Q3 2025 Signet Jewelers Ltd Earnings Call
Good morning, and welcome to the Signet Jewelers third quarter fiscal 2025 earnings call.
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Speaker Change: Joining us on the call today are Clayton Ward senior director of Investor Relations and capital markets JK for Nancy <unk>, Chief Executive Officer, Joan Hilson, Chief Financial and operations Officer, Andrew I believe senior Vice President of Investor Relations at this time I would like to turn the conference over to create it.
Speaker Change: Please go ahead.
Speaker Change: Good morning, welcome to Signet Jewelers third 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 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, 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.
Speaker Change: During the call we will discuss certain non-GAAP financial measures for further discussion of this non-GAAP financial measures as well as reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures investors should review the news release, we posted on our website at IR at Signet Jewelers Dot com with that I'll turn it over to Jay.
Speaker Change: Yeah.
Jay: Thank you Clayton and good morning, everyone. It's my pleasure to be with you all today and I'd like to first thank all my Cigna colleagues for their incredibly warm welcome.
Jay: There are many aspects that attracted me to cigarette that I'll share in a moment, but let me start by saying that the team is genuinely motivated by our purpose committed to serving the needs of our customers and invested in the future of Cigna.
Jay: Ive immersed myself in our business and culture spending more time at our stores and offices meeting with our team members and leadership.
Jay: And my time at Cigna, I've already seen firsthand, how our team members recognize and celebrate the emotional connection we have with our customers when they are making a jewelry purchase I've.
Jay: I've seen it in cities across our footprint, how passionate everyone here is about providing customers with the highest level of jewelry expertise to offer guidance to create lasting memories at milestone in everyday moments in their lives.
Jay: A career long merchant I share this passion for serving customers and I'd like to take this moment to recognize our signet team for their dedication and hard work in the midst of our most important selling season.
I'm also encouraged by our vendors and their commitment to strategic partnerships to create on trend merchandise.
Jay: After a month at Signet.
Jay: Energized by our opportunity to accelerate growth our strong brands deep consumer focus and talented team provide a powerful foundation to strategically evolve and transform our business in partnership with the management team. We are actively identifying new opportunities for the future.
Jay: I recognize we have some challenges engagement incidents are somewhat less predictable on a short term basis and as you know lab created diamonds have disrupted the industry, but also create opportunities in the fashion category as well as increase the breadth of assortment within bridal.
Jay: I'm excited by the opportunities in front of us and I believe signet strikes will overcome its challenges to yield growth ahead of us.
Jay: Over the next few months myself and our team are first and foremost focused on continuing to execute a successful holiday season.
Jay: We will look to evolve our strategy to fuel customer and shareholder value and look forward to sharing details on this work and our plans in the coming months.
Jay: I'll now turn the call over to Joe.
Joe: Thanks, J K and good morning, everyone.
Joe: I'd first like to thank our signet team your agility and commitment continues to be an inspiration and I appreciate the drive to results in the third quarter and the preparations for the holiday season.
Joe: I have three takeaways today.
Joe: First we continue to drive sales momentum with our sixth consecutive quarter of sequential same store sales improvement as we navigate a choppy consumer and industry environment. This year.
Joe: Second we are well prepared this holiday season with a go to market strategy, which we believe will drive positive same store sales in the fourth quarter.
Joe: Lastly, we're updating guidance to reflect the short term impacts from both digital banners, James Allen and Blue Nile leadership transition costs and the permanent accretive impact from the early completion of the preferred shares redemption.
Joe: Looking closer at the third quarter same store sales finished down 7% in nearly three point sequential improvement for the second quarter in fact, when excluding the impact of our digital banners and Hurricanes, we delivered same store sales growth of one point.
Joe: Fashion sales were positive as we continue to see strong sell through of new merchandise, partially offsetting the decline in engagement performance and our digital banners.
Focusing more on newness, our strategy to drive higher penetration continues to resonate with customers up nearly eight points to last year in our core banners.
Speaker Change: The higher penetration of new merchandize is key to Cigna strategy around average transaction value or a T V and merchandize margin for.
Speaker Change: For example, North America fashion, a T V was up mid single digits in the third quarter, driven by a more than 30% growth in lab created diamond fashion sales.
Importantly, new products carry no more than five point margin premium to our core average, which is a greater premium than last year.
Speaker Change: Turning to bridal we finished the quarter with total North America engagement units down 2% due to performance in our digital banners. Excluding the digital banners units were up nearly four points in the third quarter, a seven point sequential improvement to last quarter.
Speaker Change: Turning to a T V. Overall, North America bridal ATV was down mid single digits in the quarter due to competitive price pressure in loose stones.
Speaker Change: We continue to believe engagement units will recover over the next few years.
Services revenue was up nearly 2% in the quarter as it continues to outpace merchandize sales.
Speaker Change: Extended service agreements or E. S. A's attachment rates grew 170 basis points to last year, driven by continued traction in post repair Esa and fashion merchandise.
Speaker Change: As a reminder, services carries a 20 point margin premium to merchandise.
Speaker Change: Turning to my second takeaway, we believe will deliver a positive holiday performance. This year driven by our comprehensive go to market strategy.
We have positioned merchandize in marketing to lean into both fashion and bridal building on the momentum we've seen in the last few quarters, we've increased inventory penetration of newness to over 30% and core banners up more than 10 points to drive holiday selling.
The consumer continues to be value oriented and the increase in new fashion merchandise allows us to provide customers a greater value at an attractive margin and a T V through product engineering.
Speaker Change: This work extends to bridal as well December typically has twice the number of engagements as any other month and we believe December engagement units will be positive.
We delivered high single digit same store sales over the Black Friday cyber Monday weekend. However, keep in mind that this includes a moderate lift resulting from the closer proximity to Christmas and is reflected within our fourth quarter guidance expectations.
Speaker Change: A reminder, our holiday sales are weighted to the two weeks before Christmas.
Speaker Change: Before I hand, the call over to Rob I'd like to discuss the changes in our expectations for the full year as.
Speaker Change: As part of my expanded responsibilities my initial assessment of challenges at our digital banners goes beyond the API integration issues. We've previously shared.
Speaker Change: The delayed completion of re platforming work and aided search upgrades that began earlier in the year significantly impacted traffic and search placement upon the completion of that work in the back half of the quarter.
Speaker Change: While our fourth quarter expectations are lower for the digital banner suddenly a few months ago due to these additional challenges we've already seen some improvement in the fourth quarter compared to October's performance.
Speaker Change: And importantly, I am pleased to welcome our new digital banner, President Corrine Benson, who joined just a month ago. She has deep consumer and digital experience, including Tiffany's and most recently led home depot online.
Speaker Change: I believe our talented digital team will benefit from her leadership setting the stage to drive improvement and return to our long term growth path over the coming quarters.
Speaker Change: Alongside the update to our expectations of digital banners, we will incur a leadership transition costs of approximately $7 million that were not initially contemplated in our full year guidance. We are also reflecting the accretive impact from the early completion of preferred share redemption.
Speaker Change: I'll now hand, the call over to Rob to discuss the financial results in more detail.
Rob: Thanks, Jen and good morning, everyone.
For the quarter was 1.35 billion down 3%.
Joan mentioned same store sales were down <unk>, 7%.
Speaker Change: Same store sales reflects the continued drag from our digital banners of approximately 120 basis points.
Speaker Change: Digital banners did improve sequentially by approximately 500 basis points, but worsened in the second half of the quarter.
Speaker Change: We delivered adjusted gross margin of $486 million or 36% of sales this quarter flat to last year.
Speaker Change: Merchandise margin was also flat in the third quarter as we cycled a 250 basis point growth in the prior year.
Speaker Change: Turning to SG&A adjusted expense was down 8 million to $469 million for the quarter.
Speaker Change: SG&A deleveraged by 50 basis points to 35% of sales due primarily to somewhat higher marketing expense that we referenced last quarter to pull some marketing spend ahead of the election as well as approximately $2 million of leadership transition costs.
Speaker Change: Adjusted operating income was $16 $2 million for the quarter or one 2% of sales adjusted.
Speaker Change: Adjusted EPS for the quarter was 24 cents and in line with last year.
Speaker Change: Turning to inventory we ended the quarter at $2 1 billion up 2% to last year, because we bolstered the penetration of new product as we enter the holiday season.
Speaker Change: We have completed the redemption of all remaining preferred shares this quarter for approximately $270 million and $810 million in aggregate this year.
Speaker Change: Common share repurchases year to date totaled $118 million or one 3 million shares at an average share price of approximately $91.
Speaker Change: These actions translate to an interview share count reduction of more than 17% for fiscal 'twenty for year end to roughly $43 5 million diluted shares.
Speaker Change: We continue to see capital returns to shareholders is an important part of our capital allocation strategy moving forward.
Speaker Change: Turning to liquidity, we ended the quarter with $158 million of cash and equivalents and 253 million temporarily drawn on the revolver.
Speaker Change: We're all on the revolver was the result of timing around the redemption of the preferred shares and holiday inventory purchases and we have already repaid a significant portion so far in the fourth quarter.
Speaker Change: With that I'll hand, the call back to Jim to discuss our guidance for the fourth quarter and the fiscal year.
Jim: Thanks, Rob.
Jim: For the fourth quarter, we expect same store sales in the range of flat to up 3%.
Jim: This includes an approximate one point drag from our digital banners.
Jim: We expect engagement units to be up low to mid single digits and fashion sales to be up modestly.
Jim: We expect adjusted operating income between $397 million to $427 million at a higher operating margin rate to last year.
Jim: Gross margin rate is expected to expand in the quarter with SG&A rate up slightly.
Jim: We believe our guidance provides for flexibility in a competitive environment.
Jim: This resulted in an update to our full year guidance range for same store sales down in the range of 2% to 3%.
Jim: We expect adjusted operating income between 540, and $570 million and adjusted EPS between $9.62 and $10.08.
Jim: So in closing before we go to questions I'd like to remind you of the three takeaways I'm, leaving you with today, one we delivered the quarter within our expectations to we're on track for positive holiday sales and finally, our updated guidance reflects short term impacts from both digital banners and leadership.
Jim: <unk> costs and the permanent accretive impact from the early completion of preferred shares redemption.
Operator, let's now go to questions.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May press star followed by the number one on guys telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question be spent his star followed by the number two one of them at least for your first question.
Speaker Change: And your first question comes from the line of Ike buoy child, but those five Wells Fargo. Please go ahead.
Speaker Change: Hey, good morning, everyone I'm going to talk to you a J K I guess two questions for me on the on the New guide I'm, just making sure I understand so the new comp guide flat to plus three but there's a 100 basis points of the digital did the core business, meaning ex digital did your expectation on that.
That business also come down and it looks like it did but it also kind of sounds like youre more calling up the digital banners is the driver of it. So just trying to understand the core versus the digital component and then just a follow up question on the guidance it looks like you're still guiding some nice margin expansion. Despite the lower comp and I guess I'm trying to understand where that margin expansion has come.
Speaker Change: From it is that does that gross margin is that some sort of expense initiatives you're flexing. So just kind of curious the puts and takes.
Speaker Change: Great. Thanks for the questions like so with respect to our core banner performance. We're pleased with the core banner performance at it in the third quarter.
Speaker Change: We're and collectively we were up I would say from a guidance perspective on the lower end, we're giving a little bit of a slight drop for the core four core banners within that guide for the fourth quarter.
Speaker Change: But overall pleased with how.
Speaker Change: How the GOR banners are are generally performing.
Speaker Change: On the digital banners or really the impact that we're seeing in our business. As you know we noted in the third quarter. It was 120 basis points impact to the comp we did have a little bit of a drop related to the hurricanes, but overall as we look forward, we think some of that well well mitigate but we still expect that one point.
Speaker Change: Rob related to digital.
Speaker Change: Gross margin our merchandise margin is really what's driving the gross margin expansion with some improvement related to that comp performance like but we're very pleased with her fashion is performing I shared that there was a meaningful expansion in merch margin rate.
Speaker Change: <unk> to the new product and so that mix on being driven up by our new our new product assortment is really what's driving the expansion in <unk> in the fourth quarter related to gross margin.
Speaker Change: Can you quantify what what do you expect gross margin to be for <unk> and I'm, just kind of comment on the promo environment and then I'll pass it along.
Yeah.
Speaker Change: Not specifically, but we do expect that to expand based on the you know the higher penetration of our fashion newness I would also add that in the third quarter. There was a slight impact related to promoting some of the clearance product to make way for newness.
Speaker Change: As we head into that to the fourth quarter. We believe that we are competitively positioned from a pricing perspective.
Speaker Change: And have really you know assessed our our fourth quarter and believe we've we've provided.
Speaker Change: For flexibility within our current view of gross margin.
Speaker Change: Thanks, so much.
Speaker Change: Your next question comes from the line up Lorraine Hutchinson with Bank of America. Please go ahead.
Speaker Change: Hi, This is Melanie M for Larry and thanks for taking our question I just wanted to ask about the digital integration issue is if you can just expand upon those a bit more it seems like you identified a few more you know things going on in that side of the business. So you know if you can just explain why these are still going on what else needs to be done. Thank you.
Speaker Change: Thanks for the question with respect to the digital banners, we have been working for the API integration and believe that those opportunities or challenges are behind us we saw that.
Speaker Change: You know working nicely over the Black Friday weekend for us so as we assessed what was happening in the latter part of the quarter.
Speaker Change: The re platforming work going in later than anticipated and going in as well.
Yeah. It was closer proximity to the fourth quarter, it's really impacted the overall performance of the digital banners now we're working through and as I mentioned on my prepared remarks that we're seeing some improvement relative.
Speaker Change: Relative to the later third quarter.
Speaker Change: Their performance, we're seeing improvement in the month of November, but we still do expect a one point impact related to the digital banners in the fourth quarter.
Thank you.
Speaker Change: Your next question comes from the line of Polish way with Citigroup. Please go ahead.
Speaker Change: Hey couple of questions can you talk about what you're seeing on the cost side.
Speaker Change: Both natural and lab and how retail pricing changes relative to what you're seeing on the cost side.
Speaker Change: And then second when we get through this year, what what's the profitability is going to look like from those digital scan or do they even making money this year and what's the plan to improve profitability of those businesses for next year.
Speaker Change: Hum.
Speaker Change: Thanks, Paul So first question related to cost, we see costs within particularly within lab grown diamonds coming down up faster than the retail is coming down so the way that we've bridged that in our strategy. As you know is we are <unk>.
<unk> design.
Speaker Change: You know branded product within bridal and with the introduction of a more fashion with a T V. We see that carrying two times higher ATV and product without lab grown diamonds in it. So we're managing the retails with the court with the incident are that.
Speaker Change: Infusion of new product within our assortment and then we're very pleased with how that's performing well.
Speaker Change: We're seeing our.
Speaker Change: Within our bridal and engagement, we see some decline in overall a T V. As we mentioned on the call, but where again.
Speaker Change: <unk> seen our assortment within our sweet sweet spot of price points. So I'm feeling very good about how engagement recovery is continuing to happen, albeit slower.
Speaker Change: And we are continuing to stay on our strategy of new product offering and continuing to bring.
Speaker Change: Bringing private branded product within within engagement now with respect to gold, what we see little price resistance within our business like all the consumer understands the value in that and and and and how gold is priced in the market. So as.
As we see prices are causing gold's rise, we are able to adjust our pricing and door value engineer product to keep pricing within the consumer sweet spot. So feel that we've been able to navigate that not with respect to your digital banner question.
Speaker Change: Yeah, we we don't really comment per se on operating margins, but what I will say to you Paul is that the top line growth of the digital banners. The infusion of our finished jewelry within Blue Nile and James Allen is very important to the merchandise margin expansion.
Speaker Change: For for those banners and when we and we are seeing that come in for this fourth quarter and you know and.
Speaker Change: In some magnitude for the first time, so as we look forward. We currently expect a Blue Island, James Allen to get back on track to our long term growth plans.
Speaker Change: And C assortment Max as well as you know expense management as part of the growing profitability of those banners.
Speaker Change: Okay. Thanks, good luck.
Speaker Change: And your next question comes from the lineup Mauritius Arnaud with UBS. Please go ahead.
Mauritius Arnaud: Hi, good morning. Thanks.
Mauritius Arnaud: Thanks for taking my question, maybe could you talk about your quarter to date same store sales just given your commentary about Black Friday sales performance and then also maybe could you give us a sense on.
Mauritius Arnaud: The puts and takes and you're seeing into 2025 margin.
Mauritius Arnaud: Rising pricing commodity costs I called any incentive comp are you know rebuild just like getting a better sense on that and then.
Mauritius Arnaud: And then I have a quick follow up on.
Mauritius Arnaud: On share count.
Mauritius Arnaud: Yes.
Mauritius Arnaud: Okay, So as I mentioned.
Speaker Change: You mentioned marine Yeah, we had a high single digit same store sales.
Speaker Change: <unk> performance over the Black Friday weekend through cyber Monday, just as a reminder, there say a modest impact there for proximity to Christmas. The overall performance of the quarter to date is reflected within our Q4 guidance. So it's within a considered within our guidance range.
Speaker Change: So yeah and I also mentioned a four within my prepared remarks that you know the two weeks prior to Christmas are very important to our business and our our obviously our highest selling period. So.
Speaker Change: We have a good portion of the quarter to go and so all of that is reflected within our guidance then with respect to 'twenty five and it will be back to you on our fourth quarter earnings call with our view of an fiscal 'twenty six I think you're asking about but.
We'll be back to you on that you know clearly we are evaluating M. A R.
Speaker Change: Our operating plan working with JK as he's come on board and with the management team and we have a lot of work ahead of us to as J K Mag mentioned were actively identifying opportunities for our future and we all will be happy to share those at that time.
Speaker Change: Got it and just I guess just to make sure does that mean that your quarter to date is be within flat to up 3% and then the follow up I had on on on the share count I'm just trying to understand like how are you getting to the I think like the 40 46 point too.
Speaker Change: Share count for the entire year, just like doing the numbers on what you knew what you already did and even like not assuming any more buybacks I'm getting to like a $45 five which just trying to understand like.
Speaker Change: Anything there to consider on the on the calculations for the diluted share count for the full year.
Speaker Change: Hey, Maria Thank you for the question this is Rob.
Speaker Change: Yeah in terms of quarter to date is June so we're not providing exactly the number but.
Speaker Change: There was the holiday shift a little bit closer to Christmas and we feel very confident in our ability to deliver a positive comp for the quarter, which is provided in our quarterly guidance and certainly reflected in our strong Black Friday weekend.
Speaker Change: Terms of the diluted share count as I think everyone knows.
Speaker Change: It's a fairly complicated calculation with the preferred shares this year, but due to the fact that we had some of the year calculated before we repurchased the shares some of the preferred shares in April and then amended this settlement agreement.
Speaker Change: And so the share count is was about $48 million in the first half of the year on a diluted basis on an adjusted EPS basis, and obviously you can get to roughly $44 million in the back half of the year to get to the $46 2 million shares and as we put in our earnings release, we do expect to exit the year at $43 5 million shares.
Speaker Change: It should provide some additional EPS accretion going forward.
Speaker Change: Got it. Thank you so much and good luck.
Speaker Change: And your next question comes from the line of game Sanderson with Northcoast Research. Please go ahead.
Speaker Change: Hey, Thanks for the question I wanted to go back to the commentary on the bridal category. I think you reported the average transaction value was down can you put that into perspective for us, whether that's getting worse or better and what the key drivers of that decline.
Speaker Change: Sure I'll take that one Jim.
Speaker Change: Engagement units that were or are recovering and although slower than we expected they were down overall and.
Speaker Change: 2% in the third quarter, but it did represent a four point sequential improvement.
Speaker Change: If you look at the business, excluding the digital banners in the third quarter, our North America engagement units were up nearly 4% in Q3. So that is a seven point sequential improvement and in our North America banners. So also a positive signal.
Speaker Change: Towards the the engagement recovery and so as we look forward as I mentioned, we expect that.
Speaker Change: Bridle, our engagement units in the fourth quarter will continue to be positive, albeit with the digital banners impact we yep. It will have some impact on that number but we've reflected that as we've mentioned earlier in our guidance. So overall engagement recovery underway. We also.
Speaker Change: Leave that.
Speaker Change: On the <unk> it will continue to see that recovery, although it may be a bit extended from our earlier view on that.
Speaker Change: Uh huh.
Speaker Change: Alright.
Speaker Change: Yeah.
Speaker Change: Go ahead, Jeff transaction right I apologize.
Speaker Change: I just wanted to make sure. So the average transaction value was down in the third quarter. It was also had a significant impact related to digital the digital banners, because there's such a high penetration of engagement within the digital banner. So go forward.
Speaker Change: Yeah, we were pleased with the overall flat average transaction value, Jim because our fashion assortment is providing us the ability to manage our way through what may be a bit of a choppy environment related to bridal a T V. So.
Speaker Change: Feel feel that you know its stable and we're able to manage with the mix of our business.
Speaker Change: Alright, and just one last follow up question I think you reported <unk>.
Speaker Change: Numbers for Black Friday this year on cyber Monday could you remind us what that trend was reported last year for comparison.
Speaker Change: Yeah.
Speaker Change: We didn't provide that last year, Jim, but I just to remind us here, we reported a high single were sharing a high single digit comp over that weekend, which is a record included in our guidance for positive comps in the fourth quarter.
Speaker Change: Understood. Thank you.
Speaker Change: Thank you.
Speaker Change: And do you have a follow up question coming from Mauricio Serna with UBS. Please go ahead.
Mauricio Serna: Yes. Thank you just a quick follow up.
Speaker Change: I wanted to understand the digital banners like the impact on on the total price like a why is that because.
Speaker Change: Because of engagements what isn't there more promotions and just on the promotional environment.
Speaker Change: How was that in Q3 versus the previous quarters and how are we thinking about that for Q4. Thank you.
Speaker Change: Okay. So that the digital banners, we said had at a 120 basis point impact to comp in the third quarter, we saw with the yeah. The timing of re platforming being completed later in the third quarter as well as the AI.
Speaker Change: All right I'm, sorry, the search aided search upgrades that we put into play they negatively impacted performance and were seeing that come around somewhat in the fourth quarter and we expect it to be a one point.
Speaker Change: A negative impact to comp on the fourth quarter from James Allen and Blue Nile. They have a high penetration of bridal our engagement within their business. Therefore, it is impacting our overall engagement performance, but our North America banners.
Speaker Change: Our positive as I mentioned in engagements in the third quarter. When you exclude the digital banner impact with respect to pricing and promotion of the third quarter.
Speaker Change: The I did mention that there was some clearance that.
Speaker Change: But we took price on pricing on to move through inventory to importantly make way for a new product as we enter the fourth quarter, which has.
Speaker Change: A much higher penetration than we did last year I think you know nine to 10 points. So important for us to do that and believe that we've positioned that nicely heading into the quarter. Our guidance include some what we believe is a now.
Speaker Change: This flexibility within our promotional posture for the fourth quarter, which will.
Speaker Change: Enable us to remain competitive within our guidance.
Speaker Change: Understood. Thank you so much.
Speaker Change: Thank you and that is all the time, we have for questions I would like to turn it back to our CEO Jacob Suen assay for closing remarks.
Jacob Suen: Thank you in closing I'd like to again, thank our signet team for their dedication to our purpose and for welcoming me to the team I believe the opportunities ahead of us to evolve Cigna will deliver further value to both shareholders and customers.
Jacob Suen: Thank you for your time today, we look forward to speaking to you again in March Goodbye.
Speaker Change: Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you all for participating you may now disconnect.
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