SIGNET JEWELERS REPORTS SECOND QUARTER FISCAL 2024 RESULTS
Outperformed Second Quarter Expectations and Reaffirms Outlook
Inventories Reduced 4% from Prior Year and 8% Excluding Acquisitions
HAMILTON, Bermuda, Aug. 31, 2023 /PRNewswire/ -- Signet Jewelers Limited ("Signet") (NYSE:SIG), the world's largest retailer of diamond jewelry, today announced its results for the 13 weeks ended July 29, 2023 ("second quarter Fiscal 2024").
"Our team's focus on the consumer enabled us to exceed our revenue and bottom-line commitments in the quarter while also advancing our strategic priorities. We remain confident in our ability to achieve our Fiscal 2024 guidance," said Signet Chief Executive Officer Virginia C. Drosos. "Our reimagined merchandise assortment and upcoming holiday season initiatives will leverage our investments in innovation, digital capabilities, and data analytics to widen our competitive advantages. We believe the upcoming multi-year recovery of engagements remains on track to begin in the fourth quarter of this year."
"We're reaffirming our full year revenue and non-GAAP operating income guidance today as we anticipate the current macro trends will continue and engagements will begin their recovery. Additionally, we are increasing our EPS guidance to reflect second quarter share repurchases," said Joan Hilson, Chief Financial, Strategy and Services Officer. "We expanded our margin accretive Services capacity this quarter, advancing our commitment to the jewelry craft, B2B capabilities, and bringing more repairs in house. This network optimization is enabled through integration of the Blue Nile Seattle facility and the acquisition of SJR National Repair. Our cost savings initiatives of $225 to $250 million are on track, and our core inventory is healthy at 20% below pre-pandemic levels."
Second Quarter Fiscal 2024 Highlights:
Sales of $1.6 billion, down $141.3 million or 8.1% (down 8.2%(1) on a constant currency basis) to Q2 of FY23.
Same store sales ("SSS")(2) down 12.0% to Q2 of FY23.
GAAP operating income of $90.2 million, down $96.6 million from Q2 of FY23. Q2 of FY24 includes $4.8 million for integration-related charges for Blue Nile. Q2 of FY23 included $6.4 million related to the fair value adjustment of acquired inventory as well as acquisition-related charges.
Non-GAAP operating income(1) of $102.7 million, down $90.5 million from Q2 of FY23.
GAAP diluted earnings per share ("EPS") of $1.38, compared to $2.58 in Q2 of FY23, including $0.09 in integration-related charges for Blue Nile. Q2 of FY23 included $0.11 in charges relating to the fair value adjustment of acquired inventory as well as acquisition-related charges.
Non-GAAP diluted EPS(1) of $1.55, compared to $2.68 in Q2 of FY23.
Cash and cash equivalents, at quarter end, of $690.2 million, compared to $851.7 million in Q2 of FY23, reflecting the acquisition of Blue Nile in Q3 of FY23 and payment of legal settlements in Q1 of FY24.
Year-to-date cash used in operating activities of $253.3 million, compared to cash used in first half of FY23 of $114.9 million, including approximately $200 million for the payment of legal settlements in the current year.
Repurchased $43.3 million, or approximately 0.7 million shares, during the second quarter.
(1)See non-GAAP financial measures below. |
(2)Same store sales include physical stores and eCommerce sales. Blue Nile has been excluded. |
(in millions, except per share amounts) | Fiscal 24 Q2 | Fiscal 23 Q2 | YTD Fiscal 2024 | YTD Fiscal 2023 | ||||
Sales | $ 1,613.6 | $ 1,754.9 | $ 3,281.6 | $ 3,593.2 | ||||
SSS % change (1) | (12.0) % | (8.2) % | (13.0) % | (3.0) % | ||||
GAAP | ||||||||
Operating income | $ 90.2 | $ 186.8 | $ 191.9 | $ 187.0 | ||||
Operating margin | 5.6 % | 10.6 % | 5.8 % | 5.2 % | ||||
GAAP diluted EPS | $ 1.38 | $ 2.58 | $ 3.17 | $ 0.90 | ||||
Non-GAAP (2) | ||||||||
Non-GAAP operating income | $ 102.7 | $ 193.2 | $ 209.2 | $ 387.8 | ||||
Non-GAAP operating margin | 6.4 % | 11.0 % | 6.4 % | 10.8 % | ||||
Non-GAAP diluted EPS | $ 1.55 | $ 2.68 | $ 3.33 | $ 5.55 |
(1) Same store sales include physical stores and eCommerce sales. Blue Nile has been excluded. |
(2) See non-GAAP financial measures below. |
Second Quarter Fiscal 2024 Results: | |||||||||||
Change from previous year | |||||||||||
Second Quarter Fiscal 2024 | Same store sales | Non-same store sales, net(2) | Total sales at constant exchange rate (3) | Exchange translation impact | Total sales as reported | Total sales (in millions) | |||||
North America segment | (12.2) % | 5.2 % | (7.0) % | (0.1) % | (7.1) % | $ 1,501.1 | |||||
International segment | (8.4) % | (3.2) % | (11.6) % | 3.0 % | (8.6) % | $ 102.0 | |||||
Other segment (1) | nm | nm | nm | nm | nm | $ 10.5 | |||||
Signet | (12.0) % | 3.8 % | (8.2) % | 0.1 % | (8.1) % | $ 1,613.6 | |||||
(1) Includes sales from Signet's diamond sourcing operation. |
(2) Includes sales from Blue Nile which was not included in the results for the full comparable periods presented. |
(3) See non-GAAP financial measures below. |
nm Not meaningful. |
By reportable segment:
North America
Total sales of $1.5 billion, down 7.1% to Q2 of FY23 reflecting an increase of 4.4% in total average transaction value ("ATV"), driven primarily by lift from Blue Nile of approximately 5%, on a lower number of transactions.
SSS declined 12.2% compared to Q2 of FY23.
International
Total sales of $102.0 million, down 8.6% to Q2 of FY23 (down 11.6% on a constant currency basis) reflecting an increase of 3.3% in total ATV on a lower number of transactions.
SSS declined 8.4% versus Q2 of FY23.
GAAP gross margin was $610.8 million, down from $664.7 million in Q2 of FY23. GAAP gross margin was 37.9% of sales, in line with Q2 of FY23 as favorable merchandise margins and a higher mix of our high margin Services business offset investments in digital banners and deleveraging of fixed costs such as store occupancy.
GAAP SG&A was $511.2 million, up from $477.3 million in Q2 of FY23. GAAP SG&A was 31.7% of sales, 450 basis points higher versus Q2 of FY23. The increase in SG&A as a percent of sales was due to approximately 120 basis points from strategic investments to grow the Company's competitive advantages with the remainder driven by an advertising shift into Q2 due to the timing of Mother's Day this year and deleveraging of fixed costs on lower volume.
GAAP operating income was $90.2 million or 5.6% of sales, down $96.6 million to Q2 of FY23.
Non-GAAP operating income was $102.7 million, or 6.4% of sales, compared to $193.2 million, or 11.0% of sales in the prior year second quarter. Non-GAAP operating income in the current quarter excluded $4.8 million for integration-related charges for Blue Nile.
Second quarter Fiscal 2024 | Second quarter Fiscal 2023 | |||||||
GAAP Operating income in millions | $ | % of sales | $ | % of sales | ||||
North America segment | $ 117.1 | 7.8 % | $ 210.1 | 13.0 % | ||||
International segment | (7.0) | (6.9) % | (2.0) | (1.8) % | ||||
Other segment | (1.0) | nm | 1.8 | nm | ||||
Corporate and unallocated expenses | (18.9) | nm | (23.1) | nm | ||||
Total GAAP operating income | $ 90.2 | 5.6 % | $ 186.8 | 10.6 % | ||||
Second quarter Fiscal 2024 | Second quarter Fiscal 2023 | |||||||
Non-GAAP Operating income in millions (1) | $ | % of sales | $ | % of sales | ||||
North America segment | $ 129.6 | 8.6 % | $ 216.5 | 13.4 % | ||||
International segment | (7.0) | (6.9) % | (2.0) | (1.8) % | ||||
Other segment | (1.0) | nm | 1.8 | nm | ||||
Corporate and unallocated expenses | (18.9) | nm | (23.1) | nm | ||||
Total Non-GAAP operating income | $ 102.7 | 6.4 % | $ 193.2 | 11.0 % | ||||
(1) See non-GAAP financial measures below. |
nm Not meaningful. |
The current quarter GAAP income tax expense was $17.2 million compared to income tax expense of $35.6 million in Q2 of FY23. On a non-GAAP basis, income tax expense was $20.4 million compared to income tax expense of $37.3 million in Q2 of FY23.
GAAP diluted EPS was $1.38, down from $2.58 per diluted share in Q2 of FY23. GAAP diluted EPS in the current quarter includes $0.09 for integration-related charges for Blue Nile, $0.08 of restructuring charges and $0.06 related to asset impairment. Excluding these charges (and related tax effects), diluted EPS was $1.55 on a non-GAAP basis.
GAAP EPS and non-GAAP EPS for the second quarter of Fiscal 2024 include the impact of the preferred shares in the dilutive share count.
Acquisition
The Company acquired SJR National Repair, a full-service jewelry and watch repair services business and jewelry retailer, for approximately $6 million in July. This acquisition complements the recent transition of Signet's Blue Nile Seattle Fulfillment Center to a new enterprise-wide repair facility called Signet Services Washington.
These additions expand the Company's repair network to a total of more than 260 locations with over 1,800 jewelers. Signet's national network enables it to keep setting the bar higher including the ability to now offer Business to Business repair services, watch repair services and mail-in capabilities, among other offerings.
Balance Sheet and Statement of Cash Flows Highlights:
Year to date cash used for operating activities was $253.3 million compared to cash used for operating activities of $114.9 million at this time last year. Cash and cash equivalents were $690.2 million as of quarter end, compared to $851.7 million at the end of Q2 of FY23. The year over year change to cash and cash equivalents was driven by the acquisition of Blue Nile and payment of legal settlements which totaled nearly $600 million combined. The Company ended the second quarter with an Adjusted Debt to Adjusted EBITDAR ratio of 2.3x on a trailing 12-month basis, well below the stated goal of less than 2.75x, and was 1.8x on an Adjusted Net Debt basis.
Inventory ended the quarter at $2.1 billion, down $96.9 million to Q2 of FY23 and excluding the acquisition of Blue Nile inventory was down more than $167 million, or 8% below Q2 of FY23, driven by Signet's consumer insights to predict dynamic conditions like the current engagement trough. Compared to Q2 of FY20, inventory excluding acquisitions is down more than 20% on higher revenue and clearance inventory is down approximately 50%.
Capital Returns to Shareholders:
Signet's Board of Directors has declared a quarterly cash dividend on common shares of $0.23 per share for the second quarter of Fiscal 2024, payable November 24, 2023 to shareholders of record on October 27, 2023, with an ex-dividend date of October 26, 2023.
During the first half of Fiscal 2024, Signet repurchased approximately 1.2 million shares at an average cost per share of $69.88, or $82.4 million including $43.3 million during the second quarter. Approximately $718 million remains under the Company's multi-year authorization.
Third quarter and Full year Fiscal 2024 Guidance:
Forecasted non-GAAP operating income and diluted EPS provided below excludes potential non-recurring charges, such as restructuring charges, asset impairments or integration-related costs associated with the acquisition of Blue Nile. However, given the potential impact of non-recurring charges to the GAAP operating income and diluted EPS, we cannot provide forecasted GAAP operating income or diluted EPS or the probable significance of such items without unreasonable efforts. As such, we do not present a reconciliation of forecasted non-GAAP operating income and diluted EPS to corresponding forecasted GAAP amounts.
Signet's third quarter and full year Fiscal 2024 guidance for sales, operating income and diluted EPS is provided on a non-GAAP basis.
Third Quarter | Fiscal 2024 (2) | ||
Total sales | $1.36 billion to $1.41 billion | $7.10 billion to $7.30 billion | |
Operating income (1) | $10 million to $25 million | $635 million to $675 million | |
Diluted EPS (1) | $9.55 to $10.14 |
(1) See description of non-GAAP financial measures below. |
(2) Fiscal 2024 is a 53-week fiscal year for Signet, ending February 3, 2024, driven by the retail industry calendar. The additional week will occur in Q4 of Fiscal 2024 |
The Company's third quarter and full year Fiscal 2024 outlook is based on the following assumptions:
The Company continues to expect annual US Jewelry industry revenues to be down more than the Company's initial expectations of mid-single digits, driven by the impacts of macroeconomic factors on consumer spending and continued shift of consumer discretionary spend. The Company's guidance contemplates annual market share gains against this total industry performance range.
Planned capital investments up to $200 million, reflecting investments in banner differentiation, including stores, Connected Commerce capabilities, and digital and technology advancement.
The Company continues to expect headwinds in engagements with recovery beginning later in Fiscal 2024, and further rebound over the next three years. Bridal overall, inclusive of engagements, historically represents nearly 50% of Signet's merchandise sales.
Annual tax rate of approximately 19% excludes additional discrete items.
Diluted EPS for Fiscal 2024 includes the repurchase of an additional 0.7 million shares during Q2 of FY24, the dilutive effect of the 8.2 million preferred shares and excludes the impact of any further share repurchases beyond what is reported today.
Our Purpose and Sustainable Growth:
As a company with a Purpose-inspired business strategy, Signet is committed to ongoing leadership in Corporate Citizenship & Sustainability and views Environmental, Social and Governance ("ESG") initiatives as an important growth driver. Signet released its Fiscal 2023 Corporate Citizenship & Sustainability Report including a progress report on its 2030 Corporate Sustainability Goals. The report reflects the Company's commitment to its Corporate Sustainability framework defined by Love for All People; Love for our Team; and Love for our Planet and Products. Since the release of its Corporate Sustainability Goals, approximately two years ago, the Company has successfully integrated the Inspiring Brilliance business strategy and long-term corporate sustainability initiatives into its culture and day to day business operations.
Conference Call:
A conference call is scheduled for August 31, 2023 at 8:30 a.m. ET and a simultaneous audio webcast is available at www.signetjewelers.com.
To pre-register for this call, please go to the following link:
https://emportal.ink/43Hk6my
You will receive your access details via email.
Joining by Telephone without pre-registering:
Canada dial-in number (Local): 1 416 764 8620
Toll Free US Dial-in: 1 888 575 5163
Please press # (pound) to speak with an operator
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. As a Purpose-driven and sustainability-focused company, Signet is a participant in the United Nations Global Compact and adheres to its principles-based approach to responsible business. Signet operates approximately 2,800 stores primarily under the name brands of Kay Jewelers, Zales, Jared, Banter by Piercing Pagoda, Diamonds Direct, Blue Nile, JamesAllen.com, Rocksbox, Peoples Jewellers, H. Samuel, and Ernest Jones. Further information on Signet is available at www.signetjewelers.com. See also www.kay.com, www.zales.com, www.jared.com, www.banter.com, www.diamondsdirect.com, www.bluenile.com, www.jamesallen.com, www.rocksbox.com, www.peoplesjewellers.com, www.hsamuel.co.uk, www.ernestjones.co.uk.
This release contains statements which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are 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, results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. The use of the words "expects," "intends," "anticipates," "estimates," "predicts," "believes," "should," "potential," "may," "preliminary," "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 which could cause the actual results to not be realized, including, but not limited to: difficulty or delay in executing or integrating an acquisition, including Diamonds Direct and Blue Nile; executing other major business or strategic initiatives, such as expansion of the services business or realizing the benefits of our restructuring plan; the negative impacts that the COVID-19 pandemic has had, and could have in the future, on our business, financial condition, profitability and cash flows, including without limitation risks relating to shifts in consumer spending away from the jewelry category, trends toward more experiential purchases such as travel, disruptions in the dating cycle caused by the pandemic and the pace at which such impacts on engagements are expected to recover, and the impacts of the expiration of government stimulus on overall consumer spending (including the anticipated expiration of student loan relief); general economic or market conditions, including impacts of inflation or other pricing environment factors on our commodity costs (including diamonds) or other operating costs; a prolonged slowdown in the growth of the jewelry market or a recession in the overall economy; financial market risks; a decline in consumer discretionary spending or deterioration in consumer financial position; disruptions in our supply chain; our ability to attract and retain labor; our ability to optimize our transformation strategies; changes to regulations relating to customer credit; disruption in the availability of credit for customers and customer inability to meet credit payment obligations, which has occurred and may continue to deteriorate; our ability to achieve the benefits related to the outsourcing of the credit portfolio, including due to technology disruptions and/or disruptions arising from changes to or termination of the relevant outsourcing agreements, as well as a potential increase in credit costs due to the current interest rate environment; deterioration in the performance of individual businesses or of our market value relative to its book value, resulting in impairments of long-lived assets or intangible assets or other adverse financial consequences; the volatility of our stock price; the impact of financial covenants, credit ratings or interest volatility on our ability to borrow; our ability to maintain adequate levels of liquidity for our cash needs, including debt obligations, payment of dividends, planned share repurchases (including execution of accelerated share repurchases and the payment of related to excise taxes) and capital expenditures as well as the ability of our customers, suppliers and lenders to access sources of liquidity to provide for their own cash needs; changes in our credit rating; potential regulatory changes; future legislative and regulatory requirements in the US and globally relating to climate change, including any new climate related disclosure or compliance requirements, such as those recently proposed by the SEC; exchange rate fluctuations; the cost, availability of and demand for diamonds, gold and other precious metals, including any impact on the global market supply of diamonds due to the ongoing Russia-Ukraine conflict or related sanctions; stakeholder reactions to disclosure regarding the source and use of certain minerals; scrutiny or detention of goods produced in certain territories resulting from trade restrictions; seasonality of our business; the merchandising, pricing and inventory policies followed by us and our ability to manage inventory levels; our relationships with suppliers including the ability to continue to utilize extended payment terms and the ability to obtain merchandise that customers wish to purchase; the failure to adequately address the impact of existing tariffs and/or the imposition of additional duties, tariffs, taxes and other charges or other barriers to trade or impacts from trade relations; the level of competition and promotional activity in the jewelry sector; our ability to optimize our multi-year strategy to gain market share, expand and improve existing services, innovate and achieve sustainable, long-term growth; the maintenance and continued innovation of our OmniChannel retailing and ability to increase digital sales, as well as management of digital marketing costs; changes in consumer attitudes regarding jewelry and failure to anticipate and keep pace with changing fashion trends; changes in the supply and consumer acceptance of and demand for gem quality lab created diamonds and adequate identification of the use of substitute products in our jewelry; ability to execute successful marketing programs and manage social media; the ability to optimize our real estate footprint, including operating in attractive trade areas and mall locations; the performance of and ability to recruit, train, motivate and retain qualified team members - particularly in regions experiencing low unemployment rates; management of social, ethical and environmental risks; the reputation of Signet and its banners; inadequacy in and disruptions to internal controls and systems, including related to the migration to new information technology systems which impact financial reporting; security breaches and other disruptions to our information technology infrastructure and databases; an adverse development in legal or regulatory proceedings or tax matters, including any new claims or litigation brought by employees, suppliers, consumers or shareholders, regulatory initiatives or investigations, and ongoing compliance with regulations and any consent orders or other legal or regulatory decisions; failure to comply with labor regulations; collective bargaining activity; changes in corporate taxation rates, laws, rules or practices in the US and other jurisdictions in which our subsidiaries are incorporated, including developments related to the tax treatment of companies engaged in Internet commerce or deductions associated with payments to foreign related parties that are subject to a low effective tax rate; risks related to international laws and Signet being a Bermuda corporation; risks relating to the outcome of pending litigation; our ability to protect our intellectual property or assets including cash which could be affected by failure of a financial institution or conditions affecting the banking system and financial markets as a whole; changes in assumptions used in making accounting estimates relating to items such as extended service plans; or the impact of weather-related incidents, natural disasters, organized crime or theft, strikes, protests, riots or terrorism, acts of war (including the ongoing Russia-Ukraine conflict), or another public health crisis or disease outbreak, epidemic or pandemic on our business.
For a discussion of these and other risks and uncertainties which could cause actual results to differ materially from those expressed in any forward looking statement, see the "Risk Factors" and "Forward-Looking Statements" sections of Signet's Fiscal 2023 Annual Report on Form 10-K filed with the SEC on March 16, 2023 and quarterly reports on Form 10-Q and the "Safe Harbor Statements" in current reports on Form 8-K filed with the SEC. Signet undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.
Investors:
Rob Ballew
Senior Vice President, Investor Relations
robert.ballew@signetjewelers.com
or
investorrelations@signetjewelers.com
Media:
Colleen Rooney
Chief Communications & ESG Officer
+1-330-668-5932
colleen.rooney@signetjewelers.com
Non-GAAP Financial Measures
In addition to reporting the Company's financial results in accordance with generally accepted accounting principles ("GAAP"), the Company reports certain financial measures on a non-GAAP basis. The Company believes that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating historical trends and current period performance and liquidity. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, the GAAP financial measures presented in this earnings release and the Company's condensed consolidated financial statements and other publicly filed reports. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies.
The Company reports the following non-GAAP financial measures: non-GAAP operating income, non-GAAP operating margin, non-GAAP diluted earnings per share ("EPS"), free cash flow, sales changes on a constant currency basis, and adjusted debt and adjusted net debt leverage ratios.
Non-GAAP operating income is a non-GAAP measure defined as operating income excluding the impact of certain items which management believes are not necessarily reflective of normal operational performance during a period. Management finds the information useful when analyzing operating results to appropriately evaluate the performance of the business without the impact of these certain items. Management believes the consideration of measures that exclude such items can assist in the comparison of operational performance in different periods which may or may not include such items. Management also utilizes non-GAAP operating margin, defined as non-GAAP operating income as a percentage of total sales, to further evaluate the effectiveness and efficiency of the Company's flexible operating model.
Non-GAAP diluted EPS is a non-GAAP measure defined as diluted EPS excluding the impact of certain items which management believes are not necessarily reflective of normal operational performance during a period. Management finds the information useful when analyzing financial results in order to appropriately evaluate the performance of the business without the impact of these certain items. In particular, management believes the consideration of measures that exclude such items can assist in the comparison of performance in different periods which may or may not include such items. The Company estimates the tax effect of all non-GAAP adjustments by applying a statutory tax rate to each item. The income tax items represent the discrete amount that affected the diluted EPS during the period.
Free cash flow is a non-GAAP measure defined as the net cash provided by (used in) operating activities less purchases of property, plant and equipment. Management considers this metric to be helpful in understanding how the business is generating cash from its operating and investing activities that can be used to meet the financing needs of the business. Free cash flow is an indicator frequently used by management in evaluating its overall liquidity needs and determining appropriate capital allocation strategies. Free cash flow does not represent the residual cash flow available for discretionary purposes.
The Company provides the year-over-year change in total sales excluding the impact of foreign currency fluctuations to provide transparency to performance and enhance investors' understanding of underlying business trends. The effect from foreign currency, calculated on a constant currency basis, is determined by applying current year average exchange rates to prior year sales in local currency.
The adjusted debt and adjusted net debt leverage ratios are non-GAAP measures calculated by dividing Signet's adjusted debt or adjusted net debt by adjusted EBITDAR. Adjusted debt is a non-GAAP measure defined as debt recorded in the condensed consolidated balance sheet, plus Preferred Shares, plus an adjustment for operating leases (5x annual rent expense). Adjusted net debt, a non-GAAP measure, is adjusted debt less the cash and cash equivalents on hand as of the balance sheet dates. Adjusted EBITDAR is a non-GAAP measure, defined as earnings before interest and income taxes, depreciation and amortization, share-based compensation expense, other non-operating expense, net and certain non-GAAP accounting adjustments ("Adjusted EBITDA") and further excludes minimum fixed rent expense for properties occupied under operating leases. Adjusted EBITDA and Adjusted EBITDAR are considered important indicators of operating performance as they exclude the effects of financing and investing activities by eliminating the effects of interest, depreciation and amortization costs and certain accounting adjustments. Management believes these financial measures are helpful to investors and analysts to analyze trends in Signet's business and evaluate Signet's performance. The adjusted debt leverage ratio is a key priority of the Company's capital allocation strategy used in measuring the Company's optimized capital structure. The adjusted net debt leverage is supplemental to this ratio as it is deemed useful to both investors and management to consider cash on hand available to pay down debt. The adjusted debt and adjusted net debt leverage ratios are presented on a trailing twelve-month ("TTM") basis, which uses Adjusted EBITDAR calculated on the prior four fiscal quarters.
The following information provides reconciliations of the most comparable financial measures calculated and presented in accordance with GAAP to presented non-GAAP financial measures.
Free cash flow | ||||
26 weeks ended | ||||
(in millions) | July 29, 2023 | July 30, 2022 | ||
Net cash used in operating activities | $ (253.3) | $ (114.9) | ||
Purchase of property, plant and equipment | (55.4) | (58.2) | ||
Free cash flow | $ (308.7) | $ (173.1) | ||
Non-GAAP operating income | |||||||
13 weeks ended | 26 weeks ended | ||||||
(in millions) | July 29, 2023 | July 30, 2022 | July 29, 2023 | July 30, 2022 | |||
Total GAAP operating income | $ 90.2 | $ 186.8 | $ 191.9 | $ 187.0 | |||
Litigation charges (1) | — | — | (3.0) | 190.0 | |||
Acquisition and integration-related costs (2) | 4.8 | 6.4 | 12.6 | 10.8 | |||
Restructuring charges (3) | 4.2 | — | 4.2 | — | |||
Asset impairments (3) | 3.5 | — | 3.5 | — | |||
Total non-GAAP operating income | $ 102.7 | $ 193.2 | $ 209.2 | $ 387.8 | |||
North America segment non-GAAP operating income | |||||||
13 weeks ended | 26 weeks ended | ||||||
(in millions) | July 29, 2023 | July 30, 2022 | July 29, 2023 | July 30, 2022 | |||
North America segment GAAP operating income | $ 117.1 | $ 210.1 | $ 241.8 | $ 234.9 | |||
Litigation charges (1) | — | — | (3.0) | 190.0 | |||
Acquisition and integration-related costs (2) | 4.8 | 6.4 | 12.6 | 10.8 | |||
Restructuring charges (3) | 4.2 | — | 4.2 | — | |||
Asset impairments (3) | 3.5 | — | 3.5 | — | |||
North America segment non-GAAP operating income | $ 129.6 | $ 216.5 | $ 259.1 | $ 435.7 | |||
Non-GAAP income tax provision | |||||||
13 weeks ended | 26 weeks ended | ||||||
(in millions) | July 29, 2023 | July 30, 2022 | July 29, 2023 | July 30, 2022 | |||
GAAP income tax expense (benefit) | $ 17.2 | $ 35.6 | $ 26.7 | $ (19.6) | |||
Litigation charges (1) | — | — | (0.8) | 47.7 | |||
Pension settlement loss (6) | — | 0.2 | 4.1 | 25.2 | |||
Acquisition and integration-related costs (2) | 1.2 | 1.5 | 3.1 | 2.6 | |||
Restructuring charges (3) | 1.1 | — | 1.1 | — | |||
Asset impairments (3) | 0.9 | — | 0.9 | — | |||
Non-GAAP income tax expense | $ 20.4 | $ 37.3 | $ 35.1 | $ 55.9 | |||
Non-GAAP effective tax rate | |||
13 weeks ended | |||
July 29, 2023 | July 30, 2022 | ||
GAAP effective tax rate | 18.6 % | 19.7 % | |
Acquisition and integration-related costs (2) | 0.4 % | 0.1 % | |
Restructuring charges (3) | 0.3 % | — % | |
Asset impairments (3) | 0.2 % | — % | |
Non-GAAP effective tax rate | 19.5 % | 19.8 % | |
Non-GAAP diluted EPS | |||||||
13 weeks ended | 26 weeks ended | ||||||
July 29, 2023 | July 30, 2022 | July 29, 2023 | July 30, 2022 | ||||
GAAP diluted EPS | $ 1.38 | $ 2.58 | $ 3.17 | $ 0.90 | |||
Litigation charges (1) | — | — | (0.06) | 3.82 | |||
Pension settlement loss (6) | — | 0.02 | — | 2.67 | |||
Acquisition and integration-related costs (2) | 0.09 | 0.11 | 0.24 | 0.22 | |||
Restructuring charges (3) | 0.08 | — | 0.08 | — | |||
Asset impairments (3) | 0.06 | — | 0.06 | — | |||
Dilution effect (4) | — | — | — | (0.53) | |||
Tax impact of items above (5) | (0.06) | (0.03) | (0.16) | (1.53) | |||
Non-GAAP diluted EPS | $ 1.55 | $ 2.68 | $ 3.33 | $ 5.55 | |||
Adjusted debt and adjusted net debt leverage ratios | |||
As of | |||
(in millions) | July 29, 2023 | July 30, 2022 | |
Adjusted debt and adjusted net debt: | |||
Current portion of long-term debt | $ 147.5 | $ — | |
Long-term debt | — | 147.2 | |
Redeemable Series A Convertible Preference Shares | 654.7 | 653.0 | |
Adjustments: | |||
5x Rent expense | 2,232.0 | 2,212.5 | |
Adjusted debt | $ 3,034.2 | $ 3,012.7 | |
Less: Cash and cash equivalents | 690.2 | 851.7 | |
Adjusted net debt | $ 2,344.0 | $ 2,161.0 | |
TTM Adjusted EBITDAR | $ 1,332.1 | $ 1,547.5 | |
Adjusted debt leverage ratio | 2.3x | 1.9x | |
Adjusted net debt leverage ratio | 1.8x | 1.4x | |
26 weeks ended | 52 week period ended | 52 week period ended | |||||||||||
(in millions) | July 29, | July 30, | July 31, | January 28, | January 29, | July 29, | July 30, | ||||||
Calculation: | A | B | C | D | E | A + D - B | B + E - C | ||||||
Adjusted EBITDAR: | |||||||||||||
Net income | $ 172.5 | $ 61.9 | $ 363.0 | $ 376.7 | $ 769.9 | $ 487.3 | $ 468.8 | ||||||
Income taxes | 26.7 | (19.6) | 23.0 | 74.5 | 114.5 | 120.8 | 71.9 | ||||||
Interest (income) expense, net | (7.4) | 7.8 | 8.3 | 13.5 | 16.9 | (1.7) | 16.4 | ||||||
Depreciation and amortization | 86.7 | 79.8 | 83.7 | 164.5 | 163.5 | 171.4 | 159.6 | ||||||
Amortization of unfavorable contracts | (0.9) | (0.9) | (2.4) | (1.8) | (3.3) | (1.8) | (1.8) | ||||||
Share-based compensation | 25.2 | 22.9 | 25.5 | 42.0 | 45.8 | 44.3 | 43.2 | ||||||
Other non-operating (income) | 0.1 | 136.9 | (0.2) | 140.2 | 2.1 | 3.4 | 139.2 | ||||||
Other accounting adjustments (7) | 17.3 | 200.8 | (2.2) | 245.5 | 4.7 | 62.0 | 207.7 | ||||||
Adjusted EBITDA | $ 320.2 | $ 489.6 | $ 498.7 | $ 1,055.1 | $ 1,114.1 | $ 885.7 | $ 1,105.0 | ||||||
Rent expense | 220.5 | 220.6 | 221.4 | 446.5 | 443.3 | 446.4 | 442.5 | ||||||
Adjusted EBITDAR | $ 540.7 | $ 710.2 | $ 720.1 | $ 1,501.6 | $ 1,557.4 | $ 1,332.1 | $ 1,547.5 | ||||||
Footnotes to Non-GAAP Reconciliation Tables
(1) | Fiscal 2024 includes a credit to income related to the adjustment of the prior litigation accrual. Fiscal 2023 includes charges for settlement of a previously disclosed litigation matter. |
(2) | Acquisition and integration-related costs include integration costs, primarily severance and retention, exit and disposal costs, and system decommissioning costs incurred for the integration of Blue Nile in Fiscal 2024. The 13 and 26 weeks ended July 29, 2023 includes $0.1 million and $1.4 million, respectively, recorded to cost of sales, and $4.7 million and $11.2 million, respectively, recorded to SG&A. Fiscal 2023 included the impact of the fair value step-up for inventory from Diamonds Direct which was recorded to cost of sales, as well as professional fees for direct transaction-related costs incurred for the acquisition of Blue Nile. |
(3) | Restructuring and asset impairment charges were incurred as a result of the Company's rationalization of store footprint and reorganization of certain centralized functions in the second quarter of Fiscal 2024. |
(4) | The adjusted diluted weighted average common shares outstanding for the 26 weeks ended July 30, 2022 includes the dilutive effect of the 8.0 million preferred shares which were excluded from the calculation of GAAP diluted EPS for the same period, as their effect was antidilutive. |
(5) | The tax effect includes a $0.07 impact of the other comprehensive income recognized in earnings from the release of the remaining tax benefit associated with the buy-out of the UK pension completed in the first quarter of Fiscal 2024. |
(6) | Non-operating expenses includes primarily pre-tax pension settlement charges of $132.8 million and $133.7 million during the 26 weeks ended July 30, 2022, and 52 weeks ended January 28, 2023, respectively. |
(7) | Other accounting adjustments are inclusive of those items described within footnotes 1 through 3 above. Additional accounting adjustments include certain asset impairment charges, charges in connection with the Company's transformation plan, as well as the gains associated with the sale of customer in-house finance receivables as previously disclosed in prior periods. |
Condensed Consolidated Statements of Operations (Unaudited) | ||||||||
13 weeks ended | 26 weeks ended | |||||||
(in millions, except per share amounts) | July 29, 2023 | July 30, 2022 | July 29, 2023 | July 30, 2022 | ||||
Sales | $ 1,613.6 | $ 1,754.9 | $ 3,281.6 | $ 3,593.2 | ||||
Cost of sales | (1,002.8) | (1,090.2) | (2,038.8) | (2,204.8) | ||||
Gross margin | 610.8 | 664.7 | 1,242.8 | 1,388.4 | ||||
Selling, general and administrative expenses | (511.2) | (477.3) | (1,041.6) | (1,010.4) | ||||
Other operating expense, net | (9.4) | (0.6) | (9.3) | (191.0) | ||||
Operating income | 90.2 | 186.8 | 191.9 | 187.0 | ||||
Interest income (expense), net | 1.8 | (3.4) | 7.4 | (7.8) | ||||
Other non-operating income (expense), net | 0.3 | (2.4) | (0.1) | (136.9) | ||||
Income before income taxes | 92.3 | 181.0 | 199.2 | 42.3 | ||||
Income taxes | (17.2) | (35.6) | (26.7) | 19.6 | ||||
Net income | $ 75.1 | $ 145.4 | $ 172.5 | $ 61.9 | ||||
Dividends on redeemable convertible preferred shares | (8.6) | (8.6) | (17.2) | (17.2) | ||||
Net income attributable to common shareholders | $ 66.5 | $ 136.8 | $ 155.3 | $ 44.7 | ||||
Earnings per common share: | ||||||||
Basic | $ 1.47 | $ 2.95 | $ 3.43 | $ 0.94 | ||||
Diluted | $ 1.38 | $ 2.58 | $ 3.17 | $ 0.90 | ||||
Weighted average common shares outstanding: | ||||||||
Basic | 45.2 | 46.4 | 45.3 | 47.6 | ||||
Diluted | 54.3 | 56.3 | 54.5 | 49.7 | ||||
Dividends declared per common share | $ 0.23 | $ 0.20 | $ 0.46 | $ 0.40 | ||||
Condensed Consolidated Balance Sheets (Unaudited) | ||||||
(in millions) | July 29, 2023 | January 28, | July 30, 2022 | |||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ 690.2 | $ 1,166.8 | $ 851.7 | |||
Accounts receivable | 16.8 | 14.5 | 35.6 | |||
Other current assets | 177.0 | 165.9 | 199.4 | |||
Income taxes | 9.5 | 9.6 | 118.5 | |||
Inventories | 2,093.9 | 2,150.3 | 2,190.8 | |||
Total current assets | 2,987.4 | 3,507.1 | 3,396.0 | |||
Non-current assets: | ||||||
Property, plant and equipment, net | 553.5 | 586.5 | 566.5 | |||
Operating lease right-of-use assets | 1,060.2 | 1,049.3 | 1,113.1 | |||
Goodwill | 754.1 | 751.7 | 486.4 | |||
Intangible assets, net | 406.5 | 407.4 | 312.8 | |||
Other assets | 287.9 | 281.7 | 254.7 | |||
Deferred tax assets | 37.8 | 36.7 | 34.9 | |||
Total assets | $ 6,087.4 | $ 6,620.4 | $ 6,164.4 | |||
Liabilities, Redeemable convertible preferred shares, and Shareholders' | ||||||
Current liabilities: | ||||||
Current portion of long-term debt | $ 147.5 | $ — | $ — | |||
Accounts payable | 570.7 | 879.0 | 689.5 | |||
Accrued expenses and other current liabilities | 386.7 | 638.7 | 598.5 | |||
Deferred revenue | 358.3 | 369.5 | 326.9 | |||
Operating lease liabilities | 332.2 | 288.2 | 281.3 | |||
Income taxes | 56.9 | 72.7 | 23.9 | |||
Total current liabilities | 1,852.3 | 2,248.1 | 1,920.1 | |||
Non-current liabilities: | ||||||
Long-term debt | — | 147.4 | 147.2 | |||
Operating lease liabilities | 832.3 | 894.7 | 925.8 | |||
Other liabilities | 98.3 | 100.1 | 101.3 | |||
Deferred revenue | 869.0 | 880.1 | 873.9 | |||
Deferred tax liabilities | 166.7 | 117.6 | 175.2 | |||
Total liabilities | 3,818.6 | 4,388.0 | 4,143.5 | |||
Commitments and contingencies | ||||||
Redeemable Series A Convertible Preference Shares | 654.7 | 653.8 | 653.0 | |||
Shareholders' equity: | ||||||
Common shares | 12.6 | 12.6 | 12.6 | |||
Additional paid-in capital | 220.0 | 259.7 | 245.6 | |||
Other reserves | 0.4 | 0.4 | 0.4 | |||
Treasury shares at cost | (1,596.4) | (1,574.7) | (1,494.4) | |||
Retained earnings | 3,238.0 | 3,144.8 | 2,868.3 | |||
Accumulated other comprehensive loss | (260.5) | (264.2) | (264.6) | |||
Total shareholders' equity | 1,614.1 | 1,578.6 | 1,367.9 | |||
Total liabilities, redeemable convertible preferred shares and shareholders' | $ 6,087.4 | $ 6,620.4 | $ 6,164.4 | |||
Condensed Consolidated Statements of Cash Flows (Unaudited) | ||||
26 weeks ended | ||||
(in millions) | July 29, 2023 | July 30, 2022 | ||
Operating activities | ||||
Net income | $ 172.5 | $ 61.9 | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||
Depreciation and amortization | 86.7 | 79.8 | ||
Amortization of unfavorable contracts | (0.9) | (0.9) | ||
Share-based compensation | 25.2 | 22.9 | ||
Deferred taxation | 47.8 | (11.0) | ||
Pension settlement loss | 0.2 | 132.8 | ||
Other non-cash movements | 6.6 | 3.1 | ||
Changes in operating assets and liabilities, net of acquisitions: | ||||
Increase in accounts receivable | (2.4) | (15.7) | ||
Increase in other assets | (24.8) | (4.9) | ||
Decrease (increase) in inventories | 65.0 | (146.6) | ||
Decrease in accounts payable | (300.0) | (221.2) | ||
(Decrease) increase in accrued expenses and other liabilities | (257.1) | 95.3 | ||
Change in operating lease assets and liabilities | (31.8) | (3.6) | ||
(Decrease) increase in deferred revenue | (24.8) | 2.3 | ||
Change in income tax receivable and payable | (15.5) | (99.9) | ||
Pension plan contributions | — | (9.2) | ||
Net cash used in operating activities | (253.3) | (114.9) | ||
Investing activities | ||||
Purchase of property, plant and equipment | (55.4) | (58.2) | ||
Acquisitions | (6.0) | (1.9) | ||
Other investing activities, net | 0.5 | (14.9) | ||
Net cash used in investing activities | (60.9) | (75.0) | ||
Financing activities | ||||
Dividends paid on common shares | (19.4) | (18.3) | ||
Dividends paid on redeemable convertible preferred shares | (16.4) | (16.4) | ||
Repurchase of common shares | (82.4) | (291.0) | ||
Other financing activities, net | (45.6) | (41.4) | ||
Net cash used in financing activities | (163.8) | (367.1) | ||
Cash and cash equivalents at beginning of period | 1,166.8 | 1,418.3 | ||
Decrease in cash and cash equivalents | (478.0) | (557.0) | ||
Effect of exchange rate changes on cash and cash equivalents | 1.4 | (9.6) | ||
Cash and cash equivalents at end of period | $ 690.2 | $ 851.7 | ||
Real Estate Portfolio:
Signet has a diversified real estate portfolio. On July 29, 2023, Signet had 2,761 stores totaling 4.2 million square feet of selling space. Compared to year-end Fiscal 2023, store count decreased by 47 and square feet of selling space decreased 1.1%.
Store count by segment | January 28, 2023 | Openings | Closures | July 29, 2023 | |||
North America segment | 2,475 | 7 | (28) | 2,454 | |||
International segment | 333 | 5 | (31) | 307 | |||
Signet | 2,808 | 12 | (59) | 2,761 |
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SOURCE Signet Jewelers Ltd.
