Q4 2020 Earnings Call
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Good morning, everyone and welcome to the Signet Jewelers fourth quarter fiscal 2020 earnings conference call at this time. All participants are in a listen-only mode after the speaker's presentation. There will be a question-and-answer session to ask a question. You may press star and then one to remove yourselves from the question to you may press star in to Thursday is also note that he's being recorded.
Today's speakers are seeing that CEO Jenna Joseph and CFO Nelson.
During today's presentation thing that will make certain forward-looking statements any statements that are not historical facts are subject to a number of risks and uncertainties and actual results. May differ materially month. We urge you to read the risk factors cautionary language and other disclosures and seen its annual report on form 10-K quarterly reports on form 10-q and current reports on form 8-k as filed with the Securities and Exchange Commission, except as required by law thing that undertake no obligation to revise or publicly update forward-looking statements and light of new information or future wage.
After the speakers presentation, there will be a question answer session.
I asked the question you made press Star then one.
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There's also no today that is being recorded.
During the call thing that will discuss certain Financial measures not presented in accordance with generally accepted accounting principles, otherwise known as non-gaap measures these non-gaap measures include operating income affect the tax rate and earnings-per-share for future discussions of the non-gaap financial measures as well as reconciliations of the non-gaap financial measures to the most directly comparable gaap many investors should review the news release posted on seen this website at ww.w.
Today's speakers are seeing that CEO junior dress up and CFO.
Also.
During today's presentation thing that will make certain look forward looking statements.
Any statements that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially.
We urge you to read the risk factors cautionary language and other disclosures Sina annual report on form 10-K quarterly reports on form 10-Q, and current reports on form 8-K as filed with the Securities and Exchange Commission.
At this time, I'll turn the conference call over to mistresses.
[laughter] as required by law <unk> undertakes no obligation to revise or publicly update forward looking statements in light of new information or future events.
Thank you, Jamie. Good morning, everyone and thank you for joining today's call before I discuss our fourth quarter and fiscal 2020 performance. I would like to address the covid-19 outbreak on behalf of the Signet board of directors executive team and all of our signature team members our hearts and prayers go out to all who have been impacted by the covid-19 global pandemic. We greatly appreciate all who are caring for those in need. Especially the many Health Care Professionals on the front lines. I'm also thankful to our team members who are demonstrating remarkable compassion commitment and courage during this crisis.
During the call not well discuss certain financial measures not presented in accordance with generally accepted accounting principles, otherwise known as non-GAAP measures.
Non-GAAP measures include operating income affected tax rate and earnings per share.
Each of discussion of the Nongaap financial measures as well as reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures investors should review the news release posted one thing that's website at Www Dot Signet jewelers Dot com backslash investors.
At this time I'll turn the conference call over to Mr. Joseph.
In this rapidly evolving environment. We've been making decisions in real time prioritizing the health and safety of our team members and customers and taking bold actions to ensure the long-term sustainability of our business with that in the Forefront of our minds. It's difficult to transition to a discussion of fourth-quarter business results. However, we believe it's important to share how the business performed prior to seeing impact from the covid-19 pandemic the actions we have taken since and how we're positioning our company for when the nation begins to emerge from this crisis.
[noise]. Thank you Jamie good morning, everyone and thank you for joining today's call before I discuss our fourth quarter and Cisco 2020 performance I would like to a drastic Hogan 19 outbreak.
On behalf of Designit Board of directors executive team and all the first Signet team members. Our Hearts Infringers go out to all hit what's been impacted by the code that 19 global pandemic [laughter]. We greatly appreciate all the work hearing for doesn't need, especially the many health care professionals on the front line [laughter].
I'm also thankful to our team members, who are demonstrating remarkable compassion commitment.
The environment we're operating in today underscores the importance of cygnus transformation into a more agile and efficient organization as you've seen from birth announcement earlier this week. We have moved quickly and aggressively to strengthen cygnets Financial flexibility. We are focused on substantially reducing discretionary spend in areas that our customers do not see or care about as well as driving marketing efficiencies through enhanced digital presence and targeting using Advanced Data and analytics off additionally given the temporary closure of our stores. We are implementing reduced work hours furloughs and reduced compensation across store and support center teams as part of this our top leaders and I have taken a voluntary 50% base salary reduction and other leaders have taken significant reductions to half of this game.
Encouraged during this crisis.
In this rapidly evolving environment, we've been making decisions in real time prioritizing the health and safety of our team members and customers and taking bold actions to ensure the long term sustainability of our business.
With that in the forefront of our minds, it's difficult to transition to a discussion of fourth quarter business results.
However, we believe it's important to share how the business performed prior to the same impact from the Cobot 19 pandemic [laughter] actions, we've taken a sense and how we're positioning our company for when the nation begins to emerge from this crisis.
[laughter] the environment, we're operating in today underscores the importance of Signets transformation.
Into a more agile and efficient organization.
As you've seen from our announcement earlier. This week, we have moved quickly and aggressively to strengthen signature financial flexibility. We are focused on substantially reducing discretionary spend in the areas that our customers do not see your care about as well, what's driving marketing efficiencies through enhanced digital presence.
You replaced with Equity grants. The board of directors has reduced its retainer fees by 50% and agreed to be compensated entirely in the company's common shares many of us may have also contributed a portion of our bonuses to an emergency relief fund established to help our colleagues in need. Our signature team is in this together and I had confidence we will emerge as an even stronger United team and Company.
And targeting using advanced data and analytics.
Additionally, given the temporary closure of our stores, we are implementing reduced work hours furloughs and reduced compensation across store and support center teams.
Since we do not have visibility into the duration of this crisis and the related economic impact in addition to expense reductions. We are temporarily suspending our cash dividend and have elected to pay the Met quarterly dividend on the preference shares in kind rather than in cash. We also aggressively reduced planned Capital expenditures within this lower spend. We are prioritizing digital Investments and are flexible fulfillment initiative.
As part of this our top leaders and I have taken a voluntary 50 per cent base salary reduction and other leaders have taken significant reductions too.
This will be replaced with equity grant.
The board of directors has reduced its retainer fees by 50% and agreed to be compensated entirely in the company's common shares.
Many of US have also contributed a portion of our bonuses to an emergency relief fund established to help our colleagues in need.
We called it over the past two years. We successfully transitioned our banners to the hybrids eCommerce platform enabling much faster speed curated search and pack visualization using high-quality Imaging. We also made important investments in our mobile experience and custom configurators to allow customers to personalize them even design their own jewelry. All of this improves the experience of our online purchaser as well as the browser who starts their Journey online and we'll eventually purchase in one of our brick-and-mortar stores.
Our signet team is in this together and I have confidence, we will emerge as an even stronger United team and company.
[laughter] since we do not have visibility into the duration of this crisis and the related economic impact. In addition to expense reductions were temporarily suspending our cash dividend and have elected to pay the may quarterly dividend on the preference shares in kind [laughter] rather than in cash.
We also aggressively reduced plants capital expenditures within this lower spend we're prioritizing digital investments and our flexible fulfillment initiative.
To achieve immediate e-commerce impact we are focused on enhancing search and browse easier check out and even more advanced Custom Design capabilities to create an optimized and frictionless shopping experience for customers. We are also continuing to implement are flexible fulfillment initiative which unlocks six or level inventory allows us to optimize across our Network through a single view improves our product assortment by store and enhances the customer experience with buy online pickup in-store available this holiday.
[noise], we called it over the past two years, we successfully transitioned our banners to the hybris ecommerce platform, enabling much faster speed curated search and chronic visualization using high quality imaging.
We also made important investments in our mobile experience and custom configurators to allow customers to personal lives and even design their own jewelry.
All of this improves the experience of our online purchase or as well as the browser who starts their journey online and will eventually purchase in one of our brick and mortar stores.
Fortunately, we believe we are effectively managing through the present disruption at the same time. We are working to accelerate our transformation through a call shortly focused Investments to build Signet future.
To achieve immediate ecommerce impact, we're focused on enhancing search and browse easier checkout and even more advanced custom design capabilities to create an optimized and frictionless shopping experience for customers.
We've made progress over the past two years on our pastor Brilliance transformation and are galvanized around three key strategies. Number one customer first number to change the channel and number three building a culture of agility and efficiency our results in the fourth quarter demonstrate that these strategies are working. So while there is a considerable disruption today, we believe we have built a strong foundation and the resiliency and capabilities to emerge as a stronger company with enhanced cognitive advantage.
We're also continuing to implement our flexible fulfillment initiative, which unlocks store level inventory allows us to optimize across our networks through a single view improves our product assortments by store and enhances the customer experience with buy online.
Pick up in store available this holiday.
[noise] very importantly, we believe we are effectively managing through the president disruption.
At the same time, we are working to accelerate our transformation through acutely focused investments to build signets future.
Now turning to our fourth quarter and fiscal 2020 results as well as color on our performance entering fiscal 2021.
We've made progress over the past two years on our pastor brilliance transformation and our galvanized around three key strategies.
Our fourth-quarter results were better than anticipated and we ended the year strong with our best overall holiday business performance in four years our team delivered for a quarter same-store sales growth of 2.3% and generated double-digit growth in e-commerce.
Number one customer first number two omni channel and number three building a culture of agility and efficiency our results in the fourth quarter demonstrate that these strategies are working so while there is considerable disruption today. We believe we have built a strong foundation and.
We delivered 0.6% same-store sales growth for the fiscal year and exceeded our cost savings Target for the year achieving an expense reduction of approximately $1,500. All of this drove strong non-gaap operating income up 16% and free cash flow of $419 for the fiscal year the momentum, we experienced during the holiday season continued as we entered fiscal 2021. We had a strong Valentine's Day selling season with customers reacting favorably to our product newness customer experience Innovations and are always on approach to marketing March performance to date reflects the job increased impact of the covid-19 pandemic which led us to close all of our retail store locations earlier this week.
The resiliency and capabilities to emerge as a stronger company with enhanced competitive advantage.
Now turning to our fourth quarter, and Cisco 2020 result, as well as color on our performance entering fiscal 2021.
Our fourth quarter results were better than anticipated and we ended the year strong with our best overall holiday business performance in four years.
Our team delivered fourth quarter same store sales growth of 2.3% and generated double digit growth in E commerce.
We delivered 0.6% same store sales growth for the fiscal year and exceeded our cost savings target for the year, achieving an expense reduction of approximately 100 million Dollarss. All of this drove strong non-GAAP operating income up 16% and free cash flow.
In a time like this, we all know that celebrating those you love is important to effectively serve our customers. Our team is being agile off of do you have in our size and scale? There are things we are doing right now to drive relevance and deliver our company Mission to help customers Celebrate life and express love here are three themes. We are actively focused on to put Innovation into action and meet our customers where they are.
A $419 million for the fiscal year.
The momentum we experienced during the holiday season continued as we entered fiscal 2021, we had a strong Valentine's day selling season with customers reacting favorably to our product newness customer experience innovations and are always on approach to marketing.
First providing our expertise our customers often want advice before making their final decision across all of our Banners are level of personal services, especially today is one of our strongest differentiators. So we're leveraging the expertise of our digitally native Banner jamesallen.com to rapidly Advance our online selling assistance tools across all of our banners. We've enhanced our live chat capability and trained hundreds of our customer care. And in fact jewelry experts who are now working from home to provide their expertise virtually.
March performance to date reflects the increased the impact of the covert 19 pandemic, which led us to close all of our retail store locations earlier this week.
In a time like this we all know that celebrating those you loved it is important.
To effectively serve our customers our team is being agile and innovative.
Given our size and scale there are things, we're doing right now to drive relevance and deliver our company mission to help customers celebrate life and express love.
Here are three themes, we are actively focused on to put innovation into action and meet our customers where they are.
second
Play bringing the best of our stores to our customers with omni-channel. We are hosting virtual special events including for Mother's Day. Hosting video chats and Empower. Our team members to be social ambassador's we have also rapidly added to our online inventory from store stocks to be ready to meet all customer needs.
[laughter] first providing our expertise.
Our customers often want advice before making their final decision across all of our banners our level of personal service, especially today is one of our strongest differentiators.
So we're leveraging the expertise of our digitally native banner, James Allen Dot com to rapidly advance our online selling assistance tools across all of our banners, we've enhanced our live chat capability and trained hundreds of our customer care and in store jewelry expert.
And third giving customers an excellent value. We know that given current and future economic uncertainty. Our customers are even more value-conscious wage. We Believe are excellent vendor relationships source and capability and scale allow us to make sure we are providing high-quality jewelry at a great value.
Who were now working from home to provide their expertise virtually.
Secondly, bringing the best of our stores to our customers with omni channel, we're hosting virtual special events, including for mother's day hosting video chat and empowering our team members to be social ambassadors. We have also rapidly added to our online inventory from stock.
All in all the team is working to support our customers desire to celebrate love especially now online. Our team members across the country are delivering our mission in new and innovative ways.
In closing our team delivered strong results in the fourth quarter and fiscal year twenty-twenty as we navigate the current uncertainty. We are leveraging the strong Foundation. We have built over the past two years of our pastor Brilliance transformation importantly we have acted immediately to build additional Flex Financial flexibility during this disruption.
Your stocks to be ready to meet all customer needs.
And third giving customers an excellent value, we know that given current and future economic uncertainty our customers are even more value conscious we believe our excellent vendor relationships sourcing capability and scale allow us to make sure we're provide.
We also believe that our transformation strategies are working and we are acutely focused on the key priorities that will most enable our future growth off now turn the call over to Joan to further discuss our financial results and cost and cash management plans.
Adding high quality jewelry at a great value.
All in all the team is working to support our customers desire to celebrate love, especially now online.
Our team members across the country are delivering our mission in new and innovative ways.
Thanks, Jenna and good morning everyone in my remarks our first cover the highlights of our fourth quarter and fiscal 2020 Financial results move on to the actions. We are taking to conserve cash while our stores are closed due to covid-19 and then conclude with the discussion of our credit facilities, the cumulative progress we have made is Faith in our strong holiday quarter and full-year fiscal 2020 Financial results 4th quarter same-store sales grew 2.3% with double-digit growth in e-commerce as well as brick-and-mortar same-store sales growth.
In closing our team delivered strong results in the fourth quarter and fiscal year 2020.
As we navigate the current uncertainty we are leveraging the strong foundation, we have built over the past two years of our pastor brilliance transformation.
Importantly, we have acted immediately to build additional flux financial flexibility during this disruption.
We also believes that our transformation strategies are working and we are acutely focused on the key priorities that will most to enable our future growth.
I'll now turn the call over to John to further discuss our financial results and cost in cash management plans.
Non-gaap operating profit grew 12% in the quarter driven by higher gross margin as well as lower sg&a expense on a dollar and percentage of sales basis fourth-quarter gross margin and sg&a each benefited from strong transformation cost savings.
Thanks, Jenna and good morning, everyone. In my remarks, I'll first cover the highlights of our fourth quarter and fiscal 2020 financial results move onto the actions. We are taking two can third cash well our stores are closed due to covert 19, and then conclude with a discussion of our credit facility.
As she knew in the quarter also benefited from lower advertising spent that delivered Tire Impressions and lower staff costs inclusive of a smaller store base these Sgt benefits. We're somewhat offset by higher incentive compensation year-over-year as a result of positive sales and profit performance Gap operating profit in class a charge of $33 related to the company cash contribution portion of the settlement of a previously disclosed shareholder litigation, which will be described in our form 10-K filing. The settlement is $240 with approximately $205 million dollars expected to be patient with proceeds from insurance policies. The company has in place. The settlement is subject to court approval.
Steve.
The cumulative progress we have made is evident in our strong holiday corridor and full year fiscal 2000, or 20 financial result, fourth quarter same store sales grew 2.3% with double digit growth in E commerce as well as brick and mortar same store sales growth.
Non-GAAP operating profit grew 12% in the quarter driven by higher gross margin as well as lower SGN a expense on a dollar and percentage of sales basis.
Fourth quarter gross margin and SG Nate each benefited from strong transformation cost savings.
As she may in the quarter also benefited from lower advertising spend that delivered higher impressions and lower staff cost inclusive of a smaller store base.
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Expense declined 29% year-over-year in the quarter as a result of lower debt balances as well as the benefits of lower interest rates post our September 2019 financing fourth quarter. Non-gaap EPS was $3.67 compared to Prior year non-gaap EPS of $3.96 as the benefit of higher operating profit and lower interest expense was more than offset by a higher tax rate for the full year fiscal 2020 same-store Sales Group home with double-digit growth that James Allen and Piercing Pagoda e-commerce, grew 10% year-over-year and accounted for 12.2% of sales up from 8.9% in the prior year and more than doubling as a percentage of sales over the last three years fiscal 2020 revenues declined 1.8% driven. Yep.
These SGN a benefits were somewhat offset by higher incentive compensation year over year as a result of positive sales and profit performance.
GAAP operating profit includes a charge of $33 million related to the company cash contribution portion of the settlement of a previously disclosed shareholder litigation, which will be described in our form 10-K filing.
Assessments is $240 million with approximately $205 million expected to be paid with proceeds from insurance policies. The company has in place. The settlement is subject to court approval.
Interest expense declined 29% year over year on the quarter as a result of lower debt balances as well as the benefit of lower interest rates post our September 2019 refinancing.
Smaller store base fiscal 2020 non-gaap operating profit grew 16% to 5.2% with gross margin expansion and sg&a delivering non-gaap operating margin Improvement of 80 basis points operating profit performance was driven by transformation cost savings lower staff wage costs inclusive of clothes stores somewhat offset by slightly higher advertising and higher levels of clearance redelivered thousand million in net cost Savings in fiscal 2020 with a portion of the gross Savings reinvested in technology and Innovation initiatives to drive growth.
Fourth quarter, non-GAAP, EPS was $3.67 compared to prior year non-GAAP EPS of $3, a 96 cents.
As the benefit of higher operating profit and lower interest expense was more than offset by a higher tax rate.
For the full year fiscal 2020 same store sales group, 0.6%, what's a double digit growth that James Alan and piercing pagoda.
E Commerce grew 10% year over year and accounted for 12.2% of sales up from 10.9% in the prior year and more than doubling as a percentage of sales over the last three years.
Fiscal 2020 revenues declined 1.8% driven by a smaller store base.
Gross savings were primarily driven by procurement Workforce optimization and lower corporate cost or cost savings efforts have achieved $185 million in a savings in the first two years of our paths to Brilliance transformation plan. We expect to continue to have a strong focus on cost savings and fiscal 2021. However, getting a certainty is around covid-19. We will not be providing a cost-savings outlook for your three of the transformation at this time higher operating profit together with improved working Capital Management resulted in free cash flow of $419 up three hundred million year-over-year on an adjusted basis, which excludes the non-prime credit app feeds in the prior-year.
Fiscal 2020, non-GAAP operating profit grew 16% to 5.2% with gross margin expansion and X gene a leverage delivering non-GAAP operating margin improvement of 80 basis points.
Operating profit performance was driven by transformation cost savings.
Lower stay off.
[noise] cost inclusive of close stores somewhat offset by slightly higher advertising and higher levels of clearance.
We delivered 100 million a net cost savings in fiscal 2020 with a portion of the gross savings reinvested in technology and innovation initiatives to drive growth.
Mellow discuss the actions we're taking to navigate the current environment and the unknown duration of the impact of covid-19. We are taking immediate actions to increase Financial flexibility through operating expense and capital expenditure reductions as Jenna mentioned. The board of directors has elected to suspend wage common dividend and pay the made quarterly dividend on the preference shares in kind with respect to operating expenses. We substantially reduced our marketing and while continuing targeted digital campaigns to support eCommerce operations as well as actively addressing all discretionary corporate spends are Executives and board of directors have taken voluntary reductions in compensation.
Gross savings were primarily driven by procurement workforce optimization and lower corporate costs.
Our cost savings the efforts have achieved 185 million in savings in the first two years of our path to brilliance transformation plan.
We expect to continue to have a strong focus on cost savings in fiscal 2021, however, given uncertainties around cobot 19.
We will not be providing a cost savings outlook for your three of the transformation at this time.
Higher operating profit together with improved working capital management resulted in free cash flow, a $419 million up 300 million year over year on an adjusted basis, which excludes the nonprime credit proceeds in the prior year.
Now I'll discuss the actions, we're taking to navigate the current environment and the unknown duration of the impact of covert 19.
half of the four
On base salary will be replaced with Equity grants.
We are taking immediate actions to increased financial flexibility through operating expense and capital expenditure reductions.
We are also implementing actions across tour and support center teams.
We have reduced planned Capital expenditures by more than 50% versus prior year and are prioritizing initiatives that continue to support our e-commerce Channel.
I Should've mentioned the board of directors has elected to suspend our common dividend and pay the made quarterly dividend on the preference shares in kind.
Additionally Inventory management remains a strategic priority for the company. We have developed strong Inventory management disciplines over the last year, which we believe will enable them to manage our inventory and a more agile way across channels. These capabilities include store allocation tools that were piloted in the fourth quarter last year leveraging a special intelligence for just-in-time loose diamond replenishment and lifecycle management. We've also embarked on a full review of our inventory related store policies back to the strong relationships. We have with our vendor Partners. We have significantly reduced merchandise receipts while maintaining flexibility to ensure appropriate level appropriate levels of newness wage to support holiday later this year.
With respect to operating expenses, we substantially reduced our marketing spend well continuing targeted digital campaigns to support E Commerce operations as well as an actively addressing all discretionary corporate spend.
Our executive and board of directors have taken voluntary reductions in compensation.
Half of the forgone base salary will be replaced with equity grants.
We are also implementing actions across store and support center teams.
We have reduced planned capital expenditures by more than 50% versus prior year and are prioritizing initiatives that continued to support our E Commerce channel.
Additionally, inventory management remains a strategic priority for the company, we have to be strong inventory management disciplines over the last year, which we believe will enable us to manage our inventory in a more agile way across channels.
With respect to our real estate portfolio, we expect to further reduce our store footprint as we continue to optimize our physical presence to a smaller higher growth potential store box that delivers a fully connected omni-channel Journey. We are reducing our presence and declining balls while planning to selectively reposition certain stores to office locations. However, due to the potential longer-term impact of covid-19. We will be closing we will be closely analyzing the health of every location in our Fleet off valuated where we believe the market potential has been impaired.
These capabilities include store allocation tool that were piloted in the fourth quarter last year, leveraging artificial intelligence for just in time loose diamonds replenishment.
And lifecycle management, we've also embarked on a full review of our inventory related store policies.
Thanks to the strong relationships, we have with our vendor partners, we have significantly reduce merchandise receipts, while maintaining flexibility to ensure appropriate level appropriate levels of newness to.
Turning to liquidity as previously announced we refinanced our credit facility in September of 2019 our debt now consists of an asset based on credit facility and Senior unsecured notes both of which are due in 2024. We have no scheduled principal payments under these facilities until they mature in 2024 in order to strengthen our financial flexibility. We access an additional $900 million on our asset-based facility on March 19th, as of the date of this drawdown. We had more than one point two billion dollars in cash on hand and an additional $292 million available on this facility.
To support holiday later this year.
With respect for real estate portfolio, we expect to further reduce our store footprint as we continue to optimize our physical presence to a smaller higher growth potential store base that delivers a fully connected omni channel journey.
We are reducing our presence in declining mall, well planning to selectively reposition certain stores.
To all small locations however, due to the potential longer term impact of covert 19, we will be closing we will be closely analyzing the health of every location in our fleet and evaluating where we believe the market potential has been impaired.
See asset-based revolving credit facility is subject to a fixed charge coverage ratio. If availability under the facility Falls below 10% of the borrowing base or a hundred million dollars, whichever is higher the most recently reported borrowing base under this facility is approximately one point four billion dollars Additionally, the senior unsecured notes due in 2024 are not subject to financial Covenants.
Turning to liquidity as previously announced we refinanced our credit facility in September of 2019.
Our debt now consists of an asset based credit facility and senior unsecured notes both of which are due in 2024, we have no scheduled principal payments under these facilities until they mature in 2024.
Now I would like to briefly discuss our non-prime credit offering.
In order to strengthen our financial flexibility, we access an additional 900 million on our asset base facility on March 19th.
In June of 2018 we entered into a five-year agreement under which carve all investors and Catholics would purchase 70% and 30% respectively of our non-prime receivables related to our private label credit offering these non-prime sales currently represent approximately 7% of Signet annual sales in the prior year.
As of the data this draw down we had more than $1.2 billion in cash on hand in an additional 292 million available honest facilities [noise].
See asset based revolving credit facility is subject to a fixed charge coverage ratio if availability under the facility falls below 10% of the borrowing base or $100 million whichever is higher but most recently reported borrowing base under this facility is approximately $1.4 billion.
As we disclosed and our December formed December form 10-q the yield on these receivables has fallen below the minimum yield under the agreement which gave the investors the right to terminate the agreement as of December 31st, 2019 as you will see in our 10-K filing off on March 23rd, 2020 Carvalho provided notice to the company that it was terminating the agreement effective the same day in the notice of termination Carville stated that it is willing to provide a 30-day purchase facility at substantially the same terms as the terminated agreement, but for a fixed term of 30 days from March 23rd, 2020 Signet is in discussions with Carville regarding such a transition agreement.
Additionally, the senior unsecured notes due in 2024 are not subject to financial covenants.
Now I would like to briefly discuss our nonprime credit offering.
In June of 2018, we entered into a five year agreement under which carve all investors and telco like LP would purchase 70% and 30% respectively of our Nonprime receivables related to our private label credit offerings.
These nonprime sales currently represent approximately 7% of Signet annual failed in the prior year.
As we disclosed in our December formed December form 10-Q, but net yield on these receivables has fallen below the minimum yield under the agreement, which gave the investors the right to terminate the agreement as of December 31st 2019.
Counseling has informed Cigna that subject to their reservation of right to terminate. They do not currently intend to terminate their agreement on March 25th, 2028 Castle Lake and Signet entered into a non-binding memorandum of understanding regarding the parties shared interest in a potential definitive agreement wage calculate would purchase one hundred percent of the funding obligations on the forward flow and add on purchases on a go-forward basis importantly our servicing pack arrangement with our partner Genesis Financial remains in place.
As you will see in our 10-K filing on March 20, Threerd 2020 car vol provided notice to the company, but it was terminating the agreement effective the same day.
In the notice of termination Carval stated that it is willing to provide a 30 day purchase facility as substantially the same terms as the terminated agreement, but for a fixed term of 30 days from March 20, Threerd 2020.
We believe that car Vols termination will not have a material in that material adverse impact on our signal Financial condition and will provide an update on our partner Arrangements when these discussions are completed.
Cygnus in discussions with carve already got such transactions transition agreement.
Yes, the Lake has informed signet that subject to their reservation of right to terminate they do not currently intend to terminate their agreement.
Finally, I'd like to mention that we will not be providing fiscal or first quarter 2021 guidance due to the current uncertainty in the market be assured me that our leadership team and team members and every level of our organization are resolutely focused on generating cash to maintain Financial flexibility in this fluid invite.
On March 20, 52020, Paso Lake and Signet entered into a non binding memorandum of understanding.
Regarding the parties shared interest in a potential definitive agreement whereby chalco Lakewood purchased 100% of the funding obligations on the forward flow and add on purchases I go forward basis.
And now I'll turn the call over to the operator to begin the Q&A section.
Importantly, our servicing arrangement with our partner Genesis financial remains in place.
Ladies and gentlemen at this time will begin the Q&A session to ask a question. You may press star and then 1:00 on a touch-tone telephone. You're using a speakerphone. We do ask you please pick up the handset to ensure the highest quality which are your questions. You may press star into once again that is star and then one to ask a question and our first question comes from Lorraine Hutchinson from Bank of America, please go ahead with your question. Thank you. Good morning. Thanks for the update on the the credit business name is 7% of your sales. Can you talk about the break out of the rest of the sales between prime and then also the other financing that the rent to own financing that you've offered off?
We believe that car evolves termination will not have a material enough material adverse impact on our signets financial condition and will provide an update on our partner arrangements. When these discussions are completed.
Finally, I'd like to mention that we will not be providing cisco or first quarter 2021 guidance due to the current uncertainty in the market.
Be assured that our leadership team and team members at every level of our organization, our resolutely focused on generating cash to maintain financial flexibility in this fluid environment.
And now I'll turn the call over to the operator to begin the Q in a section.
thanks for
Question of the rain. We haven't disclosed the the break out of those but what I can tell you is that the leasing aspect of our business is something that's been growing up the the past year and our customer has responded to that. One of the things that we are looking forward to doing is moving to offering that online at some point break the the coming year.
Ladies and gentlemen at this time will begin to you in a second.
You asked a question you me bar and then one on the touched on telephone you are using a speaker phone would you ask you. Please pick up the handset to ensure the best sound quality.
The majority of questions you May press star into once again that is star then one to ask your question.
[noise] in our first question today comes from Lorraine Hutchinson from Bank of America. Please go ahead with your question.
Okay, and then any help on how the terms will change now that Carvel stepping out in Castle Lake is taking over over the rest of the portfolio how we should be thinking about the discount that they're paying for the receivables on a go-forward basis Lorraine as I mentioned that we are in a process of negotiating that mou with we have a memorized memorandum of understanding with Catholic at this time, but we haven't disclosed the the MDR rate the age range went with car ball for the next 30 days is um substantially under the same terms of the existing agreement.
Thank you good morning.
Thanks for the update on the credit.
Business.
So nonprime is 7% of your sales can you talk about the breakout of the rest of the sales between Prime and then also the other financing the rent to own financing that you've offered.
Oh, Thanks for the question the rain, we haven't disclosed the the breakout of those but what I can tell you is that the leasing aspect of our business is something that's been growing over the past year and our customer has responded.
To that one of the things that we're looking forward to doing is moving to offering that online at some point in the coming year.
Okay, and then if we look at the prime offering have you heard it all from your partners there on any changes to their appetite to finance jewelry purchases?
Okay and then.
Any help on how the terms will change no the cargo stepping out encapsulate 'cause taking over the over the rest of the portfolio, how we should be thinking about the discount that they're paying for the receivables on a go forward basis.
not at this time our relationship and partnership with our other providers are you know are very strong and we look forward to working with them, you know throughout this crisis and into the you know, once we emerge
Lorraine as I mentioned that we are in profit the negotiating that m. argue with a we have a memorizing drought memorandum of understanding with Catholic at this time, but we haven't disclosed the MTR rate the arrangement with carve off for the next 30 days is substantially.
Thank you.
Once again, if you would like to ask a question, please press star and one our next question comes from Paul from Citigroup, please go ahead with your question. Thanks. It's Tracy kogen's filling in for calling. I had two questions. The first is on the mall versus non small stores. I was wondering what the performance was this past quarter between those different groups of stores. If you could just remind us that your end where you stood with, you know, after your closings where you stood with Maul versus non mall and then just on on the castle Lake some agreement. Do you expect the wage customer will just be seamless to the customer. I know you had some issues before rolling out the new when you had new the new deals. I just wanted to check understand what if the customer was the only difference. Thanks for the questions Tracy be with respect to the service provider as I mentioned birth.
Under the same terms of the existing agreements.
Okay and then.
If we look at the prime offering have you heard at all from your partners there on any changes to their appetite to finance jewelry purchases.
Got it right not at this time our relationship in partnership with our other providers are you know very strong and we look forward to working with them.
No I'm throughout the crisis and into the once we emerge.
Thank you.
Once again he would like the ask your question Please press star and one.
Our next question comes from Paul would use from Citigroup. Please go ahead with your question.
Is continuing and we have a very strong relationship with them. We expect to this transition to be um with little to no disruption and Thursday customers, you know should not experience any any real noticeable change and then hi Tracy, it's Jenna just to address your first question on Mal versus non mall. So as we've discussed in previous calls, we continue to see stronger performance in our off mall location versus malls. We did see in the fourth quarter off our signal banners continued to perform and drive traffic ahead of other retailers Based on shoppertrak data. So we believe are always on marketing approach is working to drive a higher level of traffic but still a traffic decline in malls and less traffic there than on laws the good news in the holiday season was that thanks to God.
Thanks.
In filling in for Paul and I had two questions. The first he's on the mall versus non mall stores I was wondering what the performance wise <unk> quarter between a different story and then if you could just remind us at year end, where are you married with you. After your closings, where you goodwill mall versus non mall and then.
On the castle like agreement.
The summer.
Even with the customer I know you've had some issues before rolling out a then you when you had <unk>.
The new deals I, just wanted to understand what the customer with beyond <unk>.
Yeah. Thanks for the questions Tracy they with respect to the service provider as I mentioned Genesis is continuing and we have a very strong relationship with them. We expect to this transition to be.
are terrific
Team and also having great merchandise on hand. We had much stronger closure. And so therefore we saw transactions up in both mall and off my locations off and then what was the split between mall and all small.
With little to no disruption and our customers.
You know should not experience any any real noticeable change.
And then I Tracy its Janice just to address your first question on mall versus non mall. So I'm as Weve discussed in previous calls we continue to see stronger performance in our off mall location versus small we did see in the fourth quarter that our signet banners continued to perform.
Well, if you think about K as an example, you know K has roughly two hundred ninety, you know a small there's a different there's a difference, you know, break out of fall small Tracy, but when you think about it, there's like 500 off Mall between Outlet hotone out of 1,200 stores, which is the largest cake largest composition of a small in the fleet other than Jared of course, which is Lillian off mall location, right? Thanks.
And drive traffic ahead of other retailers on based on shopper track data. So we believe are always on marketing approach is working to drives a higher level of traffic, but still a traffic decline in malls and less traffic there than on mall. The good news in the holiday season was that thinks too.
Two.
Our terrific team and also having great merchandise on hand, we had much stronger closure and so therefore, we saw transactions up a in both mall and off mall locations.
And our next question comes from like from Wells Fargo, please go ahead with your question. Hey, good morning everyone. My first question is I know there's no guide but maybe just need a level of Jennifer Jim. Could you talk about the e-commerce performance that you're seeing? I'm just kind of curious how he calms holding up, you know during a time when we know that you know stores are generally closed off across the country just directionally, how how how how we should think about that channel, you know, is there growth is it slowing down? Is it accelerating just again any color would be kind of helpful?
No what would like between mall it off mall at yearend.
Well, if you think about K. as an example, you're OK has roughly 290.
You know off mall, there's a difference.
There's a different no break out a fall small tracy, but when you think about it theres like 500 off mall between outlet hometown, Yeah out of 1200 stores, which is the largest canthal largest composition of off mall in the fleet.
Sure. Hi. Thanks for calling in today. You know, we've we've seen continued growth in our own business. If I just kind of go back to the fourth quarter for a minute. We were up 15% and we've been steadily growing our share of sales in econ. So now up to almost 14% of sales and you'll remember just even a few years ago. It was only around 5% So we've been continuing to add to that customer experience. What we're doing now is really, you know, trying to bring the best of our stores to that office environments. So I mentioned in my script some of the new tools that were putting for virtual selling and just you know, as a great example of as Jared ramp that up this week the first couple of hours we had 37 customers served by 5 jewelry consultants in different parts of the country working from home and the report was really good. So we think well
Other than chair at of course, which is wholly an off mall locations.
Great. Thanks.
Sure.
And our next question come from.
Brutal from Wells Fargo. Please go ahead with your question.
Hey, good morning, everyone I'm, referring of course is Oh, no. There's no doubt, but maybe just a little high level all Jennifer Jim could you talk about the ecommerce performance would be machine I'm, just kind of curious on holding all during a time, where we know that yes stores are generally closed.
Just directionally, how should we should think about that channel.
Broken slowing down to get accelerating.
Hello.
<unk>.
Sure Hi, Ike.
Thanks for calling in today.
You know we've we've seen continued growth in our E com business. If I just kind of go back to the fourth quarter for a minute, we were up 15% and we've been steadily growing our share of sales and E. Com. So now up to almost 14% of sales in the old remember just even a few years ago. It was only around 5% so.
We'll have new tools coming online. That will be helpful. We're also making sure we have great value online right now. So so we're we're seeing some strength in our e-commerce business at this time, but I think you know the jury's out, of course on on where all this will head. But we're we're prepared based on everything we've been doing over the last couple of years and introduce new capabilities as we go
We've been continuing to add to that customer experience. What we're doing now is really you're trying to bring the best of our stores to that E commerce environment.
Got it for Joan. I'm just curious in the balance sheet. When I'm looking at the ending balance. Super keep your accrued expenses jumped up by about a million. Can you just talk to us about what's going on there? It just seems a little odd relative to the the prior years of of how that line out of would move just in that accrued expense line. What exactly is kind of going on right now wage?
So I mentioned in my script some of the new tools that were putting for virtual settling and just you know it's a great example of as Jared ramped that up this week in the first couple of hours. We had 37 customers served by five jewelry consultants in different parts of the country working from home and the right.
It was really good. So we think we'll we'll have new tools coming online that will be helpful. Oh, We're also making sure we have great value online right now so so weird, we're seeing some strength in our E. Com business at this time, but I think you know the jury's out of course on on where all this will have no.
well, I
I can you know work through the detail of that but you know generally speaking, you know as we look at, you know that the timing and and just the close of the year and it's really nice about the timing of you know, specific payments at the end of the year and where the year cutoff.
Okay, and then my last one again for you, John correct me if I'm wrong, but I think you guys have a 2 and 1/2 * leopard debt Covenant debt-to-ebitda wage retail is going to remain under you know, heavy pressure for a prolonged period of time. I know you guys don't know we don't know nobody knows but if that's going to take place it looks like you guys might end up tripping that and I guess I'm just trying to understand. How were you thinking about that possibility? What is that? Exactly mean? Just just how does how do we think about how do you think about potential trip to the back cover on the balance sheet, as I mentioned in my remarks are you know credit facility is subject to a fixed coverage ratio, if the availability under the facility Falls below the 10% of the borrower save or the hundred million dollars whichever is higher. So and the unsecured notes are not subject to financial covenants. So, you know at this point, you know, we
But where we are prepared I based on everything we've been doing over the last couple of years and introducing new capabilities as we go.
Got it.
Rigzone.
He was from a balance sheet when I'm looking at and beyond me no balance sheet for Q4, you included spunky jumped up about 200 million you just talked about what's going on marriage seems a little all rolled into that it probably is but long I'd would movies.
Got it sounds like what exactly is kind of going on right now.
Well I can you know worked through the detail of that but generally speaking you know as we look at you know the timing and the end just the close of the yearend, it's really about timing or if you know specific payments at the end of year unworthy your cut off.
[noise], Okay, and then my last one again for you John.
And if I'm wrong, but you guys hobby acuity.
See, we're not in in that in that position. So it it it fixed coverage ratio only applies if the facility Falls below 10% off.
Oh lover debt covenant debt to EBITDA up if we feel is going to remain number you know heavy plus you for a prolonged the polymer I know you guys got no.
But if that's going to take place.
Okay. Thank you very much.
It looks like you guys might be probably not going I guess im just trying to understand how are you thinking about that possibility what does that exact we need to just how do you. How do we think about one gigabit central picky debt covenant on the balance sheet.
Ladies and gentlemen at this time and showing no additional questions. I'd like to turn the conference call back over to Mistresses for any closing remarks. Well, thank you, Jamie and thank you again to push everyone for joining our call this morning again on behalf of our whole team here at Cygnet our our hearts and prayers are with all those who are impacted by this covid-19 pandemic and especially our investor base many of you in in New York, which you know is a tough time right now. So we appreciate you calling in today and and being part of this month, you know with us take care of him when and stay safe.
Yeah as I mentioned in my remarks are you know credit facility is subject to a fixed coverage ratio if the availability under the facility falls below the 10% if the borrowing base or the $100 million whichever is higher so and that the unsecured notes are not subject to finance.
No covenants.
So you know at this point you know we.
We're not in that in that position. So it it the fixed coverage ratio only applies of the facility falls below time for fun.
Ladies and gentlemen that does conclude today's conference call we do. Thank you for joining today's presentation. You may now disconnect your line.
Okay. Thank you very much.
aquamarine
And ladies and gentlemen at this time and showing no additional questions I'd like to turn the conference call back over to Mr. says for any closing remarks.
Well, thank you Jamie and thank you again to everyone for joining our call. This morning again on behalf of our whole team here at Signet, our hearts and prayers are with all those who are impacted by this covert 19 pandemic and especially our investor base. Many of you in New York.
Which you know it's a tough time right now so we appreciate you calling in today and ER and being part of this you know with us take care, everyone and stay safe.
Ladies and gentlemen that does conclude todays conference call. We do thanks for joining today's presentation. You may now disconnect your lines.
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