Signet Jewelers (SIG) shares sparkled on Wednesday after the company delivered a second-quarter earnings beat that sent the stock up nearly 20%. The rally wasn't just about the numbers, though. With over 18% of the public float sold short, the surge likely got an extra boost from a short squeeze.

The jewelry retailer reported adjusted EPS of $2.19, comfortably ahead of the $1.74 analysts were looking for. Sales came in at $1.528 billion, down just 0.5% from a year ago and essentially in line with the $1.530 billion estimate. Same-store sales rose 2.2%, showing that the core business is holding up even as consumers get pickier.

Margins Expand As Profit Jumps

On a GAAP basis, diluted EPS was $1.33, a sharp turnaround from a loss of 22 cents a year earlier. That figure included an 86-cent negative impact, mostly from asset impairments net of taxes.

Gross margin expanded by 80 basis points to 39.4%, helped by $15 million in tariff refunds and lower inventory and distribution costs, though higher gold costs partially offset those gains.

Operating income surged to $87.5 million from just $2.8 million a year ago. Adjusted operating income rose to $107.2 million from $85.4 million, with adjusted operating margin expanding to 7% from 5.6%. Adjusted EBITDA also climbed to $152.3 million from $128.7 million.

Breaking it down by region, North America sales hit $1.428 billion with same-store sales up 1.9%, while international same-store sales grew 6%.

Signet Boosts EPS Outlook

Looking ahead, Signet raised its fiscal 2027 adjusted EPS guidance to $10.45-$12.15, up from the previous range of $9.20-$11.00. Analysts had been expecting $10.82. The company kept its sales guidance unchanged at $6.7 billion-$6.9 billion, versus the $6.841 billion consensus.

For the third quarter, Signet expects sales between $1.37 billion and $1.41 billion, compared with the $1.393 billion estimate. Same-store sales are projected to range from a 1% decline to 2% growth.

The company generated $71.2 million in operating cash flow and $30.8 million in free cash flow during the quarter, ending with $526.8 million in cash and equivalents.

Signet also repurchased 1 million shares for $87 million during the quarter and plans a $125 million accelerated share repurchase this month. The board has increased the remaining share repurchase authorization to $700 million.

Earnings Call Highlights

During the earnings call, management said the Bread Financial agreement should generate more than $1 billion of incremental revenue and operating income through 2035, including $200 million-$250 million over the next 36 months, with no loss sharing.

CFO Joan Hilson noted that about two-thirds of the guidance increase came from the credit deal, tariff refunds, and additional buybacks, while the remaining one-third came from core performance. However, tariff refunds still cover less than half of the incremental tariff headwind.

Management said Signet is currently well within its third-quarter guidance range, and fourth-quarter comparable sales implied by the guidance range from about a 2% decline to 3% growth.

CEO J.K. Symancyk emphasized that value will remain a key focus for consumers across income levels heading into the holiday season. Signet plans to lean on its broad portfolio and offer compelling products across price points as shoppers remain selective. The company is also adjusting its assortment and giving vendors more flexibility to react quickly to changing trends.

SIG Price Action: Signet Jewelers shares were up 19.62% at $98.89 at the time of publication Wednesday.