SIG - Earnings call transcript Q2 2020 | Signet Jewelers Limited

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Operator

Good morning. My name is Lisa and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Signet Jewelers Second Quarter Fiscal 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Instructions]. [Operator you. Thank

Vice your Senior Investor you Relations, Randi President begin conference. may Abada, of

Randi Abada

Lisa. welcome Thank quarter morning Good you, and call. earnings to conference second our

On Drosos; CEO, are the Joan CFO, Hilson. Gina call today and Signet's

the XX-K in presentation, differ undertake information language, are statements historical reports annual revise of materially. our and you that risks We and today's Form Any a and required we uncertainties read subject not we forward-looking urge facts quarterly certain of During statements. or FormXX-Q. on law, or disclosures no risk as Except make actual new other events. statements and in to light forward-looking on are factors, report to cautionary future publicly by number will update obligation results to may

discuss the non-GAAP we During financial will certain call, measures.

further the For our most should reconciliations posted release as of to well comparable we non-GAAP measures review GAAP as financial the financial measures, at investors www.signetjewelers.com/investors. measures news directly of the non-GAAP the website discussion on

I the to over turn call Gina. now will

Gina Drosos

for support change Thank our everyone, execute Signet you call. today's team joining of would and for transformation. thank begin, you, as I members we their morning, continue for To like and our leading thank customers to Good embracing our Randi. and all of to

with plans today, comments start brief holiday toward remarks the and results guidance. wrap some our by financial I'll preview progress up my transformation. and In discussing second on then quarter our our I'll

EPS operating on our non-GAAP and for year-over-year. second we above quarter, with and guidance operating We the profit continue non-GAAP delivered sales, to our transformation grew diligence In priorities. execute same-store results profit,

our effective traffic as is management. initiatives credit for quarter. trends, and improved excluding through last industry we digital due million Also, overall targeted and merchandise disciplined inventory Despite adjusted free sales and control delivered moved year-to-date, year's traffic up the retail marketing proceeds transformation cost XXX weak flow cash to performance

quarter. significantly and Signet's slowly banners in traffic North started America industry quarter improved May outperforming core overall with in The off the July, for trends

America Prime Importantly, in Week, positive July sales and online. both we North the delivered Promotional same-store Day in-store

highlights same-store of Total company X.X% America a impact timing down sales some same-store X%, sales North in service are timing sales XX down on QX Jared. at were second related and the of basis point promotional quarter. plans, change inclusive Here revenue were a an to to planned shift into unfavorable recognition performance. our

North from X.X%, on and basis. America eCommerce up implementation pressure competitive was the James sales improvement X.X% tax began consolidated banners, Allen, to our quarter a a sequential as first up from declined offset marketplace. and sales the Allen X.X% and changes marketing in excluding James assortment

drove North see double-digit Piercing to consecutive the performance from quarter. deliver Bridal LeVian Disney, moved newness, fashion banners. Loved we Fashion sales drove for Growth through in with growth grew in as quarter. the fashion. America improving which softness and strong second benefits to on-trend gold, collection, the in experienced some quarter. our in-house sales designed momentum Love+Be across continue increased all fifth continued Pagoda the We particularly

brands, Leo, Disney, sales. Enchanted bridal to Brilliance contributors Endless Flagship and strong were

Turning to profits.

strong benefit the performance profit into lower better as America operating the was credit year-over-year continued some sales, costs, stability reflecting from operating of shifting non-GAAP of same-store last reinvestments quarter margin consecutive in second ahead half. as second our well Second higher year savings, quarter and due profit in cost to came guidance of and merchandise is stabilization, and discipline. ahead North Non-GAAP cost

an update holiday Now, plans turn transformation Brilliance to and to on our Path initiatives. we’ll

business laying culture priorities Signet. of the our and Within media for agility experience, service merchandise, Our first a shopping effectiveness, customer driver to plans priorities longer-term improving are margin customer well our efficiency. first, meaningful and our revenue transforming underway and be within of strategic improved including and on our marketing foundation and for omni-channel

executing are iconic assortment for highly offer flagship holiday brands, value-oriented bigger, competitive build shoppers, on-trend deliver a strategy product periods, our We products. and to relevant on especially during

revamp assortment. to bigger value-oriented toward This of architecture product are price our a points positioned and competitive with curated, we relevant more holiday, launches, more gifts key continue branded We shoppers. selection for product

have new We for are Vera designs new the Wang also offerings. custom new to expand Premier is to the as women, and The larger strengthening design expansion. fashion anniversary of have we Bridal and flagship Disney to In our brands. partnership expansion of stores, collection Vera of expected offerings. men's number designs we bridal as fashion Neil expand launch princess new Wang, well will with Lane’s a continues a and

each expanding Additionally, Lane of across and Disney gemstone our Neil colored are Wang, Vera our brands. offerings flagship bridal Enchanted, we

We are our assortment. fashion investing in also

Our our expansion of perform include Love+Be product plans gold on-trend digital of continued holiday exclusive investments collection, including in merchandising, amplification offerings, which has to and continued well. Loved

to the Diamond and for Kay top expand to online North Celestial True tested We stores recently collection our XXX holiday. also plan

bridal, our future are present, exclusive In past, line Zales. at we refreshing product

This was since Zales We XXXX. created private a diamond celebrate and Zales’ launching are also art line deco-inspired heritage to expertise collection. new rich

quarter. we've exclusive-to-Signet several discuss new we developed to bridal addition, after they in and that launch In the collections fashion plan third

merchandise, and believe goal merchandising brands, point existing made we our reaching new our strategy value-oriented flagship for newness we inflection of across our of toward solid iconic holiday. and on-trends have offerings Overall, an on progress

rebalanced marketing, to has our timing is with driving Moving more of changes year. to on throughout support advertising and mix to effectiveness. to marketing efficiency which media, of bridal model greater the timing strategic a respect on we to implement to The continuing model and spend spend been always are of

differentiation with and modernized More well digital of for quarter Pagoda also campaign begin holiday ever into and selling shorter the banner the to spend have as year, custom campaigns season season. moving we some Given third social signage. as the holistic in this strong Each will recently are advertising our Be integrated platforms, kiosk first awareness its driving earlier You across for launched creative. Piercing banners innovative holiday

We spend. expect advertising, moving improve efficient on investment return well by higher as targeting more mix to as of a to digital of

proprietary boarded, targeted strategies on teams, our data second with leveraging of our our Our agency half the integrated executing new is in the and year. media

Now, I our drive brilliant for to our frequency service plans create capabilities last and a to custom strategy repair add spent with several and higher full discuss to customers higher our basics sales. relationships would traffic, the care, quarters capabilities. leverage jeweler implementing We've like at the incremental margin

our and store provided We've and and to training tools the to improve enhance members developed new technology team customer experience. operations focused

efforts steady our quarter-on-quarter ticket formerly takes last quarters. repair four promoter now took score For improvement resulted minutes example, over X our system. minutes have net that in and These repair approximately using XX our new intake the e-repair

awareness drive to custom begun We have implementing in-store updates, repair and signage of and care, special during enhanced our marketing, services holiday and website events customer beyond.

for opportunities our celebrate XX. including piercing We sales relationships to Providing at build of life piercing from to as to traffic, know drive to Piercing for average to opportunity a early customer that provides within of services skews Piercing growth experience incremental moments, XX an well many set is margin Signet. traffic age the future Pagoda, engagements. and point entry also as stage the customer attractive

a highly in piercing distinct that would of at Kay. service interested in this group be Our research customers indicates interested ear

leveraging been Pagoda the team. expertise Kay have at our and a we of So small learning testing Piercing group stores of

further expectation be offering stores early with expanded will These several hundred services piercing of next the at by during fourth an quarter, year. Kay tests

longer in Overall, in revenue the traffic meaningful will driver a scale contributor efforts. expect services Signet and we be incremental to for while small our we term it XXXX, fiscal be a as

in a increase platform doubling second have by This Turning to custom omni-channel, was sales in last progress over significant to design mobile eCommerce our XX.X% in quarter. enabled adoption, reach strong transformation omni-channel with two of channel and efforts online omni-channel resulted technologies, marketing efforts years integrated in and the the penetration capabilities.

and are we fiscal calls, technology this improving live those significantly to significant in prior and making scheduled Kay the mobile on is platform customer on later platform mentioned month, go sites. I've the transition investments The Jared hybris experience XXXX. to in As

curated quality faster at go third images, mobile and speeds, improved the in investments deliver in experience, quarter. Our live which higher search load sales

evidencing foundation higher common establishing customer Jared and these more up follow We compelling, believe us that the enhancements holiday. and quickly enabled create Kay sites our user-friendly technology banners. set experience traffic hybris a to to drive transition, our by will speed mobile across a best-in-class changes for will efficiency and

In the of had quarter, week during a we second strong omni-channel the integrated event. the Day effort Prime

sales assortment and offerings core and strong eCommerce-only drove and in-store banners North for in Prime Week. same-store America positive growth our double-digit eCommerce additional Our during offers online both

continuing also banners, as programs. through are across own design customization tools our capabilities best-in-class omni-channel as unique well your build We to

vendors expand to customization approach in integrated Our allow the options more multiple quickly will future. from us

a settings also try stores tools D.C. Vera have this the your ring. James into customers shapes and we was to experiential Washington, store by an for expanded with store testing, After to all successful in-store and offering fall. is sales our design This and custom online Allen sample in Wang expanding create inspired own the program on

cost the to agility results. efforts second on and Moving positively culture of optimization our quarter our efficiency, impacted

XXXX. We savings million in $XX continue to cost fiscal expect $XX in to net million

workforce to Our indirect in the of transformative by drive driven portion corporate and innovation and savings gross growth. procurement, with primarily gross initiatives optimization a are technology lower reinvested savings costs

in costs, products, us direct quarter. fourth the have our our vendors, our We beginning enabling finalized and optimize procurement new with efficiency further negotiations to inventory accelerate lower

three of cost cost $XX goal year $XXX savings Brilliance net the fiscal in net million inclusive XXXX. Our $XXX remains to Path achieved to in million million savings

financial briefly turn Joan, I to discuss the I Before call XXXX our will guidance. tariffs and fiscal over

the are to quickly. can long-term and reached monitor tariff We that continuing agreement are be a ongoing discussions hopeful

tranches business. have were mentioned no XXXX have impact three we meaningful in on that As of our enacted tariffs the previously,

However, guidance which tariff to the our on will leverage chain took XXXX that in to XX% X X effect List subject we've our tariffs, operating Xst. multi-national the jewelry the cover impact to profit enable current believe within the us We supply is fiscal recently September List range. flexibility actions our merchandise taken announced

not tariffs. pass a do our customers increases we as of along to price expect to XXXX, fiscal In result

through exposure to for we XXXX, fiscal percentage provide call. disciplined been to our we fiscal the to have it While a in exposure merchandise to is spend move to amount the vendors in roughly our year-end, XXXX exposure half our premature and other our successful estimate effort expect By China with strategic we of a both China discussed countries. last working mid-teens on significant of an on basis, be

multi-national are strategies our in continuing through to mitigation partnership we forward, Going with vendors. work

Turning to guidance.

We fiscal are sales profit operating ranges. guidance XXXX same-store reiterating our non-GAAP and

non-GAAP impact As fiscal of guidance profit tariffs. just includes our XXXX now operating mentioned, the I expected

be inventory. cash lower driven We expect higher continue by versus fiscal fiscal adjusted to also free flow XXXX XXXX, primarily to

performance product half believe second the our in fashion the balances our the and still competitive on of growth in outlook appropriately with the fiscal these and discipline sales, UK. we positive profit. continued environment year, enter impact challenges by the retail The cost fact that America operating of on year. we early momentum our encouraged We improvement remains operational in As continue North of strong are face eCommerce to we our is signs it

With dividend this $X.XX respect share. to management, declared we a of quarterly morning capital per

We debt all and repurchases investing part of potential including business share our the continue cash, uses to in processes. and of repayment capital evaluate management as planning business, dividends,

building jewelry In category. build have progress good in Signet's foundational closing, we the to capabilities leadership made needed

environment. dynamic We are and of a multi-year work market, to to and these Brilliance initiatives competitive with our to Path diligence operating mass bring transformation, while critical retail to in gaining traction on continue

And now, I'll the to call turn over Joan.

Joan Hilson

good my plans our guidance. results, remarks second Gina. the first quarter morning, discuss of In conclude then cover highlights financial refinancing And will and with our I Thanks, everyone.

declined was to quarter, returned Sales second up growth we the same-store sales growth double-digits. In and low-single-digit X.X%. Pagoda eCommerce. In saw America, Piercing sales in same-store North

low-single-digits, for Jared sales UK. improved prior a the QX still QX. same-store in expected adjusted product to Kay's reflect environment year difficult timing the launches International challenging promotional and down more comparison. shift operating significant and to in with a sequentially same-store more sales come Kay's against planned were continued

was foreign exchange. Revenue same-store sales, declined closures and the by gross store margin impact and structural down the was of in Non-GAAP quarter lower XX of impact basis points X.X% two the net impacted reflecting items.

polishing timing as an had points our strategy secondly, Botswana third-parties points to sales our was cash. the generate unfavorable continued of excess recognition margin clear first diamond we to on quarter, First, diamond of impact of there expected higher to the in this our Similar inventory unfavorable plans. from XX non-productive to operations inventory an basis impact And XX on basis rate. revenue gross related of service and

margin. by offset savings merchandise and non-GAAP our and America impacts Stabilization gross in on were margin banner these transformation North structural cost

$XX corporate was well SG&A primarily costs favorable indirect million spend This a staff lower as lower to due outsourcing down as $X business These store a non-prime not late costs performance items did X.X% by driven and on of year-over-year or store as credit basis. offset was closures. of sales we by quarter. our credit second increase in were the million somewhat in until anniversary the

year-over-year flat a headwind grew EPS profit despite we versus somewhat cost year-over-year tax by normalized more in nearly sales. operating reflecting a Non-GAAP as lower tax fiscal savings Non-GAAP toward was year-over-year move of of $X.XX year offset $X.XX prior XXXX. transformation rate

and has press Zales goodwill on GAAP not a in operating of in change impairments a impact businesses. taken James and $XX does related our underlying release respect out quarter for XXXX second period these liquidity includes our this million Our This Allen. non-cash outlook any morning Signet's detailed charge, to profit in with is no to reflect fiscal adjustment immaterial

sheet cash Turning flow. and balance to

solid flow. higher are working capital generating free and unlocking making opportunities progress, We cash

are Our continue reduce have as for planning to inventory. new employ a purchasing legacy and inventory strategy enhanced thoughtfully processes impact to beginning more disciplined inventory we

the versus fiscal versus As or prior and year in year-end. or a million $XX was result, down second XXXX down X%, inventory $XXX quarter X%, million

at expect to We the of prepare sequentially year-end as inventory levels continue in third due We season. our the business seasonality expect lower to quarter typical inventory fiscal increase be to holiday to versus we the do for XXXX.

proceeds which from cash generating up credit year-over-year continued in year. transaction million the cash, prior made million flow non-prime strong We excluding year-to-date, the adjusted on the progress $XXX $XXX free in was

of I overview Now, refinancing plans. our provide to would an like

We mature in term in enter $X.X and outstanding due based our of five-year and committed refinance senior credit loan XXXX. expect XXXX asset fully to into to credit notes facilities facility the billion that existing

leverage-neutral. completion expected a in improves our result guidance. to increases to notes part and tender been has are majority senior refinancing, debt It expected financial slightly interest in profile Signet's a lower our with this flexibility subject to the capital it refinancing as tendered. for the have which of extends These facilities liquidity. new maturity offer notes we incorporated being announced versus of current the be available As morning is offer expense structure, the our also This

plan We times at leverage continue to X.X fiscal the ratio XXXX. be our to year-end expect our by approximately of completion transformation

X.X% of XXXX same-store of guidance, X.X% fiscal guidance we non-GAAP million down $XXX our operating to Moving fiscal reiterating on million. are to $XXX profit XXXX sales guidance down to and

higher Our year. million the of profit guidance the reinvestments reflects net of cost savings in half $XX to $XX million with second

to a We expect of outsourcing the impact credit neutral year-over-year. impact have

as And impact Gina of the our incorporates guidance mentioned expected X profit List tariffs. now earlier,

the of profit prudent is of our and in in year, quarter. exceeded of half the outlook in we our our revenue first non-GAAP fourth a remaining the the profit While operating operating we significant portion are vast as our majority guidance generated

retail remains America North The environment competitive.

We costs. also headwinds covering now we and the tariff continued expected UK, face are in

EPS, lower non-GAAP lower to expense to guidance and expected flow expectations free EPS $X.XX impact interest the the update interest in of to $X.XX. This generation from are is XXXX of updating fiscal to year. half the respect due rate we cash fiscal the refinancing, guidance resulting first With our strong

Our operational and transformation unchanged. goals plans remain

Our to non-GAAP expect repurchases unchanged. in also no tax continue rate we XXXX. guidance fiscal is share And

on provide offer we’ve to our we fees our its or that quarter gain the close any to provided expect debt well call. excluded and third Please earnings note refinancing of loss impact as extinguishment any quarter the from details we third on will during guidance tender potential further the as related today. early We during have

be non-GAAP $X.XX expected same-store Non-GAAP operating quarter, down $X.XX. to to sales million to $XX third of X% of with X%. of loss loss we down million $XX expect EPS is income a a the For to

challenges quarter, Our same-store and benefits not balanced beginning UK. in the continuing year implementation James Pagoda launches third to sales Piercing expected late mid-teens tax product lap outlook lapping the of yet reflects prior sales by in the comparisons, Allen

cost Always in as favorable includes profit of year-over-year net our levels the The cost $XX operating increase savings. the timing quarter reinvestment second On due outlook well a advertising quarter to of the an approximately million third net are savings with strategy, slightly as spend. below quarter shift impact third Consistent in in media

As can the quarter reminder, a dollar a third drivers rates. revenue And our impact and have smallest a result, growth of is on as quarter the expense year. revenue larger margin and rates

generating close as deliver sales and right transformation free we we're To on fiscal encouraged lowering comments, well the out in and stabilizing year-to-date our initiative. made XXXX, to my flow. inventories are we confident our our track as progress I'm same-store by the cash commitments have higher for margins, long-term that

turn to section. to operator begin the over now And the the I'll call Q&A

Operator

Instructions]. Hutchison Thank line the from you. from Lorraine first Hutchison. And our [Operator of comes question

Your line is open.

David Buckley

taking for Thanks question. for This David Hi. Buckley Lorraine this morning. is on our

And the quarter-to-date any forward, factors North in third you the quarter that get comps key the Looking what saw quarter? are in again? share the then to continued you comp second commentary? into growing America improvement Has can

Gina Drosos

Hi, Gina. can Joan chime that anything in and David. I'll It's take you then incremental. with

Path beginning I really omni-channel growth comp initiatives. in that the to some get Brilliance getting customer the place the we're putting in are first think positive traction and key is to to to and strategies

being for colored at So, moves into shoppers, right this the more those key trend. brands, time value it's interested around off paying for merchandise made bigger us. very on in and continuing having point especially Customers are around our We've offerings gold, holiday to some strategy iconic gemstones. in periods execute into and big in

target year, this the to so journeys, and So, key. customer spend gifting to also a customers, and on largest jeweler strategy, agency messaging retail that to beginning board. right our proprietary customers, then bridal at media world's able I did the hire think highlight the as data intention Signet bridal And more that we strategy, media new gifting be fully has is marketing the of leverage I'd specialty merchandising the that's messaging the on agency now on to effectively to the efficiently was

holiday. those And beginning into so to go we're as hold efforts we take see

get was And then on it to omni-channel, to us right first foremost, and the platforms.

particularly had and periods, moving of we platforms, on haven't eComm hybris platform. since over as couple We the really on traffic the a holiday and Kay Zales to have our Pagoda, increases, great performance last Jared

comps. getting along that so, we that think fundamental mobile And to really positive investments with made, the we've toward us are

Operator

[Operator Instructions].

Our next of Lejuez from question comes Citigroup. from the line Paul

is line open. Your

Paul Lejuez

I we the SG&A next that I am line, to any might be expect year curious there support can made guess I'm to are topline of are to be a should out you that And bit SG&A business, there on look to down where reinvest? need we you that be any Thanks. feel investments too next actually kind may curious might that much be pulled places need back if as or year? little hurting the

Joan Hilson

So, cost Well, I take really that couple I'll that say about things A don't Paul, SG&A savings question. of we program. would provide guidance. our

non-customer We make to which have has believe been reinvestments we sales facing taken delivering our growth. of important need we to top-line our in support the costs, that cost out our and

hybris that's meaningful we company. very in and as the transformation the and we made On Always to reductions invest Gina in for how mentioned, So, have approached invest that strategy growth thoughtful and the we the the cost in support initiative marketing initiative

company, of consider investments look business, the terms all forward a in we that think right. model we would in our of in retail about As you operating the

labor investments. We have store

operating our in evaluating models terms of have strategies. our real We estate

we evaluate into all components future. we forward those as the So, of look

savings with we it very right put place. that stands now, cost in as comfortable So, initiatives the we’ve are

Paul Lejuez

I timing about you I'm was margin on if margin gross up. you and which the the heard flattish, talk gross basis the concepts by a curious of specifically I by you year-over-year the Thanks. I environment? I seeing think, some concept, versus pressure could merch if perhaps line, you're also things promotional merch better follow remote in believe margin correctly. was a when Just curious, margin ex-out

Joan Hilson

Sure.

margin in our sales. impact -- our impact incorporate we've updated sales our year. balance are the stabilization we just America and and we're way the and does the We for and of to fourth remind North -- our we that expect clearance We what that through bps of the which quarter margin would from merchandise continue view guidance of would Botswana something updated is, we with the gross on saw margin gross that our on the you, XX on impact for as I embedded Paul, also pleased merchandise I the the also is manage inventory that year. clearance third mentioned in also

Paul Lejuez

by share And year-over-year? you worse better to if any can as insights concept, wondering or

Joan Hilson

talk about is, can we is margin merchandise What North stabilized. No. as America

Operator

And queue. in we have conference no today's conclude further call. will questions This

disconnect. You may now

Signet Jewelers Limited (SIG) 5 Sep 192020 Q2 Earnings call transcript