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 primarily consists of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones. See Note 5 for additional discussion of the Company’s reportable 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.
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 remains unknown and depends on future developments that are uncertain and unpredictable, including the duration and possible resurgence of COVID-19 (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. The Company will continue to evaluate the impact of COVID-19 on its business, results of operations and cash flows throughout Fiscal 2023, 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. Intercompany transactions and balances have been eliminated in consolidation. Signet has reclassified certain prior year amounts to conform to the current year presentation. 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 29, 2022 filed with the SEC on March 17, 2022.
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 periods. Actual results could differ from those estimates. 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 2023 and Fiscal 2022 refer to the 52 week periods ending January 28, 2023 and ended January 29, 2022, respectively. Within these condensed consolidated financial statements, the second quarter and year to date period of the relevant fiscal years 2023 and 2022 refer to the 13 and 26 weeks ended July 30, 2022 and July 31, 2021, 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.
Investment in Sasmat
During the 13 weeks ended July 30, 2022, the Company acquired a 25% interest in Sasmat Retail, S.L (“Sasmat”) for $17.1 million in cash. Sasmat is a Spanish jewelry retailer specializing in online selling, with two brick and mortar locations. Under the terms of the agreement, the Company has the option to acquire the remaining 75% of Sasmat exercisable at the earlier of three years or upon Sasmat reaching certain revenue targets as defined in the agreement. The Company is applying the equity method of accounting to the Sasmat investment. The Sasmat investment was recorded within other noncurrent assets in the condensed consolidated balance sheet as of July 30, 2022. The Sasmat investment did not have a material impact to Signet’s condensed consolidated statement of operations for the second quarter of Fiscal 2023.
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 during Fiscal 2023 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 have a material impact to the Company in future periods.
3. Revenue recognition
The following table provides the Company’s total sales, disaggregated by banner, for the 13 and 26 weeks ended July 30, 2022 and July 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended July 30, 2022 | | 13 weeks ended July 31, 2021 |
| (in millions) | North America | | International | | Other | | Consolidated | | North America | | International | | Other | | Consolidated |
Sales by banner: | | | | | | | | | | | | | | | |
Kay | $ | 617.5 | | | $ | — | | | $ | — | | | $ | 617.5 | | | $ | 673.7 | | | $ | — | | | $ | — | | | $ | 673.7 | |
Zales | 318.1 | | | — | | | — | | | 318.1 | | | 367.3 | | | — | | | — | | | 367.3 | |
Jared | 303.5 | | | — | | | — | | | 303.5 | | | 311.9 | | | — | | | — | | | 311.9 | |
| Diamonds Direct | 113.0 | | | — | | | — | | | 113.0 | | | — | | | | | | | — | |
Banter by Piercing Pagoda | 100.2 | | | — | | | — | | | 100.2 | | | 138.7 | | | — | | | — | | | 138.7 | |
James Allen | 88.6 | | | — | | | — | | | 88.6 | | | 108.8 | | | — | | | — | | | 108.8 | |
Peoples | 47.8 | | | — | | | — | | | 47.8 | | | 41.4 | | | — | | | — | | | 41.4 | |
International segment banners | — | | | 111.6 | | | — | | | 111.6 | | | — | | | 130.7 | | | — | | | 130.7 | |
Other (1) | 27.7 | | | — | | | 26.9 | | | 54.6 | | | 3.9 | | | — | | | 11.7 | | | 15.6 | |
Total sales | $ | 1,616.4 | | | $ | 111.6 | | | $ | 26.9 | | | $ | 1,754.9 | | | $ | 1,645.7 | | | $ | 130.7 | | | $ | 11.7 | | | $ | 1,788.1 | |
| | | | | | | | | | | | | | | |
| 26 weeks ended July 30, 2022 | | 26 weeks ended July 31, 2021 |
| (in millions) | North America | | International | | Other | | Consolidated | | North America | | International | | Other | | Consolidated |
Sales by banner: | | | | | | | | | | | | | | | |
Kay | $ | 1,284.8 | | | $ | — | | | $ | — | | | $ | 1,284.8 | | | $ | 1,350.4 | | | $ | — | | | $ | — | | | $ | 1,350.4 | |
Zales | 665.8 | | | — | | | — | | | 665.8 | | | 738.1 | | | — | | | — | | | 738.1 | |
Jared | 617.6 | | | — | | | — | | | 617.6 | | | 596.0 | | | — | | | — | | | 596.0 | |
| Diamonds Direct | 219.3 | | | | | | | 219.3 | | | — | | | | | | | — | |
Banter by Piercing Pagoda | 219.2 | | | — | | | — | | | 219.2 | | | 287.6 | | | — | | | — | | | 287.6 | |
James Allen | 181.9 | | | — | | | — | | | 181.9 | | | 210.3 | | | — | | | — | | | 210.3 | |
Peoples | 93.2 | | | — | | | — | | | 93.2 | | | 76.0 | | | — | | | — | | | 76.0 | |
International segment banners | — | | | 221.6 | | | — | | | 221.6 | | | — | | | 188.1 | | | — | | | 188.1 | |
Other (1) | 39.6 | | | — | | | 50.2 | | | 89.8 | | | 5.3 | | | — | | | 25.1 | | | 30.4 | |
Total sales | $ | 3,321.4 | | | $ | 221.6 | | | $ | 50.2 | | | $ | 3,593.2 | | | $ | 3,263.7 | | | $ | 188.1 | | | $ | 25.1 | | | $ | 3,476.9 | |
(1) Other primarily includes sales from Signet’s diamond sourcing initiative, loose diamonds and Rocksbox.
The following table provides the Company’s total sales, disaggregated by major product, for the 13 and 26 weeks ended July 30, 2022 and July 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended July 30, 2022 | | 13 weeks ended July 31, 2021 |
| (in millions) | North America | | International | | Other | | Consolidated | | North America | | International | | Other | | Consolidated |
Sales by product: | | | | | | | | | | | | | | | |
Bridal | $ | 730.6 | | | $ | 49.2 | | | $ | — | | | $ | 779.8 | | | $ | 696.9 | | | $ | 60.7 | | | $ | — | | | $ | 757.6 | |
Fashion | 609.6 | | | 17.9 | | | — | | | 627.5 | | | 680.7 | | | 20.7 | | | — | | | 701.4 | |
Watches | 53.5 | | | 37.9 | | | — | | | 91.4 | | | 58.6 | | | 41.0 | | | — | | | 99.6 | |
Services (1) | 163.5 | | | 6.6 | | | — | | | 170.1 | | | 151.1 | | | 8.3 | | | — | | | 159.4 | |
Other (2) | 59.2 | | | — | | | 26.9 | | | 86.1 | | | 58.4 | | | — | | | 11.7 | | | 70.1 | |
Total sales | $ | 1,616.4 | | | $ | 111.6 | | | $ | 26.9 | | | $ | 1,754.9 | | | $ | 1,645.7 | | | $ | 130.7 | | | $ | 11.7 | | | $ | 1,788.1 | |
| | | | | | | | | | | | | | | |
| 26 weeks ended July 30, 2022 | | 26 weeks ended July 31, 2021 |
| (in millions) | North America | | International | | Other | | Consolidated | | North America | | International | | Other | | Consolidated |
Sales by product: | | | | | | | | | | | | | | | |
Bridal | $ | 1,517.9 | | | $ | 99.3 | | | $ | — | | | $ | 1,617.2 | | | $ | 1,423.6 | | | $ | 89.5 | | | $ | — | | | $ | 1,513.1 | |
Fashion | 1,267.8 | | | 35.6 | | | — | | | 1,303.4 | | | 1,342.1 | | | 30.4 | | | — | | | 1,372.5 | |
Watches | 105.0 | | | 73.1 | | | — | | | 178.1 | | | 105.5 | | | 58.2 | | | — | | | 163.7 | |
Services (1) | 329.5 | | | 13.6 | | | — | | | 343.1 | | | 297.0 | | | 10.0 | | | — | | | 307.0 | |
Other (2) | 101.2 | | | — | | | 50.2 | | | 151.4 | | | 95.5 | | | — | | | 25.1 | | | 120.6 | |
Total sales | $ | 3,321.4 | | | $ | 221.6 | | | $ | 50.2 | | | $ | 3,593.2 | | | $ | 3,263.7 | | | $ | 188.1 | | | $ | 25.1 | | | $ | 3,476.9 | |
(1) Services primarily includes sales from service plans, repairs and subscriptions.
(2) Other primarily includes sales from Signet’s diamond sourcing initiative and other miscellaneous non-jewelry sales.
The following table provides the Company’s total sales, disaggregated by channel, for the 13 and 26 weeks ended July 30, 2022 and July 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended July 30, 2022 | | 13 weeks ended July 31, 2021 |
| (in millions) | North America | | International | | Other | | Consolidated | | North America | | International | | Other | | Consolidated |
Sales by channel: | | | | | | | | | | | | | | | |
Store | $ | 1,314.6 | | | $ | 91.9 | | | $ | — | | | $ | 1,406.5 | | | $ | 1,333.3 | | | $ | 106.9 | | | $ | — | | | $ | 1,440.2 | |
E-commerce | 278.1 | | | 19.7 | | | — | | | 297.8 | | | 312.4 | | | 23.8 | | | — | | | 336.2 | |
Other (1) | 23.7 | | | — | | | 26.9 | | | 50.6 | | | — | | | — | | | 11.7 | | | 11.7 | |
Total sales | $ | 1,616.4 | | | $ | 111.6 | | | $ | 26.9 | | | $ | 1,754.9 | | | $ | 1,645.7 | | | $ | 130.7 | | | $ | 11.7 | | | $ | 1,788.1 | |
| | | | | | | | | | | | | | | |
| 26 weeks ended July 30, 2022 | | 26 weeks ended July 31, 2021 |
| (in millions) | North America | | International | | Other | | Consolidated | | North America | | International | | Other | | Consolidated |
Sales by channel: | | | | | | | | | | | | | | | |
Store | $ | 2,711.1 | | | $ | 181.8 | | | $ | — | | | $ | 2,892.9 | | | $ | 2,632.9 | | | $ | 136.4 | | | $ | — | | | $ | 2,769.3 | |
E-commerce | 578.5 | | | 39.8 | | | — | | | 618.3 | | | 630.8 | | | 51.7 | | | — | | | 682.5 | |
Other (1) | 31.8 | | | — | | | 50.2 | | | 82.0 | | | — | | | — | | | 25.1 | | | 25.1 | |
Total sales | $ | 3,321.4 | | | $ | 221.6 | | | $ | 50.2 | | | $ | 3,593.2 | | | $ | 3,263.7 | | | $ | 188.1 | | | $ | 25.1 | | | $ | 3,476.9 | |
(1) Other primarily includes sales from Signet’s diamond sourcing initiative and loose diamonds.
Extended service plans (“ESP”)
The Company recognizes revenue related to ESP sales in proportion to when the expected costs will be incurred. The deferral periods for ESP sales are 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 30, 2022, January 29, 2022 and July 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | |
| (in millions) | July 30, 2022 | | January 29, 2022 | | July 31, 2021 |
| Other current assets | $ | 27.4 | | | $ | 28.4 | | | $ | 25.4 | |
| Other assets | 86.8 | | | 87.8 | | | 87.1 | |
| Total deferred selling costs | $ | 114.2 | | | $ | 116.2 | | | $ | 112.5 | |
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 $10.3 million and $21.1 million during the 13 and 26 weeks ended July 30, 2022, respectively, and $7.1 million and $17.0 million during the 13 and 26 weeks ended July 31, 2021.
Deferred revenue
Deferred revenue as of July 30, 2022, January 29, 2022 and July 31, 2021 was as follows:
| | | | | | | | | | | | | | | | | |
| (in millions) | July 30, 2022 | | January 29, 2022 | | July 31, 2021 |
| ESP deferred revenue | $ | 1,131.5 | | | $ | 1,116.5 | | | $ | 1,063.8 | |
Other deferred revenue (1) | 69.3 | | | 82.4 | | | 43.5 | |
Total deferred revenue | $ | 1,200.8 | | | $ | 1,198.9 | | | $ | 1,107.3 | |
| | | | | |
| Disclosed as: | | | | | |
| Current liabilities | $ | 326.9 | | | $ | 341.3 | | | $ | 297.9 | |
| Non-current liabilities | 873.9 | | | 857.6 | | | 809.4 | |
| Total deferred revenue | $ | 1,200.8 | | | $ | 1,198.9 | | | $ | 1,107.3 | |
(1) Other deferred revenue primarily includes 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 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
| ESP deferred revenue, beginning of period | $ | 1,125.9 | | | $ | 1,049.4 | | | $ | 1,116.5 | | | $ | 1,028.9 | |
Plans sold (1) | 120.3 | | | 118.6 | | | 244.1 | | | 242.7 | |
Revenue recognized (2) | (114.7) | | | (104.2) | | | (229.1) | | | (207.8) | |
| ESP deferred revenue, end of period | $ | 1,131.5 | | | $ | 1,063.8 | | | $ | 1,131.5 | | | $ | 1,063.8 | |
(1) Includes impact of foreign exchange translation.
(2) The Company recognized sales of $68.6 million and $147.8 million during the 13 and 26 weeks ended July 30, 2022, respectively, and $63.9 million and $136.5 million during the 13 and 26 weeks ended July 31, 2021, respectively, related to deferred revenue that existed at the beginning of the period in respect to ESP.
4. Acquisitions
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 $14.6 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. Net assets acquired primarily consist of goodwill and intangible assets (see Note 15 for details).
The results of Rocksbox subsequent to the acquisition date are reported as a component of the North America segment. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results was not material.
Diamonds Direct
On November 17, 2021, the Company acquired all of the outstanding shares of Diamonds Direct USA Inc. (“Diamonds Direct”) for cash consideration of $503.1 million, net of cash acquired of $14.2 million and including the final additional payment of $1.9 million made in the first quarter of Fiscal 2023. Diamonds Direct is an off-mall, destination jeweler in the US, with a highly productive, efficient operating model with demonstrated growth and profitability which is expected to immediately contribute to Signet’s Inspiring Brilliance strategy to accelerate growth and expand the Company’s market in accessible luxury and bridal. Diamonds Direct’s strong value proposition, extensive bridal offering and customer-centric, high-touch shopping experience is a destination for younger, luxury-oriented bridal shoppers.
The information included herein has been prepared based on the allocation of the purchase price using estimates of the fair value and useful lives of assets acquired and liabilities assumed which were determined by management using a combination of income and cost approaches, including the relief from royalty method and comparable market prices. The purchase price allocation is subject to further adjustment until all pertinent information regarding the assets and liabilities acquired are fully evaluated by the Company.
The following table presents the estimated fair value of the assets acquired and liabilities assumed from Diamonds Direct at the date of acquisition:
| | | | | |
| (in millions) | |
| Inventories | $ | 229.1 | |
| Property, plant and equipment | 32.3 | |
| Right-of-use assets | 56.9 | |
| Intangible assets | 126.0 | |
| Other assets | 6.7 | |
| Identifiable assets acquired | 451.0 | |
| |
| Accounts payable | 46.8 | |
| Deferred revenue | 26.1 | |
| Operating lease liabilities | 57.6 | |
| Deferred taxes | 33.6 | |
| Other liabilities | 27.6 | |
| Liabilities assumed | 191.7 | |
| Identifiable net assets acquired | 259.3 | |
| Goodwill | 243.8 | |
| Net assets acquired | $ | 503.1 | |
The Company recorded acquired intangible assets of $126.0 million, consisting entirely of an indefinite-lived trade name.
Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed in the acquisition and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The amount allocated to goodwill associated with the Diamonds Direct acquisition is primarily the result of expected synergies resulting from combining the activities such as marketing and digital effectiveness, expansion of connected commence capabilities, and sourcing savings. The Company allocated goodwill to its North America reportable segment. None of the goodwill associated with this transaction is deductible for income tax purposes.
The results of Diamonds Direct subsequent to the acquisition date are reported as a component of the North America reportable segment. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results was not material.
Blue Nile
On August 19, 2022, the Company acquired 100% of the outstanding common stock of Blue Nile, Inc. (“Blue Nile”), subject to the terms of a stock purchase agreement (“Agreement”) entered into on August 5, 2022. The total cash consideration is $398.2 million, net of cash acquired, including purchase price adjustments for working capital, and is subject to customary post-closing adjustments per
the Agreement. In connection with the acquisition, the Company incurred $2.6 million of acquisition-related costs during the 13 weeks ended July 30, 2022, which were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.
Blue Nile is a leading online retailer of engagement rings and fine jewelry with 23 physical showrooms throughout the US. The strategic acquisition of Blue Nile accelerates Signet's initiatives to expand its bridal offerings and grow its accessible luxury portfolio while enhancing its connected commerce capabilities as well as extending its digital leadership across the jewelry category – all to further achieve meaningful operating synergies to enhance shopping experiences for consumers and create value for shareholders.
Neither the Company’s condensed consolidated balance sheets nor the operating results or cash flows, as of and for the periods ended July 30, 2022, reflect the impact of Blue Nile as the acquisition was completed after the balance sheet date. Signet plans to report Blue Nile results within the Company’s North America reportable segment.
5. 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 aggregates operating segments with similar economic and operating characteristics. 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, as well as online, principally as Kay (Kay Jewelers and Kay Outlet), Zales (Zales Jewelers and Zales Outlet), Jared (Jared The Galleria Of Jewelry and Jared Vault), Diamonds Direct, James Allen, Banter by Piercing Pagoda, which primarily operates through mall-based kiosks, and Rocksbox. Its Canadian stores operate as Peoples Jewellers.
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 under the H. Samuel and Ernest Jones banners.
The Other reportable segment primarily consists of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones.
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 26 weeks ended |
| (in millions) | July 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
Sales: | | | | | | | |
North America segment | $ | 1,616.4 | | | $ | 1,645.7 | | | $ | 3,321.4 | | | $ | 3,263.7 | |
International segment | 111.6 | | | 130.7 | | | 221.6 | | | 188.1 | |
Other segment | 26.9 | | | 11.7 | | | 50.2 | | | 25.1 | |
Total sales | $ | 1,754.9 | | | $ | 1,788.1 | | | $ | 3,593.2 | | | $ | 3,476.9 | |
| | | | | | | |
Operating income (loss): | | | | | | | |
North America segment (1) | $ | 210.1 | | | $ | 237.3 | | | $ | 234.9 | | | $ | 449.3 | |
International segment | (2.0) | | | 15.5 | | | (8.4) | | | (4.2) | |
Other segment | 1.8 | | | (0.1) | | | 4.8 | | | (1.0) | |
Corporate and unallocated expenses (2) | (23.1) | | | (27.3) | | | (44.3) | | | (50.0) | |
Total operating income | 186.8 | | | 225.4 | | | 187.0 | | | 394.1 | |
Interest expense, net | (3.4) | | | (4.4) | | | (7.8) | | | (8.3) | |
Other non-operating income (expense) | (2.4) | | | 0.1 | | | (136.9) | | | 0.2 | |
| Income before income taxes | $ | 181.0 | | | $ | 221.1 | | | $ | 42.3 | | | $ | 386.0 | |
(1) Operating income during the 13 and 26 weeks ended July 30, 2022 includes $5.8 million and $10.2 million, respectively, of cost of sales associated with the fair value step-up of inventory acquired in the Diamonds Direct acquisition; and $2.6 million of acquisition-related expenses in connection with the Blue Nile acquisition. Operating income during the 26 weeks ended July 30, 2022 includes $190.0 million related to pre-tax litigation charges. See Note 4 and Note 21 for additional information.
Operating income 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; credits of $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.
(2) Operating income during the 13 and 26 weeks ended July 31, 2021 includes $0.6 million credit to restructuring expense, primarily related to adjustments to previously recognized restructuring liabilities.
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 has declared all Preferred Share dividends in Fiscal 2022 and Fiscal 2023 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 30, 2022 | | January 29, 2022 | | July 31, 2021 |
Conversion rate | 12.3939 | | | 12.2297 | | | 12.2297 | |
Conversion price | $ | 80.6849 | | | $ | 81.7682 | | | $ | 81.7682 | |
Potential impact of preferred shares if-converted to common shares | 8.1 | | | 8.0 | | | 8.0 | |
Liquidation preference (1) | $ | 665.1 | | | $ | 665.1 | | | $ | 673.2 | |
(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 $9.8 million as of July 30, 2022 (January 29, 2022 and July 31, 2021: $9.0 million and $8.1 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 30, 2022 ($0.4 million and $0.8 million for the 13 and 26 weeks ended July 31, 2021).
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 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 30, 2022 and July 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal 2023 | | Fiscal 2022 |
| (in millions, except per share amounts) | Dividends
per share | | Total dividends | | Dividends
per share | | Total dividends |
| First quarter | $ | 0.20 | | | $ | 9.3 | | | $ | — | | | $ | — | |
Second quarter (1) | 0.20 | | | 9.2 | | | 0.18 | | | 9.5 | |
| | | | | | | |
Total | $ | 0.40 | | | $ | 18.5 | | | $ | 0.18 | | | $ | 9.5 | |
(1) Signet’s dividend policy results in the common share dividend payment date being a quarter in arrears from the declaration date. As a result, as of July 30, 2022 and July 31, 2021, $9.2 million and $9.5 million, respectively, has been recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets reflecting the cash dividends on common shares declared for the second quarter of Fiscal 2023 and Fiscal 2022, respectively.
Dividends on Preferred Shares
Dividends declared on the Preferred Shares during the 26 weeks ended July 30, 2022 and July 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fiscal 2023 | | Fiscal 2022 |
| (in millions, except per share amounts) | Dividends
per share | | Total dividends | | Dividends
per share | | Total dividends |
| First quarter | $ | 13.14 | | | $ | 8.2 | | | $ | 13.14 | | | $ | 8.2 | |
Second quarter (1) | 13.14 | | | 8.2 | | | 13.14 | | | 8.2 | |
| | | | | | | |
Total | $ | 26.28 | | | $ | 16.4 | | | $ | 26.28 | | | $ | 16.4 | |
(1) Signet’s dividend policy results in the preferred share dividend payment date being a quarter in arrears from the declaration date. As a result, as of July 30, 2022 and July 31, 2021, $8.2 million and $8.2 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 2023 and Fiscal 2022, respectively.
There were no cumulative undeclared dividends on the Preferred Shares that reduced net income attributable to common shareholders during the 13 and 26 weeks ended July 30, 2022 or July 31, 2021. See Note 6 for additional discussion of the Company’s Preferred Shares.
Share repurchases
On August 23, 2021, the Board authorized a reinstatement of repurchases under the 2017 Share Repurchase Program (the “2017 Program”). During Fiscal 2022, the Board also authorized an increase in the remaining amount of shares authorized for repurchase under the 2017 Program by $559.4 million, bringing the total authorization to $1.2 billion as of January 29, 2022. In June 2022, the Board authorized an additional increase of the 2017 Program by $500 million, bringing the total authorization to $1.7 billion. Since inception of the 2017 Program, the Company has repurchased $1.1 billion of shares, with an additional $622.4 million of shares authorized for repurchase remaining as of July 30, 2022.
On January 21, 2022, the Company entered into an accelerated share repurchase agreement (“ASR”) with a large financial institution to repurchase the Company’s common shares for an aggregate amount of $250 million. On January 24, 2022, the Company made a prepayment of $250 million and took delivery of 2.5 million shares based on a price of $80 per share, which is 80% of the total prepayment amount. On March 14, 2022, the Company received an additional 0.8 million shares, representing the remaining 20% of the total prepayment and final settlement of the ASR. The number of shares received at final settlement was based on the average of the daily volume-weighted average prices of the Company’s common stock during the term of the ASR. The ASR was accounted for as a purchase of common shares and a forward purchase contract.
The share repurchase activity during the 26 weeks ended July 30, 2022 and July 31, 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 26 weeks ended July 30, 2022 | | 26 weeks ended July 31, 2021 |
| (in millions, except per share amounts | | | Shares repurchased | | Amount repurchased (1)(2) | | Average repurchase price per share (2) | | Shares repurchased | | Amount repurchased | | Average repurchase price per share |
| 2017 Program | | | 4.7 | | $ | 341.0 | | | $ | 72.14 | | | — | | $ | — | | | N/A |
(1) The amount repurchased in Fiscal 2023 includes $50 million related to the forward purchase contract in the ASR.
(2) Includes amounts paid for commissions.
8. Earnings per common share (“EPS”)
Basic EPS is computed by dividing net income 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 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
| Numerator: | | | | | | | |
| Net income attributable to common shareholders | $ | 136.8 | | | $ | 216.0 | | | $ | 44.7 | | | $ | 345.8 | |
| Denominator: | | | | | | | |
Weighted average common shares outstanding | 46.4 | | | 52.7 | | | 47.6 | | | 52.4 | |
EPS – basic | $ | 2.95 | | | $ | 4.10 | | | $ | 0.94 | | | $ | 6.60 | |
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, performance-based restricted stock units and stock options issued under the Omnibus Plan and stock options issued under the Share Saving Plans. The dilutive effect of performance-based restricted stock units represents the number of contingently issuable shares that would be issuable if the end of the period was the end of the contingency period and is based on the actual achievement of performance metrics through the end of the current interim periods. 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 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 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
| Numerator: | | | | | | | |
| Net income attributable to common shareholders | $ | 136.8 | | $ | 216.0 | | $ | 44.7 | | $ | 345.8 |
Add: Dividends on Preferred Shares | 8.6 | | 8.6 | | — | | 17.2 |
| Numerator for diluted EPS | $ | 145.4 | | $ | 224.6 | | $ | 44.7 | | $ | 363.0 |
| Denominator: | | | | | | | |
Basic weighted average common shares outstanding | 46.4 | | 52.7 | | 47.6 | | 52.4 |
Plus: Dilutive effect of share awards | 1.9 | | 1.7 | | 2.1 | | 1.8 |
Plus: Dilutive effect of preferred shares | 8.0 | | 8.0 | | — | | 8.0 |
Diluted weighted average common shares outstanding | 56.3 | | 62.4 | | 49.7 | | 62.2 |
EPS – diluted | $ | 2.58 | | $ | 3.60 | | $ | 0.90 | | $ | 5.84 |
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 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
| Share awards | — | | | — | | | 0.1 | | | — | |
| Potential impact of preferred shares | — | | | — | | | 8.0 | | | — | |
Total anti-dilutive shares | — | | | — | | | 8.1 | | | — | |
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
(losses) gains | | Prior
service
costs | | Accumulated
other
comprehensive income (loss) |
| Balance at January 29, 2022 | $ | (244.3) | | | $ | 0.2 | | | $ | 0.4 | | | $ | (103.3) | | | $ | (3.9) | | | $ | (350.9) | |
Other comprehensive income (loss) (“OCI”) before reclassifications | (23.9) | | | (0.3) | | | 1.6 | | | (0.4) | | | — | | | (23.0) | |
Amounts reclassified from AOCI to earnings | — | | | — | | | (0.3) | | | 105.8 | | | 3.8 | | | 109.3 | |
| | | | | | | | | | | |
Net current period OCI | (23.9) | | | (0.3) | | | 1.3 | | | 105.4 | | | 3.8 | | | 86.3 | |
| Balance at July 30, 2022 | $ | (268.2) | | | $ | (0.1) | | | $ | 1.7 | | | $ | 2.1 | | | $ | (0.1) | | | $ | (264.6) | |
The amounts reclassified from AOCI to earnings were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amounts reclassified from AOCI | | |
| 13 weeks ended | | 26 weeks ended | | |
| (in millions) | July 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 | | Statement of operations caption |
(Gains) losses on cash flow hedges: | | | | | | | | | |
Foreign currency contracts | $ | (0.3) | | | $ | 0.2 | | | $ | (0.3) | | | $ | 0.3 | | | Cost of sales (see Note 16) |
| | | | | | | | | |
Commodity contracts | — | | | 0.1 | | | — | | | 0.2 | | | Cost of sales (see Note 16) |
Total before income tax | (0.3) | | | 0.3 | | | (0.3) | | | 0.5 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Income taxes | — | | | (0.1) | | | — | | | (0.1) | | | |
Net of tax | (0.3) | | | 0.2 | | | (0.3) | | | 0.4 | | | |
| | | | | | | | | |
Defined benefit pension plan items: | | | | | | | | | |
Amortization of unrecognized actuarial losses | 1.1 | | | 0.2 | | | 2.0 | | | 0.4 | | | Other non-operating income (expense) (see Note 22) |
Amortization of unrecognized net prior service costs | 0.1 | | | 0.1 | | | 0.2 | | | 0.1 | | | Other non-operating income (expense) (see Note 22) |
Pension settlement loss | 0.9 | | | — | | | 132.8 | | | — | | | Other non-operating income (expense) (see Note 22) |
Total before income tax | 2.1 | | | 0.3 | | | 135.0 | | | 0.5 | | | |
Income taxes | (0.2) | | | (0.1) | | | (25.4) | | | (0.1) | | | |
Net of tax | 1.9 | | | 0.2 | | | 109.6 | | | 0.4 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total reclassifications, net of tax | $ | 1.6 | | | $ | 0.4 | | | $ | 109.3 | | | $ | 0.8 | | | |
10. Income taxes | | | | | | | | | | | |
| 26 weeks ended |
| July 30, 2022 | | July 31, 2021 |
| Estimated annual effective tax rate before discrete items | 20.1 | % | | 21.4 | % |
Discrete items recognized | (66.4) | % | | (15.5) | % |
Effective tax rate recognized in statements of operations | (46.3) | % | | 5.9 | % |
During the 26 weeks ended July 30, 2022, the Company’s effective tax rate was lower than the US federal income tax rate, primarily as a result of the discrete tax benefits related to litigation charges of $47.7 million, the reclassification of the pension settlement loss out of AOCI of $25.2 million and the excess tax benefit for share-based compensation which vested during the year of $13.0 million.
The Company’s effective tax rate for the same period during the prior year 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.
As of July 30, 2022, 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 29, 2022.
11. Credit transactions
Credit card outsourcing programs
The Company has entered into various agreements with Comenity Bank (“Comenity”) and Genesis Financial Solutions (“Genesis”) through its subsidiaries Sterling Jewelers Inc. (“Sterling”) and Zale Delaware, Inc. (“Zale”), to outsource its private label credit card programs. Under the original agreements, Comenity 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 and Genesis were amended and restated to provide credit services to prime and non-prime customers.
The non-prime portion of the Sterling credit card portfolio was previously outsourced to CarVal Investors (“CarVal”), Castlelake, L.P. (“Castlelake”) and Genesis (collectively with CarVal and Castlelake, the “Investors”). Under agreements with the Investors, Signet remained 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. Prior to March 2022 as described below, Signet held 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. 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.
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. Beginning July 1, 2021, all new prime and non-prime account origination have occurred in accordance with the Comenity and Genesis agreements described above.
Fiscal 2023 amended and restated agreements
In March 2022, the Company entered into amended and restated receivable purchase agreements with the Investors regarding the purchase of add-on receivables on such Investors’ existing accounts. Under the amended and restated agreements, The Bank of Missouri will be the issuer for the add-on receivables on these existing accounts and the Investors will purchase the receivables from The Bank of Missouri.
In conjunction with the above agreements in March 2022, the Company entered into agreements with the Investors to transfer all existing cardholder accounts previously originated by Signet to The Bank of Missouri. Therefore, the Company will no longer originate any credit receivables with customers.
12. Accounts receivable
The following table presents the components of Signet’s accounts receivable:
| | | | | | | | | | | | | | | | | |
| (in millions) | July 30, 2022 | | January 29, 2022 | | July 31, 2021 |
| | | | | |
Accounts receivable, trade | $ | 35.6 | | | $ | 18.3 | | | $ | 10.7 | |
Accounts receivable, held for sale | — | | | 1.6 | | | 3.2 | |
Accounts receivable | $ | 35.6 | | | $ | 19.9 | | | $ | 13.9 | |
During Fiscal 2021, the various agreements with the Investors discussed in Note 11 pertaining to the purchase of non-prime forward flow receivables were terminated and new agreements were executed which were effective until June 30, 2021. Those new agreements provided that the Investors continued to purchase add-on non-prime receivables created on existing customer accounts but Signet retained all forward flow non-prime receivables created for new customers beginning in the second quarter of Fiscal 2021. Upon expiration of the amended agreements in June 2021, 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 no longer retains any customer in-house finance receivables.
As described in Note 11, Signet is no longer the issuer of non-prime credit for add-on purchases on existing accounts. Therefore, the Company no longer holds these non-prime credit receivables. Prior to the March 2022 amendments, receivables originated by the Company but pending transfer to the Investors as of period end were classified as “held for sale” and included in accounts receivable in the condensed consolidated balance sheets. As of January 29, 2022 and July 31, 2021, the accounts receivable held for sale were recorded at fair value.
Accounts receivable, trade primarily includes amounts receivable relating to accounts receivable from the Company’s diamond sales in the North America reportable segment and from the Company’s diamond sourcing initiative in the Other reportable 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 in June 2021. The allowance for credit losses related to these receivables was an estimate of expected credit losses, measured over the estimated life of its credit card receivables that considered forecasts of future economic conditions in addition to information about past events and current conditions.
To estimate its allowance for credit losses, the Company segregated its credit card receivables into credit quality categories using the customers’ FICO scores. The following three industry standard FICO score categories were used:
•620 to 659 (Near Prime)
•580 to 619 (Subprime)
•Less than 580 (Deep Subprime)
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 | | | | July 31, 2021 |
| Beginning balance | | | | $ | 21.4 | | | | | $ | 25.5 | |
| Provision for credit losses | | | | 0.8 | | | | | (0.4) | |
| Write-offs | | | | (2.6) | | | | | (5.5) | |
| | | | | | | | |
| Reversal of allowance on receivables sold | | | | (19.6) | | | | | (19.6) | |
| Ending balance | | | | $ | — | | | | | $ | — | |
Additions to the allowance for credit losses were made by recording charges to bad debt expense (credit losses) within selling, general and administrative expenses within the condensed consolidated statements of operations.
Interest income related to the Company’s customer in-house finance receivables was included within other operating income (expense) in the condensed consolidated statements of operations. Accrued interest was 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 was 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. Interest income recognition ceased at the date of the sale of the portfolio as noted above.
13. Inventories
The following table summarizes the details of the Company’s inventory:
| | | | | | | | | | | | | | | | | |
| (in millions) | July 30, 2022 | | January 29, 2022 | | July 31, 2021 |
Raw materials | $ | 129.0 | | | $ | 75.8 | | | $ | 106.4 | |
Merchandise inventories | 2,061.8 | | | 1,984.6 | | | 1,898.3 | |
Total inventories | $ | 2,190.8 | | | $ | 2,060.4 | | | $ | 2,004.7 | |
14. Leases
The Company deferred substantially all of its rent payments due in the months of April 2020 and May 2020. As of July 30, 2022, the Company had approximately $7 million of deferred rent payments remaining primarily in the UK. This remaining deferred rent is expected to be substantially repaid by the end of Fiscal 2023. 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 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
| Operating lease cost | $ | 99.2 | | | $ | 109.4 | | | $ | 196.6 | | | $ | 215.0 | |
| Short-term lease cost | 11.3 | | | 5.6 | | | 24.0 | | | 6.4 | |
| Variable lease cost | 29.0 | | | 30.9 | | | 58.4 | | | 61.5 | |
| Sublease income | (0.4) | | | (0.5) | | | (1.0) | | | (1.2) | |
| Total lease cost | $ | 139.1 | | | $ | 145.4 | | | $ | 278.0 | | | $ | 281.7 | |
15. 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 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 $11.6 million of definite-lived intangible assets and $4.6 million of goodwill, which are reported in the North America reportable segment. The weighted-average amortization period of the definite-lived intangibles assets acquired is eight years.
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, 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 assessments for all reporting units with goodwill and indefinite-lived intangible assets.
In connection with the acquisition of Diamonds Direct on November 17, 2021, the Company recognized $126.0 million of indefinite-lived intangible assets related to the Diamonds Direct trade name and $243.8 million of goodwill, which are reported in the North America reportable segment. Refer to Note 4 for additional information.
Fiscal 2023
During the 13 weeks ended April 30, 2022, 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.
During the 13 weeks ended July 30, 2022, the Company completed its annual evaluation of its indefinite-lived intangible assets, including goodwill and trade names, 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 2023 requiring interim impairment assessments 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 29, 2022 (1) | | $ | 484.6 | | | | | | | |
Acquisitions (2) | | 1.8 | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Balance at July 30, 2022 (1) | | $ | 486.4 | | | | | | | |
(1) The carrying amount of goodwill is presented net of accumulated impairment losses of $576.0 million as of July 30, 2022 and January 29, 2022.
(2) The change in goodwill during the period primarily represents an increase related to the finalization of the purchase price consideration of Diamonds Direct. Refer to Note 4 for additional information.
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 30, 2022 | | January 29, 2022 | | July 31, 2021 |
| (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 | | $ | 15.8 | | | $ | (6.6) | | | $ | 9.2 | | | $ | 15.8 | | | $ | (5.3) | | | $ | 10.5 | | | $ | 17.2 | | | $ | (5.4) | | | $ | 11.8 | |
Indefinite-lived intangible assets (1) | | 303.6 | | | — | | | 303.6 | | | 303.7 | | | — | | | 303.7 | | | 177.9 | | | — | | | 177.9 | |
Total intangible assets, net | | $ | 319.4 | | | $ | (6.6) | | | $ | 312.8 | | | $ | 319.5 | | | $ | (5.3) | | | $ | 314.2 | | | $ | 195.1 | | | $ | (5.4) | | | $ | 189.7 | |
| | | | | | | | | | | | | | | | | | |
Intangible liabilities, net | | $ | (38.0) | | | $ | 31.7 | | | $ | (6.3) | | | $ | (38.0) | | | $ | 30.8 | | | $ | (7.2) | | | $ | (38.0) | | | $ | 30.0 | | | $ | (8.0) | |
(1) The change in the indefinite-lived intangible asset balances during the periods presented was due to the addition of Diamonds Direct trade name of $126.0 million and the impact of foreign currency translation.
16. 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, when price and volume warrants such actions, Signet undertakes 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 18.
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 30, 2022, 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. The total notional amount of these foreign currency contracts outstanding as of July 30, 2022 was $20.9 million (January 29, 2022 and July 31, 2021: $11.2 million and $21.6 million, respectively). These contracts have been designated as cash flow hedges and will be settled over the next 12 months (January 29, 2022 and July 31, 2021: 10 months and 12 months, 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 30, 2022 was $93.7 million (January 29, 2022 and July 31, 2021: $93.8 million and $97.2 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. Trading for these contracts was suspended during Fiscal 2022 due to the commodity price environment and there were no commodity derivative contracts outstanding as of July 30, 2022, January 29, 2022, and July 31, 2021.
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 30, 2022, 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 30, 2022 | | January 29, 2022 | | July 31, 2021 |
Derivatives designated as hedging instruments: | | | | | | | |
Foreign currency contracts | Other current assets | | $ | 1.0 | | | $ | 0.3 | | | $ | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | |
Foreign currency contracts | Other current assets | | 0.9 | | | — | | | 0.9 | |
Total derivative assets | | | $ | 1.9 | | | $ | 0.3 | | | $ | 0.9 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair value of derivative liabilities |
| (in millions) | Balance sheet location | | July 30, 2022 | | January 29, 2022 | | July 31, 2021 |
Derivatives designated as hedging instruments: | | | | | | | |
Foreign currency contracts | Other current liabilities | | $ | — | | | $ | — | | | $ | (0.2) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | |
Foreign currency contracts | Other current liabilities | | — | | | (1.3) | | | — | |
Total derivative liabilities | | | $ | — | | | $ | (1.3) | | | $ | (0.2) | |
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 30, 2022 | | January 29, 2022 | | July 31, 2021 |
Foreign currency contracts | $ | 2.0 | | | $ | 0.5 | | | $ | (0.6) | |
Commodity contracts | — | | | — | | | (0.2) | |
| | | | | |
Gains (losses) recorded in AOCI | $ | 2.0 | | | $ | 0.5 | | | $ | (0.8) | |
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 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
Gains (losses) recorded in AOCI, beginning of period | | | $ | 1.7 | | | $ | (0.6) | | | $ | 0.5 | | | $ | (0.7) | |
Current period gains (losses) recognized in OCI | | | 0.6 | | | (0.2) | | | 1.8 | | | (0.2) | |
Losses (gains) reclassified from AOCI to earnings | Cost of sales (1) | | (0.3) | | | 0.2 | | | (0.3) | | | 0.3 | |
| | | | | | | | | |
Gains (losses) recorded in AOCI, end of period | | | $ | 2.0 | | | $ | (0.6) | | | $ | 2.0 | | | $ | (0.6) | |
Commodity contracts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 13 weeks ended | | 26 weeks ended |
| (in millions) | Statement of operations caption | | July 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
Gains (losses) recorded in AOCI, beginning of period | | | $ | — | | | $ | (0.4) | | | $ | — | | | $ | (0.4) | |
Current period gains (losses) recognized in OCI | | | — | | | 0.1 | | | — | | | — | |
Losses (gains) reclassified from AOCI to earnings | Cost of sales (1) | | — | | | 0.1 | | | — | | | 0.2 | |
| | | | | | | | | |
Gains (losses) recorded in AOCI, end of period | | | $ | — | | | $ | (0.2) | | | $ | — | | | $ | (0.2) | |
(1) Refer to the condensed consolidated statements of operations for total amounts of each financial statement caption impacted by cash flow hedges.
There were no discontinued cash flow hedges during the 26 weeks ended July 30, 2022 and July 31, 2021 as all forecasted transactions are expected to occur as originally planned. As of July 30, 2022, based on current valuations, the Company expects approximately $1.8 million of net pre-tax derivative gains 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 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
Foreign currency contracts | Other operating income (expense) | | $ | (2.4) | | | $ | — | | | $ | (7.2) | | | $ | 0.9 | |
17. 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 30, 2022 | | January 29, 2022 | | July 31, 2021 |
| (in millions) | Carrying Value | | Level 1 | | Level 2 | | Carrying Value | | Level 1 | | Level 2 | | Carrying Value | | Level 1 | | Level 2 |
Assets: | | | | | | | | | | | | | | | | | |
US Treasury securities | $ | 3.4 | | | $ | 3.4 | | | $ | — | | | $ | 4.5 | | | $ | 4.5 | | | $ | — | | | $ | 5.1 | | | $ | 5.1 | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Foreign currency contracts | 1.9 | | | — | | | 1.9 | | | 0.3 | | | — | | | 0.3 | | | 0.9 | | | — | | | 0.9 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
US government agency securities | 2.0 | | | — | | | 2.0 | | | 2.0 | | | — | | | 2.0 | | | 2.0 | | | — | | | 2.0 | |
Corporate bonds and notes | 4.5 | | | — | | | 4.5 | | | 5.8 | | | — | | | 5.8 | | | 6.2 | | | — | | | 6.2 | |
Total assets | $ | 11.8 | | | $ | 3.4 | | | $ | 8.4 | | | $ | 12.6 | | | $ | 4.5 | | | $ | 8.1 | | | $ | 14.2 | | | $ | 5.1 | | | $ | 9.1 | |
| | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | |
Foreign currency contracts | $ | — | | | $ | — | | | $ | — | | | $ | (1.3) | | | $ | — | | | $ | (1.3) | | | $ | (0.2) | | | $ | — | | | $ | (0.2) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total liabilities | $ | — | | | $ | — | | | $ | — | | | $ | (1.3) | | | $ | — | | | $ | (1.3) | | | $ | (0.2) | | | $ | — | | | $ | (0.2) | |
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 16 for additional information related to the Company’s derivatives.
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 18) approximates fair value based on the nature of the instrument and its variable interest rate, which is primarily Level 2 inputs. The following table provides a summary of the carrying amount and fair value of outstanding debt:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| July 30, 2022 | | January 29, 2022 | | July 31, 2021 |
| (in millions) | Carrying
Value | | Fair Value | | Carrying
Value | | Fair Value | | Carrying
Value | | Fair Value |
Long-term debt: | | | | | | | | | | | |
Senior notes (Level 2) | $ | 147.2 | | | $ | 146.2 | | | $ | 147.1 | | | $ | 150.0 | | | $ | 146.9 | | | $ | 152.7 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
18. Loans, overdrafts and long-term debt
| | | | | | | | | | | | | | | | | |
| (in millions) | July 30, 2022 | | January 29, 2022 | | July 31, 2021 |
| Debt: | | | | | |
| Senior unsecured notes due 2024, net of unamortized discount | $ | 147.7 | | | $ | 147.7 | | | $ | 147.6 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other loans and bank overdrafts | — | | | — | | | 0.4 | |
| Gross debt | $ | 147.7 | | | $ | 147.7 | | | $ | 148.0 | |
| Less: Current portion of loans and overdrafts | — | | | — | | | (0.4) | |
| Less: Unamortized debt issuance costs | (0.5) | | | (0.6) | | | (0.7) | |
| Total long-term debt | $ | 147.2 | | | $ | 147.1 | | | $ | 146.9 | |
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.
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”). Signet UK Finance tendered $239.6 million of the Senior Notes, representing a purchase price of $950.00 per $1,000.00 in principal, leaving $147.8 million of the Senior Notes outstanding after the Tender Offer.
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”). During Fiscal 2021, the Company fully repaid the FILO Term Loan Facility.
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 extended 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 had available borrowing capacity of $1.3 billion on the ABL Revolving Facility as of July 30, 2022.
19. Warranty reserve
The North America segment provides a product lifetime diamond 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. A similar product lifetime guarantee is also provided on color gemstones. The warranty reserve for diamond and gemstone guarantees, included in accrued expenses and other current liabilities and other non-current liabilities, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 26 weeks ended |
| (in millions) | July 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
| Warranty reserve, beginning of period | $ | 37.7 | | | $ | 35.5 | | | $ | 36.0 | | | $ | 37.3 | |
| Warranty expense | 3.4 | | | 1.5 | | | 8.1 | | | 2.2 | |
Utilized (1) | (2.6) | | | (2.3) | | | (5.6) | | | (4.8) | |
Warranty reserve, end of period | $ | 38.5 | | | $ | 34.7 | | | $ | 38.5 | | | $ | 34.7 | |
(1) Includes impact of foreign exchange translation.
| | | | | | | | | | | | | | | | | |
| (in millions) | July 30, 2022 | | January 29, 2022 | | July 31, 2021 |
| Disclosed as: | | | | | |
| Other current liabilities | $ | 10.8 | | | $ | 10.2 | | | $ | 9.9 | |
| Other liabilities - non-current | 27.7 | | | 25.8 | | | 24.8 | |
Total warranty reserve | $ | 38.5 | | | $ | 36.0 | | | $ | 34.7 | |
20. Other operating and non-operating income (expense)
The following table provides the components of other operating income (expense) for the 13 and 26 weeks ended July 30, 2022 and July 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 26 weeks ended |
| (in millions) | July 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
Litigation charges (1) | $ | — | | | $ | — | | | $ | (190.0) | | | $ | — | |
Interest income from customer in-house finance receivables (2) | — | | | 2.5 | | | — | | | 6.5 | |
| UK government grants | — | | | 6.5 | | | — | | | 6.5 | |
| Other | (0.6) | | | 1.4 | | | (1.0) | | | (0.3) | |
Other operating income (expense) | $ | (0.6) | | | $ | 10.4 | | | $ | (191.0) | | | $ | 12.7 | |
(1) See Note 21 for additional information.
(2) See Note 12 for additional information.
The following table provides the components of other non-operating income (expense) for the 13 and 26 weeks ended July 30, 2022 and July 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 26 weeks ended |
| (in millions) | July 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
Pension settlement (1) | $ | (0.9) | | | $ | — | | | $ | (132.8) | | | $ | — | |
| Other | (1.5) | | | 0.1 | | | (4.1) | | | 0.2 | |
Other non-operating income (expense) | $ | (2.4) | | | $ | 0.1 | | | $ | (136.9) | | | $ | 0.2 | |
(1) See Note 22 for additional information.
21. Commitments and contingencies
Legal proceedings
Employment practices
In March 2008, a group of private plaintiffs (the “Claimants”) filed a class and collective action lawsuit for an unspecified amount against Sterling Jewelers, Inc. (“SJI”), a subsidiary of Signet, in the US District Court for the Southern District of New York (“SDNY”), alleging that US store-level employment practices as to compensation and promotions discriminate on the basis of gender in purported violation of Title VII of the Civil Rights Act of 1964 (“Title VII”) and the Equal Pay Act (“EPA”). In June 2008, the SDNY referred the matter to private arbitration with the American Arbitration Association (“AAA”) where the Claimants sought to proceed on a class-wide basis. On February 2, 2015, the arbitrator issued a Class Determination Award in which she certified a class (estimated to include approximately 70,000 class members at the time) for the Claimants’ disparate impact claims for declaratory and injunctive relief under Title VII. On February 29, 2016, the arbitrator granted Claimants’ Motion for Conditional Certification of Claimants’ EPA Claims and Authorization of Notice, and notice to EPA collective action members was issued on May 3, 2016. The opt-in period for the EPA collective action closed on August 1, 2016, and the number of valid opt-in EPA Claimants is believed to be approximately 9,124. SJL challenged the arbitrator’s Class Determination Award with the SDNY. Although the SDNY vacated the
Class Determination Award on January 15, 2018, on appeal the US Court of Appeals for the Second Circuit (“Second Circuit”) held that the SDNY erred and remanded the case to the SDNY to decide whether the Arbitrator erred in certifying an opt-out, as opposed to a mandatory, class for declaratory and injunctive relief. On January 27, 2021 the SDNY ordered the case remanded to the AAA for further proceedings in arbitration on a class-wide basis. Subsequently, the arbitrator retired, and the parties selected a new arbitrator to oversee the proceedings moving forward. On October 8, 2021, the newly selected arbitrator issued an amended case management plan and scheduled the arbitration hearing to begin on September 5, 2022. SJI denies the allegations of the Claimants and has been defending the case vigorously.
On June 8, 2022, SJI and the Claimants reached a settlement agreement, which is subject to preliminary and final approval after notice to the class. The proposed settlement provides for the dismissal of the arbitration with prejudice and includes payments totaling approximately $175 million. As a result of the proposed settlement, the Company recorded a pre-tax charge of $190 million within other operating expense in the condensed consolidated statement of operations during the first quarter ended April 30, 2022. The settlement charge includes the payments to the Claimants, estimated employer payroll taxes, class administration fees and Claimants’ counsel attorney fees and costs. The arbitrator issued a preliminary approval of the settlement agreement on June 23, 2022 and scheduled a hearing for final approval of the settlement for November 15, 2022. If the agreement is approved by the arbitrator and confirmed by the SDNY shortly after the final approval hearing, the Company expects to fund the settlement in the fourth quarter of Fiscal 2023.
On May 4, 2017, without any findings of liability or wrongdoing, SJI entered into a Consent Decree with the Equal Employment Opportunity Commission (“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 4, 2017 the US District Court for the Western District of New York (“WDNY”) approved and entered the Consent Decree jointly proposed by the EEOC and SJI. The Consent Decree resolves all of the EEOC’s claims against SJI in this litigation, and imposes certain obligations on SJI including the appointment of an employment practices expert to review specific policies and practices, as well as obligations relative to training, notices, reporting and record-keeping. The Consent Decree does not require an outside third-party to monitor or require any monetary payment. The duration of the Consent Decree initially was three years and three months, set to expire on August 4, 2020, but on March 11, 2020, the WDNY approved a limited extension until November 4, 2021 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. On October 11, 2021, SJI and the EEOC agreed to a tolling stipulation, which was submitted on October 22, 2021 and entered by the WDNY on November 4, 2021, and which extended certain deadlines of the Consent Decree until December 4, 2021. SJI and the EEOC have agreed to additional extensions of the tolling stipulation while the parties negotiated the terms of an amended Consent Decree for the limited purpose of completing certain statistical analyses on SJI’s initial pay and merit increase practices for its retail store employees that the employment practices expert was required to conduct during the term of the Consent Decree. The parties filed the Second Amended Consent Decree on April 15, 2022 and it was entered by the WDNY on April 22, 2022. The Second Amended Consent Decree is currently scheduled to expire on November 19, 2022.
Previously settled matters
Shareholder actions
As previously reported, on March 16, 2020, the Company entered into an agreement to settle a consolidated class action filed against the Company and certain former executives filed by various shareholders of the Company (the “Consolidated Action”). 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.
Four additional actions were filed against the Company and certain former executives largely based on the same allegations as the Consolidated Action. Soon thereafter these four actions were filed, 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 (the “Opt-Out Plaintiffs”) 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 pre-tax charges related to the settlement of $7.5 million (net of expected insurance recovery) and $1.7 million during Fiscal 2021 and Fiscal 2022, respectively. The final amount owed to the Opt-Out Plaintiffs was paid during the first quarter of Fiscal 2023.
22. Retirement plans
Signet operates a defined benefit pension plan in the UK (the “Pension Scheme”) which ceased to admit new employees effective April 2004. The Pension Scheme provides benefits to participating eligible employees. Beginning in Fiscal 2014, a change to the benefit structure was implemented and members’ benefits that accumulate after that date were based upon career average salaries, whereas previously, all benefits were based on salaries at retirement. In September 2017, the Company approved an amendment to freeze benefit accruals under the Pension Scheme in an effort to reduce anticipated future pension expense. As a result of this amendment, the Company froze the pension plan for all participants with an effective date of October 2019 as elected by the plan participants. All future benefit accruals under the plan have thus ceased as of that date.
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 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 is held by the Trustee as an asset of the Pension 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 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 has contributed £14.0 million to date (approximately $18.9 million) to the Pension Scheme to enable the Trustee to pay for any and all costs incurred by the Trustee as part of the Transactions. The initial contribution of £7.0 million (approximately $9.7 million) was paid on August 4, 2021, and the Trustee transferred substantially all Plan assets into the BPA on August 9, 2021. SGL contributed an additional £7.0 million (approximately $9.2 million) to the Pension Scheme on March 23, 2022 to facilitate the Trustee funding the balancing premium to Rothesay. SGL is expected to contribute up to an additional £2.0 million (approximately $2.4 million) to the Pension Scheme to enable the Trustee to pay the remaining costs of the Transactions and wind up the Pension Scheme.
On April 22, 2022, the Trustee entered into a Deed Poll agreement with Rothesay and a Deed of Assignment with SGL to facilitate the assignment of individual policies for a significant portion of the Transferred Participants (“Assigned Participants”). The Deed Poll and Deed of Assignment, collectively, irrevocably relieve SGL and the Trustee of its obligations under the policies to the Assigned Participants. In addition, during the first quarter of Fiscal 2023, certain Transferred Participants elected to take a voluntary wind-up lump sum distribution and thus no further liability exists for this group.
In the first quarter of Fiscal 2023, as a result of the Deed Poll and Deed of Assignment, as well as the voluntary lump sum distributions, the Company has determined that a transfer of all remaining risks has occurred with respect to these groups of participants. Thus, management concluded that the Company triggered settlement accounting and performed a remeasurement of the Pension Scheme, which resulted in a non-cash, pre-tax settlement charge of $131.9 million recorded within other non-operating income (expense) within the condensed consolidated statement of operations during the first quarter of Fiscal 2023.
In the second quarter of Fiscal 2023, as a result of additional voluntary lump sum distributions made from the Pension Scheme, the Company has determined that a transfer of all remaining risks has occurred with respect to this group of participants. Thus, management concluded that the Company triggered settlement accounting which resulted in a non-cash, pre-tax settlement charge of $0.9 million recorded within other non-operating income (expense) within the condensed consolidated statement of operations during the second quarter of Fiscal 2023.
The settlement charges recorded in the first half of Fiscal 2023 relate to the pro-rata recognition of previously unrecognized actuarial losses and prior service costs out of AOCI and into earnings associated with the Assigned Participants, as well as the voluntary lump sum distributions noted above. The Company expects to settle the remaining obligations and wind up the Pension Scheme by the end of Fiscal 2023.
The components of net periodic pension benefit cost for the Pension Scheme are as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| 13 weeks ended | | 26 weeks ended |
| (in millions) | July 30, 2022 | | July 31, 2021 | | July 30, 2022 | | July 31, 2021 |
Components of net periodic benefit (cost) income: | | | | | | | |
| | | | | | | |
Interest cost | $ | — | | | $ | (1.0) | | | (0.9) | | | (2.0) | |
Expected return on plan assets | (0.3) | | | 1.3 | | | 0.3 | | | 2.6 | |
| Amortization of unrecognized actuarial losses | (1.1) | | | (0.2) | | | (2.0) | | | (0.4) | |
| Amortization of unrecognized net prior service costs | (0.1) | | | (0.1) | | | (0.2) | | | (0.1) | |
| Pension settlement loss | (0.9) | | | — | | | (132.8) | | | — | |
Total net periodic benefit (cost) income | $ | (2.4) | | | $ | — | | | $ | (135.6) | | | $ | 0.1 | |
All components of net periodic benefit cost are charged to other non-operating income (expense), in the condensed consolidated statements of operations.