Kay Jewelers parent Signet shares down as investors fear retailer will have trouble sustaining strong growth

Shares of Signet Jewelers fell on Thursday despite the parent company of Kay Jewelers, Zales and Jared reporting fiscal third-quarter earnings ahead of analysts’ expectations, prompting it to hike its outlook for the year.

Following a huge run up this year, with its stock soaring 240% year to date, some investors were likely taking their profits, analysts said. UBS retail analyst Jay Sole said he expected shares to be rising after the better-than-expected report.

Signet’s stock was recently down nearly 4%, after rising 4% in premarket trading.

But some investors are also concerned about Signet’s ability to keep the momentum going, especially into next year.

Telsey Advisory Group CEO and Chief Research Officer Dana Telsey said in a note to clients that she was pleased with Signet’s third-quarter results, but noted that the company will now face difficult comparisons after the holidays. Some consumers might begin to shift their spending toward experiences, including vacations and tickets to concerts, she said. That could put a damper on Signet’s growth.

Last week, in anticipation of a strong report, Telsey raised her price target on Signet shares to $110 from $94. The stock had closed Tuesday at $92.94.

Signet reported net income for the three-month period ended Oct. 30 of $92.6 million, or $1.45 per share, up from $9.3 million, or 2 cents a share, a year earlier.

Excluding one-time items, it earned $1.43 a share, ahead of expectations for 72 cents, which is based on a survey of analysts by Refinitiv.

Sales climbed to $1.54 billion from $1.3 billion a year earlier. That topped estimates for $1.43 billion.

Same-store sales, which track revenue at stores open for at least 12 months, rose 18.9%. That was well ahead of the 11.6% growth that analysts polled by FactSet had predicted.

Amid ongoing global supply chain issues and a tight labor market, Signet CEO Virginia Drosos said the company secured its holiday merchandise early this year, in anticipation of potential delays, and it expects no significant disruptions. It also has sufficient staff, she said.

The company now sees fiscal 2022 sales ranging between $7.41 billion and $7.49 billion, up from a prior range of $7.04 billion to $7.19 billion. It sees same-store sales up 41% to 43% year over year, versus prior expectations for a 35% to 38% increase.

Chief Financial Officer Joan Hilson said in the press release that the company remains cautious, however, about its outlook, due to the new coronavirus variant, omicron, as well as potential shifts in consumer spending patterns.

Citi analyst Paul Lejuez said he expected Signet shares to rise on the third-quarter results and hiked forecast.

However, he said, if the company enters a more promotional environment next year and continues to face higher labor costs, that will put greater pressure on margins.

The entire jewelry industry has been experiencing a lift in sales this year as younger shoppers buy into the category for the first time — many of them planning proposals or preparing for a wave of weddings in 2022 that had been postponed due to Covid. Jewelry can also be a sentimental gift, which is something many consumers have been looking to gift to a loved one during the pandemic.

Signet also recently completed its acquisition of the off-mall jewelry chain Diamonds Direct.

Find the full earnings press release from Signet here.