Q2 2023 Signet Jewelers Ltd Earnings Call
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Good morning, and welcome to the Signet Jewelers fiscal 'twenty 'twenty, three second quarter earnings call.
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I'd like to turn the conference I had the T. Vinnie Sinisi Senior Vice President Investor Relations.
Good morning, and welcome to our second quarter earnings Conference call on the call today are Cigna, CEO , Janet Joseph <unk>, 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 may differ materially. We urge you to read the risk factors cautionary language and other disclosure in our annual report on Form 10-K quarterly reports on Form 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 events. During the call. We will discuss certain non-GAAP financial measures for further discussion of the non-GAAP financial measures as well as reconciliations of the non-GAAP measures to the most directly comparable GAAP measures.
<unk> 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 Jenna.
Thank you Betty and thanks to all of you for joining us today I want to begin by thanking our signet team their passion for building lifetime relationships with our customers and fulfilling our purpose is central to everything we do I continue to be inspired by their excellence and agility every day no matter the cause.
Additionally, it is an honor to work at their side.
Here are the key takeaways from my remarks today.
We believe that cigarettes growth strategy and the structural advantages we've created in our operating model enable us to do three things consistently.
First deliver and annual double digit operating margin second invest to achieve market share expansion.
Third create meaningful shareholder value.
Two is yet another demonstration of these advantages our team delivered $1 $8 billion in revenue and $193 million and non-GAAP operating income.
Revenue was down one 9% versus record setting second quarter sales last year and up 29% versus the second quarter of our fiscal year, 'twenty, which was the pre pandemic base.
Importantly, we delivered operating income within our original guidance range and non-GAAP operating margin was strong at 11%, which is nearly three times higher than cigarettes, the operating rate in fiscal year 'twenty.
So despite a softer top line environment, our structural transformation and the flexibility. We now have in our operating model enabled us to leverage SG&A to deliver double digit operating margin and maintain strategic investments and return capital to shareholders in <unk>.
Q2.
Our strategy is working we are winning in our biggest businesses with our diversified portfolio of banners.
Expanding accessible luxury accelerating services and leading in digital.
We're able to be strategically flexible leaning further into the areas of our business with the most growth opportunities driving both customer and shareholder value.
Before I get into our results, let me first share some jewelry category context.
What we're seeing in our proprietary data is that consumers shopping at lower price points, primarily buying discretionary fashion items or with lower incomes are being impacted most directly by macroeconomic pressures. We believe lower jewelry price tiers are also seeing the most negative impact from <unk>.
Discounting in apparel and other fashion in discretionary categories. So.
So in general jewelry price points below $500 are seeing steep decline with price points below $1000 also being negatively impacted Conversely, higher price point items are showing more strength and this is reflected in the fastest jewelry growth being luxury price tiers solid.
Accessible luxury.
What's particularly interesting is that our proprietary customer research for Kay Jared and sales is showing relative strength in what we call considered purchases that is fundamental items over $1000 like engagement rings anniversary bands and other sentimental gifts are outperforming their categories are straw.
<unk> around consumer insights banner differentiation and tearing up into accessible luxury are allowing us to lean into these trends.
While Q2 was a mix of headwinds and tailwind. We responded to these precisely as our company is now designed to do we drove growth in bridal and our biggest banners, especially in the 4000 to $5000 price range, where revenue increased 11% versus last year and all banner square fifth.
15% in aggregate for purchases in the $10000 plus price range.
We grew services, nearly 7%, which was a higher margin profile and drives traffic to our stores.
We reduced core inventory, excluding diamonds direct almost 10% versus last year with more efficient data driven assortment and flexible fulfillment. This is enabling us to quickly respond to changes in consumer trends maximize newness and limit clearance.
With that context, let's take a closer look at how we're doing across our four growth strategies and why we believe we're building a moat of competitive advantage that will lead to long term profitable share growth.
Winning in our biggest businesses is our first where to play strategy and bridal is a big part of the story of this quarter, we estimate that our bridal share is now approximately 30%.
This is a real advantage driven by the high consumer awareness of our banners are leadership marketing spend and personalized always on media approach our connected commerce presence, which is unrivaled in the jewelry category ensures that we are uniquely able to meet our customers' needs.
Ever wherever and however, they want to engage.
Relevant plus readiness is a powerful combination and it is precisely the combination we built with our portfolio of highly differentiated banners are optimized footprint of brick and mortar stores and our expanding digital capabilities and experiences.
As predicted in 2022 has become a year of the wording with $2 5 million weddings expected. This year. In addition, with in person events growing we've seen an increase in pre wedding and other wedding related events, which are great opportunities for gifting.
In fact, our data suggests that jewelry represents 43% of the gifts shared at wedding related celebrations.
Clearing gifts for the bridal party mothers and a couple of himself, making this a $1 9 billion dollar opportunity in the U S.
Because cigna delights, so many couples with engagement ring purchases. We're now focused on making the most of all wedding opportunities. We've made changes to our assortment services and marketing and are creating new digital content online shopping guides and targeted media campaigns all to serve our customer.
<unk> throughout their special events and capture the entire value of the wording.
Our second we're at a place strategy is to expand the market we play in.
And in this economic environment, we are both leaning into accessible luxury while also increasing our value equation for more economically challenged customers to delight higher income customers. We've added higher price point items to our assortments across banners, we've expanded concierge level <unk>.
Officers like chair at foundry, which offers customers the ability to design custom pieces from scratch with increased availability of personal lines to point left bookings, particularly at Jared and Diamond's direct.
Diamond's direct is proving to be the strong strategic acquisition, we anticipated it would be delivering $113 million in revenue. This quarter ahead of acquisition expectations.
We believe we grew our share of accessible luxury in the quarter more than two points.
We are also navigating the impact of inflation and economic pressure on value shoppers to maximize the value of their spend we are leveraging our scale, our vertical integration capabilities and our strategic vendor relationships to value engineered pieces that make jewelry more affordable.
All of our customers.
Great example is how we are leveraging lab created diamonds for a bigger look for less and our fashion pieces. We've also designed innovative new items using diamonds that are more plentiful and have a lower cost basis. Finally, we strengthened our financing offerings, including expanding our zero person.
Downpayment promotional financing.
Accelerating services is our third where to play strategy and is delivering strong revenue growth with first half sales up nearly 12% versus year ago in Q2 up 7%.
This performance was driven largely by growth in warranty attachment and repairs extended service agreements revenue was driven by a mix of our newer more customer appealing bundles price increases and higher attachment rates.
Repair growth reflects increasing NPS scores driven by faster turnaround time team training and new digital tracking visibility.
Further in the second quarter, we launched several new services based on our consumer research. These included appraisal services at Kay and the new insurance product at Jared Kay and zales to protect cherished jewelry from theft and loss.
We also launched bridal by rock Sparks, a new premium rental service for brides at all of their wedding events, ranging from bridal showers to bachelorette parties to their wedding day. We believe this service will help us continue attracting younger and more diverse customers as well as expand repeat purchases there.
Iraq spot subscriber base increased 15% in Q2 illustrating the power of Signet scale for our newly acquired banner.
We continue to be very bullish about the expansion of our vault rewards loyalty program, which is currently in chairs and select kase, it's on pace to be rolled out in e-commerce and to more than 1800, Jared Kay and zales stores by this holiday.
Continues to be a meaningful source of future growth with transaction values. Among loyalty members at <unk> for example, nearly $600 higher and repeat rates up 700 basis points versus non loyalty members.
We continue to see services as a billion dollar business and are steadily making progress toward that goal.
Accordingly service margins remained consistent and accretive.
Our fourth quarter to play strategy is leading in digital digital is our multiplier is is the capabilities that create the most advantage and is most difficult for competitors to match given the investments. We've made it's a multiplier because it makes browsing shopping and buying <unk>.
Even easier and more fulfilling for our customers who are increasingly looking for an integrated multichannel experience.
And it leverages, our data and scale and powerful and targeted ways to drive conversion.
Being the digital leader jewelry means much more than leading in ecommerce we are leveraging our digital capability and technology to innovate in every part of our business now with industry leading speed for.
For example, we've added several new and easy ways for customers to book appointments, which is driving higher levels of customer engagement in the second quarter, 65% more appointments were booked online versus a year ago. This is important because the conversion rate of our merchandise appointment is three times greater.
And then for a walk in customer and the average transaction value is 30% higher and we've also expanded virtual try on for more of our key products, which increases conversion rates between three and six fold.
We saw a 22% increase in checkout start rates this quarter versus last year after launching our new mobile first mini bag shopping companion. This makes it easy for customers to see at a glance views of their orders apply discounts total cost and progress towards earning royalty incentives.
Yes.
In Q2 more than 20% of customers used one or more of our flexible fulfillment options, including ship to and from store buy online pickup in store or same day delivery all of which improved both customer convenience and inventory efficiency. These offerings also drive traffic to stores so that our.
Expert jewelry consultants can further build relationships.
We are increasingly linking our digital and physical experiences. We now have 28000 E tags tracking loose diamonds at the store level, that's proprietary E tag ecosystem was developed with Cigna.
These attacks are innovative and valuable technology for many reasons first because our E tags enabled storytelling with a visible QR code customers can easily access information about each diamond.
Second by leveraging our motion sensor and sales data <unk> give us the ability to dynamically adjust pricing or offer incentives to close a sale within seconds.
We can now optimize inventory levels and maximize sales and margin on a nearly real time basis.
Nearly every loose diamond at Sharon will soon have an E tag and we are continuing to expand the technology across other products and banners with the digital innovation of our proprietary <unk> system, we're essentially adding internet of things technology to our connected commerce capabilities in <unk>.
Way that no other jewelry company is doing we invested in digital from the beginning of our path to brilliance transformation and we're not letting up our recent acquisition of Blue Nile is a good example, blue Nile as the pioneer in online diamond marketplace shopping, bringing a new customer cohort.
Our portfolio younger more affluent and highly diverse it has the highest brand recognition of any digital pure play jewelry retailer and expands the top end of our accessible luxury offerings.
Niall has unique shopping technology featured in their 23 showrooms through which customers are educated by a trained jewelry consultants and are then able to complete their purchase online. We can learn from this low inventory showroom model.
We see incredible synergy opportunities with Blue Nile, and James Allen, while strengthening and growing each of their unique banner value propositions. We now expect the blue Nile acquisition to be accretive through both revenue and cost synergies no later than Q4 of next year.
The final point I want to make is that a significant factor in our performance from quarter to quarter is the strength of our financial position.
We've reset our operating model with significantly reduced fixed costs, such as occupancy through our store fleet optimization and leaned in to zero based budgeting.
Our operating model takes advantage of our scale. That's why we're confident in committing to annual double digit operating margin with expansion over time, we've demonstrated that we have several levers we can pull to respond to changing market conditions, which is precisely what we did in Q2.
We're using our financial strength and flexibility to invest in the business in ways that create moats of competitive advantage and that our customers see and are delighted by whether that's through the value of our assortment the breadth of virtual shopping journeys, we enable or through strategic acquisitions.
We are focused on consistent long term value creation, and our stated capital allocation priorities first investing strategically in our core business and acquisitions to expand market share.
Maintaining appropriate levels of leverage and third returning cash to shareholders through repurchases and dividends with a goal of being a dividend growth company.
So I'll close where I began sickness Q2 results are a strong reason to believe our core message we have the strategic clarity structural advantages financial flexibility and a winning culture to deliver consistent reliable and sustainable growth and meaningful.
Shareholder value.
Signet is strong and growing stronger.
On that note I'll hand, it over to John .
Thanks, Jim and good morning, everyone I want to leave you with three messages today that all illustrate the sustainability of our operating model first we are confident we can deliver annual double digit operating margin, while growing market share consistently and reliably we believe we have the.
Disciplined operating structure and innovative culture to do this year after year.
Second with the health of our balance sheet and working capital efficiencies. We believe we are well positioned to make strategic investments that drive long term growth.
Third we continue to prioritize shareholder returns alongside continued investments.
Now turning to second quarter performance Q2 is a perfect example of how we are effectively managing the top and bottom line. We delivered total sales of $1 8 billion.
Down one 9% compared to the record setting sales performance, we delivered in Q2 a year ago.
Panther represented almost a third of our comp decline during the quarter offsetting a strong performance in bridal and accessible luxury as Jane explained we are taking full advantage of our strength in bridal and leaning into higher price points, while at the same time moving banter out of underperforming.
And accelerating the growth of digital.
As previously reported we saw trends softened across all price points in July along with weaker traffic that said for the quarter. Our average transaction value in North America was up 10, 8% on a comp basis.
Sales per square foot was up over 40% compared to the second quarter of FY 'twenty.
Direct result of our connected commerce strategy cut.
Coupled with our fleet rationalization that reduced our store base by 20%.
In addition, warranty and repair services were drivers in the quarter and delivered nearly 7% growth.
Importantly, we began to see improvement in August as a result of non comp activities.
Now, let's turn to gross margin non.
non-GAAP gross margin was 38% of sales down 190 basis points compared to the second quarter last year.
This reflects the deleverage of occupancy on a negative eight 2% comp and the impact of diamonds direct which carries a lower relative margin.
Importantly, our organic banners merchandize margin was similar to last year.
Additionally, strategic technology investments and the absence of Covid related tax abatements from prior year also impacted the change in gross margin.
In spite of softer top line, we leveraged SG&A this quarter SG&A was $477 million or 27% of sales a 90 basis point improvement over last year.
Our team manage SG&A in response to shifting market conditions.
All while maintaining priority growth investments and returns to shareholders.
This is driven by our disciplined spend management are gating approach to investments.
Lower payroll costs, driven by our flexible labor model and benefits from our enhanced financial services agreements.
non-GAAP operating income was $190 million or 11% of sales, which excludes acquisition related charges of $6 4 million.
And compares to $223 million.
Our 12, 5% of sales last year. Please.
Please note that last year included $9 million of income primarily from Covid related brands.
Yeah.
Notably our Q2 operating margin performance is nearly three times higher than FY 'twenty.
Looking back further this also exceeds our performance seven years ago, when we had credit factored into our margin mix.
This demonstrates the strength of our transformed operating model.
Let's look now at the strength of our balance sheet, we have the flexibility to innovate and invest in even a softer top line environment because of our working capital efficiencies, we continue to deploy capital consistent with our stated priorities.
At the end of the quarter, we had $852 million in cash and equivalents, our focus on cash and working capital efficiencies have enabled us to achieve the following since FY 'twenty.
We returned cash to shareholders through $600 million of share repurchases and given our stocks current multiple which we believe is undervalued. We will continue to use our remaining $622 million multi year authorization.
We paid $37 million in common dividends since reinstatement with a goal to become a dividend growth company.
We've also invested nearly $900 million and strategic acquisitions, augmenting our accessible luxury tier within our differentiated portfolio.
Further our leverage ratio on a trailing 12 month basis currently stands at approximately one nine times EBITDA well below our previously stated goal of below three times and down nearly 50% from FY 'twenty.
And today, reflecting the strength and confidence in our operating model, we're revising our leverage ratio target to maintain below 275 times EBITDAR.
Now I'd like to turn to inventory, which remains a critical differentiator for segment.
Inventory management is at the heart of our working capital efficiencies.
Since fiscal year 'twenty, we've made it a strategic imperative to reduce inventory overall, and we've done it even including diamonds direct.
Overall core inventory is down 13% in the quarter compared to the second quarter of FY, 'twenty or $300 million and importantly, it's also nearly 2% down to last year, indicating our ability to change quickly in response to macroeconomic shifts.
Penetration of clearance inventory at the end of Q2 is down one point to last year and down eight points compared to FY 'twenty, reflecting the health of our inventory.
And inventory churn of one five times at quarter end is turning 47% faster compared to pre pandemic levels and has also improved to last year.
We continue to use the appropriate levers to maintain a healthy level of inventory and are well prepared for holiday season.
We partnered with our vendors to secure the right inventory to meet consumer demands and trends.
We're still maintaining the rigorous inventory management that drives much of our cash and cost discipline.
We manage inventory holistically to grow market share and improve operating margin.
This has become a reliable component of our annual double digit operating margin commitment.
Now, let me move to guidance and then we're happy to take your questions.
We are reaffirming our full year fiscal 'twenty three annual revenue and operating income guidance.
We now expect non-GAAP earnings per share for full year fiscal 2023 in the range of $10 98.
To $11, 57%, including the impact of share repurchases through the second quarter.
Our full year fiscal 'twenty three guidance does not include a material worsening of macro economic factors and it does not include Blue Niles performance.
For the third quarter, we expect revenue in the range of $1 $46 billion to $1 49 billion.
With non-GAAP operating income in the range of 20 million to $34 million. Please note that our strategic shift to an always on marketing model has moved cost to the third quarter with associated revenue largely occurring in the fourth quarter.
Before we open the call for Q&A I want to acknowledge the capability and commitment that I see in our team day in and day out our team members operate with such commitment to our customers and accountability to our shareholders and it is genuinely inspiring.
What I love most about this team is that they are both high performance and high potential delivering exceptional performance every single day and striving to be even better without fail and on that note, we will be happy to take your questions.
Yeah.
If you would like to ask a question. Please press star followed by one on your telephone keypad, if you'd like to remove your question. Please press star followed by T C.
So you didn't show you'll find us on mute locally and limit your questions to a maximum of one.
Yeah.
We take our first question from Ike <unk> from Wells Fargo. Please go ahead.
Hey, everyone. Thanks for the question.
Two quick ones.
On a quarter to date it sounds like August has gotten a little better when we look at your Q2 performance versus the Q3 guide it does look like you're embedding.
A decent slowdown in revenues organically, both one year and on a multiyear basis. So just kind of walk us through the conservatism built in and what you commented on what you've seen in August a lot of retailers have seen a little bit of a rebound and then a quick follow up is just on the blue Nile transaction.
Assuming this does close before holiday I understand your guidance does not include any impact from them, but if the deal does close ahead of holiday would that be.
A positive or negative.
These are currently guiding to in the fourth quarter. Thank you.
Hey, Ike.
Thanks for your questions I'll start with the first one so when we guided a.
A couple of weeks on the balance of the year at the time that we announced the transaction with Blue Nile.
We really wanted to make sure we were reflecting the current reality of where we see the customer now and so the low end of our guide was very.
Very clearly representing a continuation of the trends that we were seeing not a material worsening not including Blue Nile.
We did see some improvement in August I think that's really a combination of the customer.
We have continued to see some strength as I said in my remarks at higher price points and also for considered purchases, especially sentimental gifts.
And and bridal, which we saw up 5% in the quarter. So you know I think there's some there's some good news as we've come into August .
But but we didn't reflect any of that in the low end of the guide that we gave.
And then John you want to talk a little bit about blue now we have already closed that transaction. We closed the transaction recently our team has been on the ground.
You know over the last week, or so really pulling together and working hand in hand, with the Blue Nile team to put together our holiday plans and so it would be premature at this time to talk about our view of the fourth quarter, Ike, but that said.
Based on the work that we've done where we're very excited about the opportunities for synergy and the ability to integrate the two banners.
Under the with the James Allen team, so and really leveraging the synergies of back office, so lots of opportunity and in our view and just a little premature too.
Really give guidance on the fourth quarter.
Yeah.
Okay. Thank you.
Yeah.
The next question comes from Lorraine Hutchinson from Bank of America. Please go ahead Lori.
Thank you good morning.
Encouraging to hear you about the August stabilization, but I guess I just wanted to see how you were stress testing the model and maybe hear your view on its sales soften further.
Talk through some of the levers that you could use to offset that deleverage to allow you to maintain that goal of double digit operating margin.
Mhm, Thanks, Ryan for the question and so our commitment and goal is to maintain an annual double digit operating margin and so what if you think about what we closed off in in the second quarter. We it was a negative eight 2% comp and we delivered.
A very strong double digit operating margin. So how did we do that was one strong inventory management healthy inventories.
Clearance was below last year.
And clearance sales were below last year, so again healthy margins as I mentioned merchandize mix in our organic banners was similar to last year, so really able to.
Leverage and build on the strong inventory discipline that our teams are.
Or are working on and have really put as part of our daily operating the other levers our labor right. What we said is we have a very flexible labor model, we use data analytics to manage labor to traffic and ensure that our teams are we're putting coverage and in the stores to.
To put our customers at the right time and in the right locations and then our spend management, we gate our investments and it is and it's really gated against.
Our view of where we see the.
The top line trending we protect priority investments that are critical to long term growth.
And really evaluate each based on our the ability to support our revenue in the short term with the eye to the long term as I mentioned I would also say that as we're looking forward into the back half we've applied all of the same.
Planes, and we work very closely with our NPI teams and vendors on inventory to ensure that we have the right trends, but we have the flexibility to move receipts should that be needed and then from the P&L perspective, our always on marketing the shifts that I mentioned the range for the third quarter is.
Just wanted to amplify that because it's a it's a cost in the quarter that we continue to drive and the revenue relates to the fourth quarter and then I would say in the third quarter recall that as we are anniversarying investments and in the <unk>.
Prior year, we don't really get to that investment anniversary until the fourth quarter. So we are very closely watching our investments and really as we think of our guidance for the third quarter and then the implied guide for the back half we have.
Considered all of those factors.
Yeah.
Thank you.
The next question comes from Dana Telsey from Telsey Advisory Group. Please go ahead.
Hi, Good morning, everyone. As you think about the gross margin and now the new buckets of the gross margin with new businesses entering like diamonds direct how do you think about the shaping of it whether on an annual basis, a quarterly basis and what the opportunity is for the levers of gross margin. Thank you.
Mhm. Thanks, Dana So gross margin you know as I mentioned, our organic banners in the second quarter were similar to last year as we move forward into the back half of the year. We have the same diamonds direct mix, which carries a relative lower margin because of the.
The bridal mix, but also our inventories are healthy and what that means is that our clearance marks are not as deep and therefore our yield on.
Clearance selling is is stronger so that's a lever that we continue to call and use clearance as a strategic.
Lever for us for promotion, but able to carry a relatively higher margin given the health of the clearance inventory then vertical integration is another lever for us to continue to drive to.
Optimize our costs and continue to drive.
Expansion in gross margin over time, and then I would also add the value engineering that Gina mentioned in her remarks, as we work with our.
Vendor base in this environment, we continue to value engineer to ensure that we're bringing beautiful product that's relevant on trend.
Cost that.
<unk> enables us to have the right pricing and also bring value to the customer.
Thank you.
Yeah.
The next question comes from Oliver Chen from covenants.
Please go ahead Oliver.
Hi, gentlemen, John Thank you.
Regarding the lower price point products, where do you see for innovation, there and what's what's necessary and timing on that and how does that relate to traffic and merchandise margins and you're calling out promotions and also the reality of the bifurcation in the lower end consumer and Joan as we thought.
About inventory turns you've made a lot of progress there, which parts of the product portfolio have the most opportunity to increase inventory turns thank you very much.
Hi, Oliver Thanks for your questions.
So we as we've really developed our consumer insight capability over the last several years look at the category by price tiers also by journeys so from a price tier standpoint, as I mentioned in my remarks luxury has been very strong. So that's a part of the category that continues to grow.
So that's generally above where signet plays but what we've been doing is tearing up all of our banners to have higher price point offerings, and we think we grew two points of market share in accessible luxury in the quarter, that's something we got behind very early.
So we've placed.
Our holiday orders by Memorial day, So we really have gotten ahead of that and everything Joan talked about on inventory includes the fact that we have teared up to higher price points in our inventory. This year in terms of lower price customers. Like you were talking about there really I think channel.
<unk> by two factors one is macroeconomic inflation all of that and so particularly in the self purchase journey, we've seen a falloff there that would be primarily price points under $500. The other factor impacting that is the very heavy discounting that.
We're seeing because of high inventories in apparel and other discretionary categories. So that that is impacting that customer right now.
We would expect to see you know as we go toward holiday that the product that we've worked on for those customers. The value engineered product. We think will be very appealing. So we've been using lab created diamonds for example, as a way to get a big look for less for those customers we have.
Work on our items at a price in a way to make sure that we are providing excellent value. We've been very conscious of how we've taken price increases, especially at the low end and we believe we've done that in a way that creates a superior value at cigna relative to the rest of the market.
We've worked with our vendors to use diamonds. They had on hand, so had a lower cost basis call. It last year's inventory and we've been able to use those to create product that can really appeal to that customer.
Another area of innovation is a diamond cut gold. So we've worked with many of our factories in Italy to come up with a laser cutting technique that actually creates the look of diamonds in a piece of gold even though there are no.
Diamonds present, so it gives a really rich look for still a very affordable price point and then the last thing is we've leaned into the financing offers that we have for our value customers are those are of course flip pay.
We saw a 35% increase on split pay using E. Commerce. So we're definitely seeing customers lean into that as an opportunity.
Leasing we have available and then we've increased our zero percent down promotional offerings for our private label credit card as you know an opportunity for those value challenge customers. So we're really I think based on our consumer insights we've been able to get our orders in early and to work early on the kind.
Of innovation that is.
Giving us more access to the part of the market that's growing but also helping us be very competitive and offer great value at the lower end of the market.
And Oliver to address your inventory turns theres a couple of things I would note here one is that.
Because of the health of our inventory and our.
Our consignment inventory position has been substantially.
Substantially lowered from several years ago, we've been able to work more flexibly with our vendors to test product bring it in on memo and roll to two the balance of of our portfolio based on its acceptance by the customer so that it enhances our ability to.
We have strong newness as well as improved churn. So I think that's something that we will continue to drive with the merchandise teams and they're really.
That's something that we started last year in in a smaller way and really its really taking hold as we drive through this this fiscal year and then the other is flexible fulfillment capabilities. Our team has done a really amazing job with our fulfillment team our supply chain team and our merchandize.
Planning teams to really integrate our flexible fulfillment capabilities into our purchasing as well as in to the fulfillment of product from all of our locations.
Our stores and our Dcs, which really has opened up are the selling aperture for us and able to really continue to drive.
Inventory turn there so you know that's underway, but still.
Moving up the maturity curve to to enhance inventories and then I think the third would just be this idea of turning inventory more towards just in time and working with our vendors with core inventory products. So we believe that we still have.
Room to go but you know it will take time and it will be it'll take more precision.
Across our operation.
Thank you best regards.
Thanks, Paul.
As a reminder to ask a question. Please press star followed by one on your telephone keypad now.
We take our next question from Jim Sanderson from North Coast Research. Please go ahead Jim.
Hey, Thanks for the question just wondering if you could walk us through the back half of the year, what the puts and takes are.
Tween overhead expense and gross margin that gets you to.
Didn't really lower dollar operating income in the current quarter and a nice pickup or acceleration in the fourth group what are the building blocks between those cost centers that get you to the end of the year guidance based on what you are looking out for the third quarter.
Oh, Thanks for the question. So when we think about the the back half of the third and fourth quarter split our guidance for the third quarter includes incremental investments.
Investments that we will anniversary.
In the fourth quarter. So that's the.
The operating income rate deterioration that you see in the third quarter, but it's largely due to these investments that we will anniversary in the future quarter. I'd also say that as we're looking at our always on marketing strategy. This as I mentioned in my remarks the seeds.
Marketing costs in the third quarter that are incremental but the revenue has not generated until the fourth quarter largely so I think that the split between the quarters that you're saying, Jim and then lastly, things to remember about last year in the fourth quarter of last year.
We had an inventory related charge based on the reduction in our inventory we took.
A charge related to capitalized overhead that is was positioned in inventory. So that is a positive for us as we anniversary that this year.
Yeah.
Thank you.
Okay, we'll take the next question.
Thank you Sir the next question comes from Paul Lajoie from Citi. Please go ahead Paul.
Hi, everyone. This brand shoot them on for Paul. Thanks for taking my question I was wondering if you could talk a little bit about how ticket and traffic trended this quarter.
When did you start seeing this kind of inflection in the trend of higher price point penetration that seemingly is driving results and what are your expectations for for that price point for them for the rest of the year.
So in terms of traffic, we actually saw traffic begin to go down in the spring. So call. It March April kind of time line with a more significant drop after mothers day brick and mortar traffic this year relative to e-commerce.
Traffic has been stronger that customers desire to return to store of course, you know in our case, it's really not just about E. Commerce sales digital for US is very much about browsing and preparing customers for their store journey. We have two thirds of our customers now that are having a multichannel.
Our experience with us, but we have seen more purchase in more traffic happening in brick and mortar and then in terms of the sort of bifurcation of challenge to lower price points and growing higher price points I would say that was most pronounced following mothers.
Day.
We saw that as a big kind of June sort of phenomenon July the surprise of July was that higher price points actually became a bit more challenged but as we've said we have seen some stabilization in August from that.
Yeah.
Okay sure.
Is your guidance assume.
That trend kind of continues in the higher price points or are you expecting kind of an inflection in your lower value.
Yeah.
Yeah.
So the way to think about is our high guide assumes a continuation of the Q2 trend on comp.
Carries in the Q3, and it's and Q4 is positioned with a modest improvement largely from non comp activities that we're putting in place.
To improve performance are low guide positions Q3, and Q4 comps similar to the trends that we saw in July and August .
And the underlying assumption here is that the macro environment remains constrained in the back half.
Got it that's helpful. And then I was wondering you know you've talked in the past about.
Yeah, Jamie more share of kind of wedding related jewelry I think historically you did a good job of capturing the engagement and then you know you didn't capture as much of a wedding date.
Wanted so I was wondering if you could kind of talk about you know how has your penetration on the wedding day related jewelry go in.
Do you think that that can kind of grow to where you are in carnival progression.
Yeah.
I would say, where we're reasonably early in that progression, but but our first party data capture the investments we've made in our consumer data platform. All of that is really a big help to us. So we are I would say more than ever able to not judge.
Get to know couples at the engagement stage, but then really stay with them to work toward wedding band purchases and all the different wedding day purchases I talked about the research that I quoted is cigna proprietary research around wedding activities and.
And the fact that 43% of all gifts given around the wedding. Our jewelry. We think is a big opportunity for US we are launching new programs to go after that so gifts guides that help the bride. She is a big to do list coming out of the engagement and working toward the wording.
So the more we can help on that the better.
And I'm excited about some of the other innovations so I talked in my remarks about what we're doing on rock Sparks and having launched a bridal event rental program. That's a great opportunity for brides to be able to you know, we're nicer jewelry than they might have otherwise you know for all of their events.
Whether it's you know the Bachelorette party or.
You know announcement of the engagement all the way to the wedding day and of course once you know she's been looking at those photos for a year or more of that beautiful jewelry, where certainly than using our data and our our targeted.
Targeted marketing efforts to you know.
Try to drive a choice of that as a great first anniversary gift or birthday gift during the first year. So it's really a combination of the consumer insights that we have developed the work that we're doing with our CDP to.
Capture more and more information and be more helpful to our customers throughout the product the process and then the assortment that we're putting in place that we think can really help them. So our services business coming to life matched up with data and assortment.
Our final question comes from Mauricio Serna from UBS. Please go ahead.
Great Good morning, and thanks for taking my questions.
I wanted to ask just very quickly.
You mentioned that you closed the Blue Nile acquisition. So I'm just wondering like is that something that will be already be reflected in Q3 or just those that began in Q4. So maybe if you can provide to them.
Guidance around that and then maybe if you could elaborate a little bit more about how you see this acquisition.
Versus specifically the James Allen.
Ah business, just wondering if theres any big customer overlap or anything there that could be leading to some kind of conversation between both our format and then maybe if you can talk about Q3, the sales outlook I think it implies roughly 24% sales growth versus 2000.
<unk> 19, but if you take your guidance for the year I think that assumes like a 20% growth in Q4. So just wondering what are you thinking there.
Our guidance for sale. Thank you Hey.
Thanks, <unk> I'll take the first one and then I'll come back on the guidance so that Blue Nile acquisition, we closed in the third quarter and that will be reflected in our performance from the point of closing forward as I mentioned marine fail. We were on our teams have been working diligently.
Gently they've been on the ground there for about a week and we have.
Really been working very closely too.
Develop the forecast and the plans are collectively for the balance of the year. So stay tuned on that but as I mentioned it is not in our guidance for the balance of this year.
And then in terms of you know incrementally of Blue Nile, we see that as a great market share growth opportunity. We did a considerable amount of consumer research before the acquisition and we found that blue that Blue Nile has a distinctive cohort.
Young girl more diverse more affluent than the rest of our portfolio. They also have some different go to market models.
Versus our James Allen business, so with twenty-three showrooms are they have a very low inventory model, but a high touch high service environment for customers to be able to see styles try on pieces really get a feel for what they want but then they place.
The order online in a marketplace, that's very similar to what we do on James Allen. So there are a lot of back office synergies, we think that can come to life. In this acquisition, which then will give us more fuel to really invest to grow both of these as distinctive banners within our portfolio.
And to John's point, we we did we had our team out meeting with the Blue Nile team. The day. After we closed and we've just been so pleased with the caliber of talent in the Blue Nile organization and the excitement that they have to really.
To make this transition a very successful ones. So I would say we're off to a good start on that front.
Then to address the Q3 Q4 as I mentioned the high guide assumes a continuation of the Q2 trend on a comp basis.
And it carries it carries into Q3 and modest improvement in Q4 related to non comp activities that the team has tested and put in play.
For the holiday will put in play for the holiday season on the low end the guide positions Q3, and Q4 comps.
Emily to the trend that we saw in July and August and I believe that's more conservative and just.
Put out the note again that we did see some improvement in August which gave.
Dave has confidence in the high guide.
But just to be really clear blue Nile is not in our guide at this point in time, it's just too early for us to really know what that's going to look like for Q3 or Q4.
Got it that's very helpful and any thoughts on the share repurchases outlook.
All potential share repurchases given that you still have over $600 million available.
Well, what we said is that we we are it remains part of our stated capital priorities and given our belief that we believe our stock is undervalued that we it will remain part of our priorities and we have a multiyear <unk>.
Program and the authorization of $622 million.
We have no further questions left in the queue. So I'll hand, it back to management for any closing remarks.
I want to thank everyone again for joining us today, what I Hope you took away that signet has the strategic clarity structural advantages financial flexibility and winning culture to deliver consistent reliable and sustainable growth and meaningful shareholder value.
Thank you everyone.
Okay.
Thank you for joining this now concludes today's call. Please disconnect your lines.
Uh huh.
Okay.
Yes.
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