Market Overview

Signet Jewelers Reports Fourth Quarter and Fiscal 2018 Results

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Implements "Signet Path to Brilliance" Transformation Strategy to Drive
Growth and Long-term Financial Performance

Announces Agreement to Sell Non-Prime Receivables

Fiscal 2018:

  • Same store sales declined 5.2% in the fourth quarter and declined 5.3%
    in full year fiscal 2018
  • GAAP diluted earnings per share ("EPS") of $5.24 for the fourth
    quarter and GAAP diluted EPS of $7.44 for the full year fiscal 2018,
    including the impact of the revaluation of deferred taxes. Excluding
    the impact of the revaluation of deferred taxes, non-GAAP diluted EPS
    of $4.28 for the fourth quarter and non-GAAP diluted EPS of $6.51 for
    the full year
  • Generated full-year operating cash flow of $1.9 billion or $988
    million excluding proceeds from ADS credit transaction, free cash flow
    of $1.7 billion or adjusted free cash flow of $751 million, excluding
    proceeds from ADS credit transaction

Fiscal 2019 and Beyond:

  • Announces second phase of credit outsourcing in an agreement to sell
    the remaining, non-prime portion of its accounts receivable for
    proceeds of $401 million - $435 million to investment funds managed by
    CarVal Investors with proceeds used to fund share repurchases of
    approximately $475 million
  • Implements "Signet Path to Brilliance" transformation plan to improve
    long-term operational and financial performance
  • Provides Fiscal 2019 guidance for same store sales down low-to-mid
    single digits, total sales of $5.9 billion -$6.1 billion, GAAP diluted
    EPS of $0.00 - $0.60 and non-GAAP diluted EPS of $3.75 - $4.25
  • Increases quarterly dividend by 20% to $0.37 per share

Signet Jewelers Limited ("Signet") (NYSE:SIG), the world's largest
retailer of diamond jewelry, today announced its results for the 14
weeks ("fourth quarter Fiscal 2018") and 53 weeks ("Fiscal 2018") ended
February 3, 2018.

"Fiscal 2018 was a challenging year for Signet," said Signet Jewelers
Chief Executive Officer Virginia C. Drosos. "We gained sales momentum in
our Zales banner in the fourth quarter as our strategic initiatives
began to take hold, but we experienced challenges at our Kay and Jared
banners, including execution issues related to the first phase of our
credit outsourcing transaction."

She continued, "Today we are announcing a three-year company-wide
comprehensive strategy to reinvigorate Signet and transform the Company
to be a share-gaining, OmniChannel jewelry category leader. Our 'Signet
Path to Brilliance' plan will advance our strategic priorities across
our Customer First, OmniChannel and Culture of Agility and Efficiency
pillars. Plan initiatives build on the strength of the Signet banners
and focus on 1) investing in eCommerce and product innovation, 2)
enhancing customer value, and 3) increasing cost competitiveness. We
will also look to further optimize our real estate portfolio through
opportunistic reinvestment in innovative store concepts, relocations to
off-mall locations, and strategic store closures. Looking ahead, Fiscal
2019 will be an important transition year as we implement our
transformation plan, and we expect to see improved operational and
financial performance beginning in Fiscal 2020."

"Signet Path to Brilliance" Transformation Plan

Signet is launching a three-year comprehensive transformation plan to
reposition the Company to be a share gaining, OmniChannel jewelry
category leader. The three-year plan includes cost efficiencies, a
portion of which will be reinvested in growth initiatives including 1)
eCommerce growth; 2) OmniChannel capabilities; and 3) innovation in
product assortment and the store experience. We believe this plan will
enable the Company to drive long-term sustainable, profitable sales
growth and create value for shareholders.

Key components of the transformation plan include:

Optimizing real estate footprint. Following an evaluation of
its real estate footprint, utilization, and cost structure, Signet
intends to reposition its portfolio to drive greater store productivity.
Efforts include development and implementation of innovative store
concepts to improve the in-store shopping experience, execution of
opportunistic store relocations and store closures to reduce the
Company's mall-based exposure and exiting regional brands. Signet
anticipates, pending the outcome of this evaluation, to close more than
200 stores by the end of Fiscal 2019. As approximately three-quarters of
stores expected to close are within the same mall as another Signet
banner, the company expects approximately 30 percent of revenue from
closed stores to transfer to remaining Signet stores.

Reducing non-customer facing costs. In line with Signet's goal
of creating a Culture of Agility and Efficiency, the Company is
implementing initiatives across its operations, including strategic
sourcing, distribution and warehousing, and corporate and support
functions to drive cost savings and operational efficiencies. These
include initiatives to reduce costs related to logistics, information
technology, third-party contracts and corporate expenses.

Enhancing Signet's eCommerce and OmniChannel capabilities.
Signet intends to invest in enhancing the customer experience across
platforms and becoming the leading jewelry retailer across channels. New
initiatives to drive increased digital traffic and improve conversion
include using R2Net product image visualization across banners, greater
personalization of content and product offering from enhanced behavioral
data management, and enhancing digital marketing return on investment
through greater visibility of a customer's multi-touch journey. The
company will also further expand and enhance its OmniChannel wish list,
bridal configurator, online appointment booking and local store online
viewing capability. With these investments, Signet aims to grow its
digital sales as a percentage of total revenues to at least 15% in
Fiscal Year 2021, compared to 8% in Fiscal Year 2018.

Leading innovation and customer value. Signet has launched an
Innovation Engine and is investing further in data analytics and
consumer insights, including a system to track customer net promoter
score. The Company is also addressing gaps in the customer value
proposition. These investments are expected to result in improved
product assortment and faster time to market, as well as greater
marketing and promotional effectiveness.

Strengthening employee engagement and capabilities. Our team
and organization will be key to accomplishing the Company's
transformation goals. Signet has hired and promoted several executives
to fill key leadership roles, is investing in building eCommerce,
analytics and innovation resources and is focusing on reigniting
employee engagement in our store operations through training and
development opportunities. The Company will also provide a one-time
special cash award to all hourly non-managerial team employees in Fiscal
2019 to enhance employee commitment as we begin our transformation
efforts, funded by US tax reform, as well as a three-year transformation
incentive program for all employees.

The cost reductions have been carefully considered to ensure that Signet
continues to 1) invest for the future; 2) drive long-term sustainable
sales growth; and 3) create shareholder value. Together, these actions
are expected to deliver $200 million - $225 million of net cost savings
over the next three fiscal years. The Company's preliminary estimates
for pre-tax charges related to cost reduction activities over the next
three fiscal years is a range of $170 million - $190 million, of which
$105 million - $120 million are expected to be cash charges.

In Fiscal 2019, the transformation plan is expected to deliver net costs
savings of $85 million - $100 million with further incremental cost
reductions of $115 million - $125 million by the end of the three-year
program. A majority of the Fiscal 2019 savings are expected to be
realized in the second half of the fiscal year. In Fiscal 2019, the
Company's preliminary estimates for pre-tax charges related to cost
reduction activities is a range of $125 million to $135 million of which
$60 million to $65 million are expected to be cash charges.

Second Phase of Credit Outsourcing

Signet is announcing today an agreement to sell its non-prime in-house
credit card receivables and enter a five-year committed forward flow
purchase program for future originations. This agreement, in conjunction
with the previously executed prime credit transaction and strategic
partnership with ADS, and the outsourcing of the servicing of the
non-prime credit program to Genesis Financial Solutions, Inc. will
complete Signet's transition to an outsourced credit structure. Under
the agreement, Signet will sell its non-prime receivables originated by
Signet to investment funds managed by CarVal Investors, which will allow
Signet to divest itself of the credit risk relating to those receivables
shortly following origination, while maintaining a full spectrum of
financing and leasing options for customers. The completion of the
second phase outsourcing of Signet's credit portfolio is expected to
significantly reduce consumer credit risk from the balance sheet, reduce
working capital and allow the company to continue to return significant
capital to shareholders.

Under the terms of the agreement, Signet will sell its non-prime credit
receivables to investment funds managed by CarVal Investors, a leading
global alternative investment fund manager. The accounts receivable will
be sold at a price expressed as a percentage of the par value of the
accounts receivable of 72%, which is net of estimated servicing expenses
for the receivables. Historically, Signet has carried these receivables
at approximately 85% of par value. The current sale price represents
approximately 85% of Signet's historical carrying value. The estimated
par value of receivables at closing is $585 million - $635 million.
Additionally, there will be a 5% holdback of the receivables purchase
price at closing, which may be paid out at the end of two years
depending on the performance of such receivables in that period.

The sale is expected to result in $401 million - $435 million of
proceeds inclusive of the servicing expense on these receivables.
Additionally, we expect to incur $7 million in transaction costs. Under
the terms of the agreement, Signet has the right, subject to conditions
and limitations in the agreement, to allocate up to 30% of the
receivables to be sold and the forward receivables to a second purchaser
on substantially the same terms. Signet intends to use the proceeds from
the sale of its non-prime receivables to repurchase shares in Fiscal
2019, subject to market conditions.

Signet expects to reclassify the non-prime credit receivables to assets
held for sale in the first quarter of Fiscal 2019. In connection with
the transaction, a loss, inclusive of the servicing payment, will be
recognized related to the difference between the net book value and the
fair value of the receivables at which they will be sold to investment
funds managed by CarVal Investors at closing. It is estimated that a
$140 million loss will be recognized in the first quarter of Fiscal
2019. Receivables originated during the second quarter prior to closing
will also be marked to the fair value at which they will be sold to
investment funds managed by CarVal Investors, resulting in losses on
each of these new receivables until closing. The total loss in
connection with the transaction is estimated to be $165 million to $170
million which includes $45 million to $55 million in servicing costs as
well as transaction costs.

In addition, for a five-year term, Signet will remain the issuer of
non-prime credit with investment funds managed by CarVal Investors
obligated to purchase forward receivables at a discount rate determined
in accordance with the agreement.

Servicing of the non-prime receivables, including operational interfaces
and customer servicing, will continue to be provided by Genesis
Financial Solutions, Inc., the service provider for the non-prime credit
program established as part of the first phase of our outsourcing
strategy.

The transaction is expected to close in the second quarter of Signet's
Fiscal 2019 subject to certain closing conditions. There are no customer
or store-facing systems integration activities required of Signet to
close the transaction and the Company does not expect any changes to the
current credit application process for non-prime customers.

For additional information, please see "Additional Information Regarding
Credit Outsourcing" in this release and Signet's Current Report on Form
8-K, filed today with the SEC.

Fourth Quarter Fiscal 2018 Financial Highlights:

Signet's total sales were $2.3 billion, up $23.2 million or 1.0%, in the
14 weeks ended February 3, 2018 ("fourth quarter Fiscal 2017"). The
total sales increase was driven by the extra 14th retail-calendar week
of sales, worth $84.3 million, as well as the addition of R2Net
(acquired in September 2017) which contributed $64.4 million in sales in
the quarter, offset by a year-over-year decline in base same store
sales. Same store sales, which excluded the impact of the 14th
week from its calculation, decreased 5.2% in the fourth quarter Fiscal
2017. R2Net sales were up 35.0% compared to the prior year quarter and
had a 90 bps positive impact on total Company same store sales in the
quarter.

eCommerce sales in the fourth quarter at banner websites and R2Net were
$253.8 million on a 14-week basis, or $247.2 million on a 13 week basis,
up 52.8%. eCommerce sales increased across all divisions and accounted
for 11.1% of quarterly sales, up from 7.1% of total sales in the prior
year fourth quarter.

By operating segment:

  • Sterling Jewelers' same store sales decreased 8.6%, including 150 bps
    of favorability from the addition of R2Net. Approximately 500 bps of
    the same store sales decline was a result of the credit outsourcing
    transition, most notably in sales of bridal merchandise. While both
    Kay and Jared experienced issues related to the credit transition,
    impacts were more pronounced at Kay, where a greater percentage of
    customers utilize in-store credit for bridal purchases. In addition to
    credit transition issues, Sterling sales were driven by less effective
    promotional spending and lower sales of the Ever Us collection
    partially offset by the success of the Chosen collection at Jared.
    Average transaction value increased 1.7%, and the number of
    transactions decreased 12.8%, excluding the impacts of R2Net. The
    Sterling Jewelers credit participation rate for the fourth quarter was
    55.1% compared to 59.2% for the prior year quarter.
  • Zale Jewelry's same store sales increased 4.3%, driven by the new
    Enchanted Disney collection, line extensions in Vera Wang Love and an
    improved selection of solitaires and fancy cut diamonds. Average
    transaction value increased 3.8% and the number of transactions
    increased 1.1%.
  • Piercing Pagoda's same store sales increased 4.6% driven by chains and
    gold jewelry. Average transaction value increased 8.1%, while the
    number of transactions decreased 2.6%.
  • UK Jewelry's same store sales decreased 9.2% due principally to
    diamond and fashion jewelry, partially offset by higher sales in
    select prestige watch brands and strength in eCommerce. Average
    transaction value increased 6.6% and the number of transactions
    decreased 15.2%.
     
      Change from previous year
Fourth quarter of Fiscal 2018    

Same
store
sales(1)

 

Non-same
store sales,
net(2)

 

Impact of
14th week
on
total

sales

 

Total sales
at constant
exchange
rate

 

Exchange
translation
impact

 

Total
sales
as reported

Total
sales
(in millions)

Kay (11.0)% 2.1% 3.1% (5.8)% $ 862.0
Jared (6.4)% 0.8% 4.2% (1.4)% $ 424.5
R2Net 35.0% $ 64.4
Regional brands (27.9)% (13.4)% 2.1% (39.2)% $ 31.8
Sterling Jewelers Division (8.6)% 4.2% 3.3% (1.1)% $ 1,382.7
Zales 5.1% (2.8)% 4.5% 6.8% $ 483.2
Gordon's (9.7)% (28.0)% 3.5% (34.2)% $ 12.3
Zale US Jewelry 4.7% (3.9)% 4.4% 5.2% $ 495.5
Peoples 3.8% (3.5)% 4.6% 4.9% 5.6% 10.5% $ 80.9
Mappins (12.5)% (35.6)% 3.1% (45.0)% 3.1% (41.9)% $ 6.1
Zale Canada Jewelry 2.5% (8.4)% 4.5% (1.4)% 5.3% 3.9% $ 87.0
Total Zale Jewelry 4.3% (4.6)% 4.4% 4.1% 0.9% 5.0% $ 582.5
Piercing Pagoda 4.6% (0.6)% 4.8% 8.8% $ 91.1
Zale Division 4.4% (4.2)% 4.5% 4.7% 0.8% 5.5% $ 673.6
H.Samuel (9.2)% (0.3)% 3.9% (5.6)% 7.8% 2.2% $ 122.3
Ernest Jones (9.3)% 0.2% 4.5% (4.6)% 8.0% 3.4% $ 111.6
UK Jewelry Division (9.2)% (0.2)% 4.2% (5.2)% 8.0% 2.8% $ 233.9
Other segment (48.2)% $ 2.9
Signet (5.2)% 1.5% 3.7% —% 1.0% 1.0% $ 2,293.1
 
Notes: 1=For stores open for at least 12 months. 2=For stores not
open in the last 12 months.
 

Gross margin was $919.8 million, or 40.1% of sales, down 160 basis
points from fourth quarter Fiscal 2017, including a negative 70 bps
impact related to R2Net, which carries a lower gross margin rate. The
remaining decline in gross margin rate was driven by lower sales,
leading to deleverage on fixed costs and merchandise mix.

  • Sterling Jewelers gross margin decreased $36.7 million. The gross
    margin rate declined 220 bps, of which 120 bps is attributed to the
    inclusion of R2Net. The remainder of the rate decline is primarily due
    to de-leverage of fixed costs offset in part by a higher gross
    merchandise margin rate. Net bad debt expense had no material impact
    on the gross margin rate.
  • Zale Division gross margin increased by $14.0 million. The gross
    margin rate decreased by 10 basis points, driven primarily by higher
    sales leading to leverage on fixed costs, partially offset by a
    decline in gross merchandise margin rate due to merchandise mix.
  • Gross margin dollars in the UK Jewelry Division decreased $3.3
    million. The gross margin rate declined by 240 bps due to lower sales
    leading to deleverage on fixed costs.

SGA was $634.5 million, or 27.7% of sales, compared to $615.3 million or
27.1%. The increase in expense was driven by inclusion of the 14th
week in the quarter which added $30.5 million of expense. Excluding this
additional week, SGA was $604.0 million or 27.3% of sales, driven in
part by lower advertising expense and store labor costs. In addition,
credit outsourcing costs of $21 million were more than offset by savings
of $25 million related to in-house credit operations.

Other operating income was $39.5 million compared to $69.0 million in
the prior year fourth quarter, down $29.5 million or 42.8%. The decrease
resulted from the sale of the Sterling Division's prime accounts
receivable, which led to less interest income earned from a smaller
receivable portfolio.

In the fourth quarter, Signet's operating income was $323.5 million or
14.1% of sales, compared to $399.2 million or 17.6% of sales in prior
year fourth quarter. The 350 basis point decline was driven by
deleverage of fixed costs due to sales declines, the impact of the
credit outsourcing transaction and deleverage related to R2Net, which
carries a lower operating margin rate. The credit outsourcing
transaction (excluding the sales impact of credit transition) reduced
operating income by $21 million in the quarter primarily due to the loss
of interest income.

       
Fourth Quarter Fiscal 2018 Fourth Quarter Fiscal 2017
(in millions) $   % of sales $   % of sales
Sterling Jewelers Division 213.4 15.4 % 298.0 21.3 %
Zale Division 92.5 13.7 % 71.7 11.2 %
UK Jewelry Division 35.0 15.0 % 42.6 18.7 %
Other -17.4 nm -13.1 nm
Total 323.5 14.1 % 399.2 17.6 %
nm     Not meaningful.
 

Income tax benefit was $37.8 million compared to income tax expense of
$88.7 million in the prior year fourth quarter. Revaluation of net
deferred tax liabilities due to the Tax Cuts and Jobs Act resulted in a
one-time non-cash benefit of $64.7 million in the quarter.

The GAAP effective tax rate was 1.5% which includes the one-time
non-cash benefit of the revaluation of deferred taxes as compared to
23.9% in the prior year. The GAAP rate was driven by the favorable
impact of the Tax Cuts and Jobs Act in the United States and pre-tax
earnings mix by jurisdiction. Excluding the benefit from revaluation of
net deferred tax liabilities of 12.3%, the Fiscal Year 2018 effective
tax rate was 13.8%. This rate decline was driven by the favorable impact
of the pre-tax earnings mix by jurisdiction.

GAAP Diluted EPS was $5.24 for the quarter versus $3.92 in the prior
year quarter. The 14th week added $0.12 of EPS. Non-GAAP EPS for the
quarter was $4.28 and excludes $0.96 of benefit from revaluation of
deferred tax assets. GAAP and non-GAAP EPS growth was driven by lower
interest expense due to lower debt balances, a lower effective tax rate
and lower share count, partially offset by lower operating profit.

Fiscal 2018 Financial Highlights:

Signet's total sales were $6.3 billion, down $155.4 million or 2.4%,
compared to Fiscal 2017. The total sales decline was driven by a decline
in base same store sales, partially offset by benefit of the extra 14th
retail-calendar week of sales worth $84.3 million, as well as the
addition of R2Net (acquired in September 2017) which contributed $88.1
million in sales for the year. Same store sales, which excluded the
impact of the 53rd week from its calculation, decreased 5.3% compared to
the prior year. R2Net sales were up 29.9% compared to the prior year and
had a 40 bps positive impact on total company same store sales.

eCommerce sales at banner websites and R2Net in the fiscal year were
$497.7 million on a 53-week basis and $491.1 million on a 52-week basis,
up 35.3%. eCommerce sales increased across all divisions and accounted
for 8.0% of annual sales, up from 5.7% in the prior year.

By operating segment:

  • Sterling Jewelers' same store sales decreased 7.0% including 70 bps of
    favorability from the addition of R2Net . Average transaction value
    increased 3.1% and the number of transactions decreased 10.9%
    excluding R2Net. Sales declines were driven by weakness in bridal in
    Kay and Jared, including lower year over year sales of the Ever Us
    collection. The Sterling Jewelers credit participation rate for Fiscal
    2018 was 57.9% compared to 62.0% for Fiscal 2017.
  • Zale Jewelry's same store sales decreased 1.9%. Average transaction
    value increased 2.3%, while the number of transactions decreased 4.7%.
    Sales reflected strength in diamond fashion jewelry, most notably in
    the Disney Enchanted and Vera Wang Love collections, offset by
    weakness in bridal and beads.
  • Piercing Pagoda's same store sales increased 3.0%. Average transaction
    value increased 8.6%, while the number of transactions decreased 5.0%.
    Sales increases were driven by gold fashion jewelry.
  • UK Jewelry's same store sales decreased 6.0%. Average transaction
    value increased 9.7% and the number of transactions decreased 14.7%.
    Sales declines were due principally to bridal and diamond fashion
    jewelry partially offset by higher sales in select prestige watch
    brands and strength in eCommerce.
     
      Change from previous year
Fiscal Year 2018    

Same
store
sales(1)

 

Non-same
store sales,
net(2)

 

Impact of
53rd week
on
total

sales

 

Total sales
at constant
exchange
rate

 

Exchange
translation
impact

 

Total
sales
as reported

Total
sales
(in millions)

Kay (8.0)% 2.5% 1.1% (4.4)% $ 2,428.1
Jared (5.5)% 1.1% 1.5% (2.9)% $ 1,192.1
R2Net 29.9% $ 88.1
Regional brands (19.8)% (12.2)% 0.7% (31.3)% $ 112.2
Sterling Jewelers Division (7.0)% 3.0% 1.2% (2.8)% $ 3,820.5
Zales (2.0)% (0.6)% 1.6% (1.0)% $ 1,244.3
Gordon's (15.9)% (21.3)% 1.0% (36.2)% $ 36.8
Zale US Jewelry (2.5)% (1.7)% 1.6% (2.6)% $ 1,281.1
Peoples 2.6% (1.7)% 1.7% 2.6% 2.5% 5.1% $ 215.4
Mappins (10.8)% (25.5)% 0.9% (35.4)% 1.7% (33.7)% $ 19.7
Zale Canada Jewelry 1.3% (5.1)% 1.6% (2.2)% 2.4% 0.2% $ 235.1
Total Zale Jewelry (1.9)% (2.2)% 1.6% (2.5)% 0.3% (2.2)% $ 1,516.2
Piercing Pagoda 3.0% 1.4% 1.5% 5.9% $ 278.5
Zale Division (1.2)% (1.7)% 1.6% (1.3)% 0.3% (1.0)% $ 1,794.7
H.Samuel (6.5)% 0.6% 1.6% (4.3)% (0.9)% (5.2)% $ 306.7
Ernest Jones (5.6)% 1.1% 1.6% (2.9)% (1.3)% (4.2)% $ 310.0
UK Jewelry Division (6.0)% 0.8% 1.6% (3.6)% (1.1)% (4.7)% $ 616.7
Other segment 16.6% $ 21.1
Signet (5.3)% 1.6% 1.3% (2.4)% —% (2.4)% $ 6,253.0
 
Notes: 1=For stores open for at least 12 months. 2=For stores not
open in the last 12 months. 3=Includes 147 days of R2Net sales as if
R2Net had been part of Signet in the same period prior year.
 

Balance Sheet and Statement of Cash Flows:

Net cash provided by operating activities for Fiscal 2018 was $1.9
billion or $988.0 million, excluding the proceeds of the sale of the
Company's prime receivables to ADS in October 2017. Free cash flow for
Fiscal 2018 was $1.7 billion, or $750.6 million excluding the proceeds
of the sale of prime receivables.

Cash and cash equivalents were $225.1 million as of February 3, 2018
compared to $98.7 million at prior-year end. The higher cash position
was due to lower inventory and a favorable impact from the reduction in
accounts receivable due to the sale of our prime receivables to ADS in
October 2017.

Net accounts receivable were $692.5 million compared to $1.9 billion at
the end of the prior year. The decline was due primarily to the sale of
the prime accounts.

In Fiscal 2018, Signet deployed cash of $460.0 million to repurchase
outstanding common stock, or 8.1 million shares, at an average cost of
$56.91 per share. As of February 3, 2018, there was $650.6 million
remaining under Signet's share repurchase authorization.

Net inventories were $2.3 billion, down 6.9%, compared to $2.4 billion
at the end of the prior year. The decline was primarily driven by
greater use of consignment inventory and disposition of slow-moving
inventory, partially offset by holiday sales below expectations.

Long-term debt was $688.2 million, down $629.7 million, compared to $1.3
billion in the prior year period primarily due to the repayment of the
$600.0 million asset back securitization.

 

Financial Guidance:

 
Fiscal 2019
Same store sales (excludes impact of revenue recognition changes)       down low to mid single digit %
Total sales $5.9 billion to $6.1 billion
GAAP diluted EPS $0.00 to $0.60
Non-GAAP diluted EPS $3.75 to $4.25
 
Weighted average common shares - basic 55 million to 56 million
Weighted average common shares - diluted 62 million to 63 million
Capital expenditures $165 million to $185 million
Net selling square footage -4.0% to -5.0%
 

The above Fiscal 2019 GAAP guidance reflects the following assumptions:

  • Impact of previously closed stores, which had annual sales of $150
    million in Fiscal 2018
  • Application of new revenue recognition accounting standard results in
    an increase to sales revenue of approximately $100 million for amounts
    previously reflected as an offset to operating expenses. No impact to
    operating income will result as this is a reclassification only. Prior
    year will not be adjusted for comparative purposes
  • Company plans to close more than 200 stores in Fiscal 2019 and open
    35-40 stores for a net selling square footage decline of approximately
    4.0% to 5.0%
  • Transformation program net savings goal of $85 million - $100 million,
    with savings primarily realized in the second half of the fiscal year
  • Operating profit impact of negative $100 million - $115 million due to
    the outsourcing of prime and non-prime accounts receivable
  • One-time pre-tax charges of $125 million - $135 million related to the
    transformation plan
  • Pre-tax loss associated with sale of the non-prime receivables
    portfolio of $113 million - $118 million, excluding $45 million to $55
    million of consideration related to future servicing expense on these
    receivables and transaction costs of approximately $7 million. The
    total pre-tax charges associated with the credit transaction are $165
    million to $170 million of which approximately $140 million is
    expected to be recognized in Q1 and the remainder in Q2
  • Capital expenditures driven largely by Kay off mall stores, store
    remodeling and IT initiatives. As IT initiatives depreciate faster
    than store initiatives, depreciation expense will have an unfavorable
    year-over-year impact
  • As a result of the one-time charges and the charges associated with
    the sale of the non-prime receivables, inclusive of the servicing fee
    and related transaction costs, Signet will likely realize a tax
    benefit for purposes of calculating GAAP EPS. This tax benefit is
    expected to range from $62 million to $67 million.
  • For purposes of calculating both GAAP and non-GAAP EPS, the company
    expects to use the basic share count for the first, second and third
    quarters and the full year, and the diluted share count for the fourth
    quarter.

Non-GAAP EPS guidance of $3.75 to $4.25 excludes one-time restructuring
charges associated with the transformation plan, and the charges
inclusive of servicing costs and transaction costs associated with the
sale of the non-prime receivables. Non-GAAP EPS is computed using a
normalized tax rate of 8% to 10%. Due to the revaluation of deferred
taxes associated with the US tax reform there may be additional discrete
items excluded from the calculation of non-GAAP EPS in Fiscal 2019 of
which the company is not currently aware of at this time.

Quarterly Dividend:

Signet's Board of Directors declared a quarterly cash dividend of $0.37
per share for the first quarter of Fiscal 2019, payable on June 1, 2018
to shareholders of record on May 4, 2018, with an ex-dividend date of
May 3, 2018. This represents a 20% increase in the dividend and is the
seventh consecutive year that Signet has raised its quarterly dividend.

Conference Call:

A conference call is scheduled today at 8:00 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: 1-647-689-4229

Access code: 4076268

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 over 3,500 stores primarily under the name
brands of Kay Jewelers, Zales, Jared The Galleria Of Jewelry, H.Samuel,
Ernest Jones, Peoples, Piercing Pagoda, and JamesAllen.com. 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,
www.pagoda.com,
and www.jamesallen.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, appear in a number of places throughout this document and
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, our ability to
implement Signet's transformation initiative, the effect of federal tax
reform and adjustments relating to such impact on the completion of our
fourth quarter and year-end financial statements, changes in
interpretation or assumptions, and/or updated regulatory guidance
regarding the U.S. tax reform, the benefits and outsourcing of the
credit portfolio sale including I/T disruptions, future financial
results and operating results, the timing and expected completion of the
second phase of the credit outsourcing, the impact of weather-related
incidents on Signet's business, the benefits and integration of R2Net,
general economic conditions, regulatory changes following the United
Kingdom's announcement to exit from the European Union, a decline in
consumer spending, 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, the development and maintenance of Signet's
omni-channel retailing, 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, risks related to Signet being a
Bermuda corporation, the impact of the acquisition of Zale Corporation
on relationships, including with employees, suppliers, customers and
competitors, and our ability to successfully integrate Zale
Corporation's operations and to realize synergies from the transaction.

For a discussion of these and other risks and uncertainties which could
cause actual results to differ materially from those expressed in any
forward-looking statement, see the "Risk Factors" section of Signet's
Fiscal 2017 Annual Report on Form 10-K filed with the SEC on March 16,
2017 and quarterly reports on Form 10-Q filed with the SEC. Signet
undertakes no obligation to update or revise any forward-looking
statements to reflect subsequent events or circumstances, except as
required by law.

GAAP to Non-GAAP Reconciliations

Free cash flow is a non-GAAP measure defined as the net cash provided by
operating activities less purchases of property, plant and equipment.
Adjusted free cash flow is a non-GAAP measure defined as the net cash
provided by operating activities less purchases of property, plant and
equipment and less proceeds from the sale of in-house finance
receivables.

Management considers adjusted free cash flow as helpful in understanding
how the business is generating cash from its operating and investing
activities that can be used to meet the financing needs of the business.
Adjusted free cash flow is an indicator used by management frequently in
evaluating its overall liquidity and determining appropriate capital
allocation strategies. Free cash flow and adjusted free cash flow
do not represent the residual cash flow available for discretionary
expenditure.

         
(in millions) Fiscal 2018 Fiscal 2017 Fiscal 2016
Net cash provided by operating activities $ 1,940.5 $ 678.3 $ 443.3
Proceeds from sale of in-house finance receivables   952.5          
Operating cash flow (excluding sale of in-house finance receivables) $ 988.0   $ 678.3   $ 443.3  
 
 
(in millions) Fiscal 2018 Fiscal 2017 Fiscal 2016
Net cash provided by operating activities $ 1,940.5 $ 678.3 $ 443.3
Purchase of property, plant and equipment   (237.4 )   (278.0 )   (226.5 )
Free cash flow $ 1,703.1   $ 400.3   $ 216.8  
Proceeds from sale of in-house finance receivables   952.5          
Adjusted Free cash flow (excluding sale of in-house finance
receivables)
$ 750.6   $ 400.3   $ 216.8  
 
 

14 weeks
ended  
February 3,  
2018

Fiscal 2018

GAAP Diluted EPS $ 5.24 $ 7.44
Impact of revaluation of deferred taxes under Tax Cut and Jobs Act   (0.96 )   (0.93 )
Non-GAAP Diluted EPS $ 4.28   $ 6.51  
 
 

Fiscal 2019
Guidance Low
End

Fiscal 2019
Guidance High
End

2019 GAAP Diluted EPS $ $ 0.60
Charges related to transformation plan 1.61 1.56
Loss related to sale of non-prime receivables   2.14     2.09  
2019 Non-GAAP Diluted EPS* $ 3.75   $ 4.25  
 

Additional Information Regarding Credit Outsourcing

From a financial perspective, Signet expects to receive over $1.3
billion due to the combined sale of its prime and non-prime receivables
portfolios. While the outsourcing of our credit portfolio lowers our
operating profit, it also lowers share count and interest expense as
proceeds from the sale transactions have been and are expected to be
used to pay down debt and repurchase shares. Additionally, the
transactions result in lower working capital requirements going forward
as Signet has no need for funding accounts receivable for future sales
to its prime customers and will only hold receivables temporarily for 2
business days.

From a P&L perspective, after the prime and non-prime portfolio of
receivables are sold, Signet will no longer earn finance or late charge
income on those accounts and no longer incur bad debt expense. Signet
will continue to pay some minimal fees directly to Genesis for new
account originations, while all other servicing costs are included in
the discount on forward receivables sold to investment funds managed by
CarVal. The discount on forward receivables will be partially offset by
the elimination of the costs related to our former in-house credit
operations.

In Fiscal 2018 there was a reduction in operating income of $21 million
in the fourth quarter solely reflecting the impact of the initial credit
outsourcing of prime receivables to ADS and servicing of non-prime
receivables to Genesis. Our Fiscal 2019 guidance embeds an approximately
$118 to $133 million incremental year over year reduction in operating
income reflecting a combination of (1) an additional 8 months of impacts
of the prime outsourcing (2) 5 months of servicing costs on the
non-prime portfolio receivables and (3) 7 months of the impacts from the
future discount rate associated with new credit sales that investment
funds managed by CarVal Investors will purchase. For Fiscal 2020, we
expect a zero to $5 million positive year-over-year impact on operating
income. The 2020 estimate is based on an assumed discount rate for the
CarVal arrangement and could change if the discount rate were to reset
higher or lower under certain review provisions in the agreement.

         
(in millions) Fiscal 2018 Fiscal 2019E Fiscal 2020E
Operating profit impact $18 $(100-$115) $(100-$110)
Operating profit impact year over year change $(21) $(118-$133) $0-$5
 
Expected proceeds from sale of prime and non-prime receivables $952 $401-$435
 

Note: Proceeds are shown pre-transaction costs.

 
 

Condensed Consolidated Income Statements (Unaudited)

 
(in millions, except per share amounts)    

14 weeks
ended
February 3,
2018

 

13 weeks
ended
January 28,
2017

  Fiscal 2018   Fiscal 2017
Sales $ 2,293.1 $ 2,269.9 $ 6,253.0 $ 6,408.4
Cost of sales (1,373.3 ) (1,324.4 ) (4,063.0 ) (4,047.6 )
Gross margin 919.8 945.5 2,190.0 2,360.8
Selling, general and administrative expenses (634.5 ) (615.3 ) (1,872.2 ) (1,880.2 )
Credit transaction, net (1.3 ) 1.3
Other operating income, net 39.5   69.0   260.8   282.6  
Operating income 323.5 399.2 579.9 763.2
Interest expense, net (10.0 ) (13.0 ) (52.7 ) (49.4 )
Income before income taxes 313.5 386.2 527.2 713.8
Income taxes 37.8   (88.7 ) (7.9 ) (170.6 )
Net income $ 351.3 $ 297.5 $ 519.3 $ 543.2
Dividends on redeemable convertible preferred shares (8.3 ) (9.7 ) (32.9 ) (11.9 )
Net income attributable to common shareholders $ 343.0   $ 287.8   $ 486.4   $ 531.3  
 
Earnings per common share:
Basic $ 5.70 $ 4.17 $ 7.72 $ 7.13
Diluted $ 5.24 $ 3.92 $ 7.44 $ 7.08
Weighted average common shares outstanding:
Basic 60.2 69.0 63.0 74.5
Diluted 67.0 75.8 69.8 76.7
 
Dividends declared per common share $ 0.31 $ 0.26 $ 1.24 $ 1.04
 
 

Condensed Consolidated Balance Sheets (Unaudited)

 
(in millions, except par value per share amount)    

February 3,
2018

 

January 28,
2017

Assets
Current assets:
Cash and cash equivalents $ 225.1 $ 98.7
Accounts receivable, net 692.5 1,858.0
Other receivables 87.2 95.9
Other current assets 158.2 136.3
Income taxes 2.6 4.4
Inventories 2,280.5   2,449.3  
Total current assets 3,446.1   4,642.6  
Non-current assets:
Property, plant and equipment, net 877.9 822.9
Goodwill 821.7 517.6
Intangible assets, net 481.5 417.0
Other assets 171.2 165.1
Deferred tax assets 1.4 0.7
Retirement benefit asset 39.8   31.9  
Total assets $ 5,839.6   $ 6,597.8  
Liabilities and Shareholders' equity
Current liabilities:
Loans and overdrafts $ 44.0 $ 91.1
Accounts payable 237.0 255.7
Accrued expenses and other current liabilities 448.0 478.2
Deferred revenue 288.6 276.9
Income taxes 19.6   101.8  
Total current liabilities 1,037.2   1,203.7  
Non-current liabilities:
Long-term debt 688.2 1,317.9
Other liabilities 239.6 213.7
Deferred revenue 668.9 659.0
Deferred tax liabilities 92.3   101.4  
Total liabilities 2,726.2   3,495.7  
Commitments and contingencies
Series A redeemable convertible preferred shares of $0.01 par value:
500 shares authorized,
0.625 shares outstanding
613.6 611.9
Shareholders' equity:
Common shares of $0.18 par value: authorized 500 shares, 60.5 shares
outstanding
(2017: 68.3 outstanding)
15.7 15.7
Additional paid-in capital 290.2 280.7
Other reserves 0.4 0.4
Treasury shares at cost: 26.7 shares (2017: 18.9 shares) (1,942.1 ) (1,494.8 )
Retained earnings 4,396.2 3,995.9
Accumulated other comprehensive loss (260.6 ) (307.7 )
Total shareholders' equity 2,499.8   2,490.2  
Total liabilities, redeemable convertible preferred shares and
shareholders' equity
$ 5,839.6   $ 6,597.8  
 
 

Condensed Consolidated Statements of Cash Flows (Unaudited)

 
(in millions)     Fiscal 2018   Fiscal 2017
Cash flows from operating activities:
Net income $ 519.3 $ 543.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 203.4 188.8
Amortization of unfavorable leases and contracts (13.0 ) (19.7 )
Pension benefit (3.5 ) (1.6 )
Share-based compensation 16.1 8.0
Deferred taxation (33.4 ) 27.7
Excess tax benefit from exercise of share awards (2.4 )
Amortization of debt discount and issuance costs 3.7 2.8
Credit transaction, net (30.9 )
Other non-cash movements 2.4 0.4
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 242.1 (102.7 )
Proceeds from sale of in-house finance receivables 952.5
Decrease (increase) in other receivables and other assets 11.0 (20.4 )
(Increase) decrease in other current assets (17.0 ) 13.5
Decrease (increase) in inventories 210.9 (9.7 )
Decrease in accounts payable (51.4 ) (7.0 )
Increase (decrease) in accrued expenses and other liabilities 3.9 (21.8 )
Increase in deferred revenue 10.0 43.6
(Decrease) increase in income taxes payable (82.4 ) 38.9
Pension plan contributions (3.2 ) (3.3 )
Net cash provided by operating activities 1,940.5   678.3  
Investing activities
Purchase of property, plant and equipment (237.4 ) (278.0 )
Purchase of available-for-sale securities (2.4 ) (10.4 )
Proceeds from sale of available-for-sale securities 2.2 10.0
Acquisition of R2Net Inc., net of cash acquired (331.8 )  
Net cash used in investing activities (569.4 ) (278.4 )
Financing activities
Dividends paid on common shares (76.5 ) (75.6 )
Dividends paid on redeemable convertible preferred shares (34.7 )
Repurchase of common shares (460.0 ) (1,000.0 )
Proceeds from issuance of redeemable convertible preferred shares,
net of issuance costs
611.3
Proceeds from term and bridge loans 350.0
Repayments of term and bridge loans (372.3 ) (16.4 )
Proceeds from securitization facility 1,745.9 2,404.1
Repayments of securitization facility (2,345.9 ) (2,404.1 )
Proceeds from revolving credit facility 814.0 1,270.0
Repayments of revolving credit facility (870.0 ) (1,214.0 )
Repayments of bank overdrafts (0.1 ) (10.2 )
Other financing activities (4.0 ) (3.3 )
Net cash used in financing activities (1,253.6 ) (438.2 )
Cash and cash equivalents at beginning of period 98.7 137.7
Increase (decrease) in cash and cash equivalents 117.5 (38.3 )
Effect of exchange rate changes on cash and cash equivalents 8.9   (0.7 )
Cash and cash equivalents at end of period $ 225.1   $ 98.7  
 

Real Estate Portfolio:

Signet has a diversified real estate portfolio. On February 3, 2018,
Signet had 3,556 stores totaling 5.0 million square feet of selling
space. Compared to prior year, store count decreased by 126 and square
feet of selling space decreased 1.7%.

           
Store count     January 28, 2017 Openings Closures February 3, 2018
Kay 1,192 84 (29 ) 1,247
Jared 275 3 (4 ) 274
Regional brands 121     (56 ) 65
Sterling Jewelers Division 1,588 87 (89 ) 1,586
Zales 751 11 (58 ) 704
Peoples 143 2 (16 ) 129
Regional brands 76   (41 ) 35
Total Zale Jewelry 970 13 (115 ) 868
Piercing Pagoda 616 13   (31 ) 598
Zale Division 1,586 26 (146 ) 1,466
H.Samuel 304 2 (5 ) 301
Ernest Jones 204 1   (2 ) 203
UK Jewelry Division 508 3   (7 ) 504
Signet 3,682 116 (242 ) 3,556
 

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