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Signet Jewelers: One Of The Best Short Calls Of The Year

Signet Jewelers Limited NYSE:SIG, Snap-On Incorporated NYSE:SNA - Signet Jewelers: One Of The Best Short Calls Of The Year

Short sellers have generally had a rough year in 2016, as the SPDR S&P 500 ETF Trust SPY has surged 6.9 percent to new all-time highs. However, one short trade is paying off handsomely for Grants.

Back on June 2, Grants published a report that Signet Jewelers Ltd. SIG 12.71% and Snap-on Incorporated SNA 0.27% are generating much of their growth from internal lending and deceptive accounting.

Related Link: Grants Report Sends Signet Shares Tumbling, Cites Deceptive Accounting

Earlier today, Signet reported Q2 EPS of $1.06 on revenue of $1.376 billion, missing consensus analyst expectations of $1.34 and $1.44 billion, respectively. The news sent Signet shares plummeting 13.7 percent to under $83 in mid-day trading on Thursday.

Following the post-earnings selloff, Signet shares are now down 16.5 percent since the Grants report, and short sellers have been paid off handsomely. In that same time, Snap-on shares are down 5.1 percent.

“We saw success in a variety of selling channels including outlets, kiosks, and on-line due to improvements in our consumer websites and mobile sites,” Signet CEO Mark Light said, trying to put a positive spin on a disappointing quarter. “We remain confident in the medium and long-term prospects of our business.”

If Grants is correct in its accusations, Q2 may simply be the first loose string in the unraveling of the jewelry retailer’s balance sheet. Signet cut it FY 2017 EPS $7.25 to $7.55 vs $8.22 estimates and Q3 EPS $0.17 to $0.25 vs. $0.50 estimates.

Short sellers now have to decide whether to take profits on their trade or continue to bet on further downside.

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