Jewelry Stocks Lose Luster: Are Diamonds Really an Investor’s Best Friend? TIF, NILE, ZLC & SIG

On Tuesday, Tiffany & Co. (NYSE: TIF) announced that big spending consumers were “restrained” during the holidays, helping to take the luster off jewelry stocks like Blue Nile (NASDAQ: NILE), Zale Corporation (NYSE: ZLC) and Signet Jewelers (NYSE: SIG). Specifically, Tiffany & Co. announced that sales had weakened markedly in both the US and Europe during the holiday season and reflected restrained spending by consumers for fine jewelry. Of course, the Grinch stealing Christmas for Tiffany & Co. does not necessarily mean that other jewelry stocks should be avoided but nevertheless Blue Nile (NILE) fell 4.72%, Zale Corporation (ZLC) fell 9.32% and Signet Jewelers (SIG) fell 6.32%. Hence, should investors consider Blue Nile (NILE), Zale Corporation (ZLC) and Signet Jewelers (SIG) or just stick to buying their jewelry? Here is a closer look at all three to help you decide:

Blue Nile (NASDAQ: NILE)

Blue Nile is an online retailer of diamonds and fine jewelry. In fact, Blue Nile is the largest internet seller of engagement rings along with other jewelry but its biggest problem is also the fact that many visitors to its website are merely browsers looking for information who will then go and make a purchase at a brick and mortar jewelry store plus the company still needs to diversify away from engagements product into other types of jewelry. Nevertheless, Blue Nile has reported rising net income of $14,142k (fiscal year ended January 2011), $12,800k (fiscal year ended January 2010), and $11,630k (fiscal year ended January 2009) along with net income of $1,869k, $2,838k and $2,422k for the three quarters before the holiday season. However, Blue Nile’s stock price has also sunk over 30% over the past year. On Tuesday, Blue Nile fell 4.72% to $37.51 (NILE has a 52 week trading range of $30.32 to $64.45 a share) for a market cap of $508 million.

Zale Corporation (NYSE: ZLC)

Zale Corporation is a specialty retailer of fine jewelry that as of last July, operated 1,163 specialty retail jewelry stores and 666 kiosks mainly in shopping malls throughout the US, Canada and Puerto Rico. On Tuesday, Zale Corporation announced that overall same-store sales rose for the second consecutive holiday shopping season. Specifically, same-store sales rose 5.9% percent in the November and December period verses last year’s 8.% increase. Nevertheless, Zale has told Wall Street that it did spend more on advertising for the holidays than last year because it launched new brands from Jessica Simpson and Vera Wang but the company also expects that operating margins will only be slightly below last year’s. Otherwise, investors should be aware that Zale will report full results for the fiscal second quarter ending January 31st in late February. On Tuesday, Zale Corporation fell 9.31% to $3.02 (ZLC has a 52 week trading range of $2.06 to $6.90 a share) for a market cap of $97 million.

Signet Jewelers (NYSE: SIG)

Signet Jewelers is a specialty retail jeweler with stores in the US, the United Kingdom, Ireland and the Channel Islands. On Tuesday, Signet Jewelers announced that for the nine week holiday season, same store sales were up 7.8% for Signet Jewelers with the US division’s sales being up 9.2% and the UK division’s sales being up 1.8%. Signet Jewelers’ CEO attributed the performance to the strength of the company’s merchandise, advertising and US customer finance programs. Signet Jewelers’ also expects fiscal 2012 income before income taxes to rise 64% to 67% to the $494 to $501 million level. On Tuesday, Signet Jewelers fell 6.32% to $44.05 (SIG has a 52 week trading range of $30.93 to $48.30 a share) for a market cap of $3.83 billion.

The Bottom Line. The Grinch may have stolen the holiday cheer from Tiffany & Co. (TIF) but the holiday results from both Zale Corporation (ZLC) and Signet Jewelers (SIG) aren’t particularly disappointing while Blue Nile (NILE) has been producing rising earnings for the past three years.