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Signet Jewelers Limited
27 May 2010
signet REPORTS ENCOURAGING FIRST quarter results
HAMILTON, Bermuda, May 27, 2010 - Signet Jewelers Limited ("Signet") (NYSE and LSE: SIG), the world's largest specialty
retail jeweler, today announced its results for the 13 weeks ended May 1, 2010 ("first quarter fiscal 2011").
First Quarter Highlights
· Same store sales: up 5.8%
· Total sales: $810.0 million, up 6.2%
· Income before income taxes: $76.8 million, up 85.5%
· Basic and diluted earnings per share: $0.61 and $0.60, up 96.8% and 93.5%
· Free cash flow now expected to be towards the top end of the anticipated
$150 million to $200 million range for fiscal 2011(1)
(1) Fiscal 2010 is the year ended January 30, 2010 and fiscal 2011 is the year ending January 29, 2011.
Terry Burman, Chief Executive of Signet commented: "We are very pleased with our start to the year. Jared and Ernest
Jones
performed particularly well. Our ability to create differentiated and sought after product, supported by superior
customer
service and memorable marketing campaigns, is an important driver of sales. We continue to focus on enhancing our
sustainable competitive advantages, improving our execution and maintaining a strong balance sheet and financial
flexibility. We therefore believe we remain well positioned to gain profitable market share."
Enquiries: Terry Burman, Chief Executive, Signet Jewelers +1 441 296 5872
Walker Boyd, Finance Director, Signet Jewelers +1 441 296 5872
Press: Alecia Pulman, ICR, Inc +1 203 682 8224
Jonathan Glass, Brunswick +44 (0)20 7404 5959
Signet is the world's largest specialty retail jeweler and operated 1,904 stores at May 1, 2010; these included 1,354
stores in the US, where it trades as "Kay Jewelers," "Jared The Galleria Of Jewelry" and under a number of regional
names.
At that date Signet also operated 550 stores in the UK division, where it trades as "H.Samuel," "Ernest Jones" and
"Leslie
Davis." Further information on Signet is available at www.signetjewelers.com. See also www.kay.com, www.jared.com,
www.hsamuel.co.uk and www.ernestjones.co.uk.
Conference call
There will be a conference call today at 8.30 a.m. EDT (1.30 p.m. BST and 5.30 a.m. Pacific Time) and a simultaneous
audio
webcast and slide presentation available at www.signetjewelers.com. The slides are available to be downloaded from the
website ahead of the conference call. To help ensure the conference call begins in a timely manner, could all
participants
please dial in 5 to 10 minutes prior to the scheduled start time. The call details are:
US dial-in: +1 212 444 0895
European dial-in: +44 (0)20 7138 0845
US replay until June 1, 2010: +1 347 366 9565 Access code: 5573546#
European replay until June 1, 2010: +44 (0)20 7111 1244 Access code: 5573546#
Quarterly Performance
During the first quarter Signet made good progress towards achieving its financial objectives for fiscal 2011. These
are:
· $150 million to $200 million positive free cash flow;
· Capital expenditure of about $80 million;
· Controllable costs(1) to be little changed from fiscal 2010 at constant exchange rates.
(1) Controllable costs exclude net bad debt charge, expense movements resulting from sales variance to plan, the impact
of
amendments to the Truth In Lending Act and the US vacation entitlement policy change in fiscal 2010.
Sales and operating income
Same store sales were up 5.8%, an encouraging start to fiscal 2011. Total sales rose by 6.2% to $810.0 million (13
weeks
to May 2, 2009: $762.6 million), reflecting an underlying increase of 5.2% at constant exchange rates; non-GAAP measure,
see Note 13. The breakdown of the performance was as follows:
US UK Signet
Sales, million $667.1 $142.9 $810.0
% of total 82.4% 17.6% 100.0%
Change in sales US UK Signet
% % %
Same store sales 7.2 (0.2) 5.8
Change in net store space (0.4) (1.5) (0.6)
Change at constant exchange rates 6.8 (1.7) 5.2
Exchange translation(1) - 5.5 1.0
Total sales growth as reported 6.8 3.8 6.2
(1) The average pound sterling to US dollar exchange rate was £1/$1.53 (13 weeks to May 2, 2009: £1/$1.45).
Gross margin was $296.3 million (13 weeks to May 2, 2009: $255.5 million), up by 16.0% and by 15.0% at constant exchange
rates; non-GAAP measure, see Note 13. Gross margin rate increased by 310 basis points, the factors influencing the
change
are set out in the table below. Selling, general and administrative expenses benefited from a further small decrease in
controllable costs. Other operating income decreased by 6.7% to $27.7 million (13 weeks to May 2, 2009: $29.7 million)
as
a result of the comparable prior year figure including a gain on foreign exchange of $0.9 million and some of the
unfavorable impact of the amendments to the Truth In Lending Act.
Operating income increased by 63.2% to $85.5 million (13 weeks to May 2, 2009: $52.4 million which included a $4.0
million
non-recurring, favorable impact from a change in US vacation entitlement policy), up 63.8% at constant exchange rates;
non-GAAP measure, see Note 13. Operating margin was 10.6% (13 weeks to May 2, 2009: 6.9%), the factors influencing the
change in operating margin are set out in the table below.
Change in operating margin US UK Signet
% % %
Q1 fiscal 2010 operating margin 9.0 (0.9) 6.9(1)
Gross merchandise margin movement 0.9 (1.0) 0.5
Net bad debt movement 1.2 - 1.0
Leverage, primarily of store occupancy costs 1.7 0.5 1.6
Gross margin 3.8 (0.5) 3.1
Selling, general & administrative expenses 1.4 0.2 1.0
Other operating income (0.5) 0.2 (0.4)
Q1 fiscal 2011 operating margin 13.7 (1.0) 10.6 (1)
(1) Includes unallocated costs, principally central costs.
Interest income and expense, income before income taxes and taxation
Interest income was $0.1 million (13 weeks to May 2, 2009: $0.6 million). Interest expense of $8.8 million (13 weeks to
May 2, 2009: $11.6 million) benefitted from the repayment of debt and lower fees.
Income before income taxes rose by 85.5% to $76.8 million (13 weeks to May 2, 2009: $41.4 million). The tax rate was
32.3%
(13 weeks to May 2, 2009: 36.5%), which is the anticipated rate for fiscal 2011 and similar to the annual rate for
fiscal
2010.
Basic and diluted earnings per share increased by 96.8% and 93.5% to $0.61 and $0.60 respectively (13 weeks to May 2,
2009:
basic and diluted $0.31).
Cash Flow
Set out below is a summary of Signet's cash flows and movement in net cash/(net debt) for the first quarters of fiscal
2011
and fiscal 2010; non-GAAP measure, see Note 13:
First Quarter
fiscal fiscal
2011 2010
($ million)
Net income 52.0 26.3
Adjustments to reconcile net income to net cash
provided by operations 32.7 36.8
Net income adjusted for non-cash items(1) 84.7 63.1
Changes in operating assets and liabilities 99.5 134.9
Net cash provided by operating activities 184.2 198.0
Net cash flows used in investing activities (6.3) (8.4)
Free cash flow(1) 177.9 189.6
Facility fees (1.0) (8.4)
Net change in Common Shares 0.8 -
177.7 181.2
Cash & cash equivalents less total debt at start of period (7.9) (470.7)
Effect of exchange rate changes on cash & cash equivalents 1.0 0.4
Effect of exchange rate changes on debt - (1.1)
Net cash/(net debt)(1) 170.8 (290.2)
(1) Non-GAAP measure, seeNote 13.
Positive free cash flow was $177.9 million in the 13 weeks to May 1, 2010 (13 weeks to May 2, 2009: $189.6 million);
non-GAAP measure, see Note 13. Net income adjusted for non-cash items increased by $21.6 million to $84.7 million (13
weeks to May 2, 2009: $63.1 million). Changes in operating assets and liabilities generated cash flows of $99.5 million
(13 weeks to May 2, 2009: $134.9 million). Inventories decreased by $38.9 million (13 weeks to May 2, 2009: $43.2
million
decrease) as a result of a better than expected sales performance, store closures and timing differences that are
expected
to reverse in subsequent quarters. Accounts receivable decreased by $55.1 million (13 weeks to May 2, 2009: $55.3
million
decline), reflecting a higher opening level of receivables and an improvement in collection rate offset by higher sales
in
the first quarter of fiscal 2011.
Net cash flow used in investing activities was $6.3 million (13 weeks to May 2, 2009: $8.4 million). Capital expenditure
for fiscal 2011 continues to be planned to be about $80 million, a level broadly consistent with maintenance capital
expenditure. Changes in operating assets and liabilities, and investing activities, due to new US space were $2.2
million
and $1.1 million respectively.
For fiscal 2011, positive free cash flow is now expected to be towards the top end of the anticipated $150 million to
$200
million range, subject to general economic conditions.
In the 13 weeks to May 1, 2010, a sum of $0.8 million (13 weeks to May 2, 2009: nil) was received for the issuance of
Common Shares pursuant to Signet's equity compensation programs.
Liquidity
Net cash at May 1, 2010 was $170.8 million (May 2, 2009: $290.2 million net debt); non-GAAP measure, see Note 13. Debt
at
May 1, 2010 was $276.3 million (May 2, 2009: $359.4 million), with cash and cash equivalents of $447.1 million (May 2,
2009: $69.2 million). During the first quarter of fiscal 2011, there was a prepayment at par of $50.9 million of the
private placement notes. In addition, a change was agreed with Signet's revolving credit facility banking group that
the
facility be reduced to $300 million from $370 million. The facility was undrawn at May 1, 2010 (May 2, 2009: $40.0
million).
Operating Review
US division (~80% of annual sales)
The US division's sales were up by 6.8% to $667.1 million (13 weeks to May 2, 2009: $624.9 million), see table below for
analysis. Same store sales were up 7.2%. Operating income increased by 61.5% to $91.1million (13 weeks to May 2, 2009:
$56.4 million, which included a $4.0 million non-recurring, favorable impact from the change in vacation entitlement
policy). The operating margin was 13.7% (13 weeks to May 2, 2009: 9.0%); see table above for an analysis of the
movement
in operating margin.
Change from previous year
Sales Average Total Same Average
unit sales store unit
selling sales selling
First quarter fiscal 2011 price price
Kay $386.8m $322 4.0% 4.2% 6.0%
Regional brands $76.9m $339 (6.4)% 2.7% (1.4)%
Jared $203.4m $741(1) 19.0% 15.8% 2.9%(1)
US $667.1m $380(1) 6.8% 7.2% 5.1%(1)
(1) Excludes the charm bracelet category.
While the wider economic environment in the US remains challenging, the division continued to benefit from both its
sustainable competitive advantages, as many competitors are financially constrained, and the accelerated level of
capacity
reduction within the sector in recent years. Kay achieved a further increase in same store sales. Jared's sales
increase
reflected a continued recovery in expenditure among households with above average incomes and the impact of
merchandising
initiatives. Set out above is the sales performance by format. In the US division, average selling price rose by 5.1%,
excluding the charm bracelet category in Jared, as a result of changes in mix and selective price increases.
Gross merchandise margin was up 90 basis points, benefitting from price increases implemented during the quarter, lower
average diamond inventory costs and favorable changes in the sales mix, offsetting a higher cost of gold. As a result
of
higher than anticipated diamond and gold costs, it is now expected that the US division's gross merchandise margin for
fiscal 2011 will be broadly similar to the level of fiscal 2010, however this remains subject to future movements in
commodity costs.
Credit participation was little changed at 51.6% (13 weeks to May 2, 2009: 51.2%). The net bad debt to total sales
ratio
was down by 120 basis points over the comparable period in fiscal 2010, with an underlying improvement in performance
being
evident. While some of the amendments to the Truth In Lending Act were implemented on February 22, 2010, their full
impact
on fiscal 2011 remains uncertain and continues to have an expected net direct adverse impact on operating income in the
$15
million to $20 million range.
During the first quarter of fiscal 2011, costs continued to be tightly managed and controllable expenses were slightly
below last year, with a small benefit from the fiscal 2010 cost saving program continuing into the first quarter of
fiscal
2011. The additional impact of the cost saving program in the balance of fiscal 2011 is expected to be minimal.
Net cash flows used in investing activities in the US were $5.3 million (13 weeks to May 2, 2009: $7.0 million). Stores
opened and closed in the quarter, together with planned changes for the balance of fiscal 2011 are set out below.
Kay Kay Annual net
mall Off-mall Regionals Jared(1) Total space change
January 30, 2010 794 129 260 178 1,361 (1)%
Opened - - - 1 1
Closed (4) (2) (2) - (8)
May 1, 2010 790 127 258 179 1,354
Openings, planned 5 2 - 1 8
Closures, forecast (7) (2) (34) - (43)
January 29, 2011 788 127 224 180 1,319 (2)%
(1) A Jared store is equivalent in size to just over four mall stores.
UK division (~20% of annual sales)
The UK division's sales were up by 3.8% to $142.9 million (13 weeks to May 2, 2009: $137.7 million); see table below for
analysis. Same store sales were down 0.2%. There was an operating loss of $1.4 million (13 weeks to May 2, 2009: $1.3
million loss); see table above for an analysis of the movement in operating margin.
Change from previous year
Sales Average Total Sales at Same Average
unit sales constant store unit
selling exchange sales selling
First quarter fiscal 2011 price rates(1) price
H.Samuel $74.5m £54 2.2% (3.1)% (2.1)% 5.9%
Ernest Jones $68.4m £253(2) 7.0% 1.4% 1.8% 11.6%(2)
UK $142.9m £89(2) 3.8% (1.7)% (0.2)% 11.3%(2)
(1) Non-GAAP measure, see Note 13.
(2) Excludes the charm bracelet category.
The general economic environment during the quarter in the UK was more challenging than in the US, with uncertainty
related
to the general election having a detrimental impact on consumer confidence. H.Samuel's same store sales were lower than
the comparable quarter in fiscal 2010, while those of Ernest Jones were better. The charm bracelet category again
performed well.
In the first quarter of fiscal 2011, the average unit selling price in the UK division rose by 11.3%, excluding the
charm
bracelet category in Ernest Jones. This reflected higher prices and merchandise mix changes. Gross merchandise margin
declined by 100 basis points, with an increase in the cost of gold, a higher value added tax rate and the impact of the
weak pound sterling to US dollar exchange rate being partly offset by price changes. It continues to be anticipated
that
the UK division's gross merchandise margin for fiscal 2011 will be somewhat lower than that of fiscal 2010, subject to
future movements in commodity costs, exchange, and the value added tax rate, all potentially mitigated by possible price
increases. In sterling terms, controllable costs were slightly lower.
Net cash flows used in investing activities in the UK were $1.0 million (13 weeks to May 2, 2009: $1.4 million). Stores
opened and closed in the quarter, together with planned changes for the balance of fiscal 2011 are set out below.
H.Samuel Ernest Jones(1) Total
January 30, 2010 347 205 552
Opened - - -
Closed (1) (1) (2)
May 1, 2010 346 204 550
Openings, planned - - -
Closures, forecast (8) (5) (13)
January 29, 2011 338 199 537
(1) Includes stores trading as Leslie Davis.
Unallocated costs
Unallocated costs, principally central costs, were $4.2 million (13 weeks to May 2, 2009: $2.7 million), reflecting the
impact of the change in the average exchange translation rate and a gain on foreign exchange in the comparable prior
year
period.
Management Succession
On April 15, 2010, Ron Ristau joined Signet as Chief Financial Officer Designate, and he will succeed Walker Boyd who
retires on June 25, 2010. The formal search for a Chief Executive Officer began in late February 2010 and is
progressing.
Investor Relations Program Details
BoA Merrill Lynch 2010 SMID Cap Conference, Boston
Signet will be taking part in the BoA Merrill Lynch small mid cap conference on Wednesday, June 9, 2010. Present will be
Terry Burman, Chief Executive and Ron Ristau, CFO Designate. The presentation, which is scheduled for 3.20 p.m. EDT,
will
be available on www.signetjewelers.com.
Investor day and store tour, Akron, Ohio
An investor day and store tour for professional investors is to be held in Akron, Ohio on Tuesday, June 15, 2010.
Please
go to www.signetjewelers.com for further details.
Annual general meeting
The annual general meeting is to be held at 11.00 a.m. EDT on June 17, 2010 at the Hilton Akron/Fairlawn, 3180 West
Market
Street, Akron, Ohio, 44333, USA.
Second quarter results
The second quarter results for the 13 weeks ending July 31, 2010 are expected to be announced on Thursday, August 26,
2010.
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, appear in a number of places throughout this release and
include statements regarding, among other things, our results of operations, 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, 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 consumer credit, seasonality of Signet's business, and financial market risks.
For a discussion of these and other risks and uncertainties which could cause actual results to differ materially, see
the
"Risk Factors" section of Signet's fiscal 2010 Annual Report on Form 10-K filed with the U.S. Securities and Exchange
Commission on March 30, 2010. Actual results may differ materially from those anticipated in such forward-looking
statements. Signet undertakes no obligation to update or revise any forward-looking statements to reflect subsequent
events or circumstances, except as required by law.
Unaudited condensed consolidated income statements
13 weeks ended 13 weeks ended
May 1, 2010 May 2, 2009
$million $million Notes
Sales 810.0 762.6 2
Cost of sales (513.7) (507.1)
Gross margin 296.3 255.5
Selling, general and administrative expenses (238.5) (232.8)
Other operating income, net 27.7 29.7
Operating income, net 85.5 52.4 2
Interest income 0.1 0.6
Interest expense (8.8) (11.6)
Income before income taxes 76.8 41.4
Income taxes (24.8) (15.1)
Net income 52.0 26.3
Earnings per share - basic $0.61 $0.31 5
- diluted $0.60 $0.31 5
All of the above relate to continuing activities attributable to equity shareholders.
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
Unaudited condensed consolidated balance sheets
May 1,
2010(Unaudited) May 2, 2009(Unaudited) January 30, 2010(Audited)
$million
$million $million Notes
Assets
Current assets:
Cash and cash equivalents
447.1
69.2 316.2
Accounts receivable, net
801.7
770.1 858.0
Other receivables
25.2
65.0 27.9
Other current assets
51.1
58.0 58.4
Deferred tax assets
0.7
- 2.2
Inventories
1,122.0
1,327.1 1,173.1 6
Total current assets
2,447.8
2,289.4 2,435.8
Non-current assets:
Property, plant and equipment, net of accumulated depreciation of $577.8 million, $575.8 million and $566.0 million,
respectively 375.2
437.7 396.9
Other intangible assets, net
23.6
23.4 24.2
Other assets
12.0
9.7 12.6
Deferred tax assets
52.8
59.3 54.7
Total assets
2,911.4
2,819.5 2,924.2 2
Liabilities and Shareholders' equity
Current liabilities:
Loans and overdrafts
47.2
79.4 44.1
Accounts payable
104.2
108.8 66.2
Accrued expenses and other current liabilities
233.9
256.9 272.1
Deferred revenue
115.9
113.5 120.1 7
Deferred tax liabilities
79.6
58.1 74.7
Income taxes payable
32.1
55.6 44.1
Total current liabilities
612.9
672.3 621.3
Non-current liabilities:
Long-term debt
229.1
280.0 280.0
Other liabilities
78.9
72.7 79.6
Deferred revenue
143.1
142.4 140.9 7
Retirement benefit obligation
1.8
12.6 4.8
Total liabilities
1,065.8
1,180.0 1,126.6
Commitments and contingencies (see note 10)
Shareholders' equity:
Common shares of $0.18 par value: authorized 500 million shares, 85.5 million shares issued and outstanding (May 2,
2009: 85.3 million shares issued and outstanding; January 30, 2010: 85.5 million shares issued and outstanding) 15.4
15.3 15.4
Additional paid-in capital
172.4
165.1 169.9
Other reserves
235.2
235.2 235.2
Treasury shares
-
(10.7) (1.1)
Retained earnings
1,607.9
1,427.2 1,556.4
Accumulated other comprehensive loss
(185.3)
(192.6) (178.2)
Total shareholders' equity
1,845.6
1,639.5 1,797.6
Total liabilities and shareholders' equity
2,911.4
2,819.5 2,924.2
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
Unaudited condensed consolidated statements of cash flows
13 weeks ended 13 weeks ended
May 1, 2010 May 2, 2009
$million $million
Cash flows from operating activities
Net income 52.0 26.3
Adjustments to reconcile net income to cash flows provided by operations:
Depreciation of property, plant and equipment 22.4 24.2
Amortization of other intangible assets 2.0 1.4
Pension expense (1.9) -
Share-based compensation expense 2.3 0.7
Deferred taxation 6.3 (2.6)
Facility fees included in net income 2.3 3.4
Other non-cash movements (0.7) 9.3
Loss on disposal of property, plant and equipment - 0.4
Changes in operating assets and liabilities:
Decrease in accounts receivable 55.1 55.3
Decrease in other receivables 3.7 16.9
Decrease/(increase) in other current assets 10.0 (18.4)
Decrease in inventories 38.9 43.2
Increase in accounts payable 38.5 65.9
Decrease in accrued expenses and other liabilities (33.6) (20.6)
Decrease in deferred revenue (1.8) (7.0)
Decrease in income taxes payable (11.1) (0.4)
Effect of exchange rate changes on currency swaps (0.2) -
Net cash provided by operating activities 184.2 198.0
Investing activities
Purchase of property, plant and equipment (4.7) (7.3)
Purchase of other intangible assets (1.6) (1.1)
Net cash flows used in investing activities (6.3) (8.4)
Financing activities
Proceeds from issue of common shares 0.8 -
Facility fees paid (1.0) (8.4)
Proceeds from/(repayment of) short-term borrowings 3.1 (109.2)
Repayment of long-term debt (50.9) (100.0)
Net cash flows used in financing activities (48.0) (217.6)
Cash and cash equivalents at beginning of period 316.2 96.8
Increase/(decrease) in cash and cash equivalents 129.9 (28.0)
Effect of exchange rate changes on cash and cash equivalents 1.0 0.4
Cash and cash equivalents at end of period 447.1 69.2
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
Unaudited condensed consolidated statement of shareholders' equity
Common shares at par value Additional paid-in capital Other
reserves Treasury shares Retained earnings Accumulated other comprehensive loss Total shareholders' equity
$million $million $million
$million $million $million $million
Balance at January 30, 2010 15.4 169.9 235.2
(1.1) 1,556.4 (178.2) 1,797.6
Net income - - -
- 52.0 - 52.0
Foreign currency translation adjustments - - -
- - (11.2) (11.2)
Changes in fair value of derivative instruments, net - - -
- - 3.5 3.5
Actuarial gain on pension plan, net - - -
- - 0.6 0.6
Share options exercised - 0.2 -
1.1 (0.5) - 0.8
Share-based compensation expense - 2.3 -
- - - 2.3
Balance at May 1, 2010 15.4 172.4 235.2
- 1,607.9 (185.3) 1,845.6
The accompanying notes are an integral part of these interim unaudited condensed consolidated financial statements.
Unaudited condensed consolidated statements of comprehensive income
13 weeks ended 13 weeks ended
May 1, 2010 May 2, 2009
$million $million
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