One of Signet Jewelers’ largest investors believes the company has made missteps and poor management choices that have led to its devaluation and has called on the board to explore strategic options, including its “immediate sale.”
Select Equity Group, which owns nearly 10% of Signet stock, wrote a letter to the jeweler’s board of directors, which was included in a public filing last week. The investor noted it had studied the business over the past 10 years and believed Signet was not capitalizing on its “numerous advantages,” which it said should translate into “market share gains and better-than-industry-level profitability.”
Select said it was “supportive” of the changes former CEO Gina Drosos, who left the company in November, implemented to “refresh the brands and capitalize on Signet’s competitive strengths,” but added it was disappointed with the jeweler’s recent performance, including “operational missteps and management changes.”
“The business has generated free cash flow in each of the last 20 years,” Select said. “Despite this, the public market’s perception of, and confidence in, Signet’s future prospects are clearly poor given the enterprise value today of approximately $2 billion. Investors appear convinced that the board and management team will erode the company’s cash, competitive position and franchise.”
Over the past three years, Signet’s share price has dropped 40% overall, with the most significant decline occurring between November 2024, when stock reached $98 per share, and early morning March 4, when it came to $52. That means Select’s 4.2 million shares lost approximately $146.5 million in total value, excluding dividends, during that period.
The shareholder pointed out that Signet had reported same-store sales declines in every quarter for nearly the past three years, while operating profit had also declined and “fallen short of guidance in each of the last two years.”
The letter also stated that Signet’s management “further hurt organic and online sales by botching the transition of James Allen and the recently acquired Blue Nile business onto a new technology platform just prior to the 2023 holiday selling season, which caused sales of those subsidiaries to drop by significant double-digit amounts for six consecutive quarters.”
Select said it believed the jeweler’s management and board had a poor record of capital allocation, wasting “nearly half a billion dollars in purchasing unprofitable businesses, including Blue Nile, as well as deploying cash in purchasing shares well above their current level.”
Additionally, Signet made poor decisions with its management choices, according to the filing, beginning with Drosos’s departure, to which there was “little warning.” Select explained that the board told shareholders Drosos would stay through the holiday season as a consultant to guarantee continuity, but was then absent from calls, investor meetings and public appearances, while the business “badly missed its holiday guidance and continued to flounder.”
At the same time, Select said the board agreed to “large, multimillion dollar payouts” to the existing management team to retain them for “a surprisingly short period of time.” It also paid “an outsized signing bonus and compensation package to hire a CEO with no jewelry or fashion experience and a mixed track record at the past two private equity-owned companies he ran,” it continued.
“All of this has contributed to a loss of confidence among shareholders and the extreme undervaluation of a business that should be uniquely positioned to succeed in the specialty jewelry market, which is currently growing,” the investor observed in the filing. “The public market clearly does not endorse the company’s current strategy, or the strength of its leadership. As a result, we believe that the board is obligated to explore strategic options for the business, including its sale, in order to realize for Signet’s owners the underlying value of their investment.”
Image: The interior of a Jared store. (Signet Jewelers)
