The Investment column: Signet rings up a big rise in profits

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The Independent Online
IT HAS been a good year for Signet, the former Ratners jewellery retailer. The company completed its long-awaited capital reconstruction last May, which reduced nine classes of share to one.

It posted its first interim profit in seven years in September. And yesterday it added to the feel-good factor with a 52 per cent rise in full-year profits to pounds 68.7m. Debts are down from pounds 240m to pounds 158m and same-store sales rose by a very creditable 7 per cent.

It is small wonder that Jim McAdam, Signet's chief executive, was looking decidedly chipper yesterday. All his hard work has finally been reflected in the share price, which was looking completely bombed out in mid-1995. From less than 30p at the beginning of the year, Signet shares have risen sharply to 42.75p, up 2.5p yesterday

Signet is obviously improving but what is clear is that it is Signet's US operations that are now the driving force behind the group's performance. Like-for-like sales there were up 9 per cent last year compared to 3.5 per cent in the UK. US sales account for 60 per cent of the group total and the American market looks more buoyant.

In the US, Signet's Kays stores have been performing ahead of major rivals such as Zales and Marks Bros with no reduction in margin. The Jared format of out-of-town jewellery superstores also looks interesting.

Signet now has seven of the stores, which are five times the size of a normal mall outlet. It will add another 10 over the next year or two and management suggests that there might be room for up to 100 across the country.

In the UK the more upmarket Ernest Jones is doing well while the more mass-market H Samuel is finding the going tougher with like-for-like sales up by around 1 per cent. A demerger of the US operations would be no surprise but management says there are no current plans.

Assuming profits of pounds 78m this year the shares trade on a forward price/earnings ratio of 13. A heavy discount to the sector and there could still be some upside even after the shares' good run.