Shares of Signet have dropped more than 20% in afternoon trading after a report of a major slowdown in holiday sales that promoted a big miss on earnings. A deceleration in same-store sales left the metric down 1.3% during the holiday period.
Guidance wasn't much help for the Akron, Ohio-based retailer either, as the slower numbers are expected to remain stable for the year.
"Early improvements in refreshed merchandise assortment, digital marketing and OmniChannel were more than offset by larger-than-expected declines in legacy product lines," CEO Virginia Drosos said in a statement. "In addition, the competitive promotional environment we saw early in the season intensified in December and, despite our increased promotional investments, we experienced reduced traffic during key December gifting weeks. Combined with higher than expected credit costs, these factors negatively impacted our profitability."
In contrast to Signet's steep slide, Tiffany shares are rising on the day.
The divergence suggests that Tiffany's could be part of the "intensified competitive environment" that Drosos cited as a driver of the down quarter as its turnaround plans begin to bear fruit. Given the strength of the consumer at present, the dropoff in diamond sales is likely to be driven by a large degree by competition rather than declining demand.
Amidst its troubles in the second half of the year, Tiffany CEO Alesandro Bogliolo announced plans to accelerate the company's "Path to Brilliance" turnaround initiatives.
"We had increased our spending in various aspects of our business, which we expect to continue for the rest of the year and which we believe is necessary to generate sustainable sales and earnings growth in the future," CEO Alessandro Bogliolo on the earnings call in August.
As Signet slumps, Tiffany could be telling us these strategies are sinking in.
Of course, Signet has further to fall as it rode relatively high in the third quarter, while Tiffany tumbled. The higher standards for Signet set in mid-year may have signified a fall was due in December and January.
Still, many have pointed to Tiffany's punishment in the back half of 2018 as undue and largely coming as a result of an intensifying trade war that damages both the company's key Chinese market and its tourism trade. With the groundswell of analysts signaling an armistice could be do soon, this cap could be taken off the stock shortly.
By that logic, Tiffany can be touted as a cheap stock.
In fact, Jefferies analyst Randy Konik highlighted Tiffany's as one of his top picks for 2019 at its lowered price to earnings ratio and solid turnaround plan.
Action Alerts PLUS portfolio manager Jim Cramer had a similar take at the start of the year, calling it an "ugly duckling" that could become a swan this year.
"Its fall from grace is just plain wrong in my opinion. During the fourth quarter we saw an incredible collapse of anything high end connected to brick and mortar and wealth: it's like the wealthy shopper just froze," he explained. "I think the stock's a buy."
If Tiffany's is in fact part of the picture that is marring Signet's stock, the diamond retailer could be one to polish portfolios this year.