NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and principal accounting policies
Signet Jewelers Limited (“Signet” or the “Company”), a holding company incorporated in Bermuda, is the world’s largest retailer of diamond jewelry. The Company operates through its 100% owned subsidiaries with sales primarily in the United States (“US”), United Kingdom (“UK”) and Canada. Signet manages its business as three reportable segments: North America, International, and Other. The “Other” reportable segment consists of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones. See Note 4 for additional discussion of the Company’s segments.
Signet’s business is seasonal, with the fourth quarter historically accounting for approximately 35-40% of annual sales as well as accounts for a substantial portion of the annual operating profit. However, in Fiscal 2022, Signet has experienced shifts in discretionary spending and consumer behavior that may cause the fourth quarter to account for a lower percentage of annual sales and profits. The “Holiday Season” consists of results for the months of November and December, with December being the highest volume month of the year.
Risks and Uncertainties - COVID-19
In December 2019, a novel coronavirus (“COVID-19”) was identified in Wuhan, China. During Fiscal 2021, the Company experienced significant disruption to its business, specifically in its retail store operations through temporary closures during the first half of the year. By the end of the third quarter of Fiscal 2021, the Company had re-opened substantially all of its stores. However, during the fourth quarter of Fiscal 2021, both the UK and certain Canadian provinces re-established mandated temporary closure of non-essential businesses. The UK stores began to reopen in April 2021, while the Canadian stores began reopening in the second quarter of Fiscal 2022.
The full extent and duration of the impact of COVID-19 on the Company’s operations and financial performance is currently unknown and depends on future developments that are uncertain and unpredictable, including the duration and possible resurgence of the COVID-19 pandemic (including through variants), the success of the vaccine rollout globally, its impact on the Company’s global supply chain, and the uncertainty of customer behavior and potential shifts in discretionary spending as the economy continues to reopen in the second half of the year. The Company will continue to evaluate the impact of the COVID-19 pandemic on its business, results of operations and cash flows throughout Fiscal 2022, including the potential impacts on various estimates and assumptions inherent in the preparation of the condensed consolidated financial statements.
Basis of preparation
The condensed consolidated financial statements of Signet are prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with US generally accepted accounting principles (“US GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in Signet’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021 filed with the SEC on March 19, 2021.
Use of estimates
The preparation of these condensed consolidated financial statements, in conformity with US GAAP and SEC regulations for interim reporting, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and as a result of the above noted risks associated with COVID-19, it is reasonably possible that those estimates will change in the near term and the effect could be material. Estimates and assumptions are primarily made in relation to the valuation of inventories, deferred revenue, derivatives, employee benefits, income taxes, contingencies, leases, asset impairments for goodwill, indefinite-lived intangible and long-lived assets and the depreciation and amortization of long-lived assets.
Fiscal year
The Company’s fiscal year ends on the Saturday nearest to January 31st. Fiscal 2022 and Fiscal 2021 refer to the 52 week periods ending January 29, 2022 and ended January 30, 2021, respectively. Within these condensed consolidated financial statements, the second quarter of the relevant fiscal years 2022 and 2021 refer to the 13 weeks ended July 31, 2021 and August 1, 2020, respectively.
Foreign currency translation
The financial position and operating results of certain foreign operations, including certain subsidiaries operating in the UK as part of the International segment and Canada as part of the North America segment, are consolidated using the local currency as the functional currency. Assets and liabilities are translated at the rates of exchange on the balance sheet date, and revenues and expenses are translated at the monthly average rates of exchange during the period. Resulting translation gains or losses are included in the accompanying condensed consolidated statements of shareholders’ equity as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains or losses resulting from foreign currency transactions are included in other operating income, net within the condensed consolidated statements of operations.
See Note 9 for additional information regarding the Company’s foreign currency translation.
Acquisition of Rocksbox
On March 29, 2021, the Company acquired all of the outstanding shares of Rocksbox Inc. (“Rocksbox”), a jewelry rental subscription business, for cash consideration of $14.4 million, net of cash acquired. The acquisition was driven by Signet's "Inspiring Brilliance" strategy and its initiatives to accelerate growth in its services offerings. Based on a preliminary purchase price allocation, net assets acquired primarily consist of goodwill and intangible assets (see Note 16 for details). In connection with closing the acquisition, the Company incurred approximately $1.1 million of acquisition-related costs for professional services in the 13 weeks ended May 1, 2021, which were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.
The results of Rocksbox subsequent to the acquisition date are reported as a component of the North America segment. See Note 4 for additional information regarding the Company’s segments. Pro forma results of operations have not been presented, as the impact on the Company’s condensed consolidated financial results was not material.
2. New accounting pronouncements
The following section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
New accounting pronouncements recently adopted
There were no new accounting pronouncements adopted as of January 31, 2021 that have a material impact on the Company’s financial position or results of operations.
New accounting pronouncements issued but not yet adopted
There are no new accounting pronouncements issued that are expected to be applicable to the Company in future periods.
3. Revenue recognition
The following tables provide the Company’s revenue, disaggregated by banner, major product and channel, for the 13 and 26 weeks ended July 31, 2021 and August 1, 2020:
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13 weeks ended July 31, 2021
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13 weeks ended August 1, 2020
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(in millions)
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North America
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International
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Other
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Consolidated
|
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North America
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International
|
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Other
|
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Consolidated
|
Sales by banner:
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|
|
|
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|
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|
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|
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Kay
|
$
|
673.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
673.7
|
|
|
$
|
325.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
325.0
|
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Zales
|
367.3
|
|
|
—
|
|
|
—
|
|
|
367.3
|
|
|
185.1
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|
|
—
|
|
|
—
|
|
|
185.1
|
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Jared
|
311.9
|
|
|
—
|
|
|
—
|
|
|
311.9
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|
168.5
|
|
|
—
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|
—
|
|
|
168.5
|
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Piercing Pagoda
|
138.7
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|
—
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|
—
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|
|
138.7
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|
59.3
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|
—
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|
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—
|
|
|
59.3
|
|
James Allen
|
108.8
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|
|
—
|
|
|
—
|
|
|
108.8
|
|
|
64.3
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|
—
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|
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—
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|
64.3
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Peoples
|
41.4
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|
—
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|
|
—
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|
|
41.4
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|
20.8
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|
—
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|
—
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|
|
20.8
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International segment banners
|
—
|
|
|
130.7
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|
|
—
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|
|
130.7
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|
|
—
|
|
|
61.0
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|
|
—
|
|
|
61.0
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Other (1)
|
3.9
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—
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11.7
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|
15.6
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—
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—
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4.0
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4.0
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Total sales
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$
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1,645.7
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|
$
|
130.7
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|
|
$
|
11.7
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|
|
$
|
1,788.1
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|
|
$
|
823.0
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|
$
|
61.0
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|
|
$
|
4.0
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|
$
|
888.0
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|
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26 weeks ended July 31, 2021
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26 weeks ended August 1, 2020
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(in millions)
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North America
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|
International
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|
Other
|
|
Consolidated
|
|
North America
|
|
International
|
|
Other
|
|
Consolidated
|
Sales by banner:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kay
|
$
|
1,350.4
|
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|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,350.4
|
|
|
$
|
658.5
|
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|
$
|
—
|
|
|
$
|
—
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|
|
$
|
658.5
|
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Zales
|
738.1
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|
—
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|
|
—
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738.1
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|
367.4
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|
|
—
|
|
|
—
|
|
|
367.4
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Jared
|
596.0
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|
|
—
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|
|
—
|
|
|
596.0
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|
313.9
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|
—
|
|
|
—
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|
|
313.9
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|
Piercing Pagoda
|
287.6
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|
—
|
|
|
—
|
|
|
287.6
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|
|
110.7
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|
|
—
|
|
|
—
|
|
|
110.7
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|
James Allen
|
210.3
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|
|
—
|
|
|
—
|
|
|
210.3
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|
|
108.1
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|
|
—
|
|
|
—
|
|
|
108.1
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|
Peoples
|
76.0
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|
|
—
|
|
|
—
|
|
|
76.0
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|
|
45.5
|
|
|
—
|
|
|
—
|
|
|
45.5
|
|
International segment banners
|
—
|
|
|
188.1
|
|
|
—
|
|
|
188.1
|
|
|
—
|
|
|
125.9
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|
|
—
|
|
|
125.9
|
|
Other (1)
|
5.3
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|
|
—
|
|
|
25.1
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|
|
30.4
|
|
|
—
|
|
|
—
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|
|
10.1
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|
|
10.1
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Total sales
|
$
|
3,263.7
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|
|
$
|
188.1
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|
|
$
|
25.1
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|
|
$
|
3,476.9
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|
|
$
|
1,604.1
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|
|
$
|
125.9
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|
|
$
|
10.1
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|
|
$
|
1,740.1
|
|
(1) Includes sales from Signet’s diamond sourcing initiative and Rocksbox.
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|
13 weeks ended July 31, 2021
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13 weeks ended August 1, 2020
|
(in millions)
|
North America
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|
International
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Other
|
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Consolidated
|
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North America
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International
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Other
|
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Consolidated
|
Sales by product:
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|
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|
|
|
|
|
|
Bridal
|
$
|
696.9
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|
|
$
|
60.7
|
|
|
$
|
—
|
|
|
$
|
757.6
|
|
|
$
|
417.1
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|
|
$
|
28.8
|
|
|
$
|
—
|
|
|
$
|
445.9
|
|
Fashion
|
680.7
|
|
|
20.7
|
|
|
—
|
|
|
701.4
|
|
|
294.5
|
|
|
12.7
|
|
|
—
|
|
|
307.2
|
|
Watches
|
58.6
|
|
|
41.0
|
|
|
—
|
|
|
99.6
|
|
|
23.7
|
|
|
22.4
|
|
|
—
|
|
|
46.1
|
|
Other (1)
|
209.5
|
|
|
8.3
|
|
|
11.7
|
|
|
229.5
|
|
|
87.7
|
|
|
(2.9)
|
|
|
4.0
|
|
|
88.8
|
|
Total sales
|
$
|
1,645.7
|
|
|
$
|
130.7
|
|
|
$
|
11.7
|
|
|
$
|
1,788.1
|
|
|
$
|
823.0
|
|
|
$
|
61.0
|
|
|
$
|
4.0
|
|
|
$
|
888.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 weeks ended July 31, 2021
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|
26 weeks ended August 1, 2020
|
(in millions)
|
North America
|
|
International
|
|
Other
|
|
Consolidated
|
|
North America
|
|
International
|
|
Other
|
|
Consolidated
|
Sales by product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridal
|
$
|
1,423.6
|
|
|
$
|
89.5
|
|
|
$
|
—
|
|
|
$
|
1,513.1
|
|
|
$
|
731.2
|
|
|
$
|
56.9
|
|
|
$
|
—
|
|
|
$
|
788.1
|
|
Fashion
|
1,342.1
|
|
|
30.4
|
|
|
—
|
|
|
1,372.5
|
|
|
592.4
|
|
|
25.3
|
|
|
—
|
|
|
617.7
|
|
Watches
|
105.5
|
|
|
58.2
|
|
|
—
|
|
|
163.7
|
|
|
48.3
|
|
|
39.9
|
|
|
—
|
|
|
88.2
|
|
Other (1)
|
392.5
|
|
|
10.0
|
|
|
25.1
|
|
|
427.6
|
|
|
232.2
|
|
|
3.8
|
|
|
10.1
|
|
|
246.1
|
|
Total sales
|
$
|
3,263.7
|
|
|
$
|
188.1
|
|
|
$
|
25.1
|
|
|
$
|
3,476.9
|
|
|
$
|
1,604.1
|
|
|
$
|
125.9
|
|
|
$
|
10.1
|
|
|
$
|
1,740.1
|
|
(1) Other revenue primarily includes gift, beads and other miscellaneous jewelry sales, repairs, subscriptions, service plan and other miscellaneous non-jewelry sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended July 31, 2021
|
|
13 weeks ended August 1, 2020
|
(in millions)
|
North America
|
|
International
|
|
Other
|
|
Consolidated
|
|
North America
|
|
International
|
|
Other
|
|
Consolidated
|
Sales by channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store
|
$
|
1,333.3
|
|
|
$
|
106.9
|
|
|
$
|
—
|
|
|
$
|
1,440.2
|
|
|
$
|
574.6
|
|
|
$
|
39.3
|
|
|
$
|
—
|
|
|
$
|
613.9
|
|
E-commerce
|
312.4
|
|
|
23.8
|
|
|
—
|
|
|
336.2
|
|
|
248.4
|
|
|
21.7
|
|
|
—
|
|
|
270.1
|
|
Other
|
—
|
|
|
—
|
|
|
11.7
|
|
|
11.7
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
|
4.0
|
|
Total sales
|
$
|
1,645.7
|
|
|
$
|
130.7
|
|
|
$
|
11.7
|
|
|
$
|
1,788.1
|
|
|
$
|
823.0
|
|
|
$
|
61.0
|
|
|
$
|
4.0
|
|
|
$
|
888.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 weeks ended July 31, 2021
|
|
26 weeks ended August 1, 2020
|
(in millions)
|
North America
|
|
International
|
|
Other
|
|
Consolidated
|
|
North America
|
|
International
|
|
Other
|
|
Consolidated
|
Sales by channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store
|
$
|
2,632.9
|
|
|
$
|
136.4
|
|
|
$
|
—
|
|
|
$
|
2,769.3
|
|
|
$
|
1,206.5
|
|
|
$
|
88.7
|
|
|
$
|
—
|
|
|
$
|
1,295.2
|
|
E-commerce
|
630.8
|
|
|
51.7
|
|
|
—
|
|
|
682.5
|
|
|
397.6
|
|
|
37.2
|
|
|
—
|
|
|
434.8
|
|
Other
|
—
|
|
|
—
|
|
|
25.1
|
|
|
25.1
|
|
|
—
|
|
|
—
|
|
|
10.1
|
|
|
10.1
|
|
Total sales
|
$
|
3,263.7
|
|
|
$
|
188.1
|
|
|
$
|
25.1
|
|
|
$
|
3,476.9
|
|
|
$
|
1,604.1
|
|
|
$
|
125.9
|
|
|
$
|
10.1
|
|
|
$
|
1,740.1
|
|
Extended service plans and lifetime warranty agreements (“ESP”)
The Company recognizes revenue related to ESP sales in proportion to when the expected costs will be incurred. The deferral period for ESP sales is determined from patterns of claims costs, including estimates of future claims costs expected to be incurred. Management reviews the trends in claims to assess whether changes are required to the revenue and cost recognition rates utilized. A significant change in estimates related to the time period or pattern in which warranty-related costs are expected to be incurred could materially impact revenues. All direct costs associated with the sale of these plans are deferred and amortized in proportion to the revenue recognized and disclosed as either other current assets or other assets in the condensed consolidated balance sheets. These direct costs primarily include sales commissions and credit card fees.
Deferred selling costs
Unamortized deferred selling costs as of July 31, 2021, January 30, 2021 and August 1, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
Other current assets
|
$
|
25.4
|
|
|
$
|
26.2
|
|
|
$
|
30.2
|
|
Other assets
|
87.1
|
|
|
85.1
|
|
|
76.4
|
|
Total deferred selling costs
|
$
|
112.5
|
|
|
$
|
111.3
|
|
|
$
|
106.6
|
|
Amortization of deferred ESP selling costs is included within selling, general and administrative expenses in the condensed consolidated statements of operations. Amortization of deferred ESP selling costs was $7.1 million and $17.0 million during the 13 and 26 weeks ended July 31, 2021, respectively, and $3.3 million and $7.6 million during the 13 and 26 weeks ended August 1, 2020, respectively.
Deferred revenue
Deferred revenue consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
ESP deferred revenue
|
$
|
1,063.8
|
|
|
$
|
1,028.9
|
|
|
$
|
990.5
|
|
Other deferred revenue (1)
|
43.5
|
|
|
43.1
|
|
|
39.7
|
|
Total deferred revenue
|
$
|
1,107.3
|
|
|
$
|
1,072.0
|
|
|
$
|
1,030.2
|
|
|
|
|
|
|
|
Disclosed as:
|
|
|
|
|
|
Current liabilities
|
$
|
297.9
|
|
|
$
|
288.7
|
|
|
$
|
330.9
|
|
Non-current liabilities
|
809.4
|
|
|
783.3
|
|
|
699.3
|
|
Total deferred revenue
|
$
|
1,107.3
|
|
|
$
|
1,072.0
|
|
|
$
|
1,030.2
|
|
(1) Other deferred revenue includes primarily revenue collected from customers for custom orders and eCommerce orders, for which control has not yet transferred to the customer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
ESP deferred revenue, beginning of period
|
$
|
1,049.4
|
|
|
$
|
961.0
|
|
|
$
|
1,028.9
|
|
|
$
|
960.0
|
|
Plans sold (1)
|
118.6
|
|
|
55.7
|
|
|
242.7
|
|
|
109.4
|
|
Revenue recognized (2)
|
(104.2)
|
|
|
(26.2)
|
|
|
(207.8)
|
|
|
(78.9)
|
|
ESP deferred revenue, end of period
|
$
|
1,063.8
|
|
|
$
|
990.5
|
|
|
$
|
1,063.8
|
|
|
$
|
990.5
|
|
(1) Includes impact of foreign exchange translation.
(2) The Company recognized sales of $63.9 million and $136.5 million during the 13 and 26 weeks ended July 31, 2021, respectively, and $9.7 million and $54.2 million during the 13 and 26 weeks ended August 1, 2020, respectively, related to deferred revenue that existed at the beginning of the period in respect to ESP. In Fiscal 2021, no ESP revenue was recognized beginning on March 23, 2020 due to the temporary closure of the Company’s stores and service centers as a result of COVID-19. As the Company began reopening stores and service centers during the second quarter of Fiscal 2021, the Company resumed recognizing service revenue as it fulfilled its performance obligations under the ESP.
4. Segment information
Financial information for each of Signet’s reportable segments is presented in the tables below. Signet’s chief operating decision maker utilizes segment sales and operating income, after the elimination of any inter-segment transactions, to determine resource allocations and performance assessment measures. Signet manages its business as three reportable segments: North America, International, and Other. Signet’s sales are derived from the retailing of jewelry, watches, other products and services as generated through the management of its reportable segments. The Company allocates certain support center costs between operating segments, and the remainder of the unallocated costs are included with the corporate and unallocated expenses presented.
The North America reportable segment operates across the US and Canada. Its US stores operate nationally in malls and off-mall locations principally as Kay (Kay Jewelers and Kay Jewelers Outlet), Zales (Zales Jewelers and Zales Outlet), Jared (Jared The Galleria Of Jewelry and Jared Vault), James Allen, Rocksbox and Piercing Pagoda, which operates primarily through mall-based kiosks. Its Canadian stores operate as the Peoples Jewellers store banner.
The International reportable segment operates stores in the UK, Republic of Ireland and Channel Islands. Its stores operate in shopping malls and off-mall locations (i.e. high street) principally as H.Samuel and Ernest Jones.
The Other reportable segment consists of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Sales:
|
|
|
|
|
|
|
|
North America segment
|
$
|
1,645.7
|
|
|
$
|
823.0
|
|
|
$
|
3,263.7
|
|
|
$
|
1,604.1
|
|
International segment
|
130.7
|
|
|
61.0
|
|
|
188.1
|
|
|
125.9
|
|
Other segment
|
11.7
|
|
|
4.0
|
|
|
25.1
|
|
|
10.1
|
|
Total sales
|
$
|
1,788.1
|
|
|
$
|
888.0
|
|
|
$
|
3,476.9
|
|
|
$
|
1,740.1
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
North America segment (1)
|
$
|
237.3
|
|
|
$
|
(57.0)
|
|
|
$
|
449.3
|
|
|
$
|
(291.2)
|
|
International segment (2)
|
15.5
|
|
|
(15.6)
|
|
|
(4.2)
|
|
|
(54.2)
|
|
Other segment
|
(0.1)
|
|
|
(0.2)
|
|
|
(1.0)
|
|
|
(0.5)
|
|
Corporate and unallocated expenses (3)
|
(27.3)
|
|
|
(16.9)
|
|
|
(50.0)
|
|
|
(43.4)
|
|
Total operating income (loss)
|
225.4
|
|
|
(89.7)
|
|
|
394.1
|
|
|
(389.3)
|
|
Interest expense, net
|
(4.4)
|
|
|
(9.4)
|
|
|
(8.3)
|
|
|
(16.5)
|
|
Other non-operating income, net
|
0.1
|
|
|
0.2
|
|
|
0.2
|
|
|
0.3
|
|
Income (loss) before income taxes
|
$
|
221.1
|
|
|
$
|
(98.9)
|
|
|
$
|
386.0
|
|
|
$
|
(405.5)
|
|
(1) Operating income (loss) during the 13 and 26 weeks ended July 31, 2021 includes: $0.0 million and $1.1 million, respectively, of acquisition-related expenses in connection with the Rocksbox acquisition; $1.4 million of gains associated with the sale of customer in-house finance receivables; $(0.3) million and $(1.0) million, respectively, to restructuring expense, primarily related to adjustments to previously recognized restructuring liabilities; and $(0.2) million and $1.3 million, respectively, of net asset impairments. See Note 1, Note 5, Note 11, and Note 14 for additional information.
Operating income (loss) during the 13 and 26 weeks ended August 1, 2020 includes: a $0.2 million and $0.6 million benefit, respectively, recognized due to a change in inventory reserves previously recognized as part of the Company’s restructuring activities; charges of $27.7 million and $36.6 million, respectively, primarily related to severance, professional fees and store closure costs recorded in conjunction with the Company’s restructuring activities; and asset impairment charges of $17.5 million and $135.4 million, respectively. See Note 5, Note 14, and Note 16 for additional information.
(2) Operating income (loss) during the 13 and 26 weeks ended August 1, 2020 includes: charges of $1.0 million and $4.6 million, respectively, related to severance and store closure costs recorded in conjunction with the Company’s restructuring activities; and asset impairment charges of $2.8 million and $21.2 million, respectively. See Note 5, Note 14, and Note 16 for additional information.
(3) Operating income (loss) during the 13 and 26 weeks ended July 31, 2021 includes $(0.6) million restructuring expense, primarily related to adjustments to previously recognized restructuring liabilities. See Note 5 for additional information.
Operating income (loss) during the 13 and 26 weeks ended August 1, 2020 includes: $(1.0) million and $7.5 million, respectively, related to the settlement of previously disclosed shareholder litigation matters, inclusive of expected insurance proceeds; and charges of $0.2 million and $0.4 million, respectively, primarily related to severance and professional services recorded in conjunction with the Company’s restructuring activities. See Note 5 and Note 22 for additional information.
5. Restructuring plans
Signet Path to Brilliance Plan
During the first quarter of Fiscal 2019, Signet launched a three-year comprehensive transformation plan, the “Signet Path to Brilliance” plan (the “Plan”), to reposition the Company to be a share-gaining, OmniChannel jewelry category leader. Restructuring activities related to the Plan were substantially completed in Fiscal 2021. The Company recorded credits to restructuring expense of $0.9 million and $1.6 million, during the 13 and 26 weeks ended July 31, 2021, respectively, primarily related to adjustments to previously recognized Plan liabilities.
Restructuring charges and other Plan-related costs are classified in the condensed consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
Statement of operations caption
|
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Inventory charges
|
Restructuring charges - cost of sales
|
|
$
|
—
|
|
|
$
|
(0.2)
|
|
|
$
|
—
|
|
|
$
|
(0.6)
|
|
Other Plan related expenses
|
Restructuring charges
|
|
(0.9)
|
|
|
28.9
|
|
|
(1.6)
|
|
|
41.6
|
|
Total Signet Path to Brilliance Plan expenses
|
|
|
$
|
(0.9)
|
|
|
$
|
28.7
|
|
|
$
|
(1.6)
|
|
|
$
|
41.0
|
|
The composition of the restructuring charges the Company incurred during the 13 and 26 weeks ended July 31, 2021, as well as the cumulative amount incurred under the Plan through July 31, 2021, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
|
Cumulative amount
|
(in millions)
|
|
July 31, 2021
|
|
July 31, 2021
|
|
July 31, 2021
|
Inventory charges
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
72.8
|
|
Termination benefits
|
|
(0.4)
|
|
|
(1.1)
|
|
|
48.8
|
|
Store closure and other costs
|
|
(0.5)
|
|
|
(0.5)
|
|
|
129.4
|
|
Total Signet Path to Brilliance Plan expenses
|
|
$
|
(0.9)
|
|
|
$
|
(1.6)
|
|
|
$
|
251.0
|
|
Plan liabilities of $5.0 million were recorded within accrued expenses and other current liabilities and Plan liabilities of $2.2 million were recorded within other liabilities in the condensed consolidated balance sheet as of July 31, 2021. The remaining Plan liabilities consist primarily of store closure liabilities and professional fees. The following table summarizes the activity related to the Plan liabilities for Fiscal 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Termination benefits
|
|
Store closure and other costs
|
|
Consolidated
|
Balance at January 30, 2021
|
|
$
|
2.1
|
|
|
$
|
8.1
|
|
|
$
|
10.2
|
|
Payments and other adjustments
|
|
(0.9)
|
|
|
(0.5)
|
|
|
(1.4)
|
|
Charged (credited) to expense
|
|
(1.1)
|
|
|
(0.5)
|
|
|
(1.6)
|
|
Balance at July 31, 2021
|
|
$
|
0.1
|
|
|
$
|
7.1
|
|
|
$
|
7.2
|
|
6. Redeemable preferred shares
On October 5, 2016, the Company issued 625,000 shares of Series A Redeemable Convertible Preference Shares (“Preferred Shares”) to certain affiliates of Leonard Green & Partners, L.P., for an aggregate purchase price of $625.0 million, or $1,000 per share (the “Stated Value”) pursuant to the investment agreement dated August 24, 2016. Preferred shareholders are entitled to a cumulative dividend at the rate of 5% per annum, payable quarterly in arrears either in cash or by increasing the stated value of the Preferred Shares. The Company declared the Preferred Share dividend during the fourth quarter of Fiscal 2021 payable “in-kind” by increasing the Stated Value of the Preferred Shares. The Stated Value of the Preferred Shares increased by $12.97 per share during the first quarter of Fiscal 2022 when this dividend was paid, all of which will become payable upon liquidation of the Preferred Shares. The Company has declared the first and second quarter Fiscal 2022 Preferred Share dividend payable in cash. Refer to Note 7 for additional discussion of the Company’s dividends on Preferred Shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except conversion rate and conversion price)
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
Conversion rate
|
12.2297
|
|
|
12.2297
|
|
|
12.2297
|
|
Conversion price
|
$
|
81.7682
|
|
|
$
|
81.7682
|
|
|
$
|
81.7682
|
|
Potential impact of preferred shares if-converted to common shares
|
8.0
|
|
|
7.9
|
|
|
7.7
|
|
Liquidation preference (1)
|
$
|
673.2
|
|
|
$
|
656.8
|
|
|
$
|
640.7
|
|
(1) Includes the stated value of the Preferred Shares plus any declared but unpaid dividends
In connection with the issuance of the Preferred Shares, the Company incurred direct and incremental expenses of $13.7 million. These direct and incremental expenses originally reduced the Preferred Shares carrying value and will be accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date in November 2024. Accumulated accretion recorded in the condensed consolidated balance sheets was $8.1 million as of July 31, 2021 (January 30, 2021 and August 1, 2020: $7.3 million and $6.5 million, respectively).
Accretion of $0.4 million and $0.8 million was recorded to Preferred Shares in the condensed consolidated balance sheets during the 13 and 26 weeks ended July 31, 2021 ($0.4 million and $0.8 million for the 13 and 26 weeks ended August 1, 2020).
7. Shareholders’ equity
Dividends on Common Shares
As a result of COVID-19, Signet’s Board of Directors (the “Board”) elected to temporarily suspend the dividend program on common shares, effective in the first quarter of Fiscal 2021. The Board has elected to reinstate the dividend program on common shares
beginning in second quarter of Fiscal 2022. Dividends declared on the common shares during the 26 weeks ended July 31, 2021 and August 1, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2022
|
|
Fiscal 2021
|
(in millions, except per share amounts)
|
Dividends
per share
|
|
Total dividends
|
|
Dividends
per share
|
|
Total dividends
|
First quarter
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Second quarter (1)
|
0.18
|
|
|
9.5
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
0.18
|
|
|
$
|
9.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1) Signet’s dividend policy for common shares results in the dividend payment date being a quarter in arrears from the declaration date. As a result, as of July 31, 2021, $9.5 million was recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheet reflecting the cash dividends on common shares declared for the second quarter of Fiscal 2022.
Dividends on Preferred Shares
Dividends declared on the Preferred Shares during the 26 weeks ended July 31, 2021 and August 1, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2022
|
|
Fiscal 2021
|
(in millions, except per share amounts)
|
Dividends
per share
|
|
Total dividends
|
|
Dividends
per share
|
|
Total dividends
|
First quarter
|
$
|
13.14
|
|
|
$
|
8.2
|
|
|
$
|
12.50
|
|
|
$
|
7.8
|
|
Second quarter (1)
|
13.14
|
|
|
8.2
|
|
|
12.66
|
|
|
7.9
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
26.28
|
|
|
$
|
16.4
|
|
|
$
|
25.16
|
|
|
$
|
15.7
|
|
(1) Signet’s Preferred Shares dividends result in the dividend payment date being a quarter in arrears from the declaration date. As a result, as of July 31, 2021 and August 1, 2020, $8.2 million and $7.9 million, respectively, has been recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets reflecting the dividends on the Preferred Shares declared for the second quarter of Fiscal 2022 and Fiscal 2021, respectively.
There were no cumulative undeclared dividends on the Preferred Shares that reduced net income (loss) attributable to common shareholders during the 13 and 26 weeks ended July 31, 2021 or August 1, 2020. See Note 6 for additional discussion of the Company’s Preferred Shares.
Share repurchases
There were no share repurchases executed during the 26 weeks ended July 31, 2021 or August 1, 2020. The 2017 Program had $165.6 million remaining as of July 31, 2021. On August 23, 2021, the Board authorized a reinstatement of repurchases under the 2017 Program, as well as an increase in the remaining amount of shares authorized for repurchase under the 2017 Program, from $165.6 million to $225 million.
8. Earnings (loss) per common share (“EPS”)
Basic EPS is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. The computation of basic EPS is outlined in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions, except per share amounts)
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
$
|
216.0
|
|
|
$
|
(90.0)
|
|
|
$
|
345.8
|
|
|
$
|
(295.3)
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
52.7
|
|
|
52.0
|
|
|
52.4
|
|
|
51.9
|
|
EPS – basic
|
$
|
4.10
|
|
|
$
|
(1.73)
|
|
|
$
|
6.60
|
|
|
$
|
(5.69)
|
|
The dilutive effect of share awards represents the potential impact of outstanding awards issued under the Company’s share-based compensation plans, including restricted shares, restricted stock units and stock options issued under the Omnibus Plan and stock options issued under the Share Saving Plans. The dilutive effect of Preferred Shares represents the potential impact for common shares that would be issued upon conversion. Potential common share dilution related to share awards and Preferred Shares is determined using the treasury stock and if-converted methods, respectively. Under the if-converted method, the Preferred Shares are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted EPS calculation for the entire period being presented, only in the periods in which such effect is dilutive. Additionally, in periods in which Preferred Shares are dilutive, cumulative dividends and accretion for issuance costs associated with the Preferred Shares are added back to net income (loss) attributable to common shareholders. See Note 6 for additional discussion of the Company’s Preferred Shares.
The computation of diluted EPS is outlined in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions, except per share amounts)
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
$
|
216.0
|
|
$
|
(90.0)
|
|
$
|
345.8
|
|
$
|
(295.3)
|
Add: Dividends on Preferred Shares
|
8.6
|
|
—
|
|
17.2
|
|
—
|
Numerator for diluted EPS
|
$
|
224.6
|
|
$
|
(90.0)
|
|
$
|
363.0
|
|
$
|
(295.3)
|
Denominator:
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
52.7
|
|
52.0
|
|
52.4
|
|
51.9
|
Plus: Dilutive effect of share awards
|
1.7
|
|
—
|
|
1.8
|
|
—
|
Plus: Dilutive effect of Preferred Shares
|
8.0
|
|
—
|
|
8.0
|
|
—
|
Diluted weighted average common shares outstanding
|
62.4
|
|
52.0
|
|
62.2
|
|
51.9
|
EPS – diluted
|
$
|
3.60
|
|
$
|
(1.73)
|
|
$
|
5.84
|
|
$
|
(5.69)
|
The calculation of diluted EPS excludes the following items for each respective period on the basis that their effect would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Share awards
|
—
|
|
|
1.7
|
|
|
—
|
|
|
1.4
|
|
Potential impact of Preferred Shares
|
—
|
|
|
7.7
|
|
|
—
|
|
|
7.7
|
|
Total anti-dilutive shares
|
—
|
|
|
9.4
|
|
|
—
|
|
|
9.1
|
|
9. Accumulated other comprehensive income (loss)
The following tables present the changes in AOCI by component and the reclassifications out of AOCI, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan
|
|
|
(in millions)
|
Foreign
currency
translation
|
|
Gains (losses) on available-for-sale securities, net
|
|
Gains (losses)
on cash flow
hedges
|
|
Actuarial
gains (losses)
|
|
Prior
service
credits (costs)
|
|
Accumulated
other
comprehensive
income (loss)
|
Balance at January 30, 2021
|
$
|
(238.9)
|
|
|
$
|
0.5
|
|
|
$
|
(0.9)
|
|
|
$
|
(47.2)
|
|
|
$
|
(4.0)
|
|
|
$
|
(290.5)
|
|
Other comprehensive income (loss) (“OCI”) before reclassifications
|
7.4
|
|
|
(0.1)
|
|
|
(0.2)
|
|
|
—
|
|
|
—
|
|
|
7.1
|
|
Amounts reclassified from AOCI to net income
|
—
|
|
|
—
|
|
|
0.4
|
|
|
0.3
|
|
|
0.1
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period OCI
|
7.4
|
|
|
(0.1)
|
|
|
0.2
|
|
|
0.3
|
|
|
0.1
|
|
|
7.9
|
|
Balance at July 31, 2021
|
$
|
(231.5)
|
|
|
$
|
0.4
|
|
|
$
|
(0.7)
|
|
|
$
|
(46.9)
|
|
|
$
|
(3.9)
|
|
|
$
|
(282.6)
|
|
The amounts reclassified from AOCI to earnings were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from AOCI
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
|
|
(in millions)
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
|
Statement of operations caption
|
Losses (gains) on cash flow hedges:
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
0.2
|
|
|
$
|
—
|
|
|
$
|
0.3
|
|
|
$
|
—
|
|
|
Cost of sales (see Note 17)
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
0.1
|
|
|
(0.9)
|
|
|
0.2
|
|
|
(1.7)
|
|
|
Cost of sales (see Note 17)
|
Total before income tax
|
0.3
|
|
|
(0.9)
|
|
|
0.5
|
|
|
(1.7)
|
|
|
|
Losses (gains) on de-designating cash flow hedges:
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.6)
|
|
|
Other operating income, net (see Note 17)
|
Commodity contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.3)
|
|
|
Other operating income, net (see Note 17)
|
Total before income tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.9)
|
|
|
|
Income taxes
|
(0.1)
|
|
|
0.1
|
|
|
(0.1)
|
|
|
2.7
|
|
|
|
Net of tax
|
0.2
|
|
|
(0.8)
|
|
|
0.4
|
|
|
(8.9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit pension plan items:
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized actuarial losses
|
0.2
|
|
|
—
|
|
|
0.4
|
|
|
0.1
|
|
|
Other non-operating income, net
|
Amortization of unrecognized net prior service credits
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
|
0.3
|
|
|
Other non-operating income, net
|
|
|
|
|
|
|
|
|
|
|
Total before income tax
|
0.3
|
|
|
0.1
|
|
|
0.5
|
|
|
0.4
|
|
|
|
Income taxes
|
(0.1)
|
|
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
|
Net of tax
|
0.2
|
|
|
0.1
|
|
|
0.4
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications, net of tax
|
$
|
0.4
|
|
|
$
|
(0.7)
|
|
|
$
|
0.8
|
|
|
$
|
(8.5)
|
|
|
|
10. Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
26 weeks ended
|
|
July 31, 2021
|
|
August 1, 2020
|
Estimated annual effective tax rate before discrete items
|
21.4
|
%
|
|
22.3
|
%
|
Discrete items recognized
|
(15.5)
|
%
|
|
8.9
|
%
|
Effective tax rate recognized in statements of operations
|
5.9
|
%
|
|
31.2
|
%
|
During the 26 weeks ended July 31, 2021, the Company’s effective tax rate was lower than the US federal income tax rate primarily due to the reversal of the valuation allowance recorded against certain state deferred tax assets. In the first quarter of Fiscal 2021, the Company recorded a valuation allowance on certain state deferred tax assets based primarily on its three-year cumulative loss position. During the second quarter of Fiscal 2022, the Company evaluated evidence to consider the reversal of the valuation allowance on its state net deferred tax assets and determined that there was sufficient positive evidence to conclude that it is more likely than not its state deferred tax assets are realizable. In determining the likelihood of future realization of the state deferred tax assets, the Company considered both positive and negative evidence. As a result, the Company believed that the weight of the positive evidence, including the cumulative income position in the three most recent years as of July 31, 2021 and forecasts for a sustained level of future taxable income, was sufficient to overcome the weight of the negative evidence, and thus recorded a $49.8 million tax benefit to release the valuation allowance against the Company's state deferred tax assets in the second quarter of Fiscal 2022. The Company’s effective tax rate for the same period during the prior year was higher than the US federal income tax rate primarily due to the benefits from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) recognized as a discrete item during the first quarter of Fiscal 2021, partially offset by the unfavorable impact of a valuation allowance recorded against certain US and state deferred tax assets and the impairment of goodwill which was not deductible for tax purposes.
The CARES Act provided a technical correction to the Tax Cuts and Jobs Act (“TCJA”) allowing fiscal year tax filers with federal net operating losses arising in the 2017/2018 tax year to be carried back two years to tax years that had higher enacted tax rates resulting in a tax benefit of $67.5 million recognized as a discrete item during the first quarter of Fiscal 2021. The CARES Act also provided for net operating losses incurred in Fiscal 2021 to be carried back five years to tax years with higher enacted tax rates resulting in an anticipated tax benefit as of the first quarter of Fiscal 2021 of $48.5 million. In addition, as discussed above, the Company recorded a valuation allowance of $56.7 million against certain deferred tax assets during the first quarter of Fiscal 2021. The estimated annual effective tax rate excludes the effects of any discrete items that may be recognized in future periods.
As of July 31, 2021, there has been no material change in the amounts of unrecognized tax benefits, or the related accrued interest and penalties (where appropriate), in respect of uncertain tax positions identified and recorded as of January 30, 2021.
11. Credit transactions
Credit card outsourcing programs
As previously disclosed, the Company has entered into various agreements with Comenity Bank, through its subsidiaries Sterling Jewelers Inc. (“Sterling”) and Zale Delaware, Inc. (“Zale”), to outsource its private label credit card programs. Prior to the amendments described below, under these agreements, Comenity Bank provided credit services to all prime credit customers for the Sterling banners, and to all credit card customers for the Zale banners. In May 2021, both the Sterling and Zale agreements with Comenity Bank were amended and restated as further described below.
The non-prime portion of the Sterling credit card portfolio was outsourced to CarVal Investors (“CarVal”) and the appointed minority party, Castlelake, L.P. (“Castlelake” and collectively with CarVal, the “Investors”). Under the agreement with the Investors, Signet remains the issuer of non-prime credit with investment funds managed by the Investors purchasing forward receivables at a discount rate determined in accordance with their respective agreements. Signet holds the newly issued non-prime credit receivables on its balance sheet for two business days prior to selling the receivables to the respective counterparty in accordance with the agreements. Various amended and restated agreements have been entered into with the Investors as described below.
Fiscal 2021 non-prime agreements with the Investors
During Fiscal 2021, the 2018 agreements pertaining to the purchase of forward flow receivables were terminated and new agreements were executed with the Investors which were effective until June 30, 2021. Those new agreements provided that the Investors will continue to purchase add-on non-prime receivables created on existing customer accounts at a discount rate determined in accordance with the new agreements. As a result of the above agreements, Signet began retaining all forward flow non-prime receivables created for new customers beginning in the second quarter of Fiscal 2021. The termination of the previous agreements had no effect on the receivables that were previously sold to the Investors prior to the termination, except that Signet agreed to extend the Investors’ payment obligation for the remaining 5% of the receivables previously purchased in June 2018 until the new agreements terminate. The Company’s agreement with the credit servicer Genesis Financial Solutions (“Genesis”) remained in place.
In January 2021, the Company reached additional agreements with the Investors to further amend the purchase agreements described above through June 30, 2021. CarVal continued to purchase add-on receivables for existing accounts and began to purchase 50% of new forward flow non-prime receivables. Genesis (becoming one of the “Investors”) began to purchase the remaining 50% of new forward flow non-prime receivables through June 30, 2021. Castlelake continued to purchase add-on receivables for existing accounts through June 30, 2021. Signet continued to retain add-on receivables for its existing accounts but no longer retained new forward flow non-prime receivables.
Fiscal 2022 amended and restated agreements
On May 17, 2021, Sterling entered into an Amended and Restated Credit Card Program Agreement (“Sterling Program Agreement”) with Comenity Bank, which amends and restates the Credit Card Program Agreement entered into by and between Sterling and Comenity Bank on May 25, 2017. In addition, on May 17, 2021, the Company, through Zale, entered into an Amended and Restated Private Label Credit Card Program Agreement (“Zale Program Agreement” and together with the Sterling Program Agreement, each a “Program Agreement” and collectively the “Program Agreements”) with Comenity Capital Bank (“Comenity Capital” and together with Comenity Bank, “Comenity”), which amends and restates the Private Label Credit Card Program Agreement entered into by Zale and Comenity Capital on July 9, 2013.
Each Program Agreement has an initial term from July 1, 2021 through December 31, 2025 and, unless terminated earlier by either party, automatically renews for successive two-year terms. The Program Agreements provide for, among other things, that Comenity operate a primary source program to issue credit cards to Sterling and Zale customers to be serviced, maintained, administered, collected upon, and promoted in accordance with the terms therein (the "Primary Source Program"). Each Program Agreement includes a signing bonus, which may be repayable under certain conditions if such Program Agreement is terminated.
Subject to limited exceptions, including permitting a second look program, during the term of the applicable Program Agreement, Comenity will be the exclusive issuer of open-ended credit products (including credit cards) in the United States bearing specified Company trademarks, including trademarks associated with “Kay”, “Jared” and other specified regional brands under the Sterling
Program Agreement, and, “Zale”, “Piercing Pagoda”, and other specified regional brands under the Zale Program Agreement. The Program Agreements contain customary representations, warranties, and covenants. Upon expiration or termination by either party of a Program Agreement, Sterling or Zale, as applicable, retains the option to purchase, or arrange the purchase by a third party of, the program assets from Comenity on customary terms and conditions. In the case of a purchase by Sterling upon expiration or termination of the Sterling Program Agreement, such purchase shall be on terms that are no more onerous to Sterling than those applicable to Comenity Bank under the Purchase Agreement, dated May 25, 2017, by and between Sterling and Comenity Bank.
In addition to the Program Agreements, on May 17, 2021, Sterling entered into an Amended and Restated Program Agreement (the “Genesis Agreement”) with Genesis, which amends and restates the Program Agreement entered into by and between Sterling and Genesis on July 26, 2018. The Genesis Agreement has an initial term from July 1, 2021 through December 31, 2025 and, unless terminated earlier by either party, automatically renews for successive one-year periods. Under the terms of the Genesis Agreement, Genesis will expand its role in originating, funding, administering and servicing a second look credit program to Sterling customers that are declined under the Sterling Program Agreement.
In March 2021, the Company provided notice to the Investors of its intent not to extend the respective agreements with such Investors beyond the expiration date of June 30, 2021. Effective July 1, 2021 (the “New Program Start Date”), all new prime and non-prime account origination will occur in accordance with the amended and restated Comenity and Genesis agreements as described above.
On June 30, 2021, the Company entered into amended and restated receivable purchase agreements with CarVal and Castlelake regarding the purchase of add-on receivables on such Investors’ existing accounts, as well as the purchase of the Company-owned credit card receivables portfolio for accounts that had been originated through Fiscal 2021 (see Note 12). During the second quarter of Fiscal 2022, Signet received cash proceeds of $57.8 million for the sale of these customer in-house finance receivables to the Investors. These receivables had a net book value of $56.4 million as of the sale date, and thus the Company recognized a gain on sale of $1.4 million in the North America segment within other operating income in the condensed consolidated statements of operations during the second quarter of Fiscal 2022. Additionally, during the second quarter of Fiscal 2022, the Company received $23.5 million from the Investors for the payment obligation of the remaining 5% of the receivables previously purchased in June 2018.
12. Accounts receivable, net
The following table presents the components of Signet’s accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
Customer in-house finance receivables, net
|
$
|
—
|
|
|
$
|
72.0
|
|
|
$
|
17.2
|
|
Accounts receivable, trade
|
10.7
|
|
|
11.6
|
|
|
8.5
|
|
Accounts receivable, held for sale
|
3.2
|
|
|
5.1
|
|
|
5.8
|
|
Accounts receivable, net
|
$
|
13.9
|
|
|
$
|
88.7
|
|
|
$
|
31.5
|
|
As discussed in Note 11, during Fiscal 2021, the 2018 agreements pertaining to the purchase of non-prime forward flow receivables were terminated and new agreements were executed with the Investors which were effective until June 30, 2021. Those new agreements provide that the Investors continued to purchase add-on non-prime receivables created on existing customer accounts but Signet began retaining all forward flow non-prime receivables created for new customers beginning in the second quarter of Fiscal 2021. As further discussed in Note 11, Signet sold all existing customer in-house finance receivables to CarVal and Castlelake during the second quarter of Fiscal 2022. As a result of the amended and restated agreements entered into with Comenity, Genesis, and the Investors during the second quarter of Fiscal 2022, Signet will no longer retain any customer in-house finance receivables.
As described above, Signet continues to be the issuer of non-prime credit for add-on purchases on existing accounts. Therefore, the Company holds these non-prime credit receivables on its balance sheet for two business days prior to selling the receivables to the Investors. Receivables originated by the Company but pending transfer to the Investors as of period end were classified as “held for sale” and included in the accounts receivable caption in the condensed consolidated balance sheets. As of July 31, 2021, January 30, 2021, and August 1, 2020, the accounts receivable held for sale were recorded at fair value.
Accounts receivable classified as trade receivables consist primarily of accounts receivable related to the sale of diamonds to third parties from its polishing factory deemed unsuitable for Signet's needs in the Other segment.
Customer in-house finance receivables
As discussed above, the Company began retaining certain customer in-house finance receivables beginning in the second quarter of Fiscal 2021 through the date of the portfolio sale. The allowance for credit losses was an estimate of expected credit losses, measured over the estimated life of its credit card receivables that considers forecasts of future economic conditions in addition to information about past events and current conditions. The Company accounts for the expected credit losses under ASC 326, “Measurement of
Credit Losses on Financial Instruments,” which is referred to as the Current Expected Credit Loss (“CECL”) model. The estimate under the CECL model is significantly influenced by the composition, characteristics and quality of the Company’s portfolio of credit card receivables, as well as the prevailing economic conditions and forecasts utilized. The estimate of the allowance for credit losses includes an estimate for uncollectible principal as well as unpaid interest and fees.
The allowance is maintained through an adjustment to the provision for credit losses and is evaluated for appropriateness and adjusted quarterly. CECL requires entities to use a “pooled” approach to estimate expected credit losses for financial assets with similar risk characteristics. The Company evaluated multiple risk characteristics of its credit card receivables portfolio and determined that credit quality and account vintage to be the most significant characteristics for estimating expected credit losses. To estimate its allowance for credit losses, the Company segregates its credit card receivables into credit quality categories using the customers’ FICO scores.
The following three industry standard FICO score categories are used:
•620 to 659 (“Near Prime”)
•580 to 619 (“Subprime”)
•Less than 580 (“Deep Subprime”)
These risk characteristics are evaluated on at least an annual basis, or more frequently as facts and circumstances warrant. The expected loss rates are adjusted on a quarterly basis based on historical loss trends and are risk-adjusted for current and future economic conditions and events. As summarized in the table below, based on the changes in the agreements with the Investors in Fiscal 2021, there is currently one vintage year since the Company began maintaining new accounts in Fiscal 2021 and ceased maintaining newly originated accounts by the end of Fiscal 2021.
The vintage year was Fiscal 2021 for all customer in-house finance receivables presented below. The following table disaggregates the Company’s customer in-house finance receivables by credit quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
January 30, 2021
|
|
August 1, 2020
|
Near Prime
|
|
|
$
|
46.6
|
|
|
$
|
10.9
|
|
Subprime
|
|
|
38.9
|
|
|
10.7
|
|
Deep Subprime
|
|
|
12.0
|
|
|
2.7
|
|
Total at amortized cost
|
|
|
$
|
97.5
|
|
|
$
|
24.3
|
|
In estimating its allowance for credit losses, for each identified risk category, management utilized estimation methods based primarily on historical loss experience, current conditions, and other relevant factors. These methods utilize historical charge-off data of the Company’s non-prime portfolio, as well as incorporate any applicable macroeconomic variables (such as unemployment) that may be expected to impact credit performance. In addition to the quantitative estimate of expected credit losses under CECL using the historical loss information, the Company also incorporates qualitative adjustments for certain factors such as Company specific risks, changes in current economic conditions that may not be captured in the quantitatively derived results, or other relevant factors to ensure the allowance for credit losses reflects the Company’s best estimate of current expected credit losses. Management considered qualitative factors such as the unfavorable macroeconomic conditions caused by the COVID-19 uncertainty (including rates of unemployment), the Company’s non-prime portfolio performance during the prior recession, and the potential impacts of the economic stimulus packages in the US, in developing its estimate for current expected credit losses for the current period.
The following table is a rollforward of the Company’s allowance for credit losses on customer in-house finance receivables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Balance at beginning of period
|
|
$
|
21.4
|
|
|
$
|
—
|
|
|
$
|
25.5
|
|
|
$
|
—
|
|
Provision for credit losses
|
|
0.8
|
|
|
7.1
|
|
|
(0.4)
|
|
|
7.1
|
|
Write-offs
|
|
(2.6)
|
|
|
—
|
|
|
(5.5)
|
|
|
—
|
|
Reversal of allowance on receivables sold
|
|
(19.6)
|
|
|
—
|
|
|
(19.6)
|
|
|
—
|
|
Balance at end of period
|
|
$
|
—
|
|
|
$
|
7.1
|
|
|
$
|
—
|
|
|
$
|
7.1
|
|
Beginning in the second quarter of Fiscal 2021, in connection with the new agreements executed with the Investors, additions to the allowance for credit losses are made by recording charges to bad debt expense (credit losses) within selling, general and administrative expenses within the condensed consolidated statements of operations. The uncollectible portion of customer in-house finance receivables are charged to the allowance for credit losses when an account is written-off after 180 days of non-payment, or in circumstances such as bankrupt or deceased cardholders. Write-offs on customer in-house finance receivables include uncollected amounts related to principal, interest, and late fees. Uncollectible accrued interest is accounted for by recognizing credit loss expense.
Recoveries on customer in-house finance receivables previously written-off as uncollectible are credited to the allowance for credit losses.
A credit card account is contractually past due if the Company does not receive the minimum payment by the specified due date on the cardholder’s statement. It is the Company’s policy to continue to accrue interest and fee income on all credit card accounts, except in limited circumstances, until the credit card account balance and all related interest and other fees are paid or written-off, typically at 180 days delinquent, as noted above.
The following table disaggregates the Company’s customer in-house finance receivables by past due status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
January 30, 2021
|
|
August 1, 2020
|
Current
|
|
|
|
$
|
81.3
|
|
|
$
|
23.2
|
|
1 - 30 days past due
|
|
|
|
9.1
|
|
|
1.0
|
|
31 - 60 days past due
|
|
|
|
2.6
|
|
|
0.1
|
|
61 - 90 days past due
|
|
|
|
1.7
|
|
|
—
|
|
Greater than 90 days past due
|
|
|
|
2.8
|
|
|
—
|
|
Total at amortized cost
|
|
|
|
$
|
97.5
|
|
|
$
|
24.3
|
|
Interest income related to the Company’s customer in-house finance receivables is included within other operating income, net in the condensed consolidated statements of operations. Accrued interest is included within the same line item as the respective principal amount of the customer in-house finance receivables in the condensed consolidated balance sheets. The accrual of interest is discontinued at the time the receivable is determined to be uncollectible and written-off. The Company recognized $2.5 million and $6.5 million of interest income on its customer in-house finance receivables during the 13 and 26 weeks ended July 31, 2021, respectively. Interest income was immaterial in the prior year periods.
13. Inventories
The following table summarizes the Company’s inventory by classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
Raw materials
|
$
|
106.4
|
|
|
$
|
45.3
|
|
|
$
|
81.4
|
|
Finished goods
|
1,898.3
|
|
|
1,987.2
|
|
|
2,111.7
|
|
Total inventories
|
$
|
2,004.7
|
|
|
$
|
2,032.5
|
|
|
$
|
2,193.1
|
|
As of July 31, 2021, inventory reserves were $52.9 million ($52.9 million and $37.1 million as of January 30, 2021 and August 1, 2020, respectively).
14. Asset impairments, net
The following table summarizes the Company's asset impairment activity for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Goodwill impairment (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10.7
|
|
Indefinite-lived intangible asset impairment (1)
|
—
|
|
|
—
|
|
|
—
|
|
|
83.3
|
|
Property and equipment impairment
|
0.2
|
|
|
11.9
|
|
|
1.2
|
|
|
25.7
|
|
Operating lease ROU asset impairment, net (2)
|
(0.4)
|
|
|
8.4
|
|
|
0.1
|
|
|
36.9
|
|
Total asset impairments, net
|
$
|
(0.2)
|
|
|
$
|
20.3
|
|
|
$
|
1.3
|
|
|
$
|
156.6
|
|
(1) Refer to Note 16 for additional information.
(2) The Company recorded $0.6 million and $0.8 million of gains on terminations or modifications of leases resulting from previously recorded impairments of the right of use assets during the 13 and 26 weeks ended July 31, 2021, respectively. The Company recorded $1.3 million and $2.3 million of gains on terminations or modifications of leases resulting from previously recorded impairments of the right of use assets during the 13 and 26 weeks ended August 1, 2020, respectively.
Long-lived assets of the Company consist primarily of property and equipment, definite-lived intangible assets and operating lease right-of-use (“ROU”) assets. Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. Potentially impaired assets or asset groups are identified by reviewing the undiscounted cash flows of individual stores or other asset groups. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset group, based on the Company’s internal business plans. If the undiscounted cash flow for the asset group is less than its carrying amount, the long-lived assets are measured for potential impairment by estimating the fair value of the asset group, and recording an impairment loss for the amount that the carrying value exceeds the estimated fair value. The Company utilizes primarily the replacement cost method to estimate the fair value of its property and equipment, and the income capitalization method to estimate the fair value of its ROU assets, which incorporates historical store level sales, internal business plans, real estate market capitalization and rental rates, and discount rates.
Fiscal 2021
Due to the various impacts of COVID-19 to the Company’s business during the 13 weeks ended May 2, 2020, including the temporary closure of all the Company’s stores beginning in late March 2020, the Company determined triggering events had occurred for certain of the Company’s long-lived asset groups at the individual stores that required an interim impairment assessment during the first quarter of Fiscal 2021. This impacted property, plant and equipment and ROU assets at the store level. The Company identified certain stores in the initial recoverability test which had carrying values in excess of the estimated undiscounted cash flows. For these stores failing the recoverability test, a fair value assessment for these long-lived assets was performed, and as a result of the estimated fair values, the Company recorded an impairment charge for property, plant and equipment of $13.8 million and ROU assets of $28.5 million, which is net of gains on terminations or modifications of leases resulting from previously recorded impairments of the ROU assets of $1.0 million.
During the 13 weeks ended August 1, 2020, the Company completed its quarterly trigger event assessment and determined that a triggering event had occurred for certain additional long-lived asset groups at the individual stores based on real estate assessments (including store closure decisions) and the continued uncertainty related to COVID-19 on forecasted cash flows for the remaining lease period for certain stores. These events required an interim impairment assessment during the second quarter of Fiscal 2021 for the identified store assets. This impacted both property, plant and equipment and ROU assets at the store level. The Company identified certain stores in the initial recoverability test which had carrying values in excess of the estimated undiscounted cash flows. For these stores failing the recoverability test, a fair value assessment for these long-lived assets was performed, and as a result of the estimated fair values, the Company recorded impairment charges for property, plant and equipment of $11.9 million and ROU assets of $8.4 million, which is net of gains on terminations or modifications of leases resulting from previously recorded impairments of the ROU assets of $1.3 million.
Fiscal 2022
During the 13 weeks ended May 1, 2021, the Company determined that triggering events had occurred for certain long-lived asset groups at individual stores based on real estate assessments (including store closure decisions) and store performance for the remaining lease period for certain stores that required an impairment assessment. This impacted property and equipment and ROU assets at the store level. The Company identified certain stores in the initial recoverability test which had carrying values in excess of the estimated undiscounted cash flows. For these stores failing the initial recoverability test, a fair value assessment for these long-lived assets was performed, and as a result of the estimated fair values, the Company recorded an impairment charge for property and equipment of $1.0 million and ROU assets of $0.5 million, which is net of gains on terminations or modifications of leases resulting from previously recorded impairments of the ROU assets of $0.2 million.
During the 13 weeks ended July 31, 2021, the Company determined that triggering events had occurred for certain long-lived asset groups at individual stores based on real estate assessments (including store closure decisions) and store performance for the remaining lease period for certain stores that required an impairment assessment. This impacted property and equipment and ROU assets at the store level. For these stores failing the initial recoverability test, a fair value assessment for these long-lived assets was performed, and as a result of the estimated fair values, the Company recorded an impairment charge for property and equipment of $0.2 million and a net ROU asset gain of $0.4 million, which consists of a $0.2 million impairment charge net of gains on terminations or modifications of leases resulting from previously recorded impairments of the ROU assets of $0.6 million.
The uncertainty of the COVID-19 impact to the Company’s business could continue to further negatively affect the operating performance and cash flows of the above identified stores or additional stores, including the magnitude and potential resurgence of COVID-19 (including variants), occupancy restrictions in the Company’s stores, the inability to achieve or maintain cost savings initiatives included in the business plans, changes in real estate strategy or macroeconomic factors which influence consumer behavior. In addition, key assumptions used to estimate fair value, such as sales trends, capitalization and market rental rates, and discount rates could impact the fair value estimates of the store assets in future periods.
15. Leases
The Company deferred substantially all of its rent payments due in the months of April 2020 and May 2020. As of July 31, 2021, the Company had approximately $42 million of deferred rent payments remaining. This deferred rent is expected to be substantially repaid by the end of Fiscal 2022. The Company has not recorded any provision for interest or penalties which may arise as a result of these deferrals, as management does not believe payment for any such interest or penalties to be probable. In April 2020, the FASB granted guidance (hereinafter, the practical expedient) permitting an entity to choose to forgo the evaluation of the enforceable rights and obligations of the original lease contract, specifically in situations where rent concessions have been agreed to with landlords as a result of COVID-19. Instead, the entity may account for COVID-19 related rent concessions, whatever their form (e.g. rent deferral, abatement or other) either: a) as if they were part of the enforceable rights and obligations of the parties under the existing lease contract; or b) as lease modifications. In accordance with this practical expedient, the Company elected not to account for any concessions granted by landlords as a result of COVID-19 as lease modifications. Rent abatements under the practical expedient would be recorded as a negative variable lease cost. The Company negotiated with substantially all of its landlords and has received certain concessions in the form of rent deferrals and other lease or rent modifications. In addition, the Company recorded lease expense during the deferral periods in accordance with its existing policies.
Total lease costs consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Operating lease cost
|
$
|
109.4
|
|
|
$
|
105.5
|
|
|
$
|
215.0
|
|
|
$
|
216.9
|
|
Short-term lease cost
|
5.6
|
|
|
5.8
|
|
|
6.4
|
|
|
10.7
|
|
Variable lease cost
|
30.9
|
|
|
26.3
|
|
|
61.5
|
|
|
51.9
|
|
Sublease income
|
(0.5)
|
|
|
(0.3)
|
|
|
(1.2)
|
|
|
(0.8)
|
|
Total lease cost
|
$
|
145.4
|
|
|
$
|
137.3
|
|
|
$
|
281.7
|
|
|
$
|
278.7
|
|
16. Goodwill and intangibles
Goodwill and other indefinite-lived intangible assets, such as indefinite-lived trade names, are evaluated for impairment annually. Additionally, if events or conditions indicate the carrying value of a reporting unit or an indefinite-lived intangible asset may be greater than its fair value, the Company would evaluate the asset for impairment at that time. Impairment testing compares the carrying amount of the reporting unit or other intangible assets with its fair value. When the carrying amount of the reporting unit or other intangible assets exceeds its fair value, an impairment charge is recorded.
Fiscal 2021
Due to various impacts of COVID-19 to the Company’s business during the 13 weeks ended May 2, 2020, the Company determined a triggering event had occurred that required an interim impairment assessment for all of its reporting units and indefinite-lived intangible assets. As part of the assessment, it was determined that an increase in the discount rates was required to reflect the prevailing uncertainty inherent in the forecasts due to current market conditions and potential COVID-19 impacts. This higher discount rate, in conjunction with revised long-term projections associated with certain aspects of the Company’s forecast, resulted in lower than previously projected long-term future cash flows for the reporting units and indefinite-lived intangible assets which negatively affected the valuation compared to previous valuations. As a result of the interim impairment assessment, during the first quarter of Fiscal 2021 the Company recognized pre-tax impairment charges related to goodwill of $10.7 million in the condensed consolidated statements of operations within its North America segment related to R2Net and Zales Canada goodwill.
In conjunction with the interim goodwill impairment tests noted above, during the first quarter of Fiscal 2021 the Company determined that the fair values of indefinite-lived intangible assets related to certain Zales trade names were less than their carrying value. Accordingly, in the first quarter of Fiscal 2021, the Company recognized pre-tax impairment charges within asset impairments, net on the condensed consolidated statements of operations of $83.3 million within its North America segment.
Fiscal 2022
During the 13 weeks ended May 1, 2021, the Company did not identify any events or conditions that would indicate that it was more likely than not that the carrying values of the reporting units and indefinite-lived trade names exceed their fair values.
In connection with the acquisition of Rocksbox on March 29, 2021, the Company recognized $11.5 million of definite-lived intangible assets and $7.1 million of goodwill, which are reported in the North America segment. The weighted-average amortization period of the definite-lived intangibles assets acquired is eight years.
In the second quarter of Fiscal 2022, the annual testing date of R2Net was changed from the last day of the fiscal year to the last day of the fourth period of each fiscal year. R2Net represents a reporting unit within the Company’s North America reportable segment.
The new impairment testing date is preferable, as this date corresponds with the testing date for all other North America reporting units. This will allow information and assumptions to be applied consistently to all reporting units.
During the 13 weeks ended July 31, 2021, the Company completed its annual evaluation of its indefinite-lived intangible assets, including goodwill and trade names identified in the Zale and R2Net acquisitions, and through the qualitative assessment the Company did not identify any events or conditions that would indicate that it was more likely than not that the carrying values of the reporting units and indefinite-lived trade names exceeded their fair values. Additionally, the Company completed its quarterly triggering event assessment and determined that no triggering events had occurred in the second quarter of Fiscal 2022 requiring interim impairment assessment for all reporting units with goodwill and indefinite-lived intangible assets.
Goodwill
The following table summarizes the Company’s goodwill by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 30, 2021 (1)
|
|
$
|
238.0
|
|
|
|
|
|
|
|
Acquisitions
|
|
7.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2021 (1)
|
|
$
|
245.1
|
|
|
|
|
|
|
|
(1) The carrying amount of goodwill is presented net of accumulated impairment losses of $576.0 million as of July 31, 2021 and January 30, 2021, and includes the impact of foreign currency.
Intangibles
Definite-lived intangible assets include trade names, technology and customer relationship assets. Indefinite-lived intangible assets consist of trade names. Both definite and indefinite-lived assets are recorded within intangible assets, net, on the condensed consolidated balance sheets. Intangible liabilities, net, consists of unfavorable contracts and is recorded within accrued expenses and other current liabilities and other liabilities on the condensed consolidated balance sheets.
The following table provides additional detail regarding the composition of intangible assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
(in millions)
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
Intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Definite-lived intangible assets
|
|
$
|
17.2
|
|
|
$
|
(5.4)
|
|
|
$
|
11.8
|
|
|
$
|
5.6
|
|
|
$
|
(4.2)
|
|
|
$
|
1.4
|
|
|
$
|
5.6
|
|
|
$
|
(3.8)
|
|
|
$
|
1.8
|
|
Indefinite-lived intangible assets
|
|
177.9
|
|
|
—
|
|
|
177.9
|
|
|
177.6
|
|
|
—
|
|
|
177.6
|
|
|
177.2
|
|
|
—
|
|
|
177.2
|
|
Total intangible assets, net
|
|
$
|
195.1
|
|
|
$
|
(5.4)
|
|
|
$
|
189.7
|
|
|
$
|
183.2
|
|
|
$
|
(4.2)
|
|
|
$
|
179.0
|
|
|
$
|
182.8
|
|
|
$
|
(3.8)
|
|
|
$
|
179.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible liabilities, net
|
|
$
|
(38.0)
|
|
|
$
|
30.0
|
|
|
$
|
(8.0)
|
|
|
$
|
(38.0)
|
|
|
$
|
27.5
|
|
|
$
|
(10.5)
|
|
|
$
|
(38.0)
|
|
|
$
|
24.9
|
|
|
$
|
(13.1)
|
|
17. Derivatives
Derivative transactions are used by Signet for risk management purposes to address risks inherent in Signet’s business operations and sources of financing. The main risks arising from Signet’s operations are market risk including foreign currency risk, commodity risk, liquidity risk and interest rate risk. Signet uses derivative financial instruments to manage and mitigate certain of these risks under policies reviewed and approved by the Board. Signet does not enter into derivative transactions for speculative purposes.
Market risk
Signet generates revenues and incurs expenses in US dollars, Canadian dollars and British pounds. As a portion of the International segment purchases and purchases made by the Canadian operations of the North America segment are denominated in US dollars, Signet enters into forward foreign currency exchange contracts and foreign currency swaps to manage this exposure to the US dollar.
Signet holds a fluctuating amount of British pounds and Canadian dollars reflecting the cash generative characteristics of operations. Signet’s objective is to minimize net foreign exchange exposure to the condensed consolidated statements of operations on non-US dollar denominated items through managing cash levels, non-US dollar denominated intra-entity balances and foreign currency swaps. In order to manage the foreign exchange exposure and minimize the level of funds denominated in British pounds and Canadian dollars, dividends are paid regularly by subsidiaries to their immediate holding companies and excess British pounds and Canadian dollars are sold in exchange for US dollars.
Signet’s policy is to reduce the impact of precious metal commodity price volatility on operating results through the use of outright forward purchases of, or by entering into options to purchase, precious metals within treasury guidelines approved by the Board. In particular, Signet undertakes some hedging of its requirements for gold through the use of forward purchase contracts, options and net zero premium collar arrangements (a combination of forwards and option contracts).
Liquidity risk
Signet’s objective is to ensure that it has access to, or the ability to generate, sufficient cash from either internal or external sources in a timely and cost-effective manner to meet its commitments as they become due and payable. Signet manages liquidity risks as part of its overall risk management policy. Management produces forecasting and budgeting information that is reviewed and monitored by the Board. Cash generated from operations and external financing are the main sources of funding, which supplement Signet’s resources in meeting liquidity requirements.
The primary external sources of funding are an asset-based credit facility and senior unsecured notes as described in Note 19.
Interest rate risk
Signet has exposure to movements in interest rates associated with cash and borrowings. Signet may enter into various interest rate protection agreements in order to limit the impact of movements in interest rates.
Credit risk and concentrations of credit risk
Credit risk represents the loss that would be recognized at the reporting date if counterparties failed to perform as contracted. Signet does not anticipate non-performance by counterparties of its financial instruments. Signet does not require collateral or other security to support cash investments or financial instruments with credit risk; however, it is Signet’s policy to only hold cash and cash equivalent investments and to transact financial instruments with financial institutions with a certain minimum credit rating. As of July 31, 2021, management does not believe Signet is exposed to any significant concentrations of credit risk that arise from cash and cash equivalent investments, derivatives or accounts receivable.
Commodity and foreign currency risks
The following types of derivative financial instruments are utilized by Signet to mitigate certain risk exposures related to changes in commodity prices and foreign exchange rates:
Forward foreign currency exchange contracts (designated) — These contracts, which are principally in US dollars, are entered into to limit the impact of movements in foreign exchange rates on forecasted foreign currency purchases. These contracts were de-designated during the 13 weeks ended May 2, 2020. This de-designation occurred due to uncertainly around the volume of purchases in the Company’s UK business. These contracts were unlikely to retain hedge effectiveness given the change in circumstances as a result of COVID-19. Trading for these contracts resumed during the third quarter of Fiscal 2021. The total notional amount of these foreign currency contracts outstanding as of July 31, 2021 was $21.6 million (January 30, 2021 and August 1, 2020: $12.5 million and $0.0 million, respectively). These contracts have been designated as cash flow hedges and will be settled over the next 12 months (January 30, 2021 and August 1, 2020: 12 months and not applicable, respectively).
Forward foreign currency exchange contracts (undesignated) — Foreign currency contracts not designated as cash flow hedges are used to limit the impact of movements in foreign exchange rates on recognized foreign currency payables and to hedge currency flows through Signet’s bank accounts to mitigate Signet’s exposure to foreign currency exchange risk in its cash and borrowings. The total notional amount of these foreign currency contracts outstanding as of July 31, 2021 was $97.2 million (January 30, 2021 and August 1, 2020: $107.6 million and $159.7 million, respectively).
Commodity forward purchase contracts and net zero premium collar arrangements (designated) — These contracts are entered into to reduce Signet’s exposure to significant movements in the price of the underlying precious metal raw materials. During the 13 weeks ended May 2, 2020, the contracts which were still outstanding (and unrealized) were de-designated and liquidated. The contracts which were already settled remained designated as the hedged inventory purchases from these contracts were still on hand. The unrealized contracts were de-designated as a result of uncertainty around the Company’s future purchasing volume due to COVID-19 and thus the contracts were unlikely to retain hedge effectiveness. Trading for these contracts resumed during the third quarter of Fiscal 2021. Trading for these contracts was suspended during Fiscal 2022 due to the current commodity price environment and there was no material notional amount of these commodity derivative contracts outstanding as of July 31, 2021, January 30, 2021, or August 1, 2020.
The bank counterparties to the derivative instruments expose Signet to credit-related losses in the event of their non-performance. However, to mitigate that risk, Signet only contracts with counterparties that meet certain minimum requirements under its counterparty risk assessment process. As of July 31, 2021, Signet believes that this credit risk did not materially change the fair value of the foreign currency or commodity contracts.
The following table summarizes the fair value and presentation of derivative instruments in the condensed consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of derivative assets
|
(in millions)
|
Balance sheet location
|
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency contracts
|
Other current assets
|
|
$
|
0.9
|
|
|
$
|
0.1
|
|
|
$
|
2.3
|
|
Total derivative assets
|
|
|
$
|
0.9
|
|
|
$
|
0.1
|
|
|
$
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of derivative liabilities
|
(in millions)
|
Balance sheet location
|
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Foreign currency contracts
|
Other current liabilities
|
|
$
|
(0.2)
|
|
|
$
|
(0.3)
|
|
|
$
|
—
|
|
Commodity contracts
|
Other current liabilities
|
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative liabilities
|
|
|
$
|
(0.2)
|
|
|
$
|
(0.4)
|
|
|
$
|
—
|
|
Derivatives designated as cash flow hedges
The following table summarizes the pre-tax gains (losses) recorded in AOCI for derivatives designated in cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
Foreign currency contracts
|
$
|
(0.6)
|
|
|
$
|
(0.7)
|
|
|
$
|
—
|
|
Commodity contracts
|
(0.2)
|
|
|
(0.4)
|
|
|
5.3
|
|
|
|
|
|
|
|
Gains (losses) recorded in AOCI
|
$
|
(0.8)
|
|
|
$
|
(1.1)
|
|
|
$
|
5.3
|
|
The following tables summarize the effect of derivative instruments designated as cash flow hedges on OCI and the condensed consolidated statements of operations:
Foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
Statement of operations caption
|
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Gains (losses) recorded in AOCI, beginning of period
|
|
|
$
|
(0.6)
|
|
|
$
|
—
|
|
|
$
|
(0.7)
|
|
|
$
|
(1.0)
|
|
Current period gains (losses) recognized in OCI
|
|
|
(0.2)
|
|
|
—
|
|
|
(0.2)
|
|
|
1.6
|
|
Losses (gains) reclassified from AOCI to net income
|
Cost of sales (1)
|
|
0.2
|
|
|
—
|
|
|
0.3
|
|
|
—
|
|
Gains from de-designated hedges reclassified from AOCI to net income
|
Other operating income, net (1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.6)
|
|
Gains (losses) recorded in AOCI, end of period
|
|
|
$
|
(0.6)
|
|
|
$
|
—
|
|
|
$
|
(0.6)
|
|
|
$
|
—
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
Statement of operations caption
|
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Gains (losses) recorded in AOCI, beginning of period
|
|
|
$
|
(0.4)
|
|
|
$
|
6.2
|
|
|
$
|
(0.4)
|
|
|
$
|
17.7
|
|
Current period gains (losses) recognized in OCI
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
(1.4)
|
|
Losses (gains) reclassified from AOCI to net income
|
Cost of sales (1)
|
|
0.1
|
|
|
(0.9)
|
|
|
0.2
|
|
|
(1.7)
|
|
Gains from de-designated hedges reclassified from AOCI to net income
|
Other operating income, net (1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9.3)
|
|
Gains (losses) recorded in AOCI, end of period
|
|
|
$
|
(0.2)
|
|
|
$
|
5.3
|
|
|
$
|
(0.2)
|
|
|
$
|
5.3
|
|
(1) Refer to the condensed consolidated statements of operations for total amounts of each financial statement caption impacted by cash flow hedges.
There was no material ineffectiveness related to the Company’s derivative instruments designated in cash flow hedging relationships for the 26 weeks ended July 31, 2021 and August 1, 2020 other than the items disclosed above during the 13 weeks ended May 2, 2020. As of July 31, 2021, based on current valuations, the Company expects approximately $0.8 million of net pre-tax derivative losses to be reclassified out of AOCI into earnings within the next 12 months.
Derivatives not designated as hedging instruments
The following table presents the effects of the Company’s derivatives instruments not designated as cash flow hedges in the condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
Statement of operations caption
|
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Foreign currency contracts
|
Other operating income, net
|
|
$
|
—
|
|
|
$
|
2.9
|
|
|
$
|
0.9
|
|
|
$
|
(1.0)
|
|
18. Fair value measurement
The estimated fair value of Signet’s financial instruments held or issued to finance Signet’s operations is summarized below. Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that Signet would realize upon disposition nor do they indicate Signet’s intent or ability to dispose of the financial instrument. Assets and liabilities that are carried at fair value are required to be classified and disclosed in one of the following three categories:
Level 1—quoted market prices in active markets for identical assets and liabilities
Level 2—observable market based inputs or unobservable inputs that are corroborated by market data
Level 3—unobservable inputs that are not corroborated by market data
Signet determines fair value based upon quoted prices when available or through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment. The methods Signet uses to determine fair value on an instrument-specific basis are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
(in millions)
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasury securities
|
$
|
5.1
|
|
|
$
|
5.1
|
|
|
$
|
—
|
|
|
$
|
5.7
|
|
|
$
|
5.7
|
|
|
$
|
—
|
|
|
$
|
6.4
|
|
|
$
|
6.4
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
0.9
|
|
|
—
|
|
|
0.9
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|
2.3
|
|
|
—
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government agency securities
|
2.0
|
|
|
—
|
|
|
2.0
|
|
|
3.2
|
|
|
—
|
|
|
3.2
|
|
|
3.7
|
|
|
—
|
|
|
3.7
|
|
Corporate bonds and notes
|
6.2
|
|
|
—
|
|
|
6.2
|
|
|
6.5
|
|
|
—
|
|
|
6.5
|
|
|
7.6
|
|
|
—
|
|
|
7.6
|
|
Total assets
|
$
|
14.2
|
|
|
$
|
5.1
|
|
|
$
|
9.1
|
|
|
$
|
15.5
|
|
|
$
|
5.7
|
|
|
$
|
9.8
|
|
|
$
|
20.0
|
|
|
$
|
6.4
|
|
|
$
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
$
|
(0.2)
|
|
|
$
|
—
|
|
|
$
|
(0.2)
|
|
|
$
|
(0.3)
|
|
|
$
|
—
|
|
|
$
|
(0.3)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Commodity contracts
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
(0.1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
(0.2)
|
|
|
$
|
—
|
|
|
$
|
(0.2)
|
|
|
$
|
(0.4)
|
|
|
$
|
—
|
|
|
$
|
(0.4)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Investments in US Treasury securities are based on quoted market prices for identical instruments in active markets, and therefore were classified as Level 1 measurements in the fair value hierarchy. Investments in US government agency securities and corporate bonds and notes are based on quoted prices for similar instruments in active markets, and therefore were classified as Level 2 measurements in the fair value hierarchy. The fair value of derivative financial instruments has been determined based on market value equivalents at the balance sheet date, taking into account the current interest rate environment, foreign currency forward rates or commodity forward rates, and therefore were classified as Level 2 measurements in the fair value hierarchy. See Note 17 for additional information related to the Company’s derivatives.
During the second quarter of Fiscal 2019, the Company completed the sale of all eligible non-prime in-house accounts receivable. Upon closing, 5% of the purchase price was deferred until the second anniversary of the closing date. Final payment of the deferred purchase price was contingent upon the non-prime portfolio achieving a pre-defined yield. The Company recorded an asset at the transaction date related to this deferred payment at fair value. This estimated fair value was derived from a discounted cash flow model using unobservable Level 3 inputs, including estimated yields derived from historic performance, loss rates, payment rates and discount rates to estimate the fair value associated with the accounts receivable. The measurement period was completed in June 2020 and the Company received the full deferred payment of $23.5 million during the second quarter of Fiscal 2022, as further described in Note 11.
During the 13 weeks ended May 2, 2020, the Company performed an interim impairment test for goodwill, indefinite-lived intangible assets and long-lived assets. The fair value was calculated using the income approach for the reporting units and the relief from royalty method for the indefinite-lived intangible assets, respectively. The fair value is a Level 3 valuation based on certain unobservable inputs, including estimated future cash flows and discount rates aligned with market-based assumptions, that would be utilized by market participants in valuing these assets or prices of similar assets. For long-lived assets, the Company utilizes primarily the replacement cost method (a level 3 valuation method) for the fair value of its property and equipment, and the income method to estimate the fair value of its ROU assets, which incorporates Level 3 inputs such as historical store level sales, internal business plans, real estate market capitalization and rental rates, and discount rates. See Note 14 and Note 16 for additional information.
The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, accounts payable, accrued expenses and other current liabilities, and income taxes approximate fair value because of the short-term maturity of these amounts.
The fair values of long-term debt instruments, excluding revolving credit facilities, were determined using quoted market prices in inactive markets based upon current observable market interest rates and therefore were classified as Level 2 measurements in the fair value hierarchy. The carrying value of the ABL Revolving Facility (as defined in Note 19) approximates fair value based on the nature of the instrument and variable interest rate, which are primarily Level 2 inputs. The following table provides a summary of the carrying amount and fair value of outstanding debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
(in millions)
|
Carrying
Value
|
|
Fair Value
|
|
Carrying
Value
|
|
Fair Value
|
|
Carrying
Value
|
|
Fair Value
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes (Level 2)
|
$
|
146.9
|
|
|
$
|
152.7
|
|
|
$
|
146.7
|
|
|
$
|
145.1
|
|
|
$
|
146.6
|
|
|
$
|
107.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans (Level 2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
99.5
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
146.9
|
|
|
$
|
152.7
|
|
|
$
|
146.7
|
|
|
$
|
145.1
|
|
|
$
|
246.1
|
|
|
$
|
207.2
|
|
19. Loans, overdrafts and long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
Debt:
|
|
|
|
|
|
Senior unsecured notes due 2024, net of unamortized discount
|
$
|
147.6
|
|
|
$
|
147.6
|
|
|
$
|
147.6
|
|
ABL revolving facility
|
—
|
|
|
—
|
|
|
1,090.0
|
|
FILO term loan facility
|
—
|
|
|
—
|
|
|
100.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans and bank overdrafts
|
0.4
|
|
|
—
|
|
|
4.6
|
|
Gross debt
|
$
|
148.0
|
|
|
$
|
147.6
|
|
|
$
|
1,342.2
|
|
Less: Current portion of loans and overdrafts
|
(0.4)
|
|
|
—
|
|
|
(4.6)
|
|
Less: Unamortized debt issuance costs
|
(0.7)
|
|
|
(0.9)
|
|
|
(1.5)
|
|
Total long-term debt
|
$
|
146.9
|
|
|
$
|
146.7
|
|
|
$
|
1,336.1
|
|
Senior unsecured notes due 2024
On May 19, 2014, Signet UK Finance plc (“Signet UK Finance”), a wholly owned subsidiary of the Company, issued $400 million aggregate principal amount of its 4.70% senior unsecured notes due in 2024 (the “Senior Notes”). The Senior Notes were issued under an effective registration statement previously filed with the SEC. The Senior Notes are jointly and severally guaranteed, on a full and unconditional basis, by the Company and by certain of the Company’s wholly owned subsidiaries (such subsidiaries, the “Guarantors”).
On September 5, 2019, Signet UK Finance announced the commencement of a tender offer to purchase any and all of its outstanding Senior Notes (the “Tender Offer”). Upon receipt of the requisite consents from Senior Note holders, Signet UK Finance entered into a supplemental indenture which eliminated most of the restrictive covenants and certain default provisions of the indenture. The supplemental indenture became operative on September 27, 2019 upon the Company’s acceptance and payment for the Senior Notes previously validly tendered and not validly withdrawn pursuant to the Tender Offer for an aggregate principal amount of $239.6 million, which represented a purchase price of $950.00 per $1,000.00 in principal amount of the Senior Notes validly tendered.
Unamortized debt issuance costs relating to the Senior Notes as of July 31, 2021 was $0.7 million (January 30, 2021 and August 1, 2020: $0.9 million and $1.0 million, respectively). The unamortized debt issuance costs are recorded as a direct deduction from the outstanding liability within the condensed consolidated balance sheets. Amortization relating to debt issuance costs of $0.1 million and $0.2 million was recorded as interest expense in the condensed consolidated statements of operations for the 13 and 26 weeks ended July 31, 2021, respectively ($0.0 million and $0.1 million for the 13 and 26 weeks ended August 1, 2020, respectively).
Asset-based credit facility
On September 27, 2019, the Company entered into a senior secured asset-based credit facility consisting of (i) a revolving credit facility in an aggregate committed amount of $1.5 billion (as amended to the date hereto, the “ABL Revolving Facility”) and (ii) a first-in last-out term loan facility in an aggregate principal amount of $100.0 million (the “FILO Term Loan Facility” and, together with the ABL Revolving Facility, the “ABL Facility”) pursuant to that certain Credit Agreement.
On July 28, 2021, the Company entered into the Second Amendment to the Credit Agreement (the “Second Amendment”) to amend the ABL Facility. The Second Amendment extends the maturity of the ABL Facility from September 27, 2024 to July 28, 2026 and
allows the Company to increase the size of the ABL Facility by up to $600 million. The Company incurred additional debt issuance costs of $3.9 million ($3.6 million of which has been paid as of July 31, 2021) related to the modification of the ABL Facility during the second quarter of Fiscal 2022.
Revolving loans under the ABL Revolving Facility are available in an aggregate amount equal to the lesser of the aggregate ABL revolving commitments and a borrowing base determined based on the value of certain inventory and credit card receivables, subject to specified advance rates and reserves. Indebtedness under the ABL Facility is secured by substantially all of the assets of the Company and its subsidiaries, subject to customary exceptions. Borrowings under the ABL Revolving Facility bear interest at the Company’s option at either eurocurrency rate plus the applicable margin or a base rate plus the applicable margin, in each case depending on the excess availability under the ABL Revolving Facility. The Company had stand-by letters of credit outstanding of $18.8 million on the ABL Revolving Facility as of July 31, 2021. The Company had available borrowing capacity of $1.2 billion on the ABL Revolving Facility as of July 31, 2021.
As a result of the risks and uncertainties associated with the potential impacts of COVID-19 on the Company’s business, as a prudent measure to increase the Company’s financial flexibility and bolster its cash position, the Company borrowed an additional $900 million on the ABL Revolving Facility during the first quarter of Fiscal 2021. The Company made ABL Revolving Facility repayments during the third and fourth quarter of Fiscal 2021 and the outstanding amount borrowed under ABL Revolving Facility was fully paid down by the end of Fiscal 2021. During the fourth quarter of Fiscal 2021, the Company fully repaid the FILO Term Loan Facility.
If the excess availability under the ABL Revolving Facility falls below the threshold specified in the ABL Facility agreement, the Company will be required to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00. As of July 31, 2021, the threshold related to the fixed coverage ratio was approximately $119 million. The ABL Facility places certain restrictions upon the Company’s ability to, among other things, incur additional indebtedness, pay dividends, grant liens and make certain loans, investments and divestitures. The ABL Facility contains customary events of default (including payment defaults, cross-defaults to certain of the Company’s other indebtedness, breach of representations and covenants and change of control). The occurrence of an event of default under the ABL Facility would permit the lenders to accelerate the indebtedness and terminate the ABL Facility.
Debt issuance costs relating to the ABL Revolving Facility totaled $12.6 million. The remaining unamortized debt issuance costs are recorded within other assets in the condensed consolidated balance sheets. Amortization relating to the debt issuance costs of $0.6 million and $1.1 million was recorded as interest expense in the condensed consolidated statements of operations for the 13 and 26 weeks ended July 31, 2021, respectively ($0.5 million and $0.9 million for the 13 and 26 weeks ended August 1, 2020, respectively). Unamortized debt issuance costs related to the ABL Revolving Facility totaled $9.2 million as of July 31, 2021 (January 30, 2021 and August 1, 2020: $6.4 million and $7.2 million, respectively).
20. Warranty reserve
Specific merchandise sold by banners within the North America segment includes a product lifetime diamond or colored gemstone guarantee as long as six-month inspections are performed and certified by an authorized store representative. Provided the customer has complied with the six-month inspection policy, the Company will replace, at no cost to the customer, any stone that chips, breaks or is lost from its original setting during normal wear. Management estimates the warranty accrual based on the lag of actual claims experience and the costs of such claims, inclusive of labor and material. The warranty reserve for diamond and gemstone guarantee, included in accrued expenses and other current liabilities and other non-current liabilities, is as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13 weeks ended
|
|
26 weeks ended
|
(in millions)
|
July 31, 2021
|
|
August 1, 2020
|
|
July 31, 2021
|
|
August 1, 2020
|
Warranty reserve, beginning of period
|
$
|
35.5
|
|
|
$
|
37.3
|
|
|
$
|
37.3
|
|
|
$
|
36.3
|
|
Warranty expense
|
1.5
|
|
|
0.8
|
|
|
2.2
|
|
|
4.0
|
|
Utilized (1)
|
(2.3)
|
|
|
(0.8)
|
|
|
(4.8)
|
|
|
(3.0)
|
|
Warranty reserve, end of period
|
$
|
34.7
|
|
|
$
|
37.3
|
|
|
$
|
34.7
|
|
|
$
|
37.3
|
|
(1) Includes impact of foreign exchange translation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
July 31, 2021
|
|
January 30, 2021
|
|
August 1, 2020
|
Disclosed as:
|
|
|
|
|
|
Current liabilities
|
$
|
9.9
|
|
|
$
|
10.7
|
|
|
$
|
11.0
|
|
Non-current liabilities
|
24.8
|
|
|
26.6
|
|
|
26.3
|
|
Total warranty reserve
|
$
|
34.7
|
|
|
$
|
37.3
|
|
|
$
|
37.3
|
|
21. Share-based compensation
Signet recorded share-based compensation expense of $17.5 million and $25.5 million for the 13 and 26 weeks ended July 31, 2021, respectively related to the Omnibus Plan and Share Saving Plans ($4.9 million and $6.3 million for the 13 and 26 weeks ended August 1, 2020, respectively).
22. Commitments and contingencies
Legal proceedings
Employment practices
In March 2008, a group of private plaintiffs (the “Claimants”) filed a class action lawsuit for an unspecified amount against SJI, a subsidiary of Signet, in the US District Court for the Southern District of New York alleging that US store-level employment practices are discriminatory as to compensation and promotional activities with respect to gender. In June 2008, the District Court referred the matter to private arbitration where the Claimants sought to proceed on a class-wide basis. The Claimants filed a motion for class certification and SJI opposed the motion. On February 2, 2015, the arbitrator issued a Class Determination Award in which she certified for a class-wide hearing Claimants’ disparate impact declaratory and injunctive relief class claim under Title VII, with a class period of July 22, 2004 through date of trial for the Claimants’ compensation claims and December 7, 2004 through date of trial for Claimants’ promotion claims. The arbitrator otherwise denied Claimants’ motion to certify a disparate treatment class alleged under Title VII, denied a disparate impact monetary damages class alleged under Title VII, and denied an opt-out monetary damages class under the Equal Pay Act. On February 9, 2015, Claimants filed an Emergency Motion To Restrict Communications With The Certified Class And For Corrective Notice. SJI filed its opposition to Claimants’ emergency motion on February 17, 2015, and a hearing was held on February 18, 2015. Claimants’ motion was granted in part and denied in part in an order issued on March 16, 2015. Claimants filed a Motion for Reconsideration Regarding Title VII Claims for Disparate Treatment in Compensation on February 11, 2015, which SJI opposed. April 27, 2015, the arbitrator issued an order denying the Claimants’ Motion. SJI filed with the US District Court for the Southern District of New York a Motion to Vacate the Arbitrator’s Class Certification Award on March 3, 2015, which Claimants opposed. On November 16, 2015, the US District Court for the Southern District of New York granted SJI’s Motion to Vacate the Arbitrator’s Class Certification Award in part and denied it in part. On December 3, 2015, SJI filed with the United States Court of Appeals for the Second Circuit SJI’s Notice of Appeal of the District Court’s November 16, 2015 Opinion and Order. On November 25, 2015, SJI filed a Motion to Stay the AAA Proceedings while SJI appealed the decision of the US District Court for the Southern District of New York to the United States Court of Appeals for the Second Circuit, which Claimants opposed. The arbitrator issued an order denying SJI’s Motion to Stay on February 22, 2016. SJI filed its Brief and Special Appendix with the Second Circuit on March 16, 2016. The matter was fully briefed, and oral argument was heard by the U.S. Court of Appeals for the Second Circuit on November 2, 2016. On April 6, 2015, Claimants filed in the AAA Claimants’ Motion for Clarification or in the Alternative Motion for Stay of the Effect of the Class Certification Award as to the Individual Intentional Discrimination Claims, which SJI opposed. On June 15, 2015, the arbitrator granted the Claimants’ motion. On March 6, 2017, Claimants filed Claimants’ Motion for Conditional Certification of Claimants’ Equal Pay Act Claims and Authorization of Notice, which SJI opposed The arbitrator heard oral argument on Claimants’ Motion on December 18, 2015 and, on February 29, 2016, issued an Equal Pay Act Collective Action Conditional Certification Award and Order Re Claimants’ Motion For Tolling Of EPA Limitations Period, conditionally certifying Claimants’ Equal Pay Act claims as a collective action, and tolling the statute of limitations on EPA claims to October 16, 2003 to ninety days after notice issued to the putative members of the collective action. SJI filed in the AAA a Motion To Stay Arbitration Pending The District Court’s Consideration Of Respondent’s Motion To Vacate Arbitrator’s Equal Pay Act Collective Action Conditional Certification Award And Order Re Claimants’ Motion For Tolling Of EPA Limitations Period on March 10, 2016. SJI filed in the AAA a Renewed Motion To Stay Arbitration Pending The District Court’s Resolution Of Sterling’s Motion To Vacate Arbitrator’s Equal Pay Act Collective Action Conditional Certification Award And Order Re Claimants’ Motion For Tolling Of EPA Limitations Period on March 31, 2016, which Claimants opposed. On April 5, 2016, the arbitrator denied SJI’s Motion. On March 23, 2016 SJI filed with the US District Court for the Southern District of New York a Motion To Vacate The Arbitrator’s Equal Pay Act Collective Action Conditional Certification Award And Order Re Claimants’ Motion For Tolling Of EPA Limitations Period, which Claimants opposed. SJI’s Motion was denied on May 22, 2016. On May 31, 2016, SJI filed a Notice Of Appeal of Judge Rakoff’s opinion and order to the Second Circuit Court of Appeals, which Claimant’s opposed. On June 1, 2017, the Second Circuit Court of Appeals dismissed SJI’s appeal for lack of appellate jurisdiction. Claimants filed a Motion For Amended Class Determination Award on November 18, 2015, and on March 31, 2016 the arbitrator entered an order amending the Title VII class certification award to preclude class members from requesting exclusion from the injunctive and declaratory relief class certified in the arbitration. The arbitrator issued a Bifurcated Case Management Plan on April 5, 2016 and ordered into effect the parties’ Stipulation Regarding Notice Of Equal Pay Act Collective Action And Related Notice Administrative Procedures on April 7, 2016. SJI filed in the AAA a Motion For Protective Order on May 2, 2016, which Claimants opposed. The matter was fully briefed, and oral argument was heard on July 22, 2016. The motion was granted in part on January 27, 2017. Notice to EPA collective action members was issued on May 3, 2016, and the opt-in period for these notice recipients closed on August 1, 2016. Approximately 10,314 current and former employees submitted consent forms to opt in to the collective action; however, some have withdrawn their consents. The number of valid consents is disputed and yet to be determined. SJI believes the number of valid consents to be approximately 9,124. On July 24, 2017,
the United States Court of Appeals for the Second Circuit issued its unanimous Summary Order that held that the absent class members “never consented” to the Arbitrator determining the permissibility of class arbitration under the agreements, and remanded the matter to the District Court to determine whether the Arbitrator exceeded her authority by certifying the Title VII class that contained absent class members who had not opted in the litigation. On August 7, 2017, SJI filed its Renewed Motion to Vacate the Class Determination Award relative to absent class members with the District Court. The matter was fully briefed, and an oral argument was heard on October 16, 2017. On November 10, 2017, SJI filed in the arbitration motions for summary judgment, and for decertification, of Claimants’ Equal Pay Act and Title VII promotions claims. On January 30, 2018, oral argument on SJI’s motions was heard. On January 26, 2018, SJI filed in the arbitration a Motion to Vacate The Equal Pay Act Collective Action Award And Tolling Order asserting that the Arbitrator exceeded her authority by conditionally certifying the Equal Pay Act claim and allowing the absent claimants to opt-in the litigation. On March 12, 2018, the Arbitrator denied SJI’s Motion to Vacate The Equal Pay Act Collective Action Award and Tolling Order. SJI still has a pending motion seeking decertification of the EPA Collective Action before the Arbitrator. On March 19, 2018, the Arbitrator issued an Order partially granting SJI’s Motion to Amend the Arbitrator’s November 2, 2017, Bifurcated Seventh Amended Case Management Plan resulting in a continuance of the May 14, 2018 trial date. A new trial date has not been set. On January 15, 2018, District Court granted SJI’s August 17, 2017 Renewed Motion to Vacate the Class Determination Award finding that the Arbitrator exceeded her authority by binding non-parties (absent class members) to the Title VII claim. The District Court further held that the RESOLVE Agreement does not permit class action procedures, thereby, reducing the Claimants in the Title VII matter from 70,000 to potentially 254. Claimants disputed that the number of claimants in the Title VII is 254. On January 18, 2018, the Claimants filed a Notice of Appeal with the United States Court of Appeals for the Second Circuit. The appeal was fully briefed and oral argument before the Second Circuit occurred on May 7, 2018. On May 17, 2019, SJI submitted a Rule 28(j) letter to the Second Circuit addressing the effects of the Supreme Court’s ruling in Lamps Plus, Inc. v. Varela, No. 17-988 (S. Ct. Apr. 24, 2019), on the pending appeal. The Second Circuit then issued an order directing the parties to submit additional arguments on that issue, which were submitted. On November 18, 2019 the Second Circuit issued an order reversing and remanding the District Court’s January 15, 2018 Order that vacated the Arbitrator’s Class Determination Award certifying for declaratory and injunctive relief a Title VII pay and promotions class of female retail sales employees. The Second Circuit held that the District Court erred when it concluded that the Arbitrator exceeded her authority in purporting to bind absent class members to the Class Determination Award. The Second Circuit remanded the case to the District Court to decide the narrower question of whether the Arbitrator erred in certifying an opt-out, as opposed to a mandatory, class for declaratory and injunctive relief. On December 2, 2019, SJI filed a petition for a hearing en banc with the United States Court of Appeals for the Second Circuit. On January 15, 2020, SJI filed a Rule 28(j) letter in the Second Circuit. On that same day the Second Circuit denied the petition for rehearing en banc. On January 21, 2020, Sterling filed its motion for stay of mandate with the Second Circuit pending the filing of a petition for writ of certiorari with the U.S. Supreme Court. On January 22, 2020, the Second Circuit granted Sterling’s motion for stay of mandate. SJI’s petition for a writ of certiorari from the U.S. Supreme Court was denied on October 5, 2020. On January 27, 2021 the District Court ordered the case remanded to the AAA for further proceedings in arbitration.
SJI denies the allegations of the Claimants and has been defending the case vigorously. At this point, no outcome or possible loss or range of losses, if any, arising from the litigation is able to be estimated.
On May 5, 2017, without any findings of liability or wrongdoing, SJI entered into a Consent Decree with the EEOC settling a previously disclosed lawsuit that alleged that SJI engaged in intentional and disparate impact gender discrimination with respect to pay and promotions of female retail store employees since January 1, 2003. On May 5, 2017 the U.S. District Court for the Western District of New York approved and entered the Consent Decree jointly proposed by the EEOC and SJI, resolving all of the EEOC’s claims against SJI in this litigation for various injunctive relief including but not limited to the appointment of an employment practices expert to review specific policies and practices, a compliance officer to be employed by SJI, as well as obligations relative to training, notices, reporting and record-keeping. The Consent Decree does not require an outside third-party monitor or require any monetary payment. The duration of the Consent Decree was three years and three months, expiring on August 4, 2020. On March 6, 2020, SJI and the EEOC filed their Joint Motion to Approve an Amendment to And Extension of the Term of the Consent Decree, which provides for a limited extension of a few aspects of the Consent Decree terms regarding SJI’s compensation practices, and incorporating its implementation of a new retail team member compensation program into the overall Consent Decree framework. This extension will enable SJI to implement changes to its retail team member compensation strategy and validate that the new program is consistent with the overall purposes of the Consent Decree. On March 11, 2020 the U.S. District Court for the Western District of New York granted the joint motion and entered the parties’ Amendment to And Extension of the Term of the Consent Decree. The term of the amended Consent Decree expires on November 4, 2021.
Shareholder Actions
In August 2016, two alleged Company shareholders each filed a putative class action complaint in the United States District Court for the Southern District of New York against the Company and its then-current Chief Executive Officer and current Chief Financial Officer (Nos. 16-cv-6728 and 16-cv-6861, the “S.D.N.Y. cases”). In 2017, three other Company shareholders each filed putative class action complaints (Nos. 17-cv-875, 17-cv-923, and 17-cv-9853) which were ultimately consolidated with the S.D.N.Y. cases under case number 16-cv-6728 (the “Consolidated Action”). The Consolidated Action was settled as further described below. The
Consolidated Action alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other things, misrepresenting the Company’s business and earnings by making misleading statements about the Company’s credit portfolio and failing to disclose reports of sexual harassment allegations that were raised by claimants in an ongoing pay and promotion gender discrimination class arbitration.
On March 15, 2019, the lead plaintiff moved for appointment of a class representative and class counsel and for certification of a class period of August 29, 2013, through March 13, 2018. On July 10, 2019, the Court granted the motion and certified a class of all persons and entities who purchased or otherwise acquired Signet common stock from August 29, 2013 to May 25, 2017. The Court also appointed a class representative and class counsel.
On July 24, 2019, the defendants filed with the United States Court of Appeals for the Second Circuit a petition for permission to appeal the District Court’s class certification decision.
On March 16, 2020, the Company, all of the other defendant parties to the Consolidated Action, and the lead plaintiff entered into a settlement agreement in the Consolidated Action. The settlement of $240 million provides for the dismissal of the Consolidated Action with prejudice. The settlement agreement also states that the Company and all the other defendants expressly deny any and all allegations of fault, liability, wrongdoing, or damages whatsoever, and that defendants are entering into the settlement solely to eliminate the uncertainty, burden, and expense of further protracted litigation. As a result of the settlement, the Company recorded a charge of $33.2 million during the fourth quarter of Fiscal 2020 in other operating income, net, which includes administration costs of $0.6 million and was recorded net of expected recoveries from the Company’s insurance carriers of $207.4 million. The settlement was fully funded in the second quarter of Fiscal 2021, and the Company contributed approximately $35 million of the $240 million settlement payment, net of insurance proceeds and including the impact of foreign currency. The Court granted final approval of the settlement on July 21, 2020.
In 2019, four actions were filed in the U.S. District Court for the Southern District of New York by investment funds that allegedly purchased the Company’s stock (Nos. 19-cv-2757, 19-cv-2758, 19-cv-9916 and 19-cv-9917), and name the Company and its current and former Chief Executive Officers and Chief Financial Officers as defendants. All four complaints allege violations of Sections 10(b), 18, and 20(a) of the Securities Exchange Act of 1934, and common law fraud largely based on the same allegations as the Consolidated Action. Soon thereafter the Court entered orders staying these actions until entry of final judgment in the Consolidated Action.
On June 27, 2020, the Company and plaintiffs in the four stayed actions above reached a settlement in principle, which was finalized on July 10, 2020 requiring the Opt-Out Plaintiffs to rejoin the Consolidated Action. The Company recorded a pre-tax charge of $7.5 million, net of expected insurance recovery, during Fiscal 2021 in anticipation of those four settlements. The final amount of the settlement and net charge are dependent upon the amount the Opt-Out Plaintiffs receive as part of the Consolidated Action and is not expected to be materially different than the amounts recorded. The initial portion of the settlement due to the Opt-Out Plaintiffs under the settlement agreement was paid in August 2020.
23. Retirement plans
On July 29, 2021, Signet Group Limited (“SGL”), a wholly-owned subsidiary of the Company, entered into an agreement (the “Agreement”) with Signet Pension Trustee Limited (the “Trustee”), as trustee of the Signet Group Pension Scheme (the “Pension Scheme”), to facilitate the Trustee entering into a bulk purchase annuity policy ("BPA") securing accrued liabilities under the Pension Scheme with Rothesay Life Plc ("Rothesay") and subsequently, to wind up the Pension Scheme. The BPA will be held by the Trustee as an asset of the Scheme (the "buy-in") in anticipation of Rothesay subsequently (and in accordance with the terms of the BPA) issuing individual annuity contracts to each of the approximately 1,909 Pension Scheme members (or their eligible beneficiaries) ("Transferred Participants") covering their accrued benefits (a full “buy-out”), following which the BPA will terminate and the Trustee will wind up the Pension Scheme (collectively, the “Transactions”).
Under the terms of the Agreement, SGL is expected to contribute up to £16.85 million (approximately $23.4 million) (the “Total Expected Contribution”) to the Pension Scheme to enable the Trustee to pay for any and all costs incurred by the Trustee as part of the Transactions, including an initial contribution of £7 million (approximately $9.7 million) (the “Initial Installment”) to enable the Trustee to enter into the BPA with Rothesay. Subsequent installments of the Total Expected Contribution shall be reviewed and agreed by SGL and the Trustee at such times as the Trustee reasonably requires additional monies to be contributed to the Pension Scheme in furtherance of the Transactions. The Initial Installment was paid on August 4, 2021, and the Trustee transferred substantially all Plan assets into the BPA on August 9, 2021.
From the point of buy-out, Rothesay shall be liable to pay the insured benefits to the Transferred Participants and shall be responsible for the administration of those benefits. Once all Pension Scheme members (or their eligible beneficiaries) have become Transferred Participants, the Trustee will wind up the Pension Scheme. By irrevocably transferring these obligations to Rothesay, the Company will eliminate its projected benefit obligation under the Pension Scheme.
Upon completion of the Transactions contemplated by the Agreement, the Company expects to recognize non-cash, non-operating pre-tax settlement charges totaling approximately $125 million to $150 million, subject to finalization of any applicable adjustments, true up costs, and the impact of foreign currency. The timing of such settlement charges is subject to the expected completion of the Transactions, and will be recognized in the periods when the buy-outs are finalized with the Transferred Participants.