03:39 PM EDT, 06/04/2024 (MT Newswires) -- Signet Jewelers ( SIG ) is expected to post better-than-projected fiscal first-quarter results and increase its full-year earnings outlook, even as the market sentiment around the diamond jewelry retailer is "bearish," UBS Securities said Tuesday.

The owner of store chains including Kay Jewelers is scheduled to report first-quarter results June 13. UBS raised its adjusted earnings outlook to $1.04 a share from $0.70 and its net sales forecast to $1.53 billion from $1.49 billion. Wall Street is looking for $0.94 and $1.51 billion, respectively, according to the brokerage.

UBS said it expects overall same-store sales to fall 7.7% amid weak US jewelry demand, though the North America business is likely to see "modest" sequential improvement to an 8% annual drop in the quarter from a 10% decline, UBS analysts Mauricio Serna, Jay Sole and Tiffany Agard said in a note. "We believe (Signet's) fundamentals improved over the course the quarter."

The brokerage's channel checks indicate jewelry sales are trending down by low-single digit percentage to mid-single digits so far this year. "Importantly, a key takeaway from one of these calls is engagement trends are showing signs of improvement," the analysts said. "Plus, UBS Evidence Lab's pricing analysis suggests (Signet's) US banners central prices were up (year over year) in the quarter despite higher promotions."

UBS said the market is concerned that the company's engagement recovery story might not play out given continued macroeconomic challenges, according to the note. "We believe the market's 'bar' for the event is (Signet) maintains its (2025) operating guidance and updates its EPS outlook for any share repurchase activity," the trio wrote. "Importantly, we think investors will continue to focus on near-term trends to assess whether the multi-year recovery in engagements continues to play out."

The brokerage expects the company to increase its fiscal 2025 adjusted EPS outlook of $9.90 to $11.52 by up to $0.20 due to its first-quarter results and share repurchase activity. UBS raised its full-year adjusted EPS estimate to $11.10 from $10.90 and its net sales forecast to $6.91 billion from $6.89 billion.

Signet expects fulfillment issues with its digitally native banners to persist at least throughout the first half of fiscal 2025, while the sale of certain of its UK stores and its planned store closures are likely to negatively affect full-year sales growth, according to the note. UBS said it expects "a more moderate" sales recovery in the second half of fiscal 2025 and the next two years given tough competition in fashion jewelry.

"We think EPS beats should drive (Signet's) stock outperformance over the (next 12 months) and thus continue to rate it buy," the analysts said. UBS maintained its $152 price target on the stock.

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