Greetings and salutations! A warm welcome to the energetic realm of Signet Jewelers’ fourth-quarter fiscal 2024 earnings call. Take note, dear participants, as we embark on this recorded event. Today’s shining stars are Rob Ballew, the senior vice president of investor relations; Gina Drosos, the chief executive officer; and Joan Hilson, Signet’s chief financial, strategy, and services officer. The spotlight now shifts to Mr. Rob Ballew, guiding us through the financial treasures.

Rob Ballew — Senior Vice President, Investor Relations

Rise and shine! It’s a pleasure to have you with us today for Signet Jewelers’ fourth-quarter and fiscal 2024 earnings conference call. In the course of our discussion today, we will illuminate certain forward-looking statements. Buckle up for a ride through potential risks and uncertainties.

Actual results might just dance a different tune. As we navigate this journey, be sure to peruse the risk factors, cautionary remarks, and other disclosures in our 10-K annual report, 10-Q quarterly reports, and 8-K current reports. We pledge to keep the torch of our forward-looking statements aflame unless legally mandated otherwise. As the call unfurls, we shall delve into some non-GAAP financial metrics.

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To explore the intricacies of the non-GAAP financial metrics and the reconciliation thereof with the equivalent GAAP metrics, investors are encouraged to peruse the news release housed on our website at ir.signetjewelers.com. Now, the stage is set for Gina to take the floor.

Gina Drosos — Chief Executive Officer

Gratitude, Rob, and a massive thank you to all our viewers today. Before we delve into the fiscal ’24 results and fiscal ’25 anticipations, I must extend a heartfelt thank you to our Signet team. In a year marked by profound COVID-induced challenges and an industry swamped with excess inventory, our Signet family stepped up magnificently. Your dedication is truly inspiring.

Heartfelt thanks for your unwavering commitment throughout this year. Allow me to impart three noteworthy takeaways today. First and foremost, in this quarter, we have not only met but exceeded our financial projections, with an EPS surpassing the upper limit of our guidance range. Second, for the fourth consecutive year, excluding exceptional legacy legal settlements, we have fortified our coffers with over $600 million in free cash flow.

This sum approximates a lofty 15% of our market cap. Thirdly, we foresee a trajectory of rising same-store sales throughout fiscal year ’25, fueled by the recovery in engagement. Let’s unravel each of these takeaways, commencing with the results of this quarter. This quarter showcased sales reaching $2.5 billion, logging a modest 6% decline from the previous year.

As expected, a surge in holiday shopping occurred, with the frugal-minded consumer waiting for the optimal moment to seize the best deals, blessed with an additional gift-shopping weekend. Leveraging branding, innovation, and value optimization in our fresh offerings, we presented customers with an enticing value proposition, alongside size augmentation opportunities in segments like lab-created products. This strategy struck a chord with our customers, reflected in a remarkable 700 basis point surge in sales of new products compared to last year. Our overarching strategy, successful throughout the year, proved its mettle in the fourth quarter as we maintained the North American average transaction value nearly steady, while elevating our non-GAAP gross margin by 170 basis points from last year. Conversely, industry rumblings hint at independent jewelers ramping up steep discounts in lab-created diamonds and slightly intensifying markdowns for natural diamonds.

Consequently, independents witnessed significant declines in average unit retail prices. Our product management system, a wellspring of solidarity, steered inventory levels downwards by 10% against the preceding year. By promptly marking down sluggish movers, we quickened the infusion of pertinent new products, boasting higher margins. Resonating with the trend seen across most of fiscal ’24, jewelry vendors targeting the Fashion segment at lower price points excelled.

Parallelly, our value-centric Fashion brand Banter churned out the highest same-store sales in the U.S., hovering near neutrality this quarter. Encouraging performances were also noted at Peoples in Canada and value banner H.Samuel in the U.K., both registering positive same-store sales during the festive season. Offsetting the robust performance in our core, we faced obstacles at our digital brands due to operational and integration glitches, culminating in diminished fulfillment, a trend extending into fiscal ’25.

This setback stemmed from integrating Blue Nile with production partners, triggering lower conversion rates in the final six weeks of the quarter, shading our overall North American same-store sales by 1 point. Remedial actions are in progress, with anticipated resolutions later this year. Moreover, our Ernest Jones banner in the U.K. underperformed, partly due to macro hurdles and a somewhat unfavorable halo effect from the November sale of our luxury watch outlets. Our estimate places our U.S.

market share for jewelry merchandise in fiscal ’24 at around 9%, experiencing a slight dip from the previous year, fueled by a mix shift with lower engagements and the comparative strength in lower-priced self-purchase items where our penetration is lesser. Bridging into the Bridal category, we believe we expanded our market share in fiscal ’24 by about 50 basis points, with us overreaching the industry with close to 30% market share. Onto the second takeaway: our flexible operational model is firing on all cylinders, churning out copious cash, buoyed by persistent cost savings, sourcing endeavors, and inventory vigilance. Our adeptness in driving working capital efficiencies has yielded a robust 97% conversion of free cash flow to non-GAAP operating income.

We remain sanguine about our capacity to churn out free cash flow consistently. This financial buoyancy empowers us to plow back into the growth trajectory of our business, infusing it with vital freshness, while also dispensing substantial capital back to our stakeholders. Last year alone witnessed a shareholder windfall of nearly $200 million, with our cumulative returns to stakeholders nearing the $1 billion mark.

Signet Jewelers: Sparkling Success and Strategic Growth in Fiscal ’25

A Gem in the Rough: Signet Jewelers’ Bright Fiscal Future

Financial Fortitude and Investor Interests

The horizon seems brighter than ever for Signet Jewelers as they unveiled a monumental $200 million surge in their share repurchase authorization, escalating the total available funds to a staggering $850 million. A move mirroring their commitment to shareholders, with a conviction that share buybacks serve as a lucrative capital employment strategy. An added sparkle to this financial gem is a remarkable 26% uptick in the common dividend to $0.29 this quarter, marking the third consecutive year of dividend growth.

Strengthened Balance Sheet and Liquidity Surplus

The fiscal ’24 finale showcased Signet’s robust free cash flow, culminating in a surplus liquidity standing at a remarkable $2.5 billion, a billion more than their $1.5 billion target. This surplus not only provides a cushion for handling imminent financial obligations such as the $148 million unsecured notes maturing in June but also gears Signet to gracefully navigate the maturity of convertible preferreds in November, all while staying well within their liquidity benchmarks.

Growth Prospects and Strategic Maneuvers

Casting a keen eye towards fiscal ’25, Signet espouses a bullish outlook on the sequential improvement in same-store sales. The impending surge in engagements in the U.S. carries a promise of a 5% to 10% upswing, laying the groundwork to allure a fresh wave of customers into their dazzling fold. Armed with a treasure trove of wisdom, a roster of renowned brands, perpetual innovation, and tailored customization services, Signet is poised to make significant inroads by leveraging the swells in engagement growth projected for the latter half of the year.

Strategic Focus and Brand Expansion

Signet’s strategic trajectory entails a laser-sharp focus on brand expansion and market amplification, buoyed by scaled capabilities that beckon new patrons through targeted personalized marketing. Recent forays into personalized marketing campaigns have yielded double-digit revenue propulsion when juxtaposed against traditional approaches, signaling a savvy navigation into the realm of consumer preferences.

Operational Excellence and Fiscal ’25 Outlook

The winds of fiscal ’25 bear a whiff of cautious optimism as Signet navigates through the undulating landscape of consumer sentiments. While early tremors in January and February hint at value-driven consumer behaviors, the sails are set for a positive trajectory with a renewed focus on product innovation and customer engagement. Signet’s steadfast commitment to value-centric offerings amidst budget constraints positions them as a beacon of reliability in the ever-evolving retail terrain.

Financial Performance and Market Prowess

Fiscal transparency shines brightly in Signet’s financial results as they continue to deliver on promises, boasting non-GAAP EPS figures that outshine previous forecasts. The pro forma free cash flow crossing the $600 million threshold for the fourth consecutive year underscores a resilient operating model that garners accolades for its prudent capital allocation, robust balance sheet enhancement, and strategic invigoration of growth channels.

Sparkling Financial Highlights and Strategic Plans Brighten the Future for a Promising Jewelry Company

Robust Financial Performance

The renowned jewelry company, continuing its upward trajectory, has reported savings that surpass expectations. The non-GAAP operating income for the quarter stood strong at $410 million, representing 16.4% of sales. This marked an increase of $5 million from the previous year, despite lower revenue. Moreover, the non-GAAP EPS for the quarter reached $6.73 per diluted share, signalling a remarkable 22% surge from the prior year.

Steady Improvements and Strategic Adjustments

Grounded in a strategic approach, the company demonstrated resilience throughout the year by delivering $7.2 billion in sales. Noteworthy was the gross margin of more than 39% of sales, marking a 30 basis points increase from the previous fiscal year on a non-GAAP basis. The emphasis on merchandise margin increase of 110 basis points, though partially offset by fixed costs deleveraging, underscored the company’s commitment to operational efficiency.

Optimization and Forward-Looking Strategies

The company’s focus on life cycle management was evident through timely markdowns to enhance the margin before SKUs reach clearance. Leveraging artificial intelligence to drive store-level assortments, the company harnessed efficiencies that directly translated into cash flow and improved margins. With inventory turns at a commendable 1.4 times, the company remained aligned with its previous year’s performance.

Solid Financial Foundations and Strategic Investments

On the financial front, the company’s gross debt to adjusted EBITDA at 2.3 times, and net debt to adjusted EBITDA at negative 0.7 times showcased a strong balance sheet. With a robust cash position of $1.4 billion surpassing an outstanding debt of approximately $800 million, the company remained poised to generate free cash flow consistently. Looking ahead, a strategic reduction in gross debt to adjusted EBITDA leverage target and the introduction of a debt-to-adjusted EBITDA target underscored prudent financial management decisions.

Strategic Store Operations and Growth Trajectory

Demonstrating strategic store optimization, the company closed 114 locations in the preceding year, primarily focusing on underperforming mall locations and U.K. stores. The move to enhance the company’s core higher-margin jewelry business through store sales and renovation further highlighted the company’s growth trajectory. With plans to increase investments in store expansions and renovations, including digital and technological enhancements, the company affirmed its commitment to enhancing customer experiences.

Promising Future and Strategic Vision

In outlining guidance for the future, the company expressed optimistic total sales forecasts along with strategic insights into same-store sales expectations. Despite short-term challenges in digital banners, the company’s strategic perspective evokes a sense of confidence in navigating market dynamics. The company’s commitment to resolving digital banner issues and addressing consumer preferences amidst inflationary pressures reflects a nuanced understanding of market nuances.

The strategic roadmap laid out by the company sets a promising tone for the upcoming fiscal year, with a focus on strategic optimizations, operational efficiencies, and prudent financial management. As the company charts a course towards sustained growth and operational excellence, shareholders and investors can look forward to a bright and sparkling future ahead.

Signet Jewelers: Shining Through Challenges with Strategic Initiatives

Tackling Challenges with Jewelry: Signet Jewelers’ Strategic Moves

Signet Jewelers announced a robust financial outlook, with an adjusted EBITDA anticipated to fall within the range of $780 million to $865 million against a backdrop of a staggering $675 million. Complementing this, the company foresees experiencing modest non-GAAP operating margin expansion by harnessing a new three-year initiative striving for $350 million in cost reduction. Leveraging AI, optimizing noncustomer-facing expenses, and boosting sourcing efficiency are the pillars of this cost-saving strategy, poised to yield savings between $150 million and $180 million this year. The latter part of the year is expected to see a more pronounced impact from sourcing economies and enhanced inventory turns.

Furthermore, the company expects a mild deleverage in SG&A due to resetting incentive compensations and investments in e-commerce platforms, customer experiences, and team enhancements. This decrease is expected to be offset by an expansion in gross margins.

For the full year, Signet Jewelers projects non-GAAP diluted EPS to range between $9.08 and $10.48, with a cautious mention of accounting for the dilution of preferred shares throughout the fiscal year.

Insights into Engagement: Charting a Vibrant Future

In a recent interaction, the Chief Executive Officer, Gina Drosos, welcomed inquiries about engagement trends. The company foresees a 5% to 10% growth in engagements for the year, a conservative outlook that hints at a potential upswing as fiscal year ’25 unfolds. This prediction stems from a resilient recovery in engagement levels, following a trough in Q4, and a significant advancement in proprietary milestones essential for attracting customers.

The CEO highlighted the invaluable impact of tracking 45 significant milestones, revealing that once couples experience these milestones, particularly hitting the crucial 25-mark, the likelihood of engagement spikes significantly by 500 basis points. This statistical insight bodes well for the company’s anticipation of strengthening engagement rates as the fiscal year progresses, with expectations leaning towards a back-weighted growth trajectory owing to seasonal engagement patterns.

Navigating Challenges in Jewelry Sales Landscape

During a conversation with Brandon Cheatham from Citi, Gina Drosos shared insights into fluctuating ticket values and transactions within the retail jewelry sector. While specifics weren’t quantified for confidentiality reasons, Drosos acknowledged stable average transaction values despite aggressive discounting by independent jewelers, particularly in the Bridal and Fashion segments. This discounting trend, carried over from Q4 into the first quarter, posed challenges to average transaction values but was effectively countered by Signet Jewelers’ innovative product offerings focused on exceptional value.

Reflecting on the retail scenario in January and early February, Drosos drew parallels between the jewelry category and wider retail trends, citing low footfall and consumer spending challenges during the period.

Strategic Positioning in Competitive Jewelry Market

Gina Drosos shed light on Signet Jewelers’ competitive stance in the jewelry market, particularly in the non-Bridal categories. By underlining the company’s strong presence in low-priced Fashion jewelry segments through brands like Banter and H.Samuel, the CEO emphasized the opportunities for growth in gold jewelry. Signet Jewelers plans to leverage sourcing advantages and direct factory partnerships to engineer value-focused jewelry pieces, capitalizing on the burgeoning demand for lab-created diamond jewelry.

Joan Hilson, the Chief Financial Officer, accentuated the company’s commitment to introducing a higher quotient of newness in product offerings, based on encouraging holiday performance trends. This strategic decision reflects Signet Jewelers’ steady progression towards capturing a larger market share and resonating with evolving consumer preferences.

The Sparkling Saga Unveiled: A Financial Overview of a Jewelry Giant’s Margins and Growth Strategies

Improving Gross Margins: A Tale of Sourcing Savvy and Inventory Mastery

The recent earnings call of a prominent jewelry company shed light on their ability to navigate the intricate landscape of gross margins. Led by the Chief Financial Officer, Joan Hilson, the company attributed its margin growth to a concoction of sourcing savings, inventory agility, and strategic pricing. In a world where the scent of promotional discounts looms large, the company’s deft maneuvering to target pricing within specific product segments without broadly diluting margins is a commendable feat.

Charting the Path to Margin Elevation in the Back Half

With a keen eye on the horizon, the company outlined a roadmap where margin enhancements are expected to be more pronounced in the latter half of the fiscal year. The narrative of newness in product offerings intertwined with sourcing efficiencies plays a pivotal role in this tale. As the company gears up to unveil a wave of fresh inventory, the magic of margin expansion is anticipated to flourish, aligning with the back-end of the year.

The Resilient Rise of Service Offerings

Steering the conversation towards service offerings, Joan Hilson reflected on the company’s robust growth trajectory in this domain. The implementation of new tools and services tailored to customer needs has proven to be a winning formula. Notched by a higher attachment rate to Bridal items, the company anticipates further service growth resonance, particularly with the resurgence in engagement ring purchases.

A Glimpse into Tax Rate Scenarios

In a brief dialogue on tax rates, the company’s financial steward, Joan Hilson, provided clarity on the anticipated impact of new tax legislation on the company’s fiscal landscape. With a measured approach, the company elucidated that the impact would reverberate in the upcoming fiscal year, delineating a phased tax rate transition starting from FY ’26.

Industry Musings: Forecasting Growth Trajectories and Digital Dips

Shifting focus to the broader jewelry industry, queries on growth prospects surfaced during the call. The company articulated a nuanced perspective, envisioning a mid-single-digit downturn in the jewelry category while expressing confidence in their ability to garner market share, especially in the Bridal segment. Parallelly, discussions on the digital realm hinted at a quest for integration benefits and the unfolding narrative of Valentine’s Day sales trends.

In this mosaic of financial insights, the journey of this jewelry behemoth unfolds with a strategic dance of margins, services, and growth horizons. As the company sets sail into the fiscal seas, investors watch with bated breath, eager to witness the next chapter in this sparkling saga.

Shining Light on Jewelry Retailer’s Strategy Amidst Industry Challenges

Positioning for Success in a Challenging Market

In the realm of retail, where challenges often loom large like storm clouds on the horizon, Kay Jewelers stands out as a beacon of innovation and resilience. Even in a tough economic climate, the company’s belief in the power of novel offerings shines through. By ingeniously engineering newness into their products, they manage to offer exceptional value without resorting to deep discounts.

Unique Approach to Engagements

Amidst a changing landscape, Kay Jewelers leverages its store teams’ expertise, well-established brands, and the significance of trust in engagement ring purchases. Armed with vast proprietary data, including insights from 17 million individuals in dating relationships, the company is poised to engage with potential customers even before they venture into the realm of engagement.

Operational Challenges and Solutions

While navigating the digital realm, challenges have surfaced, particularly related to the integration of Blue Nile and James Allen. Operational hiccups during the replatforming process led to dips in conversion rates and prolonged fulfillment times. However, Kay Jewelers has swiftly mobilized its team to address these issues head-on. With a keen focus on rectifying the situation, the company anticipates a resolution in the near future, though improvements may not be immediately reflected in financial guidance.

Insights into Financial Projections

Addressing concerns about performance metrics, Chief Financial Officer Joan Hilson shed light on the company’s expected trajectory. Despite challenges, early numbers post-Valentine’s Day indicate a mid- to high single-digit comp. Providing a comprehensive view of the fiscal year, Kay Jewelers anticipates a mixed bag of results, with a downtrend in the first half of 2025, gradually giving way to slight growth in the latter part of the year.

Strategic Cost-Saving Measures

Delving into cost-saving initiatives, Hilson outlined a roadmap for achieving $350 million in savings. With a breakdown emphasizing sourcing efficiencies as a primary source of savings, alongside investments in AI and non-customer-facing expenses, Kay Jewelers is meticulously charting a course towards financial sustainability. Anticipating sourcing savings to peak in the latter part of the fiscal year, the company remains steadfast in its commitment to prudent financial management.

Transformative Store Renovations

Embarking on a journey of transformation, Kay Jewelers is set to breathe new life into its retail spaces. With plans for 300 store renovations slated for the year, the company anticipates a significant boost in sales volumes. By revamping store aesthetics and enhancing customer experiences with features like new carpeting, eco-friendly LED lighting, and digital displays, Kay Jewelers aims to create inviting environments that resonate with its clientele.

Investments Leading to Growth

CEO Gina Drosos shared insights into the impact of store renovations, highlighting promising results from test runs. With a focus on enhancing the overall shopping experience and up-tiering product assortments, Kay Jewelers is investing in reimagining its retail landscape. These strategic moves not only drive revenue growth but also promise improved sell-through rates and operational efficiencies.

Future Outlook and Labor Investments

Looking ahead, Kay Jewelers is committed to investing in training and development, particularly within its store teams. Recognizing the pivotal role of well-trained staff in delivering exceptional customer experiences, the company remains bullish on its labor investments. Moreover, with inflation factored into their financial guidance, Kay Jewelers is well-positioned to navigate challenges and seize opportunities on the horizon.

Signet Jewelers: Navigating the Retail Landscape

Macro-environmental trends often overshadow the delicate dance of microeconomics, a waltz in which Signet Jewelers finds itself at the forefront. The company’s steadfast commitment to offsetting the ravages of inflation is akin to an agile pilot navigating turbulent skies, ensuring the safety of passengers—both internal and external stakeholders. Amidst the financial storm, Signet’s guidance for the year remains sprinkled with optimism and a touch of artistry, akin to a skilled painter illuminating a canvas with vibrant hues.

Gliding through Financial Terrain

Jim Sanderson of Northcoast Research adeptly questioned Signet’s Chief Executive Officer, Gina Drosos, on the company’s endeavors to amplify growth within the engagement category. Sanderson’s inquiry delved into the psyche of the consumer, contemplating whether burgeoning trends would propel average transaction values skyward or if fiscal prudence would continue to anchor consumer decisions in the choppy seas of economic uncertainty.

Customer-Centric Strategies

Drosos expounded on the mindset of engagement customers, illuminating their perspective on jewelry purchases as enduring testaments to love and commitment. The strategic interplay between budget constraints and emotional symbolism emerged as a central theme, with customers seeking not just a piece of jewelry, but a lifelong embodiment of affection. The juxtaposition between natural and lab-created diamonds underscored the nuanced interplay between affordability and lasting value.

Casting a Strategic Vision

Sanderson’s curiosity meandered into the realm of lab-grown diamonds within Signet’s inventory assortment, prompting a discourse on customer-driven decision-making. Drosos’ emphasis on a customer-inspired inventory strategy echoed a symphony of adaptability and market responsiveness. The subtle balance of catering to value-oriented patrons while upholding the allure of traditional jewelry underscored Signet’s prowess in understanding and meeting consumer demands.

Embracing Growth Opportunities

Dana Telsey’s probing into Signet’s Services business unfurled a tapestry of growth and profitability. Drosos’ strategic delineation of the Services sector as a bastion of margin expansion heralded a promising journey ahead. The delicate choreography between merchandise sales and service offerings emerged as a key driver of top-line growth and operational excellence, guiding Signet towards a sanguine fiscal horizon.

Charting a Course for Expansion

Store openings and closures emerged as pivotal waypoints in Signet’s retail odyssey, signaling a strategic shift towards off-mall locations and optimized real estate utilization. The narrative of store optimization resonated with a commitment to enhancing customer experiences while maximizing operational efficiencies. Drosos’ delineation of store closure programs underscored a pragmatic approach to consolidating resources for sustained growth and profitability.

Closing Remarks

As the earnings call drew to a close, Drosos reflected on Signet’s transformative journey under the guidance of Todd Stitzer, signaling a seamless transition towards future leadership under Helen McCluskey. The narrative of evolution and adaptability echoed throughout the call, encapsulating Signet’s ethos of consumer-centric innovation and operational excellence.

Future Perspectives

Signet Jewelers emerges from the earnings call as a beacon of resilience and strategic vision, navigating the intricate tapestry of the retail landscape with finesse and tenacity. The company’s emphasis on consumer insights, operational optimization, and strategic growth initiatives bodes well for a future adorned with innovation and sustained success amidst an ever-evolving economic backdrop.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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