Comparison of Fiscal 2011 to Fiscal 2010
Summary of Fiscal 2011
- Same store sales: up by 6.7%(1)
- Total sales: up by 5.0% to $3,437.4 million
- Operating margin: increased to 10.8%, up 270 basis points
- Operating income: up by 40.8% to $372.5 million
- Net income before income taxes: up by 30.3% to $300.4 million
– Underlying net income before income taxes excluding Make Whole Payment: up by 50.9% to $347.9 million(1)
- Diluted earnings per share: up by 26.8% to $2.32
– Underlying diluted earnings per share excluding Make Whole Payment: up by 45.4% to $2.66(1)
(1) Non-GAAP measure.
Sales
In Fiscal 2011, Signet’s same store sales increased by 6.7%, compared to a decline of 0.4% in Fiscal 2010. Total sales rose by 5.0% to $3,437.4 million (Fiscal 2010: $3,273.6 million). The average US dollar to pound sterling exchange rate in Fiscal 2011 was $1.55 (Fiscal 2010: $1.59). The breakdown of the sales performance is set out in the table below.
Fiscal 2011
| Fiscal 2011 | |||
| US | UK | Signet | |
|---|---|---|---|
| Sales, million | $2,744.2 | $693.2 | $3,437.4 |
| % of total | 79.8% | 20.2% | 100.0% |
| Change in sales | % | % | % |
| Same store sales(1) | 8.9 | (1.4) | 6.7 |
| Change in store space | (0.9) | (1.6) | (1.1) |
| Total change in sales at constant exchange rates(1) | 8.0 | (3.0) | 5.6 |
| Exchange translation | - | (2.5) | (0.6) |
| Change in sales as reported | 8.0 | (5.5) | 5.0 |
(1) Non-GAAP measure.
In Fiscal 2011, the US division’s sales were up by 8.0% to $2,744.2 million (Fiscal 2010: $2,540.4 million) and same store sales rose by 8.9% compared to a rise of 0.2% in Fiscal 2010. The division’s market share of the US specialty jewelry market increased by 30 basis points to 9.3%. See the table below for analysis of sales growth.
Fiscal 2011
| Change from previous year | |||||
| Sales | Average unit selling price(1) | Total sales | Same store sales(2) | Average unit selling price(1) | |
|---|---|---|---|---|---|
| Kay | $1,592.9m | $330 | 6.4% | 7.0% | 7.6% |
| Jared | $848.3m | $763 | 18.1% | 15.7% | 7.0% |
| Regional Brands | $303.0m | $342 | (6.8)% | 1.9% | 4.0% |
| US Division | $2,744.2m | $389 | 8.0% | 8.9% | 8.0% |
(1) Excludes the charm bracelet category, a product with an average unit selling price considerably lower, and a multiple purchase and frequency of purchase much greater, than products historically sold by the division.
(2) Non-GAAP measure.
In Fiscal 2011, both the bridal category, and branded differentiated and exclusive products, increased their share of the US division’s sales. In the bridal category, the convergence of superior customer service, supply chain expertise and the ability to offer in-house customer finance resulted in an outstanding customer experience giving the US division a significant competitive sales advantage. Within the bridal category, Neil Lane BridalTM and the Tolkowsky® Diamond were tested successfully. Branded differentiated and exclusive merchandise, such as The Leo Diamond®, Open Hearts by Jane Seymour®, Love’s Embrace®, Le Vian® and Charmed Memories®, increased their participation by about 300 basis points to 22% of the US division’s merchandise sales. In addition, Jared also benefited from a recovery in spending among US households with above average incomes, and the continued expansion of the Pandora® range.
In Fiscal 2011, average unit selling price for the US division, excluding the charm bracelet category, rose by 8.0%, reflecting changes in the store brand sales mix, customers trading up the US division’s pricing structure, merchandising initiatives, and selective price increases made during Fiscal 2011. Including the charm bracelet category, the average unit selling price decreased, but was more than compensated for by the volume of units sold, which increased significantly.
In Fiscal 2011, the UK division’s sales were down by 5.5% to $693.2 million (Fiscal 2010: $733.2 million), and down 3.0% at constant exchange rates; non-GAAP measure. Same store sales decreased by 1.4%, compared to a decline of 2.4% in Fiscal 2010. See the table below for further analysis of sales.
Fiscal 2011
| Change from previous year | ||||||
| Sales | Average unit selling price(1)(2) | Total sales | Sales at constant exchange rates(3)(4) | Same store sales(3) | Average unit selling price(2) | |
|---|---|---|---|---|---|---|
| H. Samuel | $373.4m | £57 | (5.2)% | (2.8)% | (1.6)% | 8.0% |
| Ernest Jones(5) | $319.5m | £249 | (4.2)% | (1.7)% | (1.1)% | 9.3% |
| Other | $0.3m | nm | nm | nm | nm | nm |
| UK Division | $693.2m | £89 | (5.5)% | (3.0)% | (1.4)% | 9.2% |
(1) The average unit selling price(2) for H.Samuel was $88, for Ernest Jones was $386 and for the UK division was $138.
(2) Excludes the charm bracelet category, a product with an average unit selling price considerably lower, and a multiple purchase and frequency of purchase much greater, than product historically sold by the division.
(3) Non-GAAP measure.
(4) The exchange translation impact on the total sales of H.Samuel was (2.4)%, and for Ernest Jones was (2.5)%.
(5) Includes stores selling under the Leslie Davis nameplate.
nm - not meaningful
In the UK division, the charm bracelet category continued to perform well, as did fashion watches and the bridal category, including gold rings. Average unit selling price, excluding the charm bracelet category, increased by 9.2% in Fiscal 2011, primarily reflecting price increases implemented to counter pressure on gross merchandise margin.
Fourth quarter Fiscal 2011
In the fourth quarter, Signet’s same store sales were up 8.1%, compared to an increase of 5.1% in the fourth quarter of Fiscal 2010, and total sales rose by 6.2% to $1,270.5 million (13 weeks to January 30, 2010: $1,196.8 million). The breakdown of the sales performance is set out in the table below.
| Fourth Quarter | |||
| US | UK | Signet | |
|---|---|---|---|
| Sales, million | $1,007.0 | $263.5 | $1,270.5 |
| % of total | 79.3% | 20.7% | 100.0% |
| Change in sales | % | % | % |
| Same store sales(1) | 11.4 | (2.9) | 8.1 |
| Change in store space | (1.2) | (1.6) | (1.3) |
| Total change in sales at constant exchange rates(1) | 10.2 | (4.5) | 6.8 |
| Exchange translation | - | (2.3) | (0.6) |
| Change in sales as reported | 10.2 | (6.8) | 6.2 |
(1) Non-GAAP measure.
In the fourth quarter, the US division’s sales were $1,007.0 million (13 weeks to January 30, 2010: $914.0 million) up by 10.2%, and same store sales rose by 11.4% compared to a rise of 7.3% in the fourth quarter of Fiscal 2010. See the table below for further analysis of sales.
Fourth quarter Fiscal 2011
| Change from previous year | |||||
| Sales | Average unit selling price(1) | Total sales | Same store sales(2) | Average unit selling price(1) | |
|---|---|---|---|---|---|
| Kay | $608.8m | $298 | 9.9% | 10.7% | 9.0% |
| Jared | $292.2m | $721 | 18.8% | 17.5% | 9.2% |
| Regional Brands | $106.0m | $315 | (7.2)% | 1.3% | 9.4% |
| US Division | $1,007.0m | $351 | 10.2% | 11.4% | 10.8% |
(1) Excludes the charm bracelet category, a product with an average unit selling price considerably lower, and a multiple purchase and frequency of purchase much greater, than products historically sold by the division.
(2) Non-GAAP measure.
In the fourth quarter, the UK division’s sales were down by 6.8% to $263.5 million (13 weeks to January 30, 2010: $282.8 million), reflecting an adverse impact of 2.3% from movements in the pound sterling to US dollar exchange rate, a reduction of 1.6% due to changes in space and a decrease in same store sales of 2.9% (13 weeks to January 30, 2010: down 1.5%). See table below for further analysis of sales.
Fourth quarter Fiscal 2011
| Change from previous year | ||||||
| Sales | Average unit selling price(1)(2) | Total sales | Sales at constant exchange rates(3)(4) | Same store sales(3) | Average unit selling price(2) | |
|---|---|---|---|---|---|---|
| H.Samuel | $149.7m | £56 | (5.2)% | (2.8)% | (1.7)% | 5.2% |
| Ernest Jones(5) | $113.8m | £231 | (8.2)% | (6.0)% | (4.6)% | 8.6% |
| UK Division | $263.5m | £84 | (6.8)% | (4.5)% | (2.9)% | 5.8% |
(1) The average unit selling price2 in the fourth quarter for H.Samuel was $87, for Ernest Jones was $358 and for the UK division was $130.
(2) Excludes the charm bracelet category, a product with an average unit selling price considerably lower, and a multiple purchase and frequency of purchase much greater, than product historically sold by the division.
(3) Non-GAAP measure.
(4) The exchange translation impact on the total sales of H.Samuel was (2.4)% and for Ernest Jones was (2.2)% .
(5) Includes stores selling under the Leslie Davis nameplate.
Gross margin
In Fiscal 2011, Signet’s gross margin was $1,242.9 million (Fiscal 2010: $1,065.6 million), an increase of 16.6%. The gross margin rate increased by 360 basis points to 36.2% (Fiscal 2010: 32.6%).
In Fiscal 2011, the US division’s gross merchandise margin was up by 120 basis points compared to Fiscal 2010 and benefited from selective price increases implemented in the first and third quarters of Fiscal 2011, lower average diamond inventory costs, and reduced price discounting, which more than offset a higher cost of gold. In-house customer finance participation in the US division was 54.2% (Fiscal 2010: 53.9%) and the net bad debt to total US sales ratio was 4.2% (Fiscal 2010: 5.6%). Management believes this reduction reflected the quality of credit authorization and collection procedures, and a more stable rate of unemployment. The average monthly collection rate was 12.6% (Fiscal 2010: 12.5%). Net US customer in-house finance receivables at January 29, 2011 were $927.7 million (January 30, 2010: $849.3 million). Store occupancy costs were tightly controlled.
In Fiscal 2011, the UK division’s gross merchandise margin rate was down by 40 basis points compared to Fiscal 2010. The impact of a weak pound sterling to US dollar exchange rate, an increase in the cost of gold and a higher rate of value added tax were largely offset by price increases. Store occupancy costs were tightly controlled.
In the fourth quarter, Signet’s gross margin was $518.5 million (13 weeks to January 30, 2010: $431.4 million), an increase of 20.2%. Gross margin rate increased by 480 basis points to 40.8% (13 weeks to January 30, 2010: 36.0%). The US division’s gross merchandise margin was up 140 basis points compared to the fourth quarter of Fiscal 2010. In-house customer finance participation in the US division was 51.5% in the fourth quarter (13 weeks to January 30, 2010: 50.8%). The net bad debt to total US sales ratio was 3.8% (13 weeks to January 30, 2010: 5.0%). The average monthly collection rate was 12.2% in the fourth quarter (13 weeks to January 30, 2010: 12.0%). The UK division’s gross merchandise margin percentage was down 50 basis points from the fourth quarter of Fiscal 2010.
Selling, general and administrative expenses
Selling, general and administrative expenses for Fiscal 2011 were $980.4 million (Fiscal 2010: $916.5 million), up by 7.0%. Selling, general and administrative expenses as a percentage of sales increased by 50 basis points to 28.5% (Fiscal 2010: 28.0%); the increase primarily reflected higher incentive payments, the non-recurrence of the Fiscal 2010 benefit due to the change in US vacation entitlement policy, management transition costs and
higher advertising expenditure. The US division’s gross advertising expenditure increased by 5.6% to $161.5 million (Fiscal 2010: $153.0 million), a marketing to sales ratio of 5.9% (Fiscal 2010: 6.0%). In the UK division, gross advertising expenditure increased by 1.8% to $16.6 million (Fiscal 2010: $16.3 million), a marketing to sales ratio of 2.4% (Fiscal 2010: 2.2%), an increase of 4.5% in pounds sterling. The higher level of gross advertising expenditure in both divisions primarily reflected fourth quarter activity, with both an increased level of television advertising impressions and media inflation.
Unallocated costs, principally central costs not allocated to the US or UK division in Signet’s management accounts, were $27.2 million (Fiscal 2010: $16.5 million). These costs included $6.5 million incurred in the fourth quarter due to the appointment of a new Chief Executive Officer, whose contract included compensation for amounts foregone from his prior employment, and $2.4 million arising from the relocation of certain central functions to the US from the UK.
In the fourth quarter, selling, general and administrative expenses were $336.7 million (13 weeks to January 30, 2010: $282.6 million).
Other operating income, net
In Fiscal 2011, other operating income was $110.0 million (Fiscal 2010: $115.4 million), down by 4.7%. This reflected the impact of the amendments to the Truth in Lending Act that were implemented during the year and were largely offset by a higher level of outstanding customer finance balances and an increase in rate of interest charged.
Other operating income in the fourth quarter was $28.7 million (13 weeks to January 30, 2010: $28.4 million).
Operating income, net
For Fiscal 2011, net operating income increased by 40.8% to $372.5 million (Fiscal 2010: $264.5 million, after a $13.4 million non-recurring, favorable impact from a change in US vacation entitlement policy). Operating margin was 10.8% (Fiscal 2010: 8.1%). In Fiscal 2011, the net direct adverse impact on operating income from the amendments to the Truth in Lending Act was estimated by management to be $11.9 million, of which $2.1 million was in the fourth quarter.
The US division’s net operating income increased by 52.7% to $342.7 million (Fiscal 2010: $224.5 million, after a $13.4 million non-recurring, favorable impact from a change in US vacation entitlement policy). The US division’s operating margin in Fiscal 2011 was up by 370 basis points to 12.5% (Fiscal 2010: 8.8%), reflecting higher sales per store resulting in leverage of store occupancy costs, an increased gross merchandise margin and a lower net bad debt to total US sales ratio, which more than offset the adverse impact of the amendments to the Truth in Lending Act, the absence of the non-recurring benefit in Fiscal 2010 from the change in vacation entitlement policy, higher incentive pay and increased advertising expenditure.
Net operating income for the UK division increased by 0.9% to $57.0 million (Fiscal 2010: $56.5 million), an increase of 3.4% at constant exchange rates; non-GAAP measure, see Item 6. The UK division’s operating margin increased by 50 basis points to 8.2% (Fiscal 2010: 7.7%), reflecting a tight control of costs, which more than offset lower sales and a decrease in gross merchandise margin.
In the fourth quarter, net operating income increased by 18.8% to $210.5 million (13 weeks to January 30, 2010: $177.2 million), the operating margin was 16.6% (13 weeks to January 30, 2010: 14.8%). The US division’s net operating income increased by 38.2% to $167.9 million (13 weeks to January 30, 2010: $121.5 million, which included a $1.6 million non-recurring, adverse impact from a change in vacation entitlement policy), and the operating margin was 16.7% (13 weeks to January 30, 2010: 13.3%). The UK division’s net operating income decreased by 8.4% to $55.3 million (13 weeks to January 30, 2010: $60.4 million), a decrease of 6.3% at constant exchange rates; Non-GAAP measure. The UK division’s operating margin was 21.0% (13 weeks to January 30, 2010: 21.4%).
Interest income and expense
In Fiscal 2011, interest income was $0.7 million (Fiscal 2010: $0.8 million). Interest expense was $72.8 million (Fiscal 2010: $34.8 million), the majority of which related to the $47.5 million Make Whole Payment incurred as a result of prepaying the Private Placement Notes in full during the fourth quarter. The Notes incurred a blended fixed rate of interest of 8.11%.
Interest income was $0.1 million for the fourth quarter (13 weeks to January 30, 2010: $0.1 million) and interest expense was $51.0 million (13 weeks to January 30, 2010: $7.6 million).
Management believes that the interest expense in Fiscal 2012 will be $6 million to $7 million primarily reflecting facility fees and bank service charges.
Income before income taxes
For Fiscal 2011, income before income taxes was up 30.3% to $300.4 million (Fiscal 2010: $230.5 million), and income before income taxes excluding the Make Whole Payment was up 50.9% to $347.9 million (Fiscal 2010: $230.5 million); non-GAAP measure, see Item 6. For the fourth quarter, income before income taxes was down 6.0% to $159.6 million (13 weeks to January 30,2010: $169.7 million), income before income taxes excluding the Make Whole Payment was up 22.0% to $207.1 million; Non-GAAP measure.
Income taxes
The charge to income taxes for Fiscal 2011 was $100.0 million (Fiscal 2010: $73.4 million), an effective tax rate of 33.3% (Fiscal 2010: 31.8%), the increase reflecting a higher proportion of profits earned in the US where the tax rate is higher, offset by the benefit from intra-group financing arrangements and the favorable resolution of certain prior year tax issues.
The charge to income taxes in the fourth quarter was $54.2 million (13 weeks to January 30, 2010: $54.2 million), an effective tax rate of 34.0% (13 weeks to January 30, 2010: 31.9%).
Management expects that, subject to the geographic mix of taxable income and the outcome of uncertain tax positions, Signet’s effective tax rate in Fiscal 2012 will be approximately 36%.
Net income
Net income for Fiscal 2011 was up 27.6% to $200.4 million (Fiscal 2010: $157.1 million), and net income excluding the Make Whole Payment was up 46.3% to $229.9 million: Non-GAAP measure.
For the fourth quarter, net income was down 8.7% to $105.4 million (13 weeks to January 30, 2010: $115.5 million), and net income excluding the Make Whole Payment was up 16.8% to $134.9 million; Non-GAAP measure.
Earnings per share
For Fiscal 2011, basic and diluted earnings per share were $2.34 and $2.32 (Fiscal 2010: $1.84 and $1.83) an increase of 27.2% and 26.8% respectively. Excluding the Make Whole Payment, basic and diluted earnings per share were $2.68 and $2.66, up 45.7% and 45.4% respectively; non-GAAP measures, see Item 6.
In the fourth quarter, basic and diluted earnings per share were $1.23 and $1.21 (13 weeks to January 30, 2010: $1.35 and $1.34), down 8.9% and 9.7% respectively. Excluding the Make Whole Payment, basic and diluted earnings per share were $1.57 and $1.55, up 16.3% and 15.7% respectively; Non-GAAP measure.