Sale of $1.0 Billion of Prime-Only Credit Quality Receivables and
Seven-Year Strategic Partnership with Alliance Data in Accretive,
Value-Enhancing Transaction
Substantially De-Risks Balance Sheet; Plans to Deploy $1.0 Billion
in Anticipated Proceeds to Reduce Debt and Repurchase Shares
Preliminary Agreement with Genesis for Five-Year Strategic
Partnership to Service Secondary Credit Program
Introduction of Lease-Purchase Program in Partnership with
Progressive Leasing
HAMILTON, Bermuda--(BUSINESS WIRE)--
Signet Jewelers Limited (“Signet”) (NYSE:SIG), the world's largest
retailer of diamond jewelry, announced today the first phase of the
strategic outsourcing of its in-house credit program and outlined steps
to achieve a fully-outsourced program structure.
The first phase, which is designed to substantially maintain the full
spectrum of Signet’s retail financing options and net sales, is expected
to be fully implemented by October 2017 as outlined below:
-
Alliance Data Primary Program: Signet will sell $1.0 billion of
its prime-only credit quality accounts receivable to Alliance Data
Systems Corporation (“Alliance Data”) (NYSE: ADS) at par value.
Additionally, under a seven-year agreement, Alliance Data will become
the primary provider of credit funding, servicing and associated
program functions to Signet’s Kay, Jared and Regional brands’
customers.
-
Genesis Secondary Program: Signet will retain the existing
non-prime accounts receivable on its balance sheet and continue to
originate new accounts, while outsourcing the credit servicing
functions of those accounts to Genesis Financial Solutions (“Genesis”)
with an initial term of five years.
-
Progressive Leasing Lease-Purchase Program: Signet will form a
seven-year partnership with Progressive Leasing (“Progressive”), a
subsidiary of Aaron’s, Inc. (NYSE: AAN), to provide a lease-purchase
payment program to Signet customers who do not qualify for Signet’s
credit programs, or do not wish to pursue a credit option to access
Signet’s merchandise.
Following the successful implementation of the first phase, which is
expected to occur by October 2017, Signet will have completed the sale
of approximately 55% of its credit portfolio to Alliance Data, and
established long-term third party relationships to service its full
credit programs.
As part of the second phase, Signet intends to fully outsource its
secondary credit programs, including the sale of the remaining
receivables on its balance sheet, as well as funding for new non-prime
account originations. The Company plans on engaging in discussions with
capital providers to finalize the fully-outsourced structure.
Todd Stitzer, Chairman of Signet’s Board of Directors, said: “Today’s
announcement is a significant milestone on our journey toward becoming
the world’s premier jeweler. Our Board is extremely pleased with the
progress our management team has made in structuring a strategic, phased
outsourcing of our credit program. By rolling out tailored outsourcing
solutions for various tiers of our in-house credit program, we believe
we will be able to substantially meet the strategic priorities we
initially set for Signet: eliminating material credit risk from our
balance sheet, maintaining net sales and streamlining our business
model, while minimizing the potential impact on our operations and
creating value for our shareholders.”
Mark Light, Chief Executive Officer of Signet, said: “We believe today’s
announcement regarding the first phase of the strategic outsourcing of
our credit portfolio will unlock significant value as it drives EPS
accretion and increases our capital efficiency, while enabling us to
maintain the full spectrum of our competitive retail credit offering and
net sales. Additionally, we will continue to pursue a fully-outsourced
model that removes the remaining credit risk from our balance sheet
through capital providers.”
Mr. Light added: “Further demonstrating our commitment to create
shareholder value, we plan to direct the net proceeds from this
transaction to reduce our outstanding debt and return capital in the
form of share repurchases. We remain focused on enhancing customer
experience and driving the growth of our OmniChannel retail platforms.”
Alliance Data Primary Program Partnership:
Signet and Alliance Data reached an agreement where Alliance Data will
acquire $1.0 billion prime-only credit quality portion of Signet’s
existing credit portfolio at par value at the time of closing, which is
expected in October 2017.
In addition, the two companies have entered into a seven-year program
agreement under which Alliance Data will become the primary provider of
private-label credit card services and associated card marketing and
servicing functions to Signet USA’s brands. Signet will receive future
payments related to the performance of the credit program after the sale
is completed under an economic-sharing agreement. As part of this
partnership, Signet will have access to Alliance Data’s full suite of
innovative mobile marketing solutions and personalized marketing
services, in addition to the data services provided by Alliance Data’s
Epsilon® business.
Alliance Data is a leading global provider of data-driven marketing and
loyalty solutions, and its Columbus, Ohio-based card services business
is a premier provider of branded private label, co-brand and commercial
credit programs. Alliance Data will also retain a portion of Signet’s
existing customer care operations in Akron, OH, including facilities and
approximately 250 employees as part of the transaction.
Genesis Secondary Program Partnership:
Signet and Genesis Financial Solutions entered into a preliminary
agreement where Genesis will service Signet’s non-prime accounts
receivable, including operational interface and customer servicing, with
an initial term of five years. In the first phase, Signet will retain
the existing non-prime receivables on its balance sheet and continue to
fund new non-prime account originations to ensure continued access to
the full spectrum of its credit programs. The receivables serviced
through Genesis will convert to contractual aging methodology.
Genesis Financial Solutions is a leading provider of private label
credit programs for non-prime consumers. As part of the agreement,
Genesis will retain a portion of Signet’s existing credit and customer
care operations in Akron, OH, including facilities and approximately 650
employees. The outsourcing of credit servicing and operational interface
to Genesis will eliminate associated selling, general and administrative
(“SGA”) expenses of Signet. The secondary program partnership is
expected to launch in October 2017.
Progressive Lease-Purchase Program Partnership:
In addition, Signet announced today a seven-year partnership with
Progressive Leasing, to provide a lease-purchase payment option to
customers who do not wish to pursue a credit option to access Signet’s
merchandise, or may not be eligible for credit programs. This includes
customers who will no longer be extended credit through Signet’s credit
programs, as well as those who previously did not have a payment option
to access Signet’s merchandise. We expect this program to generate
incremental revenue for Signet by capturing customers who did not wish
to pursue, or previously did not have access to a credit program.
The program is expected to become available starting in July 2017 at
Signet’s U.S. stores and fully implemented by the end of August 2017.
Under the new offering, Progressive Leasing will purchase merchandise
from Signet for leasing to customers who qualify for the program upon
acceptance of terms and completion of the purchase. As a result,
Progressive Leasing will assume any financial risk from leasing of the
merchandise. Progressive Leasing was selected for its industry-leading
technology, ability to scale with Signet’s portfolio and exceptional
customer experience.
Path to Completion:
The Alliance Data transaction is expected to close in October 2017,
subject to regulatory approval and customary closing conditions, and the
servicing agreement with Genesis is expected to commence at the same
time.
The transition process, including systems integration activities, will
be led by the management teams of Signet Jewelers, Alliance Data and
Genesis. Project planning for the transition has already commenced.
Signet expects a successful and seamless conversion of the relevant
portions of its credit operations to Alliance Data and Genesis.
Financial Impact:
The first phase of the outsourced partnership structure is designed to
substantially maintain Signet’s net sales. The transaction is expected
to be accretive to earnings per share in the first full year of
operations based on current stock prices and an October 2017 close. The
Company expects an improved cash flow profile and capital efficiency
with a slight decline in operating income from the sale of its primary
credit program.
After closing, Signet will no longer offer credit insurance as a part of
its credit offering, which has been included in the anticipated
financial impact of the transaction. This will further simplify the
in-store selling process.
The conversion to contractual aging methodology for the non-prime
accounts receivable that will remain on Signet’s balance sheet is not
expected to have a material impact on Signet’s financial statements.
Signet expects to realize a non-cash pretax gain due to a
reclassification of receivables that will be purchased by Alliance Data
from “assets held for investment” to “assets held for sale” in the
second quarter of fiscal 2018. This excludes estimated transaction costs
of $35 million to $45 million in fiscal 2018.
The Company will provide any updates to its financial statements and
projections, if necessary, to reflect the impact of the transaction at a
future date.
Capital Allocation:
Signet intends to use the proceeds from the sale of its prime
receivables to Alliance Data to repay its $600 million securitization
facility and repurchase shares over time depending on market conditions.
The Company maintains the flexibility to repurchase shares in advance of
the close of the transaction.
The Company provided the following update to its capital allocation:
-
Adjusted leverage ratio goal between 3.0x to 3.5x based on the revised
leverage ratio calculation that reflects pro forma capital structure.
-
Distribution of 70%-80% of free cash flow in the form of share
repurchases and dividends, excluding the proceeds from the credit
portfolio sale.
The Company is committed to maintaining an investment grade profile with
a strong balance sheet that provides flexibility to fund its business
strategy.
Advisors:
Goldman, Sachs & Co. is serving as financial advisor and Simpson Thacher
& Bartlett LLP is serving as legal advisor to Signet Jewelers.
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. The call
details are:
|
Dial-in:
|
|
|
+1 647 788 4901
|
|
|
|
|
|
|
Confirmation Code:
|
|
|
6183926
|
|
|
|
|
|
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, appear in a number of places throughout this document and
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 Signet’s
expectations, including timing, regarding the anticipated closings of
the various credit portfolio transactions, the entry into the servicing
agreement as contemplated by the preliminary agreement, the success of
discussions with capital providers to achieve full outsourcing,
statements about the benefits of the credit portfolio sales including
future financial and operating results, Signet’s or the other parties’
ability to satisfy the requirements for consummation of the agreements
relating to the credit portfolio transactions, including due to
regulatory or legal impediments, the outcome of Signet’s conversion of
its accounting methodology, the effect of regulatory conditions on the
credit purchase agreements and credit program agreements, general
economic conditions, regulatory changes following the United Kingdom’s
announcement to exit from the European Union, a decline in consumer
spending, 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, risks related to Signet being a Bermuda
corporation, the impact of the acquisition of Zale Corporation on
relationships, including with employees, suppliers, customers and
competitors, and our ability to successfully integrate Zale
Corporation’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 2017 Annual Report on Form 10-K filed with the SEC on March 16,
2017. 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/20170525005317/en/
Source: Signet Jewelers Limited