SIG/Wilsons – We played them about a year ago when they were down about here so I'm not adverse to playing them again:
March 15th, 2018 at 10:53 am | (Unlocked) | Permalink
SIG/Ilene – Looks very good to me. Made $4.28 per $39 share with big growth in ECommerce. Margins were down a bit and they are reducing store count and inventory by about 7%, which incurs some costs and is driving down guidance.
The key takeaway
Signet's fiscal Q4 numbers were decent, but its outlook indicates that it will face some tough headwinds throughout the year. E-commerce only generates a small slice of its revenues, and Signet could struggle against higher-end retailers and bigger e-commerce marketplaces as it attempts to grow them.
I think they are worth a put sale for the LTP since we can sell the 2020 $30 puts for $5 and that's net $25 or $14 off the current $39 (35%) so yes, we can sell 10 of those for $5,000 and promise to buy SIG for a 35% discount!
We cashed them out on the run-up and here they are again at the lows – what a strange stock – especially as they are financially pretty consistent:
| Year End 03rd Feb | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | TTM | 2019E | 2020E | CAGR / Avg | |
| $m | 3,983 | 4,209 | 5,736 | 6,550 | 6,408 | 6,253 | 6,386 | 6,255 | 6,140 | +9.4% | |
| $m | 560.5 | 570.5 | 576.6 | 703.7 | 763.2 | 579.9 | -357.6 | +0.7% | |||
| $m | 359.9 | 368 | 381.3 | 467.9 | 543.2 | 519.3 | -198.2 | 206.2 | 183.1 | +7.6% | |
| $ | 4.35 | 4.56 | 4.75 | 5.87 | 6.93 | 5.73 | -6.83 | +5.7% | |||
| $ | 4.35 | 4.56 | 4.75 | 5.87 | 7.21 | 7.00 | -1.52 | 3.74 | 3.38 | +10.0% | |
| % | +16.2 | +4.9 | +4.3 | +23.5 | +22.8 | -2.9 | -46.6 | -9.63 | |||
| x | 3.42 | n/a | 6.41 | 7.09 | |||||||
| x | n/a | n/a | n/a | 1.53 | |||||||
| Profitability | |||||||||||
Why are they projected to make so much less next year – that's the question? It looks to me that this is a guidance issue based on weak holiday sales AND higher credit costs and they seem to be guiding around $3.60 for 2019, which doesn't suck for a $24.28 stock but you can see why they are not $70 anymore.
The guide-down is about 20% since last Q so $50 becomes $40 in the very least but then $40 might become $32 and $32 might become $24 and here we are. I was just saying to my Mom that artificial diamonds were going to wreck this industry (TIF took a nose-dive too) but my Mom crinkled her nose and said if someone gave her an artificial diamond she'd be insulted – so they still have the over 70 base that will remain loyal but my kids can't see the point in buying a diamond over cubit-zirconia, let alone a "real" diamond with flaws over a perfect artificial one that's 1/3 the price.
So I don't see this as a big growth industry but I would pay 10x a 20% discount to earnings so call it $2.80 at worst and then $28 would be fair so my play would be:
- Sell 5 SIG 2021 $20 puts for $5.50 ($2,250)
- Buy 10 SIG 2021 $20 calls for $8 ($8,000)
- Sell 10 SIG 2021 $28 calls for $5.50 ($5,500)
That nets you into the $8,000 trade for $250 so there's $7,750 (3,100% upside) if they get back to $28 in two years – nothing wrong with that. For now, let's sell 5 of the puts in the OOP and 10 of the puts in the LTP and see how it goes before jumping into the bull spread.
