This company, primarily a manufacturer (60% of sales) and retailer of jewelry, has been grouped into jewelry stores sector in personal items industry.
It seems that, based on the typical company data, the demand for diamond in North America market in the past two years has been weak as indicated by the continuingly declining same store sales ( around 3% annually in 2017 and 2016). We have seen a similar trend in international market during the same period of time. However, it seems that declining demand for gold-related jewelry may have gain support as further stabilization of gold price in 2017.
Facing the declining sales, companies with own manufacturing have managed to lower product costs to keep profitability. However, for pure retailers their profitability has been seen hurt due to deleverage of expenses (store related expenses) as the sales decreased.
The typical companies’ operating margin went down from 14% to 12% in 2017. Companies’ cash flow thus significantly decreased during the same period.
The typical average stock price/cash flow ratio is about 21.
It seems that the demand for products of this company has been weak but the declining trend, as indicated in same store sales, seems to be slowing down probably attributable to catch up of sales in gold-related products.
The fiscal 2018 compared with the 2017
The same store sales (Americas) were flat.
The same store sales (Asia)) decreased 2%.
The fiscal 2017 compared with the 2016
The same store sales (Americas) decreased 5%.
The same store sales (Asia)) decreased 7%.
The fiscal 2016 compared with 2015
The same store sales (Americas) decreased 4%.
The same store sales (Asia)) were flat.
Its gross margin (excluding occupancy costs and store operation costs) has increased from around 60% in 2014 up to about 63% of 2017 due primarily to lower product costs and raised price. However, due to increased SG&A as percentage of sales (from 39% to 44%), its operating margin still decreased to about 19% in 2017.
Stock performance
This stock currently has a stock price/cash flow ratio of 26. We think that its stock is being relatively undervalued considering its relatively better performance in its same store sales and its ability to improve margin.
