Q4 2026 Signet Jewelers Ltd Earnings Call

March 19, 2026

Speaker #2: Please go ahead. Good morning. Thank you for joining us for today's 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.

Rob Ballew: Good morning. Thank you for joining us for today's 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. During the call, we will discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures, as well as the reconciliation 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.signetjewelers.com.

Speaker #2: 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.

Speaker #2: Acceptance required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events. During the call, we will discuss certain non-GAAP financial measures.

Speaker #2: For further discussion of the non-GAAP financial measures, as well as the reconciliation 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.signetjewelers.com.

Rob Ballew: With that, I'll turn the call over to J.K.

Speaker #2: With that, I'll turn the call over to JK.

J.K. Symancyk: Thanks, Rob, and good morning, everyone. I'd like to start the call this morning with a thank you to the Signet team. This past year highlighted your agility in the face of new obstacles and your commitment when presented with opportunity. Thank you for your dedication to Grow Brand Love in the crucial first year of our strategy. There are two key takeaways I'd like to leave you with today. First, as we announced last week, we delivered at or above the high end of our adjusted operating income and EPS guidance range amidst unprecedented tariffs, record gold costs, and a measured consumer while generating 20% more free cash flow on a simplified operating model. Second, building on recent positive sales momentum, fiscal 2027 will focus on accelerating core performance through sharper brand differentiation, broader customer reach, and a more seamless in-store and digital experience.

Speaker #3: Thanks, Rob. And good morning, everyone. I'd like to start the call this morning with a thank you to the Signet team. This past year highlighted your agility in the face of new obstacles and your commitment when presented with opportunity.

Speaker #3: Thank you for your dedication to growing brand love in the crucial first year of our strategy. There are two key takeaways I'd like to leave you with today.

Speaker #3: First, as we announced last week, we delivered at or above the high end of our adjusted operating income and EPS guidance range amidst unprecedented tariffs, record gold costs, and a measured consumer, while generating 20% more free cash flow on a simplified operating model.

Speaker #3: Second, building on recent positive sales momentum, fiscal '27 will focus on accelerating core performance through sharper brand differentiation, broader customer reach, and a more seamless in-store and digital experience.

J.K. Symancyk: Looking back over this first year of Grow Brand Love, our heightened focus on our three largest brands, Kay, Zales, and Jared, proved to be a critical factor in delivering positive same-store sales for the year. In fact, we delivered positive comps for the vast majority of the past year. Within that performance, Kay, Zales, and Jared delivered over 3% combined comp sales growth. Further, the team's focus on cost management as well as leveraging value engineering, vendor relationships, and country of origin pivots have delivered adjusted operating income growth even as we digest a reset to short-term incentive compensation, record gold prices, and elevated tariffs. Now, more specific to Q4. Performance in each month of the quarter improved on both a 1- and 2-year comp basis and included a positive performance for the 10 peak holiday selling days, as well as the balance of the quarter.

Speaker #3: Looking back over this first year of Grow Brand Love, our heightened focus on our three largest brands—Kay, Sales, and Jared—proved to be a critical factor in delivering positive same-store sales for the year.

Speaker #3: In fact, we delivered positive comps for the vast majority of the past year. Within that performance, K, Sales, and Jared delivered over 3% combined comp sales growth.

Speaker #3: Further, the team's focus on cost management, as well as leveraging value engineering, vendor relationships, and country of origin pivots, have delivered adjusted operating income growth even as we digest a reset to short-term incentive compensation, record gold prices, and elevated tariffs.

Speaker #3: Now, more specific to the fourth quarter, performance in each month of the quarter improved on both a one and two-year comp basis, and included a positive performance for the 10-peak holiday selling days, as well as the balance of the quarter.

J.K. Symancyk: Turning to fiscal 2027, sales momentum continued into the year with a positive Valentine's Day performance, which has continued quarter to date. This momentum leads me to my next key takeaway today, how Grow Brand Love's imperatives will evolve in year two of our strategy. The first year of Grow Brand Love returned the business to growth, a result we look to amplify. We're applying learnings from this past year to refine each of the strategy's imperatives. I'll outline the key updates to these imperatives and then spend the balance of my remarks taking a deeper look at the first. Our first imperative, shifting from a banner mindset to a brand mindset, remains foundational. Over the past year, we strengthened brand positioning across the portfolio, which clarified our path toward building distinct, highly desired brands. In fiscal 2027, we will advance this work.

Speaker #3: Turning to fiscal '27, sales momentum continued into the year with a positive Valentine's Day performance, which has continued quarter to date. This momentum leads me to my next key takeaway today.

Speaker #3: How grow brand loves imperatives will evolve in year two of our strategy. The first year of grow brand love returned the business to growth, a result we look to amplify.

Speaker #3: We're applying learnings from this past year to refine each of the strategies' imperatives. I'll outline the key updates to these imperatives, and then spend the balance of my remarks taking a deeper look at the first.

Speaker #3: Our first imperative—shifting from a banner mindset to a brand mindset—remains foundational. Over the past year, we strengthened brand positioning across the portfolio.

Speaker #3: Which clarified our path toward building distinct, highly desired brands. In fiscal '27, we will advance this work. Our second imperative—focusing on our core to earn the right to expand into adjacencies—delivered results this year, as our core brands drove the majority of growth.

J.K. Symancyk: Our second imperative, focusing on our core to earn the right to expand into adjacencies, delivered results this year as our core brands drove the majority of growth. In fiscal 27, we will leverage our scale to unlock additional portfolio value. This includes improving inventory turns, managing exposure to tariff and commodity volatility, and enhancing pricing architecture to reflect each brand's customer profile. Our scale also positions us to win in growth avenues such as services and with an integrated diamond strategy. Our final imperative included restructuring the operating model to support strategy. In fiscal 27, we will continue to strengthen our operating model through strategic real estate actions, ongoing brand portfolio optimization, and developing a higher-performing organization to ensure opportunity for our team and bench strength for our future. Now, I'd like to drill in on shaping distinct and coveted brands.

Speaker #3: In fiscal '27, we will leverage our scale to unlock additional portfolio value. This includes improving inventory turns, managing exposure to tariff and commodity volatility, and enhancing pricing architecture to reflect each brand's customer profile.

Speaker #3: Our scale also positions us to win in growth avenues such as services, and with an integrated diamond strategy. Our final imperative included restructuring the operating model to support strategy.

Speaker #3: In fiscal '27, we will continue to strengthen our operating model through strategic real estate actions, ongoing brand portfolio optimization, and developing a higher-performing organization to ensure opportunity for our team and bench strength for our future.

Speaker #3: Now, I'd like to drill in on shaping distinct and coveted brands. In fiscal '26, we placed an outsized focus on our three largest brands, that represent roughly 70% of revenue.

J.K. Symancyk: In fiscal 2026, we placed an outsized focus on our three largest brands that represent roughly 70% of revenue. For fiscal 2027, we're sharpening our go-to-market strategy for these brands and taking action to evolve assortment and product design and elevate the customer experience, both in store and online. We're also transforming our approach to marketing to support these efforts. A critical step forward is enhancing the customer experience through redesigning Kay, Zales, and Jared websites. While we operate an effective platform, we recognize that the front-end experience needs improvement. The redesign for each of these brands will provide customers with a more curated selection informed by their behavior with improved navigation. Our site refresh will better align to a purchase journey that is emotional and highly considered through more intuitive features and design, enhanced product discovery, and improved storytelling.

Speaker #3: For fiscal '27, we're sharpening our go-to-market strategy for these brands, and taking action to evolve assortment and product design, and elevate the customer experience, both in-store and online.

Speaker #3: We're also transforming our approach to marketing to support these efforts. A critical step forward is enhancing the customer experience through redesigning K, Sales, and Jared websites.

Speaker #3: While we operate an effective platform, we recognize that the front-end experience needs improvement. The redesign for each of these brands will provide customers with a more curated selection informed by their behavior, with improved navigation.

Speaker #3: Our site refresh will better align to a purchase journey that is emotional and highly considered, through more intuitive features and design, enhanced product discovery, and improved storytelling.

J.K. Symancyk: We expect this to be complete by Q3 in order to take full advantage of the holiday shopping season. Additionally, we expect to implement a new content management system next year that will provide further improvements. Moving to the in-store customer experience, we've seen an incremental low single-digit comp increase from renovations. Building on this performance, we're accelerating renovations to touch 30% more stores this year, equating to nearly 10% of the fleet with a particular focus on brands and markets that represent the best opportunities. These efforts are integrated with marketing campaigns and product activations. As we look to further differentiate our brands and experiences, both in-store and online, we'll also be focusing on distinct product design and unique assortment architecture. Along with more frequent and relevant new product, we will continue lowering complexity and duplication through SKU rationalization.

Speaker #3: We expect this to be complete by Q3 in order to take full advantage of the holiday shopping season. Additionally, we expect to implement a new content management system next year that will provide further improvements.

Speaker #3: Moving to the in-store customer experience, we've seen an incremental low single-digit comp increase from renovations. Building on this performance, we're accelerating renovations to touch 30% more stores this year, equating to nearly 10% of the fleet, with a particular focus on brands and markets that represent the best opportunities.

Speaker #3: These efforts are integrated with marketing campaigns and product activations. As we look to further differentiate our brands and experiences, both in-store and online, we'll also be focusing on distinct product design and unique assortment architecture.

Speaker #3: Along with more frequent and relevant new products, we will continue lowering complexity and duplication through SKU rationalization. These actions are designed to focus on a more productive assortment that leads to other operating efficiencies, ultimately leading to a positive contribution to margin.

J.K. Symancyk: These actions are designed to focus on a more productive assortment that leads to other operating efficiencies, ultimately leading to a positive contribution to margin. Our efforts to further distinguish each of our brands will be supported by a transformation of our marketing approach. At the center of this work is a renewed focus on brand-relevant content and storytelling. This is a full funnel strategy supported by three key levers. First is maximizing key demand periods. Second is generating and amplifying brand moments. Finally, is growing a stronger and more engaged social media presence. Further, we're taking a more disciplined approach to performance metrics, which will increase accountability to facilitate change faster and create more impactful decision-making. To be clear, this is about an increase in impact, not an increase in budget.

Speaker #3: Our efforts to further distinguish each of our brands will be supported by a transformation of our marketing approach. At the center of this work is a renewed focus on brand-relevant content and storytelling.

Speaker #3: This is a full-funnel strategy supported by three key levers. First is maximizing key demand periods. Second is generating and amplifying brand moments. And finally, growing a stronger and more engaged social media presence.

Speaker #3: Further, we're taking a more disciplined approach to performance metrics, which will increase accountability to facilitate change faster and create more impactful decision-making. To be clear, this is about an increase in impact, not an increase in budget.

J.K. Symancyk: This evolution of our go-to-market strategy, built on enhanced customer experience online and in store, as well as marketing transformation, is designed to drive brand consideration. We believe that each point of increase in purchase consideration across Signet's brands equates to $100 million of revenue. Summarizing my key takeaways today. First, as we announced last week, we delivered at the high end of our fiscal 2026 guidance range amidst unprecedented tariffs, record gold costs, and a measured consumer, while generating 20% more free cash flow on a simplified operating model. Second, as we started with positive sales momentum, fiscal 2027 will focus on accelerating core performance through sharper brand differentiation, broader customer reach, and a more seamless in-store and digital experience. With that, I'd like to turn it over to Joan.

Speaker #3: This evolution of our go-to-market strategy built on enhanced customer experience, online and in-store, as well as marketing transformation, is designed to drive brand consideration.

Speaker #3: We believe that each point of increase in purchase consideration across SIGNET's brands equates to 100 million dollars of revenue. Summarizing my key takeaways today, first, as we announced last week, we delivered at the high end of our fiscal 2026 guidance range amidst unprecedented tariffs, record gold costs, and a measured consumer while generating 20% more free cash flow on a simplified operating model.

Speaker #3: Second, as we've started with positive sales momentum, fiscal '27 will focus on accelerating core performance through sharper brand differentiation, broader customer reach, and a more seamless in-store and digital experience.

Speaker #3: With that, I'd like to turn it over to Joan. Thanks, JK, and good morning, everyone. Before discussing our fourth quarter results, I'd like to comment on our efforts to unlock portfolio value and further achieve benefits of scale.

Joan Hilson: Thanks, JK, and good morning, everyone. Before discussing our Q4 results, I'd like to comment on our efforts to unlock portfolio value and further achieve benefits of scale. We've completed a review of our portfolio and have identified synergies as well as opportunities to integrate standalone smaller brands into brands of size to augment core performance and to focus on brands with higher growth potential. Previously, we were supporting eight distinct independent businesses. We've changed our focus to a portfolio of brands with four core engines. This has impacted the way we focus resources, including capital and time. These changes are leveraging scale on the back end more than we have historically and sharpening focus.

Speaker #3: We've completed a review of our portfolio and have identified synergies, as well as opportunities to integrate standalone smaller brands into brands of size, to augment core performance and to focus on brands with higher growth potential.

Speaker #3: Previously, we were supporting eight distinct independent businesses. We've changed our focus to a portfolio of brands with four core engines. This has impacted the way we focus resources, including capital and time.

Speaker #3: These changes are leveraging scale on the back end more than we have historically, and sharpening focus. To this end, we are aligning select brands within our portfolio to prioritize our larger consumer brands and amplify growth opportunities.

Joan Hilson: To this end, we are aligning select brands within our portfolio to prioritize our larger consumer brands and amplify growth opportunities, maximize the benefits of shared resources, and expand customer reach, all in an effort to drive sustainable comp performance. More specifically, Blue Nile plays a distinct role as a premium brand serving a broader age range with a more affluent customer. We are evolving Blue Nile to achieve an elevated luxury position anchored in the enduring value of natural diamonds. This allows Blue Nile to distinguish itself at the highest end of the Signet portfolio, expanding our customer reach among households with higher income without diluting accessibility to customers across the portfolio. To support our growth aspirations for Blue Nile, we will leverage the James Allen brand as a proprietary collection and transition complementary products and styles to the Blue Nile website.

Speaker #3: Maximize the benefits of shared resources, and expand customer reach, all in an effort to drive sustainable comp performance. More specifically, Blue Nile plays a distinct role as a premium brand serving a broader age customer.

Speaker #3: We are evolving Blue Nile to achieve an elevated luxury position, anchored in the enduring value of natural diamonds. This allows Blue Nile to distinguish itself at the highest end of the Signet portfolio.

Speaker #3: Expanding our customer reach among households with higher income, without diluting accessibility to customers across the portfolio. To support our growth aspirations for Blue Nile, we will leverage the James Allen brand as a proprietary collection and transition complementary products and styles to the Blue Nile website.

Joan Hilson: Over Q2, we will be sunsetting the JamesAllen.com site. We also see additional opportunity for other brands within the portfolio to utilize the custom capabilities and technology of James Allen. Further, the Rocksbox private label fashion assortment will become a distinct proprietary collection within Kay. Rocksbox will operate within the Kay team rather than as a standalone brand. We expect the bottom line financial impact from this transition to be minimal. Rounding out our portfolio, the UK brands and Peoples brands are performing well and are generally self-sustaining. At this time, we believe the cash generation from these businesses, as well as the potential tax cost of exiting these brands, significantly outweighs any potential sale proceeds. Finally, we continue to evaluate the long-term role of Banter, our high-margin and capital-light brand, which is currently positioned as mid-value within our portfolio.

Speaker #3: Over the second quarter, we will be sunsetting the JamesAllen.com site. We also see additional opportunity for other brands within the portfolio to utilize the custom capabilities and technology of James Allen.

Speaker #3: Further, the Rock Box private label fashion assortment will become a distinct proprietary collection within K. Rock Box will operate within the K team rather than as a standalone brand. We expect the bottom line financial impact from this transition to be minimal.

Speaker #3: Rounding out our portfolio, the UK brands and People's brands are performing well and are generally self-sustaining. At this time, we believe the cash generation from these businesses, as well as the potential tax cost of exiting these brands, significantly outweighs any potential sale proceeds.

Speaker #3: Finally, we continue to evaluate the long-term role of Banter, our high-margin and capital-light brand, which is currently positioned as mid-value within our portfolio.

Joan Hilson: To reinforce this brand mindset, we are further centralizing support functions that operate inside brands today to provide for brand leader focus on go-to-market priorities. This change will be most pronounced for digital brands and Diamonds Direct, particularly in our contact centers as well as in the fulfillment and technology teams. Additionally, to better achieve benefits of scale, we have implemented an integrated diamond sourcing process, which will provide better management of our virtual diamond marketplace, drive further vertical integration, and elevate the natural diamond offering available for our brands, particularly Blue Nile. We've also established a fully integrated jewelry service network that is now in a position to provide additional capacity for custom services, B2B repair, and repair of jewelry purchased from other retailers. This will build on the momentum we've generated in recent years, as well as continue to support the growth of our service plan program.

Speaker #3: To reinforce this brand mindset, we are further centralizing support functions that operate inside brands today to provide for brand leader focus on go-to-market priorities.

Speaker #3: This change will be most pronounced for digital brands and Diamonds Direct, particularly in our contact centers as well as in the fulfillment and technology teams.

Speaker #3: Additionally, to better achieve benefits of scale, we have implemented an integrated diamond sourcing process, which will provide better management of our virtual diamond marketplace, drive further vertical integration, and elevate the natural diamond offering available for our brands, particularly Blue Nile.

Speaker #3: We've also established a fully integrated jewelry service network that is now in a position to provide additional capacity for custom services, B2B repair, and repair of jewelry purchased from other retailers.

Speaker #3: This will build on the momentum we've generated in recent years, as well as continue to support the growth of our service plan program. Operating model optimization also focuses on maximizing the performance of our fleet as we reduce exposure to declining venues and target under-penetrated, high-growth trade areas.

Joan Hilson: Operating model optimization also focuses on maximizing the performance of our fleet as we reduce exposure to declining venues and target under-penetrated high-growth trade areas. This strategy includes a learning agenda this year to test new formats, fixtures within formats, and new experiential designs. Our portfolio review, centralization efforts, and fleet optimization, we believe, will further deliver operating efficiency and free cash flow conversion. Now turning to the quarter. Revenue for the quarter was $2.3 billion with a comp decrease of 0.7%. Excluding James Allen and the net impact of weather, comps grew 1%. November and the first half of December was the slowest period of the quarter, down around 3%. We implemented broader promotions ahead of our high volume days in December to deliver a positive performance in the back half of the month, with further improvement in January.

Speaker #3: This strategy includes a learning agenda this year to test new formats, fixtures within formats, and new experiential designs. Our portfolio review, centralization efforts, and fleet optimization, we believe, will further deliver operating efficiency and free cash flow conversion.

Speaker #3: Now turning to the quarter, revenue for the quarter was $2.3 billion with a comp decrease of 0.7%. Excluding James Allen and the net impact of weather, comps grew 1%.

Speaker #3: November and the first half of December was the slowest period of the quarter down around 3%. We implemented broader promotions ahead of our high-volume days in December to deliver a positive performance in the back half of the month with further improvement in January.

Joan Hilson: By category, this quarter's results reflect mid-single digit comp growth in services and low single digit declines in bridal and fashion. AUR grew 5%, up in all categories. Moving to gross margin, we delivered approximately $1 billion, down roughly 60 basis points. We saw a 30 basis point decrease in merchandise margins to the prior year, reflecting higher commodity costs and tariffs, partially offset by assortment architecture, pricing, and growth in services. Cost reductions allowed us to achieve the high end of our adjusted operating income guidance of $327 million for the quarter. Excluding incentive comp reset, SG&A was roughly flat in rate and dollars. Inclusive of the incentive comp reset, SG&A rate was up roughly 80 basis points.

Speaker #3: By category, this quarter's results reflect mid-single-digit comp growth in Services, and low single-digit declines in Bridal and Fashion. AUR grew 5%, up in all categories.

Speaker #3: Moving to gross margin, we delivered approximately $1 billion, down roughly 60 basis points. We saw a 30 basis point decrease in merchandise margins compared to the prior year.

Speaker #3: Reflecting higher commodity costs and tariffs, partially offset by assortment architecture, pricing, and growth in services. Cost reductions allowed us to achieve the high end of our adjusted operating income guidance of $327 million for the quarter.

Speaker #3: Excluding the incentive comp reset, SG&A was roughly flat in rate and dollars. Inclusive of the incentive comp reset, the SG&A rate was up roughly 80 basis points.

Joan Hilson: For the full year fiscal 2026, comp sales grew 1.3%, gross margin expanded 30 basis points, and adjusted operating income grew to $515 million, while delivering 7% adjusted diluted EPS growth. Turning to the balance sheet, inventory ended the quarter flat to last year at $1.9 billion. Cash ended the quarter at $875 million, with total liquidity of roughly $2 billion and an undrawn ABL. As a reminder, we consider an excess liquidity at the end of the year over $1.5 billion as available for returns to shareholders or further organic investments. Free cash flow for the year was approximately $525 million, up 20% to last year on higher earnings, lower cash taxes, and working capital efficiency.

Speaker #3: For the full year fiscal '26, comp sales grew 1.3%, gross margin expanded 30 basis points, and adjusted operating income grew to $515 million, while delivering 7% adjusted diluted EPS growth.

Speaker #3: Turning to the balance sheet, inventory end of the quarter flat to last year at $1.9 billion. Cash end of the quarter at $875 million with total liquidity of roughly $2 billion and an undrawn ABL.

Speaker #3: As a reminder, we consider any excess liquidity at the end of the year over $1.5 billion as available for returns to shareholders or further organic investments.

Speaker #3: Free cash flow for the year was approximately $525 million, up 20% to last year on higher earnings, lower cash taxes, and working capital efficiency.

Joan Hilson: As a reminder, our capital allocation priorities are organic growth and return of excess cash to shareholders while maintaining a conservative balance sheet. We repurchased $205 million or more than 3 million shares in fiscal 2026 at an average purchase price of roughly $66. This includes approximately $27 million or nearly 300,000 shares in Q4. The total repurchases for the year represented more than 7% of shares outstanding. The remaining repurchase authorization at the year end was approximately $518 million. Now turning to guidance. We are coming into the year with positive momentum and traction in our core brands. The high guide for the year assumes a fairly consistent comp performance quarter to quarter, while the low guide allows for flexibility in consumer spending.

Speaker #3: As a reminder, our capital allocation priorities are organic growth and return of excess cash to shareholders while maintaining a conservative balance sheet. We repurchased $205 million, or more, in fiscal '26 at an average purchase price of roughly $66.

Speaker #3: This includes approximately $27 million, or nearly 300,000 shares, in the fourth quarter. The total repurchases for the year represented more than 7% of shares outstanding.

Speaker #3: The remaining repurchase authorization at the year-end was approximately $518 million. Now, turning to guidance, we are coming into the year with positive momentum and traction in our core brands.

Speaker #3: The high guide for the year assumes a fairly consistent comp performance quarter to quarter, while the low guide allows for flexibility in consumer spending.

Joan Hilson: For the full year, we expect the comp sales range to be down 1.25% to up 2.5%, with total revenue between $6.6 and $6.9 billion. Total revenue this year will be impacted by $60 to $80 million of lost sales contribution from the transition of James Allen. Also, we plan to exclude digital brands from our Q2 through Q4 comp sales reporting as we reposition both James Allen and Blue Nile. Further, our revenue guidance assumes approximately 100 store closures, leading to a low single-digit decline in square footage. We anticipate merchandise margin rate for the year will be relatively flat at the midpoint of guidance. We believe the combined incremental impact of tariffs and commodity increases is lower than the headwind we mitigated last year.

Speaker #3: For the full year, we expect the comp sales range to be down 1.25% to up 2.5%, with total revenue between $6.6 and $6.9 billion.

Speaker #3: Total revenue this year will be impacted by $60 to $80 million of lost sales contribution from the transition of James Allen. Also, we plan to exclude digital brands from our Q2 through Q4 comp sales reporting as we reposition both James Allen and Blue Nile.

Speaker #3: Further, our revenue guidance assumes approximately $100 store closures leading to a low single-digit decline in square footage. We anticipate merchandise margin rate for the year will be relatively flat at the midpoint of guidance.

Speaker #3: We believe the combined incremental impact of tariffs and commodity increases is lower than the headwind we mitigated last year. We also have a longer lead time to address these headwinds with the following actions.

Joan Hilson: We also have a longer lead time to address these headwinds with the following actions. Select pricing actions related to commodities, reduced off holiday discounting, increased LGD mix, assortment architecture, and to a lesser degree, benefits from gold hedges. We expect adjusted operating income between $470 and $560 million. We expect adjusted EPS between $8.80 and $10.74 per share. At the high end of these ranges, we expect to leverage our fixed cost base to drive operating margin expansion. Finally, for the year, we expect $150 to $180 million in capital expenditures, inclusive of a somewhat higher spend on our real estate compared to last year. This includes over 200 renovations and up to 20 repositions, as well as up to 10 store openings.

Speaker #3: Select pricing actions related to commodities, reduced off-holiday discounting, increased LGD mix, assortment architecture, and, to a lesser degree, benefits from gold hedges. We expect adjusted operating income between $470 and $560 million.

Speaker #3: We expect adjusted EPS between $8.80 and $10.74 per share. At the high end of these ranges, we expect to leverage our fixed cost base to drive operating margin expansion.

Speaker #3: Finally, for the year, we expect $150 million to $180 million in capital expenditures, inclusive of a somewhat higher spend on our real estate compared to last year.

Speaker #3: This includes over 200 renovations and up to 20 repositions, as well as up to 10 store openings. For the first quarter, we expect comp sales to be up 0.5% to 2.5%.

Joan Hilson: For Q1, we expect comp sales range to be up 0.5% to 2.5%, with adjusted operating income between $66 million and $77 million. We expect merchandise margins to be somewhat lower in Q1, generally offset by leverage in SG&A. Before we turn to Q&A, I'd like to thank the team for delivering strong progress in the first year of our Grow Brand Love strategy, as well as driving the momentum to start fiscal 2027. Now I'd like to turn the call over to questions.

Speaker #3: With adjusted operating income between $66 million and $77 million, we expect merchandise margins to be somewhat lower in the first quarter, generally offset by leverage in SG&A.

Rob Ballew: Before we turn to Q&A, I'd like to thank the team for delivering strong progress in the first year of our Grow Brand Love strategy, as well as driving the momentum to start fiscal 2027. Now I'd like to turn the call over to questions.

Speaker #3: Before we turn to Q&A, I'd like to thank the team for delivering strong progress in the first year of our Grow Brand Love strategy, as well as driving the momentum to start fiscal '27.

Speaker #3: Now I'd like to turn the call over to questions. Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on the touch-tone phone.

Operator 2: Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. Should you wish to cancel your request, please press the star followed by the two. Once again, that is star one should you wish to ask a question. Your first question is from Paul Lejuez from Citigroup. Your line is now open.

Operator: Thank you, ladies and gentlemen. We will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. Should you wish to cancel your request, please press the star followed by the two. Once again, that is star one should you wish to ask a question. Your first question is from Paul Lejuez from Citigroup. Your line is now open.

Speaker #3: Should you wish to cancel your request, please press the star followed by the two. Once again, there is star one should you wish to ask a question.

Speaker #3: Your first question is from Paul Lejue from Citigroup. Your line is now open.

Paul Lejuez: Hey, thanks, guys. On the gross margin line and just comments right there, Joan, lots of moving pieces. Can you maybe talk about the headwinds and tailwinds in Q1? I think you said Q1 would be lower. Which pieces will change as you move throughout the year? Maybe JK, can you just talk about what worked over Valentine's Day, how that compares to what worked during the holiday season, and what were the learnings from this past holiday that you'll apply to 2026? Thanks.

Speaker #4: Hey, thanks, guys. I mean, on the gross margin line—and just comments right there, Joan—lots of moving pieces. Can you maybe talk about the headwinds and tailwinds in Q1?

Speaker #4: I think you said one Q would be lower. And which pieces will change as you move throughout the year? And then maybe, JK, can you just talk about what worked over Valentine's Day, how that compares to what worked during the holiday season, and what were the learnings from this past holiday that you'll apply to 2026?

Speaker #4: Thanks.

Joan Hilson: To start with the GMM rate for the year, you know, at the midpoint, what we said is that it would be flat. As we look into Q1, we would see a little bit more pressure on the GMM rate as we work through the wrap of Q1 in Q1 of tariffs, as well as the higher commodity prices. We will continue to work with our assortment architecture and, you know, some of the gold hedges and so forth as we progress through the year. The first half definitely has a little bit more pressure, and we believe the back half begins to neutralize in terms of the GMM impact related to tariffs and commodities.

Speaker #5: So to start with the GMM rate for the year, at the midpoint, what we said is that it would be flat. As we look into the first quarter, we would see a little bit more pressure on the GMM rate as we work through the wrap of Q1 in Q1 of tariffs, as well as the higher commodity prices.

Speaker #5: We're—and we will continue to—work with our assortment architecture and some of the gold hedges and so forth as we progress through the year.

Speaker #5: But the first half definitely has a little bit more pressure, and we believe the back half begins to neutralize in terms of the GMM impact related to tariffs and commodities.

Joan Hilson: Continue to do much of the same work that was successful for us in the back half of fiscal 2026 to work to mitigate the impact of these costs.

Speaker #5: But continue to do much of the same work that was successful for us in the back half of fiscal '26 to work to mitigate the impact of these costs.

J.K. Symancyk: Thanks, Paul. I appreciate the question on holiday and really Valentine's Day. I mean, you know, our business overall continued to strengthen as we came through the quarter. When you look at Q4 in particular, the softness mapped to what we saw more macro as consumer softness in really November and the first part of, you know, first week or ten days of December. As we got to the peak holiday selling period for us, we saw positive comps in our business, and that momentum continued to build through January and, you know, not only carried through Valentine's Day, but has carried through the quarter.

Speaker #4: And thanks, Paul. I appreciate the question on holiday and, really, Valentine's Day. I mean, our business overall continued to strengthen as we came through the quarter.

Speaker #4: When you look at Q4 in particular, the softness mapped to what we saw more macro as consumer softness in really November and the first part of the first week or 10 days of December. As we got to the peak holiday selling period for us, we saw positive comps in our business.

Speaker #4: And that momentum continued to build through January, and not only carried through Valentine's Day, but has carried through the quarter. So one of the big learnings, I think, for us from the prior year was really how to focus the assortment over those peak selling days that actually worked well for us at Christmas.

J.K. Symancyk: One of the big learnings I think for us from the prior year was really how to focus the assortment over those peak selling days. That actually worked well for us at Christmas, and I think was part of what really led to building momentum through the quarter. We certainly carried that muscle memory into Valentine's Day and were better positioned, and I would actually say better balanced across all of the brands, which is maybe a little different than where we were a year ago.

Speaker #4: And I think it was part of what really led to building momentum through the quarter. We certainly carried that muscle memory into Valentine's Day and were better positioned.

Speaker #4: And I would actually say better balanced across all of the brands, which is maybe a little different than where we were a year ago.

J.K. Symancyk: You know, from a learning standpoint, I do think, you know, despite the macro consumer malaise that was going on with, you know, consumer sentiment and, you know, all of the noise in November this past year, I do think we recognize that maybe the quarter kind of falls into three distinct selling periods for us. You know, we've been pretty good at post-holiday and have built on that momentum. I think we got better this past year at the peak selling days, those 10 days, and the key price points leading into Christmas.

Speaker #4: From a learning standpoint, I do think despite the macro consumer malaise that was going on with consumer sentiment and all of the noise in November this past year, I do think we recognize that maybe the quarter kind of falls into three distinct selling periods for us.

Speaker #4: And we've been pretty good post-holiday and have built on that momentum. I think we got better this past year at the peak selling days, those 10 days, and the key price points leading into Christmas.

J.K. Symancyk: I think we got an opportunity to sharpen our game and how we're looking forward to plans for this year is, you know, the early selling period in November, absent that noise, is a little bit different consumer. It's a little bit different price point and a little different selling model digitally than what the balance of the year looks like. It's a little less assortment driven, a little more key item driven. I think that's one of the takeaways that we look at that we think can help us strengthen the opportunity for Q4 moving forward.

Speaker #4: I think we got an opportunity to sharpen our game, and how we're looking forward to plans for this year is the early selling period in November. Absent that noise, it's a little bit different consumer.

Speaker #4: It's a little bit different price point, and a little different selling model digitally than what the balance of the year looks like. It's a little less assortment-driven, a little more key item-driven.

Speaker #4: And I think that's one of the takeaways that we look at, that we think can help us strengthen the opportunity for Q4 moving forward.

Paul Lejuez: Yeah. Thanks. Joan, just one quick follow-up. The tariff assumptions that you used for the guidance this year and maybe India specifically.

Speaker #4: John, thanks. Just one quick follow-up. The tariff assumptions that you use for the guidance this year, and maybe India specifically?

Joan Hilson: Generally speaking on that, for the year, we believe that the tariff and commodity increases are lower than the headwinds that we experienced last year that we mitigated. We have a longer lead time to address with some of the balance actions that I talked about in my prepared remarks. Believe that, you know, we are in a position to, you know, offset a good portion of it. You know, in the guide itself, we would expect GMM rate will be flat at the midpoint with some decline at the low end of guide.

Speaker #5: Generally speaking on that, for the year, we believe that the tariff and commodity increases are lower than the headwinds that we experienced last year.

Speaker #5: That we've mitigated. And we have a longer lead time to address with some of the balanced actions that I talked about in my prepared remarks.

Speaker #5: So, I believe that we are in a position to offset a good portion of it. But in the guide itself, we would expect GMM rate will be flat at the midpoint, with some decline at the low end of guide.

Paul Lejuez: Are you assuming rates equal to the pre-Supreme Court decision, or are you building in where we are now?

Speaker #4: Are you assuming rates equal to the pre-Supreme Court decision, or are you building in where we are now?

Joan Hilson: We're building in where we are now. You know, essentially it's a mid-teen rate.

Speaker #5: We're building in where we are now. And essentially, it's a mid-teen rate that we are looking at for the balance of the year. The impact to margin with that is something that we're able to, we believe, manage to a flat position at the midpoint.

J.K. Symancyk: That we are looking at for the balance of the year. The impact to margin with that is something that we're able to, we believe, to manage, you know, to a flat position at the midpoint.

Paul Lejuez: Thank you. Good luck.

Speaker #4: Thank you. Good luck.

Operator 2: Thank you. Your next question is from Lorraine Hutchinson from Bank of America. Your line is now open.

Operator: Thank you. Your next question is from Lorraine Hutchinson from Bank of America. Your line is now open.

Speaker #1: Thank you. Your next question is from Lorraine Hutchinson from Bank of America. Your line is still open.

Lorraine Hutchinson: Thank you. Good morning. Could you give us an update on the lab-grown diamond business? How did it perform over holiday for both fashion and bridal? What did pricing look like for LGD specifically? What's your outlook for the year on this product?

Speaker #6: Thank you. Good morning. Could you give us an update on the lab-grown diamond business? How did it perform over the holiday for both fashion and bridal?

Speaker #6: What did pricing look like for LGD specifically? And then, what's your outlook for the year on this product?

J.K. Symancyk: Yeah, I mean, I think we've gotten to the point where, you know, we see a distinct market for both Lorraine and, you know, if you look at the industry more broadly over the course of the year, there actually was growth in both natural and lab grown at an industry level. Now, I would say in natural that skews more towards higher end, and is probably more of an AUR story. That's certainly what we saw in our business, and where we see there to be greater opportunity. You know, lab-grown diamond fashion in particular continues to grow at a higher rate. You know, I'll remind you that a lot of that is because diamonds are less penetrated in the fashion category.

Speaker #4: Yeah. I mean, I think we've gotten to the point where we see a distinct market for both Lorraine, and if you look at the industry more broadly over the course of the year, there actually was growth in both natural and lab-grown at an industry level.

Speaker #4: Now, I would say in natural, that skews more towards higher end and is probably more of an AUR story. That's certainly what we saw in our business.

Speaker #4: And where we see there to be greater opportunity, lab-grown diamond fashion in particular continues to grow at a higher rate. And I'll remind you that a lot of that is because diamonds are less penetrated in the fashion category.

J.K. Symancyk: You know, maybe differently than we've talked about, you know, center stone-based bridal and engagement business. In fashion, there's not a lot of center stone presence, period, let alone diamond. The opportunity for growth there, we continue to see as outsized, relative to the rest of diamond jewelry. It's because it's stretching a category. But to be clear, you know, as we look at this year, we really see an opportunity for growth in both parts of the business. We see them as distinct value propositions for customers that, you know, that even overlap with the same customer depending on use case, let alone, you know, being a little more price point sensitive, I suppose.

Speaker #4: And so, maybe differently than we've talked about, center stone-based bridal and engagement business—in fashion, there's not a lot of center stone presence, period, let alone diamond.

Speaker #4: And so the opportunity for growth there we continue to see as outsized relative to the rest of diamond jewelry. And it's because it's stretching a category.

Speaker #4: But to be clear, as we look at this year, we really see an opportunity for growth in both parts of the business. We see them as distinct value propositions for customers that even overlap with the same customer depending on use case, let alone being a little more price point sensitive, I suppose.

J.K. Symancyk: The only other thing I guess I would add, you know, kind of following up on the other part of your question, what's happening with pricing? We've seen it really be stable, I guess, would be the word that I would use. Not a lot of volatility. There's actually, you know, periods during the latter part of the year where we saw the cost side of both actually see some slight increases. I don't see any, you know, I know one of the questions is how do we think about, you know, deflation or cost pressure on frankly, either side of that equation.

Speaker #4: But the only other thing I guess I would add, kind of following up on the other part of your question, what's happened to the pricing?

Speaker #4: We've seen it really be stable—I guess that would be the word I would use. Not a lot of volatility. There were actually periods during the latter part of the year where we saw the cost side of both actually see some slight increases.

Speaker #4: And so, I don't see any. I know one of the questions is, how did we think about deflation or cost pressure on, frankly, either side of that equation?

J.K. Symancyk: We really have seen, you know, stability both on the wholesale cost side as well as on the retail architecture with us and competitors and, you know, feel like there's a little more normal run rate in that business today.

Speaker #4: And we really have seen stability both on the wholesale cost side, as well as on the retail architecture with us and competitors. And feel like there's a little more normal run rate in that business today.

Lorraine Hutchinson: What was the penetration of lab grown for holiday in fashion and bridal?

Speaker #6: And what was the penetration of lab-grown for holiday in fashion and bridal?

J.K. Symancyk: The penetration for lab grown in total, you know, we're closer to half and half when you look at, we're under 50% for bridal. When you look at, you know, lab grown fashion, it actually grew to just north of 20%. On the year, you know, that's higher than what the run rate was for the year. The year coming into it was probably sitting at about 15%.

Speaker #4: The penetration for lab-grown in total we're closer to half and half when you look at we're under 50% for bridal. When you look at lab-grown fashion, it actually grew to just north of 20%.

Speaker #4: And on the year, that's higher than what the run rate was for the year. The year coming into it was probably setting at about 15%.

Lorraine Hutchinson: Thank you.

Speaker #6: Thank you.

Operator 2: Thank you. Your next question is from Randy Konik from Jefferies. Your line is now open.

Operator: Thank you. Your next question is from Randy Konik from Jefferies. Your line is now open.

Speaker #1: Thank you, your next question is from Randy Koenig from Jefferies. Your line is still open.

Randy Konik: Yeah, thanks. I guess, Joan, for you, I think you made a comment in the script that said something to the effect of $2 billion of liquidity. I think you like to have a billion and a half. You know, with the balance sheet having no debt and nearly $1 billion of cash, and it sounds like this year you'll be generating another banner year of free cash flow. You know, while you stepped up the buyback in 2025 from 2024, and it looks like the dividend's increasing. You know, could we expect, given that comment of $2 billion versus $1.5 billion, could you get even more aggressive with share repurchases ahead? Just how do you think about that cash flow and putting it to work?

Speaker #7: Yeah, thanks. I guess, Joan, for you, I think you made a comment in the script that said something to the effect of $2 billion of liquidity I think you like to have a billion and a half with the balance sheet having no debt and near a billion dollars of cash.

Speaker #7: And it sounds like this year you'll be generating another banner year of free cash flow. While you stepped up the buyback in '25 from 24 and it looks like the dividend's increasing, could we expect, given that comment of $2 billion versus 1.5 billion, could you get even more aggressive with share repurchases ahead?

Speaker #7: Just how do you think about that cash flow and putting it to work? And is there anything on the horizon over the next few years that would prevent the business, that looks like it's becoming very, very stable and predictable, from generating around half a billion dollars of free cash a year going forward into perpetuity?

Randy Konik: You know, is there anything in the horizon over the next few years that would prevent the business that looks like it's becoming very, very stable and predictable, you know, from generating around a half a billion dollars of free cash a year going forward into perpetuity? I just wanna get your thoughts there.

J.K. Symancyk: Mm-hmm.

Joan Hilson: Mm-hmm.

Speaker #7: I just want to get your thoughts there. Thanks.

Randy Konik: Thanks.

J.K. Symancyk: Yeah. Thanks, Randy. As I mentioned, as you mentioned, we had a $2 billion liquidity at the end of the year. It's $500 million over our target. It does provide, you know, some dry powder for us for organic investment. We talked about the capital investment in our fleet. J.K. mentioned the website redesign and some of those technology investments. There'll be some investment with the Blue Nile transition as well. From an organic investment, we'll continue to invest in our fleet, the strategic priorities.

Joan Hilson: Yeah. Thanks, Randy. As I mentioned, as you mentioned, we had a $2 billion liquidity at the end of the year. It's $500 million over our target. It does provide, you know, some dry powder for us for organic investment. We talked about the capital investment in our fleet. J.K. mentioned the website redesign and some of those technology investments. There'll be some investment with the Blue Nile transition as well. From an organic investment, we'll continue to invest in our fleet, the strategic priorities.

Speaker #5: Yeah, thanks, Randy. So as you mentioned, we had $2 billion in liquidity at the end of the year. That's $500 million over our target.

Speaker #5: And it does provide some dry powder for us for organic investment. And we talked about the capital investment in our fleet. JK mentioned the website redesign.

Speaker #5: And some of those technology investments, there'll be some investment with the Blue Nile transition as well. So from an organic investment, we'll continue to invest in our fleet, the strategic priorities.

Joan Hilson: Frankly, look, invest in capabilities that are going to support the go-to-market strategies of our brand. Next is, you know, we want to maintain a conservative balance sheet, but we also find it very important to return capital to shareholders. As we look forward, you know, we believe shares remain attractive with, you know, an implied 15% free cash yield on, you know, last year's free cash flow. There's nothing in our way to continue to exercise the capital priorities I just outlined. It's part of our capital allocation priorities that are, you know, important. We'll continue to do that.

Speaker #5: And frankly, invest in capabilities that are going to support the go-to-market strategies of our brand. And next is we want to maintain a conservative balance sheet, but we also find it very important to return capital to shareholders and as we do as we look forward, we believe shares remain attractive with an implied 15% free cash yield on last year's free cash flow.

Speaker #5: So there's nothing in our way to continue to exercise that capital the capital priorities I just outlined. It's part of our capital allocation priorities that are important.

Speaker #5: And so we'll continue to do that year to date. We've repurchased $45 million or almost $500,000 shares already through March 17th. So clearly, it's something that we intend to engage in this year.

Joan Hilson: Year to date, we've, you know, repurchased $45 million or almost 500,000 shares already through 17 March. So, you know, clearly it's something that we intend to engage in this year. We have a $518 million or so of share repurchase authorization available to us at the end of the year.

Speaker #5: And we have a $518 million or so of share repurchase authorization available to us at the end of the year.

Randy Konik: Got it. Just on the, I mean, let's say on the horizon, do you feel like you're at a place where we can generate this amount of free cash, you know, annually going forward? Are there any kind of weird impediments in the way that would prevent that?

Speaker #7: Got it. And just on the, let's say, on the horizon, do you feel like you're at a place where we can generate this amount of free cash annually go forward?

Speaker #7: Are there any kind of weird impediments in the way that would prevent that?

Joan Hilson: We don't see anything in our way. We, you know, target a very healthy free cash flow conversion. What I would, you know, say there is that the components of free cash flow that I articulated in my remarks, Randy, including, you know, strong earnings, you know, contributing to that, as well as working capital efficiencies, which we, you know, came in flat for the year on inventory. We continue to drive. We were flat on turn this year coming out of, you know, the Q4. We continue to drive those levers as well as, you know, really working with our strategic vendors to maintain that, you know, healthy terms that, you know, can benefit both of us.

Speaker #5: We don't see anything in our way. We target a very healthy free cash flow conversion. And what I would say there is that the components of free cash flow that I articulated in my remarks, Randy, included strong earnings, contributing to that as well as working capital and efficiencies, which we came in flat for the year on inventory.

Speaker #5: We're continuing to drive. We were flat on turn this year coming out of the fourth quarter, and so we continue to drive those levers.

Speaker #5: As well as really working with our strategic vendors to maintain healthy terms that can benefit both of us.

Randy Konik: Great. Last question, I guess, for J.K. You talked about SKU productivity or looking at the product architecture and kind of rationalizing, you know, the number of SKUs it sounds like across the different brands. Can you give us a little bit more perspective on, you know, a little quantification of where you're gonna do that, how much, how you think it will help, you know, drive the business, improve inventory turnover? Just give us a little more color there. It'd be very helpful. Thank you.

Speaker #7: Great. And last question, I guess for JK, you talked about SKU productivity or looking at the product architecture and kind of rationalizing the number of SKUs it sounds like across the different brands.

Speaker #7: Can you give us a little bit more perspective on a little quantification on where you're going to do that, how much, how you think it will help drive the business, improve inventory turnover, just give us a little more color there.

Speaker #7: It'd be very helpful. Thank you.

J.K. Symancyk: Sure. Thanks for the question, Randy. I just think the more we can leverage scale across the business on those things that are commoditized, the more efficient we can be with inventory, the more we can navigate, you know, frankly, some of the moving parts that are the world we're operating in today. One of the things I'm proudest of as it relates to our team this past year is the work to simplify our operating model, really put us in a position to continue to raise our guide in the face of one hurdle after another relative to tariffs and cost increases, et cetera.

Speaker #4: Sure. Thanks for the question, Randy. I just think the more we can leverage scale across the business on those things that are commoditized, the more efficient we can be with inventory, the more we can navigate, and frankly, some of the moving parts that are the world we're operating in today.

Speaker #4: One of the things I'm proudest of as it relates to our team this past year is the work to simplify our operating model really put us in a position to continue to raise our guide in the face of one hurdle after another relative to tariffs and cost increases, etc.

J.K. Symancyk: You know, we not only became a stronger business, we actually were a better partner to our suppliers, able to work better together, all with, you know, with a more focused inventory assortment. When I look at it, I still think there's room for us to go. You know, we reduced, on the order of magnitude of, you know, 20-ish percent or so SKUs out of the K assortment moving forward as we sit on a spring floor set today. I think there's still opportunity within a business like that.

Speaker #4: We not only became a stronger business, we actually were a better partner to our suppliers, able to work better together all with a more focused inventory assortment.

Speaker #4: So, when I look at it, I still think there's room for us to go. We reduced on the order of magnitude of 20-ish percent or so SKUs out of the K assortment moving forward as we set on a spring floor set today.

Speaker #4: And I think there's still opportunity within a business like that. I think the other opportunity that may not show up in a total SKU count number, but where we do have items that are a little more commoditized, getting to a similar base where we're able to pull from one pool of inventory across multiple brands will make us that much more efficient, will help us leverage cost and ultimately that adds up to margin rate opportunity for us moving forward.

J.K. Symancyk: I think the other, you know, opportunity that may not show up in a total SKU count number, but, you know, where we do have items that are a little more commoditized, getting to a similar base, where we're able to pull from one pool of inventory across multiple brands will make us that much more efficient, will help us leverage cost, and ultimately, you know, that adds up to margin rate opportunity for us moving forward.

Joan Hilson: I would just add to that the core engine, you know, discussion and really focusing on the four major brands, including Blue Nile, will also help us as we roll a smaller brand, but Rocksbox into K and James Allen into the Blue Nile website and Diamonds Direct falling under the accessible luxury family within our business is also gonna help us, Randy, with the SKU rationalization aspect of it and continue to help us improve our terms. But point one turn is worth $100 million to us, and improvement is worth $100 million to us in free cash flow.

Speaker #5: I would just add to that that the core engine discussion and really focusing on the four major brands including Blue Nile will also help us as we roll a smaller brand, but Rockbox into K, and James Allen into the Blue Nile website.

Speaker #5: And Diamonds Direct falling under the accessible luxury family within our business is also going to help us with the SKU rationalization aspect of it.

Speaker #5: And continue to help us improve our turns. 0.1 turned is worth $100 million. To us in improvement is worth $100 million to us in free cash flow.

Joan Hilson: The teams can really wrap their mind around what that, you know, can help us, you know, drive in our business because it's gonna provide room to bring in, you know, fresh receipts and support our fashion strategy as well.

Speaker #5: So the teams can really wrap their mind around what that can help us drive in our business, because it's going to provide room to bring in fresh receipts and support our fashion strategy as well.

J.K. Symancyk: I think the last point I guess I'd make is, you know, I talked about the places where we should work from a shared pool of inventory. This work also helps us eliminate overlap. You know, candidly, even as we look at some of the challenges with brands like Blue Nile, James Allen, you know, the number of SKUs that may overlap and exist in both places, we think causes confusion. It certainly makes us less efficient as a business. We're not leveraging, you know, the flow-through with each of the brands at the rate that we should. You know, there are some known costs, but there's also some hidden cost opportunities as it relates to margin and frankly, top line revenue that come with a more focused assortment.

Speaker #4: And I think the last point, I guess, I'd make is I talked about the places where we should work from a shared pool of inventory.

Speaker #4: This work also helps us eliminate overlap. Candidly, even as we look at some of the challenges with brands like Blue Nile, James Allen, the number of SKUs that may overlap and set in both places, we think causes confusion and certainly makes us less efficient as a business.

Speaker #4: We're not leveraging the flow-through with each of the brands at the rate that we should. And so there are some known costs, but there's also some hidden cost opportunities as it relates to margin and, frankly, top-line revenue.

J.K. Symancyk: Where we've seen that work, we're seeing the benefit of it. You know, I think what we're doing to further realign and focus across these four main fronts of our business, if you will, to Joan's point, I think it's gonna help us be that much better.

Speaker #4: That come with a more focused assortment. So where we've seen that work, we're seeing the benefit of it. And we I think what we're doing to further realign and focus across these four main fronts of our business, if you will, will to Joan's point, I think it's going to help us be that much better.

Jeff Lick: Super helpful. Thanks, guys.

Randy Konik: Super helpful. Thanks, guys.

Joan Hilson: Thank you. Your next question is from Ike Boruchow, from Wells Fargo. Your line is now open.

Operator: Thank you. Your next question is from Ike Boruchow, from Wells Fargo. Your line is now open.

Speaker #7: Super helpful. Thanks, guys.

Speaker #8: Thank you. Your next question is from Aik Buruchow from Wells Fargo. Your line is now open.

Ike Boruchow: Hey, everyone. Two from me. I don't know if this is for JK or Joan, but can you just talk about some merch margin, understanding what happened in Q4? You had to get a little bit more promotional when things were off to a tough start. You kinda mentioned merch margins should stay down in Q1. It sounds like Valentine's Day was good, and you guys are positive. Just can you kinda walk us through the puts and takes of selling margin, what you're doing in Q1, and then based on the year, it sounds like you're expecting things to improve from here. Just so kinda understand that better.

Speaker #9: Hey, everyone. Two from me. I don't know if this is for JK or Joan, but can you just talk about some merch margin, understanding what happened in the fourth quarter?

Speaker #9: You had to get a little bit more promotional when things were off to the tough start. But you kind of mentioned merch margins should stay down in the first quarter. It sounds like Valentine's Day was good, and you guys are positive.

Speaker #9: So just can you kind of walk us through the puts and takes of selling margin, what you're doing in the first quarter, and then based on the year, it sounds like you're expecting things to improve from here.

J.K. Symancyk: Sure. We'll probably tag team it, to be honest, 'cause I totally understand the question. I would say, you know, at a macro level for Q4, you know, part of the story is promotion, part of the story is tariffs, if I'm really trying to, you know, oversimplify this. I think the reality of you know, all the moving parts, and in particular, the way that inventory flows to land for the holidays. You know, we've talked about this a bit before. We land goods, we set a base retail price, and then we have follow-on replenishment that comes to give us depth for the holiday. That, you know, that's always the way it works.

Speaker #9: So just kind of understand that better.

Speaker #4: Sure. We'll probably tag team it, to be honest, because I totally understand the question. I would say at a macro level for Q4, part of the story is promotion, part of the story is tariffs, if I'm really trying to oversimplify this.

Speaker #4: I think the reality of all the moving parts, and in particular the way that inventory flows to land for the holidays—we've talked about this a bit before.

Speaker #4: We land goods, we set a base retail price, and then we have follow-on replenishment that comes to give us depth for the holiday. And that's always the way it works.

J.K. Symancyk: We need to land goods early to establish price because we can't do anything promotionally unless we've established that baseline price. Ike, one of the things that happened this year is, you know, the goal line kept moving in the sense of tariff rates changed as we were going through that process. Part of it is, you know, the starting point you establish in terms of the strategy going into the holiday and the fact that there wasn't a stable baseline cost to establish those retails against. You know, to your point, when those costs kept moving, you know, we also found ourselves in a situation where the consumer, more broadly, was softer in November.

Speaker #4: We need to land goods early to establish price because we can't do anything promotionally unless we've established that baseline price. Aik, one of the things that happened this year is the goal line kept moving in the sense of tariff rates changed as we were going through that process.

Speaker #4: So part of it is the starting point you establish in terms of the strategy going into the holiday, and the fact that there wasn't a stable baseline cost to establish those retails against.

Speaker #4: And then, to your point, when those costs kept moving, we also found ourselves in a situation where the consumer more broadly was softer in November, and the blunt instrument that we really have to flex during that holiday time period is promotion.

J.K. Symancyk: You know, the blunt instrument that we really have to flex during that holiday time period is promotion. With as many broad percent off promotions as there are in our business, the ability to be you know as surgical around mix with all of those variables is just a little more challenged in the period. I would say it's you know it's partly a choice around promo and partly you know the case of you know navigating a race where both the path and the finish line kept moving around a little bit on us. You know, I think you know we're still working through that.

Speaker #4: And with as many broad percent off promotions as there are in our business, the ability to be as surgical around mix with all of those variables is just a little more challenged in the period.

Speaker #4: So I would say it's partly a choice around promo, and partly the case of navigating a race where both the path and the finish line kept moving around a little bit on us.

Speaker #4: And I think we're still working through that. Obviously, there's still some moving parts as it relates to tariff, but I'll also remind you Joan's comments.

J.K. Symancyk: Obviously, there's still some moving parts as it relates to tariff, but I'll also, you know, remind you of Joan's comments. I mean, you know, we did a nice job of, I think, navigating that unknown this year. We developed that set of muscles as it relates to flexibility in our supply chain and the agility to move, whether it be country of origin or think about, you know, the buy windows that may make sense or how to consolidate and work on costs. We'll certainly look to those things as we move forward.

Speaker #4: I mean, we did a nice job of, I think, navigating that unknown this year. We developed that set of muscles as it relates to flexibility in our supply chain and the agility to move whether it be country of origin or think about the buy windows that may make sense or how to consolidate and work on costs.

J.K. Symancyk: You know, the benefit or the confidence that we have as it relates to margin, particularly for the year, is we've got, you know, kinda roughly half the size of headwind, and we've got significantly more time to be able to manage it. I think we're well positioned to do it. I think anytime you've got that kinda external macro, there's always the risk of some lumpiness and how it flows through.

Speaker #4: We'll certainly look to those things as we move forward. The benefit, or the confidence that we have as it relates to margin, particularly for the year, is we've got kind of roughly half the size of headwind, and we've got significantly more time to be able to manage it.

Speaker #4: So I think we're well positioned to do it. I think anytime you've got that kind of external macro, there's always the risk of some lumpiness and how it flows through.

J.K. Symancyk: I'm also really proud of what our team did, you know, to manage it and the way that we've built our plan and our business to be able to, you know, protect the bottom line and manage a little bit of that noise in gross merch margins. I think really positions us well for this year.

Speaker #4: But I'm also really proud of what our team did to manage it and the way that we've built our plan and our business to be able to protect the bottom line.

Speaker #4: And manage a little bit of that noise in gross merch margins, I think, really positions us well for this year.

Ike Boruchow: Got it. Thank you, J.K. More of a modeling question, so maybe for Joan. Just to, so the comp revenue spreads, like, 100 basis points in Q1. You're sunsetting James Allen and then removing Blue Nile from the comp base so that spread widens the rest of the year. Can you just kinda, like, just so we all kinda know, like, the puts and takes on how everything should flow comp store revenue through the year, can you just kinda let us know how this all should take place?

Speaker #9: Got it. And then, thank you, JK. And then again, to both of you, just more of a modeling question. So maybe for Joan—just so, the comp revenue spreads, like, 100 basis points in the first quarter. You're transitioning, you're sunsetting James Allen, and then removing Blue Nile from the comp base.

Speaker #9: So that spread widens. The rest of the year. Can you just kind of just so we all kind of know the puts and takes on how everything should flow comp versus revenue through the year?

Speaker #9: Can you just kind of let us know how this all should take place?

Joan Hilson: Sure. As we noted, Q1 will have the impact of James Allen in the comp. As we progress through Q2, Q3, and Q4, because of the amount of effort, change, and repositioning with the Blue Nile brand and then the sunsetting of James Allen, we're pulling them out of comps as we progress through the year. The impact of James Allen was roughly a point in Q4, a little over a point, and the impact in Q1 we would expect to be similar.

Speaker #10: Sure. So, as we noted, Q1 will have the impact of James Allen in the comp. And as we progress through Q2, Q3, and Q4, because of the amount of effort and change—and repositioning with the Blue Nile brand and then the sunsetting of James Allen—we're pulling them out of comps.

Speaker #10: As we progress through the year. The impact of James Allen was roughly a point in Q4, a little over a point. And the impact in Q1, we would expect to be similar.

Joan Hilson: As we look through the balance of the year, Ike, it's early to forecast what we think the impact would be, which is one of the reasons why we wanna take it out of the comp. But what I mentioned is that $60 to 80 million comes out of revenue, and that would likely be $20 to 30 million of top line revenue over the course of the balance of the year. If that helps to mention it, that's how we're thinking about it internally and, of course, working to transition as much volume as we can from the James Allen brand over to Blue Nile where appropriate with the complementary SKUs and the proprietary James Allen collection.

Speaker #10: As we look through the balance of the year, Aik gets early to kind of forecast what we think the impact would be, which is one of the reasons why we want to take it out of the comps.

Speaker #10: But what I mentioned is that 60 to 80 million comes out of revenue. And that would likely be 20 to 30 million dollars of top-line revenue over the course of the balance of the year.

Speaker #10: So, if that helps to mention it, that's how we're thinking about it internally. And of course, working to transition as much volume as we can from the James Allen brand over to Blue Nile, where appropriate, with the complementary SKUs.

Joan Hilson: The teams are doing a fantastic job in navigating this here for us in Q1 and then leveraging the James Allen capabilities and a brand, you know, the tip of the spear there will be with Kay, where we can see more custom product coming in the Kay brand because they will be able to more so in the back half of the year to leverage the custom capability that James Allen provides. That's the dimension of the revenue. That's how we're thinking about it. Just-

Speaker #10: And the proprietary James Allen collection—the teams are doing a fantastic job in navigating this year. For us in the first quarter, and then leveraging the James Allen capabilities and brand, the tip of the spear there will be with Kay, where we can see more custom product coming in the Kay brand because they will be able to, more so in the back half of the year, leverage the custom capability that James Allen provides.

Speaker #10: So, that's the dimension of the revenue. That's how we're thinking about it. And just to bear in mind—go ahead.

Ike Boruchow: Can you-

Joan Hilson: Just to bear in mind. Go ahead.

Ike Boruchow: No, I'm sorry. Can you quantify just the size of Blue Nile since you're removing it from the comp base for the year, just so we know how to, like, kind of model that impact?

Speaker #9: No, I'm sorry. Can you just help us? Can you quantify just the size of Blue Nile since you're removing it from the comp base?

Speaker #9: For the year, just so we know how to kind of model that impact.

Joan Hilson: Yeah. What we said is that it's $60 to 80 million coming out. Last year, the total revenue was, you know, roughly, you know, $150-ish million. Oh, Blue Nile. Sorry. Rob is remind-

Speaker #10: Yeah. What we said is that it's $60 to $80 million coming out. Last year, the total revenue was roughly $150 million or so. Oh, Blue Nile—sorry, Rob is reinforcing the question you asked.

Ike Boruchow: Yes, Blue Nile.

Joan Hilson: Reinforcing the question you asked. It was $350 million for Blue Nile. And James Allen-

Speaker #10: It was $350 million for Blue Nile. And James Allen is what I had articulated. So, trying to move as much of James Allen over to Blue Nile as we can.

Ike Boruchow: Okay.

Joan Hilson: It's, you know, what I had articulated. Trying to move as much of James Allen over to Blue Nile as we can and then expand into the other brands.

Ike Boruchow: Got it. Thanks a lot.

Speaker #10: And then then into the other brands.

Operator 2: Thank you. Your next question is from Jeff Lick from Stephens. Your line is now open.

Operator: Thank you. Your next question is from Jeff Lick from Stephens. Your line is now open.

Speaker #9: Got it. Thanks a lot.

Speaker #1: Thank you. Your next question is from Jeff Lick from Stevens. Your line is still open.

Jeff Lick: Good morning. Thanks for taking my question, and congrats on a great year and great start to this year. JK or Joan, I was wondering if I just kinda formulate a, you know, a simple mental model of, you know, in this past year, you generated $687 million of EBITDA on $6.8 billion of revenue. Then you take, call it the $40 million of kind of still wrapping around from the Grow Brand Love that you still have of the $100 million. Then if you just use your math of the SG&A that you disclosed, that implies that incentive comes about $17 million, so call it $57 million. If you add that to the 687, that gets you to about $744 million of EBITDA.

Speaker #11: Good morning. Thanks for taking my question and congrats on a great year and great start to this year. JK or Joan, I was wondering if I just kind of formulate a simple mental model of this past year, you generated 687 million of EBITDA on 6.8 billion of revenue.

Speaker #11: And then you take call it the 40 million of kind of still wrapping around from the growth brand love that you still have of the 100 million.

Speaker #11: And then if you just use your math of the SG&A that you disclosed, that implies that incentive comes to about $17 million. So, call it $57 million.

Speaker #11: And if you add that to the $687 million, that gets you to about $744 million of EBITDA. So I just think about it as if you just do what you did last year, you come pretty close to making your high-end year EBITDA guidance.

Jeff Lick: Just think about it as if you do what you did last year, you come pretty close to making your high end of your EBITDA guidance. Obviously, you guys have a high end of your revenue guidance at $6.9. Could you just walk through the puts and takes, you know, of that model and, you know, how, you know, where I might be off or, you know, what's gonna be harder, what's not gonna be as hard?

Speaker #11: And obviously, you guys have a high-end of your revenue guidance at 6.9. So could you just walk through the puts and takes of that model and where I might be off or what's going to be harder, what's not going to be as hard?

Joan Hilson: Yeah. On the full year, we expect from a modeling perspective, at the midpoint, you know, margins to be flat. We see on the high end of guide, you know, a modest increase in merchandise margin and at the low end, a modest decrease. We begin to get, you know, some leverage in the SG&A and believe that what we've been able to do there is with the wraparound of the cost savings in the front half of the year, which was roughly, you know, $40 million, $15 million in the Q1, Jeff, and then in the Q2 and Q3, we would tend to see more of that flow through because some of it relates to contracts and that.

Speaker #10: Yeah. So on the full year, we expect from a modeling perspective, we expect at the midpoint, margins to be flat. And we see on the high-end of the guide, a modest increase in merchandise margin and at the low end, a modest decrease.

Speaker #10: Where we begin to get some leverage is in the SG&A and believe that what we've been able to do there is with the wraparound of the cost savings and the front half of the year, which was roughly 40 million, 15 in the first quarter, Jeff, and then in the second and third quarters, we would tend to see more of that flow through because some of it relates to contracts and that.

Joan Hilson: We feel very good about the $40 million SG&A wrap. We also from a business perspective, the way that the brands really position their plans for this year is, you know, we focus on comp growth, but we focus on flow-through. Each brand must deliver, you know, different levels of flow-through based on their, you know, the type of product they sell. Brands that sell more, you know, loose goods as opposed to finished goods will have a different margin structure, merchandise margin structure than those that don't. We balance flow-through, and we feel very good about how the businesses operate and the discipline in the business on the SG&A side.

Speaker #10: But we feel very good about the 40 million dollar SG&A wrap. We also from a business perspective, the way that the brands really position their plans for this year is we focus on comp growth, but we focus on flow through.

Speaker #10: And each brand must deliver different levels of flow-through based on the type of product they sell. So, brands that sell more loose goods as opposed to finished goods will have a different margin structure.

Speaker #10: Merchandise margin structure than those that don't. So we balance flow through and we feel very good about how the business is operate. And the discipline in the business on the SG&A side.

Joan Hilson: Really leveraging SG&A here in the face of what, you know, is more of a flattish margin for a gross margin for the year is the structure of our model as we look at fiscal 2027. The teams are very well aligned. I'd remind you that on a slightly positive comp sales, we can, you know, leverage gross margin. On a low single-digit comp sales, we leverage SG&A and EBIT. That's the structure that our teams operate within, and we're all aligned.

Speaker #10: So really leveraging SG&A here in the face of what is more of a flattish margin for a gross margin for the year is the structure of our model as we look at fiscal ‘27.

Speaker #10: The teams are very well aligned. I'd remind you that on a slightly positive comp sales, we can leverage gross margin on a low single digit comp sales.

Speaker #10: We leverage SG&A and EBIT. So that's the structure that our teams operate within. And we're all aligned.

Jeff Lick: Just a quick follow-up, Joan, just a point of clarification. Did you say a 0.1 increase in turn? I mean, 'cause I think you guys are a little under 2, so call it 1.9 go into 2. That would equate to a $100 million increase in free cash flow, which I guess given what you're doing, what you did last year, that would mean a 20% increase in free cash flow. Is that roughly right?

Speaker #11: And then just a quick follow-up, Joan, just a point of clarification. Did you say a 0.1 increase in turn? I mean, because I think you guys are a little under 2, so call it 1.9 going into 2.

Speaker #11: That would equate to a $100 million increase in free cash flow, which I guess, given what you're doing and what you did last year, that would mean a 20% increase in free cash flow.

Joan Hilson: Yes, as we begin to turn our inventory. Now, doing that is, you know, in the face of you know, inventory transition, as you know, JK was articulating, what the teams are doing is really leveraging that muscle to bring in and transition the assortment. But yes, that's what the math would say.

Speaker #11: Is that roughly right?

Speaker #10: Yes. Yes. As we begin to turn our inventory now, doing that is in the face of inventory transition, as JK was articulating, what the teams are doing is really leveraging that muscle to bring in and transition the assortment.

Jeff Lick: Great. Thanks very much, and best of luck in 2026.

Speaker #10: But yes, that's what the math would say.

Joan Hilson: Thank you.

J.K. Symancyk: Thank you.

Speaker #11: Great, thanks very much. And best of luck in 2026.

Operator 2: Thank you. Your next question is from Jonathan Keypour, from Goldman Sachs. Your line is now open.

Operator: Thank you. Your next question is from Jonathan Keypour, from Goldman Sachs. Your line is now open.

Speaker #10: Thank you.

Speaker #9: Thank you.

Speaker #1: Thank you. Your next question is from John Keeper from Goldman Sachs. Your line is still open.

Jonathan Keypour: Hey, good morning. Thank you, guys. Just a quick bookkeeping question. You'd mentioned sourcing and ops coming out of the UAE. Just given everything that's happening, just wondering if you're seeing any impact or if you've been able to pivot fairly quickly. Then, tacking on to that kind of similar topic, anything you're seeing from a cost of crude in terms of how maybe sourcing freight, that kind of thing is flowing through?

Jon Keypour: Hey, good morning. Thank you, guys. Just a quick bookkeeping question. You'd mentioned sourcing and ops coming out of the UAE. Just given everything that's happening, just wondering if you're seeing any impact or if you've been able to pivot fairly quickly. Then, tacking on to that kind of similar topic, anything you're seeing from a cost of crude in terms of how maybe sourcing freight, that kind of thing is flowing through?

Speaker #12: Hey, good morning. Thank you, guys. Just a quick bookkeeping question. You'd mentioned sourcing and ops coming out of the UAE. Just given everything that's happening, just wondering if you're seeing any impact or if you've been able to pivot fairly quickly.

Speaker #12: And then, tacking on to that—kind of a similar topic—anything you're seeing from a cost of crude, in terms of how maybe sourcing, freight, that kind of thing, is flowing through?

J.K. Symancyk: Yeah, appreciate the question. The short answer is, no, we really haven't seen anything. You know, the longer answer is, you know, on the supply chain side, you know, I mean, you know, we don't have, you know, tons of trailers moving back and forth. I mean, you know, we got high value inventory and it's pretty small cubes. You know, I've worked in every category of retail. I can honestly say this is the first time that I have not actually looked at the price of oil and worried about what the freight cost was gonna be, you know, to me from a supply chain standpoint. You know, we're in good shape there.

Speaker #11: Yeah. Appreciate the question and the short answer is no, we really haven't seen anything. The longer answer is on the supply chain side, I mean, we don't have tons of trailers moving back and forth.

Speaker #11: I mean, we got high-value inventory and it's pretty small cubes. So for I've worked in every category of retail I can honestly tell you, this is the first time that I have not actually looked at the price of oil and worried about what the freight cost was going to be.

Speaker #11: To me, from a supply chain standpoint, so we're in good shape there. I would say more broadly on the disruption front, we have built a much more flexible supply chain in really an advance of all of the mitigation efforts around tariffs.

J.K. Symancyk: I would say more broadly on the disruption front, you know, we have built a much more flexible supply chain, really in advance of all of the mitigation efforts around tariffs. The flexibility and redundancy that we've built in to being able to source goods from multiple countries, including increased flexibility here in the US around, you know, what we choose to cast or may, you know, finish here, is stronger than where we were a year ago, and we're really well positioned. I say all that, we also haven't seen any disruption, you know, as it relates to goods, you know, certainly for Valentine's Day, for Mother's Day receipts.

Speaker #11: And so the flexibility and redundancy that we've built in, to being able to source goods from multiple countries, including increased flexibility here in the US around what we choose to cast or may finish here, is stronger than where we were a year ago.

Speaker #11: And we're really well positioned. I say all that, we also haven't seen any disruption as it relates to goods, certainly for Valentine's Day or for Mother's Day receipts.

J.K. Symancyk: I mean, any of those countries that may be in that, you know, sort of flight path or adjacent to any of those areas, we've actually been able to manage it all fine. No, you know, nothing to call out. I know there's been a few articles that have surfaced, but to be honest, we're not seeing that in the industry either. I think we're really well positioned to navigate, you know, the environment we're operating in and don't really, you know, see it as an issue.

Speaker #11: I mean, any of those countries that may be in that sort of flight path or adjacent to any of those areas, we've actually been able to manage it all fine.

Speaker #11: So, no, nothing to call out. I know there have been a few articles that have surfaced, but to be honest, we're not seeing that in the industry either.

Speaker #11: So I think we're really well positioned to navigate the environment we're operating in and don't really see it as an issue.

Jonathan Keypour: Got it. Thank you. Then just to follow on that, you had mentioned, I think last week that Zales was a little bit weaker out of the big three. I'm just wondering what's driving that and where if that's evolved at all or, I guess, where you see that kind of panning out for the year. Thank you.

Jon Keypour: Got it. Thank you. Then just to follow on that, you had mentioned, I think last week that Zales was a little bit weaker out of the big three. I'm just wondering what's driving that and where if that's evolved at all or, I guess, where you see that kind of panning out for the year. Thank you.

Speaker #12: Got it. Thank you. And then just to follow on, you had mentioned I think last week that sales was a little bit weaker out of the big three.

Speaker #12: I'm just wondering what you've—what's driving that, and if that's evolved at all, or I guess where you see that kind of panning out for the year.

J.K. Symancyk: Yeah. Yeah, appreciate it. Actually, the good news is, you know, the Zales business, I think has refocused. We've seen strength through Valentine's into the quarter and, you know, return to more of the normal run rate within that business. I think, you know, part of the challenge of Q4 was a little bit more distorted exposure to, you know, to a middle-income and lower-income customer in November, and that's certainly, I think, part of the story. I do think there are some things as we work through assortment transition of that business where we could focus, you know, key items around selling period better.

Speaker #12: Thank you.

Speaker #11: Yeah, yeah, appreciate it. Actually, the good news is, we've – the sales business, I think, has refocused. We've seen strength through Valentine's into the quarter and returned to more of the normal run rate within that business.

Speaker #11: I think part of the challenge of Q4 was a little bit more distorted exposure to a middle-income and lower-income customer in November. And that's certainly, I think, part of the story.

Speaker #11: I do think there are some things as we work through assortment transition in that business where we could focus key items around selling period better and that there's some adjustments that we can make that'll actually strengthen the business that maybe got exposed by some of that consumer pressure.

J.K. Symancyk: that, you know, there's some adjustments that we can make that'll actually strengthen the business that maybe got exposed by some of that consumer pressure. In particular, I think the one thing we learned was, you know, we built an essentials program that really was less promotional and a little more baseline price driven, and that works really well during the year. But that gift-giving customer that plays at the lower end price points in our business really does look for promotion during the quarter, and building a little more promotional assortment to supplement what we do on our base assortment, I think is something that'll actually strengthen the holiday selling period for Zales, absent all the other macro stuff that was going on.

Speaker #11: So in particular, I think the one thing we learned was we built an essentials program that really was less promotional and a little more baseline price-driven.

Speaker #11: And that works really, really well during the year. But that gift-giving customer that plays at the lower-end price points in our business really does look for promotion during the quarter and building a little more promotional assortment to supplement what we do on our base assortment, I think, is something that'll actually strengthen the holiday selling period for sales.

Jonathan Keypour: Nice. That sounds good. Thank you.

Jon Keypour: Nice. That sounds good. Thank you.

Speaker #11: Absent all the other macro stuff that was going on.

Operator 2: Thank you. Your next question is from Mauricio Serna from UBS. Your line is now open.

Operator: Thank you. Your next question is from Mauricio Serna from UBS. Your line is now open.

Speaker #12: Nice. That sounds good. Thank you.

Speaker #1: Thank you. Your next question is from Mauricio Serna from UBS Financial. Your line is still open.

Mauricio Serna: Great. Good morning. Thanks for taking our questions. Maybe could you start by speaking on what your quarter to date looks like relative to your guidance for the quarter? And then as you look into your outlook for the year, like, how should we think about bridal versus fashion growth? And same question, how are you thinking about AUR versus unit growth? Thank you. We're off to a really good start on the top line this year in Q1 with the comps that we saw at Valentine's Day continue through the quarter. All of our core brands and most of our smaller brands are running plus comps quarter to date. James Allen, as I mentioned earlier, continues to be compressing the comp in the quarter.

Speaker #13: Great. Good morning. Thanks for taking our questions. Maybe could you start by speaking on what your quarter-to-date looks like relative to your guidance for the quarter?

Speaker #13: And then as you look into your outlook for the year, how should we think about bridal versus fashion growth? And, same question, how do you think about AUR versus unit growth?

Speaker #13: Thank you.

Speaker #10: So we're off to a really good start on the top line this year in the first quarter with the comps that we're seeing at Valentine's that we saw at Valentine's Day continued through the quarter.

Speaker #10: All of our core brands and most of our smaller brands are running plus comps quarter-to-date. James Allen, as I mentioned earlier, continues to be compressing the comp in the quarter.

Joan Hilson: So we feel very good about what we're seeing in the quarter and believe we have, you know, real momentum coming into the year. I think for the year, as we think about bridal and fashion, on a comp basis, I mean, we really think on the high end we're sitting at looking at, you know, a low single digit, you know, sales comp and fashion, similar. We continue to expect to see, you know, AUR up over the course of the year, which, you know, with some, you know, compression on unit performance with that.

Speaker #10: So we feel very good about what we're seeing in the quarter and believe we have real momentum coming into the year. I think for the year, as we think about bridal and fashion, on a comp basis, I mean, we really think on the high end we're looking at a low single-digit sales comp in fashion, similar, and we've continued to expect to see AUR up over the course of the year, with some compression on unit performance with that.

Joan Hilson: We are, you know, we believe positioned to start the year for, you know, good selling within our assortments, and believe we have the inventory in most of our brands in the right, you know, composition to drive business.

Speaker #10: So we are we believe positioned to start the year for good selling within our assortments and believe we have the inventory in the in most of our brands.

Mauricio Serna: Understood. Then just to follow up on, you know, maybe specifically on holiday, given your learnings on what happened, you know, this last Q4, how are you thinking about growth in holiday when I look at your low and high end of the guidance? Also just digging into one of your comments on the merchandise margin, you talked about off holiday promotional strategy. Maybe could you speak on like, what's like if promotions are gonna be, you know, either a tailwind or a headwind this year, and maybe how does that vary according to maybe like which quarter we're in, you know, maybe more promotions in Q4. Just thinking about like promotions, if it's like a tailwind or a headwind for this year merchandise margin. Thank you again.

Speaker #10: In the right composition to drive business.

Speaker #13: Understood. And then just to follow up on maybe specifically on holiday, given your learnings on what happened this last fourth quarter, how are you thinking about growth in holiday when I look at your low and high end of the guidance?

Speaker #13: And also just digging into one of your comments on the merchandise margin, you talked about off-holiday promotional strategy. Maybe could you speak on what's if promotions are going to be either a tailwind or a headwind this year and maybe how does that vary according to maybe which quarter we're in?

Speaker #13: Maybe more promotions in Q4, or just thinking about, yeah, promotions—if it's like a tailwind or a headwind for this year's merchandise margin. Thank you again.

Joan Hilson: The comment we made earlier is that, you know, our guide assumes a fairly consistent quarter-on-quarter comps, you know, for the year and at the high end. At the low end, we've given ourselves some room for or some flexibility for the consumer macro. The comment that we made around re-discounting is really off holiday discounting, recognizing that, to J.K.'s comments, that, you know, holiday high selling at holiday is different than, you know, the balance of the year for us. We see the opportunity throughout, you know, the 10 months of the year to reduce discounting, take select price actions as it relates to commodities, which, you know, we do throughout the year and, you know, mindful of compliance on, you know, rest periods and so forth.

Speaker #10: So with the comment we made earlier is that we our guide assumes a fairly consistent quarter-on-quarter comps. For the year and at the high end, at the low end, we've given ourselves some room for or some flexibility for the consumer macro.

Speaker #10: The comment that we made around reduced discounting is really off-holiday discounting recognizing that to JK's comments that holiday high selling at holiday is different than the balance of the year for us.

Speaker #10: So we see the opportunity throughout 10 months of the year to reduce discounting, take select price actions as it relates to commodities, which we do throughout the year.

Joan Hilson: Really leaning into the assortment architecture, which includes, you know, mix of products that carry a higher margin. Fashion with LGD is one of those opportunities and continues to be so, and the teams are very focused on a balanced assortment there at the right price points. As well, in the natural diamond space, we see, you know, opportunities across price points. We're managing architecture, and then the assortment that way to really look at the year with a you know. At the midpoint, we're looking at flat margin with you know, trying to leverage the SG&A line to mitigate any pressure that we might see on our gross margin.

Speaker #10: And mindful of compliance on rest periods and so forth. And then really leaning into the assortment architecture, which includes mix of products that carry a higher margin, fashion with LGD is one of those.

Speaker #10: Opportunities and continues to be so. And the teams are very focused on a balanced assortment there at the right price points. And then as well, in the natural diamond space, we see opportunities across price points.

Speaker #10: And so we'll be we'll managing architecture and then the assortment that way to really look at the year with a at the midpoint, we're looking at flat margin with trying to leverage the SG&A line.

Speaker #10: To mitigate any pressure that we might see on our gross margin.

Mauricio Serna: Got it. Understood. Thank you so much.

Joan Hilson: Yeah. Thanks, Mauricio.

Speaker #13: Got it. Got it. Understood. Thank you so much.

Operator 2: Thank you. Your next question is from Jim Sanderson from North Coast Research. Your line is now open.

Operator: Thank you. Your next question is from Jim Sanderson from North Coast Research. Your line is now open.

Speaker #2: Yeah. Thanks, Mauricio.

Speaker #1: Thank you. Your next question is from Jim Sanderson from North Coast Research. Your line is still open.

Jim Sanderson: Hey, thanks for the question. Just following up on the previous discussion about average unit revenues and unit volumes. Can you walk through the math, so to speak, for your expectations for the bridal category with respect to units and AUR?

Speaker #12: Hey, thanks for the question. Just following up on the previous discussion about average unit revenues and the unit volumes, can you walk through the math, so to speak, for your expectations for the bridal category with respect to units and AUR?

Joan Hilson: So what I mentioned is that, you know, we saw at a comp level, bridal would be a low single digit up or down for the year. That, you know, that's the guide assumption underneath our top-line assumption. Then, you know, units would be at the high end. Given the AUR growth, we would see a low single digit decline at the high end and a potential of a mid-single digit decline, excuse me, at the low end of that guide.

Speaker #10: So what I mentioned is that we saw at a comp level, bridal would be at low single-digit up or down for the year. That's the guide assumption underneath our top line assumption.

Speaker #10: And then units would be at the high end; given the AUR growth, we would see a low single-digit decline at the high end and a potential of a mid-single-digit decline—excuse me—at the low end of that guide.

Jim Sanderson: Understood. Thank you for that. Just wanted to shift over briefly to your real estate portfolio strategy. You've got low single-digit declines in square footage, but how does that convert or play a role in the revenue guidance you've gotten? Is there some recapture there from remodels as well? Just how we should think of that.

Speaker #13: Understood. Thank you for that. And just wanted to shift over briefly to your real estate portfolio strategy. You've got low single-digit declines in square footage, but how does that convert or play a role in the revenue guidance you've gotten?

Speaker #13: And is there some recapture there from remodels as well? Just how we should think of that.

Joan Hilson: Yeah, I mean, J.K. mentioned it in his prepared remarks that, you know, we're seeing nice lift in our renovation plan that we've been engaged in. We've really increased that to include 10% of the fleet this year, really targeted towards growth markets, which in an effort to really drive as much increment in top line as we can. Those investments are focused on the brands that are furthest along, which Jared is, you know, has a significant, you know, investment this year. We're also investing in Kay, in markets where we really wanna protect and grow volume. Those are reflected in our view of, you know, revenue for the year.

Speaker #10: Yeah. I mean, JK mentioned it in his prepared remarks that we're seeing nice lift in our renovation plan that we've been engaged in. And so we've really increased that to include 10% of the fleet this year, really targeted towards growth markets, which in an effort to really drive as much increment in top line as we can those investments are focused on the brands that are furthest along, which Jared is has a significant investment this year.

Speaker #10: And we're also investing in K in markets where we really want to protect and grow volume. So those are reflected in our view of revenue for the year.

Joan Hilson: I think that and as well as the low single-digit decline in you know, square footage is also reflected, Jim, in our outlook.

Speaker #10: I think that the and as well as the low single-digit decline in square footage is also reflected, Jim. In our outlook.

J.K. Symancyk: Yeah, it is. The only thing I'd add is on the low single digit decline in square footage, it's disproportionately weighted to Piercing Pagoda kiosk. I mean, you know, it is a much lower impact as you think about revenue overall, and pretty focused in that regard. I think really thoughtful strategy to, you know, trim the places that are, you know, frankly not productive and then to focus the investment in the areas where we can get outsized returns, and know that there's more opportunity for growth.

Speaker #2: Yeah, it is. The only thing I'd add is on the low single-digit decline in square footage, it's disproportionately weighted to lower volume kiosk. I mean, these are it is a much lower impact as you think about revenue overall and pretty focused in that regard.

Speaker #2: So I think really thoughtful strategy to trim the places that are frankly not productive and then to focus the investment in the areas where we can get outsized returns.

Jim Sanderson: All right. That will be, those closures will be evenly spread throughout the year for the most part, so is that the right way to look at that?

Speaker #2: And know that there's more opportunity for growth.

Speaker #13: All right. And those closures will be evenly spread throughout the year for the most part, so—is that the right way to look at that?

J.K. Symancyk: Ye-

Joan Hilson: Well, they'll be invested pre-holiday, Ab. We wanna get it all done before holiday. Yeah.

Speaker #2: Yeah.

J.K. Symancyk: Between now and Q3, I would say is the way to think about it, Jim.

Speaker #10: Well, they'll be invested pre-holiday. We want to get it all done before holidays.

Jim Sanderson: All right. Understood. Last question for me. You've got a very strong cash position, balance sheet. Any change in philosophy on M&A as you look to opportunities going forward?

Speaker #2: Yeah, between now and Q3, I would say, is the way to think about it, Jim.

Speaker #13: All right. Understood. Last question for me. You've got a very strong cash position balance sheet. Any change in philosophy on M&A as you look to opportunities going forward?

J.K. Symancyk: No, not at all. I mean, we continue to really see the opportunity to create value, you know, balanced between two decision points. You know, first and foremost, we're gonna continue to look for ways to invest in organic growth in the business and gain some leverage and strength against a stronger core. You know, as Joan dimensionalized in her comments, we also see opportunities to return capital to shareholders via buyback. Our balance in those two things, you know, as we look forward, but also see some great opportunities for organic growth ahead.

Speaker #2: No, not at all. I mean, we continue to really see the opportunity to create value balanced between two decision points. First and foremost, we're going to continue to look for ways to invest in organic growth in the business.

Speaker #2: And gain some leverage and strength against a stronger core. And as Joan dimensionalized in her comments, we also see opportunities to return capital to shareholders via buyback and our balance in those two things as we look forward.

Jim Sanderson: Very good. Thank you very much.

Speaker #2: But also see some great opportunities for organic growth ahead.

J.K. Symancyk: You bet. Thanks for the question.

Speaker #13: Very good. Thank you very much.

Joan Hilson: Thank you.

Operator: Thank you.

J.K. Symancyk: With that. Oh, go ahead.

Speaker #2: You bet. Thanks for the question.

Operator 2: Thank you. There are no further questions at this time. I will now hand the call back to J.K. Symancyk for the closing remarks.

Operator: Thank you. There are no further questions at this time. I will now hand the call back to J.K. Symancyk for the closing remarks.

Speaker #1: Thank you.

Speaker #2: With that, oh, go ahead.

Speaker #1: Thank you. There are no further questions at this time. I will now hand the call back to JK Simonsik for the closing remarks.

J.K. Symancyk: Okay. Thank you. Listen, folks, I'll close the way that I started today, and that's by thanking our team. This was a year that tested agility and discipline, and our people delivered, staying focused on the quarter, executing Grow Brand Love, and living our purpose of inspiring love. I'm so proud of what our team accomplished and the momentum that we built heading into fiscal 2027. Thank you for your time this morning, and we look forward to speaking again next quarter. Thank you.

Speaker #2: Okay. Thank you. Listen, folks, I'll close the way that I started today. And that's by thanking our team this was a year that tested agility and discipline.

Speaker #2: And our people delivered—staying focused on the quarter, executing 'Grow Brand Love,' and living our purpose of inspiring love. I'm so proud of what our team accomplished and the momentum that we built heading into fiscal '27.

Speaker #2: Thank you for your time this morning. We look forward to speaking again next quarter. Thank you.

Operator 2: Thank you, ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.

Operator: Thank you, ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.

Q4 2026 Signet Jewelers Ltd Earnings Call

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