Signet Jewelers Reports Excellent Fourth Quarter and Fiscal 2016 Financial Results

EPS: Fourth Quarter Up Over 20%; Fiscal 2016 Up Nearly 24%

Company Initiates First Quarter Guidance and Establishes Annual
Earnings Guidance

HAMILTON, Bermuda–(BUSINESS WIRE)–Signet Jewelers Limited (“Signet”) (NYSE:SIG), the world’s largest
retailer of diamond jewelry, today announced its results for the 13
weeks (“fourth quarter Fiscal 2016”) and 52 weeks (“Fiscal 2016”) ended
January 30, 2016.

Highlights:

  • Annual total sales of $6.55 billion increased 14.2%.
  • Fiscal 2016 same store sales increased 4.1%; diluted earnings per
    share (“EPS”) grew nearly 24%; adjusted EPS grew nearly 22%.
  • Fourth quarter same store sales increased 4.9%; EPS grew over 20%;
    adjusted EPS grew over 18%.
  • Increased three-year net synergy target due to strong integration
    progress to a range of $225 million – $250 million, nearly a 50%
    increase (February 1, 2015 through January 31, 2018), with the
    majority of the remaining synergies to be realized in the 52 weeks
    ending January 28, 2017 (“Fiscal 2017”).

Mark Light, Chief Executive Officer of Signet Jewelers, said, “Signet
had an excellent finish to another strong year with annual sales of
$6.55 billion and comp sales growth of 4.1%. Once again, we delivered
strong top and bottom line growth with results driven by product
innovation; targeted marketing; and supported by delivering superior
customer service by the best store teams in retail. These and many other
competitive strengths such as a diversified real estate portfolio,
customer finance programs, and custom jewelry and repair continue to
position Signet long term as a profitable growth company in the
specialty retail sector.

“The integration of Zale continues to go well, and we remain confident
in our recently raised synergies. We see an expanded and accelerated
level of financial contribution from the deep pipeline of initiatives
our teams are working on to unleash the long term potential of a fully
integrated Signet. We remain committed to maintaining profitable growth
while balancing investment back into the business with shareholder
return.

“As we start our new fiscal year, we are pleased with our progress
quarter to date as indicated by the financial guidance we have provided.
In Fiscal 2017, we will continue our disciplined execution of our
focused strategies that include our omni-channel approach to customer
service; product innovation and fresh line extensions; and maximizing
the effectiveness of marketing through the use of customer segmentation
research. All of these efforts combined with an accelerated pace of
store openings give us confidence in achieving another year of
significant EPS growth, as evidenced by our newly-initiated annual
guidance.

“I want to thank all Signet team members for their contributions to our
results and for all their hard work in delivering the fourth quarter and
Fiscal 2016.”

EPS Analysis:

Fourth quarter EPS was $3.42. Fourth quarter Adjusted EPS was $3.63.
Weighted average shares outstanding were 79.4 million. Adjusted EPS can
be reconciled to EPS as follows:

      Adjustments      
Adjusted EPS1     Purchase accounting     Transaction/Integration     EPS
$3.63     $(0.06)     $(0.15)     $3.42

Fiscal 2016 EPS was $5.87. Fiscal 2016 Adjusted EPS was $6.86. Weighted
average shares outstanding were 79.7 million. Adjusted EPS can be
reconciled to EPS as follows:

      Adjustments      
Adjusted EPS1     Purchase accounting     Transaction/Integration     EPS
$6.86     $(0.21)     $(0.78)     $5.87
1.   Throughout this release, Signet uses adjusted metrics which adjust
for purchase accounting and transaction/integration costs in
relation to the Zale acquisition and in relation to Signet
integration. See non-GAAP reconciliation tables. Adjusted EPS is a
non-GAAP measure and is defined as EPS adjusted for the impact of
purchase accounting and transaction/integration costs. Purchase
accounting includes deferred revenue adjustments related to
acquisition accounting which resulted in a reset of deferred revenue
associated with extended service plans previously sold by Zale
Corporation. Transaction and integration costs are severance and
consulting costs associated with an acceleration of organizational
changes and information technology (“I/T”) implementations to drive
synergies.

Financial Guidance:

Signet is initiating annual earnings guidance along with its customary
quarterly guidance. The establishment of annual guidance is to more
effectively communicate the impact and timing that the upwardly revised
synergies are expected to have. In addition, to foster a more long-term
view of its model, Signet intends to continue with annual earnings
guidance in lieu of quarterly earnings guidance after Fiscal 2017.

13 Weeks Ended April 30, 2016 (“First Quarter Fiscal 2017”)
Same store sales     3% to 4%
EPS $1.80 to $1.87
Adjustments (purchase accounting and transaction/integration costs) ($0.10) to ($0.08)
Adjusted EPS $1.90 to $1.95

First quarter Fiscal 2017 weighted average shares outstanding are
anticipated to be 78.8 million based upon approximately $125 million of
share repurchases.

Fiscal 2017
Same store sales     3.0% to 4.5%
EPS $7.88 to $8.23
Adjustments (purchase accounting and transaction/integration costs) ($0.37) to ($0.32)
Adjusted EPS $8.25 to $8.55
 
Effective tax rate Approximately 28%
Capital expenditures $315 million to $365 million
Net selling square footage growth 3.0% to 3.5%
Net synergies $158 million to $175 million

Capital expenditures will be driven primarily by new Kay and Jared
stores, store remodels, and I/T to support global implementations. The
higher level of capital expenditures over Fiscal 2016 is in part due to
an increase in forecasted new store growth. Our current estimated net
selling square footage growth of 3.0% to 3.5% (4.0% to 4.5% when
excluding regional closures) is greater than previous guidance of 2.0%
to 3.0%. Most of Signet’s new square footage growth is slated for real
estate venues other than enclosed malls.

Fiscal 2017 Store and Kiosk Changes
            Net selling
Gross locations     Net locations     square feet
Kay Jewelers +60 to +70 +55 to +65 +7% to 8%
Jared +8 to +12 +6 to +10 +3% to 4%
Zales +30 to +35 +15 to +20 +2% to 3%
Peoples 0 to +3 ~0 ~0
Regional stores in total

0

-45 to -50 -10% to -11%
Piercing Pagoda +35 to +40 +20 to +30 +1% to +2%
H.Samuel +12 to +15 +10 to +12 +1% to +2%
Ernest Jones 0 to +3     ~0     ~0
Signet Total +145 to +178     +61 to +87     +3.0% to +3.5%

Fourth Quarter Fiscal 2016 Sales Highlights:

Signet’s total sales were $2,392.6 million, up $116.2 million or 5.1%,
compared to $2,276.4 million in the 13 weeks ended January 31, 2015
(“fourth quarter Fiscal 2015”). Same store sales increased 4.9% compared
to an increase of 4.2% in the fourth quarter Fiscal 2015 driven
primarily by diamond fashion jewelry. E-commerce sales in the fourth
quarter were $166.3 million, up $16.7 million or 11.2% compared to
$149.6 million in the fourth quarter Fiscal 2015. By operating segment:

  • Sterling Jewelers’ same store sales increased 5.0%. Average
    transaction value increased 6.0% and the number of transactions
    decreased 2.3%. This was driven principally by strong sales of diamond
    fashion jewelry.
  • Zale Jewelry’s same store sales increased 4.4%. Average transaction
    value increased 6.2%, while the number of transactions decreased 2.1%.
    This was driven principally by strong sales of diamond fashion jewelry
    and bridal.
  • Piercing Pagoda’s same store sales increased 6.4%. Average transaction
    value increased 10.0%, while the number of transactions decreased
    2.7%. This was driven principally by strong sales of 14 kt. gold and
    diamond jewelry.
  • UK Jewelry’s same store sales increased 4.7%. Average transaction
    value increased 3.7% and the number of transactions increased 1.1%.
    This was driven principally by strong sales of diamond jewelry and
    prestige watches.
Sales change from previous year    
        Non-same     Total sales        
Same store at constant Exchange
Fourth quarter store sales, exchange translation Total Total sales
Fiscal 2016    

sales1

   

net2

   

rate3

    impact     sales     (in millions)
 
Kay 7.4 % 1.7 % 9.1 % % 9.1 % $ 940.8
Jared 1.4 % 3.9 % 5.3 % % 5.3 % $ 439.5
Regional brands     (1.8 )%     (5.8 )%     (7.6 )%     %     (7.6 )%     $ 72.2
Sterling Jewelers division     5.0 %     1.9 %     6.9 %     %     6.9 %     $ 1,452.5
Zales Jewelers 6.3 % 1.7 % 8.0 % % 8.0 % $ 461.2
Gordon’s Jewelers (7.5 )% (8.1 )% (15.6 )% % (15.6 )% $ 27.1
Zale US Jewelry 5.4 % 0.9 % 6.3 % % 6.3 % $ 488.3
Peoples Jewellers 0.3 % 0.9 % 1.2 % (15.6 )% (14.4 )% $ 77.0
Mappins (7.6 )% (2.4 )% (10.0 )% (14.0 )% (24.0 )% $ 11.7
Zale Canada Jewelry (0.8 )% 0.4 % (0.4 )% (15.4 )% (15.8 )% $ 88.7
Zale Jewelry 4.4 % 0.8 % 5.2 % (3.0 )% 2.2 % $ 577.0
Piercing Pagoda     6.4 %     1.9 %     8.3 %     %     8.3 %     $ 78.1
Zale division     4.7 %     0.9 %     5.6 %     (2.7 )%     2.9 %     $ 655.1
H.Samuel 3.0 % 0.6 % 3.6 % (4.2 )% (0.6 )% $ 151.2
Ernest Jones     6.6 %     2.1 %     8.7 %     (4.3 )%     4.4 %     $ 131.4
UK Jewelry division     4.7 %     1.2 %     5.9 %     (4.2 )%     1.7 %     $ 282.6
Other segment     %     nm     nm     %     nm     $ 2.4
Signet     4.9 %     1.5 %     6.4 %     (1.3 )%     5.1 %     $ 2,392.6
Adjusted Signet3                                   $ 2,397.8
Notes:     1=For stores open for at least 12 months.     2=For stores not open in the last 12 months.     3=Non-GAAP measure.     nm = not meaningful

Fourth quarter Fiscal 2016 Financial Highlights:

Gross margin was $1,016.0 million or 42.5% of sales, up 240 basis points
versus prior year. Adjusted gross margin rate was 42.6%, up 170 basis
points, from fourth quarter Fiscal 2015. The higher adjusted gross
margin rate was favorably impacted by gross margin synergies including
sourcing and discount controls related mostly to the Zale division, as
well as favorable commodity costs and leverage on store occupancy costs.

  • Sterling Jewelers gross margin dollars increased $57.4 million
    compared to prior year fourth quarter. The gross margin rate increased
    120 basis points due to improved merchandise margins and leverage on
    store occupancy.
  • In the Zale division, gross margin dollars increased $41.8 million
    compared to prior year fourth quarter. Included in gross margin were
    purchase accounting adjustments totaling $4.7 million in current year
    fourth quarter compared to $24.8 million in prior year. Adjusted gross
    margin dollars in the Zale division increased $21.7 million compared
    to the prior year fourth quarter. The adjusted gross margin rate
    increased 270 basis points, as synergies favorably affected
    merchandise margins, distribution costs and store occupancy.
  • Gross margin dollars in the UK Jewelry division increased $4.0 million
    compared to prior year fourth quarter, and the gross margin rate
    increased 80 basis points. The gross margin rate expansion was driven
    principally by leverage on store occupancy.

Selling, general, and administrative expense (“SGA”) was $686.6 million
or 28.7% of sales compared to $634.5 million or 27.9% of sales in fourth
quarter Fiscal 2015. Included in SGA are transaction and
integration-related costs of $19.1 million and purchase accounting
expense adjustments of $1.5 million. Transaction and integration costs
are principally related to severance, consulting, and I/T implementation
costs related to global systems solutions to drive synergies.

  • Fourth quarter Fiscal 2016 adjusted SGA was $666.0 million or 27.8% of
    sales compared to $629.3 million or 27.5% in the prior year. The 30
    basis point increase in SGA rate was driven primarily by an increase
    in central costs associated with higher I/T recurring expense; product
    research & development; and standardization of employee compensation
    among North America divisions. Partially offsetting these higher
    central costs were leverage on advertising and store payroll.

Other operating income was $63.7 million compared to $54.1 million in
the prior year fourth quarter, up $9.6 million or 17.7%. This increase
was due to the Sterling division’s higher interest income earned from
higher outstanding receivable balances.

In the fourth quarter, Signet’s operating income was $393.1 million or
16.4% of sales compared to $331.7 million or 14.6% of sales in prior
year fourth quarter. Included in operating income were purchase
accounting adjustments of $6.2 million and transaction and
implementation costs of $19.1 million. Adjusted operating income was
$418.4 million or 17.4% of adjusted sales compared to $361.7 million or
15.8% of sales in prior year fourth quarter. By division:

    Fourth Quarter Fiscal 2016     Fourth Quarter Fiscal 2015
(in millions) $     % of sales $     % of sales
Sterling Jewelers division $ 305.4 21.0 % $ 260.0 19.1 %
Zale division1 63.0 9.6 % 36.1 5.7 %
UK Jewelry division 57.8 20.5 % 53.8 19.4 %
Other2 (33.1 ) nm (18.2 ) nm
1.   Zale division includes net operating loss impact of $6.2 million for
purchase accounting adjustments. Excluding the impact from
accounting adjustments, Zale division’s operating income was $69.2
million or 10.6% of sales. The Zale division operating income
included $54.2 million from Zale Jewelry or 9.4% of sales and $8.8
million from Piercing Pagoda or 11.3% of sales. In the prior year
fourth quarter, Zale division includes net operating loss impact of
$20.8 million for purchase accounting adjustments. Excluding the
impact from accounting adjustments, Zale division’s operating income
was $56.9 million or 8.7% of sales. The Zale division operating
income included $32.8 million from Zale Jewelry or 5.8% of sales and
$3.3 million from Piercing Pagoda or 4.6% of sales.
2. Other includes $19.1 million and $9.2 million of transaction-related
and integration expenses in Fiscal 2016 and 2015, respectively.
Transaction and integration costs include expenses associated with
legal, tax, accounting, consulting and severance.
nm Not meaningful

Income tax expense was $109.1 million compared to $95.8 million in the
prior year fourth quarter. The Fiscal 2016 effective tax rate was 28.9%
driven by pre-tax earnings mix by jurisdiction and the $34.2 million
appraisal rights legal settlement in August which is not deductible for
tax purposes.

Credit

Net accounts receivable were $1,756.4 million, up 12.0% compared to
$1,567.6 million as of January 31, 2015 driven primarily by higher
credit penetration rate combined with higher average purchase.

Regarding in-house credit, Michele Santana, Signet Chief Financial
Officer, said, “Our consistency in underwriting is informed by our deep
history of borrower behavior data which provides insights into payment
patterns where customers have an emotional connection with their jewelry
purchases. This provides us with a unique ability to underwrite
effectively, capture incremental profitable sales, and develop lifetime
customer relationships.

“Our use of the recency aging method optimizes collections and is
aligned with our lending terms which require a qualifying payment
defined as at least 75% of the scheduled monthly minimum payment and
increases with delinquency level. It is important to understand that
regardless of aging method, the balance sheet and income statement will
yield the same result under US GAAP, as receivables must be stated at
the net realizable value.

Michele Santana continued, “We see stable trends in our lending and
credit metrics for which our average FICO portfolio score has been in a
consistent range for numerous years. Our in-house credit finance is
designed for rapid repayment and turns over on average in nine months.
We continue to be confident in our credit portfolio performance and the
competitive advantages associated with our in-house program.”

The Company expanded its disclosures in its SEC Form 10-K related to
underwriting, credit monitoring, collections, and portfolio aging.

The Sterling Jewelers in-house credit participation rate was 61.5% for
Fiscal 2016 compared to 60.5% for Fiscal 2015 which increased credit
sales by 7.6%. For the year, finance charge income was $252.5 million
and net bad debt was $190.5 million — a favorable difference of $62.0
million. This was favorable to the prior year by $4.1 million.

The Sterling Jewelers in-house credit participation rate was 58.7% in
fourth quarter Fiscal 2016 compared to 58.3% in fourth quarter Fiscal
2015 which increased credit sales by 7.7%. For the fourth quarter,
finance charge income was $63.9 million and net bad debt was $60.0
million — a favorable difference of $3.9 million. This was favorable to
the prior year by $1.6 million.

Cash and Stock Repurchase

Cash and cash equivalents were $137.7 million compared to $193.6 million
as of January 31, 2015. The lower cash position was primarily due to
share repurchases partially offset by favorable cash provided by
operating activities.

In Fiscal 2016, Signet repurchased $130.0 million worth of its stock, or
1,018,568 shares at an average cost of $127.63 per share. As of
January 30, 2016, there was $135.6 million remaining under Signet’s 2013
share repurchase authorization program. The board of directors has also
authorized a $750 million program with no expiration which was announced
February 29, 2016.

Other Balance Sheet Highlights

Net inventories were $2,453.9 million, up 0.6% compared to $2,439.0
million at the end of the prior year. The increase was significantly
lower than sales growth due to strong inventory management.

Long term debt was $1,328.7 million compared to $1,363.8 million in the
prior year period. Long term debt is entirely representative of the
financing of the Zale acquisition. Signet’s credit programs are
self-funded and therefore not vulnerable to rising interest rates, as
the primary value of the program is in the facilitation of jewelry sales
not the spread on rates.

Signet remains committed to its capital allocation policy initiated
March 26, 2015. Signet’s strong balance sheet allows it to execute on
its strategic priorities, invest in the business, and then return excess
cash to shareholders while ensuring adequate liquidity and maintaining
its investment grade rating. Signet plans to distribute 70% to 80% of
annual free cash flow in the form of stock repurchases or dividends,
assuming no other strategic uses of capital.

Signet has a diversified real estate portfolio. Based upon sales,
slightly more than half of Signet’s selling square footage is in
enclosed malls and nearly half is in a variety of other real estate
types. On January 30, 2016, Signet had 3,625 stores totaling 4.97
million square feet of selling space. Compared to prior year, store
count increased by 46 and square feet of selling space increased 3.3%.

Store count     Jan 31, 2015     Openings     Closures     Jan 30, 2016
Kay     1,094     42     (7 )     1,129
Jared 253 18 (1 ) 270
Regional brands     157             (16 )     141
Sterling Jewelers division     1,504       60       (24 )     1,540
Zales 716 24 (10 ) 730
Gordons 69 (10 ) 59
Peoples 144 2 (1 ) 145
Mappins 43 43
Total Zale Jewelry 972 26 (21 ) 977
Piercing Pagoda     605       12       (12 )     605
Zale division     1,577       38       (33 )     1,582
H.Samuel 302 2 (3 ) 301
Ernest Jones     196       8       (2 )     202
UK Jewelry division     498       10       (5 )     503
Signet     3,579       108       (62 )     3,625
 

Dividends:

Reflecting the Board’s confidence in the strength of the business, the
Company’s ability to invest in growth initiatives, and the Board’s
commitment to building long-term shareholder value, an 18% increase in
the quarterly cash dividend from $0.22 to $0.26 per Signet Common Share
was declared for the first quarter of Fiscal 2017 payable on May 27,
2016 to shareholders of record on April 29, 2016, with an ex-dividend
date of April 27, 2016.

Executive Share Ownership

Signet’s board of directors approved increased share ownership
requirements for executives. These increased shareholding requirements,
fully supported by executive management, reinforce Signet’s commitment
to long-term growth and further align the interests of executives with
the interests of Signet shareholders.

Conference Call:

A conference call is scheduled today at 8:30 a.m. ET and a simultaneous
audio webcast and slide presentation are available at www.signetjewelers.com.
The slides are available to be downloaded from the website ahead of the
conference call. The call details are:

Dial-in:               1-647-788-4901               Access code: 52758129

A replay and transcript of the call will be posted on Signet’s website
as soon as they are available and will be accessible for one year.

About Signet and Safe Harbor Statement:

Signet Jewelers Limited is the world’s largest retailer of diamond
jewelry. Signet operates approximately 3,600 stores primarily under the
name brands of Kay Jewelers, Zales, Jared The Galleria Of Jewelry,
H.Samuel, Ernest Jones, Peoples and Piercing Pagoda. Further information
on Signet is available at www.signetjewelers.com.
See also www.kay.com,
www.zales.com,
www.jared.com,
www.hsamuel.co.uk,
www.ernestjones.co.uk,
www.peoplesjewellers.com
and www.pagoda.com.

This release contains statements which are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995. These statements, based upon management’s beliefs and expectations
as well as on assumptions made by and data currently available to
management, include statements regarding, among other things, Signet’s
results of operation, financial condition, liquidity, prospects, growth,
strategies and the industry in which Signet operates. The use of the
words “expects,” “intends,” “anticipates,” “estimates,” “predicts,”
“believes,” “should,” “potential,” “may,” “forecast,” “objective,”
“plan,” or “target,” and other similar expressions are intended to
identify forward-looking statements. These forward-looking statements
are not guarantees of future performance and are subject to a number of
risks and uncertainties, including but not limited to general economic
conditions, risks relating to Signet being a Bermuda corporation, the
merchandising, pricing and inventory policies followed by Signet, the
reputation of Signet and its brands, the level of competition in the
jewelry sector, the cost and availability of diamonds, gold and other
precious metals, regulations relating to customer credit, seasonality of
Signet’s business, financial market risks, deterioration in customers’
financial condition, exchange rate fluctuations, changes in Signet’s
credit rating, changes in consumer attitudes regarding jewelry,
management of social, ethical and environmental risks, security breaches
and other disruptions to Signet’s information technology infrastructure
and databases, inadequacy in and disruptions to internal controls and
systems, changes in assumptions used in making accounting estimates
relating to items such as extended service plans and pensions, the
impact of the acquisition of Zale Corporation on relationships,
including with employees, suppliers, customers and competitors, and our
ability to successfully integrate Zale’s operations and to realize
synergies from the transaction.

For a discussion of these and other risks and uncertainties which could
cause actual results to differ materially from those expressed in any
forward-looking statement, see the “Risk Factors” section of Signet’s
Fiscal 2016 Annual Report on Form 10-K filed with the SEC on March 24,
2016. Signet undertakes no obligation to update or revise any
forward-looking statements to reflect subsequent events or
circumstances, except as required by law.

The below tables reflect the impact of costs associated with the
acquisition of Zale Corporation. Management finds the information useful
to analyze the results of the business excluding these items in order to
appropriately evaluate the performance of the business without the
impact of significant and unusual items.

Contacts

Signet Jewelers
Investors:
James Grant, VP Investor Relations,
+1-330-668-5412
or
Media:
David Bouffard, VP Corporate
Affairs, +1-330-668-5369

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