The company has grown rapidly in recent years through a series of acquisitions, culminating with a $1.46 billion purchase of Zale Corp. in 2014. Along with Zales, its Kay Jewelers and Jared brands are fixtures in malls and towns across the U.S. The company also owns Piercing Pagoda.

Signet is now building its business by expanding credit offerings to existing customers and identifying people it considers good credit risks who might be rejected by other lenders. This is done through its Sterling Jewelers division -- consisting primarily of Kay and Jared -- and not through Zales, which long ago handed off financing to an outside firm. The Sterling division financed 63 percent of its sales in the third quarter, up from 60.5 percent at the end of the last fiscal year and 57.7 percent a year earlier.

Additionally, the parent company has changed the way it handles warranties, which allows it to book some income more quickly, a move it estimates will add about 14 cents a share to earnings when it reports for the full year in March.


Unusual Method


Of most concern to skeptical analysts is Signet’s reliance on an unusual accounting method to determine which customer accounts are past due and could go bad -- an approach they fear could underestimate future losses in light of Signet’s expanded credit business.

Asked about its accounting and financing practices, Signet said it has disciplined credit standards and decades of experience to minimize losses.

“In the U.S. market, offering financing benefits our guests and managing the process in-house is a strength of Signet’s Sterling Jewelers division,” the company said in a statement in response to questions from Bloomberg.

Indeed, the company’s annual numbers seem to bear that out. In the last four years, the percentage of Signet’s accounts receivable classified as nonperforming has held steady, at 3.6 percent to 3.8 percent of the company’s gross loan portfolio. Those figures fall within the general band for delinquencies, near 4 percent, at private-label credit cards managed by banks.

But Donn Vickrey, a forensic account at Pacific Square Research of San Diego, says the company’s bad debt expense is a potential hazard worth watching. Other analysts agree.

“Private-label card loans go bad,” says David Ritter, an analyst at Bloomberg Intelligence. “They tend to be the first bill that doesn’t get paid when you have problems.”