Signet Jewelers Limited (“Signet”) (NYSE:SIG), the world's
largest retailer of diamond jewelry, today announced its results
for the 13 weeks ended November 3, 2018 (“third quarter Fiscal
2019”).
Summary:
- Same store sales ("SSS") up 1.6% versus
prior-year quarter1
- GAAP diluted earnings per share ("EPS")
of $(0.74)
- Non-GAAP diluted EPS of $(1.06)2
- Raising Fiscal 2019 SSS guidance to
flat - up 1%, and total sales of $6.26 billion-$6.31 billion
- Narrowing Fiscal 2019 GAAP EPS guidance
to $(7.40)-$(7.07) and non-GAAP EPS guidance to $4.15-$4.40
Fiscal Q3'191
Fiscal Q3'183
YTD Fiscal 20191
YTD Fiscal 20183
Revenue ($ in millions) $ 1,191.7 $ 1,156.9 $ 4,092.4 $ 3,959.9
Same store sales % change1,4 1.6 % (5.0 )% 1.0 % (5.4 )%
GAAP Operating income (loss) as % of sales (4.1 )% 0.5 %
(16.6 )% 6.5 % GAAP Diluted EPS $ (0.74 ) $ (0.20 ) $ (10.31 ) $
2.24
Non-GAAP(2) Operating income (loss) as % of
sales (3.3 )% 0.5 % 0.8 % 6.5 % Non-GAAP Diluted EPS $ (1.06 ) $
(0.20 ) $ (0.35 ) $ 2.24 (1) Fiscal Q3'19 and year to date
Fiscal 2019 same store sales % change calculated by aligning weeks
in the quarter to same weeks in prior year. (2) See non-GAAP
reconciliation page. (3) Fiscal Q3'18 and year to date Fiscal 2018
numbers are as reported with Q3'18 same store sales % change based
on Fiscal 2018 calendar. (4) Same store sales include physical
store sales and eCommerce sales, which each incorporate the year
over year growth of James Allen.
Virginia C. Drosos, Chief Executive Officer, commented, “In the
third quarter, we delivered positive same store sales growth, with
a return to positive same store sales in our Kay banner, further
momentum at Piercing Pagoda and Zales, and double-digit increases
in eCommerce sales."
"As we enter the holiday season, amid a highly competitive
market and with key selling weeks ahead, we are keenly focused on
delivering on our holiday plans and implementing the beginning
stages of our transformation initiatives in our stores and on our
websites. While still early, we believe the initiatives underway
will serve as a foundation for our future efforts as we move along
our transformation journey."
Change from previous year Third
Quarter Fiscal 2019
Same store sales
(1)
Non-samestore sales,
net
Total salesat constant
exchange rate
Exchangetranslation impact
Totalsales as
reported
Totalsales (in
millions)
Kay 0.7 % 2.7 % 3.4 % na 3.4 % $ 451.2 Zales 2.8 % 0.4
%
3.2 % na 3.2 % $ 222.7 Jared —
%
1.1
%
1.1 % na 1.1 % $ 220.5 Piercing Pagoda 16.2 %
(5.4
)
%
10.8 % na 10.8 % $ 61.4 James Allen(2) 13.6 % $ 52.5 Peoples 0.3 %
(2.0
)
%
(1.7
)
%
(4.2 )%
(5.9
)
%
$ 39.8 Regional banners (3)
(13.7
)
%
(33.7
)
%
(47.4
)
%
(0.2 )%
(47.6
)
%
$ 16.2
North America segment 2.1 % 2.2
% 4.3 % (0.2 )% 4.1
% $ 1,064.3 H.Samuel
(3.5
)
%
(1.9
)
%
(5.4
)
%
(1.3 )%
(6.7
)
%
$ 57.4 Ernest Jones
(2.8
)
%
(0.2
)
%
(3.0
)
%
(1.3 )%
(4.3
)
%
$ 63.9
International segment
(3.1
)
%
(1.1
)
%
(4.2
)
%
(1.3 )%
(5.5
)
%
$ 121.3 Other(4) $ 6.1
Signet
1.6 % 1.7 % 3.3 %
(0.3 )% 3.0 % $ 1,191.7
(1) The 53rd week in Fiscal 2018 has resulted in a
shift in Fiscal 2019, as the fiscal year began a week later than
the previous fiscal year. As such, same store sales for Fiscal 2019
are being calculated by aligning the weeks of the quarter to the
same weeks in the prior year. Total reported sales continue to be
calculated based on the reported fiscal periods. (2) Same store
sales presented for James Allen to provide comparative performance
measure. (3) Regional banners represents results for regional
stores presented in the prior year as part of the former Sterling
Jewelers and Zale Jewelry segments (including Gordon’s and
Mappins). (4) Includes sales from Signet’s diamond sourcing
initiative.
Third quarter Fiscal 2019 Third
quarter Fiscal 2018 GAAP Operating income/(loss) in
millions $ % of sales $ %
of sales North America segment $
(19.5
)
(1.8
)
%
$ 53.8 5.3 % International segment
(4.4
)
(3.6
)
%
(1.7
)
(1.3
)
%
Other
(24.9
)
nm
(46.6
)
nm Total GAAP operating income / (loss) $
(48.8
)
(4.1
)
%
$ 5.5 0.5 %
Third quarter Fiscal 2019 Third
quarter Fiscal 2018 Non-GAAP Operating income/(loss) in
millions $ % of sales $ % of sales
North America segment $
(19.5
)
(1.8
)
%
$ 53.8 5.3 % International segment
(4.4
)
(3.6
)
%
(1.7
)
(1.3
)
%
Other
(15.0
)
nm
(46.6
)
nm Total Non-GAAP operating income / (loss) $
(38.9
)
(3.3
)
%
$ 5.5 0.5 %
Third Quarter 2019 Financial Highlights
Signet's total sales were $1.19 billion, up 3.0%, in the 13
weeks ended November 3, 2018 on a reported basis and up 3.3%
from the prior year quarter on a constant currency basis. Total
same store sales performance was 1.6% versus the prior year
quarter, inclusive of a 75 bps unfavorable impact due to planned
shifts in timing of promotions at Zales and Peoples. Same store
sales also reflected a 50 bps unfavorable impact related to a
timing shift of service plan revenue recognized as a result of the
historical claims experience shifting away from the earlier years
of the service plans to later years of the coverage period.
Incremental clearance sales to make room for new product as we
refocus our assortment had a positive impact on same store sales of
165 bps. Transition issues related to the October 2017 credit
outsourcing had an immaterial impact on same store sales in the
third quarter.
The increase in total sales of $34.8 million from the prior year
quarter was positively impacted by 1) same store sales growth; 2)
new revenue recognition accounting standards; and 3) the addition
of James Allen (acquired in September 2017). These factors were
partially offset by net store closures, the negative impact of a
calendar shift due to the 53rd week in Fiscal 2018 and unfavorable
foreign exchange translation.
eCommerce sales in the third quarter including James Allen were
$125.0 million, up 54.9% on a reported basis. James Allen sales
were $52.5 million in the quarter, up 13.6% compared to the prior
year quarter, and had a positive 50 bps impact on total company
same store sales. eCommerce sales increased across all segments and
accounted for 10.5% of third quarter sales, up from 7.0% of total
sales in the prior year third quarter.
By operating segment:
North America
- Same store sales increased 2.1%,
including the impact of initiatives across banners to increase
newness and refocus the product assortment and James Allen sales
growth which contributed 55 bps. Average transaction value ("ATV")
increased 4.5% while the number of transactions declined 1.1%.
Incremental clearance sales positively impacted same store sales by
approximately 190 bps, and a planned shift in timing of promotions
at Zales and Peoples unfavorably impacted same store sales by 85
bps. Same store sales also reflected a 55 bps unfavorable impact
related to the shift of service plan revenue recognized as
discussed above.
- Same store sales increased at Piercing
Pagoda by 16.2%, Zales by 2.8% and Kay by 0.7%. Zales results were
unfavorably impacted by 360 bps due to a planned shift in the
timing of promotions. Jared same store sales were flat.
- Fashion, bridal and watch sales
increased in the quarter on a same store sales basis, benefiting
from a greater percentage of newness in the core product assortment
and higher clearance sales. This increase was partially offset by
declines in the Other product category driven by a strategic
reduction of owned brand beads, as well as declines in other
branded beads. Bridal performance was driven by strength in
solitaires, the Enchanted Disney Fine Jewelry® collection and the
Love's Destiny collection, partially offset by declines in the Ever
Us® collection and the Tolkowsky collection. Fashion performance
was primarily driven by gold, particularly chains and bracelets,
and diamond earrings and pendants.
International
- International same store sales
decreased 3.1%, with ATV flat with the prior year and the number of
transactions decreasing 2.7%.
- The same store sales decline was
impacted by unfavorable traffic trends and a difficult consumer
environment. Higher sales in prestige watches were offset by lower
sales in diamond jewelry and fashion watches.
Gross margin was $371.2 million, or 31.1% of sales, up 330 basis
points. Factors impacting gross margin rate include 1) a positive
350 bps impact related to no longer recognizing bad debt expense
and late charge income; 2) a negative 40 bps impact related to the
discontinuation of credit insurance; 3) a negative 30 bps impact
related to James Allen, which carries a lower gross margin rate; 4)
a negative 30 bps impact related to a timing shift of revenue
recognized on service plans; and 5) a positive 20 bps impact
related to adopting new revenue recognition accounting standards,
including higher revenue share payments associated with the prime
credit outsourcing arrangement. The residual factors impacting
gross margin include unfavorable mix including higher clearance
inventory sales offset by transformation cost savings and lower
store occupancy costs due to store closures.
SGA was $410.3 million, or 34.4% of sales, compared to $375.9
million, or 32.5% of sales in the prior year. Prior year SGA
included $8.1 million in transaction costs related to the
acquisition of R2Net. SGA increased primarily due to 1) a $26
million increase in credit costs related to the transition to an
outsourced credit model; 2) a $16 million increase in advertising
expense; and 3) a $5 million increase in incentive compensation
expense. Increases in SGA were partially offset by transformation
cost savings, net of investments.
Other operating income was $0.2 million compared to $72.5
million in the prior year third quarter. The decrease is primarily
due to the sale of the prime accounts receivable in the third
quarter of Fiscal 2018, which resulted in less interest income
earned from a reduced receivable portfolio.
In the third quarter, Signet's GAAP operating income/(loss) was
$(48.8) million or (4.1)% of sales, compared to $5.5 million, or
0.5% of sales in the prior year third quarter. The operating income
margin decline was driven by a $46 million unfavorable impact
related to the outsourcing of credit, unfavorable banner mix,
higher advertising, the unfavorable impact of the timing shift on
revenue recognized on service plans, higher incentive compensation
expense and $9.5 million in restructuring charges due to store
closure costs, severance and professional fees related to the Path
to Brilliance transformation plan. These declines were partially
offset by transformation cost savings.
Non-GAAP operating loss was $(38.9) million, or (3.3)% of sales,
compared to $5.5 million, or 0.5% of sales in prior year third
quarter. Non-GAAP operating loss excluded $9.5 million in
restructuring charges related to the Path to Brilliance
transformation plan and $0.4 million in transaction costs related
to the non-prime credit outsourcing.
Income tax benefit was $29.2 million compared to income tax
benefit of $7.2 million in the prior year third quarter. The
current quarter GAAP effective tax rate was driven primarily by
pre-tax earnings mix by jurisdiction in the quarter. On a non-GAAP
basis, income tax benefit was $2.8 million for an effective tax
rate of 5.7%, driven by pre-tax earnings mix by jurisdiction.
GAAP diluted earnings per share ("EPS") of $(0.74) includes an
income tax benefit recognized in connection with the charges
associated with the Path to Brilliance transformation plan and
transaction costs related to the sale of non-prime
receivables. Using a normalized effective tax rate, our
non-GAAP loss per share was ($1.06).
GAAP and non-GAAP EPS in the quarter is based on net loss
available to common shareholders as the preferred shares are
anti-dilutive and excluded from the ending share count due to the
level of third quarter net loss.
Balance Sheet and Statement of Cash Flows
Net cash provided by operating activities was $313.5 million
year to date and free cash flow was $220.1 million, including
$445.5 million in proceeds from the sale of the non-prime
receivables. Excluding these proceeds, adjusted year to date free
cash flow was $(225.4) million. Cash and cash equivalents were
$130.7 million, compared to $113.4 million at the prior year
quarter-end.
Net accounts receivable, including accounts receivable held for
sale, were $14.1 million as of November 3, 2018, compared
to $640.1 million at the prior year quarter-end. The decrease in
receivables was primarily driven by the sale of the non-prime
portfolios.
Net inventories were $2.65 billion, up 7.3% compared to $2.47
billion at the prior year quarter-end. Our inventory balance
reflects our strategy to exit low-priced owned branded beads and
increase investments in bridal and certain fashion collections. The
increase in inventory was primarily due to investments in bridal
merchandise, particularly at Kay, as well as new on-trend designs
in fashion. The bridal investments include an increase in larger
carat weight and premium diamonds and fancy shapes as well as core
assortment including branded collections.
Short-term debt was $322.6 million, an increase of $30.8
million, compared to $291.8 million in the prior year quarter end.
Current year quarter short-term debt includes $282 million of
revolver borrowings. Prior year short-term debt included $256
million in borrowings on the revolver. Long-term debt was $660.4
million, down $36.4 million, compared to $696.8 million in the
prior year quarter end.
Fiscal year to date, Signet has repurchased 8.8 million shares
at an average cost per share of $55.06 or $485 million. As of
November 3, 2018, there was $165.6 million remaining under
Signet’s share repurchase authorization.
Signet Path to Brilliance Expected Savings and Restructuring
Costs
In March of 2018, the Company announced a three-year Signet Path
to Brilliance transformation plan to reposition the Company to be a
share gaining, OmniChannel jewelry category leader. The Company
continues to expect its transformation plan to deliver $200 million
- $225 million of net cost savings over the next three fiscal
years. The Company's estimates for pre-tax charges over the next
three fiscal years is a range of $170 million - $190 million, of
which $80 million - $95 million are expected to be cash
charges.
In Fiscal 2019, the Company expects net costs savings of $85
million - $100 million, with further incremental net cost savings
of $115 million - $125 million by the end of the three-year
program. Approximately two thirds of the Fiscal 2019 cost savings
have been achieved year to date. In Fiscal 2019, the Company's
preliminary estimates for pre-tax charges related to cost reduction
activities and inventory charges ranges from $129 million - $134
million, of which $40 million - $45 million are expected to be cash
charges.
Fiscal 2019 Financial Guidance
Fiscal 2019 Current Guidance Prior Guidance
Same store sales (excludes impact
ofrevenue recognition accounting standardchange)
flat - up 1.0% down 1.5% - flat Total sales $6.26 billion - $6.31
billion $6.2 billion - $6.3 billion GAAP diluted EPS $(7.40) -
$(7.07) $(7.47) - $(7.09) Non-GAAP diluted EPS $4.15 - $4.40 $4.05
- $4.40 Weighted average common shares - basic 55 million 55
million Weighted average common shares - diluted 62 million 62
million Capital expenditures $165 million - $185 million $165
million - $185 million Net selling square footage Approximately -5%
-4% - -5%
The above current Fiscal 2019 GAAP guidance reflects the
following assumptions:
- Same store sales guidance now includes
an unfavorable impact of 20 bps related to a timing shift of
service plan revenue recognized as a result of historical claims
experience shifting away from the earlier years of the service
plans to later years of the coverage period
- Impact of previously closed stores,
which had annual sales of $150 million in Fiscal 2018
- Application of new revenue recognition
accounting standard results in an increase to sales revenue of
approximately $111 million for amounts previously reflected as an
offset to operating expenses. Prior year will not be adjusted for
comparative purposes
- The Company plans to close more than
200 stores in Fiscal 2019 and open approximately 30 stores for a
net selling square footage decline of approximately 5%
- Transformation program net savings goal
of $85 million - $100 million. Approximately two-thirds of the
savings goal was achieved year-to-date
- Operating profit impact of negative
$134 million - $138 million due to the outsourcing of prime and
non-prime accounts receivable
- One-time pre-tax charges of $129
million - $134 million related to the transformation plan
- Pre-tax charge associated with the
credit transaction of $167 million
- Capital expenditures driven largely by
Kay off-mall stores, store remodeling and IT initiatives
- Expected GAAP tax benefit in the range
of $103 million - $109 million including the impact of impairment
charges, the loss associated with the sale of the non-prime
receivables, inclusive of the servicing fee and related transaction
costs, and restructuring charges
- Interest expense of approximately $40
million
- Share repurchases of $485 million
completed in the first half of Fiscal 2019
- For purposes of calculating both GAAP
and non-GAAP EPS, the Company expects to apply a share count that
excludes the preferred shares for the full year and a share count
including the preferred shares for the fourth quarter
Non-GAAP EPS guidance of $4.15 - $4.40 excludes restructuring
charges associated with the transformation plan, the loss
associated with the sale of the non-prime receivables and the
goodwill and intangible impairment charge. Non-GAAP EPS is computed
using a normalized tax rate of approximately 3% - 4%. The
revaluation of deferred tax assets associated with the United
States tax reform may result in discrete adjustments within
subsequent quarters which are excluded from the calculation of
non-GAAP EPS in Fiscal 2019.
Fourth Quarter Fiscal 2019 Financial
Guidance:
Fourth Quarter Fiscal 2019
Same store sales (excludes impact of
revenue recognition accountingstandard change)
down 1.5% - up 1.0% Total sales $2.17 billion - $2.22 billion GAAP
diluted EPS $ 3.02 - $3.33 Non-GAAP diluted EPS $ 4.35 - $4.59
Weighted average common shares - diluted 58.9 million
The above fourth quarter Fiscal 2019 GAAP guidance reflects the
following assumptions:
- Same store sales guidance now includes
an unfavorable impact of 30 bps related to a timing shift of
service plan revenue recognized as a result of historical claims
experience shifting away from the earlier years of the service
plans to later years of the coverage period
- Impact of previously closed stores,
which had annual sales of $52 million in the fourth quarter of
Fiscal 2018
- Application of new revenue recognition
accounting standard results in an increase to sales revenue of
approximately $36 million for amounts previously reflected as an
offset to operating expenses. Prior year will not be adjusted for
comparative purposes
- Lack of a 53rd week in the current year
fourth quarter. The 53rd week contributed $84 million in sales in
the fourth quarter of Fiscal 2018
- An operating profit impact of
approximately a negative $2 million to a positive $2 million as
compared to the fourth quarter of Fiscal 2018 related to the credit
outsourcing. This impact includes: 1) no finance or late charge
income; 2) no bad debt expense; 3) credit outsourcing expenses and
4) higher revenue sharing related to the prime outsourcing
arrangement
- Restructuring charges of approximately
$30 - $35 million related to Signet Path to Brilliance
restructuring program
- GAAP and non-GAAP EPS guidance is
calculated using net income before preferred dividend and applying
fully diluted share count
Non-GAAP EPS guidance of $4.35 - $4.59 excludes restructuring
charges associated with the transformation. Non-GAAP EPS is
computed using a normalized tax rate of approximately 3% - 4%. The
revaluation of deferred tax assets associated with the United
States tax reform may result in discrete adjustments within
subsequent quarters which are excluded from the calculation of
non-GAAP EPS in Fiscal 2019.
Conference Call:
A conference call is scheduled today at 8:30 a.m. ET and a
simultaneous audio webcast is available at www.signetjewelers.com.
The call details are:
Toll Free Dial-in: 833-245-9657
International Dial-in: +1 647-689-4229
Access code: 8682929
A replay and transcript of the call will be posted on Signet's
website as soon as they are available and will be accessible for
one year.
Holiday Sales Press Release Timing:
Signet Jewelers intends to announce its holiday sales results
via a press release before market open on Thursday, January 17,
2019. In light of the 53rd week in Fiscal 2018, this holiday
release will be distributed one week later versus prior year. As
previously announced, the company will not be hosting a holiday
sales results conference call.
About Signet and Safe Harbor Statement:
Signet Jewelers Limited is the world's largest retailer of
diamond jewelry. Signet operates nearly 3,500 stores primarily
under the name brands of Kay Jewelers, Zales, Jared The Galleria Of
Jewelry, H.Samuel, Ernest Jones, Peoples, Piercing Pagoda, and
JamesAllen.com. Further information on Signet is available at
www.signetjewelers.com. See also www.kay.com, www.zales.com,
www.jared.com, www.hsamuel.co.uk, www.ernestjones.co.uk,
www.peoplesjewellers.com, www.pagoda.com, and
www.jamesallen.com.
This release contains statements which are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements, based upon management’s
beliefs and expectations as well as on assumptions made by and data
currently available to management, appear in a number of places
throughout this document and include statements regarding, among
other things, Signet’s results of operation, financial condition,
liquidity, prospects, growth, strategies and the industry in which
Signet operates. The use of the words “expects,” “intends,”
“anticipates,” “estimates,” “predicts,” “believes,” “should,”
“potential,” “may,” “forecast,” “objective,” “plan,” or “target,”
and other similar expressions are intended to identify
forward-looking statements. These forward-looking statements are
not guarantees of future performance and are subject to a number of
risks and uncertainties, including, but not limited to, our ability
to implement Signet's transformation initiative, the effect of US
federal tax reform and adjustments relating to such impact on the
completion of our quarterly and year-end financial statements,
changes in interpretation or assumptions, and/or updated regulatory
guidance regarding the US federal tax reform, the benefits and
outsourcing of the credit portfolio sale including technology
disruptions, future financial results and operating results, the
impact of weather-related incidents on Signet’s business, the
benefits and integration of R2Net, general economic conditions,
potential regulatory changes or other developments following the
United Kingdom’s announced intention to negotiate a formal exit
from the European Union, a decline in consumer spending, the
merchandising, pricing and inventory policies followed by Signet,
the reputation of Signet and its banners, the level of competition
in the jewelry sector, the cost and availability of diamonds, gold
and other precious metals, regulations relating to customer credit,
seasonality of Signet’s business, financial market risks,
deterioration in customers’ financial condition, exchange rate
fluctuations, changes in Signet’s credit rating, changes in
consumer attitudes regarding jewelry, management of social, ethical
and environmental risks, the development and maintenance of
Signet’s omni-channel retailing, security breaches and other
disruptions to Signet’s information technology infrastructure and
databases, inadequacy in and disruptions to internal controls and
systems, changes in assumptions used in making accounting estimates
relating to items such as extended service plans and pensions,
risks related to Signet being a Bermuda corporation, the impact of
the acquisition of Zale Corporation on relationships, including
with employees, suppliers, customers and competitors, an adverse
decision in legal or regulatory proceedings, deterioration in the
performance of individual businesses or of the Company's market
value relative to its book value, resulting in impairments of fixed
assets or intangible assets or other adverse financial
consequences, including tax consequences related thereto,
especially in view of the Company’s recent market valuation and our
ability to successfully integrate Zale Corporation’s operations and
to realize synergies from the transaction.
For a discussion of these and other risks and uncertainties
which could cause actual results to differ materially from those
expressed in any forward-looking statement, see the "Risk Factors"
section of Signet's Fiscal 2018 Annual Report on Form 10-K filed
with the SEC on April 2, 2018 and quarterly reports on Form 10-Q
filed with the SEC. Signet undertakes no obligation to update or
revise any forward-looking statements to reflect subsequent events
or circumstances, except as required by law.
GAAP to Non-GAAP Reconciliations
The following information provides reconciliations of the most
comparable financial measures calculated and presented in
accordance with accounting principles generally accepted in the
U.S. (“GAAP”) to presented non-GAAP financial measures. The company
believes that non-GAAP financial measures, when reviewed in
conjunction with GAAP financial measures, can provide more
information to assist investors in evaluating historical trends and
current period performance. For these reasons, internal management
reporting also includes non-GAAP measures. Items may be excluded
from GAAP financial measures when the company believes this
provides greater clarity to management and investors.
These non-GAAP financial measures should be considered in
addition to, and not superior to or as a substitute for the GAAP
financial measures presented in this earnings release and the
Company’s financial statements and other publicly filed reports. In
addition, our non-GAAP financial measures may not be the same as or
comparable to similar non-GAAP measures presented by other
companies.
In discussing financial results, the Company refers to free cash
flow which is not in accordance with GAAP and is defined as the net
cash provided by operating activities less purchases of property,
plant and equipment. Management considers adjusted free cash flow,
defined as free cash flow excluding proceeds from the sale of the
non-prime receivables, as helpful in understanding how the business
is generating cash from its operating and investing activities that
can be used to meet the financing needs of the business. Adjusted
free cash flow is an indicator used by management frequently in
evaluating its overall liquidity and determining appropriate
capital allocation strategies. Free cash flow and adjusted free
cash flow do not represent the residual cash flow available for
discretionary expenditure.
39 weeks ended (in millions)
November 3, 2018
October 28, 2017 Net cash provided by operating activities
$313.5 $1,482.3 Purchase of property, plant and equipment (93.4 )
(166.1 ) Free cash flow $220.1 $1,316.2
39 weeks ended (in millions)
November 3, 2018
October 28, 2017 Free cash flow $220.1 $1,316.2 Proceeds
from sale of prime receivables — (960.2 ) Proceeds from sale of
non-prime receivables (445.5 ) — Adjusted free cash
flow $(225.4 ) $356.0
13 weeks ended
39 weeks ended November 3, 2018 October 28,
2017 November 3, 2018 October 28, 2017 Gross
margin $371.2 $321.1 $1,283.0 $1,270.2 Restructuring charges - cost
of sales — — 63.2 — Non-GAAP gross
margin $371.2 $321.1 $1,346.2 $1,270.2
13 weeks ended 39 weeks ended November 3,
2018 October 28, 2017 November 3, 2018 October
28, 2017 Total GAAP operating income/ (loss) $(48.8 ) $5.5
$(681.1 ) $256.4 Charges related to transformation plan 9.5 — 98.8
— Loss related to goodwill and intangible impairment — — 448.7 —
Loss related to sale of non-prime receivables 0.4 —
167.4 — Total non-GAAP operating income / (loss)
$(38.9 ) $5.5 $33.8 $256.4
13 weeks
ended
39 weeks ended
November 3, 2018 October 28, 2017 November 3,
2018 October 28, 2017
North America segment GAAP operating
income /(loss)
$(19.5 ) $53.8 $(561.0 ) $350.2 Charges related to transformation
plan — —
53.7
— Loss related to goodwill and intangible impairment — — 448.7 —
Loss related to sale of non-prime receivables — —
160.4 —
North America segment non-GAAP operating
income/ (loss)
$(19.5 ) $53.8 $101.8 $350.2
13
weeks ended 39 weeks ended November 3, 2018
October 28, 2017 November 3, 2018 October 28,
2017
International segment GAAP operating
income /(loss)
$(4.4 ) $(1.7 ) $(18.1 ) $(1.9 ) Charges related to transformation
plan — — 3.8 —
International segment non-GAAP operating
income /(loss)
$(4.4 ) $(1.7 ) $(14.3 ) $(1.9 )
13 weeks ended 39
weeks ended November 3, 2018 October 28, 2017
November 3, 2018 October 28, 2017 Other segment GAAP
operating income / (loss) $(24.9 ) $(46.6 ) $(102.0 ) $(91.9 )
Charges related to transformation plan 9.5 — 41.3 — Loss related to
sale of non-prime receivables 0.4 — 7.0 —
Other segment non-GAAP operating income / (loss) $(15.0 )
$(46.6 ) $(53.7 ) $(91.9 )
13 weeks ended
November 3, 2018
October 28, 2017
GAAP effective tax rate 49.4 % 64.9 % Charges related to
transformation plan (4.0 )% — Loss related to sale of non-prime
receivables (0.2 )% — GAAP quarterly impact of annual tax benefit1
(39.5 )% — Non-GAAP effective tax rate 5.7 % 64.9 %
13 weeks ended
November 3, 2018 October 28, 2017
GAAP Diluted EPS $(0.74 ) $(0.20 )
Charges related to transformation plan1 0.14 — Loss related to sale
of non-prime receivables1 0.01 — GAAP quarterly impact of annual
tax benefit1 (0.47 )
—
Non-GAAP Diluted EPS $(1.06 ) $(0.20 )
Fiscal Q4'19Guidance LowEnd
Fiscal Q4'19Guidance HighEnd
Q4 GAAP Diluted EPS $3.02 $3.33 Charges related to transformation
plan1 0.48 0.41 GAAP quarterly impact of annual tax benefit1 0.85
0.85 Q4 Non-GAAP Diluted EPS $4.35 $4.59
Fiscal 2019Guidance LowEnd
Fiscal 2019Guidance HighEnd
2019 GAAP Diluted EPS $(7.40 ) $(7.07 ) Charges related to
transformation plan1 1.90 1.83 Loss related to goodwill and
intangible impairment1 7.59 7.56 Loss related to sale of non-prime
receivables1 2.06 2.08 2019 Non-GAAP Diluted EPS
$4.15 $4.40
1Reconciliation of GAAP and non-GAAP charges and losses includes
related tax impact.
Additional Information Regarding Credit
Outsourcing
From a financial perspective, Signet received nearly $1.4
billion due to the combined sale of its prime and non-prime
receivables portfolios. While the outsourcing of our credit
portfolio lowers our operating profit, it also lowers share count
and interest expense as proceeds from the sale transactions have
been used to pay down debt and repurchase shares. Additionally, the
transactions result in lower working capital requirements going
forward as Signet has no need for funding accounts receivable for
future sales to its prime customers and will only hold non-prime
receivables temporarily for two business days.
From an earnings perspective, after the prime and non-prime
portfolio of receivables were reclassified to held for sale and
subsequently sold, Signet no longer earns finance or late charge
income on those accounts and no longer incurs bad debt expense.
Signet will continue to pay some minimal fees directly to Genesis
for new account originations, while all other servicing costs are
included in the discount on forward receivables sold to investment
funds managed by CarVal and Castlelake. The discount on forward
receivables will be partially offset by the elimination of the
costs related to our former in-house credit operations.
In Fiscal 2018 there was a reduction in operating income of $21
million in the fourth quarter solely reflecting the impact of the
initial credit outsourcing of prime receivables to ADS and
servicing of non-prime receivables to Genesis. Our Fiscal 2019
non-GAAP guidance embeds an approximately $152 - $156 million
incremental year-over-year reduction in operating income reflecting
a combination of (1) an additional 8 months of impacts of the prime
outsourcing; (2) 2 months of servicing costs on the non-prime
portfolio receivables; and (3) 7 months of the impacts from the
future discount rate associated with new credit sales that
investment funds managed by CarVal Investors and Castlelake will
purchase. For Fiscal 2020, we expect a zero - $5 million positive
year-over-year impact on operating income. The 2020 estimate is
based on a contractual step up in revenue share profit percentage
associated with the prime outsourcing and an assumed discount rate
for the CarVal and Castlelake arrangement, and could change if the
discount rate were to reset higher or lower under certain review
provisions in the agreement.
(in millions) Fiscal 2018 Fiscal 2019E Fiscal
2020E Operating profit impact $ 18 $ (134 )-$(138) $ (129 )-$(138)
Operating profit impact year-over-year change $ (21 ) $ (152
)-$(156) $ 0-$5 Proceeds from sale of prime and non-prime
receivables $ 952 $ 445.5 — Note: Proceeds are
shown pre-transaction costs. Estimated operating profit impact is
based on anticipated levels of credit sales and accounts
receivable. (in millions) Fiscal Q1'19
Fiscal Q2'19 Fiscal Q3'19 Fiscal Q4'19 Operating profit impact year
over year change $ (69 ) $ (39 ) $ (46 ) $ 2-$(2 )
Note: Q4 estimated operating profit impact
is based on anticipated levels of credit sales and accounts
receivable.
Condensed Consolidated Income
Statements (Unaudited)
13 weeks ended 39 weeks ended (in
millions, except per share amounts)
November 3, 2018
October 28, 2017
November 3, 2018
October 28, 2017
Sales
$ 1,191.7 $ 1,156.9
$ 4,092.4 $
3,959.9 Cost of sales
(820.5 ) (835.8 )
(2,746.2 ) (2,689.7 ) Restructuring charges - cost of
sales
— —
(63.2 ) — Gross
margin
371.2 321.1
1,283.0 1,270.2 Selling, general
and administrative expenses
(410.3 ) (375.9 )
(1,337.9 ) (1,237.7 ) Credit transaction, net
(0.4 ) (12.2 )
(167.4 ) 2.6
Restructuring charges
(9.5 ) —
(35.6 )
— Goodwill and intangible impairments
— —
(448.7
) — Other operating income, net
0.2 72.5
25.5 221.3 Operating income (loss)
(48.8 ) 5.5
(681.1 ) 256.4 Interest
expense, net
(10.6 ) (16.6 )
(28.9 )
(42.7 ) Other non-operating income
0.3 —
1.4 — Income (loss) before income taxes
(59.1 ) (11.1 )
(708.6 ) 213.7 Income
taxes
29.2 7.2
159.1 (45.7 ) Net
income (loss)
$ (29.9 ) $ (3.9 )
$
(549.5 ) $ 168.0 Dividends on redeemable convertible
preferred shares
(8.2 ) (8.2 )
(24.6 )
(24.6 ) Net income (loss) attributable to common shareholders
$ (38.1 ) $ (12.1 )
$ (574.1
) $ 143.4 Earnings (loss) per common share:
Basic
$ (0.74 ) $ (0.20 )
$
(10.31 ) $ 2.24 Diluted
$ (0.74
) $ (0.20 )
$ (10.31 ) $ 2.24 Weighted
average common shares outstanding: Basic
51.5 60.1
55.7 64.0 Diluted
51.5 60.1
55.7 64.1
Dividends declared per common share
$ 0.37 $ 0.31
$ 1.11 $ 0.93
Condensed Consolidated Balance Sheets
(Unaudited)
(in millions, except par value per share
amount)
November 3, 2018
February 3, 2018
October 28, 2017
Assets Current assets: Cash and cash equivalents $ 130.7 $
225.1 $ 113.4 Accounts receivable, held for sale 4.8 — — Accounts
receivable, net 9.3 692.5 640.1 Other receivables 58.3 87.2 80.3
Other current assets 159.9 158.2 145.0 Income taxes — 2.6 17.3
Inventories 2,647.1 2,280.5 2,466.1 Total
current assets
3,010.1 3,446.1 3,462.2 Non-current assets:
Property, plant and equipment, net of
accumulated depreciation of $1,283.4,$1,197.6 and $1,162.7,
respectively
810.4 877.9 855.1 Goodwill 509.0 821.7 867.1 Intangible assets, net
340.2 481.5 410.4 Other assets 168.6 171.2 169.1 Deferred tax
assets 36.2 1.4 1.3 Retirement benefit asset 33.0 39.8
35.5 Total assets
$ 4,907.5 $
5,839.6 $ 5,800.7
Liabilities and Shareholders’
equity Current liabilities:
Loans and overdrafts
$ 322.6 $ 44.0 $ 291.8 Accounts payable 339.6 237.0 324.9 Accrued
expenses and other current liabilities 431.3 448.0 430.5 Deferred
revenue 253.1 288.6 270.3 Income taxes 19.1 19.6 —
Total current liabilities
1,365.7 1,037.2 1,317.5
Non-current liabilities: Long-term debt 660.4 688.2 696.8 Other
liabilities 233.2 239.6 244.4 Deferred revenue 671.7 668.9 646.1
Deferred tax liabilities 12.7 92.3 143.8 Total
liabilities
2,943.7 2,726.2 3,048.6
Commitments and contingencies
Series A redeemable convertible preferred
shares of $.01 par value:authorized 500 shares, 0.625 shares
outstanding (February 3, 2018 andOctober 28, 2017: 0.625 shares
outstanding)
614.8 613.6 613.1 Shareholders’ equity:
Common shares of $0.18 par value:
authorized 500 shares, 51.9 sharesoutstanding (February 3, 2018:
60.5 outstanding; October 28, 2017: 60.4outstanding)
15.7 15.7 15.7 Additional paid-in capital 294.2 290.2 285.6 Other
reserves 0.4 0.4 0.4
Treasury shares at cost: 35.3 shares
(February 3, 2018: 26.7 shares;October 28, 2017: 26.8 shares)
(2,418.0 ) (1,942.1 ) (1,945.2 ) Retained earnings 3,763.5 4,396.2
4,074.9 Accumulated other comprehensive loss (306.8 ) (260.6 )
(292.4 ) Total shareholders’ equity
1,349.0 2,499.8
2,139.0
Total liabilities, redeemable convertible
preferred shares and shareholders’equity
$ 4,907.5 $ 5,839.6 $ 5,800.7
Condensed Consolidated Statements of
Cash Flows (Unaudited)
39 weeks ended (in millions)
November 3, 2018
October 28, 2017
Cash flows from operating activities Net income (loss)
$ (549.5 ) $ 168.0 Adjustments to reconcile
net income (loss) to net cash provided by operating activities:
Depreciation and amortization
138.4 147.1 Amortization of
unfavorable leases and contracts
(5.9 ) (10.8 )
Pension benefit
(0.7 ) (3.6 ) Share-based
compensation
15.5 11.0 Deferred taxation
(113.2
) 41.7 Credit transaction, net
160.4 (30.9 ) Goodwill
and intangible impairments
448.7 — Restructuring charges
80.2 — Amortization of debt discount and issuance costs
1.5 3.2 Other non-cash movements
(4.1 ) 1.5
Changes in operating assets and liabilities: Decrease in accounts
receivable held for investment
37.6 286.1 Decrease in
accounts receivable held for sale
17.5 — Proceeds from sale
of in-house finance receivables
445.5 960.2 Decrease in
other assets and other receivables
31.9 17.1 (Increase)
decrease in inventories
(456.6 ) 4.6 Increase in
accounts payable
106.5 39.7 Decrease in accrued expenses and
other liabilities
(7.3 ) (5.4 ) Decrease in deferred
revenue
(31.8 ) (29.5 ) Increase (decrease) in income
taxes payable
2.0 (115.3 ) Pension plan contributions
(3.1 ) (2.4 ) Net cash provided by operating
activities
313.5 1,482.3
Investing
activities Purchase of property, plant and equipment
(93.4 ) (166.1 ) Proceeds from sale of assets
5.5 — Purchase of available-for-sale securities
(0.6
) (1.7 ) Proceeds from sale of available-for-sale securities
9.0 0.9 Acquisition of R2Net Inc., net of cash acquired
— (332.4 ) Net cash used in investing activities
(79.5 ) (499.3 )
Financing activities
Dividends paid on common shares
(59.8 ) (57.7 )
Dividends paid on redeemable convertible preferred shares
(23.4 ) (26.9 ) Repurchase of common shares
(485.0 ) (460.0 ) Proceeds from term loans
—
350.0 Repayments of term loans
(22.3 ) (365.7 )
Proceeds from securitization facility
— 1,745.9 Repayments
of securitization facility
— (2,345.9 ) Proceeds from
revolving credit facility
698.0 605.0 Repayments of
revolving credit facility
(416.0 ) (405.0 )
Repayments of bank overdrafts
(10.1 ) (5.9 ) Other
financing activities
(2.1 ) (4.5 ) Net cash used in
financing activities
(320.7 ) (970.7 ) Cash and cash
equivalents at beginning of period
225.1 98.7 (Decrease)
increase in cash and cash equivalents
(86.7 ) 12.3
Effect of exchange rate changes on cash and cash equivalents
(7.7 ) 2.4 Cash and cash equivalents at end of
period
$ 130.7 $ 113.4
Real Estate Portfolio:
Signet has a diversified real estate portfolio. On
November 3, 2018, Signet had 3,478 stores totaling 4.9 million
square feet of selling space. In the third quarter, store count
decreased by 15 and square feet of selling space decreased 0.3%.
Compared to year end Fiscal 2018, store count decreased by 78 and
square feet of selling space decreased 1.9%.
Store count by banner
February 3, 2018 Openings Closures
November 3, 2018
Kay 1,247 30 (31 ) 1,246 Zales 704 3 (24 ) 683 Peoples 129 1 (6 )
124 Jared 274 1 (5 ) 270 Piercing Pagoda 598 — (16 ) 582 Regional
banners 100 — (21 ) 79
North America segment
3,052 35 (103 ) 2,984 H.Samuel 301 — (6 ) 295 Ernest
Jones 203 3 (7 ) 199
International segment 504
3 (13 ) 494
Signet 3,556 38 (116
) 3,478
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181206005257/en/
Investors:Randi AbadaSVP Corporate Finance Strategy &
Investor Relations+1-330-668-3489randi.abada@signetjewelers.com
Media:David BouffardVP Corporate
Affairs+1-330-668-5369david.bouffard@signetjewelers.com
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