Q3 2022 Signet Jewelers Ltd Earnings Call
Good morning, everyone Todays Sigma Group Conference call, we'll begin in just a few moments. We ask you. Please stay on the line once again today's call will begin in just a few moments.
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Good day and welcome to the Signet Jewelers third quarter fiscal 2022 earnings conference call.
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I would now like to turn the conference over to the needs of Ishi Senior Vice President of Investor Relations and Treasury. Please go ahead Sir.
Thanks, very much Rocco and good morning, everybody welcome to our third quarter earnings Conference call on the call are Cigna, CEO, Janet drove Soc, and Chief financial and strategy Officer, Joan Hilson. During today's presentation, we 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.
<unk> may differ materially we urge you to read the risk factors cautionary language and other disclosures on your Andrew Annual report on 10-K quarterly reports on 10-Q current reports on eight case, except as required by law. We undertake no obligation to revise or publicly update forward looking statements in light of new information or future events.
During the call, we'll discuss certain non-GAAP financial measures for further discussion on those non-GAAP measures as well as reconciliations of them to the most directly comparable GAAP measures investors should review the news release, we posted on our website at Www Dot Signet jewelers Dot com slash investors and with that I'll turn the call over to Jennifer.
Thank you Denny and thanks to all of you who are on the call with us today.
Our performance in Q3 reflects the continuing progress of our inspiring brilliance transformation.
On the innovation agility and passion of our entire organization I continue to be inspired by our team quarter after quarter and I am proud to work at their side every day.
As we look back at this past quarter and our year to date I want to leave you with one core message.
Our inspiring brilliance transformation is working making cigna, a much healthier and more agile company today than we were a few years ago, we believe our top and bottom line growth is sustainable and we're growing share while also investing in important new capabilities and customers.
Variances at a rate that is currently unrivaled in our category.
We still have important work to do to complete this phase of Sigma transformation, but we have the strategic clarity structural advantages operating discipline.
And high performing team to continue driving growth ahead of the jewelry sector.
We saw this in Q3, our team delivered the strongest most profitable third quarter in Signet history, a quarter that has often been challenging because there's no broad scale gift giving occasions.
We've been taking steps to mitigate our dependence on big holiday cycles and moved to a more always on approach. This is evidenced in our investments and consistent marketing and customer engagement throughout the year, our year round bridal cycle and our efforts to increasingly support early holiday shopping in October.
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This approach is paying off we delivered a same store sales increase of almost 19% to the third quarter last year with notable growth acceleration in October.
Overall jewelry category was strong this quarter, but we believe we're gaining market share we are achieving this growth by leveraging five structural advantages that we've built throughout our transformation.
Number one our distinctive portfolio of banners to our connected commerce presence.
Three data analytics capability for financial flexibility and five scale. We've built these strategic advantages through a series of investments and the innovation that we continue to build upon.
For example, we've made significant progress differentiating our banner value propositions with distinctive marketing campaigns and unique product assortment, delivering 14% sales growth in bridal and over 30% growth in fashion.
We've invested in connected commerce capabilities that now exists in virtually every part of our business. This is reflected in capabilities, such as seamless virtual and in store consulting.
Synchronous chat.
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By online pickup in store ship from store curbside delivery same day delivery and more.
We've streamlined our fleet, enabling us to serve customers across channels, while also leveraging fixed cost as we drive the top line.
We've eliminated consumer credit risk from our balance sheet, enabling us to focus entirely on jewelry retail leadership, while offering a broader array of payment options that continue to gain traction.
Leveraging third party expertise and focusing on what we do best are financial services transformation is increasingly an enabler of customer acquisition and satisfaction.
We've also eliminated cost the customer doesn't see or care about are expected cumulative four year savings is now over $400 million through the end of fiscal 'twenty two.
One example of how we're doing this is our data driven labor model that enables us to dynamically planned staffing needs store by store hour by hour delivering a 75% improvement in productivity compared to this time two years ago.
And we've improved inventory turns 50% by defining our product assortment more precisely by banner and probably providing a much broader range of fulfillment options.
We are becoming the consumer inspired data driven jewelry leader and innovator that we aimed to be.
Given the very uncertain environment today, we're mindful of the challenge is still ahead of us.
That said, Joan and I would like to use our review of Q3 and our look ahead of Q4 to show how the advantages. We've created are driving our performance and growth and positioning us for a strong holiday this year and beyond.
Within all the factors we can control.
Let's look first at how we're leaning into holiday earlier than ever.
Our research indicates that roughly 25% of shoppers finished their holiday shopping before black Friday this year up from 17% a year ago. This trend is being driven by concerns about out of stocks, which we anticipated and planned for we took action months ago to ensure.
Or that our holiday assortment would be stronger and available earlier than ever before.
We pulled forward our pre market qualification of new merchandize strengthened our core assortments leaned into trends identified in our research and placed orders a month or more earlier than we typically do.
We also prepared for continuing increases in digital sales and connected commerce. This holiday at this time last year, our jewelry consultants, we're providing new experiences like curbside pickup and virtual consultations to provide our customers a safe and convenient shopping experience.
This year, we've improved the customer experience, allowing customers to select curbside service online during checkout and stay connected to the store throughout the process from purchase to restate to pick up and we've expanded curbside delivery to more than 800 stores.
We're offering ship from store at 1850 stores five times more than last year, and we're offering buy online pickup in store at 2100 locations.
In addition, we've enhanced our distribution capabilities, particularly by building in a layer of surge capacity to fulfill customer e-commerce orders on our busiest days.
This is a good demonstration of the ongoing transformation at scale, we're striving for.
Last year, we increased our e-commerce supply chain capability five fold.
This year, we're building on that foundation, increasing the capacity of our distribution centers again, nearly 25% more than last year, and adding a nationwide fleet of local distribution centers with our ship from store capability.
We're working to extend these distribution advantages even further in the coming year. We're building an AI driven digital simulation of our entire supply chain. This digital twin will enhance our planning whats scenarios that identify potential issues before they occur giving us insights there.
Enable us to provide faster delivery, while driving cost efficiency.
We're also improving our employee experience to maximize our advantages in talent and staffing.
We increased our hourly wage this year significantly expanded benefits to respond to the changing needs of our team members and have continued to invest in training development and career growth in.
In addition, we continue to leverage the power of our purpose inspiring love and our innovative agile culture to strengthen our teams pride motivation and performance.
These and other efforts are making a difference we've seen a 60% decrease in new employee turnover during their first two months at a time when turnover continues to top the headlines across retail.
This is important because tenure matters in the jewelry category, where expertise and personal relationships lead to lifetime value.
In fact, a jewelry consultant with at least one year of tenure achieved on average 60% more sales than a new team member.
All of these readiness efforts are driven by the structural advantages I mentioned, a moment ago and will help us deliver a strong holiday.
I'd now like to highlight the meaningful progress we made this quarter within each of our four weird or play strategies, winning in our biggest businesses expanding accessible luxury and value accelerating services and leading digital commerce.
Winning in our big businesses is our foundational strategy. The story here is that the clearer our banner value propositions become the faster we grow we've gained real traction with this strategy over three consecutive quarters now.
For example, Kay and zales are appealing to increasingly differentiated consumer segments.
While both appeal to bridal customers almost 30% of new sales customers are on a self purchase journey up 400 basis points compared to two years ago.
And 64% of new Kay customers are on a milestone or gifting journey to celebrate special moments in the lives of those they love, which is 700 points higher than two years ago.
We plan our Assortments with these journeys as our compass.
We were able to introduce newness with much better success rates, because our customers are more precisely defined and because our assortments are more relevant to the journey our customers Iran.
The success of the Monique Lily a launch at Kay is a clear example, Monique has an acclaimed fashion designer known for her captivating brought our bridal gowns. Her brand is all about celebrating life's most special moments.
She's partnering with K.
Because she considers K to be an authority in both the bridal experience and the celebration of milestone moments. We just launched this line at the end of September and it has already delivered more than $2 million in merchandize sales ahead of expectations.
Our second strategy, expanding the accessible luxury and value tiers of the mid market is also an important driver of growth because it's bringing new customers into our banners.
Accessible luxury is appealing because it's a growing higher price point mezzanine segment that sits between luxury and the midmarket. We've built a portfolio that is attracting a diverse mix of highly valuable customers.
Jared offers exclusive designer lines concierge level service custom design studios and the richest assortment of diamonds and fine jewelry for bridal fashion and gifting.
James Allen is our digital bridal megastore the company that continues to pioneer the way that customer shop for engagement rings online setting new standards for custom design and selection with over 300000 natural and lab created diamonds.
And Diamond's direct our newest banner is our highly personalized bridal destination they offer customers high touch bridal experiences with a highly productive operating model. Unlike any other in the jewelry category.
This portfolio is designed not only to give accessible luxury customers a wide range of options, but also to compete even more effectively with independent jewelers, who make up more than 65% of the specialty jewelry category and it's beginning to work as the integrated mix we've envisioned.
Jared its average transaction value this quarter was up 35% versus the third quarter two years ago through increased custom design and higher quality merchandise that includes larger stones and precious metals like platinum.
James Allen had 50% more customer transactions this quarter than two years ago again, demonstrating our ability to attract and close highly discriminating bridal customers online.
And Diamond's direct offers customers a differentiated accessible luxury experience, which is currently generating a median annualized revenue of approximately $18 $5 million per store.
Over the last 12 months, we're confident we can learn from their model, while also bringing cygnets best practices and our scale to their approach.
We see similar opportunity on the value end of the mid tier banter by piercing pagoda is generating higher sales and resonating with customers, we want to attract to our portfolio young social media savvy and highly expressive Gen Z consumers and confident creative consumers of all ages.
We're also growing banter dotcom, which has relatively low digital penetration with significant upside remaining we're continuing to accelerate the expansion of the banter concept based on these early positive results.
Accelerating services is our third growth strategy, providing services is the glue that build lifetime relationships across every banner, while also supporting our margin goals. We remain confident that our services strategy is a billion dollar opportunity on signet path to $9 billion in <unk>.
Total revenue.
Extended service agreements are a good example of the progress we're making with this strategy.
One of the largest factors driving Esa growth is interaction with a salesperson. This happens naturally in store, but we're focused on enabling this kind of interaction for purchases made online we've empowered our virtual consultants to Sally S. A's and have launched a series of educational videos that.
Engage customers and discuss the benefits of our programs. In addition, we've simplified our Esa offerings, which along with these other improvement has helped us nearly triple our attachment rate online compared to this time two years ago.
And has lifted our overall attachment rate across channels by 60 basis points.
Another example is our launch of a new loyalty program. Our vault reward is currently being piloted at a number of Jared stores and after making refinements based on what we're learning we expect to extend it across all of our banners. This is a program that customers have expressed a desire for.
Sure. It currently includes exclusive discounts.
Rock Sparks trial membership and unlimited jewelry cleaning. These programs are a great way to reward customer loyalty stay connected and provide additional data on how to better customize our assortment and services.
Leading digital Commerce is our fourth strategy digital is our accelerator, especially for our biggest businesses.
The story in digital is data this is becoming a real structural advantage for us one of the biggest interventions. We've made since we began our transformation.
Our data analytics capabilities that enable us to operate with increasing precision.
For example building on the insights of our initial real estate Greenfield analysis were now taking a connected commerce approach to the next phase of this work we didn't have capabilities like ship from store during our original analysis and no real way to capture each stores E Commerce Halo.
But now we do and we're building on our trade area data with customer E. Commerce trends location data like G. P S tracking and macro level data, including traffic draw tenant adjacencies and customer demographics for more than 30000 retail venues in the U S.
We're analyzing customer needs down to an even more precise level to determine where connected commerce opportunity exists and how we can drive market share growth on a more localized basis.
For example, we're now analyzing opportunities beyond just trade areas, where micro targeting customers using populations of 3000 or fewer people. This focused level of data at scale is a significant advantage in the jewelry category and will serve us for years to come.
Tom.
We're also leveraging our analytics capability to optimize the way we introduce product Assortments are good example, being our expansion of lab created diamonds. Our merchandise teams have used our data to build and tier our LCD assortment in a way that doesn't compete with natural stones.
For example, customers who come into our stores this holiday with a certain peace in mind well in some cases being able to choose a lab created piece in a similar style that offers higher clarity or even higher carat weight. We're also offering an exclusive LCD cut through zales called the Vera Wang true line.
And we're offering an LCD option of Kay's Leo cut through the Leo legacy line. Our Databased approach is ensuring that LCD is additive it is increasing selection appealing to different customers and driving incremental sales.
In these and so many other ways, we're building and leveraging our culture of agility and innovation that is driving growth in every part of our business.
What I hope you can sense is that the momentum we've been building is intentional and disciplined and reinforces our conviction that signet is a healthy and agile company the strategic clarity and structural advantages. We've created combined with the disciplined execution that our team is providing quarter.
After quarter is building momentum and driving topline growth margin expansion and liquidity that we believe is sustainable over the long term.
We continue to work hard at our transformation efforts and we know there are many uncertainties in today's environment, but we're energized by the impact we're having in our customers' lives and we're proud of what we're achieving in delivering together.
We also take pride in what our company stands for and I want to close on this point.
Justice, we're building momentum in our business. So are we building momentum in our leadership as a purpose inspired company and we're doing this from the inside out with our highly engaged team.
A year ago, we announced on our Q3 earnings call that Signet was for the first time named a certified great place to work company. Today, we're pleased to announce that not only was signet we certified as a great place to work. This year based on our strong employee Trust Index Survey result.
But that all of our scores improved year over year.
For us our partnership with the Great place to work Institute gives us the ability to continuously advance our employee experience by listening to our team taking action to improve and benchmarking ourselves against other great companies.
Significantly this year, 90% of our team shared that they feel a sense of pride in what we're accomplishing and 82% believe wholeheartedly that signet is a great place to work.
We can confidently assure you that our signet team is fully engaged and passionate about delivering for our customers. This holiday.
Additionally, this quarter, we paid close attention to the UN conference on climate change that concluded just a few weeks ago as a member of the UN Global compact we are fully committed to enhancing our business practices to meet evolving expectations from our investors employees and customers.
We have established our own signet climate action and sustainability Committee, a cross functional team tasked with preparing signup for the future with our own net zero strategy as we articulated in our corporate sustainability goals released earlier this year.
These quarterly milestones advancing cygnets commitment to corporate citizenship and sustainability matter because consumers are increasingly seeking out companies that share their values.
On that note I'll turn this over to Joan who will provide deeper insight into what's driving our growth and where we're headed this fiscal year, John Thanks, Gena Hello, everyone.
There are three important messages that I'd like to leave you with today first we delivered cost leverage on top line growth again this quarter.
As a result of our strengthened operating structure.
We achieved a trailing 12 month leverage ratio of 2.1 time, we returned value to shareholders through dividends and share repurchases.
And continue to invest in long term growth.
Third we are raising fiscal 2022 guidance to reflect enhanced connected commerce capabilities and business momentum, which continued through black Friday and cyber Monday weekend.
Also concluded in today's update is higher expected cost savings.
In Q3, we achieved total sales of $1 $5 billion growth of approximately $237 million over last year compared to two years ago sales are up $350 million with few with 423 fewer stores.
While retail foot traffic remains down to pre pandemic levels. Our team effectively used enhanced connected commerce capabilities to drive increased conversion and higher average transaction value.
Substantially all merchandise categories and banners demonstrated growth.
Supported by a roughly 50% increase in advertising to strategically drive earlier shopping and reduced reliance on traditional fourth quarter profitability.
We delivered approximately $576 million this quarter in gross margin or 37, 4% of sales.
This is a 380 basis point improvement to last year, and a 630 basis point improvement to two years ago.
Leveraging of fixed cost contributed roughly two thirds of the improvement in both years driven by fleet optimization efforts.
Additionally, the remainder of gross margin improvement relates to merchandise margin and was driven by fundamental changes in our operating model.
These significant changes include enhanced discount controls and reduced promotions as well as strategic inventory initiatives that I'll discuss in a moment.
Moving on SG&A was approximately $471 million or 36% of sales. This rate is 70 basis points higher versus a year ago from investments in both advertising and labor as we anniversaried the reopening of stores after the Covid shutdown.
Compared to two years ago, we leveraged 380 basis points, we leveraged 300 basis points, reflecting changes in our cost structure.
These changes include cost savings from new credit agreement, a more efficient labor model and continued cost discipline across the organization.
These improvements helped to fund increased advertising as well as investments in our connected commerce capabilities now.
Non-GAAP operating profit was $105 million compared to $46 8 million last year and a loss of $29 3 million two years ago.
Third quarter non-GAAP diluted EPS of $1 43 compares to the prior year of 11 cents and a non-GAAP loss per share of 76 sense two years ago.
Looking deeper into our financial health overall liquidity of $2 $7 billion includes $1.5 billion of cash at quarter end.
Working capital efficiency improved approximately 40% to last year net of cash through strategic reduction of inventory collaboration with vendors on payment terms and the sale of our in house receivables.
Turning to inventory, we ended the quarter at $2 $1 billion.
Even with a 15% increase in holiday receipts compared to last year inventory was down $26 million and sell down and clearance inventory was lower by roughly 14 point.
These improvements were driven by strategic inventory initiative, including new flexible fulfillment capabilities.
Life cycle disciplined that include SKU rationalization and data driven allocation of product.
The cumulative result of these actions was a 50% improvement in inventory turn to last year.
Alongside the fundamental improvement in owned inventory, we've been partnering with our vendors to eliminate slower turning consignment inventory and strategically shift focus to just in time core products and data driven testing of newer collections.
As a result, consignment inventory was lower by $315 million, which is effectively doubled its productivity over the last two years.
Moving on to capital the $2 $7 billion of liquidity at quarter and supports our capital priorities.
Our first priority remains investing in growth opportunities, including our connected commerce and technology Advancement continued differentiation of our banners as well as the recent acquisition of Diamond's direct.
We continue to expect capital expenditures in the range of 190 million to $200 million for fiscal 'twenty two.
Our second priority is ensuring liquidity through a strong cash position to provide financial flexibility recall, we extended our ABL facility through calendar 2026, providing enhanced flexibility.
To address calendar 2024 maturities of senior notes and preferred share obligations as mentioned earlier, the trailing 12 month adjusted leverage ratio of two one times is nearly half that of pre pandemic levels.
Our third priority is returning capital to shareholders, we reinstated our common dividend earlier, this year and and this quarter, we repurchased for approximately $41 million.
We have roughly 185 million remaining under the current share repurchase authorization.
Now I'd like to discuss our fiscal 'twenty two financial guidance.
We are raising our full year guidance to reflect business business momentum as well as the acquisition of Diamond's direct.
We expect fourth quarter total sales in the range of $2 four to $2 four $8 billion and same store sales in the range of 6% to 9%.
We believe the momentum in our business is in part due to earlier shopping behavior that pulled forward a portion of traditional post Thanksgiving business.
While we manage the factors within our control our guidance also considers headwinds outside of our control as we move closer to peak holiday selling.
These headwinds include disruptions emerging from Covid variance.
Government mandates and consumer behavior changes toward experience related spending that said it remains difficult to predict the magnitude and timing of these expected changes in consumer behavior.
We expect non-GAAP EBIT of $280 million to $317 million compared to Q4 of last year guidance include higher marketing incremental store labor cost, which include additional holiday incentives higher domestic transportation costs and provides for <unk>.
A motion of flexibility.
Lastly, we have raised cost savings expectations for fiscal 'twenty, two to $100 million to $115 million.
Now turning to real estate for fiscal 'twenty, two we expect approximately 75 closures across the fleet and 85 openings, primarily in highly productive banter by piercing pagoda format.
This update to our guidance is a result of stronger than expected performance inflect select locations favorable lease economics on short term extensions.
And a shift in project timing.
Looking deeper at our store footprint, we remain focused on optimizing our fleet through data driven analytics. This includes the transition of traditional mall formats to highly productive off mall locations.
Over the past two years, we've increased the off mall penetration within the Kay banner by four points.
Now with nearly half of pay locations in off mall formats, we're seeing growth at these locations outpace traditional mall formats and carry more favorable economics.
Additionally, this strategy to off mall has reduced our exposure to declining walls by approximately eight points in our biggest banners.
Now I'd like to address operating margin, we're often asked given current jewelry category strength about the sustainability of our operating margin performance.
We believe our margin performance is sustainable in a normal environment because of fundamental changes that have created a healthier and more agile operating model.
I'd like to radiate reiterate the following fundamental changes in our business.
Data analytics informed critical decisions and we will continue to mature and build on these competencies.
Banner portfolio differentiation is driving growth and includes an increased focus on higher margin services.
Inventory management improved significantly through the implementation of capabilities, such as flexible fulfillment lifecycle and price management SKU rationalization as well as strategic use of consignment inventory.
Fleet optimization optimization remains a critical part of our margin expansion and we will continue to refine our trade area analysis.
Cost savings will continue to help fund long term growth initiatives, including always on marketing and investments in digital capabilities technology harmonization and talent.
Fully outsourced financial services transitioned expertise to third parties removes consumer credit risks from our balance sheet and provides customers with a broader and more modern range of payment options.
Liquidity and working capital management improved our financial strength and flexibility to continue investing in strategic initiatives, while also returning capital to shareholders.
We still have important work to do to continue sickness transformation that fed.
We've made fundamental changes that have built structural advantages and created strong operating discipline and we have a high performing team to continue growth within the jewelry category.
Before we open the call for Q&A I'd like to thank our team for their agility innovation and commitment to our inspiring brilliant strategy and I look forward to what we will continue to build together.
I'd like to wish everyone, a safe and happy holiday season.
And now I'll turn the call over to the operator to begin the Q&A session.
Thank you.
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So the first question I'm sure Marshalls Journal with UBS. Please go ahead.
Oh, great. Thanks, Thanks, and congratulations on the results.
I wanted to ask first about market.
Market share trends you know would you comment that you believe you're gaining market share maybe you could give us.
Maybe a little bit more details on how is your growth compared to the industry that you know gives you that confidence that you're gaining market share and also if you could provide us maybe a little bit more details on diamonds Iraq.
A business you know you talked about in your in your previous.
Our release about the.
Sales expected for this fiscal year or calendar year. So I wanted to know a little bit more about how do the margins compare to your overall business and our gross margin and that's your name basis. Thank you.
Well, hi, Maurice Yeah. Thanks, much for your questions starting with market share.
You know as we've repeatedly said and I think everyone knows the data are in the jewelry industry is far from perfect, but what we do is we aggregate a number of annual projections from industry experts like Euro monitor Minto Mastercard ibis in RF.
And what all of those are showing US is that we you know we believe that expected jewelry category growth for this year is in the range of around 30%. So a very strong year for the jewelry category.
The high end of our guidance today implies more than 43% growth in total sales and that reflects our belief that we will outpace the industry and gain market share I think notably I'm part of the jewelry category, that's growing the fastest is luxury.
<unk> competes at a tier above where signet plays today and what that says to me is that the work we're doing differentiating our banners.
And trying to broaden the mid market segment that we that we play in with accessible luxury as I discussed in my remarks, including the diamonds direct acquisition, including all of the work we've done to build a higher a higher merchant you know higher quality merchandize assortment and custom capabilities at Jared and.
Of course, the continuing worked at James Allen does to really pioneer, creating the optimal online bridal buying experience. These things are important because they're giving us access to new customers that are coming into the mid market.
So so you know these are all things that are part of our inspiring brilliant strategy differentiating our banners, bringing connected commerce capabilities, serving customers whenever wherever they want to shop.
And that's one of the things that gives us confidence that the strategy is working at.
I'll start on Diamond direct and then turn it over to Joan for more detail, but the first thing I would say is we're very excited to welcome the diamonds direct team into our family every single person that we have been working with in Diamond direct is smart talented and just as focused on purpose.
As our company is inspiring love well, maybe articulated in different ways in the past is very much part of the ethos of diamonds direct just like it is part of Signet and so I think the cultural set of our two companies is fantastic.
Secondly, the leaders at Diamond's direct have really created a very special model and that actually goes all the way down through the team where it's a scaled kind of our bridal experience. I mean, you you go into a store and theres, so much selection and opportunity to experience bridal in a different way.
But it's really driven almost a mega store like concept, where the you know the median sales of a dimes direct store are over $18 million that that's a a scaled model and jewelry that just doesn't exist in many places and we think it's something that we can learn from while we can also help share some of our best practices.
To make their business model even stronger.
And where ACO to address the.
The diamond direct profitability in and the purchase price or just the economics now as we said in our <unk>.
Recent releases that we expect diamond's rack to be immediately accretive we have and we have included a view of diamonds direct performance within our guidance with our update today.
As you know we disclose that.
The trailing 12 months sales the purchase price represented a one 1.1 time multiple of sales and on the $490 million purchase price and an EBITDA trailing 12 months of 7.1 time. So we really feel very strong about the strength of the biz.
The management of the business the economics of of Diamonds, direct and really feel that it's a natural fit.
Within our structure as general just mentioned.
Great. Thanks, and just a quick follow up one trough you know how is.
Oh, you know the holiday season trending so far I know you mentioned that you feel like a lot of people have done some of their shopping around Europe.
To get a sense of how you're seeing like things in Black Friday and also regarding all of the things we've mentioned, but do you have like promotional flexibility I mean, what does that mean.
But you could become more promotional in the short term if needed.
I mean, how does that all play out into your expectations you know looking to enter next year with some tougher compares.
Well, what we can address today is the guidance that we've given more ACO includes T. As you noted are met our flex.
<unk> flexibility for.
Promotion should we need it in the fourth quarter. We did note as you did that we believe that the momentum in part that we've we've seen that continued through black Friday and cyber Monday weekend was in part due to the.
The pull forward of earlier customer shopping journal noted that 25% of shoppers completed their holiday shopping prior to Thanksgiving This year and that's up eight points from the prior year. So that's the basis for our belief that some of the momentum we're seeing today is.
A result of that pull forward we've also.
I have included in our guidance a view of you know diamond as direct as I noted, but also the idea that there is still some concerns around the macro environment and.
The unknowns around government mandates the impact of stimulus the new.
Covid variance that are may impact shopping behavior and also the potential.
Potential shift in consumer.
Behavior towards more experience related so.
All that in mind, our guidance reflects a strong.
Strong view of holiday, we're very pleased with the 6% to 9%.
Comp store sales growth for the quarter.
I believe that you know.
Given where that leaves us for the full year. It's also.
On a very strong performance driven by the team to drive.
Flexibility in our promotion expand our or our operating margin we'd note that the full year guidance implies.
On a 10.9% operating margin and that compares to a five 2% two years ago. So the teams have really put into place. The operating model changes that I detailed in my remarks, and we really believe that that's the strength.
That we can build upon go forward and continue to sustain the momentum in our operating margin performance.
I'd just add that within you know within the factors. We can control, we are staffed and stocked and ready to serve our huston our customers.
Thanks, Marcio, thank very much or we will take questions.
Absolutely.
It comes from Ryan Hutchinson with Bank of America. Please go ahead.
Thank you good morning.
There's a lot of puts and takes on the SG&A line with the cost cuts the lower credit costs and now, perhaps some higher labor and marketing costs.
Yeah.
Signet has historically been in the 28% to 29% of sales range for many years is that a level that you think you can get back to in the coming years and can you just walk us through.
Any any opportunities or pressures maybe around that number is as we model for.
For the next few years.
So as I just mentioned the rain and thank you for the question our FY 'twenty two EBIT guidance implies an EBIT margin of 9% at the high end and this compares with five 2% two years ago looked.
Looking forward, we've made structural changes to our operating model, which enable enabled us to sustain a healthier operating margin and these include.
Topline performance higher margin services and many of the inventory management disciplines that affect our merchandise margin performance in the strong health and of our inventory is enabling that to really flow through to the bottomline as well when.
When we look at our.
Of course, we are funding investments.
With over the last four years, we've saved over $400 million in half, which has helped fund the investments that we've talked about which you know connected commerce capabilities flexible fulfillment and we've also have enjoyed the result of the.
Elegance of our fleet optimization, which is really providing a significant leverage while we reinvest in advertising and saw the other costs that I mentioned with labor. So.
And the way we think about it is we're going to continue to drive cost discipline to our organization will use that to fund investments and continue to drive off of costs that the customer doesn't care about.
Yeah.
Yeah.
Thank you.
Next question please.
Polish route with Citi. Please go ahead.
Hey, Thanks, guys.
Sure I'm curious curious just when you mentioned the EBIT margin sustainability.
Is that comment spin.
Specifically referring to.
Two.
As well.
You are intending to say the EBIT margins are going to remain at least with that $10 nine.
Level, and I guess related to that I'm curious, how you're thinking about it too because from a consumer pattern perspective, I know you guys had been assuming the consumer shopping patterns will change I don't think that's happened to the degree that you had been planning for so curious how that influences. How you plan for F. 'twenty two and then just longer term you guys yes.
Still talk about the 9 billion dollar long term gold curious if you've got a timeframe for when you might think you could achieve that.
Okay. So I'll I'll take that the operating margin the way, we should think about that in the way.
We think about it structurally within our business is that.
Beyond this year nor.
Normalized environment, we will continue to drive and work and leverage the operating structural changes.
And I noted in my prepared remarks, so things like the merchandize margin expansion the fleet optimization.
Which has taken out a lot of occupancy and labor costs, and it's enabled us to reinvest in advertising and.
Capabilities that are going to drive growth and and and and connected commerce capabilities that will will drive growth as well.
And drive us to the jewelry category innovation leader in the jewelry category. So all that said, we're not giving guidance, but in a normalized environment. We believe that that there's a sustainability to the operating margin that we're putting forward because of the structural changes within our business.
Yeah.
When we think about the fourth quarter and the consumer shifts what I've included in the fourth quarter and the view of fiscal 'twenty. Two is the idea that we know that we have.
We need to prepare for a flexibility of promotion there.
That we have higher marketing costs, we indicated that they were significantly higher in the third quarter. They were 40% higher and at the end of the day. We there is uncertainty about the level of pull forward. So we've considered that in our top line performance and then will we have included the idea of.
Or the reality of increased transportation costs as well as the higher labor costs, we raised our wage rate along with higher incentive the holiday which is very.
Portland for Us too.
You know provide to our team member as well. So it's we've included all of the costs that we see ahead of us and the idea of promotional flexibility in fiscal 'twenty, two and we're prepared to Jonas earlier point.
With staffing levels and inventory to serve our customer throughout the holiday selling period.
And Paul just on your on your other question about our timeline to our 9 billion dollar goal. We we have not given a timeline on that but I will say you know our high guide today reflects revenue of almost seven $5 billion, which I'm really proud of our team for all the great effort that they have put into.
To deliver not only banner differentiation, which is driving strong performance across our different banners, but also the innovation that we see coming in you know in flexible fulfillment and how we're able to serve our customers. Some of the the non comp things that we have in place this year like our curbside service.
So our same day delivery things, which we've just piloted last year are now fully across our fleet and that agility and ability to test and learn perfect things and then roll them out broadly at scale. I think is is a competitive advantage for us. So I'm proud of how we're learning to do that.
Okay.
Thanks, guys. Good luck.
Thank you congratulations on firm.
Hum.
Go Woop Woop clues research. Please go ahead.
Good morning, and thank you for taking my question.
I was wondering if you guys could go into a little.
More detail on these impressive average transaction value.
Movements is it.
Specifically you know is it.
You guys are you raising your price points, you're adding more inventory.
You know high praise for level.
Katy, which is driving that 30 plus improve.
Improvement or is it really a fundamental change in the demographic.
The consumer or in their spending habits or if it's a bit of both maybe you could break down which one is bigger driver. Thank you.
Sure I'll start on that and you can jump in John.
I think the first thing I would say is that it is not about price increases. So what we really pride ourselves on is providing a great value to our customers and we're able to do that across a broad variety of price points because of our our scale and the data and analytics, we use to optimize our assortments what I do.
I think it's related to is higher closure rates. So as we are better directing customers to the banner that is best able to serve them and as we're optimizing our assortment and our services and even our selling capabilities within those banners were seeing higher closure rates, which is great and then.
I'm pleased with all the work.
You know honestly, if you think about the entire funnel that our team has been doing to drive traffic.
Both in store and to our website. So while retail traffic is still down versus two years ago. We saw a strong increase in brick and mortar traffic in the quarter and I would consider that to be the effect of our omni approach to marketing, where we are really trying to serve customers whenever wherever and however, they want to.
<unk>. We've also improved a lot of aspects of our e-commerce and digital experience R.
Our virtual consultants, we have 700 of them now are able to have asynchronous chat with our customers. They have two way texting capability. So our ability to you know to start a conversation pause a conversation if our customer wants to do more research or think about it and then come back to that same.
<unk> to serve people.
In in a seamless way is dramatically improved versus where it was a year ago. So all of these things are driving higher closure, which I think is the real story here. The only add to that I would have is the idea that our inventory is very healthy our clearance selling is the penetration of clearance sales.
Is down.
Last year, and I mentioned that that clearance and sell down inventory is down 14 points.
And the actual selling is down as a result, and so its really improving the average transaction value as well, we've been able to put our inventory in a very healthy position.
And then in Jared as I talked about in my script. I mean, we have had a very intentional strategy about tearing up our assortment to be more accessible luxury oriented and the results. There I think a very impressive over the last couple of years with.
You know more than a 30% increase and a T V. As a result of all of the things I previously mentioned as well as a more valuable a higher price point assortment.
Yeah.
All of that is really helpful guys I appreciate the commentary.
Sure. Thank you Sachin.
Some of it comes from Warsaw with Wells Fargo. Please go ahead.
Alright, thanks, good morning.
Everyone on.
Correct.
Maybe John Phillippe then.
For Q guide around the revenue.
Contribution that would be helpful.
Picture for next year.
The ability to take that.
Yeah.
The generation of synergies and incremental margin on that business.
About what you guys are working virtually.
Maybe you want to reinvest more of those margins.
Margins.
I'm trying to understand how to think about.
Well as much.
Mhm well.
Well, what we said I guess that we expect <unk> to be immediately accretive we have included it in our guidance and you'll note that there was you know.
With the implied Q4 guide there was some margin expansion.
As you kind of compare that to where we've been so that's really good.
What I can share with you around diamonds direct we're not separating out diamonds direct that's you know part of our North America business now and part of that family and and I would just encourage you to kind of look at the guidance or the information we provided in our release around the purchase price on that.
Trailing 12 month view.
You have failed and so forth.
And then into next year, we've not given that kind of guide.
Guidance, but we really are excited about what the diamond correct brings to the overall.
In our financial and economic view of our business and what it does for us in terms of.
Bringing new business into this expansion of their achievable luxury sort of mezzanine segment that Jenna talked about in her prepared remarks, so really excited about what it can bring.
Got it and then just follow up on on the capital structure.
You guys have a lot of cash.
Could you juggle a second.
At this point or would you rather kind of all of them.
Gerard.
Hello.
We use that cash towards the buyback stock.
And then just the last one on that is.
With the preferred converts and you guys have.
Is there any interest in paying them.
Okay.
I don't think I think we got kind of cut off and missed the very last part of your question, but I'll I'll talk to the idea of our capital priorities.
Number one for us is definitely investing to grow our existing business now, including diamonds direct now including rocks box. We're excited about the acquisitions that we've made starting with James Allen a couple of years ago, because it's really rounded out our portfolio in a nice way.
We have an ongoing strategic process to evaluate other opportunities and so we always stay open minded to what might be another way to bring new capabilities, especially new opportunities to learn into our business. So we will stay.
Opportunistic and open minded on that as a way to grow the business and then our other capital priorities of course are making sure that we'd get back to shareholders. We reinstated our dividend we did execute some share repurchase in the quarter.
And still have room in that authorization.
And then making sure that we're managing appropriately our liquidity I think you were asking in the last part of your question, maybe about Leonard Green, Yeah. So with respect to B L. G P preferred position.
Yeah take you back to the ABL refinancing that enabled that gave us flexibility that that maturity, which is on October 22024.
Our ABL extends beyond that and gives us the flexibility to manage through that through 2000 and it goes out to 2026. So L. J P continues to be a very valued partner to us.
And but.
But we have the right ABL refinancing structure that enables us to manage through that.
Alright, thank you.
No we're not.
For one final question that comes from Dana Telsey Telsey Advisory Group. Please go ahead.
Hi.
And congratulations on the results as you mentioned and the new the new inventory model basically whether it's focusing more on just in time inventory, reducing clearance inventory where are you on that path and what does that imply for margins and then just lastly, I believe that 2022 there's been none.
<unk> is out there that this can be 2.6 million weddings, which should be a real benefit obviously fewer bridal engagement business, how do you see marketing and marketing investment going forward into 2022 thank you.
You.
Okay.
So I can start with the inventory and Dana we are feeling very good about the health and quality of our inventory as you mentioned, we have a lot of new capabilities that have driven that the flexible fulfillment that our SKU rationalization.
And in our clearance inventory was down 14 points to a year ago, so enabling us all of that together to expand our merchandise margin. So with the expansion to both last year and two years ago. We said that two thirds of that leverage our expansion came from our fleet optimization essentially Ah.
And then the other third is coming from our ability to be now promotions and b all of the activities around it.
Inventory capabilities that get our product to the right place at the right time and our you know so we think that we're in a very good spot more room to go but we're in a very healthy position currently with our inventory position.
And then in terms of weddings that is always good news for our business because the most likely people to get engaged or people who were just in someone else's wording. So so.
We definitely try to make sure that we were using our targeted.
<unk> efforts to reach those potential brides and grooms before they come into the engagement ring market.
And we're ready we're ready to serve them with our always on bridal strategy and we're ready with product. This holiday season. So we'll.
Definitely been looking forward to to to that thanks Dana.
Thank you.
This concludes our question and answer session.
The conference back over to management for any final remarks.
Sure well. Thank you again, everyone for your engagement today I'll just conclude by reinforcing that the results, we're seeing demonstrate a healthier and more agile company at Signet and reaffirm that we have the right strategy the right team and the financial strength to grow profitably and sustainably for the long term.
We wish all of you the happiest of holidays. This season, and we hope that youre able to celebrate safely and joyfully with your families and friends. Thank you.
[laughter] Humam. This concludes today's conference call. Thank you all so much for attending today's presentation.
Select your lines and have a wonderful day.
Okay.