Domingo 19 de Noviembre 2017

Signet Jewelers Reports Fourth Quarter and Fiscal 2017 Financial Results

Company Initiates Fiscal 2018 Guidance

HAMILTON, Bermuda–(BUSINESS WIRE)–Signet Jewelers Limited (“Signet”) (NYSE:SIG), the world’s largest
retailer of diamond jewelry, today announced its results for the 13
weeks (“fourth quarter Fiscal 2017”) and 52 weeks (“Fiscal 2017”) ended
January 28, 2017.

Summary:

  • Fourth quarter Fiscal 2017

    • Same store sales (“SSS”) declined 4.5%; diluted earnings per share
      (“EPS”) $3.92; adjusted EPS $4.03.
    • Operating income $399.2 million, up 1.6%. Operating margin
      increased 120 basis points. Selling, general, and administrative
      expense (“SGA”) ratio improved 160 basis points.
  • Fiscal 2017

    • SSS declined 1.9%; total sales $6.4 billion, declined 2.2%. EPS
      $7.08, up 20.6%; adjusted EPS $7.45, up 8.6%.
    • Free cash flow $400.3 million, up $183.5 million.
    • Net synergies: Achieved $120 million on incremental basis.
  • Provides full year guidance for Fiscal 2018 (53 weeks ending February
    3, 2018).

Mark Light, Chief Executive Officer of Signet Jewelers, said, “Signet
had a challenging fourth quarter and fiscal year, but we delivered
top-and-bottom lines for the fourth quarter within our revised
expectations. This was driven principally by performance from select
categories and collections including diamond fashion jewelry, bracelets,
and earrings.

“We are adapting to a challenging retail environment and weak mall
traffic. Given the importance of an omni-channel experience to jewelry
customers, we have an intensive focus on an omni-channel approach to
customer service supported by a significant increase in resources
directed to our digital ecosystem. We have re-aligned our executive
organization structure to sharpen our focus on our customers’ channel
preferences. And we are making greater technology investments to improve
customers’ on-line experience. Going forward, our digital marketing and
presence on-line will be more pronounced than ever.

“In addition, the integration of Zale continues to go well. We delivered
Signet’s anticipated annual synergies which protected us against a
general slowdown in retail. Our solid financial performance and cash
generation capabilities have allowed us to invest back into our business
to pursue long term profitable growth and return excess cash to
shareholders.

“I want to thank all Signet team members for their contributions to our
results and for all their hard work throughout the fiscal year and into
the new year.”

EPS Analysis:

Fourth quarter EPS was $3.92. Fourth quarter Adjusted EPS was $4.03.
Weighted average shares outstanding were 75.8 million. Adjusted EPS can
be reconciled to EPS as follows:

       
Adjustments
EPS     Purchase accounting     Integration     Adjusted EPS1
$3.92 $(0.03)     $(0.08) $4.03
 

Fiscal 2017 EPS was $7.08. Fiscal 2017 Adjusted EPS was $7.45. Weighted
average shares outstanding were 76.7 million. Adjusted EPS can be
reconciled to EPS as follows:

       
Adjustments
EPS     Purchase accounting     Integration     Adjusted EPS1
$7.08 $(0.14)     $(0.23) $7.45
 
1 = In Fiscal 2017, Signet used adjusted metrics which adjusted for
purchase accounting and integration costs in relation to the Zale
acquisition and in relation to Signet integration. See non-GAAP
reconciliation tables. Adjusted EPS is a non-GAAP measure and is
defined as EPS adjusted for the impact of purchase accounting and
integration costs. Purchase accounting included deferred revenue
adjustments related to acquisition accounting which resulted in a
reset of deferred revenue associated with extended service plans
previously sold by Zale Corporation. Integration is consulting
expenses associated with information technology (“I/T”)
implementations, severance related to organizational changes and
expenses associated with the settlement of miscellaneous legal
matters pending as of the date of the Zale acquisition.
 

Financial Guidance:

 

Fiscal 2018

SSS     down low-to-mid single-digit %
EPS $7.00 to $7.40
 
Effective tax rate 24% to 25%
Weighted average common shares 74 million to 75 million
Capital expenditures $260 million to $275 million
Net selling square footage growth -1% to 0%
 

As communicated last year, Signet has discontinued the practice of
issuing quarterly guidance. Signet is continuing to provide annual
guidance in order to foster a more long-term focus on the Company’s
operating model and results. The following are some additional
considerations to assist financial modeling:

  • Fiscal 2018 is a 53-week fiscal year for Signet, ending February 3,
    2018, driven by the retail industry calendar.

    • The financial impact of Mother’s Day is typically split between
      first quarter and second quarter. But in Fiscal 2018, it will be
      entirely a second quarter impact. This timing is unfavorable to
      sales and EPS in the first quarter and favorable to sales and EPS
      in the second quarter. The amount of the shift is expected to be
      approximately 300 to 350 basis points to SSS and $0.12 to $0.15
      EPS from the first quarter to the second quarter.
    • The additional week, January 28, 2018 – February 3, 2018, will be
      accretive to fourth quarter total sales by approximately $75
      million. The additional week will have no impact to SSS because it
      is excluded from the calculation. The additional week will have an
      immaterial EPS impact to fourth quarter due to the cadence of
      planned Valentine’s Day marketing and promotions.
  • Anticipated EPS drivers include: gross margin rate leverage; SGA ratio
    deleverage; and lower shares outstanding consistent with capital
    allocation strategy around uses of free cash. Gross margin rate
    leverage is expected to be driven by merchandise margin; and SGA ratio
    deleverage is expected to be driven by omni-channel and other I/T
    projects that will strengthen customer service and infrastructure for
    the long-term.
  • Capital expenditures will be driven primarily by new Kay off-mall
    stores as well as store remodels and I/T to support global
    implementations. But the mix in Fiscal 2018 will skew more in favor of
    I/T, particularly to support Signet’s omni-channel initiatives. As I/T
    initiatives depreciate faster than store assets, this will have a
    small unfavorable impact as depreciation accelerates near and medium
    term.
  • Signet plans to close 165 to 170 stores in Fiscal 2018 and open 90 to
    115 stores for a net selling square footage change of flat to a
    decline of 1%. Store closures are primarily focused on mall-based
    regional brands not meeting Signet’s financial return expectations.
    Store openings will be primarily Kay off-mall.

Fourth Quarter Fiscal 2017 Financial Highlights:

Signet’s total sales were $2,269.9 million, down $122.7 million or 5.1%,
compared to an increase of 5.1% in the 13 weeks ended January 30, 2016
(“fourth quarter Fiscal 2016”). SSS decreased 4.5% compared to an
increase of 4.9% in the fourth quarter Fiscal 2016. Merchandise
categories and collections were broadly lower most notably in the mall
and e-commerce selling channels. Select merchandise and selling channels
performed relatively well such as diamond fashion jewelry, bracelets,
earrings, and the off-mall and kiosk selling channels.

E-commerce sales in the fourth quarter were $161.8 million, down $4.5
million or 2.7% compared to $166.3 million in the fourth quarter Fiscal
2016. The decline in e-commerce sales was primarily attributed to
technical performance issues during the holiday period. By operating
segment:

  • Sterling Jewelers’ SSS decreased 4.9%. Average transaction value
    increased 7.0% and the number of transactions decreased 11.4%.
    Broad-based declines across merchandise categories and under
    performance in the mall and e-commerce channels drove the SSS decline.
    This was partially offset by higher sales of diamond fashion jewelry
    and Vera Wang Love bridal.
  • Zale Jewelry’s SSS decreased 5.2%. Average transaction value increased
    2.4%, while the number of transactions decreased 7.4%. Broad-based
    declines across merchandise categories and under performance in the
    mall channel drove lower SSS. Increases in diamond fashion jewelry and
    bracelets partially offset the decline.
  • Piercing Pagoda’s SSS increased 5.7%. Average transaction value
    increased 12.7%, while the number of transactions decreased 5.6%. This
    was driven principally by strong sales of 14 kt. gold, diamond
    jewelry, religious, and children’s jewelry.
  • UK Jewelry’s SSS decreased 3.8%. Average transaction value increased
    8.0% and the number of transactions decreased 11.8%. The SSS decline
    was driven principally by lower sales in fashion jewelry, fashion
    watches, and gifts. The decline was partially offset by stronger sales
    of prestige watches and bridal jewelry.
 
Sales change from previous year    
Fourth quarter

Fiscal 2017

   

Same
store
sales1

   

Non-same
store
sales, net2

   

Total sales
at constant
exchange
rate

   

Exchange
translation
impact

   

Total
sales

   

Total sales
(in mill. $)

                   
Kay (5.0)% 2.3% (2.7)% (2.7)% 915.2
Jared (3.2)% 1.2% (2.0)% (2.0)% 430.6
Regional brands     (16.4)%     (11.2)%     (27.6)%           (27.6)%     52.3
Sterling Jewelers division     (4.9)%     1.2%     (3.7)%           (3.7)%     1,398.1
Zales Jewelers (4.5)% 2.6% (1.9)% (1.9)% 452.5
Gordon’s Jewelers (13.3)% (17.7)% (31.0)% (31.0)% 18.7
Zale US Jewelry (4.9)% 1.4% (3.5)% (3.5)% 471.2
Peoples Jewellers (7.6)% 0.5% (7.1)% 2.2% (4.9)% 73.2
Mappins (3.9)% (8.6)% (12.5)% 2.2% (10.3)% 10.5
Zale Canada Jewelry (7.2)% (0.6)% (7.8)% 2.2% (5.6)% 83.7
Zale Jewelry (5.2)% 1.0% (4.2)% 0.4% (3.8)% 554.9
Piercing Pagoda     5.7%     1.5%     7.2%           7.2%     83.7
Zale division     (3.9)%     1.1%     (2.8)%     0.3%     (2.5)%     638.6
H.Samuel (5.3)% 0.4% (4.9)% (15.9)% (20.8)% 119.7
Ernest Jones     (2.1)%     0.6%     (1.5)%     (16.4)%     (17.9)%     107.9
UK Jewelry division     (3.8)%     0.5%     (3.3)%     (16.2)%     (19.5)%     227.6
Other segment                             133.3%     5.6
Signet     (4.5)%     1.2%     (3.3)%     (1.8)%     (5.1)%     2,269.9
Adjusted Signet3                             (5.2)%     2,272.5
Notes: 1=For stores open for at least 12 months. 2=For stores not
open in the last 12 months. 3=Includes $2.6 million deferred revenue
adjustment related to acquisition accounting which resulted in a
reset of deferred revenue associated with extended service plans
sold by Zale Corporation prior to the acquisition on May 29, 2014.
 

Gross margin was $945.5 million or 41.7% of sales, down 80 basis points
from fourth quarter Fiscal 2016. Adjusted gross margin rate was 41.7%,
down 90 basis points. The declines were driven principally by lower
sales leading to deleverage on fixed costs as well as incremental
promotional activity resulting in a flat merchandise margin rate to last
year.

  • Sterling Jewelers gross margin dollars decreased $41.2 million. The
    gross margin rate decreased 120 basis points due primarily to lower
    sales which deleveraged fixed costs such as store occupancy. In
    addition, higher bad debt expense and incremental promotional activity
    unfavorably impacted the gross margin rate.
  • Zale division gross margin dollars decreased $2.3 million but the
    gross margin rate increased 70 basis points. Included in gross margin
    were purchase accounting adjustments totaling $1.7 million compared to
    $4.7 million in prior year. Adjusted gross margin dollars in the Zale
    division decreased $5.3 million. The adjusted gross margin rate
    increased 40 basis points with higher merchandise margins more than
    offsetting deleverage of fixed costs on lower sales.
  • Gross margin dollars in the UK Jewelry division decreased $26.6
    million. The gross margin rate decreased 220 basis points driven
    principally by deleverage on lower sales and lower merchandise margins
    due to increased promotional activity.

SGA was $615.3 million or 27.1% of sales compared to $686.6 million or
28.7%. Included in fourth quarter SGA are adjustments of $11.5 million
in Fiscal 2017 and $20.6 million in Fiscal 2016. Fourth quarter Fiscal
2017 adjusted SGA was $603.8 million or 26.6% of sales compared to
$666.0 million or 27.8% in the prior year.

  • The decline in dollars was driven by a variety of factors (including
    synergies) such as: lower variable compensation including short-term
    and long-term incentive compensation; lower advertising expense;
    merchant fees savings in Zale credit programs; and foreign exchange
    translation.
  • These savings were partially offset by higher I/T expense associated
    with Signet’s I/T modernization roadmap.

Despite lower sales, SGA ratio leveraged due to the decline in SGA
expenses.

Other operating income was $69.0 million compared to $63.7 million in
the prior year fourth quarter, up $5.3 million or 8.3%. This increase
was due to the Sterling division’s higher interest income earned from
higher outstanding receivable balances.

In the fourth quarter, Signet’s operating income was $399.2 million or
17.6% of sales compared to $393.1 million or 16.4% of sales in prior
year fourth quarter. Included in operating income were purchase
accounting and integration costs of $13.2 million in Fiscal 2017 and
$25.3 million in Fiscal 2016. Adjusted operating income was $412.4
million or 18.1% of adjusted sales compared to $418.4 million or 17.4%
of sales in prior year fourth quarter. By division:

       
Fourth Quarter Fiscal 2017 Fourth Quarter Fiscal 2016
(in millions) $     % of sales $     % of sales
Sterling Jewelers division $ 298.0 21.3% $ 305.4 21.0%
Zale division1 71.7 11.2% 63.0 9.6%
UK Jewelry division 42.6 18.7% 57.8 20.5%
Other2,3 (13.1) nm (33.1) nm
1.     Zale division includes net operating loss impact of $3.3 million for
purchase accounting adjustments. Excluding the impact from
accounting adjustments, Zale division’s operating income was $75.0
million or 11.7% of sales. The Zale division operating income
included $62.7 million from Zale Jewelry or 11.3% of sales and $9.0
million from Piercing Pagoda or 10.8% of sales. In the prior year
fourth quarter, Zale division includes net operating loss impact of
$6.2 million for purchase accounting adjustments. Excluding the
impact from accounting adjustments, Zale division’s operating income
was $69.2 million or 10.6% of sales. The Zale division operating
income included $54.2 million from Zale Jewelry or 9.4% of sales and
$8.8 million from Piercing Pagoda or 11.3% of sales.
2. Other includes fourth quarter adjustments of $9.9 million and $19.1
million for Fiscal 2017 and Fiscal 2016, respectively. Fiscal 2017
adjustments are expenses associated with I/T implementations,
severance related to organizational changes and expenses associated
with the settlement of miscellaneous legal matters pending as of the
date of the Zale acquisition.
3. Fiscal 2016 adjustments related to advisor fees for legal, tax, and
I/T implementations.
nm Not meaningful.
 

Income tax expense was $88.7 million compared to $109.1 million in the
prior year fourth quarter. The Fiscal 2017 effective tax rate was 23.9%,
driven by pre-tax earnings mix by jurisdiction, compared to 28.9% in
prior year.

Fiscal 2017 Financial Highlights:

Signet’s total sales were $6,408.4 million, down $141.8 million or 2.2%,
compared to an increase of 14.2% in Fiscal 2016. SSS decreased 1.9%
compared to an increase of 4.1%. Merchandise categories and collections
were broadly lower most notably in the mall selling channel, while
select merchandise and selling channels performed relatively well such
as diamond fashion jewelry, bracelets, earrings, and the off-mall and
kiosk selling channels. E-commerce sales in the fiscal year were $363.1
million, up $3.5 million or 1.0% compared to $359.6 million in Fiscal
2016. By operating segment:

  • Sterling Jewelers’ SSS decreased 2.6%. Average transaction value
    increased 4.5% and the number of transactions decreased 7.9%.
    Broad-based declines across merchandise categories and under
    performance in the mall and e-commerce channels drove the SSS decline.
    This was partially offset by increases in select fashion jewelry such
    as Ever Us and non-branded earrings and bracelets.
  • Zale Jewelry’s SSS decreased 2.4%. Average transaction value increased
    3.4%, while the number of transactions decreased 5.3%. The SSS decline
    was driven by slower sales across merchandise categories broadly, most
    notably bridal, as well as under performance in the mall channel and
    energy regions where Zale has greater exposure. This was partially
    offset by higher sales in select diamond jewelry such as Ever Us and
    Endless Brilliance.
  • Piercing Pagoda’s SSS increased 6.6%. Average transaction value
    increased 13.7%, while the number of transactions decreased 6.2%. This
    was driven principally by a strategic and successful change to
    merchandise mix which drove strong sales of 14 kt. gold and diamond
    jewelry.
  • UK Jewelry’s SSS increased 0.1%. Average transaction value increased
    6.0% and the number of transactions decreased 6.3%. Higher sales of
    bridal and prestige watches was virtually offset by lower sales in
    other categories.
   
Sales change from previous year
Fiscal 2017    

Same
store
sales1

   

Non-same
store
sales, net2

   

Total sales
at constant
exchange
rate

   

Exchange
translation
impact

   

Total
sales

   

Total sales
(in mill. $)

                   
Kay (1.4)% 1.8% 0.4% 0.4% 2,539.7
Jared (4.1)% 2.1% (2.0)% (2.0)% 1,227.5
Regional brands     (9.6)%     (11.0)%     (20.6)%           (20.6)%     163.2
Sterling Jewelers division     (2.6)%     1.1%     (1.5)%           (1.5)%     3,930.4
Zales Jewelers (1.4)% 2.7% 1.3% 1.3% 1,257.4
Gordon’s Jewelers (12.2)% (14.3)% (26.5)% (26.5)% 57.7
Zale US Jewelry (2.0)% 1.7% (0.3)% (0.3)% 1,315.1
Peoples Jewellers (4.6)% 1.1% (3.5)% (1.1)% (4.6)% 204.9
Mappins (4.2)% (6.9)% (11.1)% (1.3)% (12.4)% 29.7
Zale Canada Jewelry (4.5)% —% (4.5)% (1.2)% (5.7)% 234.6
Zale Jewelry (2.4)% 1.4% (1.0)% (0.2)% (1.2)% 1,549.7
Piercing Pagoda     6.6%     1.6%     8.2%     —%     8.2%     263.1
Zale division     (1.2)%     1.4%     0.2%     (0.1)%     0.1%     1,812.8
H.Samuel (1.3)% 0.4% (0.9)% (13.0)% (13.9)% 323.5
Ernest Jones     1.6%     1.2%     2.8%     (13.4)%     (10.6)%     323.6
UK Jewelry division     0.1%     0.8%     0.9%     (13.2)%     (12.3)%     647.1
Other segment                             44.8%     18.1
Signet     (1.9)%     1.2%     (0.7)%     (1.5)%     (2.2)%     6,408.4
Adjusted Signet3                             (2.4)%     6,421.7
Notes: 1=For stores open for at least 12 months. 2=For stores not
open in the last 12 months. 3=Includes $13.3 million deferred
revenue adjustment related to acquisition accounting which resulted
in a reset of deferred revenue associated with extended service
plans sold by Zale Corporation prior to the acquisition on May 29,
2014.
 

Balance Sheet and Statement of Cash Flows:

Cash and cash equivalents were $98.7 million compared to $137.7 million
as of January 30, 2016. The lower cash position was primarily due to
share repurchases partially offset by favorable cash provided by
operating activities.

In Fiscal 2017, Signet deployed cash of $1.0 billion to repurchase
outstanding common stock, or 11.2 million shares, at an average cost of
$89.10 per share. Of the $1.0 billion, $625 million of repurchases were
executed to offset dilution from the October convertible preferred
offering. As of January 28, 2017, there was $510.6 million remaining
under Signet’s share repurchase authorization.

Net inventories were $2,449.3 million, down 0.2% compared to $2,453.9
million at the end of the prior year. The impact of synergies related to
improved inventory management was virtually offset by lower sales.

The Sterling Jewelers in-house credit participation rate for Fiscal 2017
was 62.0% compared to 61.5% for Fiscal 2016. Credit sales decreased
0.5%. For the year, finance charge income was $277.6 million and net bad
debt was $212.1 million — a favorable difference of $65.5 million. This
was favorable to the prior year’s $62.0 million.

Long term debt was $1,317.9 million compared to $1,321.0 million in the
prior year period. Long term debt is entirely representative of the
financing of the Zale acquisition.

Signet remains committed to its capital allocation policy initiated
March 26, 2015. Signet’s strong balance sheet allows it to execute on
its strategic priorities, invest in the business, and then return excess
cash to shareholders while ensuring adequate liquidity and maintaining
its investment grade rating. Signet plans to distribute 70% to 80% of
annual free cash flow in the form of stock repurchases or dividends,
assuming no other strategic uses of capital.

Signet has a diversified real estate portfolio. On January 28, 2017,
Signet had 3,682 stores totaling 5.1 million square feet of selling
space. Compared to prior year, store count increased by 57 and square
feet of selling space increased 2.6%.

               
Store count     Jan 30, 2016     Openings     Closures     Jan 28, 2017
Kay 1,129 68 (5) 1,192
Jared 270 8 (3) 275
Regional brands     141           (20)     121
Sterling Jewelers division     1,540       76     (28)     1,588
Zales 730 40 (19) 751
Gordons 59 (17) 42
Peoples 145 2 (4) 143
Mappins 43 (9) 34
Total Zale Jewelry 977 42 (49) 970
Piercing Pagoda     605       35     (24)     616
Zale division     1,582       77     (73)     1,586
H.Samuel 301 6 (3) 304
Ernest Jones     202       3     (1)     204
UK Jewelry division     503       9     (4)     508
Signet     3,625       162     (105)     3,682
 

Quarterly Dividend:

Signet’s board declared a quarterly cash dividend of $0.31 per share for
the fourth quarter of Fiscal 2017, payable on May 31, 2017 to
shareholders of record on April 28, 2017, with an ex-dividend date of
April 26, 2017. This represents a 19.2% increase in the dividend and is
the sixth year in a row that Signet has raised its dividend.

Conference Call:

A conference call is scheduled today at 8:30 a.m. ET and a simultaneous
audio webcast and slide presentation are available at www.signetjewelers.com.
The slides are available to be downloaded from the website. The call
details are:

Dial-in:         1-647-788-4901         Access code: 65256773

A replay and transcript of the call will be posted on Signet’s website
as soon as they are available and will be accessible for one year.

About Signet and Safe Harbor Statement:

Signet Jewelers Limited is the world’s largest retailer of diamond
jewelry. Signet operates approximately 3,600 stores primarily under the
name brands of Kay Jewelers, Zales, Jared The Galleria Of Jewelry,
H.Samuel, Ernest Jones, Peoples and Piercing Pagoda. Further information
on Signet is available at www.signetjewelers.com.
See also www.kay.com,
www.zales.com,
www.jared.com,
www.hsamuel.co.uk,
www.ernestjones.co.uk,
www.peoplesjewellers.com
and www.pagoda.com.

This release contains statements which are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995. These statements, based upon management’s beliefs and expectations
as well as on assumptions made by and data currently available to
management, include statements regarding, among other things, Signet’s
results of operation, financial condition, liquidity, prospects, growth,
strategies and the industry in which Signet operates. The use of the
words “expects,” “intends,” “anticipates,” “estimates,” “predicts,”
“believes,” “should,” “potential,” “may,” “forecast,” “objective,”
“plan,” or “target,” and other similar expressions are intended to
identify forward-looking statements. These forward-looking statements
are not guarantees of future performance and are subject to a number of
risks and uncertainties, including but not limited to general economic
conditions, regulatory changes following the United Kingdom’s
announcement to exit from the European Union, risks relating to Signet
being a Bermuda corporation, the merchandising, pricing and inventory
policies followed by Signet, the reputation of Signet and its brands,
the level of competition in the jewelry sector, the cost and
availability of diamonds, gold and other precious metals, regulations
relating to customer credit, seasonality of Signet’s business, financial
market risks, deterioration in customers’ financial condition, exchange
rate fluctuations, changes in Signet’s credit rating, changes in
consumer attitudes regarding jewelry, management of social, ethical and
environmental risks, security breaches and other disruptions to Signet’s
information technology infrastructure and databases, inadequacy in and
disruptions to internal controls and systems, changes in assumptions
used in making accounting estimates relating to items such as extended
service plans and pensions, the impact of the acquisition of Zale
Corporation on relationships, including with employees, suppliers,
customers and competitors, and our ability to successfully integrate
Zale’s operations and to realize synergies from the transaction.

Contacts

Signet Jewelers
Investors:
James Grant, +1-330-668-5412
VP
Investor Relations
or
Media:
David Bouffard,
+1-330-668-5369
VP Corporate Affairs

Read full story here