Blue Nile: Signet’s Attempt to Take Over the Online Jewelry Industry

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Blue Nile, an online jeweller, will be purchased by Signet Jewelers for $360 million in cash, the company announced on Tuesday.
With this strategy, the company hopes to expand its bridal industry and win over younger customers.
In a related development, Signet lowered its financial outlook for the second quarter and the entire fiscal year 2023, claiming that sales started to slacken in July as people cut back on their spending due to inflation.

Image Source- Forbes

In an effort to attract younger customers and expand its bridal business, Signet Jewelers announced Tuesday that it will purchase online jewellery store Blue Nile for $360 million in an all-cash deal.

Separately, due to “increased pressure on consumers’ discretionary spending” and other macroeconomic headwinds, Signet lowered its financial projection for the second quarter and full-year fiscal 2023.

Virginia Drosos, the company’s chief executive officer, claimed that sales began to soften in July as consumers started to limit their purchases in the face of inflation that was at a 40-year high.

The parent company of Zales, Jared, and Kay Jewelers forecast second-quarter non-GAAP operating income of about $192 million and revenue of around $1.75 billion.

From an earlier range of $8.03 billion to $8.25 billion, the business now anticipates fiscal 2023 sales to be between $7.60 billion and $7.70 billion.

This estimate lowers the prior guidance of between $921 million and $974 million to a range of $787 million to $828 million for annual non-GAAP operating income.

According to Signet, the updated data do not account for the company’s impending acquisition of Blue Nile or any further serious deterioration of macroeconomic circumstances that could reduce customer spending.

The transaction, which will be funded with cash on hand, is anticipated to finalise in the third fiscal quarter, according to Signet. However, it stated that it is unlikely that the acquisition will be profitable for the company until the fourth quarter of fiscal 2024.

The company’s solid balance sheet and “dry powder,” according to Drosos, enabling it to finance an acquisition of Blue Nile in order to increase market share.

Blue Nile and Mudrick Capital Acquisition Corp., a special purpose acquisition firm, had earlier this year announced their agreement to join forces in a deal that would enable the jewellery company to go public through a SPAC. The combined company was valued at $873 million at the time of the transaction. Additionally, it would have signalled Blue Nile’s return to open markets.

In a $500 million acquisition, private investment firm Bow Street and Bain Capital Private Equity took Blue Nile private in 2016.

A source with knowledge of the negotiations between Mudrick and Blue Nile claimed that their window of exclusivity was about to close. This insider also mentioned that Bain was keen to exit the business that Signet had previously approached Blue Nile about an acquisition the previous year. The discussions are confidential, so the person asked to remain anonymous.

Because investors are less interested in risky growth companies, SPAC acquisitions have performed worse than the overall market.

In calendar year 2021, Blue Nile brought in more than $500 million.

When CNBC asked representatives of Blue Nile, Mudrick, and Bain for comment on why the deal fell through, they didn’t react right away.

Shares of Signet dropped by more than 11% in early trade. By the close of the market on Monday, the stock had lost about 22% of its value so far this year.

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