Secnd Quarter Fiscal 2018 Results Thursday, August 24, 2017
Frward Lking Statements & Other Disclsure Matters Frward-Lking Statements This presentatin cntains statements which are frward-lking statements within the meaning f the Private Securities Litigatin Refrm Act f 1995. These statements, based upn management's beliefs and expectatins as well as n assumptins made by and data currently available t management, include statements regarding, amng ther things, Signet's results f peratin, financial cnditin, liquidity, prspects, grwth, strategies and the industry in which Signet perates. The use f the wrds "expects," "intends," "anticipates," "estimates," "predicts," "believes," "shuld," "ptential," "may," "frecast," "bjective," "plan," r "target," and ther similar expressins are intended t identify frward-lking statements. These frward-lking statements are nt guarantees f future perfrmance and are subject t a number f risks and uncertainties, including but nt limited t Signet s expectatins abut the benefits and csts f the R2Net transactin, including future financial and perating results, Signet s expectatins, including timing, regarding the anticipated clsings f the varius credit prtfli transactins, the anticipated terms and availability f financing and the timing f clsing, statements abut the benefits f the credit prtfli sales including future financial and perating results, Signet s r the ther parties ability t satisfy the requirements fr cnsummatin f the agreements relating t the credit prtfli transactins, including due t regulatry r legal impediments, the utcme f Signet s cnversin f its accunting methdlgy, the effect f regulatry cnditins n the credit purchase agreements and credit prgram agreements, general ecnmic cnditins, regulatry changes fllwing the United Kingdm s annuncement t exit frm the Eurpean Unin, a decline in cnsumer spending, the merchandising, pricing and inventry plicies fllwed by Signet, the reputatin f Signet and its brands, the level f cmpetitin in the jewelry sectr, the cst and availability f diamnds, gld and ther precius metals, regulatins relating t custmer credit, seasnality f Signet s business, financial market risks, deteriratin in custmers financial cnditin, exchange rate fluctuatins, changes in Signet s credit rating, changes in cnsumer attitudes regarding jewelry, management f scial, ethical and envirnmental risks, security breaches and ther disruptins t Signet s infrmatin technlgy infrastructure and databases, inadequacy in and disruptins t internal cntrls and systems, changes in assumptins used in making accunting estimates relating t items such as extended service plans and pensins, risks related t Signet being a Bermuda crpratin, the impact f the acquisitin f Zale Crpratin n relatinships, including with emplyees, suppliers, custmers and cmpetitrs, and ur ability t successfully integrate Zale Crpratin s peratins and t realize synergies frm the transactin Fr a discussin f these and ther risks and uncertainties which culd cause actual results t differ materially frm thse expressed in any frward-lking statement, see the Risk Factrs sectin f Signet's Fiscal 2017 Annual Reprt n Frm 10-K filed with the SEC n March 16, 2017 and quarterly reprts n Frm 10-Q. Signet undertakes n bligatin t update r revise any frward-lking statements t reflect subsequent events r circumstances, except as required by law.
Strategic Pririties Immediate fcus areas t rebuild cmpetitive advantage Custmer First Deepen cnsumer understanding and leverage data analytics t uncver actinable insights Lead cnsumer-inspired innvatin acrss prduct, assrtment, engagement and cmmunicatins Mre targeted and efficient marketing and prmtin strategies OmniChannel Seamlessly integrated custmer experience acrss stres and nline platfrms Breakthrugh jewelry visualizatin t digitize shpping experience Industry-leading digital marketing, educatin and custmer service Culture f Agility and Efficiency Innvative and entrepreneurial mindset; leadership at every level Faster, data-driven decisinmaking and executin Drive further prductivity and cst savings t deliver perating margin expansin Unleash the full talent f ur diverse team 3
Strategic Acquisitin f R2Net, wner f JamesAllen.cm Transactin accelerates Signet s OmniChannel strategy and creates significant grwth pprtunities JamesAllen.cm is a leading, fast-grwing nline retailer f diamnd jewelry with millennial appeal and superir average transactin value ( ATV ) Grew revenues mre than 2.5x in tw years Annual prjected sales in excess f $200M in Fiscal 2018 Clear path t prfitability accretive t earnings in Fiscal 2019 Significant OmniChannel grwth pprtunities thrugh implementatin f R2Net s innvatin capabilities and digital technlgy acrss Signet s stres and nline t reinvent shpping experience Oded Edelman t remain President f JamesAllen.cm and becme Chief Digital Innvatin Advisr f Signet Currently expected t clse in Q3 subject t custmary clsing cnditins and regulatry apprvals 4
Secnd Quarter Fiscal 2018 Summary Same stre sales increased 1.4%. Key drivers included: Fashin jewelry On-trend wins arund stacking, layering; EverUs, Le Vian Branded bridal jewelry Neil Lane, Vera Wang, Le and Chsen Kay Jewelers, Peples, Piercing Pagda ecmmerce Rbust nline perfrmance Marketing and prmtins Mre targeted and simpler messaging delivering sales gains Timing shift f Mther s Day was favrable t SSS by 380 bps EPS f $1.33 up frm $1.06 same perid last year: Cntrlled perating expense t deliver prfitability in a heavily prmtinal envirnment Timing shift f Mther s Day was favrable t EPS by apprximately $0.15 Operating margin expansin f 100 bps including 70 bps f which was attributable t the cmbined impact f the net credit transactin as well as CEO-and-ther expenses 5
Prgress n Strategic Initiatives OmniChannel: ecmmerce platfrm enhancements: imprved user experience, technical enhancements, effective digital marketing and greater stre integratin, Zale divisin websites re-launch The implementatin f R2Net s innvatin capabilities and digital technlgy will further accelerate ur OmniChannel strategy Credit Outsurcing: Phase 1 n track fr cmpletin in Octber Prgressive lease-purchase prgram rlled ut ahead f schedule Actively engaged with ptential Phase 2 partners Hliday Selling Seasn Gearing up fr upcming Hliday seasn with key catalysts, including new brands and prduct designs, prven effective marketing and prmtinal strategies 6
Secnd Quarter Sales Perfrmance Same Stre Sales % 1 Nn-same stre sales %, net 2 Ttal sales % at cnstant exchange rate Exchange translatin impact % Ttal sales % Ttal sales (in millins $) Kay 2.9 2.8 5.7 5.7 564.0 Jared 0.8 1.5 2.3 2.3 276.2 Reginal brands -9.5-12.6-22.1-22.1 27.9 Sterling Jewelers divisin 1.8 1.6 3.4 3.4 868.1 Zales Jewelers 0.6 0.4 1.0 1.0 269.1 Grdn s Jewelers -10.8-20.9-31.7-31.7 8.4 Zale US Jewelry 0.2-0.7-0.5-0.5 277.5 Peples Jewelers 10.0 -- 10.0-2.4 7.6 49.3 Mappins -- -20.6-20.6-1.3-21.9 5.0 Zale Canada Jewelry 9.0-2.7 6.3-2.3 4.0 54.3 Zale Jewelry 1.6-1.0 0.6-0.4 0.2 331.8 Piercing Pagda 7.0 2.3 9.3 9.3 62.3 Zale divisin 2.4-0.5 1.9-0.3 1.6 394.1 H.Samuel -3.6 1.2-2.4-7.2-9.6 62.2 Ernest Jnes -3.1 1.5-1.6-7.2-8.8 69.7 UK Jewelry divisin -3.4 1.5-1.9-7.3-9.2 131.9 Other segment 5.5 Signet 1.4 1.4 2.8-0.9 1.9 1,399.6 Ntes: 1=Fr stres pen fr at least 12 mnths. 2=Fr stres nt pen in the last 12 mnths. 7
Incme Statement Highlights (Percentage f Sales) 2Q Fiscal 2018 2Q Fiscal 2017 Difference Grss margin 32.7% 33.9% (120) bps SG&A 29.2% 30.3% (110) bps Credit transactin, net 1.1% - 110 bps Other perating incme 5.1% 5.1% 0 bps Operating incme 9.7% 8.7% 100 bps Earnings per share $1.33 $1.06 $0.27 8
Wrking Capital and Free Cash Flw Inventry $2.3 billin, dwn 5.6%, while Q2 ttal sales increased 1.9% Prudent inventry management, particularly Zales brands Underperfrming cllectins reduced acrss rganizatin Free cash flw YTD $304M, up $96M Nte: Free cash flw is a nn-gaap measure defined as the net cash prvided by perating activities less purchases f prperty, plant and equipment. 9
Sterling Divisin Credit and Allwance Metrics (in millins except percentages) 2Q FY18 2Q FY17 Difference Credit sales $536 $529 $7 In-huse credit participatin 61.7% 63.1% (140) bps Accunts receivable, grss¹ $1,792 $1,745 $47 Average mnthly payment cllectin rate 10.3% 10.8% (50) bps Interest incme frm in-huse finance prgram $70 $70 $0 Net bad debt $58 $55 $3 Net Impact $12 $15 ($3) Receivables Held fr Sale (in mils) Receivables, net realizable value 2Q FY18 $1,035 Reversal f allwance $21 Receivables, par $1,056 Receivables Residual (in mils unless in %) 2Q FY18 2Q FY17² Receivables, grss $736 $744 Allwance ($114) ($110) Receivables net $622 $634 Allwance as % 15% 15% Nte: The valuatin allwance as % f ending grss receivables wuld have been 7.5% fr the secnd quarter ended, excluding the accunting change fr the primary receivables nw classified as Assets Held Fr Sale. This wuld cmpare t 7.4% in the prir year secnd quarter. ¹Includes $1,056M in receivables held fr sale and residual grss receivables n the balance sheet. ² 2Q FY17 receivables breakdwn is n a prfrma basis. 10
Sterling Divisin Credit Prtfli: Phase I Outsurcing Impact One-time Items $20.7M pre-tax nn-cash gain in Q2 assciated with classificatin f prime receivables as Assets Held Fr Sale $5.9M in transactin csts in Q2; ~$35M expected fr full year ~$1B f prceeds t Signet at transactin clse: $600M t repay ABS facility $400M t repay shrt-term lan assciated with R2Net acquisitin $10M beneficial interest gain n prfit sharing upn clse Q4 Cnsideratins $22M decline in EBIT due t: $28M net unfavrable due t lss f prime prtfli net cntributin $6M partial ffset frm net SG&A savings EPS accretin expected as Q2 share repurchases mre than ffset reductin in EBIT $4M in interest expense savings Allwance metrics t mve unfavrably due t fewer prime receivables Key Assumptins Transactin clses in Octber t minimize disruptin during the Hliday seasn N material impact n revenue Signet will cntinue t fund the sales assciated with the nn-prime receivables until Phase II is cmpleted 11
Financial Guidance Reiterated SSS guidance; Updated EPS guidance t reflect the benefits frm strategic utsurcing f credit prtfli, partially ffset by CEO separatin csts and R2Net acquisitin csts Initial Guidance, March 9 Est. change (per share unless indicated) Guidance, August 24 SSS Dwn lw-mid single-digit % - Dwn lw-mid single-digit % EPS $7.00 - $7.40 $7.00 - $7.40 Net impact frm utsurcing credit prtfli 1 ($0.16) Net transactin cst including gain n sale f prime A/R 2 ($0.05) CEO separatin csts ($0.03) R2Net transactin csts 3 ($0.10) Share repurchase acceleratin 4 $0.50 EPS $7.16 - $7.56 Effective tax rate 24% - 25% - 24% Weighted average cmmn shares 74 millin - 75 millin (5 mill.) 69 millin - 70 millin Capital expenditures in $ 260 millin - 275 millin - 260 millin - 275 millin Selling square ftage grwth -1% t 0% - -1% t 0% 1 Net impact f utsurcing the credit prtfli includes: eliminatin f bad debt expense and late fee incme frm prime A/R; eliminatin f selling, general and administrative expenses ("SGA") related t in-huse credit department; ecnmic prfit sharing n prime A/R; servicing fees assciated with Genesis Financial wh will service the remaining bk; eliminatin f finance charge incme frm the prime A/R; and eliminatin f interest expense assciated with the $600 millin asset-backed securitizatin that will be repaid with prceeds frm sale f the prime A/R.2 Net impact includes: gain recgnized n the reversal f the allwance fr bad debt related t the prime A/R reclassified as assets held fr sale; beneficial interest that will be recgnized upn sale f prime A/R; and credit transactin csts related t legal, advisry, implementatin and retentin expense. 3 R2Net transactin csts include legal, advisry, and financing expenses.4 In the secnd quarter, $400 millin f share repurchases assciated with the expected credit transactin prceeds t be received in Octber were accelerated. 12
Signet Jewelers Ltd.