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Signet, Stop Waiting for Engagements

Updated: 1 day ago

I’ll give myself a little credit. From the beginning, I was somewhat skeptical about Signet Jewelers’ theory that a lull in dating during the pandemic led to a lag in proposals, which meant that a spike in engagements was imminent in 2024.

 

It didn’t sit right when the jeweler first told the tale about two years ago. The number of weddings returned to pre-pandemic levels already in 2022 with a total of 2.065 million nuptials, as reported by the National Center for Health Statistics. That rate was maintained in 2023, according to The Wedding Report.

 

In its defense, Signet did talk about a two-to-three-year dating cycle before the proposal, which is why this year and next were penciled in as the years of engagement. It’s been about that long since we came out of lockdown.

 

Still, the thesis felt a bit forced as if the company was overcompensating for something else. So I finally called BS in June, after its first-quarter earnings - see “Time for Signet to Deliver on Bridal.”

 

Then, after yet another disappointing report, I noted, “Signet is putting some weight on its post-Covid engagement lag theory. It will need to deliver in its bridal business in the second half, given the extent to which it has talked-up the anticipated engagement boom.”

 

Well, the second half has arrived, and the boom remains silent. Group revenue fell 3.1% year on year during the third quarter that ended November 2, with fashion being the stand-out segment. Same-store sales were down 0.7% and net income slumped 37%, Signet reported on Thursday. ‘SIG’ shares have tumbled some 12% from their pre-earnings levels.  

 

Meanwhile, bridal sales were down 5% during the quarter and 9% for the year to date, continuing the downtrend of the last three years, as reflected in the graph below.

Based on data from Signet Jewelers earnings reports.


By now, we would have expected all those post-Covid couples to have made a commitment already! Signet, like a long-term girlfriend whose partner just won’t take the hint, was left wondering if this engagement thing would ever happen.

 

The company may be starting to change the narrative as it acknowledged in its earnings call the engagement recovery is going slower than expected.

 

That admission was hardly surprising given my earlier skepticism of the engagement-lag theory. And I wasn’t alone in expressing wonderment about Signet’s seemingly false promises. Many in the diamond trade simply smirked and shook their heads when I’d bring it up.

 

That said, other industry corporates, including De Beers, took their cues, touting the same message, as if convincing themselves that a pending boom was in fact possible in the prevailing weak market.

 

But the theory had holes in it from the beginning. It cast a corporate-jargoned shadow over what was really happening in the diamond market over the last four years – namely, the rise of synthetics. And while lab-grown diamonds have taken some unexpected turns on their path to riches and market share, none have been more surprising than their incursion to the bridal segment.

 

To my mind, there are two factors contributing to the weakness in Signet’s bridal sales. The first being that consumers have been squeezed by the rise in the cost of living over the past three years – particularly middle-income households within the Kay Jewelers / Zales demographic and price range.

 

The second element is connected to the company’s earlier embrace of lab grown (see Signet’s Growing Synthetics Problem). It may have signaled a return to natural this holiday season through its marketing partnership with De Beers, but management still seems unsure about where it stands or the extent to which it should differentiate the natural and lab grown products.

Still image from the Worth the Wait campaign, a collaboration between Signet Jewelers and de Beers. (Credit: Signet / De Beers).


“I recognize we have some challenges,” said newly appointed CEO JK Symancyk in his maiden earnings call. “Engagement incidents are somewhat less predictable on a short-term basis and as you know, lab-created diamonds have disrupted the industry but also create opportunities in the fashion category as well as increase the breadth of assortment within bridal.”

 

Is it a challenge or an opportunity? I guess it can be both. After all, it remains a driver of growth as lab-grown diamond fashion sales rose more than 30% in the third quarter. Signet didn’t disclose the product’s performance in bridal.

 

However, I do wonder to what extent Signet, along with other retail jewelers, can afford to further displace natural diamonds with synthetics. There surely must be a ceiling on the percentage of revenue that lab-grown contributes.

 

As a fashion product, synthetics increased Signet’s average transaction value, as it was able up-sale consumers in the category. But can that be sustained as one expects lab-grown prices to come down at retail, as they have fallen sharply at wholesale.

 

While the margins on lab grown remain relatively high, surely the likes of Signet need the higher value that natural diamond jewelry offers to sustain their top-line revenue in the long run.

 

The core to achieving that would be to double-down on bridal and for natural diamonds to absolutely own the engagement space. I’d rather Signet didn’t see synthetics as a way to “increase the breadth of its bridal assortment.”  

 

So, it seems disingenuous to point a finger at the “slower than expected” post-Covid recovery in engagements. As the leading seller of engagement and bridal jewelry in the US, Signet must recognize the weakness for what it is – a question of sluggish demand from consumers, rather than a reflection of their cyclical romantic behavior.

 

That should motivate Signet to invest heavily in marketing natural diamonds, continuing in 2025 where the De Beers collaboration left off, with an emphasis on bridal of all shapes and forms.

 

It must drop its belief in a theory that just doesn’t seem feasible at this point. The world, including newly engaged couples, has long moved on from the pandemic, and Signet must too. The more it touts a pending engagement boom, the more it sets itself up for disappointment.

 

The bridal and engagement market will bounce back, but the recovery will likely be organic from the lower comparative numbers it has set recently. That seems a more reasonable and sustainable scenario than the one touted by Signet. And after all the hype and expectation, it may even be worth the wait.

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