office and plans to reduce advertising expenses this year.

In 4 p.m. composite trading Wednesday, shares of Signet were up $1.22 to $12.50 on the New York Stock Exchange. The stock is off nearly 45% in the last 52 weeks.

For the fourth quarter ended Jan. 31, Signet posted a net loss of $424 million, or $4.97 a share, compared with year-earlier net income of $143 million, or $1.65 a share. The latest results included a goodwill impairment charge of $516 million, which reflected the impact of the economic downturn on the group’s operations and its stock price.

Revenue in the quarter dropped 19% to $1.12 billion as same-store sales fell 8.2% overall — and declined 9.7% in the U.S. and 3.3% in the U.K. The U.S. accounts for 76% of overall sales.

Write to Ann Zimmerman at ann.zimmerman@wsj.com

Source: http://online.wsj.com/article/SB123799544729339241.html

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