Increases Synergy Target; Announces New Share Repurchase
Authorization of $750 Million
HAMILTON, Bermuda--(BUSINESS WIRE)--
Signet Jewelers Limited (“Signet”) (NYSE and LSE: SIG), the world's
largest retailer of diamond jewelry, today made a number of
announcements including preliminary results for the 13 weeks ended
January 30, 2016 (“fourth quarter Fiscal 2016”) compared to the 13 weeks
ended January 31, 2015 (“fourth quarter Fiscal 2015”).
Highlights
-
Fourth quarter same store sales increased 4.9%; diluted earnings per
share (“EPS”) grew over 20%; adjusted EPS grew over 18% and ahead of
the guided range.
-
Signet’s credit program contributed to profitability during the
period; credit metrics improved over the third quarter in line with
expectations.
-
Increased three-year net synergy target due to strong integration
progress to a range of $225 million - $250 million from $150 million -
$175 million (February 1, 2015 through January 31, 2018), with the
majority of synergies to be realized in Fiscal 2017.
-
Board approves new share repurchase authorization of $750 million.
-
Board approves 18% increase in dividend.
|
|
|
|
|
|
|
|
|
|
Fourth Quarter Results
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
Fiscal 2015
|
|
Variance
|
|
Guidance
|
|
Same Store Sales
|
|
4.9%
|
|
4.2%
|
|
70 bps
|
|
4.6% - 5.0%
|
|
EPS
|
|
$3.42
|
|
$2.84
|
|
20.4%
|
|
$3.44 - $3.50
|
|
Adjustments
|
|
$0.21
|
|
$0.22
|
|
($0.01)
|
|
$0.10
|
|
Adjusted EPS
|
|
$3.63
|
|
$3.06
|
|
18.6%
|
|
$3.54 - $3.60
|
|
|
|
|
|
|
|
|
|
Adjusted EPS is a Non-GAAP measure and is defined as EPS adjusted
for the impact of purchase accounting and transaction costs. These
adjustments were higher than previously guided due to severance and
consulting costs associated with an acceleration of organizational
changes and information technology implementations. 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.
“Signet delivered outstanding fourth quarter results exceeding the high
end of our adjusted EPS guidance with year-over-year growth of 18.6%,
driven by a solid 4.9% increase in same store sales," said Mark Light,
Chief Executive Officer of Signet Jewelers. "Our business was strong in
the fourth quarter as evidenced by our accelerating same store sales
performance. At the same time our credit metrics improved from the third
quarter in line with expectations and we remain confident in the
strength of our credit portfolio. We are pleased with our first quarter
to date operating results and continue to see strength in the business
including credit. We look forward to updating our Q1 performance on our
full earnings call March 24. After having operated Zales for a full year
we have identified a significant number of incremental synergy
opportunities and are increasing our expectations for total synergies
from $150 million - $175 million to $225 million - $250 million by the
end of FY 2018 with a faster pace of synergy realization than previously
guided.
Mr. Light continued, “Confidence in our business and the strength of our
cash position enables us to maintain our capital allocation strategy
that provides for meaningful returns to our shareholders. We see
substantial value in our shares and our share repurchase program begins
this week. Our team is doing an outstanding job of driving growth and
delivering results."
Fourth Quarter Fiscal 2016 Diluted EPS Analysis:
Fourth quarter EPS was $3.42. Fourth quarter Adjusted EPS was $3.63.
Adjusted EPS can be reconciled to EPS as follows:
|
Adjusted EPS
|
|
Purchase Accounting
|
|
Transaction Costs
|
|
EPS
|
|
$3.63
|
|
$0.06
|
|
$0.15
|
|
$3.42
|
|
|
|
|
|
|
|
Total adjustments (i.e. purchase accounting and transaction costs)
of $0.21 per share were higher than expectations of $0.10 per share due
to an acceleration of organizational changes which will benefit Fiscal
2017. This partially contributed to the increase in synergy guidance.
These accelerated organizational changes included severance as well as
information technology implementations to drive synergies and resulted
in an additional $0.11 per share of adjustments.
Credit
For fourth quarter Fiscal 2016, credit participation was 58.7% compared
to 58.3% in fourth quarter Fiscal 2015, an increase of 40 basis points.
Signet’s fourth quarter Fiscal 2016 credit expense and finance income
were favorable relative to management’s expectations. The difference in
interest income from Sterling division in-house finance programs
relative to net bad debt was $3.9 million compared to a difference of
$2.3 million last year.
|
Fourth Quarter (in millions)
|
|
Fiscal 2016
|
|
Fiscal 2015
|
|
Net bad debt
|
|
($60.0)
|
|
($54.2)
|
|
Interest income from in-house customer finance programs
|
|
$63.9
|
|
$56.5
|
|
Net Impact
|
|
$3.9
|
|
$2.3
|
|
|
|
|
|
As expected, Signet’s year-end valuation allowance and non-performing
metrics for its Sterling division in-house credit portfolio improved
compared to the third quarter:
|
Fiscal 2016 Credit Metrics
|
|
Year-ended
|
|
Q3-ended
|
|
Basis Point Diff.
|
|
Total valuation allowance as % of gross receivables
|
|
7.0%
|
|
7.8%
|
|
down 80
|
|
Non-performing receivables as % of gross receivables
|
|
4.0%
|
|
4.9%
|
|
down 90
|
|
|
|
|
|
|
|
The improvement in these credit metrics exceeded the impact of normal
seasonality trends that tend to improve allowance metrics from the third
quarter to the fourth quarter. Excellent credit team execution and
credit marketing initiatives designed to favorably influence credit
receivable mix helped to drive the improvement. On a full year basis,
these credit metrics for Fiscal 2016 compared to Fiscal 2015, increased
20 basis points.
Signet anticipates providing additional credit disclosures as part of
its full earnings release on March 24, 2016, as well as in its Form 10-K
filing.
Synergy Guidance Increased
In addition to the strong financial results and increasing pipeline of
opportunities, Signet is increasing its synergy guidance (i.e. operating
profit contribution) to a range of $225 million - $250 million from the
previously expected range of $150 million - $175 million as measured
cumulatively over the three year period from February 1, 2015 - January
31, 2018.
“In Fiscal 2016, we delivered $60 million in synergies, significantly
exceeding the guided range of $30 million to $35 million,” said Michele
Santana, Signet Chief Financial Officer. “As we enter the new fiscal
year, we have clear line of sight to a material acceleration and
expansion of synergies over the next two years. The incremental
synergies are anticipated to come principally from gross margin and
operating expense initiatives and secondarily from revenue-driving
initiatives. Of the synergies remaining in the next two years, we expect
to realize 70% by January-end 2017 and 30% by January-end 2018, which is
faster than we initially guided.”
In Fiscal 2017, Signet expects that the synergies will be realized
disproportionately in the back half of the year reflecting the cadence
of how the Company’s profit tends to flow.
Capital Allocation
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. In Fiscal 2016, Signet repurchased
$130 million of its stock, within the previously stated guidance range
of $100 million to $150 million.
Reflecting the Board's confidence in the strength of the business,
Signet’s ability to invest in growth initiatives and the Board's
commitment to building long-term shareholder value, the Board authorized
a new share repurchase program of $750 million in addition to the $135
million remaining on the existing authorization. Repurchases are
expected to be financed by free cash flow as well as potentially future
incremental debt capacity. Under the share repurchase program, purchases
can be made in the open market and through privately negotiated
transactions from time to time depending on market conditions. Signet’s
share repurchase program will commence this week.
In addition, the Board also approved an 18% increase in the quarterly
cash dividend from $0.22 to $0.26 per share for the first quarter of
Fiscal 2017.
Signet will report its complete financial results for the fourth quarter
Fiscal 2016 on March 24, 2016.
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 actual results or 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 2015 Annual Report on Form 10-K filed with the SEC on March 26,
2015. Signet undertakes no obligation to update or revise any
forward-looking statements to reflect subsequent events or
circumstances, except as required by law.
View source version on businesswire.com: http://www.businesswire.com/news/home/20160229005939/en/
Source: Signet Jewelers Limited