Accounts receivable

9 Months Ended

Oct. 31, 2020

The following table presents the components of Signet’s accounts receivable:


(in millions)	October 31, 2020		February 1, 2020		November 2, 2019
Customer in-house finance receivables, net	$	39.6	$	—	$	—
Accounts receivable, trade	13.2		34.4		16.4
Accounts receivable, held for sale	5.5		4.4		4.4
Accounts receivable, net	$	58.3	$	38.8	$	20.8

As previously disclosed, during Fiscal 2018, Signet announced a strategic initiative to outsource its North America private label credit card programs and sell the existing in-house finance receivables. In October 2017, Signet, through its subsidiary Sterling Jewelers Inc. (“Sterling”), completed the sale of the prime-only credit quality portion of Sterling’s in-house finance receivable portfolio to Comenity Bank (“Comenity”). In June 2018, the Company completed the sale of the non-prime in-house accounts receivable to CarVal Investors (“CarVal”) and the appointed minority party, Castlelake, L.P. (“Castlelake” and collectively with CarVal, the “Investors”).

In addition, for a five-year term, Signet would remain the issuer of non-prime credit with investment funds managed by the Investors purchasing forward receivables at a discount rate determined in accordance with their respective agreements. Signet would hold the newly issued non-prime credit receivables on its balance sheet for two business days prior to selling the receivables to the respective counterparty in accordance with the agreements. Receivables issued by the Company but pending transfer to the Investors as of period end were classified as “held for sale” and included in the accounts receivable caption in the condensed consolidated balance sheets. As of October 31, 2020, February 1, 2020, and November 2, 2019, the accounts receivable held for sale were recorded at fair value.

In conjunction with the sale of the majority of Signet’s non-prime in-house accounts receivable to the Investors, beginning in June 2018, the Investors began purchasing the majority of forward flow receivables of Signet’s non-prime credit from Signet for a five-year term. In Fiscal 2020, those forward flow receivables represented approximately 7% of Signet’s revenue. During Fiscal 2021, the 2018 agreements pertaining to the purchase of forward flow receivables were terminated and new agreements were executed with both Investors which will remain effective until June 2021, unless terminated earlier by either party pursuant to the terms of respective agreements. The new agreements provide that the Investors will continue to purchase add-on receivables created on existing customer accounts at a discount rate determined in accordance with the new agreements. Signet will retain forward flow non-prime receivables created for new customers, which are expected to represent less than 2.5% of Signet’s Fiscal 2021 revenue. The termination of the previous agreements has no effect on the receivables that were previously sold to the Investors prior to the termination, except that Signet agreed to extend the Investors’ payment obligation for the remaining 5% of the receivables previously purchased in June 2018 until the new agreements terminate. The Company’s agreement with the credit servicer Genesis Financial Solutions remains in place.

Receivables issued by the Company but pending transfer to its credit partners as of period end are classified as held for sale. Accounts receivable classified as trade receivables are comprised primarily of accounts receivable related to the sale of diamonds to third parties from its polishing factory deemed unsuitable for Signet's needs in the Other segment.

Customer in-house finance receivables

As discussed above, the Company has begun to retain certain customer in-house finance receivables beginning in the second quarter of Fiscal 2021. The allowance for credit losses is an estimate of expected credit losses, measured over the estimated life of its credit card receivables that considers forecasts of future economic conditions in addition to information about past events and current conditions. The Company accounts for the expected credit losses under ASC 326, “Measurement of Credit Losses on Financial Instruments,” which is referred to as the Current Expected Credit Loss (“CECL”) model. The estimate under the CECL model is significantly influenced by the composition, characteristics and quality of the Company’s portfolio of credit card receivables, as well as the prevailing economic conditions and forecasts utilized. The estimate of the allowance for credit losses includes an estimate for uncollectible principal as well as unpaid interest and fees.

The allowance is maintained through an adjustment to the provision for credit losses and is evaluated for appropriateness and adjusted quarterly. CECL requires entities to use a “pooled” approach to estimate expected credit losses for financial assets with similar risk characteristics. The Company evaluated multiple risk characteristics of its credit card receivables portfolio and determined that credit quality and account vintage to be the most significant characteristics for estimating expected credit losses. To estimate its allowance for credit losses, the Company segregates its credit card receivables into credit quality categories using the customers’ FICO scores.

The following three industry standard FICO score categories are used:

•620 to 659 (“Near Prime”)

•580 to 619 (“Subprime”)

•Less than 580 (“Deep Subprime”)

These risk characteristics are evaluated on at least an annual basis, or more frequently as facts and circumstances warrant. The expected loss rates are adjusted on a quarterly basis based on historical loss trends and are risk-adjusted for current and future economic conditions and events. As summarized in the table below, based on the changes in the agreements with the Investors in Fiscal 2021, there is currently one vintage year since the Company began maintaining new accounts.

The following table disaggregates the Company’s customer in-house finance receivables by credit quality and vintage year as of October 31, 2020:


(in millions)	Year of origination
Credit quality	Fiscal 2021
Near Prime	$	26.4
Subprime	21.8
Deep Subprime	6.0
Total at amortized cost	$	54.2

In estimating its allowance for credit losses, for each identified risk category, management utilized estimation methods based primarily on historical loss experience, current conditions, and other relevant factors. These methods utilize historical charge-off data of the Company’s non-prime portfolio, as well as incorporate any applicable macroeconomic variables (such as unemployment) that may be expected to impact credit performance. In addition to the quantitative estimate of expected credit losses under CECL using the historical loss information, the Company also incorporates qualitative adjustments for certain factors such as Company specific risks, changes in current economic conditions that may not be captured in the quantitatively derived results, or other relevant factors to ensure the allowance for credit losses reflects the Company’s best estimate of current expected credit losses. Management considered qualitative factors such as the unfavorable macroeconomic conditions caused by the COVID-19 uncertainty (including rates of unemployment), the Company’s non-prime portfolio performance during the prior recession, and the potential impacts of the economic stimulus packages in the US, in developing its estimate for current expected credit losses for the current period.

The following table is a rollforward of the Company’s allowance for credit losses on customer in-house finance receivables:


(in millions)
Balance at February 1, 2020	$	—
Provision for credit losses	14.6
Write-offs	—
Recoveries	—
Balance at October 31, 2020	$	14.6

Beginning in the second quarter, in connection with the new agreements executed with the Investors, additions to the allowance for credit losses are made by recording charges to bad debt expense (credit losses) within selling, general and administrative expenses within the condensed consolidated statements of operations. The uncollectible portion of customer in-house finance receivables are charged to the allowance for credit losses when an account is written-off after 180 days of non-payment, or in circumstances such as bankrupt or deceased cardholders. Write-offs on customer in-house finance receivables include uncollected amounts related to principal, interest, and late fees. Recoveries on customer in-house finance receivables previously written-off as uncollectible are credited to the allowance for credit losses.

A credit card account is contractually past due if the Company does not receive the minimum payment by the specified due date on the cardholder’s statement. It is the Company’s policy to continue to accrue interest and fee income on all credit card accounts, except in

limited circumstances, until the credit card account balance and all related interest and other fees are paid or charged-off, typically at 180 days delinquent, as noted above.

The following table disaggregates the Company’s customer in-house finance receivables by past due status as of October 31, 2020:


(in millions)
Current	$	47.6
1 - 30 days past due	4.0
31 - 60 days past due	1.5
61 - 90 days past due	0.7
Greater than 90 days past due	0.4
Total at amortized cost	$	54.2

Accrued interest is included within the same line item as the respective principal amount of the customer in-house finance receivables in the condensed consolidated balance sheets. The accrual of interest is discontinued at the time the receivable is determined to be uncollectible and written-off. Accrued interest during the 13 and 39 weeks ended October 31, 2020 was immaterial.