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Investing.com -- Fitch Ratings has upgraded the Long-Term Issuer Default Ratings (IDR) of Signet Jewelers Limited (NYSE:SIG) and Signet Group Limited to ’BBB-’ from ’BB+’. The rating agency has also removed Signet Jewelers Limited from Under Criteria Observation (UCO). The Rating Outlook is Stable.
The upgrade follows a decrease in Signet’s EBITDAR leverage after Fitch updated its lease criteria. The leverage is now expected to be around 1.5x, a significant drop from the previously projected mid-3.0x range. Despite this, Signet’s EBITDAR fixed charge coverage remains relatively low, with predictions suggesting it will be in the low-to-mid 2x range from 2025.
Signet holds a leading position in the U.S. specialty jewelry market, commanding roughly 9% of the highly fragmented industry. Fitch expects that the company will face operational challenges in the near term due to a softening consumer sentiment and changes in tariff policy. However, Signet is anticipated to maintain EBITDAR leverage in the mid-1x range from 2025, assuming EBITDA stabilizes between $550 million and $650 million.
In 2024, Signet demonstrated financial conservatism by repaying all debt maturities using cash on hand and $253 million borrowed from its revolving credit facility. The company’s maturities included $147.7 million in unsecured notes that matured in June 2024 and $814 million in preferred equity, which was due to mature in November 2024.
In 2025, Signet’s new CEO, J.K. Symancyk, announced several initiatives and portfolio actions to drive long-term business growth. The company plans to focus on growing the fashion portion of its business, which made up about 45% of Signet’s 2024 revenue. This category could provide incremental topline upside over time given the large market share opportunity.
Signet also announced a near-term optimization plan for its retail footprint, which includes closing underperforming stores, repositioning healthy stores to off-mall locations, and renovating existing stores to align with its brand strategy. Over the next two years, the company plans to assess approximately 150 underperforming stores for improvement, relocation, or closure. This represents about 5% of Signet’s current store base.
Fitch expects the U.S. retail sector to face near-term challenges, including declines in consumer sentiment, business disruption, and rising costs related to evolving U.S. tariff policies. Signet could see declines in EBITDA in 2025 towards $550 million, with Free Cash Flow (FCF) trending near $220 million. The company has good liquidity to withstand near-term volatility and no debt maturities aside from its Asset-Based Lending (ABL) in 2029.
Signet has strong liquidity and financial flexibility with $604 million in cash and $1.2 billion in borrowing availability on its $1.2 billion asset-backed lending facility as of Feb. 1, 2025. Fitch expects Signet to generate FCF in the $170 million-$260 million range from 2025. The company could deploy FCF toward a combination of share repurchases, dividends and acquisitions.
Fitch’s analysis includes a strong subsidiary/weak parent approach between the parent, Signet Jewelers Limited and its subsidiary, Signet Group Limited. Fitch assesses the quality of the overall linkage as high, which results in an equalization of the ratings. The equalization reflects open legal ring-fencing and open access and control between the stronger subsidiaries and the parent.
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