Q4 2021 Signet Jewelers Ltd Earnings Call

And good morning, everyone. Thank you for joining today's Signet jewelers fourth quarter of fiscal 'twenty 'twenty, One and earnings conference call. The call will begin momentarily. Once again, we do thank you for joining today's conference.

It will begin shortly thank you.

[music].

Good morning, everyone and welcome to the Signet Jewelers fourth quarter of fiscal 2020 one earnings call.

All participants will be in a listen only mode should you need assistance. Please see low conference specialist by pressing the star key followed by zero.

After todays presentation, there will be and opportunity to ask questions to ask a question you May press star and one to withdraw your question you May press Star and two.

Please also note today's event is being recorded.

At this time I'd like to turn the conference call over to Vinnie Sinisi SVP of Investor Relations and Treasury. Sir. Please go ahead.

Thanks, very much Jamie and good morning, everyone and welcome to our fourth quarter earnings Conference call on the call today are Signet CEO Jin of Joseph and CFO, Joan Hilson. During today's presentation, we'll 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 we urge you to read the risk.

Factors cautionary language other disclosures on our annual report on 10-K quarterly reports on 10-Q and current reports on form 8-K, except as required by law. We undertake no obligation to revise or publicly update forward looking statements in light of new information or future of events. During the call, we'll discuss certain non-GAAP financial measures for further discussion of.

Of the non-GAAP financial measures as well as reconciliations of non-GAAP to GAAP. That's most directly comparable investors should review of the news release, we posted on our website at Www Dot Signet jewelers dot com slash of investors.

Also please note that we plan to hold of virtual Investor event on April 12th registration details will be announced soon and with that I'll turn the call over at student Jenna.

Thank you Denise and thank you all for joining us today.

Let me begin by sharing our results for the fourth quarter, and then core elements of our strategic path going forward.

I want to say first and foremost how incredibly proud I am of our signet team and.

And just think of them not only for their achievements. This past year, but also for the amazing dedication and agility they've demonstrated throughout our three year path to brilliance journey.

We've put our culture of agility and efficiency to the test time, and again and Signet people have demonstrated that we're continuing to transform this company and are well positioned to deliver sustainable long term gross.

Q4 is a good illustration of the capabilities, we're continuing to build it.

Store sales grew 7% with over 70% growth in E. Commerce sales, we delivered non-GAAP operating income of more than $293 million up nearly 9% versus year ago.

While COVID-19 created significant headwinds and the first half we regained momentum and delivered a strong second half with 9.9% same store sales gross.

Both of our bridal and fashion businesses continued to be healthy and our strong e-commerce performance complement at the reopening of our stores.

Our ability to pivot successfully through the pandemic and to deliver at the back half performance that our team delivered this rewarding.

Especially as I look back at what we've achieved in the past three years and.

And 2016 and 17, the company was losing share to smaller specialty jewelry stores and two non specialty retailers and to online and pure play digital retailers and the industry was changing fast and customer expectations for quality service value at.

And personal engagement, we're constantly increasing and especially big change with how quickly people, we're growing comfortable with e-commerce and digital technology in the jewelry category trend.

Trends that accelerated dramatically and it does.

This past year at.

As we launched path to brilliance, we committed to make clear strategic choices and cultural changes that would build a strong foundation, enabling us to pivot to growth.

When I look back over the last three years and compare it to where we are today I see three very significant differences.

First our culture is stronger and we're more agile more innovative more efficient and truly unified behind and inspiring purpose.

Second we are much more data driven today than we were then with deeper insight that enables us to create highly personalized customer experiences and move with greater speed and precision.

And third we have a broader and stronger set of core strength that create sustainable and growable competitive advantages.

Each of these differences as reflected in the results achieved over the first three years of our transformation, we eliminated $300 million and expenses benefiting gross margin and SG&A above our initial goal of $200 million to $225 million we re.

<unk>, our store footprint by more than 20%.

Decreasing our exposure to low performing malls and achieving higher than expected sales transference and our new connected commerce model.

Meanwhile, we grew our e-commerce sales to 23% penetration of <unk>.

Above our initial goal of 15% and more than four times, the ecommerce penetration that existed before we started path to brilliance.

This transformation has been fueled by our strategic choices customer first omnichannel and culture of agility and efficiency antibody. The investments, we made behind those priorities and technology productivity and culture.

To best understand why we're now capable of delivering sustainable long term gross and why the next phase of our strategy is right. It's important to look at what these investments have delivered over the past three years.

I'll start with the significant and strategic investments, we've made and technology, we placed a huge priority on data analytics with a deep commitment to become a more data driven company, we developed and hire top talent. We started building the tech infrastructure required for of digitally enabled business and we.

We acquired James Allen, which strengthened our digital and e-commerce capabilities substantially.

This emphasis on data analytics and digital technology has impacted nearly every aspect of our business.

For example, we now have a much more granular understanding of customer behavior across banners and at every customer touch point and increasingly in real time.

We reduced our inventory by nearly 11% over the past three years by implementing inventory disciplines, and lifecycle management and new technology tools generating meaningful increases in cash flow and improving working capital efficiency all of this while our merchants.

<unk> strengthened our core assortment and new product pipeline.

We've moved our banner websites onto a unified platform, enabling a much more seamless customer experience, that's improving conversion and increasing transaction values. This gives us the ability to innovate and to add new functionality much faster.

And we've dramatically improved the effectiveness and efficiency of our marketing mix. This is a particularly important point. So I'll share just one brief example, kay.

Kay Jewelers, the largest advertiser among our banners has cut its TV spend in half over the past three years, while more than doubling digital marketing. This change and mix has been data driven and we know with of precision we didn't have three years ago, which.

Media provide the best incremental return to make media spend more efficient.

At this capability combined with our scale is a meaningful competitive advantage, we've shifted significantly toward digital which enables customized communication, but we're still able to command a leading television presence and the jewelry industry at the same time, which builds awareness and brand equity.

Very effective combination.

These examples illustrate what I'm most encouraged about and we're just getting started and we're continuing to invest and both technology and talent and our business is becoming more customer focused and data driven quarter by quarter holiday by holiday.

The second area of focus was improving productivity, which is now and ongoing priority across our business. In fact productivity is becoming a mindset that guides, how we innovate and execute and everything we do I'll give you a few quick examples first costs, we've cut more than three <unk>.

Millions of dollars and operating costs that customers don't care about over the past three years and we'd reinvest at a meaningful portion of those savings into gross focused areas that customers do care about the technology. Examples I just shared are of good illustration.

We were able to make these highly strategic investments because we improved our cost structure and created new flexibility to invest.

Second cash our diligent focus on cash conservation has enabled us to pay down more than $1.3 billion and debt, which included the full pay down of our revolver. As a result, we're ending the year in a position of strong liquidity with $1.2 billion and cash.

And third stores, we made significant progress optimizing our store footprint, while we've closed more than a fifth of our locations over the past three years. We've also opened and reposition stores and the right trade areas and in line with our portfolio banner strategy as a result.

And we've dramatically reduced our exposure to lower traffic malls and increased our off mall footprint.

We've also been improving the customer experience integrating digital and physical not as an isolated channel play, but it's part of a tightly integrated data driven omni channel approach, we're already seeing the early benefits of these moves we achieved higher total revenue.

And the second half of fiscal 2021.

At 4.4%, despite 395 permanent store closures and we've delivered brick and mortar same store sales growth and North America for two quarters in a row.

I'd also like to highlight the improvements we've made and our culture.

At this company attracts passionate and skilled experienced talent at every position that the challenge we faced three years ago was to unleash all of the potential our people had within them and the culture had become too siloed transactional and risk averse.

We've worked hard to create conditions for a new culture to flourish.

Culture characterized by freedom to try new things to take risks fail fast and learn to move with speed and agility and to be empowered to cut costs relentlessly if they don't benefit customers.

We've also invested in our people with moves such as our commitment to a $15 minimum wage for all U S employees and our deployment of love takes care of appreciation bonus awards for full and part time employees of gesture of our gratitude for their commitment in the face of and.

Precedented challenges.

People are thriving in this more invigorate and culture, we see at and our performance, but we also see at and employee comments.

And a recent internal survey for example, more than 90% of employees expressed understanding of our business strategy and more than 80% said they are proud to work at Signet and believe signet will emerge stronger from the pandemic four.

For three years in a row Signet has been the only specialty jewel of recognized on Bloomberg's gender equality index and just this year based on employee input Signet was recognized as a certified great place to work company.

Our priorities and investments in technology productivity and culture were foundational Signet has a much stronger company today than it was three years ago strategically financially and organizationally and as a result, we're better positioned to lead our industry and.

Deliver consistent long term growth.

Which the next phase of our growth strategy inspiring brilliant is designed to achieve.

So, let's turn now to the road ahead.

Our overarching objective is to lead innovation that helps grow the jewelry industry, while also increasing our share of the market in other words to make the pie bigger and get a bigger slice of the pie to do this we're making clearer choices about where to play and how to win.

Let me start with our where to play strategies.

First we will win in our biggest businesses, we have the leading retail jewelry brands and their respective markets Kay jewelers and the U S. H Samuel in the UK and peoples in Canada, our bridal gifting and self purchase businesses are strong and growing will continue.

To win in these big core businesses with even sharper focus on data driven marketing prove and levels of newness and strengthened core assortment and will continue the work we've done to align our banners with the customers they serve best.

Second, we'll accelerate services, making at the glue that builds and lifetime bonds with our customers.

We will expand and improve existing services, such as care repair and extended service agreements.

Deepen relationships with new piercing and financial services and to build on our fast growing marketplaces in ways that create even more opportunities to serve customers such as access to new jewelry designers rental services and subscription offerings.

Third, we'll expand accessible luxury and value our scaled position in the mid tier jewelry market gives us the opportunity to stretch their traditional definition of the top of the mid market with greater focus on accessible luxury.

And stretched the bottom with greater focus on value. These moves will help us gain share from independents mass market retailers and online retailers.

And fourth we're committed to lead digital commerce, and jewelry will serve our customers to ensure we're there whenever wherever and however, they want to engage us this means increasing the percentage of our business coming through E Commerce and.

And increasing our share of jewelry e-commerce purchases and increasing our presence and social commerce with bespoke experiences and Influencers and we're confident and these strategic where to play choices. They leverage our scale play to our strength and are difficult for competitors to match.

Given the journey, we've been on we're also confident and the evolution of our three how to win capabilities from foundational to inspirational.

From customer first to consumer inspired from omni channel to connected commerce and the continued enhancement of our culture to one of innovation and agility.

Let's look first at cost at consumer inspired when we began the path to brilliance journey, we focused on strengthening our relationships with existing customers now we're growing our customer base with consumer inspired insights and innovation. This is leading to stronger differentiation among our banners.

In fact with more of a spoke product portfolios and personalized marketing Kay and zales delivered their strongest fourth quarter combined same store sales growth since the zale acquisition.

Sure. It's foundry concept is a good example, we looked at converging trends the growing demand for personalization and customization technologies like three D printing that opened up new design and production possibilities and the desire of many customers to enjoy at luxury experiences.

That were previously unaffordable too many mid market customers.

Foundry concept emerged from our insights on these trends we are leveraging our existing network of 1400 skilled jewelry artisans and apprentices.

Leveraging our scale to access metals of diamonds, and stones, and leveraging CAD and three D printing design technologies in our stores and virtually to create and immersive experience.

Customers are bringing unique and creative visions and literally co creating jewelry, they've imagined hand in hand with our skilled artisans.

We're expanding this concept to more than 50, Jared stores and online it's a highly differentiated offering that capitalizes on our mix of personalized services and scale.

Next is connected commerce, we've been introducing new technology tools, such as conversational messaging enhance text search virtual try on and virtual consulting for some time in fact, we added hundreds of new search browse and checkout features in the second half of the fiscal year.

But what's different now and going forward is how we're connecting them to create a seamless customer experience across technologies and touch points and.

The way, we've integrated virtual try on into a more holistic experience is of great illustration of connected commerce at work.

Customers use visual search to find a fantastic ring from sales of K or Jared on Instagram Pinterest.

They upload of photo and use virtual try on to see how the ring looks on their unique skin tone and finger size from there. They easily book an appointment in store or with one of our more than 700 virtual consultants and when they're ready and they can buy in store.

Or buy online and pick up and store or shipped directly to their homes.

Our connected commerce technology enhances the customer experience celebrates cuts customer diversity unlocks our inventory nationally and helps drive sales and higher spend while also reducing returns and in fact this connected approach I just described using visual search try.

And virtual appointments and messaging is gaining traction and increasing conversion accounting for more than $125 million and revenue and the back half.

We're testing these connected tools on a wide range of S. K use right now and expect to roll them out more broadly across banners. This spring.

The last how to win strength I want to touch on is culture of innovation and agility, we're creating a culture that is powered by our purpose inspiring love and that thrives on innovation and agility.

Building on the lightning fast ways, we've made decisions during COVID-19, we're looking to unlock faster paced iterative learning to empower agile work teams and to bring design thinking approaches to problem solving.

We're working hard to turn of innovation diversity speed and transformational productivity into signature characteristics of our culture.

We saw these characteristics grow during the past year, and especially flourish and the fourth quarter. The 2020 holiday was a proof point. It was a data driven holiday fueled by innovation and supported by precise execution on all fronts.

For example, we reinvented, how we plan labor and our stores using real time data analytics to model every store hour by hour every day of the holiday season, we were able to predict which stores had the greatest potential to drive sales by staying open later and which could.

Be closed earlier to maximize the return on our store labor investments.

We scheduled appointments before and after hours and use curbside selling and pick up to accommodate various customer needs, including health requirements.

And our new concierge capability maximize the efficiency of store workflow kept customer wait times down and enabled faster of buy online pickup and store services.

And we equipped our jewelry consultants with client selling tools and technology that they can now use no matter, where they are at home in a store or elsewhere, creating zero distance between them and their best customers.

We reduced customer care of volume with an online order tracking tool that freed up our care teams to focus on customers, who are ready to buy which more than doubled phone and chat assisted sales.

And finally on peak days, we used every bit of the five fold increase and ecommerce distribution capability. We built between April and October resulting in over 90%, 98% of E. Com orders fulfilled on time as promised.

This is to illustrate that in every part of the company, we were ready with capabilities and distribution that did not exist three years ago is how our team delivered a strong holiday and back half in the face of unprecedented challenges.

And I hope you can see is the tight interdependence of these strength.

When we discover insights inspired by consumers.

Turn those insights into seamless experiences through connected commerce and win with customers through a culture of innovation and agility, we develop competitive advantages that enable sustainable long term gross.

With these strategic choices, we are committing ourselves to be an innovation leader of the jewelry category, which is a vision that inspires the very best and us.

I'll close on this point.

Signet exists to inspire love.

And our jewelry products and services are designed to help people celebrate life and express their love.

The power of Love is not an abstraction, it's the heart of our business.

At infuses, our work with meaning and purpose, it's a standard of responsibility and and enormous motivator of performance you see every time, we help someone express their love, we make the world a little better.

Every time, we stand up for of Love, we make ourselves and those we love a little stronger and every time the love, we inspire inspires love and others, we fulfill our purpose as a company.

This is what inspiring brilliant means to us.

We want to be and to lead the change that we want to see and our industry and and the world Our path to brilliance journey has been and invigorating experience for all of US and we are not letting up now is our moment to lean in and to keep accelerating the work we've begun.

It's a threshold moment as we take signet from stable.

Growing to great.

I'll now hand over to Joan and then we'll be happy to take your questions.

Thank you Gena Hello, everyone, we delivered a strong quarter and end to our fiscal year.

By continuing to execute on two fronts first we drove the top line using enhanced omni channel capabilities that allowed us to serve our customers.

And their terms teamed with strengthened product assortment.

Second we continued to drive operational efficiency in the form of expense control and inventory management.

These disciplines allowed us to end the year and a position of financial strength.

With $1.2 billion in cash and we're prepared to fuel the next phase of our strategy for long term sustainable growth.

Fourth quarter total sales grew one 5% over last year and same store sales grew 7%.

E Commerce sales grew more than 70% of last year north.

North America delivered 10.4% same store sales growth driven by continued strength and both bridal and fashion categories.

North America E Commerce sales grew 66%.

International same store sales declined 28, 3%.

Which had a three percentage point negative impact to signet and same store sales for the quarter.

Our UK stores were closed for most of the quarter as a result of governmental lockdowns.

That said our international team delivered strong, 150% e-commerce growth, reflecting our omni channel focus.

Before we continue down the P&L I'd like to provide of real estate update as continued optimization of our physical footprint remains a core priority and complementary to our digital footprint.

We permanently closed 395 stores. This year, we also repositioned thirty-three traditional malls into new off mall locations and use of our Greenfield analysis has provided at our team with data driven insights and a deeper knowledge of how to best optimize the fifth.

<unk> and digital platforms and a given trade area.

In addition to our store closures, we identified opportunities for new stores, leading to the opening of 20 piercing pagoda stores in fiscal 'twenty, one moving forward, we plan to close over 100 stores in fiscal 'twenty, two as well as opened up too.

100 locations, primarily and highly efficient piercing pagoda kiosks.

We continue our testing of a variety of formats, such as Kay Zale, and Jared James Allen and combination stores as well as pop up stores.

And to continue along the P&L, we delivered gross margin this quarter of approximately $870 million or 39, 8% of sales.

This is 210 basis points below last year, excluding restructuring charges due to a combination of strategic promotion relating to inventory optimization and reduced levels of service revenue related to lower store traffic.

SG&A was approximately $574 million down about $60 million to last year.

Driving a 320 basis point rate improvement the improvement was driven by structural cost savings and reduced labor levels.

Non-GAAP operating profit was $293.8 million up over $23 million to last year, and excludes $1 $9 million and asset impairment and restructuring charges related to the path to brilliance transformation plan.

Fourth quarter, non-GAAP, EPS was $4.15 up from $3.67 and the prior year.

Turning now to the balance sheet, we continue to focus on inventory lifecycle management and strategic clearance efforts all of which contributed to a nearly 300 million dollar reduction in our inventory to this time last year.

The flexible fulfillment capabilities that we have in place are helping to minimize stranded inventory and to drive a higher fulfillment rate on customer orders.

Our focus on cash conservation and expense control has been a clear priority for US you will remember that we also extended our payment terms with vendors and negotiated rent deferrals with landlords.

These efforts and combination with our sales performance are largely what contributed to our strong ending cash balance of approximately $1.2 billion.

And this quarter, we paid down the remaining balance of our revolver as well as paid off of 100 million dollar filer of that.

Okay.

Turning to cost savings, having now reached the three year Mark of our path to brilliance transformation, we eliminate at $300 million of cumulative cost well above the goal. We initially set three years ago.

These efforts were largely derived from efficiencies and labor store operating and inventory related costs and direct sourcing.

Turning to financial services recall that we had been originating accounts since the second quarter and we ended this fiscal year with $72 million of receivables on our balance sheet net of allowances.

Those accounts are performing better than expected in January of 2021.

We signed an agreement with investors and which they will now by newly originated subprime accounts through June of this year. We are currently evaluating available options to determine the most effective way to structure, our providers and services to best meet the needs of our customers.

Now I'd like to discuss our fiscal 2022 financial guidance.

We expect stronger sales performance and the first half of the fiscal year.

As the vaccine rollout progresses, there could be a shift of consumer discretionary spending away from the jewelry category toward experienced oriented categories, the magnitude and timing of which is difficult to predict.

Further we expect categories with pent up demand to be promotional in order to capture of discretionary spend.

As such we're planning for increased marketing expenses to continue to fuel momentum in the front half as well as proactively manage against changes in consumer spending as the year of progressive.

While our transformational initiatives continue to gain traction we're conservatively planning for same store sales to be negative and the second half of the fiscal year.

We have targeted further cost savings this year expected to benefit both SG&A and gross margin in the range of 50 millions of $75 million.

To help mitigate increased levels of investment with a cost savings goal of $175 million to $200 million over the next three years.

Yes.

We will continue executing on our strategic strategic priorities, which we see contributing to an accelerated first quarter and that includes total sales in the range of $1.42 billion to $1.46 billion.

And non-GAAP EBIT of $40 million to $60 million.

Our preliminary Q1 same store sales through March 14th were up approximately 16% and we expect first quarter same store sales.

To be and the range of 80% to 84% as we anniversary temporary store closings from last year.

For the fiscal year, we expect total sales to be and the range of four $5.85 billion to $6 billion with same store sales and the range of 14% to 17% and non-GAAP EBIT of $290 million to $324 million.

You'll recall that we cut capital expenditures to $83 million. This past year to focus on cash conservation in response to the pandemic for FY 'twenty two capital expenditures are planned to be $150 million to $175 million with a focus on digital.

And <unk> and technology investments.

To further strengthen our competitive advantage and long term positioning.

And we've also made the strategic decision to target a debt leverage ratio of below three times EBITDAR overtime.

Our long term capital priorities remain to invest and the business.

Pay down debt and return capital to our shareholders.

A large amount of uncertainty still exists and we'll continue managing the factors under our control as well as anticipating and reacting to changes and consumer behavior as the year of progressive depend.

Depending on the timing and extent of potential changes and spending future results could differ materially from current guidance.

Before we open the call for Q&A I'd like to take a moment to recognize our signet team.

There has been a cultural shift and our company over the past three years as a result of our team members' commitment to our transformation strategy and our purpose.

We have momentum and we're excited to enter this next phase of our growth strategy.

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

Okay.

Ladies and gentlemen at this time, we'll begin the question and answer session. Once again to ask a question you May Press Star and then one using of Touchtone telephone to withdraw. Your question you May press star and two.

If you are using a speakerphone and we do ask that you. Please pick up the handset before pressing the keys to ensure the best sound quality.

Once again that at Star and then one to join the question queue.

Our first question today comes from all of the juice from Citigroup. Please go ahead with your question.

Okay.

North America, and transactions up 10% and periods, where you could talk a little bit about low double.

Look like E comm versus stores also curious how big.

And pickup and store was for the quarter end end year, and whatever you might be able to share there and then.

Just curious to hear more about the marketplace business that he spoke about where are you now with that initiative and how do you see that evolving over the next year or so.

Okay.

So.

I'll start Paul on some of our Metro questions that you had or e-commerce.

Performance you know as we talked about traffic was up our conversion was of our ATV was was strong as well online. When you look overall at the stores what we saw on the lower traffic. Our conversion was also very strong and we were able to drive transactions. So.

Overall, we feel very good about the team's response two of the quarter that we went through in terms of capacities constraints, the uncertainty and the agility that the team really demonstrated with respect of.

Flexible fulfillment and you'll ship from store opportunities that really helped to mitigate those capacity constraints.

And Paul highest Jana I'll jump in on your buy online pickup and store and marketplace questions.

You know, we only got buy online pickup and store really running in the fourth quarter and so it's a nascent capability for us, but our team executed brilliantly.

And we had very high customer satisfaction very high online on time fulfillment in fact, 86% of the orders were picked up and stores within three hours of receiving the order in the month of December. So our teams are really all over you know of bringing that new capability to life and one of the interesting.

Customer dynamics as we typically see a customer who we call. The late inspiration seeker and typically male who buys late in the holiday season.

He was and over user of the buy online pickup and store technology, we had more than 6000 items.

Picked up and our store in the last couple of days before Christmas and primarily men and so it's you know, it's really proving out I think to be of strong technology for us and the other one on flexible fulfillment and I'll just mention of ship from store. So we had turned on capability to be able to ship directly to customers from our.

Stores and zale's pre holiday, we're now turning that on across our other banners and that's a real inventory opportunity for us at unlocks stranded our clearance inventory as an example of cross our store network and also allows us to.

And to have a very broad ecommerce offering for our customers. So flexible fulfillment is benefiting us and a couple of ways in terms of market place. You know we have a very successful marketplace and our business already with James Allen Dot Com. We also have stood up a.

And more of a wholesale kind of of marketplace to serve independent jewelers.

Leveraging our scale in diamond and buying and that is a very early but proving to be a good new business for us and then we believe that with our scale, we have the opportunity to bring.

And bring some new capabilities to life. You know these are these are not yet ready to do more and more dreams than you know anything, but where we're looking into customers' desire for rental jewelry for subscription jewelry.

Customers desire to access new designers that they might not be able to find anywhere else and for example on sales we've already begun a process of discovering these new designers, who don't have the scale to be in store, but we can help them with our vendor relationships to develop there.

Our product lines and then they can start out in in our website, you know, perhaps and a more marketplace you know oriented environment. So we think there's some real upside for us over the next couple of years as we begin to flush out those ideas and bring those capabilities to life.

Got it. Thank you good luck.

And our next question comes from Lorraine Hutchinson from Bank of America. Please go ahead with your question.

Thanks, Good morning, and.

To ask a question about the long term margin opportunities it looks like the guidance Hong called out to around a 5% operating margin.

And we get here is this a good level that we should use as a day upon which you'll and book to grow market share or do you see any other big levers you can pull to move what margin number higher.

Thanks for the question the range and you know as you noted our guidance range and pencils out at 5% of five 4%, which I'd note on the higher end is an improvement to our fiscal 'twenty at that said and long term growth remains a focus and our strategic of.

And then continued investments always consider sustainable long term share and share gains and long term long term sustainable growth and share gains and assuming a way to think about this is assuming of near flat.

Slightly positive topline growth, we can gradually and over time expand our margins you know largely due to our continued optimization efforts, particularly with our fleet as well as other cost efforts that we consider within our cost savings program.

Thank you and then can you just give me a few more comments on the fourth quarter gross margin decline and what your outlook is for the first half of the year on that line item.

Well, we'd really don't give specific guidance on our gross margin in terms of the outlook for this year, but I would just reference you again back to the operating margin.

And <unk>.

And that we just spoke about a range, but in the fourth quarter that we had strategic promotion as I mentioned and we had very strong.

And you know sell down activities and lifecycle activities that were strategic support at our your.

Selling strategies and the inventory.

Management that we believe has been a very large piece of our strong cash flow position. So we will continue to the efforts that with that Jim just mentioned with respect of flexible fulfillment ship from store minimizing stranded inventory, we're rolling that out in the first quarter.

End of first quarter here for.

Kay and Jared that'll also no really help with our margin and our merchandise margin and so we remain diligent very focused on turning our inventories faster and leveraging the new tools that we've put in place.

Thank you.

And our next question comes from Ike.

<unk> from Wells Fargo. Please go ahead with your question.

Good morning. This is will on for Ike.

Hey can you guys just talk about a little bit about the payables. It looks like it's it was you know.

It was a it was a big.

It would help your free cash flow.

Cash flow from operations. This year can you just talk a little bit about what caused that spike.

Yes. Thanks for the question well I would say that we have habit of continued effort throughout the year two of our.

Manage working capital and much more efficiently and we've worked very closely with our vendor partners and have lengthened. Our terms. We also had some.

And some deferral of rent, which we worked with our landlords on now of course that will be paid here in FY 'twenty two but it was a concerted effort.

For us to manage our working capital more efficiently.

And so do you expect that to normalize going forward.

We have of focus on cash flow generation for fiscal 'twenty, two as I mentioned and we'll continue to have a focus on inventory payables and just overall cash management, because you know as I said we've positioned.

Positioned our plans conservatively, we expect negative sales and the back half of this year and we keep that in mind as we manage our balance sheet.

Gotcha.

That's helpful and can you just remind us what.

And what the profitability profile of ecommerce versus brick and mortar.

Yeah.

Well, we haven't really given that guidance per se, what we said is that it's.

It's not materially different but I'd sure well as that.

When you think of the activity of Fat Jenna mentioned through virtual selling and ship from store, you're going to see a higher you know concentration and they continue to see of higher penetration of E com sales and as we move through more of a stranded inventory.

And you know, we would expect that to impact margins somewhat on E com and over time as that position normalizes, we can.

Expect it to return to and what we're seeing today.

That's great and just.

Just one more for me can you just can you talk about any plans for the.

The convertible debt.

Oh that remains out there in 2024 of them.

And we'll address that as we progress and as I mentioned, our capital priorities are and initially.

Initially number one invest in the business and number of chose to pay down of debt leverage of recall as I mentioned on the and my prepared remarks that we fully paid down our revivor revolver as of all of our 100 million dollar five of alone.

And what we have remaining are convertible or the convertible at the convertible debt as well as the notes payable of senior notes out there for 2024.

Great. Thank you I'll pass it along.

Yeah.

And our next question today comes from Dana Telsey from Telsey Advisory Group. Please go ahead with your question.

Morning, everyone at.

Do you think about the wage hike I think that was announced earlier this year by spring 2020. Two I believe that you had been paying above minimum wage anyway, what impact does that have and are there any other puts and takes on the SG&A given the expense reductions that we should be note and going forward and then can you talk.

About with the store portfolio of the opening of 100 and closing of hundred is this what we should expect go forward going forward and how is the integration of the multi banner stores progressing. Thank you.

Hi, Dana I'll start on that so yes.

Yes, we recently made a commitment to of $15 minimum wage across the U S. This is and initiatives that we had already begun so we started at in fiscal 'twenty, one as a conscious way to improve our employee experience and we've been addressing this not only in our stores.

But also our distribution centers and our fulfillment centers and you're right that many of our store staff already make above of $15 minimum wage because of their wages of the combination of of base wage and a commission wage. So on average we're above that $15, but it's tough for people who come in.

In and are starting out and haven't yet built that base of you know of clients and so we think this is an opportunity to.

Not only continue to attract great talent, but to continue to elevate the employee experience across all of our customer care distribution center and store teams.

The increase as I said started and fifth fiscal 'twenty, one and it is reflected in the fiscal 'twenty two guidance that John just gave.

And Dana with respect to the SG&A.

As we look forward you know youll recall in 'twenty, one we had a we have store closures that labor and those stores will come out occupancy rate occupancy will come down in terms of rent and then permanent cost removal of savings effort.

You know as we look forward and it will continue to drive operational efficiencies and our stores. We've managed our store operating hours and we'll continue to lean into those I did give guidance for the year of $50 million to $75 million and cost savings, but I also will indicate that we are investing as Jenny mentioned.

And technology and digital.

Tools that will continue to further our traction in our omni channel.

Bernie to connect of Commerce, and then again I mentioned the marketing and.

Investment, which we think is very important we're seeing traction as we noted in our acute at our quarter to date topline sales and we think it's important for us to remain positioned to respond to what's going on and the market and just to have that flexibility and our thinking and that is also included.

And in our guidance.

Yeah, I'll, just I mean, just to add one thought on the marketing. So we're you know through March 14th up 16% same store sales of cross Signet, that's over 20% and North America, we've really leaned into the momentum that we saw coming out of Valentine's day, which was very successful for us.

We you know we know that only about a third of tax.

Tax refunds are out there so far we would potentially benefit from another round of stimulus and so are you know our plan is to use our very targeted marketing to try to attract some of that spending and then we've also made sure we have a strong back half of marketing so that we can.

Be proactive and trying to offset.

Losses that we might see as customers potentially turn their spending tour travel and other experiences once the vaccine has achieved.

Achieved herd immunity.

And then with respect to our real estate Dana and we gave guidance that you know of up to 100 stores.

And over 100 stores closing up to 100 stores opening and what we really like about what we're seeing and that is and the piercing pagoda highly efficient kiosk locations, we opened 20 and fiscal 'twenty one.

And we're looking to invest and up to 100 in fiscal 'twenty, two and based on the results that we're seeing and these new openings with.

With respect to our footprint as we go forward, we intend to optimize the touch at all and virtual footprint will continue to evaluate by trade area and continue to refer to our Greenfield analysis and update it as results progress.

Thank you.

Yeah.

And ladies and gentlemen, with that we've reached the end of today's question and answer session I'd like to turn the conference call back over to management for any closing remarks.

Well. Thank you all for your participation on our call today as we conclude I just want to reiterate my profound appreciation for our signet team for their passion and performance and commitment to our purpose and our customers and I, especially want to recognize my exceptional business partner and Signet and CFO Joan Hilson.

And whose two year anniversary is today.

Her leadership is an amazing catalyst within signet.

And as we complete this phase of Signet transformation, our entire team is focused on inspiring brilliance and everything we do and we commit ourselves to delivering sustainable long term growth.

Thank you very much.

Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending you may now disconnect your lines.

Okay.