Signet Jewelers’ First Quarter Results Exceed Expectations

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Connected commerce strategy delivering growth across all channels

First-quarter eCommerce up 110.3% and brick & mortar same-store sales up 105.7%

“Our strong first-quarter results demonstrate the momentum we are building as we continue Signet’s transformation,” said Virginia C. Drosos, Chief Executive Officer. “Thank you to all our team members for their relentless dedication to our customers and each other, and for embracing new capabilities with excellence as we drive innovation and sustainable long-term growth.”

“We delivered strong performance across our portfolio. While the jewelry category is experiencing meaningful growth, we are outpacing market growth and gaining share consistent with our Inspiring Brilliance strategy. Specifically, we are winning in our biggest banners through consumer-inspired differentiation, as evidenced by double-digit revenue growth in both Kay and Zales versus this time two years ago. We are successfully beginning to stretch the top and bottom boundaries of the mid-market as Jared continues to grow at higher price points and in custom design, and Piercing Pagoda delivered its best quarter ever accessing more value-inspired self-purchasing shoppers.  Further, our Connected Commerce strategy is resonating, delivering higher conversion rates and growth both online and in-stores. And finally, we are building a more innovative and agile culture with investments in talent, digital capabilities, newness in product assortment, and modern content and marketing channels that give us distinct competitive advantages. As I look ahead, I’m confident in our people and our strategy and believe 2021 will be another transformative year for Signet.”

Joan Hilson, Chief Financial and Strategy Officer, added, “We are entering this next phase of Signet’s transformation from a position of financial strength. We are continuing to increase liquidity with ongoing cash, cost and inventory discipline, enabling accelerated investment in innovation and growth. Even as we expect some current tailwinds from the stimulus and slower than anticipated return to travel and experience spending to subside in the back half of 2021, we are confident in our ability to deliver strong shareholder return and generate cash.  As such, our Board has approved the reinstatement of a common dividend in the second quarter.”

First Quarter Fiscal 2022:

  • Total sales were $1.7 billion, an increase of over $250 million to Q1 of FY20 and more than $835 million to Q1 of FY21.
  • Q1 same-store sales (“SSS”) up 106.5% (1) to Q1 of FY21 and up 27.2% to Q1 of FY20.
  • GAAP diluted earnings per share (“EPS”) of $2.23, up from a loss per share of ($3.96) in Q1 of FY21 and ($0.35) in Q1 of FY20.
  • Non-GAAP diluted EPS of $2.23 (2), an increase from a loss per share of ($1.59) in Q1 of FY21 and EPS of $0.08 in Q1 of FY20.
Fiscal 22 Q1 Fiscal 21 Q1 Fiscal 20 Q1
Revenue ($ in millions) $ 1,688.8 $ 852.1 $ 1,431.7
SSS % change (1) 106.5 % (38.9) % (1.3) %
GAAP
Operating income (loss) $ 168.7 $ (299.6) $ (2.6)
Operating income (loss) as % of sales 10.0 % (35.2) % (0.2) %
GAAP Diluted EPS $ 2.23 $ (3.96) $ (0.35)
Non-GAAP (2)
Non-GAAP operating income (loss) $ 168.9 $ (142.5) $ 24.2
Non-GAAP operating income (loss) as % of sales 10.0 % (16.7) % 1.7 %
Non-GAAP Diluted EPS $ 2.23 $ (1.59) $ 0.08
(1) Same-store sales include physical store sales and eCommerce sales.
(2) See non-GAAP reconciliation page.

First Quarter 2022 Financial Results:

Signet’s total sales were $1.7 billion, up 98.2% year over year, in the 13 weeks ended May 1, 2021, on a reported basis and up 96.4% on a constant currency basis. Total same-store sales increased 106.5% year over year. eCommerce sales were $346.3 million, up 110.3% from the prior year. Brick and mortar same-store sales increased 105.7% year over year.

By operating segment:

North America

  • North America SSS increased 117.2%, with broad-based category strength. Average transaction value (“ATV”) increased 15.2% to the first quarter of last year and the number of transactions increased 90.0%. When compared to the first quarter two years ago, physical traffic remains down but Signet has delivered growth over that period through higher conversion and ATV.
  • Brick and mortar SSS grew 118.4%. eCommerce sales grew 113.4%.

International

  • International same-store sales decreased 12.2%. ATV increased 5.8% and the number of transactions declined 16.6% reflecting the mandated closure of UK stores for 10 of the 13 weeks this quarter.
  • eCommerce sales grew 80.0%, with brick-and-mortar same-store sales declining 40.9%.

GAAP gross margin was $678.4 million, or 40.2% of sales, up 1,630 bps versus the prior-year quarter and up 540 bps versus the first quarter of FY20. The majority of gross margin rate improvement is driven by leveraging of fixed costs such as occupancy.

SGA was $512.0 million, or 30.3% of sales, up 1,180 bps favourable to the prior-year quarter and 290 bps favourable to the first quarter of FY20. The rate improvement was primarily driven by more efficient operating hours and corresponding labour.

GAAP operating income was $168.7 million or 10.0% of sales. The operating income compares to an operating loss of $299.6 million, or (35.2)% of sales in the prior-year first quarter and the operating loss of $2.6 million, or (0.2)% of sales in Q1 of FY20.

Non-GAAP operating income was $168.9 million, or 10.0% of sales, compared to Non-GAAP operating loss of $142.5 million, or (16.7)% of sales in prior year first quarter and non-GAAP operating income of $24.2 million, or 1.7% of sales in Q1 of FY20.

First-quarter Fiscal 2022 First-quarter Fiscal 2021
GAAP Operating income (loss) in millions $  % of sales $  % of sales
North America segment $ 212.0 13.1 % $ (234.2) (30.0) %
International segment (19.7) (34.3) % (38.6) (59.5) %
Other segment (0.9) nm (0.3) nm
Corporate and unallocated expenses (22.7) nm (26.5) nm
Total GAAP operating income (loss) $ 168.7 10.0 % $ (299.6) (35.2) %
First-quarter Fiscal 2022 First-quarter Fiscal 2021
Non-GAAP operating income (loss) in millions (1) $  % of sales $  % of sales
North America segment $ 212.2 13.1 % $ (107.8) (13.8) %
International segment (19.7) (34.3) % (16.6) (25.6) %
Another segment (0.9) nm (0.3) nm
Corporate and unallocated expenses (22.7) nm (17.8) nm
Total Non-GAAP operating income (loss) $ 168.9 10.0 % $ (142.5) (16.7) %
(1) See the non-GAAP reconciliation page.
nm Not meaningful

The current quarter income tax expense was $26.5 million compared to an income tax benefit of $109.5 million in the prior-year first quarter driven by the year-over-year difference in pre-tax income. Further, the prior year’s income tax was also favourably impacted by the benefits of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

Diluted EPS was $2.23 on both a GAAP and non-GAAP basis. GAAP and non-GAAP diluted EPS in the quarter includes the dilutive impact of the preferred shares in the share count based on the level of net income this quarter.

Balance Sheet and Statement of Cash Flows Highlights:

Cash flow from operating activities of $161.1 million in Q1 FY22, up $169 million to FY21 and $56 million to FY20. Total liquidity was $2.5 billion at quarter end, consisting of cash of $1.3 billion with $1.2 billion available on the revolving credit facility.

Ending inventory was $2.0 billion, a reduction of more than $370 million to Q1 of FY21. Long-term debt was $146.8 million, compared to $1.3 billion at the prior year quarter-end.

Quarterly Dividend:

Signet’s Board of Directors has elected to reinstate the dividend program on the common shares and declared a quarterly cash dividend of $0.18 per share for the second quarter of Fiscal 2022, payable August 27, 2021 to shareholders of record on July 30, 2021, with an ex-dividend date of July 29, 2021.

Fiscal 2022 Guidance:

Second Quarter Fiscal 2022 Previous Fiscal
2022
Total revenue (in billions) $1.60 to $1.65 $6.50 to $6.65 $6.00 to $6.14
Same store sales (1) 76% to 82% 24% to 27% 17% to 20%
Non-GAAP operating income (2) (in millions) $118 to $130 $490 to $545 $335 to $364
(1) Same store sales include physical stores and eCommerce sales
(2) See description of non-GAAP measures below

The forecasted non-GAAP operating income provided above excludes potential non-recurring charges. However, given the potential impact of non-recurring charges on the GAAP operating income, we cannot provide forecasted GAAP operating income or the probable significance of such items without unreasonable efforts. As such, we do not present a reconciliation of forecasted non-GAAP operating income to corresponding GAAP operating income.

The Company’s Second Quarter and Fiscal 2022 Outlook is based on the following assumptions:

  1. Signet expects stronger sales performance in the first half of the fiscal year.  As the vaccine rollout matures, the Company believes there will be a shift of consumer discretionary spending away from the jewelry category toward experience-oriented categories. The magnitude and timing of this shift are difficult to predict. As such, the Company is planning for increased marketing expenses to continue to fuel momentum from the first half of Fiscal 2022 as well as to proactively manage against shifts in consumer spending as the year progresses. Signet continues to expect same-store sales to be negative in the second half of Fiscal 2022, though the Company is widening the range of its guidance as macro-level momentum continues to magnify customer response to the Company’s services and capabilities. Depending on the timing and extent of potential shifts in spending, future results could differ materially from current guidance.
  2. The Company has increased its gross cost savings expectations for Fiscal 2022 to $75 million to $95 million from $50 million to $75 million. The increase reflects the partial year savings relating to the recently enhanced relationships with credit partners ADS and Genesis. Signet’s cost savings have been identified to partially mitigate the additional investments required in digital and technology to further strengthen the Company’s competitive advantage and long-term positioning within the jewelry category. Cost savings are expected to benefit both SG&A and gross margin.
  3. With the flexibility of Signet’s liquidity position, the Company has raised its planned Fiscal 2022 capital expenditures to the range of $175 million to $200 million from $150 million to $175 million.  Aligning with Signet’s capital priorities, the increased level of investments will continue to focus on technology and innovation.
  4. The Company expects to close over 100 stores in Fiscal 2022 and open up to 100 locations, primarily in highly efficient kiosks.
  5. Signet’s efforts to mitigate supply chain disruption amongst the pandemic impact on India have been effective thus far. Guidance assumes no material supply chain disruptions for the remainder of the year.
  6. Continued uncertainty regarding multiple factors exist for the remainder of Fiscal 2022, including but not limited to the magnitude and potential resurgence of COVID-19 in key trade areas, extended duration of heightened unemployment, supply chain disruptions and macro or governmental influences on consumers’ ability to spend, particularly in discretionary categories like jewelry.  Further, there can be no assurance that first-quarter results and trends will continue for the second quarter and remainder of the fiscal year and such results and trends are not indicative of future performance.  Please see disclosures within the Safe Harbor Statement for other risk factors.

Our Purpose and Sustainable Growth:

As a company with a purpose-inspired business strategy, Signet is committed to ongoing leadership in Corporate Citizenship & Sustainability and views ESG initiatives as an important growth driver. As such, Signet released its first-ever Corporate Citizenship and Sustainability Report earlier this month, reflecting our continued leadership, prioritization and board oversight of these important ESG initiatives.  Issued with the Sustainability report is a supplement including data disclosures in alignment with ESG reporting frameworks, as well as our 2030 Corporate Sustainability Goals which includes Human Capital Management and Climate Change goals. This set of 44 goals are set with 2030 targets in line with the Decade of Action to achieve the Sustainable Development Goals with one exception — achieving net-zero greenhouse gas emissions by 2050.

In line with Inspiring Love – Signet also took actions this past quarter to further enhance its commitment to advancing Diversity, Equity and Inclusion. Specifically, Signet announced the launch of its first-ever Employee Experience which commits to providing team members with an exceptional place to work and further solidifies inclusiveness and encourages individuality and diversity within a welcoming culture. As advocates for positive change in the communities Signet serves, the Company is committing to further advancing women’s gender parity by joining Paradigm for Parity and aligning with their five-point action plan. Signet’s first donation from its newly formed Signet Love Inspires Foundation was made this quarter to the Equal Justice Initiative, as there is much to be done to fight systemic racism. And, in line with our mission of Celebrating Life and Expressing Love for all, the Company is celebrating PRIDE month across Signet banners and endorsed the Human Rights Council’s Business Statement on Anti-LGBTQ+ State Legislation. Lastly, as a global company with long-standing partners and vendors around the world, the Company donated to the Gajera Charitable Trust in India with the intention of support for COVID-19 relief efforts.

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