Signet: Too Confusing for Comfort
Why last quarter's 'beat' might not be what it appears. As always, the devil was in the 10-K.
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For a retailer that specializes in jewelry, Signet sure is confusing…
Or at least it challenges investors like a brain teaser to figure out what’s really going on with their financials… not just with an alphabet soup of key metrics but changing the definitions of those metrics.
I laid out just how complicated it is and the key metrics involved – Average Unit Retail, or AUR, and Average Transaction Value, or ATV – back in January, when I wrote…
It’s the Wall Street version of “Who’s on First,” though at times it feels like a shell game.
You can read the entire piece here. It goes into more detail and provides a refresher of my coverage on Signet.
What’s new?
For that I turned to my friend, sometimes collaborator and former short-seller Katherine Spurlock, who is akin to the Siren of Signet. She knows more than most about this company, having been very early in signaling trouble in 2015… back when I first wrote about it at the short-biased research firm I co-founded.
I started writing about it again and formally red-flagged it last April, before it tumbled 50%.
It was after that fall that a large investor who was trapped in the stock turned into an activist. That was after the company cut FQ4 guidance from a month earlier, but just before it reversed itself a few days ago by announcing better-than-expected FQ4 results, including same-store sales. In other words, Signet beat lowered guidance.
As I wrote in wrote Monday, when I explained why Signet was remaining on my Red Flag Focus List…
Either management intentionally sandbagged or is pulling a few, uh, levers. The devil will be in the 10-K, which if last year is any guide, should be filed tomorrow. The devil will be in the 10-K, which if last year is any guide, should be filed tomorrow.
Scouring the 10-K
Like clockwork, the 10-K appeared. This is where someone like Katherine, who has history scrutinizing the company and understands the nuances of easy-to-miss details, can spot those critically important details. What immediately struck her, after scrubbing the report and comparing it with a year ago, was an intriguing similarity with the very dynamic she saw in 2015 – the same one that led her to first short it. She saw a few other oddities with the AUR and ATV, as well.
Before we get to those, let’s start with that one change that Katherine found eerily reminiscent of 10 years ago…