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Signet reports a net loss of $424 million after accounting change and a 19 percent decrease in revenue
Published on Thursday, Mar 26, 2009
From staff and wire reports
Signet Jewelers Ltd., the world's largest jewelry store owner and parent of Sterling Inc. operations based in Akron, posted a fourth-quarter loss after writing down the value of assets.
The net loss was $424 million, or $4.97 a share, in the period that ended Jan. 31, the company said.
That compared with profit of $143 million, or $1.65, a year earlier.
Signet said revenue fell 19 percent to $1.12 billion.
''It's a very difficult and uncertain retail environment,'' Chief Executive Terry Burman said in a phone interview with Bloomberg News.
Jewelry sales have suffered during the recession as consumers facing declining home values and retirement investments spend less on luxury items.
But in a memorandum to staff, Sterling President Mark Light said that except for an accounting adjustment, Signet had a profitable year to the tune of $190 million — ''in line with expectations of $180 million to $195 million provided in Signet's Christmas Trading Statement made in January.''
The accounting issue relates to what was called a ''goodwill impairment charge.'' Signet formerly prepared its accounts under International Financial Reporting Standards and reflected on its balance sheet $30.6 million of goodwill relating to an acquisition made in 2000.
In September, Signet's share price listing was moved to the New York Stock Exchange and the company adopted U.S. Generally Accepted Accounting Principles (GAAP). That required Signet to reflect goodwill of $486.3 million relating to those 1990 acquisitions.
Under U.S. GAAP, Signet is required to undertake an annual
goodwill impairment test at year's end or when there is a triggering event.
''Given the depressed stock market, the market value of all of Signet's shares is substantially below the combined value of Signet's inventory, receivables and property assets. In this circumstance the U.S. Securities and Exchange Commission would expect that the goodwill would be written-off which causes the company to report a loss,'' Light said.
In essence, the goodwill impairment is a write-off of a noncash item and nearly all relates to acquisitions made before 1991, the company said.
''This in no way harms the underlying strength of the business; it does not reduce the value of our inventory, receivables or property assets; it does not hinder our ability to compete; and it does not affect Signet's banking arrangements,'' Light said.
''Signet had stores that outperformed, increased the amount of free cash flow generated by $50 million, and ended the year with a strong balance sheet. This puts Signet in a continued position of strength and allows Signet the opportunity to extend its lead as the best operator in the middle market specialty retail jewelry sector,'' Light said.
The recession has pushed chains including Fortunoff Holdings LLC into bankruptcy.
Zale Corp., the largest U.S. jewelry chain, has announced plans to close 115 stores.
Signet plans to cut $100 million in costs in the United States by eliminating 60 stores, reducing employee hours by 5 percent and cutting advertising, Burman said.
The company also froze salaries and cut benefits for 2,900 employees at its home offices in the United States and Great Britain as of Feb. 1, he said.
Signet advanced $1.22, or 11 percent, to $12.50 in New York Stock Exchange composite trading. Shares have gained about 30 percent this year.
Get the full article here.
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