Dive Brief:

• Signet Jewelers on Wednesday reported disappointing holiday sales for the nine weeks ended Dec. 30 that had investors fleeing. Signet's total sales in the period fell 3.1% or $59.2 million to $1.88 billion, compared to $1.94 billion in the prior year. Same-store sales in the period declined 5.3% according to a company press release.

• Sales declines were primarily driven by weakness in the Sterling division, hit mostly by the mid-October sale of its credit portfolio, which accounted for about two-thirds of the decrease, CEO Virginia Drosos told analysts on a Wednesday conference call. The credit transition particularly affected sales at Kay, where customers tend to more frequently use credit in store, especially for bridal purchases, she said.

• E-commerce sales in the period soared 47.7%, however, reflecting enhancements the company made to its Sterling website and continued double-digit growth in R2Net, which the company acquired in August. And same-store sales at its Zale division rose 4%, thanks in part to enhanced assortments in both bridal and fashion categories, supported by targeted marketing and promotional strategies, the company said.

Dive Insight:

Jewelry seems like a natural holiday sale, yet Signet didn't enjoy the holiday lift experienced by several other retailers. Some problems are of its own making, including the transfer out of its credit program. Some three-quarters of the company's Kay customers who purchase engagement rings, which is a subset of bridal and anniversary sales, have historically elected to use Kay in-house credit, Drosos noted. "These customers on average tend to spend about $300 to $350 more on an engagement ring than cash and bank card customers," she said.

"Over the past three months, we've been working tirelessly to fix every identifiable issue," she told analysts. "As anticipated, we have largely resolved the system disruptions that primarily occurred during the first four weeks following conversions. Some of the transitional issues such as insufficient change management and operating process changes, primarily at the store level, are taking longer to stabilize."

Signet reiterated its fiscal 2018 same-store sales outlook and updated its fiscal 2018 earnings guidance to reflect the positive impact of the U.S. tax reform law enacted at the end of the year. The company anticipates the reduction in the U.S. corporate income tax rate to result in an effective tax rate in the range of 14% to 15% for its current fiscal year. However, excluding the estimated benefit of U.S. tax reform, the company expects earnings within its previous guidance range.

In November, the company had said it expected same-store sales to be down mid-single digits and earnings to be in the range of $6.10 to $6.50 per share, with the low end assuming no improvement in its credit performance.

The tax benefit won't necessarily last, however. Signet said it expects the favorable impact of U.S. tax reform to moderate in future years as the savings from a lower corporate income tax rate in the U.S. will be largely offset by disallowances and limitations in certain tax deductions.