Q2 2025 Signet Jewelers Ltd Earnings Call
Good morning, and welcome to the Signet Jewelers second quarters fiscal 'twenty 25 earnings call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Operator: Good morning and welcome to the Signet Jewelers' 2nd quarter fiscal 2025 earnings call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session.
Operator: If at any time during this call you require immediate assistance, please press star 040 operator. Please note, this event is being recorded.
If at any time during this call you require immediate assistance. Please press star Zero 40, operator.
Please note this event is being recorded.
Operator: Joining us on the call today are Robert Ballew, Senior Vice President of Investor Relations; Jenna Chosa, Chief Executive Officer; and Joan Hilson, Chief Financial Strategy and Services Officer.
Speaker Change: Joining us on the call today I'd, rather believe senior Vice President of Investor Relations, Janet Joseph <unk>, Chief Executive Officer, and Joan Hilson, Chief financial strategy and services Officer.
Robert Ballew: At this time, I would like to end this conference over to Mr. Rob Ballew, Senior Vice President of Investor Relations. Please go ahead, sir.
At this time I would like to turn this conference over to Mr. Bob Blair Senior Vice President of Investor Relations. Please go ahead Sir.
Robert Ballew: Good morning, welcome to Signet Jewelers' 2nd quarter fiscal 25 earnings conference call. During today's discussion, we will make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially.
Bob Blair: Good morning, welcome to Signet Jewelers second quarter of fiscal 'twenty five earnings conference call. During today's discussion we will make certain forward looking statements any statements that are not historical facts are subject to a number of risks and uncertainties.
Bob Blair: Actual results may differ materially we urge you 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.
Robert Ballew: We urge you to read the risk factors cautionary link, which is in other disclosures in our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Except it's required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events.
Bob Blair: Such as required by law, we undertake no obligation to revise or publicly update forward looking statements in light of new information or future events.
Robert Ballew: During the call, we will discuss certain non-GAF financial measures. Refer the discussion of the non-GAF financial measures, as well as reconciliation of the non-GAF financial measures, the most directly comparable GAF measures.
China: 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 financial measures. The most directly comparable GAAP measures investors should review the news release, we posted on our website at IR Dot Signet jewelers dot com with that I'll turn the call over to China.
Robert Ballew: Investors should review the news release we posted on our website at ir.signitjewelers.com.
Jenna Chosa: With that, I'll turn the call over to Jenna.
Jenna Chosa: Thanks, Rob, and good morning, everyone. I'd like to first thank our Signet team for delivering another quarter of sequential same-store sales improvement and an encouraging start to the third quarter. Our team is our greatest competitive advantage and the key to our success.
Gina: Thanks, Rob and good morning, everyone I'd like to first thank our signet team for delivering another quarter of sequential same store sales improvement and an encouraging start to the third quarter.
Speaker Change: Our team is our greatest competitive advantage and the key to our success that's never more abundantly clear to me than it earnings time, when we have the chance to see the tangible impact of our knowledgeable dedicated and empowered team members.
Jenna Chosa: That's never more abundantly clear to me than at earnings time when we have the chance to see the tangible impact of our knowledgeable, dedicated, and empowered team members. I'd like to leave you with three key takeaways today. First, we continue to see momentum in same-store sales improving more than five points from the first quarter, led by strong fashion sales to deliver results in the top half of our expectations. This sequential acceleration is both the fifth consecutive quarter of same-store sales improvement and the largest improvement we've delivered in more than two years, driven by higher levels of new and innovative merchandise as we emerge from the engagement trough caused by COVID.
Speaker Change: I'd like to leave you with three key takeaways today.
Speaker Change: First we continue to see momentum in same store sales improving more than five points from the first quarter led by strong fashion sales to deliver results in the top half of our expectations. This sequential acceleration is both the fifth consecutive quarter of same store sales improve.
Speaker Change: Smith and the largest improvement we have delivered in more than two years, driven by higher levels of new and innovative merchandise as we emerged from the engagement trough caused by Covid.
Jenna Chosa: Second, we agree merchandise margin and average transaction value, or ATV, as our merchandise strategy continues to drive performance in a dynamic time for the industry. Third, we are on track to deliver on our fiscal 25 guidance. Our momentum has carried into Q3, with same-store sales turning positive third quarter to date and engagement units now growing.
Second we agree merchandize margin and average transaction value or a T V. As our merchandise strategy continues to drive performance in a dynamic time for the industry.
Speaker Change: Third we are on track to deliver on our fiscal 'twenty five guidance. Our momentum has carried into Q3 with same store sales turning positive third quarter to date and engagement units now growing well.
Jenna Chosa: Let's go into each of these in detail. Same-store sales improved to a low single-digit decline in the second quarter, led by an acceleration in fashion, but also with improvement in bridal and continued strength in services. As I mentioned last quarter, we continue to focus on new, innovative, and on-trend pieces. This is a proven strategy for us in tougher macro environments, and there's been a strong response from customers. In the second quarter, we delivered a 50% increase in revenue from new merchandise, which comprised 25% of sales in our core banners, up 8 points from a year ago.
Speaker Change: Let's go into each of these in detail.
Speaker Change: Same store sales improved to a low single digit decline in the second quarter led by an acceleration in fashion, but also with improvement in bridal and continued strength in services.
Speaker Change: As I mentioned last quarter, we continue to focus on new innovative and on trend pieces. This is a proven strategy for us and tougher macro environments and there's been a strong response from customers.
Speaker Change: In the second quarter, we delivered a 50% increase in revenue from new merchandise, which comprised 25% of sales in our core banners up eight points from a year ago.
Speaker Change: In fashion. This trend was broad based as all banners improved sequentially this quarter.
Jenna Chosa: It was broad-based as all banners improved sequentially this quarter, led by our three largest banners, Jared, Zales, and Kay. In fact, we delivered positive fashion, same-store sales in July, August, and September to date. As we head toward the key gifting season of the year, we expect this trend to continue. We are well positioned to further grow our penetration of new merchandise while maintaining our inventory discipline. We see our ability to be nimble and manage our merchandise assortment as a real competitive advantage. When compared to industry data, we turn our inventory roughly two times as fast as independent jewelers, which to consumers means more frequency of great new products at the right price points.
Speaker Change: Led by our three largest banners Jared Zales and Kay in fact, we delivered positive fashion same store sales in July August and September to date.
Speaker Change: As we head toward the key gifting season of the year, we expect this trend to continue.
Speaker Change: We are well positioned to further grow our penetration of new merchandise, while maintaining our inventory discipline.
Speaker Change: We see our ability to be nimble and manage our merchandise assortment as a real competitive advantage when compared to industry data, we turn our inventory roughly two times as fast as independent jewelers, which to consumers. It means more frequency of great new products.
Speaker Change: At the right price points.
Jenna Chosa: Our innovation in fashion includes sculpted gold that allows us to provide big, chunky looks at attractive price points. Lab diamond fashion jewelry continues to grow up more than 25% in the quarter to last year and is a driver of ATV. We're also seeing traction and watches led by new designs in Citizen and Boulevard. Further, our proprietary branding is aiding bridal ATV led by pieces from chosen Neil Lane and Monique Lillier. We're also leveraging our Debiers partnership to advance jewelry consultant training, natural diamond marketing, and several new branded natural diamond merchandise collections launching in the third quarter.
Speaker Change: Our innovation in fashion includes sculptor gold that allows us to provide big chunky looks at attractive price points.
Speaker Change: Diamond fashion jewelry continues to grow up more than 25% in the quarter to last year and is a driver of a T V.
Speaker Change: We're also seeing traction in watches led by new designs and citizen in Bolivar.
Speaker Change: Further our proprietary branding is aiding bridal a T V led by pieces from chosen Neil Lane and Monique Olivier.
We're also leveraging our beers partnership to advance jewelry consultant training natural diamond marketing and several new branded natural diamond merchandize collections watching in the third quarter.
Jenna Chosa: Services continues to be a source of strength for Signal growing 1.4% in the quarter, with extended service agreement or ESA attachment rates up 210 basis points, led by strong attachment and engagement and early traction on new products like post repair ESA. Importantly, the attachment rate on lab diamond jewelry is well above other merchandise in both bridal and fashion categories. Services has grown every quarter for the past two years, outpacing merchandise revenue by over 20 points. The progress we've made will be an important tailwind as merchandise same store sales improve in the back half of the year, particularly as engagements continue to increase.
Speaker Change: Services continues to be a source of strength for signet growing one 4% in the quarter with extended service agreement or Esa attachment rates up 210 basis points led by strong attachment and engagement and early traction on new products like post <unk>.
Speaker Change: Pair Esa.
Speaker Change: Importantly, the attachment rate on lab diamond jewelry is well above other merchandise in both bridal and fashion categories.
Speaker Change: Services has grown every quarter for the past two years outpacing merchandize revenue by over 20 points.
Speaker Change: The progress we've made will be an important tailwind as merchandise same store sales improve in the back half of the year, particularly as engagements continue to increase.
Speaker Change: Engagement has also improved in the second quarter by approximately 400 basis points on a same store sales basis as predicted the engagement recovery is happening.
Jenna Chosa: Engagement also improved in the second quarter by approximately 400 basis points on a same-store sales basis. As predicted, the engagement recovery is happening. Google and Instagram searches for engagement rings are now up significantly in recent months. Couples achieving at least 26 of our proprietary engagement milestones where they become highly likely to get engaged is now 900 basis points higher than last year and the highest number of couples ready to get engaged we've seen since we began tracking these milestones a few years ago. Based on these leading indicators and the positive engagement unit growth we've seen through a quarter to date.
Speaker Change: And Instagram searches for engagement rings are now up significantly in recent months couple of achieving at least 26 of our proprietary engagement milestones, where they become highly likely to get engaged is now 900 basis points higher than last year, and the highest number of couples ready to get engaged.
Speaker Change: Aged we've seen since we began tracking these milestones a few years ago.
Speaker Change: Based on these leading indicators and the positive engagement unit growth, we've seen third quarter to date, we have confidence that we're well positioned for the upcoming peak engagement season over the holidays and some multi year engagement recovery back to pre pandemic levels.
Jenna Chosa: We have confidence that we're well positioned for the upcoming peak engagement season over the holidays and the multi-year engagement recovery back to pre-pandemic levels. That said, separately, customers are approaching engagement in a more cautious way in this macro environment, lowering the recovery. For example, customers are visiting our sites 15% more often than a year ago before making a purchase. Our digital banners progress has been steady, as we saw sequential improvement of 600 basis points in same store sales compared to the first quarter, with further improvement into the third quarter. We now have the majority of our vendor API connections corrected, facilitating more real-time communication for custom pieces, and we expect more vendor connections to be updated ahead of the holiday season.
Speaker Change: That said separately customers are approaching engagement and a more cautious way in this macro environment. So why wouldn't the recovery for example customers are visiting our sites, 15% more often than a year ago before making a purchase.
Our digital banners progress has been steady as we saw sequential improvement of 600 basis points and same store sales compared to the first quarter with further improvement into the third quarter.
Speaker Change: We now have the majority of our vendor API connections corrected facilitating more real time communication for custom pieces, and we expect more vendor connections to be updated ahead of the holiday season, We're also making improvements to the customer website experience and we've significantly expanded our.
Jenna Chosa: We're also making improvements to the customer website experience, and we've significantly expanded our new merchandise assortment. My second takeaway today is that we grew both merchandise margin and ATV, despite industry promotional pressure. Our merchandise strategies to deliver the right products at the right value while balancing market share, margins, and long-term value of natural diamonds. This strategic balance is working to offset competitive price pressure on loose diamonds. For example, North America bridal ATV was nearly flat in the second quarter. Further, our merchandise innovation drove North America fashion ATV up mid-single digits in the second quarter and helped expand merchandise margins.
Speaker Change: New merchandise assortment.
My second takeaway today is that we grew both merchandise margin and a T V. Despite industry promotional pressure our merchandise strategy is to deliver the right products at the right value, while balancing market share margins and long term value of natural diamonds.
Speaker Change: This strategic balance is working to offset competitive price pressure on loose Diamonds for example, North America bridal a T V was nearly flat in the second quarter first.
Speaker Change: Further our merchandise innovation drove North America fashion, a T V up mid single digits in the second quarter and helped expand merchandise margins.
Jenna Chosa: We are investing ahead of the holiday to improve the customer shopping experience. This includes additional training for our jewelry consultants. Further rollout of personalized digital storefronts, enhanced Wi-Fi across the fleet, as well as more than 300 store renovations. At K, we're renovating over 200 stores this year. At Jared, we've invested in both the fleet and uptearing of the assortment, delivering fashion ATV up nearly double digits in the second quarter. In marketing, we're increasingly leveraging data and AI to personalize our messaging. In digital, we're launching a number of new features, including self-learning search capability on our websites, which will curate results and listings to the most relevant products.
Speaker Change: We are investing ahead of holiday to improve the customer shopping experience. This includes additional training for our jewelry consultants further rollout of personalized digital storefronts enhanced Wi Fi across the fleet as well as more than 300 store renovations at Kay.
Speaker Change: We're renovating over 200 stores this year at Jared we've invested in both the fleet and up tearing of the assortment delivering fashion a T V up nearly double digits in the second quarter.
Speaker Change: In marketing, we are increasingly leveraging data and AI to personalize our messaging in digital we're launching a number of new features including self learning search capability on our websites, which will cure rate results and listings to the most relevant products. We believe all of these investments will drive Inc.
Jenna Chosa: We believe all these investments will drive incremental sales over the holidays. This tight-knit combination of merchandise and banner strategy has been a competitive advantage for Signet. Since wide scale availability in 2019, price decreases in lab diamonds have been an ongoing story. In the second quarter and across this longer time period, our merchandise strategy delivered growth both in our ATV and merchandise margins, driven by our strengths in sourcing, branding, and diamond expertise. The consumer remains dynamic and is focused on value, promotions, and new on-trend merchandise. And we believe we have the right playbook to navigate this environment.
Speaker Change: Mental sales over the holidays.
Speaker Change: This tightened that combination of merchandise and banner strategy has been a competitive advantage for cigna.
Speaker Change: Since widescale availability in 2019 price decreases in lab diamonds have been an ongoing story in the second quarter and across this longer time period, our merchandise strategy deliver growth both in our a T V and merchandise margins driven by our strength in <unk>.
Speaker Change: Sourcing branding and diamond expertise the consumer remains dynamic and is focused on value promotions and new on trend merchandise and we believe we have the right playbook to navigate this environment.
Jenna Chosa: This leads me to my third and final takeaway that we are on track to deliver our fiscal 2025 guide. We've seen strong progression in same-store sales, with the shape of the year on track with our expectations. Our confidence is also supported by the multiple ways to achieve our guide. We continue to expect positive engagement units in the second half of the year, and we believe our new merchandise assortment will continue to drive strong fashion sales. Simply maintaining our current pace of sales would deliver within our provided range. Further, our flexible operating model and continued efforts to streamline operations is leading us to increase our cost savings target for the year to up to $200 million.
Speaker Change: This leads me to my third and final takeaway that we are on track to deliver our fiscal 2025 guide.
We've seen strong progression in same store sales with the shape of the year on track with our expectations. Our confidence is also supported by the multiple ways to achieve our guide we continue to expect positive engagement units in the second half of the year and we believe our new merchandise assortment.
We will continue to drive strong fashion sales and while we expect sequential improvement in both categories. It's not required simply maintaining our current pace of sales would deliver within our provided range.
Speaker Change: Further our flexible operating model and continued efforts to streamline operations is leading us to increase our cost savings target for the year to up to $200 million.
Jenna Chosa: These savings will help balance the continued promotional environment as we go into the back half of the year. We're also increasing our three-year savings target from $350 to $450 million.
Speaker Change: These savings will help balance the continued promotional environment as we go into the back half of the year. We're also increasing our three year savings target from $350 million to $450 million.
Jenna Chosa: In summary, our same-store sales progress continues and has turned positive. We're successfully managing margins and ATV, and we are on track to deliver the year.
Speaker Change: In summary, our same store sales progress continues and has turned positive.
Speaker Change: We're successfully managing margins and a T V and we are on track to deliver the year with that I'll turn it over to John.
Joan Hilson: With that, I'll turn it over to Joan.
Joan Hilson: Thanks, Jenna.
Thanks, Jen and good morning, everyone.
Joan Hilson: Good morning, everyone. Revenue for the quarter was $1.5 billion, down 7.6%. Same-store sales were down 3.4% to last year. Same-store sales reflects the continued drag from our digital banners of approximately 150 basis points. The larger gap between same-store sales and total revenue this quarter is related to the 53rd week last year as it shifted early Mother's Day shopping from Q2 to Q1, and we expect the gap to normalize in the back half of the year. North America ATV was up 1.6% this quarter as we accelerated our push into fashion newness, a strategy that is also effectively expanding merchandise margin.
John: Revenue for the quarter was $1 $5 billion down 7.6% same store sales were down three 4% to last year same.
John: Same store sales reflects the continued drag from our digital banners of approximately 150 basis points.
John: The larger gap between same store sales and total revenue. This quarter is related to the 50 <unk> week last year as it shifted early mother's day shopping from Q2 to Q1, and we expect the gap to normalize in the back half of the year.
John: North America, a T V was up one 6% this quarter as we accelerated our push into fashion newness a strategy that is also effectively expanding merchandise margin.
Joan Hilson: Importantly, bridal ATV was nearly flat, and fashioned ATV was up mid-single digits. We delivered gross margin of $566 million, or 38% of sales this quarter, up 10 basis points to last year, despite lower revenue. The strength of new products at higher margins, a higher fashion penetration, and continued strength of services drove a merchandise margin expansion of 120 basis points.
John: Importantly, bridal a T V was nearly flat and fascinate T V was up mid single digits.
John: We delivered gross margin of $566 million or 38% of sales this quarter up 10 basis points to last year, Despite lower revenue.
John: The strength of new products at higher margins, a higher fashion penetration and continued strength of services drove a merchandise margin expansion of 120 basis points.
Joan Hilson: Fully off-setting fixed-cost delivery. Turning desk G&A expense was down $13 million to $498 million dollars for the quarter. SG&A delivered by 170 basis points to 33.4% of sales due to the decline in revenue and modestly higher marketing expense. Adjusted operating income was $68.6 million dollars for the quarter, or 4.6% of sales. Adjusted EPS for the quarter was $1.25, down less than operating income due to higher interest income and a lower share count from the retirement and amendment of the convertible preferred shares, as well as open market share repurchase. As a result of our annual evaluation of Goodwill and Trade Names, we took non-cash impairment charges of $166 million during the second quarter that were primarily a result of factors impacting our digital banners, which included the lengthened integration timeframe and the slower engagement recovery.
John: Fully offsetting fixed cost deleverage.
John: Turning to SG&A expense was down $13 million to $498 million for the quarter SG&A Deleveraged by 170 basis points to 33, 4% of sales due to the decline in revenue and modestly higher marketing expense.
John: Adjusted operating income was $68 $6 million for the quarter or four 6% of sales adjusted EPS for the quarter was a dollar and 25 cents down less than operating income due to higher interest income and a lower share count from the retirement.
John: And amendment of the convertible preferred shares as well as open market share repurchases.
John: As a result of our annual evaluation of goodwill and trade names, we took noncash impairment charges of $166 million. During the second quarter that were primarily a result of factors impacting our digital banners, which included the lengthened integration timeframe and.
John: The slower engagement recovery.
Joan Hilson: As you may recall, our digital banners strongly over-index into bridal and loose diamonds compared to Signet as a whole. This means that the slower engagement recovery and, to a lesser degree, impacts from market declines in lab-creatic diamond pricing has a more material impact on our digital banners. This charge costs an operating loss and negative EPS for the quarter on a GAAP basis. As mentioned earlier, our digital banners delivered a six-point, same-store sales improvement to Q1, and we expect further improvement in the back half based on courted-to-date trends. Turning the inventory, we ended the quarter at just below $2 billion, down more than five percent to last year.
John: As you May recall, our digital banner strongly over index into bridal and loose diamonds compared to signet as a whole this.
This means that the slower engagement recovery and to a lesser degree impacts from market declines in lab created diamond pricing.
John: Has a more material impact on our digital banners.
John: This charge caused an operating loss and negative EPS for the quarter on a GAAP basis.
John: As mentioned earlier, our digital banners delivered a six point same store sales improvement to Q1, and we expect further improvement in the back half based on quarter to date trends.
John: Turning to inventory we ended the quarter at just below $2 billion down more than 5% to last year.
Joan Hilson: New product comprises approximately 25 percent of inventory in our quarter. Banners up more than seven points compared to a year ago. We plan to continue to drive higher penetration of new merchandise as we head into holiday. We believe customers will be value-focused to share, and our newness provides assortment at a wide range of price points. We increase the pace of share repurchases in the second quarter, buying approximately 441,000 shares for nearly $40 million dollars to take advantage of the pullback in the share price. We continue to see share repurchases as an attractive use of capital and ended the second quarter with over $800 million in our multi-year remaining authorization.
John: New product comprises approximately 25% of inventory in our core banners up more than seven points compared to a year ago. We plan to continue to drive higher penetration of new merchandise as we head into holiday.
We believe customers will be value focus this year and our newness provides assortment and a wide range of price points.
We increased the pace of share repurchases in the second quarter buying approximately 441000 shares for nearly $40 million to take advantage of the pullback in the share price.
John: We continue to see share repurchases as an attractive use of capital and ended the second quarter with over $800 million in our multi year remaining authorization.
Joan Hilson: As a reminder, we are allocating up to $1.1 billion to the retirement of debt, redemption of preferred shares, and open market common share repurchases in fiscal 25, of which we've already executed over $700 million dollars through the second quarter. Importantly, these actions will reduce our diluted share account by over 15 percent on an annualized basis and also improve our leverage profile.
John: As a reminder, we are allocating up to $1.1 billion to the retirement of debt redemption of preferred shares and open market common share repurchases in fiscal 'twenty five of which we've already executed over $700 million through the second quarter.
Importantly, these actions will reduce our diluted share count by over 15% on an annualized basis and also improve our leverage profile.
John: Turning now to our balance sheet, we recently secured a three year extension to our ABL at attractive terms similar to the existing facility, which now provides liquidity for the next five years. The ABL was also lower to one $2 billion to align to our.
Joan Hilson: Turning now to our balance sheet, we recently secured a three-year extension to our ABL at attractive terms similar to the existing facility, which now provides liquidity for the next five years. The ABL was also lower to $1.2 billion to align to our significantly reduced inventory base in the last few years, as well as to provide savings on lower fees associated with our undrawn balance. Looking to guidance, we are pleased with our agility in the second quarter, balancing new merchandise, competitive pricing, and sourcing savings to deliver on our expectations. We will continue the strategy in the back half of the year.
John: <unk> significantly reduced inventory base in the last few years as well as to provide savings on lower fees associated with our undrawn balance.
John: Looking to guidance, we are pleased with our agility in the second quarter balancing new merchandise competitive pricing and sourcing savings to deliver on our expectations.
John: We will continue this strategy in the back half of the year. We believe this combined with our additional cost savings provides flexibility in a competitive environment.
Joan Hilson: We believe this combined with our additional cost savings provides flexibility in a competitive environment. Turning to the third quarter, we expect revenue in the range of 1.345 to 1.38 billion dollars, with same-store sales between down 1% to up 1.5%. We expect adjusted operating income between 8.25 million dollars and adjusted EBITDA between 55 to 72 million dollars. Our quarter-to-date same-store sales through this past weekend have turned positive, which is reflected in the upper half of our guide, while the low end provides some cushion for variability throughout the quarter. Gross margin rate is expected to expand modestly in the quarter, with SG&A deleveraging somewhat, in part due to the shift of marketing spend into the third quarter ahead of the upcoming election.
John: Turning to the third quarter, we expect revenue in the range of 1.3, or four or $5 billion to $1.38 billion with same store sales between down 1% to up one 5%.
John: We expect adjusted operating income between eight and $25 million and adjusted EBITDA between $55 million to $72 million.
John: Our quarter to date same store sales through this past weekend have turned positive which is reflected in the upper half of our guide while the low end provide some cushion for variability throughout the quarter.
John: Gross margin rate is expected to expand modestly in the quarter with SG&A deleveraging somewhat in part due to the shift of marketing spend into the third quarter ahead of the upcoming election.
Joan Hilson: We are reaffirming our guidance range for the year. We now expect revenue near the middle of our range or better, and our on path to deliver adjusted operating margin rate near the low end of our expectations. Importantly, we have inventory flexibility to meet consumer demand for engagements within a range of down 5% to up 5% for the year. In addition, fashion performance is now expected to be materially better based on recent trends. The digital banner impact is also expected to be less of a negative impact this year. At roughly down 1% of sales compared to our prior view of down nearly 2%.
John: We are reaffirming our guidance range for the year, we now expect revenue near the middle of our range or better and are on path to deliver adjusted operating margin rate near the low end of our expectations Importantly, we have inventory flexibility to meet consumer demand for engagement.
Speaker Change: It's within a range of down 5% to up 5% for the year.
Speaker Change: In addition, fashion performance is now expected to be materially better based on recent trends.
Speaker Change: The digital banner impact is also expected to be less of a negative impact this year at roughly down 1% of sales compared to our prior view of down nearly 2%.
Joan Hilson: We also continue to expect to spend 160 to 180 million dollars in capital expenditures, with our investments in real estate on track.
Speaker Change: We also continue to expect to spend $160 million to $180 million and capital expenditures with our investments in real estate on track.
Joan Hilson: Before we move on to Q&A, I'd like to thank our Sigma team for the momentum we are seeing in our business. I continue to be inspired by their passion and commitment to our customers and each other.
Speaker Change: Before we move onto Q&A.
Speaker Change: I'd like to thank our signet team for the momentum we are seeing in our business I continue to be inspired by their passion and commitment to our customers and each other.
Operator: Operator, now let's go to questions. Thank you.
Speaker Change: Operator, now let's go to questions.
Les: Thank you Les.
Operator: Ladies and gentlemen, you will not begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchstone phone. You will hear prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number 2. If you are using a speaker phone, please lift the hands up before pressing any key.
Speaker Change: Ladies and gentlemen, you will not begin the question and answer session.
Speaker Change: Should you have a question. Please press the star followed by the one on your Touchstone fun.
Speaker Change: You'll hear a prompt that your hand has been waste should you wish to declining from the polling process. Please press the star followed by the number too.
Speaker Change: If you're using a speaker phone please lift the handset before pressing any key.
Operator: One moment, please, for your first question.
Speaker Change: One moment, please plants place to question.
Ayak Burichal: Our first question comes from the line of Ayak Burichal from Wells Fargo. Go ahead, please. Thanks, everyone.
Speaker Change: Our first question comes from the line of Ike Buoy Chow from Wells Fargo go ahead. Please.
Speaker Change: Oh, Thanks, everyone. A question on the gross margin line.
Joan Hilson: A question for me on the gross margin line. So, up modestly in the third quarter, you've had merch margins up around 100 dips. The first two quarters of the year is the reason to believe that the merch margin trajectory should remain consistent into the back half and just there would be less offsets from the leverage is the constant proof.
Speaker Change: Up modestly in the third quarter, you've had in merch margins up around 100 Bips. The first two quarters of the year as a reason to believe that the merch margin trajectory should remain consistent into the back half and just there would be less offsets from deleverage as the comps improve and then I guess the second question maybe for John or.
Joan Hilson: And then I guess the second question maybe for Joan or Jenna, just can you give us some guardrails around holiday, specifically? It's just obviously it makes or breaks the year given how much volume you guys do. Can you give us some thoughts on what exactly your expectations are, whether it's comp or I don't know if there's any other variables you could kind of point out to us that would probably be helpful. Thank you. Thanks, like, for the questions.
Speaker Change: Can I just can you give us some some guardrails around the holiday specifically is it just obviously it makes or breaks a year given how much volume you guys. Do you know can you give us some thoughts on what exactly your expectations or whether it's comp or.
Speaker Change: I don't know if there's any other of your variables you could kind of pointed out to us that they would probably be helpful. Thank you.
Speaker Change: Thanks for the questions with respect to gross margin, we continue to drive fashion newness and into the back half of the year and were as I mentioned, there's a push to increase the penetration of that inventory in our assortment. So that is what.
Joan Hilson: With respect to gross margin, we continue to drive fashion newness into the back half of the year, and as I mentioned, there's a push to increase the penetration of that inventory in our assortment. So that is what is driving the margin expansion for us. We said bridal ATV was flat in the second quarter in fashion; you know, was up mid-single digits. So we expect to continue to see, you know, fashion really providing that margin expansion for us, that merchandise margin level. We will continue to amplify and drive services in the back half of the year, and notably, you know, the bridal attachment rate has been increasing as we're seeing bridal units increase, and so our penetration in store now is, you know, up over 90 percent as we're looking into the third quarter, and I would say that the fashion attachment rate is also increasing.
Speaker Change: What is driving the margin expansion for US we said bridal ATV was flat in the second quarter and fashion. Yeah. It was up mid single digits. So we expect to continue to see fashion really providing that margin expansion for us at the merchandise margin level, we will continue to amplify.
Speaker Change: And drive services in the back half of the year and notably Yep.
Speaker Change: The bridal attachment rate has been increasing them as we're seeing bridal units increased and so our penetration in store now is up over 90 90 per signed as we're looking into the third quarter and I would say that the fashion attachment rate is also increasing so that is also.
Joan Hilson: So that is also providing the margin expansion, and we would expect those components to continue to provide margin expansion for us in the back half of the year. With respect to it thinking about the quarters and what we expect for holiday, you know, the back, our guidance range, you know, enables us, as I said, to, you know, be at the midpoint top line or better. You can see what the third quarter is. And so we're very pleased with the assortment that we have lined up for the back half, for the bridal assortment. The amount of newness that's coming in is also in bridal.
Speaker Change: Providing the margin expansion and we would expect.
Speaker Change: Those components to continue to provide a margin expansion for us in the back half of the year with respect to I'm thinking about the quarters and what we expect for holiday you know the back our guidance range you know enables us as I said to.
Speaker Change: Be at the midpoint topline or better you can see what the third quarter is and so we're very pleased with the assortment that we have lined up for the back half for the bridal assortment the amount of newness. That's coming in is also in bridal so and we expect the engagement recovery should continue.
Joan Hilson: So, and we expect the engagement recovery to continue. So and also bear in mind that December is a very, you know, important and critical timing for engagements, you know, as we head into that, the holiday selling period. So we believe that where our assortment is strong, we're seeing a strong response, and we're seeing the engagement recovery, you know, happen. Although, you know, most didn't mention this a little bit slower than we had anticipated. The customer is more cautious, visiting, you know, 15% higher visit rate before they actually make the purchase. So all of that is considered within our guidance, but to your point, fourth quarter is important.
Speaker Change: So and also bear in mind Ike that December is a very important and critical timing for engagements.
Gina: As we head into that the holiday selling period. So we believe that where our assortment. This is strong we're seeing a strong response and we're seeing the engagement recover recovery you know happen, although as Gina mentioned, it's a little bit slower than we had anticipated the customer is more.
Gina: Cautious physically visiting you know, 15% higher visit rate before they actually make the purchase so all of that is considered within our guidance, but to your 0.4th quarter is important and we see that we're prepared for it.
Joan Hilson: And we see that, you know, we're prepared for it. Got it.
Speaker Change: Got it and then just to go back to the gross margin. There was a lot of talk on the last conference call about the promo environment because the competition is what was going on because you guys spoke.
Joan Hilson: And then just to go back to the gross margin, just, there was a lot of talk in the last conference call about the promo environment, the competitions, what was going on. Did you guys speak at length about that? Can you kind of just give us an update three months later? How is that playing out? Is anything worsening? Is it improving? Is it kind of, you know, flatlining just kind of like at a high level that would probably be helpful, too? Well, we have included in our guidance. I guess the idea that the competitive environment, environment, will remain as such in that we are prepared with flexibility within our guidance for promotion.
Speaker Change: At length about that and you kind of just give us an update three months later, how is that playing out as anything worsening is it improving is it kind of flatlining just kind of at a high level that would probably be helpful too.
Mhm Ah well, we have included in our guidance I guess, the idea that the competitive and buyer environment, well will remain as such and that we are prepared with flexibility within our guidance for promotion and we will continue to with our balanced strategy of.
Joan Hilson: And we will continue to with the balance strategy of newness at, you know, strong margins, particularly in fashion and pacing of promotions to meet the competitive dynamic. So we will be leveraging the same, you know, components that we did in the second quarter for the balance of the year.
Speaker Change: Newness at strong margins are particularly in fashion and pacing our promotions to meet.
The competitive dynamic so we will be leveraging the same you know components that we did in the second quarter for the balance of the year.
Speaker Change: Got it thank you.
Speaker Change: Yeah.
Paul Lejuez: Our next question comes from the line of Paul Lejuez from City.
Polish Way: Our next question comes from the line of Polish way from Citi Go ahead. Please.
Paul Lejuez: Go ahead, please. Thank you. You know, as Joan was just saying, we said in our prepared remarks, the engagement recovery is happening. And all of the data that we track indicates that that will continue to accelerate throughout this fiscal year. But our guidance doesn't need that in order for us to deliver. In other words, if the pace of unit growth that we're seeing right now just flattens, you know, to where it is and continues through the year, we would still deliver within our guides. So we see that, you know, everything that we're looking at, external data like searches across different, you know, in search engines, as well as the proprietary milestones that we track, those are at their highest that we've seen them.
Polish Way: Okay.
Polish Way: Hey, Thanks, guys.
Polish Way: Can you say what engagement units are running year to date and quarter to date and I'm curious what you have to see in <unk>.
Speaker Change: Plus five for the year.
Polish Way: Hum.
Within the engagement units being up quarter to date I guess it sounds like sales are still down. So maybe you can just talk about the average ticket engagement.
Polish Way: And how that average ticket looks.
Speaker Change: Natural specifically.
Speaker Change: Versus lab, specifically when you compare it to last year.
Speaker Change: Sure. Good morning, Paul why don't why don't I start on that and then you know Joan you can jump in I think in terms of units.
Speaker Change: You know as John was just saying we said in our prepared remarks, the engagement recovery is happening and all of the data that we track indicates that that will continue to accelerate throughout this fiscal year, but our guidance doesn't need that in order for us to deliver in other words, if the pace of you.
Speaker Change: <unk> growth that we're seeing right now just flattens you know to where it is and continues through the year, we would still deliver within our guidance. So we see that you know everything that we're looking at external data like searches across different you know in search engines as well as the proprietary miles.
Speaker Change: Stones that we track there those are at their highest that we've seen them. So up 900 basis points versus last year in terms of the number of couples ready to get engaged. So we see you know a good tailwind aren't on engagements, but we don't have to have that in order to achieve our god.
Paul Lejuez: So up 900 basis points versus last year in terms of the number of couples ready to get engaged. So we see, you know, a good tailwind on engagements, but we don't have to have that in order to achieve our guide.
Paul Lejuez: And then you also asked a question about LCD. We have had a strategy since the beginning to trade customers up if they're interested in LCD. And we have continued to do that. So we actually see a higher ATV on LCD pieces than we do in natural. We see a higher attachment rate of ESA on LCD as a result. So, in that context, you know, our team has worked very hard to maintain strong value across diamonds. And we're also seeing a lot of great innovation come on natural diamonds. I think we're getting to a point where consumers seem to understand the difference.
Speaker Change: And then you also asked a question about L. C. D. We have had a strategy since the beginning to trade customers up if they're interested in L. C D and and we have continued to do that so we actually see a higher a T V on.
L C D pieces than we do in natural we see a higher attachment rate of Esa on L. C. D. As a result, so in that context.
Speaker Change: Our team has worked very hard to maintain strong value across diamonds, and we're also seeing a lot of great innovation come on natural diamonds.
Speaker Change: I think we're getting to a point.
Speaker Change: Consumers seem to understand the difference they understand the specialness and uniqueness of natural diamonds and are very interested in that context and that the value that that you know has been able to have overtime, but they understand that with LCD. They have an opportunity potentially to trade up because you know what.
Paul Lejuez: They understand the specialness and uniqueness of natural diamonds and are very interested in that context and that the value that that, you know, has been able to have over time. But they understand that with LCD, they have an opportunity potentially to trade up. Because, you know, it's cheaper. There's more availability. Yeah, that would be plus five for the year. Would that be consistent with the high end of guidance? Yes, when you think of the guidance range, it's a minus five to plus five units in bridal. But to Jenna's earlier comments, I would say, Paul, there's several scenarios to hit our overall high end of guide.
Speaker Change: It's cheaper there's more availability.
Speaker Change: Got it and just that alone would be.
Speaker Change: Well its five for the year would that be consistent with the high end of our guidance then.
Speaker Change: Yes, when you think of the guidance range at the minus five to plus five units in bridal, but to Gina's earlier comments I would say Paul it there's a.
Speaker Change: Several scenarios to hit our overall high end of guide we have fashion running you know positively right now we have bridal units running positive.
Paul Lejuez: We have fashion running; you know, positively. Right now we have bridal units running positive. So there's a combination of outcomes to deliver the high end of guide. But one of those combinations has the high end at plus five units.
Speaker Change: So we there's a combination of outcomes to deliver the high end of guide, but one of those combinations has the high end at plus five units.
Speaker Change: Got it and sorry, just for Brian what do you need.
Paul Lejuez: and Brian. What do you need? Right. And then what do you need to do in the fourth quarter to get to that last five? The fourth quarter would be towards high single digit, low double digit in bridal units to get to the high end of a guide. And importantly, the trajectory that we're on today shows the quarter-to-date in the third quarter. There is that we're, you know, we're running up units in bridal. So it's a positive trend for us.
Brian: Right and then what do you need to do in the fourth quarter to get to that one spot.
Speaker Change: In the fourth quarter is a would be towards high single digit low double digit in in bridal units to get to the high end of guide and importantly, the trajectory that we're on today shows the quarter to date in the third quarter is that were you know were run.
Brian: <unk> up.
Brian: Units in bridal so it's a positive trend for us.
Paul Lejuez: Thank you, guys. Good luck. Thank you.
Thank you guys. Good luck.
Speaker Change: Thank you.
Lorraine Hutchinson: Our next question comes from the line of Lorraine Hutchinson from Bank of America. Go ahead, please. Thank you. Good morning. Has the volatility in lab-created diamond prices changed your customer's perception of that as an option. I just be curious to hear the feedback you're hearing from customers. And if it's different between bridal and fashion.
Speaker Change: Our next question comes from the line Avalere Rain Hutchinson from Bank of America go ahead. Please.
Speaker Change: Thank you good morning has.
Speaker Change: Volatility in lab created diamond prices changed your customers' perception of that isn't option I'd just be curious to hear the feedback you're hearing from customers and if it's different between bridal and fashion.
Lorraine Hutchinson: Hi, Lorraine. Thanks for the questions.
Speaker Change: Hi, Lorraine. Thanks for the question. So you know I think I think the interesting thing is you know we we tend to think of lab created is kind of a new phenomenon, but it's been broadly available in jewelry since 2019, So the story of lab Diamond.
Jenna Chosa: So, you know, I think I think the interesting thing is, you know, we tend to think of lab created as kind of a new phenomenon, but it's been broadly available in jewelry since 2019. So the story of lab diamond pricing dropping has been a consistent story over that time period. And what we're seeing is that consumers are understanding that. They're seeing that with lab created, they have a point in time opportunity to trade up to, you know, potentially a larger diamond, but that I don't believe they have the expectation that it will hold its value necessarily over time.
Speaker Change: Pricing dropping has been a consistent story over that time period end and what we're seeing is that consumers are our understanding that they're seeing that with lab created they have a point in time opportunity to trade up to you know potentially a larger diamond, but that I don't believe they have.
Speaker Change: The expectation that it will hold its value necessarily overtime in the same way that natural diamonds traditionally have so I think we're seeing a more educated consumer overtime about the difference.
Jenna Chosa: In the same way that natural diamonds traditionally have. So I think we're seeing a more educated consumer over time about the difference.
Jenna Chosa: And I do think that it is somewhat different; at least that's, you know, what our research would indicate, and our jewelry consultants is that it is somewhat different in engagement and fashion. So fashion, LCD offers the chance really to add bling to pieces where it would have been too expensive to do that previously. So we see continued opportunity to trade up to higher ATVs in fashion using LCD. Thank you.
Speaker Change: And I do think that it is somewhat different at least that's you know what our research would indicate in our jewelry consultants, who said it is somewhat different in engagement and fashion.
Speaker Change: So fashion Oh C. D offers the chance really to add billing to pieces, where it would have been too expensive to do that previously so we see continued opportunity to trade up to higher a T v's in fashion using L. C D.
Speaker Change: Thank you.
Speaker Change: Okay.
Jim Sanderson: Our next question comes from the line of Jim Sanderson from North Coast Research. Go ahead, please. Just wanted to talk a little bit more about marketing spending. I think you mentioned that you might see an acceleration in the current quarter and anticipation of holidays.
Speaker Change: Our next question comes from the line and Jim Henderson from North Coast Research go ahead. Please.
Jim Henderson: Just wanted to talk a little bit more about marketing spending I think you mentioned that you might see an acceleration from the current quarter in anticipation of holidays, but can you step back and give us an idea of how you expect this dollar budget to grow over time.
Jim Sanderson: But can you step back and give us an idea of how you expect this dollar budget to grow over time? Is that are you starting to lean into marketing as an investment to drive stronger foot traffic? Is that something that could be a near-term pressure point on operating income? Just how we should look at that line item.
Speaker Change: Are you starting to lean into marketing as an investment to drive stronger foot traffic is that something that could be a near term pressure point on operating income.
Speaker Change: How we should look at that line item.
Jenna Chosa: Sure.
Jim Henderson: Sure Hi, Jim are we see marketing as a real area of competitive advantage for a company, we are far and away the biggest spender in the jewelry category across all of our different banners and so we as a result of that you know create great partnerships with all of our.
Jenna Chosa: Hi, Jim. We see marketing as a real area of competitive advantage for our company. We are far and away the biggest vendor in the jewelry category across all of our different banners. And so we, as a result of that, create great partnerships with all of our partners, whether that's Google or Meta, or our agencies who are working to bring us data that we can use our loyalty data to match with and create more personalized marketing. So we've been leaning into investments in marketing. I think, gosh, for the sense that our transformation began because we've continued to see a great opportunity to drive more traffic to our winning brands.
Jim Henderson: Partners, whether that's Google or meta or you know our our agencies, who are working to bring us data that we can use our loyalty data to match with and create more personalized marketing. So we've been leaning into investments in marketing I think gosh since.
Jim Henderson: Our transformation began because we've continued to see a great opportunity to drive more traffic to our winning brands and as we've spent more time differentiating watch what each of these banners or brand stands for them. It just makes more and more sense I think it might've.
Jenna Chosa: And as we've spent more time differentiating what each of these, you know, banners or brands stands for. It just makes more and more sense. I think it might have been a couple of calls ago. I talked about the fact that while, you know, at the end of last year, we're 9% share of the jewelry category. We now have positioned our banners to appeal to 80% of jewelry customers. So we see that as a lot of headwind or headroom. I'm sorry to really communicate what our value proposition is and how it's different to our customers. So I think the big picture, you know, answer to your question is yes, we've been leaning into differentiating our banners and investing in both marketing capability and media dollars behind that over time to really drive those brand equities and to drive traffic into our stores and online.
Jim Henderson: A couple of calls ago I talked about the fact that while it wasn't the end of last year were 9% share of the jewelry category. We now have positioned our banners to appeal to 80% of jewelry customers. So we see that as a lot of headwind or headroom I'm, sorry to really communicate.
Jim Henderson: What our value proposition is and how it's different to our customers. So I think the the Big picture you know answer to your question is yes, we've been leaning into differentiating our banners and investing in both marketing capability and media dollars behind that overtime to REO.
Jim Henderson: Drive those brand equities and to drive traffic into our stores and online.
Speaker Change: And just for my dimension.
Jim Henderson: Okay.
Joan Hilson: I'm sorry, Jim, just to dimension the question regarding spend dollars, we do expect dollars to be up for the year, and as we've said, you know, in both the report and in both the second quarter and third quarter, we see that as part of the SG-NAD leverage that we would expect.
Jim Henderson: Sorry, Jim just to dimension are the question regarding spend dollars, we do expect dollars to be up for the year and as we've said.
Speaker Change: <unk> reported in both the second quarter and third quarter. We let you know we we see that as a part of the SG&A deleverage that we would expect.
Joan Hilson: Understood. And then going forward, though, should we think of that line item as something that would grow in tandem with revenue growth, or do you expect to see some investment to a dry bread or brand are wearing this over the next several years? I think that's really what I'm getting at. Yeah, the investment we would expect to continue investment, Jim, while driving efficiencies in our spend, and as we refine our algorithms and the work that we're doing within our personalized marketing and all of those capabilities that we're building, we would expect to build efficiencies in.
Speaker Change: Understood and then going forward, though should we think of that line item is something that would grow in tandem with revenue growth or do you expect to see.
Speaker Change: Some investment to toward broader brand awareness over the next several years. So I think that's really what I'm getting.
Speaker Change: Yeah. The investment we would we would expect to continue investment job, while driving efficiencies in our spend and as we refined our algorithms and the work that we're doing within our personalized marketing and all of all of those capabilities that we're building we would we would expect to build efficiency.
Speaker Change: But clearly it is an investment for us to continue to drive business and as genocide foot traffic online so to speak and in store.
Joan Hilson: But clearly, it is an investment for us to continue to drive business, and as Jim said, foot traffic online, so to speak, and in store. Understood.
Speaker Change: Understood and just a quick follow up on the lab grown diamonds category could you update us on what your labor mix is today.
Joan Hilson: Just a quick follow-up on the lab-grown diamond category. Could you update us on what your lab-grown mix is today? Oh, that's changed. So, the mix is growing in terms of lab-grown. I think total sales, it's up like mid-single-digit penetration to get to roughly a mid-teen. And then when we think about it from a diamond alone, it's a bit higher, but growing similarly in terms of penetration.
Speaker Change: Oh that's changed.
Speaker Change: So the mix is a growing and in terms of our lab ground. It's I think total sales that's up like mid single digit penetration to get to roughly a mid teen and then when we think about it from a diamond alone. It's it's a bed.
Speaker Change: Higher but growing similarly in terms of penetration.
Joan Hilson: All right, I'll pass it on. Thank you very much. Thank you.
Speaker Change: Alright, I'll pass it on thank you very much.
Speaker Change: Thank you.
Maurizio Sona: Our next question comes from the line of Maurizio Sona from EBS.
Speaker Change: Our next question comes from the line as Mauricio Serna from UBS go ahead. Please.
Maurizio Sona: Go ahead, please. Yes. Good morning. Thanks for taking our questions. Just maybe could you talk a little bit more about, you know, just thinking about the guidance for the employee guidance or fourth order. You know, if I want to get to the low end of the range, I think I'm seeing like a high single-digit decline in total revenues for the third quarter. What would that scenario be? You know, I guess you guys are trying to be conservative, but I just want to understand, like, what are the potentials for that particular scenario?
Mauricio Serna: Yes. Good morning, Thanks for taking our questions. So maybe could you talk a little bit more about you know just thinking about the guidance for the implied guidance for fourth quarter are you know if I want to get like the.
Speaker Change: The low end of the range I think I'm seeing like a like a high single digit decline in total revenues for the third quarter, what would that scenario b.
I guess.
Speaker Change: You guys are trying to be conservative, but just want to understand like what are the puts and takes for that particular scenario and then I have another follow up on margin.
Joan Hilson: And then I have another quick follow-up on margin. Yeah, you know, for the low end of guide, it's kind of directing that direction, Maurizio. We assumed engagement units on the low end could be down, you know, 5% as we mentioned earlier, and fashion could also be down low single-digit. So as to stay within our guidance range, we don't need to see the height; we don't need to do better than the current trend that we're seeing. So it's really, we feel that what we're seeing in the NQ3 to date, as well as the response to NUNIS and the margin expansion we're seeing related to that, that we're squarely positioned with the guidance we have to be at the midpoint or better on revenue and towards the low to middle end of guidance on EBIT.
Speaker Change: Yeah.
Mauricio Serna: Yeah, you know for the low end up guide, if you kind of directly and get back to that direction. Mauricio we assumed engagement units on the low end could be down 5% as we mentioned earlier and fashion could also be down low single digits. So as.
Speaker Change: To stay within our guidance range, we don't need to see the high we don't need to do better than the current trend that we're seeing.
So it's really we feel that what we're seeing in the in Q3 to date as well as the the response to newness on the margin expansion, we're seeing related to that.
Speaker Change: That where we're squarely positioned.
Speaker Change: With the guidance, we have to be at the midpoint or better on revenue and towards the low to middle end of guidance on EBIT. So a really feel solid on the trajectory of the business and the flexibility that we factored into our guidance around.
Joan Hilson: So really feel solid on the trajectory of the business and the flexibility that we factored into our guidance around promotion and the variability that we might see, you know, across the back half of the year. So the cost savings that we've outlined, we've increased to up to 200 million. That again also gives us flexibility in delivering on our margins.
Speaker Change: Promotion and the variability that we might see you know across the the back half of the year. So the cost savings that we've outlined we've we've increased that to up to 200 million that again also gives us flexibility and delivering on our margins.
Speaker Change: Got it and then just a quick follow up on the fourth quarter on the margin side actually.
Joan Hilson: and then just a quick follow-up on the fourth quarter on the margin side actually. You know, just doing the numbers again, it doesn't fly like a year-rear expansion at operating margin. I think over 300 basis points. You're trying to understand, like, where is that coming from? Is that like better growth mark, growth margin acceleration? Is she in a dollar is going to be down like high single, low double digits to try to understand what is really contemplated into that, you know, really the fourth quarter. Yeah, and what I would highlight for you is that we have the leveraged S-GNA in both the second and third quarter, and as we, you know, are within a positive comp, that you'll see expansion come naturally from, you know, leveraging a fixed cost will continue to drive fashion.
Speaker Change: During the numbers again, it doesn't imply like Oh.
Speaker Change: Year over year expansion at the operating margin I think over 300 basis points, just trying to understand like where is that coming from is that like better gross margin gross margin acceleration as unit SG&A dollars are going to be down high single low double digits, just trying to understand what is really contemplated into that really good.
Speaker Change: Quarter.
Speaker Change: Yeah, and and what I would highlight for you is that we have deleveraged us SG&A and bulk for second and third quarter and as we you know are within a positive comps that you'll see expansion come naturally from.
Speaker Change: Leveraging our fixed cost will continue to drive fashion as I've mentioned in services end and with the engagement recovery you can see a higher penetration of services that will also help to expand margin in the quarter. So.
Joan Hilson: As I've mentioned in services and with the engagement recovery, you can see a higher, you know, penetration of services that will also help to expand margin in the quarter. So it's consistent leverage of a consistent drive on the tools that we have to leverage in newness services as well as the competitive pricing that we factored in, as well as sent that the positive comp to help us offset or help us leverage on our fixed cost base. Those are the components.
Speaker Change: It's consistent leverages leverage of the of our a consistent a drive on the tools that we have to leverage and newness services as well as the competitive pricing that we factored in as well as signs that the positive comp to help us offset or help.
Leverage on our fixed cost base those are the components.
Joan Hilson: God, and how much was the 53rd week from an S-GNA dollar standpoint, just a bit of rare that in mind. How about in mind? We'll have to; I don't have it off top of my head, so we'll look it back to you on that. I'm already so.
Speaker Change: And how much was the 50 <unk> week from from a SG&A dollar standpoint, just bear that in mind.
Speaker Change: Bear in mind.
Speaker Change: But we'll have to I don't have off top my head. So we'll we'll get back to you on that already so alright.
Joan Hilson: All right, thank you so much.
Speaker Change: Alright, thank you so much.
Speaker Change: Mhm.
Speaker Change: Our next question comes from the line of Dana Telsey from Telsey Group go ahead. Please.
Dana Chelsea: Our next question comes from the line of Dana Chelsea from Chelsea Group. Go ahead, please. Hi, good morning, everyone. I think about the margins on the digital banners. Can you get, and I think last quarter, you had some improvement of up to 300 basis points. How is that margin? What are you seeing in terms of the digital banner margin now? And also it sounds like services continues to be meaningful. Is that an increasing contribution to margins?
Dana Telsey: Hi, Good morning, everyone I, just think about the margins on the digital banners can you and I think last quarter you had some improvement of up to 300 basis points. How is that margin. What are you seeing in terms of the digital banner margin now and also it sounds like services continues to be meaningful is that in.
Speaker Change: Increasing contribution to margins and then just a follow up on the real estate side. What did you see during the quarter in terms of performance of the physical real estate, whether it's location or banner. Thank you.
Joan Hilson: And then just to follow up on the real estate side, what did you see during the quarter in terms of performance of the physical real estate, whether it's location or banner? Thank you. So the digital banners. Improvement in terms of comp, you know, we we indicated in the past that it was down to and we're seeing it move to having a negative impact of one point in the back of the year. So 600 basis point sequential improvement in top line for the digital banners. That's helping us to offset some of the fixed costs as well or leverage some of the fixed costs.
Dana Telsey: Yeah.
Speaker Change: So the digital banners are a improvement in terms of comp yeah. We've we've indicated in the past that it was down two and we're seeing it move to are having a negative impact of one point in the back half of the year. So almost 600 basis point sequential improvement.
Speaker Change: And in top line for the digital banners, that's helping us to offset.
Dana Telsey: Some of the fixed costs as well or leverage some of the fixed costs. So we're seeing bottom line margin expansion, albeit Dana it's it's.
Joan Hilson: So we're seeing bottom line margin expansion, albeit, Dana, it's, you know, slight at this point. And so, but we'll continue, you know, to drive efficiencies there as we drive the top line. The integration itself is an agenda mentioned in her remarks that we have the majority of API fixed and we're keep at we are adding new vendors, but importantly with respect to the digital banners. We're also adding finished product and some fashion products, which will continue to drive expansion in their gross margin as well.
Dana Telsey: Flight at this point and so, but we'll continue to drive efficiencies there as we are.
Dana Telsey: Drive the topline.
Dana Telsey: The integration itself is Jenna mentioned in her remarks, but we have the majority of API.
Fixed and we'll keep at it we're adding new vendors, but importantly, with respect to the digital banners were also adding finished product and and some fashion product, which will will continue to drive our expansion in their gross margin as well so it's an important strategic.
Joan Hilson: So it's an important strategic move that the digital banner team has made, and it's been helpful, and we'll see more of that coming into the fourth quarter. With respect to real estate, we've, you know, e-commerce overall for the quarter was relatively flat. The banner by banner, we were really pleased to see that sales has with the influx of fashion product into that business. We're seeing that help drive the e-commerce performance for that banner. And as we look overall, we are stores are well positioned. We're renovating in anticipation of improved traffic, and we believe based on the testing that we've done.
Dana Telsey: Move that they are the digital banner team has made and it's it's it's been helpful and we'll see more of that coming into the fourth quarter with respect to real estate. We've E. Commerce overall for the quarter was relatively flat I think the by banner by banner we were.
Dana Telsey: Really pleased to see that zales has with the influx of a fashion product into that business. We're seeing that helped drive that E. Commerce performance for that banner and as we look overall, we our stores are well positioned.
Dana Telsey: Were renovating a in anticipation of a improved traffic and we believe based on the testing that we've done.
Joan Hilson: And the stores that we've already completed that will see a nice lift on the top line relative to that as we complete the balance of the stores heading into holiday.
Dana Telsey: And the the the stores that we've already completed that we'll see a nice lift on the top line relative to that as we complete the balance of the stores heading into holiday.
Dana Telsey: Yeah.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Operator: There are no further questions at this time.
Speaker Change: There are no further questions at this time I'd now like to turn the call back over to Mr. Tusa for final closing comments.
Jenna Chosa: I'd now like to turn the call back over to Ms. Joseph for final closing comments. Well, thank you, everyone. We called out a number of competitive advantages today, but I'd like to end the call highlighting the same one that I started with this morning. Our experience knowledgeable and dedicated team. Their execution is key to the accelerating momentum we're delivering in the business. So thank you all for joining our call today, and we look forward to speaking to you all again in December.
Well. Thank you everyone, we called out a number of competitive advantages today, but I'd like to end the call highlighting the same one that I started with this morning, our experienced knowledgeable and dedicated team their execution is key to the accelerating momentum we are delivering in the business. So thank you all.
Speaker Change: All for joining our call today, and we look forward to speaking to you all again in December.
Operator: Thank you, ma'am.
Speaker Change: Thank you ma'am, ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a lovely day.
Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.
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