Q4 2024 Signet Jewelers Ltd Earnings Call

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Good morning, and welcome to the Signet Jewelers fourth quarter fiscal 2024 earnings call. At this time all lines are in a listen only mode.

The presentation, you will come back a question and answer session. If at any time. During this call you acquire in Egypt, assisting these special Star Zero for operator. Please note. This event is being recorded.

Joining us on the call today are Rob Lee Senior Vice President of Investor Relations.

<unk>, Chief Executive Officer, and John Harrison, Chief financial strategy and surface access.

At this time I would like to turn this conference over to Mr. Robinson Senior Vice President of Investor Relations. Please go ahead Sir.

Good morning, welcome to Signet Jewelers fourth quarter and fiscal 2024 earnings conference call. During today's discussion we will make certain forward looking statements.

Things that are not historical facts are subject to a number of risks and uncertainties.

Actual results may differ materially.

To read the risk factors cautionary language and other disclosures 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. The bulbs reconciliation of the non-GAAP financial measure to the most directly comparable GAAP measures investors should review the news release, we posted on our website at IR that Signet jewelers dot com with that I'll turn the call over to Jennifer.

Thank you, Rob and thanks to all of you for joining US today before we discuss both our fiscal 'twenty four results in fiscal 'twenty five expectations I'd like to thank our signet team they delivered on our expectations and a year that experienced a deep COVID-19 induced engagement trough and an overstocked into it.

Street that drove an elevated promotional environment for the jewelry category.

You continue to inspire me. Thank you for all your hard work and dedication this year.

I'd like to leave you with three key takeaways today.

First we delivered on our financial commitments this quarter with EPS above the high end of our guidance range.

Second excluding nonrecurring legacy legal settlements for the fourth year in a row.

We generated over $600 million in free cash flow. This is nearly 15% of our market cap.

Third we expect same store sales to improve throughout fiscal year 'twenty five as the engagement recovery gains velocity.

I'll elaborate on each of these takeaways beginning with this quarter's results.

We delivered sales of $2.5 billion this quarter down roughly 6% to last year.

Anticipated we saw late shopper, that's holiday as value conscious consumers, who are holding out to get the best deals and had one extra week in the shop for gifts, we leveraged branded innovation and value engineering within our newness to provide customers a competitive value proposition.

Along with sides trade up options in categories like lab created products.

Our strategy resonated with our customers as we saw new items sell through at an impressive 700 basis point increase to a year ago, our strategy, which worked all year with also effective in the fourth quarter as we held North American average transaction value of nearly flat and expanded.

Our non-GAAP gross margin by 170 basis points to this time last year.

Inversely industry data suggest independent jewelers accelerated their deep discounts and lab created diamonds and stepped up their discounting for natural the IMAX modestly. This resulted in heavy AUR declines among independents.

Our lifecycle product management continues to be a source of strength driving inventory levels down 10% compared to the prior year as we take markdowns on slower moving products earlier. This also allows us to bring in relevant new items faster, which have higher margins.

Continuing the trend we saw for most of fiscal 'twenty for jewelry retailers that cater to the low priced fashion category outperformed likewise banter our value oriented fashion banner delivered the strongest same store sales in the U S. This quarter nearly flat we also.

Strong performances at peoples in Canada, and value banner, H, Samuel and the U K, both of which delivered positive same store sales over the holidays.

Offsetting the stronger performance in our core we had challenges at our digital banners from operational and integration issues, resulting in lower fulfillment, which has continued into fiscal 'twenty. Five. This was caused by the integration of Blue Nile with production partners, resulting in lower conversion rates.

In the last six weeks of the quarter, reducing our overall North American same store sales by one point, we are working to resolve these issues and expect to have sex with implement up later this year.

We also underperformed in our earnest Jones banner in the U K and parts from macro challenges as well as a more negative halo impact from the November sale of our luxury watch doors.

We estimate our U S jewelry merchandise market share for fiscal 'twenty four was approximately 9% down modestly from the prior year driven by mix shift with lower engagements as well as the relative strength in lower priced self purchase items, where we have less penetration we believe that we have.

Expanding our market share in the bridal category for fiscal 'twenty four by approximately 50 basis points, which is where we over index to the industry with nearly 30% market share.

The second takeaway today is that our flexible operating model, it's working as designed and generating significant cash fueled by continued cost savings sourcing efforts and inventory discipline.

We continue to drive working capital efficiencies in our business, which led to a 97% free cash conversion to non-GAAP operating income.

We believe our ability to drive free cash flow will continue this allows us to invest in the growth of our business, bringing critical newness and to return significant capital to shareholders last year, we returned nearly $200 million to shareholders and we have returned nearly 1 billion.

Dollars to shareholders over the last three years.

This morning, we announced a $200 million increase in our share repurchase authorization, bringing our total remaining availability to approximately $850 million. This is higher than the outstanding conversion market value of the L. G P preferred shares.

We believe share buybacks remain a very attractive use of capital for our shareholders. We also announced a 26% increase in our common dividend to <unk> 29 cents. This quarter, our third consecutive year of growing our dividend, which even after this increase represents less than 10.

<unk> of our free cash flow in fiscal 'twenty four.

Our strong free cash flow also strengthened our balance sheet. We ended fiscal 'twenty four with $2.5 billion in total liquidity, which is $1 billion of golf our target of one $5 billion. This gives us the dry powder to handle both.

148 million dollar unsecured notes that mature in June as well, it's the convertible preferreds that mature in November while staying well within our liquidity goals.

As a reminder, the convertible preferreds also represent approximately 15% of diluted common shares which provides potential EPS upside to our fiscal 'twenty five guidance and our midterm goals.

We are in active discussions with our board and L. G. P. On the best way to retire the preferred shares in fiscal 'twenty five and we plan to give further updates as these discussions progress.

The third takeaway is that we believe signet will see sequential same store sales improvement throughout fiscal 'twenty five.

One component is the return of engagements in the U S. We saw industry engagement unit sales consistent with our expectations in the fourth quarter and after a deceleration in January and early February we saw a notable improvement in the back half of February and March.

Milestones that we track showed that the number of couples that have experienced more than 25 of the engagement milestones has increased 500 basis points since early 2023.

We believe engagements in the U S should increase this year between five and 10%.

This is a clear opportunity to attract new customers.

Cigna provides tenured knowledge known brands consistent newness and a full range of customization options.

We believe the shape of this year's engagement growth will have a more material impact in the second half of the year as customers continue to plan. The majority of engagements around the October three in February.

Our customer data platform now includes 17 million customers known to be in data relationships and we use this data to provide personalized marketing and education to attract engagement customers.

After our customers engagement ring sale, we've looked to build lifelong relationships, that's what it'll be there for birthdays anniversaries and milestone occasions, as well as providing the services to keep their jewelry collection protected and looking at best.

We will also continue to build brand equity utilizing scale capabilities that we'll win new customers, including targeted personalized marketing.

In fact recently, we tested 28 days sprints of personalized marketing among Kay customers and early results are driving a more than 10% revenue lift versus the control group.

Over the last six years, we got smaller three fleet optimization that set ourselves up to get bigger in fiscal 'twenty five we will invest to grow strategically in markets, where we see great returns, including our hometown market strategy for K and to improve the shopping experience for our <unk>.

Customers with enter our stores three renovations, we are opening up to 30, new stores and renovating an additional 300 stores in order to drive brand relevance and our highest productivity doors. We've seen strong returns from these early investments of between 15% to 25% IRR.

Sure.

Services, which outperformed merchandise by more than 1000 basis points for the fourth quarter remains a key area of growth in fiscal 'twenty five.

Look to expand services further three b to B services with independence and insurance companies, where we offer exceptional values given our scale and breadth of service offerings. We will also drive post repair extended service agreement or Esa offerings to customers, who did not buy an Esa.

Initially or are seeking repairs on a piece not purchased at Cigna.

Following our nearly 350 basis points increase in fiscal 'twenty four we continue to see the opportunity to further improve attachment rates in fiscal 'twenty five both in store and online.

Now I'll briefly comment on results so far for fiscal 'twenty five similar to Christmas Valentine's day, shoppers world weight and highly valued motivated as a result January and early February trend was quite soft with comp sales down mid teens.

Since early February trends have notably improved with same store sales down mid to high single digits.

The core business continues to outperform with digital banners, the operational issues dragging comps down.

We believe consumers will remain focused on value this year as they make important tradeoffs in their budgets.

And our ability to bring newness and innovation will be a differentiator.

To summarize my comments today I would like to reiterate our three key takeaways.

First we delivered on our commitments again, this quarter, including non-GAAP EPS above our high guide.

Second we generated over $600 million and pro forma free cash flow for the fourth year in a row. Our flywheel operating model is driving strong free cash conversion, which we're using to return capital to shareholders improve our balance sheet and invest in our business to drive growth.

And third we believe we will see same store sales improvement through fiscal 'twenty five with same store sales turning positive during the back half of the year in our core banners driven by engagement recovery strengthened brand equities product newness and new customer acquisition all of them.

Maintaining cost discipline.

I'll now turn the call over to Chad.

Thanks, Jen and good morning, everyone.

Revenue for the quarter was within our expectations at $2 $5 billion down 6% compared to the prior year.

Same store sales were down nine 6%, but improved for the third quarter. This.

This reflects the acceleration in bridal and fashion categories.

While December was our best same store sales performance of the quarter January was somewhat below expectations driven in part by integration issues and our digital banners.

Our engagement performance improved several hundred basis points compared to the third quarter and our overall incidents of engagements. We're in line with our expectations excluding digital banners.

This quarter included a 50, <unk> week, which generated $103 billion in sales and was largely the difference between total sales and same store sales decline.

In North America, a TV for the quarter declined 60 basis points to last year and transactions were down roughly 7%.

The relatively flat performance in the ATV is notable compare to the more significant declines in AUR for independent jewelers due to their deep discounting.

Our stable AUR during the quarter was driven by our assortment strategy, which provided our customers with several options to trade up through innovation and value engineering.

Services grew 5% to last year, driven by an attachment rate that increased by nearly 350 basis points, reflecting newly implemented offerings like post repair assays as well as point of sale, prompting for our jewelry consultants.

We delivered gross margin of $1 $1 billion this quarter or over 43% of sales with non-GAAP gross margins, a 170 basis points to the prior year.

Merchandise margin also grew by 140 basis points on a non-GAAP basis led by services and an increased mix in newness and LCD merchandise.

Turning to SG&A, our non-GAAP expense of $670 million reflects 26, 8% of sales 70 basis points higher than last year as we deleverage somewhat against fixed costs. However, this reflects meaningful improvement to prior quarters with cost savings there.

High end of our expectations.

Our non-GAAP operating income was $410 million for the quarter or 16, 4% of sales delivering $5 million more than the prior year on lower revenue.

non-GAAP EPS for the quarter was $6 on 73 cents per diluted share up 22% from the prior year on higher operating income higher net interest income and a lower effective tax rate.

For the full year, we delivered $7 $2 billion in sales, reflecting an 11, 6% decline in same store sales with gross margin of two $8 billion or more than 39% of sales. This is up 30 basis points from fiscal 'twenty three on a non-GAAP basis.

Reflecting a merchandise margin increase of 110 basis points, partially offset by deleveraging of fixed costs on a lower sales base.

non-GAAP SG&A for the year of $2 $2 billion or 34% of sales was up to last year largely due to the fixed cost portion of labor.

non-GAAP operating income for the year was $643 million and resulted in a $10 37, non-GAAP diluted earnings per share with EPS above the high end of our expectations, our GAAP EPS of $15 and one fact was positively.

Impacted by a 263 million dollar nonrecurring benefit or $4 88 per share.

From the impact of new tax legislation in Bermuda, which resulted in the recognition of a deferred tax benefit in Q4.

Due to this new legislation beginning in fiscal 'twenty, six or a year from now our effective tax rate on income in Bermuda will increase to a minimum of 15%.

Which is expected to increase our overall effective tax rate nearly 4%.

This $263 million benefit also provides an offsetting impact on cash taxes over the next 10 years or roughly $26 million a year.

This means our cash tax rate will be well below our effective tax rate.

Our ending inventory of $1 $9 billion was down 10% to the prior year, a larger reduction than year over year sales and down more than $600 million compared to pre pandemic, excluding acquisitions and including minimal inventory it was down more than $1 billion in.

Our core business at.

We continue to focus on lifecycle management, taking markdowns earlier when merchandise performance does not meet our current expectations.

In order to capture more margin before Skus reached clearance, we continue to see opportunity in optimizing our inventory, particularly as we lean into AI to drive assortments at the store level. These efficiencies translate directly to cash flow and higher margins we end.

The year with inventory turns of one four times in line with the prior year.

Turning to leverage.

Gross debt to adjusted EBITDAR was two three times with net debt to adjusted EBITDA of negative seven times as our cash of $1 $4 billion exceeded approximately $800 million of outstanding debt.

We continue to grow confidence in our ability to generate free cash flow each year, driven by our flexible operating model and continued efficiencies.

As we look forward into the year and the maturities ahead of US we are reducing our gross debt to adjusted EBITDA leverage target down by.

Two five turns to be at or below two five times and we are introducing a debt to adjusted EBITDA target of at or below 125 times, which would imply net debt to adjusted EBITDA below two five times at the end.

This year, our unsecured notes mature in June and our convertible preferred shares mature in November our fortress balance sheet and strong liquidity and cash conversion allow us to address these maturities in full and further debt issuances would be done opportunistically.

Turning to real estate last year, we closed 114 locations, mostly comprised of lower performing ball locations and UK stores.

We ended the year with roughly 2700 locations across our banners down more than 500 stores from fiscal 'twenty.

Our ending store count also reflects the sale in November of 15 prestige walks locations in the U K for an accretive multiple to continue our focus on our core higher margin jewelry business as.

As well as two additional locations subsequent to that transaction, including one in February.

Based on the strong performances, we've seen up tearing Jared Diamond's direct new stores and the cake, new and remodeled stores, we plan to increase our investments in our fleet in total we expect approximately $160 million to $180 million and cap.

Expenditures this year, including 20 to 30, new stores and renovating approximately 300 locations, including 200 Kay stores 50, Jared locations and six diamond direct stores to enhance the customer experience.

We also expect to invest $40 million to $50 million in digital and technology in support of our consumer and team member experiences.

Turning to guidance looking to the first quarter, we expect total sales in the range of $1 $47 billion to $1.53 billion with same store sales down between 11% and 7%.

Including a two point negative impact from our digital banner issues mentioned earlier.

As a result of modest fleet optimization and luxury watch store sales returning to a 52 week fiscal year and that's a generally popular investor request, we're reintroducing same store sales guidance.

Early Valentine's day shopping was down mid teens consistent with January performance.

Since Valentine's day same store sales have improved notably up two to three points to the fourth quarter and a further point when excluding our digital banners.

We forecast that the number of engagements in the U S will be down low to mid single digits in the first quarter of the year, we expect non-GAAP operating income between 40 and $60 million.

We are also introducing adjusted EBITDA guidance this year upon request from investors.

In the first quarter, we expect adjusted EBITDA between $87 million to $170 million, we expect flat to modest improvement in gross margins in the first quarter, while the leveraging of SG&A on lower same store sales.

For the year, we expect fiscal 'twenty five total sales in the range of $6 six $6 billion to $7.02 billion.

We expect a range of down four 5% to up <unk>, 5% for same store sales this year, including a one 5% to 2% drag from our digital banners and then approximately negative 5% impact from the negative.

Halo of our Ernest Jones banner in the U K.

We believe our core banner will continue to outperform with same store sales approximately flat at the midpoint for the year.

We expect to resolve the issues and our digital banners in the second half of the year, but it is not reflected as such in guidance.

These issues are solely related to the James Allen and Blue Nile integration and are not tied to nor are they impacting the e-commerce channels of our core banners, which are performing well.

We believe consumers will continue to be impacted by the elevated inflation over the last two years in fiscal 'twenty five consumers continue to focus on value in the current environment and our new items will be focused on price points that appeal to consumers across a variety of demographics.

We also anticipate continued elevated promotions among independent jewelers this year.

We expect engagement activity to be up 5% to 10% for the U S in fiscal 'twenty five.

As such we expect our same store sales to improve as the year progress at.

Our guidance range assumes a fairly similar three year of same store sales stack in Q1 and for the full year we.

We are also cycling off a 50 <unk> week that was over $100 million.

$75 million in the UK, some selling 17th prestige watch locations and closing up to 30, Ernest Jones locations.

And another $50 million from total closures in FY 'twenty, four and fiscal 'twenty five.

Net new store openings, we expect our overall net square footage to be flat or to decline slightly.

Closures of the Ernest Jones locations in the U K as part of our efforts to rightsize that banner and ship sales keep digital and other locations.

We are also streamlining our overhead in the U K and expect to achieve margins in line with the rest of the company within three years.

Fiscal 'twenty five non-GAAP operating income is expected to be in the range of $590 million to $675 million with adjusted EBITDA between $780 million to $865 million with modest non-GAAP operating margin expansion.

This reflects cost savings of $150 million to $180 million. This year from a new three year initiative to drive a $350 million in costs out of the system leveraging AI streamlining non customer facing expenses in addition to increasing.

Sourcing efficiency.

We expect cost savings to be more impactful in the second half of the year as we see the benefit from sourcing savings and inventory turn.

We expect modest deleverage in SG&A from the reset of incentive compensation and investments in e-commerce channels and customer and team member experiences offset by gross margin expansion.

Full year non-GAAP diluted EPS is expected to be in the range of $9 eight.

$210.48 importantly, our EPS estimates for the year assumes the dilution of the preferred shares for the entire fiscal year.

As I close my comments today I want to thank our talented cigna team members their passion for our millions of new and loyal customers and their dedication to ongoing consumer inspired innovation resolved and an unrivaled experience in our industry.

Our team is why we have an excellent net promoter scores both online and in our stores I'll now open it up for questions.

Thank you and ladies and gentlemen, we will not begin the question and answer session should you have a question. Please press the star followed by the number one on your telephone keypad, you will hear a lethal problem with lodging your request and your questions field people that there are there guaranteed.

Should you wish to decline from the polling process. Please press the star followed by the number two if you're using a speaker phone. Please keep the handset before pressing any he's well Simon please for your first question.

Your first question comes from the line of polished wafer the Citigroup. Your line is open.

Hey, everyone Brandon Cheatham on for Paul I wanted to dig in on you know what youre seeing on the engagement side to update your forecast you know now you're looking for 5% to 10% increase for the year versus what I think was a 10% increase previously.

I'm just wondering can you walk us through the progression as the year continues.

Does that assume an acceleration for Q4 to end up higher than 10% to get there.

Hi, Brandon. Thanks for your question. So we're seeing engagements recover as we expected they would when we saw the trough happened in Q4, and we're expecting as you'll recall, a gradual and incremental improvement in engagement trends.

Over the next three years, so it takes a bit to recover.

We've also continued to see progress on the 45 milestones that we track you know we have statistically significant data that shows us that once a couple has experienced a certain number of them.

The proprietary milestones that we've identified and that number being 25, they're much more likely statistically significantly likely in fact to get engaged and that's up 500 basis points versus just a year ago. So.

So we expect engagements to strengthen as fiscal year 'twenty five progresses, we think at 5% on the low side of our guide 10% on the high side of our guide for the fiscal year, but that will naturally be back weighted and that has to do with both the gradual recovery as well as the seasonality.

[noise] of engagements more couples tend to get engaged in the October to February time frame. So it will likely be more back weighted.

Got it thanks for that and I was wondering could you quantify you know.

The ticket and transactions that you saw.

Particularly in the first half of February and where those metrics are now did you see pressure in any particular segment right or fashion and.

Incremental pressure that you weren't expecting on the higher end.

So I think if we get if we go back to Q4, and we don't we don't quantify all the tickets, but one of the things that that we were proud of how our team executed in the fourth quarter was maintaining a stable average transaction value. This despite significant does.

Its counting from independent jewelers, especially on lab created that was in bridal and fashion. So.

That did put some pressure on average transaction value, but because we brought so much newness, which sold through so well and we value engineer that newness to provide an exceptional value we were able to hold.

Those those trends of our independent deep discounting have pretty much continued into the first quarter I would say and I think what we saw in the jewelry category in January and early February was pretty similar to the rest of retail it was a low traffic time and a challenged consumer.

Yeah.

Got it I appreciate it thanks and good luck.

Yeah.

Thank you. Your next question comes from the line of Lorraine Hutchinson from Bank of America. Your line is open.

Thanks, Good morning, I just wanted to follow up on on the engagement discussion you did talk about unit sales consistent with expectations for engagement in the fourth quarter.

Was there some softness in pricing versus your expectations and then how has that competitive landscape and are included in the guidance for this coming year.

So the reason I'm Hillary and the reason that we talk about units, it's because we're thinking about the number of couples getting engaged and.

And that's like I said has been recovering very consistently to what we thought similar to my answer to the brand and we have seen some pressure on average transaction value both on bridal and in fashion, particularly driven by deep discounting among independent jewelers Youll remember they didn't.

The engagement trough as well as we did and so we're over inventoried all year. They were working through that inventory still in the fourth quarter and so a lot of pressure on moving that through.

I think that you know.

While we have seen their continued discounting into the first quarter I would anticipate that the inventories are recovering somewhat and so that could be of help I also think that consumers are.

Becoming more aware that a lab created diamond prices are falling and so while they might be great for fashion jewelry. There is something very very rare and you know that individual about a natural diamond.

And so we think that that is a potential tailwind for natural diamonds in the year ahead.

Okay.

And then can you talk.

Give us some of your insights on the competitive landscape on the non bridal business and what your expectations are for that this year.

Sure. So the part of the category overall, but has been performing the best is low priced fashion jewelry. So you know banter our value banner competes in that space H, Samuel and the U K competed in that space, but overall we.

You have reasonably low exposure to very low priced fashion jewelry.

The place, where we think we have an opportunity in particular isn't goals.

Where we have some sourcing advantages and direct partnerships with.

Factories to really value engineered jewelry also bringing lab created into fashion proved to be a good strategy for us over the holidays and our newness was well positioned to trade customers up into price points that we you know do uniquely carry over the holidays, we had a seven.

Hundred basis point improvement and how our new items sold through over holiday by pursuing that strategy I would just add onto that.

The idea of AV of newness into the Green shoots that we saw in holiday you know, particularly in fashion and in their new bridal offerings, our intention and included within the guidance that.

That we've given for FY 'twenty five is.

Higher compliment of newness based on current run rate and testing that we saw in the holiday selling period the rain.

Thank you.

Your next question comes from the line of Iva show from Wells Fargo. Your line is open.

Hey, good.

Good morning, everyone a couple of questions maybe for Joan.

Well first of all on the gross margin line I think you commented it.

Well.

<unk> and that kind of negative talbots pretty impressive can you kind of just walk us through the.

Moving pieces on groups in the first quarter, and how youre able to kind of stay at home.

Speaker Change: Yeah. Thanks for the question Ike So our first quarter continues with the.

Ike: Sourcing savings and sourcing efficiencies that we've been able to work with our vendors and work with our sourcing team to provide and what's really important and the margin equation is newness and so we are bringing in more newness as I just mentioned and we expect a true up.

Out of the year that the margin improvement will be more back half weighted and it's part of our cost savings program, because the newness coming in as the incremental newness will turn and we'll see more of that happen through throughout the year largely related to the back half so sort of thing is a big opportunity there but also.

Safe our disciplined inventory management, our teams have done an amazing job of being nimble and synchronizing, our inventory position to demand and trends and so we are not you know we are in a position, where we are not over inventoried, particularly and clarinet clearance or sell down.

And so we're able to manage a leaner in March earlier before you know product goes to clearance. So I would say inventory management is another key component and then well we face.

Promotional discounting that we're seeing in the industry. We've also been able to target pricing within specific areas within our product base. So we're not it's not a broad based discounting or.

Promotional posture that we have so those are the levers that we're using to continue to drive gross margin as an opportunity for us in Q1 as well as fiscal 'twenty five.

And then Jeremy you had mentioned you expect margin improvement to be more two way trade. It exactly but just operating margin are you, saying that gross margins could also improve year over year gross margin gross.

Gross margin will improve the sourcing savings as we.

As we roll our turn our inventory we had last year was one four times and you know the sourcing newness comes in and the sell through largely will occur more back half on the new items.

Got it and then just to stick with the gross margin.

Total revenue was down 2%.

Can you tell us how are you.

Like what are your services expectation I assume you outgrew that number but is there a number you could share with us for the year that you're planning.

Not specifically on services, but what I will tell you. It was we continue to implement new tools and opportunities within the services business. We mentioned a couple on the call that our wrap or wrap around opportunities. So pls prompts for our jewelry consultants.

Ike: Our is rolled out to all of our banners as well as post repair Esa, which is something that we've been ramping up and we see traction our stores team has done a great job and you know training and really understanding the benefit to our customer for those services are the ones.

Stop for all of their jewelry needs. So we continue to evolve that our attachment rates <expletive>.

[noise] respond similarly, as well so a lot of great opportunity in services for us.

Okay. So it sounds like there was a law performer, but we're not in that country.

You talked about your planning you know.

I'll quantify the exact but we expect it to continue to grow.

And it did help our lower merchandise five yeah 5000 deaths in the fourth quarter.

Great point understood.

And sorry last question just on the tax rate comment John that you went through you talked about the step up like three or four points is that is that incorporated in this near 19 to 20 that you have this year or should be or are you, saying that we should be expecting like 23 to 24 going forward in the out years.

So thank you for the clarification I b impact for the new tax legislation for Bermuda will affect FY 'twenty sensed not FY 'twenty five.

There was no impact in FY 'twenty five we recorded the deferred tax benefit.

At the end of the year.

Ike: And it does affect it will affect tax rate and a year from now and associated with that as a cash tax benefit.

That will occur ratably over the next 10 years.

Got it so 'twenty three 'twenty four as they go forward.

Right.

It starts at 'twenty three 'twenty four yes yep.

Thank you so much for me.

Yep. Thank you.

Your next question comes from the line up Mauritius Werner from UBS. Your line is open.

Hi, Good morning, Thanks for taking my questions I guess, just wanted to get a sense of what are you thinking about the.

Total jewelry industry growth, considering also like fashion and in all.

The non the non engagement part of Brian how are you thinking about the industry growth for the year and then I'm. Just also maybe you could provide a little bit more detail on you know on the digital part of the business.

Can you elaborate a little bit more like what are the issues happening in there what you know.

If I recall I think you were already expecting some benefits in Q4 of integration from both banners and then lastly, just on the commentary based on the commentary that you provided for Valentine's and how things have trended. Since then like is there a way to get a sense of like what are the quarter to date comps. Thank you.

Yeah.

Primary fear so I'll start on your questions and then John can chime in on that so in terms of what we're expecting from the category and this year ahead, we're expecting the jewelry category to be down mid single digits are we would expect to them to be able to grow share in that environment.

Currently in bridal, we're seeing consumers continue to be value oriented that's how they were at Q4 and Valentine's day, a late shopper highly focused on value. Our strategy that worked in Q4 was first to leverage our industry, leading banner portfolio to appeal.

The customers across all price points.

Second to bring more newness and innovation in a tougher economy customers still get excited by things they haven't seen before by innovative new items, and we value engineer that newness to offer an especially good value without the level of how heavy discounting that we saw in the category and finally, we.

Believe we are positioned to win as engagements return because of our tenured store teams are well known brands Trust as a more important factor in the engagement ring purchase and we're using proprietary data I mentioned in my remarks that we are a customer data platform today includes 17.

People, who are in dating relationships. We would expect you know only two and a half million or so of those to get engaged in the next in the next year or so we have more than enough people in our proprietary database to really be talking to those pre engagement customers.

In advance so that that's kind of what we see coming in the market and why we think we're positioned to perform better than the industry in this environment.

Your second question was about digital banners and so the first thing I wanted to start with is just emphasizing that the issues that we saw were not to do with our core E. Commerce business. It was blue Nile and James Allen as a result of the integration.

Our core E comm business is performing well and the investments that we've put in place have led us to hit an all time high in net promoter score in digital.

What we saw with James Allen and Blue Nile, where some operational issues related to the re platforming of the business.

Frankly, we thought we had it all wired and the pipes were connected well, but they weren't and we we had unfortunately some problems of integrating blue Nile with its production partners, which caused us to see a dip in conversion with much longer fulfillment times.

So we've got the team very focused on getting this fixed we believes that we are.

<unk>, a very good path to get these issues resolved.

We expect the fixes in place.

Later during the year, although our guidance does not reflect significant improvement in the digital banners in fact, our fiscal year guidance assumes a two point comp drag in total coming from the digital banners.

That Maurice here with respect to your comp question as we mentioned early the day, our Valentine's day was down mid teens post Valentine's day, we're seeing a down.

Mid to high single digit comp and if that helps to put the year in context for you are first half of FY 'twenty five same store sales range should be down to high single to mid single digits.

Followed by a second half of down slightly to low single digit growth, that's how to put the year in context.

Very helpful and very lastly, a follow up on the cost savings initiatives any way you can break it down like into the three big buckets that you mentioned on.

The sourcing.

AI and others like the non customer facing expenses. Thank you.

Yeah. So as we think about the $3 50, we expect.

Our anticipated $150 million to $180 million this year in cost savings and it's through sourcing savings is roughly.

Half of that is I would say for this year and would look for that to continue into the out years without sort of balance and then the AI and customer facing non customer facing expenses would be the other half of that savings and again.

Again, as I mentioned, the sourcing savings would be more back half weighted.

Very helpful. Thank you very much.

Your next question comes from the line of Jim Sanderson from Northcoast Research. Your line is open.

Hey, good morning, I wanted to talk a little bit more about the 300 renovations you're planning. This year. That's I think about 10% of your store fleet can you outline the benefits you would expect this year or if this is a later year benefit and any feedback on what you think the improvement in store sales volumes would be from those remodels.

Yeah, Thanks, Jan but we're excited about this program, we've been able to test within our Kay stores, which I mentioned were largely.

Roughly 200 stores and consistent with you know hometown strategy for Kay. The renovations have delivered him you know a mid single digit lift for us and we call them renovation light, which means from a capital perspective, it's very efficient.

And what they include our new carpet led lighting really are supporting the sustainability and environment, you know strategies that we havent goals will.

We will take care of expanding services, which again as we talked with IDE is a significant investment for us overall and drives top line growth and then we'll.

Fact, the cases, the lighting in cases, and really upgrade the presence of the shopping environment for our jewelry consultants as well as our customers and then will include digital displays as well as you know basic loss prevention update so as you can see it's capital light, but it's the law.

<unk> top line growth for us.

And there's a store in Texas that we've done, but let's work on and we're really pleased with the response from our stores team as well as the customer I would also note the Jared stores I mentioned, the fact, we're up tearing Jared.

The assortment we've tested.

Different layouts and different design within the Jared.

Banner, where we're investing in 50 stores and we're very excited about that that has an overall lift that's in excess of 10% on the top line. The IRR on it is you know.

18% to 22% and we feel that it better supports the cheering up of the assortment and then we're seeing a very nice sell through on newness in that assortment to and it's a holistic upgrade for us because we're also increasing inventory towards the new assortment and the Jared banners.

We're also testing.

Testing different formats, and other banners, such as banter, which Jenna mentioned performed very well at at holiday and we're looking to improve services and increase the service level of business in the in the.

Banter.

Uh huh portfolio, and we believe that those those investments well the tests will read will play out and we'll put investments against.

Our strong top street.

Thank you for that.

Are there benefits primarily to be to take place next year. So this isn't really a fiscal 2025 storey or as part of that baked into your expectations.

It's a back half story, we have to invest.

You know upfront here it'll take us probably through to the end of the third quarter to address all the stores that we have a targeted so yes. Its definitely later in the year.

Okay, and you mentioned a comment about some fixed cost slightly.

Slightly higher on a year over year basis I'm, just wondering what is your outlook on labor inflation.

Not only just inflation, but perhaps investment in labor as you grow going forward.

Yeah, we feel very strongly about investing in training, especially within our store teams we have to we've.

Abided for that in our guidance and in our investments for FY 'twenty five so very cognizant of that and we believe it's very important to do that outside the store take that our jewelry consultants and give them a right training environment that enables them to really gain full benefit in <unk>.

Back and train the balance of stores and so forth. So a very important investment for US inflation itself is included within our guidance for FY 'twenty five we've.

Done through our cost savings program. We have made every effort to offset inflation as we give our guidance throughout the for the year and we're very keen on making sure that we reach out indirect procurement non customer facing costs that we pre.

<unk>, you know marketing in our in our people and really drive out the cost, but the customers doesn't don't that the customer doesn't see nor do they care about.

Okay. Okay I have one last question just talking more broadly about the shift to growth in the engagement category.

Is there anything in your data that helps us understand the opportunity for average transaction value to increase or if the engagement consumer is perhaps more value oriented or frugal.

Hoping to invest in other parts of the wedding ceremony of our engagement process just any feedback there based on what you are looking at.

Yeah.

So what we know about engagement customers is that they really think about this purchase as a long term purchase it's often the most expensive purchase that a couple has ever made together and they really wanted to represent more than just a piece of jewelry is representing you know their declaration of love too.

Each other for a lifetime so they tend to think in terms of our budget.

Which tends to be based on income and so what they can get for that budget is generally what we see them asking for we have at this point in time, I would say a group of customers who come in.

Definitely wanting to spend that budget on a natural diamond because they believe that it has more potential to retain its value over time, we see some customers coming and wanting a lab created because they have realized that they can get a bigger carat size for their same budget and then we have some customers the biggest percentage who come in.

Looking for the advice of our expert jewelry consultants to really help them make that choice, but it tends to be more.

More fixed budget kind of a situation as opposed to a value orientation, which is what we do see on fashion, so fashion tends to fluctuate a bit more with them being that the macro economic environment.

No. Thank you for that feedback you mentioned lab grown diamonds as euro assortment do you expect to expand that assortment in bridal for lab grown.

For the back half of the year.

You know we've been very intent on following the customer and being customer inspired with our inventory what I could tell you is that lab created still remains.

In the teens percentage of jewelry sales overall for us it tends to be a little bit lower than the category, especially given that we're skewing more to bridal and a little bit less to low priced fashion.

So you know so we offer it and it's been a good opportunity for some more value oriented customers to get more for their limited budget, but I. You know I think we will continue to be very consumer inspired on that front.

And and make sure that we have a great offering of any kind of engagement rang our fashion products that customers are looking for across our banner portfolio.

Very good thank you very much for principal.

Thanks, Jim.

Yeah.

Thank you. Your next question comes from the line of Dana Telsey from Telsey Advisory Group. Your line is open.

Hi, Good morning, everyone. As you think about the services business what impact on the merch margin is that having how you're planning the services business. This year compared to last year and anything of how you're planning in the first quarter in light of the first quarter guidance and then when you think about the store openings that you're doing I think.

20 to 30 malls out of malls, where are they going to be and then you had closed some stores overseas is there a further store closing program that you anticipate there. Thank you.

So thanks, Dana good morning, App services as a growth opportunity for us that we mentioned that it outperformed merchandise margin our merchandise sales by a thousand basis points and it's really Ah. It carries a 20 point higher margin.

Two for us compared to merchandize margin. So it's definitely a gross margin expander as well as the top line growth driver for us. So we expect it to continue to outpace merchandise sales within Q1 as well as for fiscal 'twenty five.

For the full year.

And our new the new programs that are the wrap around that I mentioned earlier post repair you say Pos comps and so forth are very engaging for the for the jewelry consultant to have an opportunity to basically offer the customer. The question would you like to hear about the.

Repairs. So I believe that that's a continued driver with respect to stores for 20 to 30 store openings, but where I'm looking forward to our largely off mall, we believe that when we look at the performance that we've seen over the past year Dana are off mall has outperformed.

Our mall stores as well as outlet has outperformed our mall stores. So we're continuing to drive on the economics of an off mall.

Awesome all opportunities for us so well continue on that we also for the U K. We've closed we sold the Ernest Jones locations that we mentioned and we also will be closing more of the Ernest Jones stores, focusing on jewelry largely in the H Samuel that's all.

So H Samuel banner, it's also a great story on real estate and Refits.

Our renovations for the H, Samuel we're seeing but the new store format, there be very positive for the performance of the U K.

International segment. So we'll continue to keep our eye on that and invest somewhat in the H Samuel but continue to close on.

On the Ernest Jones locations.

Thank you.

Thank you and ladies and gentlemen, this concludes sticky any portion of today's call I would like to turn it back to Janet Joseph Chief Executive Officer for closing comments.

Yeah.

In closing I'd like to take a moment to thank Todd Stitzer for his service as chair to cigarettes Board of directors Todd will complete his 12 year term in June and will roll off our board in accordance with Cigna for tenure requirements I know I speak for the entire board when I say, we are so grateful for Todd's leadership.

And vision, we've transformed signet into a data driven digitally focused and consumer inspired company and Todd's trusted guidance unwavering support and smart counsel have been invaluable asset.

Helen Mccluskey will take over as chair in the coming months as part of the board Helen has already added great value to Cigna, and we look forward to continuing to tap into her deep background in retail and understanding of the consumer.

Thank you everyone for joining we look forward to speaking to you all again in June.

Okay.

Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

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