Signet Jewelers Limited (“Signet”) (NYSE:SIG), the world's
largest retailer of diamond jewelry, today announced its results
for the 13 weeks ended October 29, 2016 (“third quarter Fiscal
2017”).
Summary:
- Same store sales ("SSS") down 2.0%.
Total sales $1.2 billion down 2.5%. Total sales at constant
exchange rate down 0.5%.
- Third quarter Fiscal 2017 diluted
earnings per common share ("EPS") $0.20. Adjusted EPS $0.30.
- Zale integration continues to progress
well. Signet to deliver cumulative synergies of $158 million to
$175 million by end of this fiscal year and $225 million to $250
million by end of next fiscal year.
- Year-to-date cash from operations $361
million, up $272 million. Capital expenditures $196 million, up $25
million.
- Credit review process proceeding
according to plan.
Mark Light, Chief Executive Officer of Signet Jewelers said, “We
expected challenging market conditions to result in a sales
decline. However, our continuing ability to execute in a difficult
environment led to results that were somewhat better than our
expectations.
"Signet achieved some important wins during the quarter. Fashion
diamond and gold jewelry performed well as did select branded
bridal. We saw success in a variety of selling channels including
kiosks, outlets, and on-line. In addition, our teams delivered
solid expense and inventory management leading to strong free cash
generation. The Zale integration is running well and synergies
remain on target.
"While near term headwinds may persist, we are confident that we
made the right investments into initiatives designed to drive
growth and deliver on our fourth quarter expectations.
Mr. Light concluded, "Our competitive strengths, leading market
position, and precedent of success support Signet's robust
opportunities for long term growth. I want to thank all Signet team
members for their dedication and hard work having delivered on the
third quarter while preparing effectively for the fourth
quarter.”
EPS Analysis:
Third quarter EPS was $0.20. Third quarter Adjusted EPS was
$0.30. EPS can be reconciled to Adjusted EPS as follows:
Adjustments EPS Purchase accounting
Integration Adjusted EPS1 $0.20 $(0.03)
$(0.07) $0.30 1. Throughout this release, Signet uses
adjusted metrics which adjust for purchase accounting and
integration costs in relation to the Zale acquisition and its
integration into Signet. See non-GAAP reconciliation tables.
Adjusted EPS is a non-GAAP measure and is defined as EPS adjusted
for the impact of purchase accounting and integration costs.
Purchase accounting includes deferred revenue adjustments related
to acquisition accounting which resulted in a reset of deferred
revenue associated with extended service plans previously sold by
Zale Corporation. Integration is consulting costs associated with
information technology ("I/T") implementations.
Financial Guidance:
13 weeks ended January 28, 2017 (4th Quarter) Same store
sales (4.0%) to (2.0%) EPS $3.91 to $4.13 Adjustments
(purchase accounting and integration costs) ($0.09) to ($0.07)
Adjusted EPS $4.00 to $4.20 Weighted average common shares
Approximately 76 million Fiscal 2017 (Annual) Same
store sales (2.5%) to (1.0%) EPS $7.03 to $7.25 Adjustments
(purchase accounting and integration costs) ($0.35) to ($0.33)
Adjusted EPS $7.38 to $7.58
The fiscal year EPS and adjusted EPS increases from prior
guidance are attributed solely to third quarter actual results
exceeding previous expectations.
Effective tax rate
25% to 26%
Capital expenditures $280 million to $320 million Net selling
square footage growth 3.0% to 3.5%
Capital expenditures are driven this year primarily by new Kay
stores, store remodels, and I/T to support global implementations.
Most of Signet’s new square footage growth is slated for real
estate channels other than enclosed malls.
Cumulative Net Synergies Fiscal 2017 (Fiscal 2016 plus
Fiscal 2017) $158 million to $175 million Fiscal 2018
(Fiscal 2016 plus Fiscal 2017 plus Fiscal 2018) $225 million to
$250 million Fiscal 2017 Store and Kiosk Changes
Net selling Gross locations Net
locations square feet Kay Jewelers +60 to +70 +55 to +65 +7%
to 8% Jared +8 to +10 +5 to +7 +2% to 3% Zales +30 to +35 +15 to
+20 +2% to 3% Peoples 0 to +3 ~0 ~0 Regional stores in total 0 -45
to -50 -10% to -11% Piercing Pagoda +35 to +40 +20 to +30 +1% to
+2% H.Samuel +12 to +15 +10 to +12 +1% to +2% Ernest Jones 0 to +3
~0 ~0
Signet Total +145 to +176
+55 to +89 +3.0% to +3.5%
Third quarter Fiscal 2017 Sales Highlights:
Signet's total sales were $1,186.2 million, down $30.2 million
or 2.5% compared to $1,216.4 million in the 13 weeks ended
October 31, 2015 ("third quarter Fiscal 2016"). Total sales on
a constant currency basis declined 0.5%. SSS decreased 2.0%
compared to an increase of 3.3% in the third quarter Fiscal 2016.
The sales declines were due to under performance in select stores
(e.g. regionals, Jared); energy dependent regions which reduced SSS
about 80 basis points; and declines in select collections such as
Charmed Memories and watches. This was partially offset by better
performance in fashion jewelry and select bridal. Ecommerce sales
in the third quarter Fiscal 2017 were $51.6 million, or 4.4% of
sales, up $1.1 million, or 2.2%, compared to $50.5 million in the
third quarter Fiscal 2016. By operating segment:
- Sterling Jewelers' SSS decreased 3.8%.
Average transaction value ("ATV") increased 2.9% due mostly to
lower sales of Charmed Memories and other low-priced collections;
as well as higher sales of select branded diamond jewelry. The
number of transactions decreased 7.7% due to lower sales of the
low-priced collections which tend to be highly transactional.
- Zale Jewelry's SSS decreased 1.4%. ATV
increased 3.5% driven mainly by higher sales of select diamond
jewelry collections. The number of transactions decreased 4.2% due
primarily to lower sales in the Persona beads collection which
tends to be highly transactional.
- Piercing Pagoda's SSS increased 9.5%.
ATV increased 14.6%, while the number of transactions decreased
4.3%. The higher sales were driven principally by strong sales of
gold chains and diamond jewelry. Transactions declined primarily
due to lower price point body jewelry items and white metals.
- UK Jewelry's SSS increased 3.6%. ATV
increased 6.5% driven principally by strong sales of diamond
jewelry and prestige watches. The number of transactions decreased
3.3% due primarily to lower sales in fashion watches.
Sales change from previous year
Third quarterFiscal 2017
Samestoresales¹
Non-samestoresales, net²
Total salesat constantexchangerate³
Exchangetranslationimpact
Totalsales
Total sales(in millions)
Kay (2.9)% 1.5% (1.4)% —% (1.4)%
456.5 Jared (4.6)% 2.1% (2.5)% —% (2.5)% 226.6 Regional brands
(10.5)% (12.3)% (22.8)% —%
(22.8)% 29.4 Sterling Jewelers division (3.8)%
0.9% (2.9)% —% (2.9)% $ 712.5 Zales
Jewelers (1.0)% 3.2% 2.2% —% 2.2% $ 225.3 Gordon’s Jewelers (11.6)%
(17.9)% (29.5)% —% (29.5)% $ 9.8 Zale US Jewelry (1.5)% 1.8% 0.3%
—% 0.3% $ 235.1 Peoples Jewellers (1.0)% 0.5% (0.5)% 1.2% 0.7% $
41.2 Mappins —% (9.0)% (9.0)% 1.4% (7.6)% $ 6.1 Zale Canada Jewelry
(0.9)% (0.8)% (1.7)% 1.3% (0.4)% $ 47.3 Zale Jewelry (1.4)% 1.4% —%
0.2% 0.2% $ 282.4 Piercing Pagoda 9.5% 1.8%
11.3% —% 11.3% $ 53.4 Zale division
0.2% 1.4% 1.6% 0.2% 1.8% $ 335.8
H.Samuel 1.5% 0.6% 2.1% (16.7)% (14.6)% $ 62.8 Ernest Jones
5.7% 0.6% 6.3% (17.4)% (11.1)% $
67.5 UK Jewelry division 3.6% 0.6% 4.2%
(17.0)% (12.8)% $ 130.3 Other segment —%
111.1% 111.1% —% 111.1% 7.6
Signet (2.0)% 1.5% (0.5)% (2.0)%
(2.5)% $ 1,186.2 Adjusted Signet3
(2.7)% 1,189.2
Notes: 1=For stores open for at least 12 months. 2=For
stores not open in the last 12 months. 3=Non-GAAP measure.
Third quarter Fiscal 2017 Financial Highlights:
Gross margin was $350.0 million or 29.5% of sales, down 70 basis
points versus third quarter Fiscal 2016, due to lower sales
partially offset by less purchase accounting. Adjusted gross margin
rate was 29.6%, down 100 basis points from third quarter Fiscal
2016. The lower adjusted gross margin rate was due principally to
lower sales, higher bad debt expense, and de-leverage on store
occupancy. This was partially offset by favorable merchandise costs
and merchandise mix.
- Sterling Jewelers gross margin
decreased $15.6 million compared to third quarter Fiscal 2016. The
division's gross margin rate decreased 120 basis points due also to
lower sales, higher bad debt expense, and de-leverage on store
occupancy. Signet has opened more stores this year, most notably
Kay, leading to higher occupancy but without full operating
productivity yet.
- Zale gross margin increased $5.2
million, or 100 basis points, compared to third quarter Fiscal
2016. Included in gross margin were unfavorable purchase accounting
adjustments totaling $2.5 million compared to $6.1 million in prior
year. Adjusted gross margin in the Zale division increased $1.6
million, or 20 basis points, compared to third quarter Fiscal 2016.
The favorable impact of synergies more than offset the unfavorable
impact of minimal sales growth on fixed cost increases.
- UK Jewelry gross margin decreased $6.2
million, or 90 basis points, compared to prior year third quarter.
The gross margin rate decline was driven principally by lower total
sales and merchandise margin de-leverage as a result of currency
exchange rates.
Selling, general, and administrative expense ("SGA") was $386.5
million or 32.6% of sales compared to $395.0 million or 32.4% of
sales in third quarter Fiscal 2016. Included in third quarter SGA
are purchase accounting and integration costs of $9.2 million in
Fiscal 2017 and $7.4 million in Fiscal 2016. The decline in SGA was
driven by a variety of favorable factors (including synergies) such
as: lower variable compensation, harmonization of Signet’s
compensated absence policies, merchant fees in Zale credit
programs, and foreign exchange translation.
Third quarter Fiscal 2017 adjusted SGA was
$377.3 million or 31.7% of adjusted sales compared to $387.6
million or 31.7% in the prior year. The adjusted SGA decline of
$10.3 million, or 2.7%, driven by the factors noted above.
Other operating income was $68.6 million compared to $60.9
million in the prior year third quarter, up $7.7 million or 12.6%.
The increase was due to the Sterling division’s higher interest
income earned from higher outstanding receivable balances.
In third quarter Fiscal 2017 Signet's operating income was $32.1
million, or 2.7% of sales, compared to $33.6 million, or 2.8% of
sales, in third quarter Fiscal 2016. Included in third quarter
operating income are purchase accounting and integration costs of
$11.7 million in Fiscal 2017 and $13.5 million in Fiscal 2016.
Adjusted operating income was $43.8 million, or 3.7% of adjusted
sales, compared to $47.1 million, or 3.9% of adjusted sales in the
prior year.
Operating income, net ($ in millions) Third Quarter
Fiscal 2017 Third Quarter Fiscal 2016 $ % of sales $
% of sales Sterling Jewelers division 78.6 11.0% 77.2 10.5% Zale
division1 (24.7) (7.4)% (24.3) (7.4)% UK Jewelry division — —% — —%
Other2 (21.8) nm (19.3) nm 1. In the third quarter
Fiscal 2017, Zale division includes net operating loss impact of
$3.8 million for purchase accounting adjustments. Excluding the
impact from accounting adjustments, Zale division's operating loss
was $20.9 million or 6.2% of sales. The Zale division operating
loss was composed of $19.3 million from Zale Jewelry and a $5.4
million loss from Piercing Pagoda. In the third quarter Fiscal
2016, Zale division includes net operating loss impact of $3.7
million for purchase accounting adjustments. Excluding the impact
from accounting adjustments, Zale division's operating loss was
$20.6 million or 6.1% of sales. The Zale division operating loss
included $18.3 million from Zale Jewelry and $6.0 million from
Piercing Pagoda. 2. Other includes third quarter adjustments of
$7.9 million and $9.8 million for Fiscal 2017 and 2016,
respectively. Fiscal 2017 adjustments are consulting costs
associated with I/T implementations. Fiscal 2016 adjustments
related to advisor fees for legal, tax, and I/T implementations. nm
Not meaningful.
Income taxes were $2.4 million, compared to $6.9 million in
third quarter Fiscal 2016, resulting in a third quarter Fiscal 2017
effective tax rate of 12.4%, versus 31.5% in third quarter Fiscal
2016. The third quarter Fiscal 2017 effective tax rate was driven
by an estimated full year jurisdictional mix change. Signet's third
quarter income tax expense of $2.4 million reflects the effect of a
change in the annual effective tax rate.
Third quarter EPS was $0.20. Third quarter Adjusted EPS was
$0.30. Net income attributable to common shareholders was
unfavorably impacted by $2.2 million, non-cash, due to the
pro-rated amount of the new preferred share dividend. Signet's
accelerated share repurchase plan of $525 million should conclude
next month. Upon initiation of the program, Signet received 4.7
million shares with the remainder to be net settled upon
completion. The plan is proceeding in line with expectations and,
combined with previous repurchase activity, is still anticipated to
offset the impact on average diluted common shares outstanding from
the preferred share offering.
Balance Sheet and Other Highlights
Cash and cash equivalents were $82.7 million as of
October 29, 2016 compared to $77.2 million as of
October 31, 2015. The higher cash position was due to greater
cash provided by operating activities. Through the end of the third
quarter Fiscal 2017, Signet repurchased 9.9 million shares for
$842.5 million at an average cost of $85.00 per share. Signet
generally offset the share dilution created by the preferred stock
offering, ending the quarter with 73.6 million average diluted
common shares outstanding -- in line with its expectations. As of
October 29, 2016, there was $510.6 million remaining under
Signet's share repurchase authorization program.
The Sterling Jewelers division in-house net accounts receivable
were $1,546.3 million as of October 29, 2016, up 7.6% compared
to $1,437.2 million as of October 31, 2015. The increase was
driven primarily by a higher in-house credit penetration rate as
well as higher ATV purchases which require monthly payments of
higher amounts in dollars but lower amounts by percentage thereby
resulting in a higher receivables outstanding.
The Sterling Jewelers division in-house credit sales decreased
2.3% in third quarter Fiscal 2017 due to lower total sales.
Participation rate was 66.8%, up 40 basis points. The rate
increased, despite fewer applications, due to faster growth and
higher spending by higher-quality applicants. The growth in
higher-quality applicants -- driven by better credit marketing,
plan offerings, and store execution -- led to slightly higher
approval rates.
- For the third quarter Fiscal 2017,
finance charge income was $67.0 million and net bad debt was $57.2
million -- a favorable difference of $9.8 million. This was
favorable to the prior year period by $1.6 million.
- Non-performing loans and the total
valuation allowance as a percentage of gross receivables were 4.9%
and 7.9%, respectively, at the end of third quarter Fiscal 2017.
The former was flat to last year while the latter was up 10 basis
points. Sequentially, second quarter to third quarter, the change
in the non-performing ratio improved 10 basis points versus prior
year; and for the valuation allowance ratio the change over prior
year was flat.
Net inventories were $2.6 billion, down 2.8% versus prior year.
Signet's year-over-year change in total sales was favorable by 30
basis points compared to the change in net inventories due to sound
inventory management even as the number of stores increased by
50.
Loans and overdrafts (a.k.a. short-term debt) was $288.8
million, up $40.8 million due principally to use of the revolving
credit facility for seasonal inventory needs. Long-term debt was
$1,324.2 million, down $6.4 million due to servicing the loan
principal related to the financing of the Zale acquisition.
Cash from operations less capital expenditures was $165.3
million year-to-date, up $247.4 million from the same period in the
prior year. This was driven primarily by favorable changes to
working capital and higher net income.
Signet has a diversified real estate portfolio. Based upon
sales, slightly more than half of Signet's selling square footage
is in enclosed malls and nearly half is in a variety of other real
estate types. On October 29, 2016, Signet had 3,668 stores
totaling 5.1 million square feet of selling space. Compared to
prior year-end, store count increased by 43 stores.
Store count Jan 30, 2016
Openings Closures Oct 29, 2016
Kay 1,129 48 (2) 1,175 Jared 270 5 (3) 272 Regional brands
141 — (15) 126
Sterling Jewelers division
1,540 53 (20)
1,573 Zales 730 35 (12) 753
Gordon's
59 — (12) 47 Peoples 145 1 (3) 143 Mappins 43 — (5) 38 Total Zale
Jewelry 977 36 (32) 981 Piercing Pagoda 605 19
(19) 605
Zale division 1,582 55
(51) 1,586 H.Samuel 301 4 — 305 Ernest Jones
202 3 (1) 204
UK Jewelry division
503 7 (1) 509
Signet 3,625 115
(72) 3,668
Credit Strategy Update:
Signet’s credit review process is progressing well. As
previously disclosed, the Company is reviewing a range of options
from optimizing the current in-house credit business to seeking a
partnership that would enable Signet to gain greater financial
flexibility. Signet has identified opportunities to enhance its
credit business and is pleased with the interest expressed by
potential partners. Regardless of the credit review outcome, Signet
believes shareholder value will be created.
Conference Call:
A conference call is scheduled today at 8:30 a.m. ET and a
simultaneous audio webcast and slide presentation are available at
www.signetjewelers.com. The slides are available to be downloaded
from the website. The call details are: Dial-in: 1-647-788-4901.
Conference ID: 99499993
A replay and transcript of the call will be posted on Signet's
website as soon as they are available and will be accessible for
one year.
About Signet and Safe Harbor Statement:
Signet Jewelers Limited is the world's largest retailer of
diamond jewelry. Signet operates approximately 3,600 stores
primarily under the name brands of Kay Jewelers, Zales, Jared The
Galleria Of Jewelry, H.Samuel, Ernest Jones, Peoples and Piercing
Pagoda. Further information on Signet is available at
www.signetjewelers.com. See also www.kay.com, www.zales.com,
www.jared.com, www.hsamuel.co.uk, www.ernestjones.co.uk,
www.peoplesjewellers.com and www.pagoda.com.
This release contains statements which are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements, based upon management’s
beliefs and expectations as well as on assumptions made by and data
currently available to management, appear in a number of places
throughout this document and include statements regarding, among
other things, Signet’s results of operation, financial condition,
liquidity, prospects, growth, strategies and the industry in which
Signet operates. The use of the words “expects,” “intends,”
“anticipates,” “estimates,” “predicts,” “believes,” “should,”
“potential,” “may,” “forecast,” “objective,” “plan,” or “target,”
and other similar expressions are intended to identify
forward-looking statements. These forward-looking statements are
not guarantees of future performance and are subject to a number of
risks and uncertainties, including but not limited to general
economic conditions, a decline in consumer spending, the
merchandising, pricing and inventory policies followed by Signet,
the reputation of Signet and its brands, the level of competition
in the jewelry sector, the cost and availability of diamonds, gold
and other precious metals, regulations relating to customer credit,
seasonality of Signet’s business, financial market risks,
deterioration in customers’ financial condition, exchange rate
fluctuations, changes in Signet's credit rating, changes in
consumer attitudes regarding jewelry, management of social, ethical
and environmental risks, security breaches and other disruptions to
Signet’s information technology infrastructure and databases,
inadequacy in and disruptions to internal controls and systems,
changes in assumptions used in making accounting estimates relating
to items such as extended service plans and pensions, risks related
to Signet being a Bermuda corporation, the impact of the
acquisition of Zale Corporation on relationships, including with
employees, suppliers, customers and competitors, and our ability to
successfully integrate Zale Corporation's operations and to realize
synergies from the transaction.
For a discussion of these risks and other risks and
uncertainties which could cause actual results to differ materially
from those expressed in any forward looking statement, see the
"Risk Factors" section of Signet's Fiscal 2016 Annual Report on
Form 10-K filed with the SEC on March 24, 2016 and Part II,
Item 1A of this Form 10-Q. Signet undertakes no obligation to
update or revise any forward-looking statements to reflect
subsequent events or circumstances, except as required by law.
The below tables reflect the impact of costs associated with the
acquisition of Zale Corporation. Management finds the information
useful to analyze the results of the business excluding these items
in order to appropriately evaluate the performance of the business
without the impact of significant and unusual items. Management
views acquisition-related impacts as events that are not
necessarily reflective of operational performance during a period.
In particular, management believes the consideration of measures
that exclude such expenses can assist in the comparison of
operational performance in different periods which may or may not
include such expenses.
Non-GAAP Reconciliation for the third quarter ended
October 29, 2016 (in mil. of $ except per share data)
Signet
PurchaseAccounting1
IntegrationCosts2
Adjusted Signet Sales 1,186.2 100.0 % (3.0 ) —
1,189.2 100.0 % Cost of sales (836.2 ) (70.5
)% 0.5 — (836.7 ) (70.4
)% Gross margin 350.0 29.5 % (2.5 ) — 352.5 29.6 % Selling, general
and administrative expenses (386.5 ) (32.6 )% (1.3 ) (7.9 ) (377.3
) (31.7 )% Other operating income, net 68.6 5.8 %
— — 68.6 5.8 %
Operating income 32.1 2.7 % (3.8 ) (7.9 ) 43.8 3.7 % Interest
expense, net (12.7 ) (1.1 )% — —
(12.7 ) (1.1 )% Income before income taxes 19.4 1.6 %
(3.8 ) (7.9 ) 31.1 2.6 % Income taxes (2.4 ) (0.2 )%
1.4 3.0 (6.8 ) (0.6 )% Net
income 17.0 1.4 % (2.4 ) (4.9 ) 24.3 2.0 % Dividends on redeemable
convertible preferred shares (2.2 ) nm —
— (2.2 ) nm Net income attributable to
common shareholders 14.8 1.2 % (2.4 )
(4.9 ) 22.1 1.9 % Earnings per share – diluted
0.20 (0.03 ) (0.07 ) 0.30
1. Includes deferred revenue
adjustments related to acquisition accounting which resulted in a
reset of deferred revenue associated with extended service plans
previously sold by Zale Corporation. Similar to the Sterling
Jewelers division, historically, Zale Corporation deferred the
revenue generated by the sale of lifetime warranties and recognized
revenue in relation to the pattern of costs expected to be
incurred, which included a profit margin on activities related to
the initial selling effort. In acquisition accounting, deferred
revenue is only recognized when a legal performance obligation is
assumed by the acquirer. The fair value of deferred revenue is
determined based on the future obligations associated with the
outstanding plans at the time of the acquisition. The acquisition
accounting adjustment results in a reduction to the deferred
revenue balance from $183.8 million to $93.3 million as of May 29,
2014 as the fair value was determined through the estimation of
costs remaining to be incurred, plus a reasonable profit margin on
the estimated costs. Revenues generated from the sale of extended
services plans subsequent to the acquisition are recognized in
revenue in a manner consistent with Signet’s methodology.
Additionally, accounting adjustments include the amortization of
acquired intangibles. 2. Integration is consulting costs associated
with I/T implementations. nm Not meaningful.
Non-GAAP
Reconciliation for the third quarter ended October 31, 2015 (in
mil. of $ except per share data) Signet
PurchaseAccounting1
TransactionCosts2
Adjusted Signet
Sales 1,216.4 100.0 % (6.2 ) — 1,222.6
100.0 % Cost of sales (848.7 ) (69.8 )% 0.1
— (848.8 ) (69.4 )% Gross margin 367.7
30.2 % (6.1 ) — 373.8 30.6 % Selling, general and administrative
expenses (395.0 ) (32.4 )% 2.4 (9.8 ) (387.6 ) (31.7 )% Other
operating income, net 60.9 5.0 % —
— 60.9 5.0 % Operating income
33.6 2.8 % (3.7 ) (9.8 ) 47.1 3.9 % Interest expense, net (11.7 )
(1.0 )% — — (11.7 )
(1.0 )% Income before income taxes 21.9 1.8 % (3.7 ) (9.8 )
35.4 2.9 % Income taxes (6.9 ) (0.6 )% 1.7
1.0 (9.6 ) (0.8 )% Net income 15.0 1.2
% (2.0 ) (8.8 ) 25.8 2.1 % Dividends on redeemable convertible
preferred shares — — — —
— — Net income attributable to
common shareholders 15.0 1.2 % (2.0 )
(8.8 ) 25.8 2.1 % Earnings per share – diluted
0.19 (0.03 ) (0.11 ) 0.33
1. Includes deferred revenue
adjustments related to acquisition accounting which resulted in a
reset of deferred revenue associated with extended service plans
previously sold by Zale Corporation. Similar to the Sterling
Jewelers division, historically, Zale Corporation deferred the
revenue generated by the sale of lifetime warranties and recognized
revenue in relation to the pattern of costs expected to be
incurred, which included a profit margin on activities related to
the initial selling effort. In acquisition accounting, deferred
revenue is only recognized when a legal performance obligation is
assumed by the acquirer. The fair value of deferred revenue is
determined based on the future obligations associated with the
outstanding plans at the time of the acquisition. The acquisition
accounting adjustment resulted in a reduction to the deferred
revenue balance from $183.8 million to $93.3 million as of May 29,
2014 as the fair value was determined through the estimation of
costs remaining to be incurred, plus a reasonable profit margin on
the estimated costs. Revenues generated from the sale of extended
services plans subsequent to the acquisition are recognized in
revenue in a manner consistent with Signet’s methodology. 2.
Transaction costs are adjustments related to advisor fees for
legal, tax, accounting and consulting expenses.
Condensed Consolidated Income
Statements
(Unaudited)
13 weeks ended 39 weeks ended (in millions,
except per share amounts)
October 29, 2016
October 31, 2015 October 29, 2016
October 31, 2015 Sales 1,186.2 1,216.4 4,138.5
4,157.6 Cost of sales (836.2) (848.7)
(2,723.2) (2,733.2)
Gross margin 350.0
367.7 1,415.3 1,424.4 Selling, general and
administrative expenses (386.5) (395.0) (1,264.9) (1,301.0) Other
operating income, net 68.6 60.9 213.6
187.2
Operating income 32.1 33.6 364.0
310.6 Interest expense, net (12.7) (11.7)
(36.4) (33.8)
Income before income taxes
19.4 21.9 327.6 276.8 Income taxes
(2.4) (6.9) (81.9) (80.8)
Net
income 17.0 15.0 245.7 196.0
Dividends on redeemable convertible preferred shares (2.2)
— (2.2) —
Net income attributable to common
shareholders 14.8 15.0 243.5 196.0
Earnings per common share: Basic $ 0.20 $ 0.19 $ 3.19 $ 2.46
Diluted $ 0.20 $ 0.19 $ 3.18 $ 2.45 Weighted average common shares
outstanding: Basic 73.5 79.3 76.4 79.7 Diluted 73.6 79.5 76.5 79.9
Dividends declared per common share $ 0.26 $ 0.22 $ 0.78 $ 0.66
Condensed Consolidated Balance
Sheets
(Unaudited)
(in millions, except par value per share amount)
October 29,
2016 January 30, 2016 October 31,
2015 Assets Current assets: Cash and cash equivalents
82.7 137.7 77.2 Accounts receivable, net 1,581.1 1,756.4 1,451.5
Other receivables 74.2 84.0 55.4 Other current assets 146.8 152.6
141.4 Income taxes 20.8 3.5 24.6 Inventories 2,649.4 2,453.9
2,727.0
Total current assets 4,555.0 4,588.1
4,477.1 Non-current assets: Property, plant and equipment,
net of accumulated depreciation of $1,015.4, $949.2 and $939.7,
respectively 791.1 727.6 718.0 Goodwill 517.0 515.5 517.6
Intangible assets, net 419.8 427.8 434.3 Other assets 157.5 154.6
136.4 Deferred tax assets — — 1.8 Retirement benefit asset 47.1
51.3 40.7
Total assets 6,487.5 6,464.9
6,325.9 Liabilities and Shareholders’ equity Current
liabilities: Loans and overdrafts 288.8 57.7 248.0 Accounts payable
382.2 269.1 371.4 Accrued expenses and other current liabilities
402.9 498.3 408.0 Deferred revenue 256.7 260.3 241.4 Income taxes
4.4 65.7 0.7
Total current liabilities 1,335.0
1,151.1 1,269.5 Non-current liabilities: Long-term
debt 1,324.2 1,321.0 1,330.6 Other liabilities 219.9 230.5 226.6
Deferred revenue 632.1 629.1 597.5 Deferred tax liabilities 133.4
72.5 56.7
Total liabilities 3,644.6 3,404.2
3,480.9 Commitments and contingencies Series A
redeemable convertible preferred shares of $.01 par value: 500
shares authorized, 0.625 shares outstanding 611.7
— — Shareholders’ equity: Common shares of $0.18 par
value: authorized 500 shares, 69.6 shares outstanding (January 30,
2016: 79.4 outstanding; October 31, 2015: 79.5 outstanding) 15.7
15.7 15.7 Additional paid-in capital 128.5 279.9 274.7 Other
reserves 0.4 0.4 0.4 Treasury shares at cost: 17.6 shares (January
30, 2016: 7.8 shares; October 31, 2015: 7.7 shares) (1,338.9)
(495.8) (480.3) Retained earnings 3,727.8 3,534.6 3,280.3
Accumulated other comprehensive loss (302.3) (274.1) (245.8)
Total shareholders’ equity 2,231.2 3,060.7
2,845.0 Total liabilities, redeemable convertible
preferred shares and shareholders’ equity 6,487.5
6,464.9 6,325.9
Condensed Consolidated Statements of
Cash Flows
(Unaudited)
39 weeks ended (in millions)
October 29,
2016 October 31, 2015 Cash flows from
operating activities Net income 245.7 196.0 Adjustments
to reconcile net income to net cash provided by operating
activities: Depreciation and amortization 138.8 129.5 Amortization
of unfavorable leases and contracts (14.9) (24.6) Pension benefit
(1.3) — Share-based compensation 14.0 11.8 Deferred taxation 60.9
8.0 Excess tax benefit from exercise of share awards (1.3) (5.1)
Amortization of debt discount and issuance costs 2.2 2.6 Other
non-cash movements 1.9 2.7 Changes in operating assets and
liabilities: Decrease in accounts receivable 174.0 116.3 Decrease
in other receivables and other assets 9.0 1.6 Increase in other
current assets (15.4) (12.8) Increase in inventories (217.0)
(289.3) Increase in accounts payable 114.1 93.6 Decrease in accrued
expenses and other liabilities (82.2) (60.5) (Decrease) increase in
deferred revenue (2.5) 25.0 Decrease in income taxes payable (62.6)
(104.1) Pension plan contributions (2.5) (2.0)
Net
cash provided by operating activities 360.9
88.7 Investing activities Purchase of property, plant
and equipment (195.6) (170.8) Purchase of available-for-sale
securities (10.4) (3.8) Proceeds from sale of available-for-sale
securities 10.0 3.6
Net cash used in investing
activities (196.0) (171.0)
Financing activities Dividends paid on common shares (57.5) (49.6)
Proceeds from issuance of common shares 0.4 3.3 Proceeds from
issuance of redeemable convertible preferred shares, net of
issuance costs 611.6 — Excess tax benefit from exercise of share
awards 1.3 5.1 Repayments of term loan (12.0) (17.5) Proceeds from
securitization facility 1,837.1 1,738.9 Repayments of
securitization facility (1,837.1) (1,738.9) Proceeds from revolving
credit facility 598.0 177.0 Repayments of revolving credit facility
(339.0) (30.0) Payment of debt issuance costs (2.7) — Repurchase of
common shares (1,000.0) (111.9) Net settlement of equity based
awards (4.8) (8.3) Principal payments under capital lease
obligations (0.2) (0.8) Repayment of short-term borrowings
(13.3) (1.5)
Net cash used in financing activities
(218.2) (34.2) Cash and cash
equivalents at beginning of period 137.7 193.6 Decrease in cash and
cash equivalents (53.3) (116.5) Effect of exchange rate changes on
cash and cash equivalents (1.7) 0.1 Cash and cash equivalents at
end of period 82.7 77.2
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Signet JewelersInvestors:James Grant, +1-330-668-5412VP Investor
RelationsorMedia:David Bouffard, +1-330-668-5369VP Corporate
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