UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): December 6, 2018
SIGNET
JEWELERS LIMITED
(Exact
name of registrant as specified in its charter)
Commission
File Number: 1-32349
Bermuda |
|
Not Applicable |
(State or other jurisdiction of incorporation) |
|
(IRS Employer Identification No.) |
Clarendon House
2
Church Street
Hamilton
HM11
Bermuda
(Address
of principal executive offices, including zip code)
(441)
296 5872
(Registrant's
telephone number, including area code)
(Former
name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
⃞ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
⃞ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
⃞ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
⃞ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company ⃞
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ⃞
Item 2.02. Results of Operations and Financial Condition
On December 6, 2018, Signet Jewelers Limited issued a press release announcing its unaudited earnings and results of operations for the third quarter ended November 3, 2018. A copy of the press release is attached hereto as Exhibit 99.1 to this Form 8-K.
The information in this Current Report on Form 8-K is being furnished pursuant to Item 2.02 Results of Operations and Financial Condition. In accordance with General Instruction B.2 of Form 8-K, the information in this report shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly stated by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits
(d) | Exhibits |
Exhibit |
|
Number |
Description |
99.1 |
Press Release of Signet Jewelers Limited, dated December 6, 2018 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SIGNET JEWELERS LIMITED |
|||
Date: |
December 6, 2018 |
|
|
|
|
By: |
/s/ Michele Santana |
Name: |
Michele Santana |
||
Title: |
Chief Financial Officer |
EXHIBIT INDEX
Exhibit Number |
Description |
Press Release of Signet Jewelers Limited, dated December 6, 2018 |
Exhibit 99.1
Signet Jewelers Reports Third Quarter Fiscal 2019 Financial Results
HAMILTON, Bermuda--(BUSINESS WIRE)--December 6, 2018--Signet Jewelers Limited (“Signet”) (NYSE:SIG), the world's largest retailer of diamond jewelry, today announced its results for the 13 weeks ended November 3, 2018 (“third quarter Fiscal 2019”).
Summary:
Fiscal |
Fiscal |
YTD Fiscal |
YTD Fiscal |
|||||||||||||
Revenue ($ in millions) | $ | 1,191.7 | $ | 1,156.9 | $ | 4,092.4 | $ | 3,959.9 | ||||||||
Same store sales % change1,4 | 1.6 | % | (5.0 | )% | 1.0 | % | (5.4 | )% | ||||||||
GAAP | ||||||||||||||||
Operating income (loss) as % of sales | (4.1 | )% | 0.5 | % | (16.6 | )% | 6.5 | % | ||||||||
GAAP Diluted EPS | $ | (0.74 | ) | $ | (0.20 | ) | $ | (10.31 | ) | $ | 2.24 | |||||
Non-GAAP(2) | ||||||||||||||||
Operating income (loss) as % of sales | (3.3 | )% | 0.5 | % | 0.8 | % | 6.5 | % | ||||||||
Non-GAAP Diluted EPS | $ | (1.06 | ) | $ | (0.20 | ) | $ | (0.35 | ) | $ | 2.24 |
(1) | Fiscal Q3'19 and year to date Fiscal 2019 same store sales % change calculated by aligning weeks in the quarter to same weeks in prior year. | |
(2) | See non-GAAP reconciliation page. | |
(3) | Fiscal Q3'18 and year to date Fiscal 2018 numbers are as reported with Q3'18 same store sales % change based on Fiscal 2018 calendar. | |
(4) | Same store sales include physical store sales and eCommerce sales, which each incorporate the year over year growth of James Allen. | |
Virginia C. Drosos, Chief Executive Officer, commented, “In the third quarter, we delivered positive same store sales growth, with a return to positive same store sales in our Kay banner, further momentum at Piercing Pagoda and Zales, and double-digit increases in eCommerce sales."
"As we enter the holiday season, amid a highly competitive market and with key selling weeks ahead, we are keenly focused on delivering on our holiday plans and implementing the beginning stages of our transformation initiatives in our stores and on our websites. While still early, we believe the initiatives underway will serve as a foundation for our future efforts as we move along our transformation journey."
Change from previous year | |||||||||||||||||||||||||||
Third Quarter Fiscal 2019 |
Same |
Non-same |
Total sales |
Exchange translation impact |
Total |
Total |
|||||||||||||||||||||
Kay | 0.7 | % | 2.7 | % | 3.4 | % | na | 3.4 | % | $ | 451.2 | ||||||||||||||||
Zales | 2.8 | % | 0.4 |
% |
3.2 | % | na | 3.2 | % | $ | 222.7 | ||||||||||||||||
Jared | — |
% |
|
1.1 |
% |
1.1 | % | na | 1.1 | % | $ | 220.5 | |||||||||||||||
Piercing Pagoda | 16.2 | % |
(5.4 |
) |
% |
10.8 | % | na | 10.8 | % | $ | 61.4 | |||||||||||||||
James Allen(2) | 13.6 | % | $ | 52.5 | |||||||||||||||||||||||
Peoples | 0.3 | % |
(2.0 |
) |
% |
(1.7 |
) |
% |
(4.2 | )% |
(5.9 |
) |
% |
$ | 39.8 | ||||||||||||
Regional banners (3) |
(13.7 |
) |
% |
(33.7 |
) |
% |
(47.4 |
) |
% |
(0.2 | )% |
(47.6 |
) |
% |
$ | 16.2 | |||||||||||
North America segment | 2.1 | % | 2.2 | % | 4.3 | % | (0.2 | )% | 4.1 | % | $ | 1,064.3 | |||||||||||||||
H.Samuel |
(3.5 |
) |
% |
(1.9 |
) |
% |
(5.4 |
) |
% |
(1.3 | )% |
(6.7 |
) |
% |
$ | 57.4 | |||||||||||
Ernest Jones |
(2.8 |
) |
% |
(0.2 |
) |
% |
(3.0 |
) |
% |
(1.3 | )% |
(4.3 |
) |
% |
$ | 63.9 | |||||||||||
International segment |
(3.1 |
) |
% |
(1.1 |
) |
% |
(4.2 |
) |
% |
(1.3 | )% |
(5.5 |
) |
% |
$ | 121.3 | |||||||||||
Other(4) | $ | 6.1 | |||||||||||||||||||||||||
Signet | 1.6 | % | 1.7 | % | 3.3 | % | (0.3 | )% | 3.0 | % | $ | 1,191.7 | |||||||||||||||
(1) | The 53rd week in Fiscal 2018 has resulted in a shift in Fiscal 2019, as the fiscal year began a week later than the previous fiscal year. As such, same store sales for Fiscal 2019 are being calculated by aligning the weeks of the quarter to the same weeks in the prior year. Total reported sales continue to be calculated based on the reported fiscal periods. | |||
(2) | Same store sales presented for James Allen to provide comparative performance measure. | |||
(3) | Regional banners represents results for regional stores presented in the prior year as part of the former Sterling Jewelers and Zale Jewelry segments (including Gordon’s and Mappins). | |||
(4) | Includes sales from Signet’s diamond sourcing initiative. |
Third quarter Fiscal 2019 | Third quarter Fiscal 2018 | |||||||||||||||||
GAAP Operating income/(loss) in millions | $ | % of sales | $ | % of sales | ||||||||||||||
North America segment | $ |
(19.5 |
) |
|
(1.8 |
) |
% |
$ | 53.8 | 5.3 | % | |||||||
International segment |
(4.4 |
) |
|
(3.6 |
) |
% |
(1.7 |
) |
|
(1.3 |
) |
% |
||||||
Other |
(24.9 |
) |
|
nm |
(46.6 |
) |
|
nm | ||||||||||
Total GAAP operating income / (loss) | $ |
(48.8 |
) |
|
(4.1 |
) |
% |
$ | 5.5 | 0.5 | % | |||||||
Third quarter Fiscal 2019 | Third quarter Fiscal 2018 | |||||||||||||||||
Non-GAAP Operating income/(loss) in millions | $ | % of sales | $ | % of sales | ||||||||||||||
North America segment | $ |
(19.5 |
) |
|
(1.8 |
) |
% |
$ | 53.8 | 5.3 | % | |||||||
International segment |
(4.4 |
) |
|
(3.6 |
) |
% |
(1.7 |
) |
|
(1.3 |
) |
% |
||||||
Other |
(15.0 |
) |
|
nm |
(46.6 |
) |
|
nm | ||||||||||
Total Non-GAAP operating income / (loss) | $ |
(38.9 |
) |
|
(3.3 |
) |
% |
$ | 5.5 | 0.5 | % | |||||||
Third Quarter 2019 Financial Highlights
Signet's total sales were $1.19 billion, up 3.0%, in the 13 weeks ended November 3, 2018 on a reported basis and up 3.3% from the prior year quarter on a constant currency basis. Total same store sales performance was 1.6% versus the prior year quarter, inclusive of a 75 bps unfavorable impact due to planned shifts in timing of promotions at Zales and Peoples. Same store sales also reflected a 50 bps unfavorable impact related to a timing shift of service plan revenue recognized as a result of the historical claims experience shifting away from the earlier years of the service plans to later years of the coverage period. Incremental clearance sales to make room for new product as we refocus our assortment had a positive impact on same store sales of 165 bps. Transition issues related to the October 2017 credit outsourcing had an immaterial impact on same store sales in the third quarter.
The increase in total sales of $34.8 million from the prior year quarter was positively impacted by 1) same store sales growth; 2) new revenue recognition accounting standards; and 3) the addition of James Allen (acquired in September 2017). These factors were partially offset by net store closures, the negative impact of a calendar shift due to the 53rd week in Fiscal 2018 and unfavorable foreign exchange translation.
eCommerce sales in the third quarter including James Allen were $125.0 million, up 54.9% on a reported basis. James Allen sales were $52.5 million in the quarter, up 13.6% compared to the prior year quarter, and had a positive 50 bps impact on total company same store sales. eCommerce sales increased across all segments and accounted for 10.5% of third quarter sales, up from 7.0% of total sales in the prior year third quarter.
By operating segment:
North America
International
Gross margin was $371.2 million, or 31.1% of sales, up 330 basis points. Factors impacting gross margin rate include 1) a positive 350 bps impact related to no longer recognizing bad debt expense and late charge income; 2) a negative 40 bps impact related to the discontinuation of credit insurance; 3) a negative 30 bps impact related to James Allen, which carries a lower gross margin rate; 4) a negative 30 bps impact related to a timing shift of revenue recognized on service plans; and 5) a positive 20 bps impact related to adopting new revenue recognition accounting standards, including higher revenue share payments associated with the prime credit outsourcing arrangement. The residual factors impacting gross margin include unfavorable mix including higher clearance inventory sales offset by transformation cost savings and lower store occupancy costs due to store closures.
SGA was $410.3 million, or 34.4% of sales, compared to $375.9 million, or 32.5% of sales in the prior year. Prior year SGA included $8.1 million in transaction costs related to the acquisition of R2Net. SGA increased primarily due to 1) a $26 million increase in credit costs related to the transition to an outsourced credit model; 2) a $16 million increase in advertising expense; and 3) a $5 million increase in incentive compensation expense. Increases in SGA were partially offset by transformation cost savings, net of investments.
Other operating income was $0.2 million compared to $72.5 million in the prior year third quarter. The decrease is primarily due to the sale of the prime accounts receivable in the third quarter of Fiscal 2018, which resulted in less interest income earned from a reduced receivable portfolio.
In the third quarter, Signet's GAAP operating income/(loss) was $(48.8) million or (4.1)% of sales, compared to $5.5 million, or 0.5% of sales in the prior year third quarter. The operating income margin decline was driven by a $46 million unfavorable impact related to the outsourcing of credit, unfavorable banner mix, higher advertising, the unfavorable impact of the timing shift on revenue recognized on service plans, higher incentive compensation expense and $9.5 million in restructuring charges due to store closure costs, severance and professional fees related to the Path to Brilliance transformation plan. These declines were partially offset by transformation cost savings.
Non-GAAP operating loss was $(38.9) million, or (3.3)% of sales, compared to $5.5 million, or 0.5% of sales in prior year third quarter. Non-GAAP operating loss excluded $9.5 million in restructuring charges related to the Path to Brilliance transformation plan and $0.4 million in transaction costs related to the non-prime credit outsourcing.
Income tax benefit was $29.2 million compared to income tax benefit of $7.2 million in the prior year third quarter. The current quarter GAAP effective tax rate was driven primarily by pre-tax earnings mix by jurisdiction in the quarter. On a non-GAAP basis, income tax benefit was $2.8 million for an effective tax rate of 5.7%, driven by pre-tax earnings mix by jurisdiction.
GAAP diluted earnings per share ("EPS") of $(0.74) includes an income tax benefit recognized in connection with the charges associated with the Path to Brilliance transformation plan and transaction costs related to the sale of non-prime receivables. Using a normalized effective tax rate, our non-GAAP loss per share was ($1.06).
GAAP and non-GAAP EPS in the quarter is based on net loss available to common shareholders as the preferred shares are anti-dilutive and excluded from the ending share count due to the level of third quarter net loss.
Balance Sheet and Statement of Cash Flows
Net cash provided by operating activities was $313.5 million year to date and free cash flow was $220.1 million, including $445.5 million in proceeds from the sale of the non-prime receivables. Excluding these proceeds, adjusted year to date free cash flow was $(225.4) million. Cash and cash equivalents were $130.7 million, compared to $113.4 million at the prior year quarter-end.
Net accounts receivable, including accounts receivable held for sale, were $14.1 million as of November 3, 2018, compared to $640.1 million at the prior year quarter-end. The decrease in receivables was primarily driven by the sale of the non-prime portfolios.
Net inventories were $2.65 billion, up 7.3% compared to $2.47 billion at the prior year quarter-end. Our inventory balance reflects our strategy to exit low-priced owned branded beads and increase investments in bridal and certain fashion collections. The increase in inventory was primarily due to investments in bridal merchandise, particularly at Kay, as well as new on-trend designs in fashion. The bridal investments include an increase in larger carat weight and premium diamonds and fancy shapes as well as core assortment including branded collections.
Short-term debt was $322.6 million, an increase of $30.8 million, compared to $291.8 million in the prior year quarter end. Current year quarter short-term debt includes $282 million of revolver borrowings. Prior year short-term debt included $256 million in borrowings on the revolver. Long-term debt was $660.4 million, down $36.4 million, compared to $696.8 million in the prior year quarter end.
Fiscal year to date, Signet has repurchased 8.8 million shares at an average cost per share of $55.06 or $485 million. As of November 3, 2018, there was $165.6 million remaining under Signet’s share repurchase authorization.
Signet Path to Brilliance Expected Savings and Restructuring Costs
In March of 2018, the Company announced a three-year Signet Path to Brilliance transformation plan to reposition the Company to be a share gaining, OmniChannel jewelry category leader. The Company continues to expect its transformation plan to deliver $200 million - $225 million of net cost savings over the next three fiscal years. The Company's estimates for pre-tax charges over the next three fiscal years is a range of $170 million - $190 million, of which $80 million - $95 million are expected to be cash charges.
In Fiscal 2019, the Company expects net costs savings of $85 million - $100 million, with further incremental net cost savings of $115 million - $125 million by the end of the three-year program. Approximately two thirds of the Fiscal 2019 cost savings have been achieved year to date. In Fiscal 2019, the Company's preliminary estimates for pre-tax charges related to cost reduction activities and inventory charges ranges from $129 million - $134 million, of which $40 million - $45 million are expected to be cash charges.
Fiscal 2019 Financial Guidance |
||||
Fiscal 2019 | Current Guidance | Prior Guidance | ||
Same store sales (excludes impact of |
flat - up 1.0% | down 1.5% - flat | ||
Total sales | $6.26 billion - $6.31 billion | $6.2 billion - $6.3 billion | ||
GAAP diluted EPS | $(7.40) - $(7.07) | $(7.47) - $(7.09) | ||
Non-GAAP diluted EPS | $4.15 - $4.40 | $4.05 - $4.40 | ||
Weighted average common shares - basic | 55 million | 55 million | ||
Weighted average common shares - diluted | 62 million | 62 million | ||
Capital expenditures | $165 million - $185 million | $165 million - $185 million | ||
Net selling square footage | Approximately -5% | -4% - -5% | ||
The above current Fiscal 2019 GAAP guidance reflects the following assumptions:
Non-GAAP EPS guidance of $4.15 - $4.40 excludes restructuring charges associated with the transformation plan, the loss associated with the sale of the non-prime receivables and the goodwill and intangible impairment charge. Non-GAAP EPS is computed using a normalized tax rate of approximately 3% - 4%. The revaluation of deferred tax assets associated with the United States tax reform may result in discrete adjustments within subsequent quarters which are excluded from the calculation of non-GAAP EPS in Fiscal 2019.
Fourth Quarter Fiscal 2019 Financial Guidance: |
|||
Fourth Quarter Fiscal 2019 | |||
Same store sales (excludes impact of revenue recognition accounting |
down 1.5% - up 1.0% | ||
Total sales | $2.17 billion - $2.22 billion | ||
GAAP diluted EPS | $ | 3.02 - $3.33 | |
Non-GAAP diluted EPS | $ | 4.35 - $4.59 | |
Weighted average common shares - diluted | 58.9 million | ||
The above fourth quarter Fiscal 2019 GAAP guidance reflects the following assumptions:
Non-GAAP EPS guidance of $4.35 - $4.59 excludes restructuring charges associated with the transformation. Non-GAAP EPS is computed using a normalized tax rate of approximately 3% - 4%. The revaluation of deferred tax assets associated with the United States tax reform may result in discrete adjustments within subsequent quarters which are excluded from the calculation of non-GAAP EPS in Fiscal 2019.
Conference Call:
A conference call is scheduled today at 8:30 a.m. ET and a simultaneous audio webcast is available at www.signetjewelers.com. The call details are:
Toll Free Dial-in: 833-245-9657
International Dial-in: +1 647-689-4229
Access code: 8682929
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.
Holiday Sales Press Release Timing:
Signet Jewelers intends to announce its holiday sales results via a press release before market open on Thursday, January 17, 2019. In light of the 53rd week in Fiscal 2018, this holiday release will be distributed one week later versus prior year. As previously announced, the company will not be hosting a holiday sales results conference call.
About Signet and Safe Harbor Statement:
Signet Jewelers Limited is the world's largest retailer of diamond jewelry. Signet operates nearly 3,500 stores primarily under the name brands of Kay Jewelers, Zales, Jared The Galleria Of Jewelry, H.Samuel, Ernest Jones, Peoples, Piercing Pagoda, and JamesAllen.com. 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, www.pagoda.com, and www.jamesallen.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, our ability to implement Signet's transformation initiative, the effect of US federal tax reform and adjustments relating to such impact on the completion of our quarterly and year-end financial statements, changes in interpretation or assumptions, and/or updated regulatory guidance regarding the US federal tax reform, the benefits and outsourcing of the credit portfolio sale including technology disruptions, future financial results and operating results, the impact of weather-related incidents on Signet’s business, the benefits and integration of R2Net, general economic conditions, potential regulatory changes or other developments following the United Kingdom’s announced intention to negotiate a formal 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 banners, 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, the development and maintenance of Signet’s omni-channel retailing, 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, an adverse decision in legal or regulatory proceedings, deterioration in the performance of individual businesses or of the Company's market value relative to its book value, resulting in impairments of fixed assets or intangible assets or other adverse financial consequences, including tax consequences related thereto, especially in view of the Company’s recent market valuation 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 2018 Annual Report on Form 10-K filed with the SEC on April 2, 2018 and quarterly reports on Form 10-Q filed with the SEC. Signet undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.
GAAP to Non-GAAP Reconciliations
The following information provides reconciliations of the most comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”) to presented non-GAAP financial measures. The company believes that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating historical trends and current period performance. For these reasons, internal management reporting also includes non-GAAP measures. Items may be excluded from GAAP financial measures when the company believes this provides greater clarity to management and investors.
These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for the GAAP financial measures presented in this earnings release and the Company’s financial statements and other publicly filed reports. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies.
In discussing financial results, the Company refers to free cash flow which is not in accordance with GAAP and is defined as the net cash provided by operating activities less purchases of property, plant and equipment. Management considers adjusted free cash flow, defined as free cash flow excluding proceeds from the sale of the non-prime receivables, as helpful in understanding how the business is generating cash from its operating and investing activities that can be used to meet the financing needs of the business. Adjusted free cash flow is an indicator used by management frequently in evaluating its overall liquidity and determining appropriate capital allocation strategies. Free cash flow and adjusted free cash flow do not represent the residual cash flow available for discretionary expenditure.
39 weeks ended | ||||||||||||||||||||||||||||
(in millions) | November 3, 2018 | October 28, 2017 | ||||||||||||||||||||||||||
Net cash provided by operating activities | $313.5 | $1,482.3 | ||||||||||||||||||||||||||
Purchase of property, plant and equipment | (93.4 | ) | (166.1 | ) | ||||||||||||||||||||||||
Free cash flow | $220.1 | $1,316.2 | ||||||||||||||||||||||||||
39 weeks ended | ||||||||||||||||||||||||||||
(in millions) | November 3, 2018 | October 28, 2017 | ||||||||||||||||||||||||||
Free cash flow | $220.1 | $1,316.2 | ||||||||||||||||||||||||||
Proceeds from sale of prime receivables | — | (960.2 | ) | |||||||||||||||||||||||||
Proceeds from sale of non-prime receivables | (445.5 | ) | — | |||||||||||||||||||||||||
Adjusted free cash flow | $(225.4 | ) | $356.0 | |||||||||||||||||||||||||
13 weeks ended | 39 weeks ended | |||||||||||||||||||||||||||
November 3, 2018 | October 28, 2017 | November 3, 2018 | October 28, 2017 | |||||||||||||||||||||||||
Gross margin | $371.2 | $321.1 | $1,283.0 | $1,270.2 | ||||||||||||||||||||||||
Restructuring charges - cost of sales | — | — | 63.2 | — | ||||||||||||||||||||||||
Non-GAAP gross margin | $371.2 | $321.1 | $1,346.2 | $1,270.2 | ||||||||||||||||||||||||
13 weeks ended | 39 weeks ended | |||||||||||||||||||||||||||
November 3, 2018 | October 28, 2017 | November 3, 2018 | October 28, 2017 | |||||||||||||||||||||||||
Total GAAP operating income/ (loss) | $(48.8 | ) | $5.5 | $(681.1 | ) | $256.4 | ||||||||||||||||||||||
Charges related to transformation plan | 9.5 | — | 98.8 | — | ||||||||||||||||||||||||
Loss related to goodwill and intangible impairment | — | — | 448.7 | — | ||||||||||||||||||||||||
Loss related to sale of non-prime receivables | 0.4 | — | 167.4 | — | ||||||||||||||||||||||||
Total non-GAAP operating income / (loss) | $(38.9 | ) | $5.5 | $33.8 | $256.4 | |||||||||||||||||||||||
13 weeks ended |
39 weeks ended |
|||||||||||||||||||||||||||
November 3, 2018 | October 28, 2017 | November 3, 2018 | October 28, 2017 | |||||||||||||||||||||||||
North America segment GAAP operating income / |
$(19.5 | ) | $53.8 | $(561.0 | ) | $350.2 | ||||||||||||||||||||||
Charges related to transformation plan | — | — |
53.7 |
— | ||||||||||||||||||||||||
Loss related to goodwill and intangible impairment | — | — | 448.7 | — | ||||||||||||||||||||||||
Loss related to sale of non-prime receivables | — | — | 160.4 | — | ||||||||||||||||||||||||
North America segment non-GAAP operating income |
$(19.5 | ) | $53.8 | $101.8 | $350.2 | |||||||||||||||||||||||
13 weeks ended | 39 weeks ended | |||||||||||||||||||||||||||
November 3, 2018 | October 28, 2017 | November 3, 2018 | October 28, 2017 | |||||||||||||||||||||||||
International segment GAAP operating income / |
$(4.4 | ) | $(1.7 | ) | $(18.1 | ) | $(1.9 | ) | ||||||||||||||||||||
Charges related to transformation plan | — | — | 3.8 | — | ||||||||||||||||||||||||
International segment non-GAAP operating income / |
$(4.4 | ) | $(1.7 | ) | $(14.3 | ) | $(1.9 | ) | ||||||||||||||||||||
13 weeks ended | 39 weeks ended | |||||||||||||||||||||||||||
November 3, 2018 | October 28, 2017 | November 3, 2018 | October 28, 2017 | |||||||||||||||||||||||||
Other segment GAAP operating income / (loss) | $(24.9 | ) | $(46.6 | ) | $(102.0 | ) | $(91.9 | ) | ||||||||||||||||||||
Charges related to transformation plan | 9.5 | — | 41.3 | — | ||||||||||||||||||||||||
Loss related to sale of non-prime receivables | 0.4 | — | 7.0 | — | ||||||||||||||||||||||||
Other segment non-GAAP operating income / (loss) | $(15.0 | ) | $(46.6 | ) | $(53.7 | ) | $(91.9 | ) | ||||||||||||||||||||
13 weeks ended |
|
|||||||||||||||||||||||||||
November 3, 2018 | October 28, 2017 |
|
|
|||||||||||||||||||||||||
GAAP effective tax rate | 49.4 | % | 64.9 | % | ||||||||||||||||||||||||
Charges related to transformation plan | (4.0 | )% | — | |||||||||||||||||||||||||
Loss related to sale of non-prime receivables | (0.2 | )% | — | |||||||||||||||||||||||||
GAAP quarterly impact of annual tax benefit1 | (39.5 | )% | — | |||||||||||||||||||||||||
Non-GAAP effective tax rate | 5.7 | % | 64.9 | % | ||||||||||||||||||||||||
13 weeks ended |
|
|||||||||||||||||||||||||||
November 3, 2018 | October 28, 2017 |
|
|
|||||||||||||||||||||||||
GAAP Diluted EPS | $(0.74 | ) | $(0.20 | ) |
|
|
|
|
||||||||||||||||||||
Charges related to transformation plan1 | 0.14 | — | ||||||||||||||||||||||||||
Loss related to sale of non-prime receivables1 | 0.01 | — | ||||||||||||||||||||||||||
GAAP quarterly impact of annual tax benefit1 | (0.47 | ) |
— |
|||||||||||||||||||||||||
Non-GAAP Diluted EPS | $(1.06 | ) | $(0.20 | ) |
|
|
|
|
||||||||||||||||||||
Fiscal Q4'19 |
Fiscal Q4'19 |
|||||||||||||||||||||||||||
Q4 GAAP Diluted EPS | $3.02 | $3.33 | ||||||||||||||||||||||||||
Charges related to transformation plan1 | 0.48 | 0.41 | ||||||||||||||||||||||||||
GAAP quarterly impact of annual tax benefit1 | 0.85 | 0.85 | ||||||||||||||||||||||||||
Q4 Non-GAAP Diluted EPS | $4.35 | $4.59 | ||||||||||||||||||||||||||
Fiscal 2019 |
Fiscal 2019 |
|||||||||||||||||||||||||||
2019 GAAP Diluted EPS | $(7.40 | ) | $(7.07 | ) | ||||||||||||||||||||||||
Charges related to transformation plan1 | 1.90 | 1.83 | ||||||||||||||||||||||||||
Loss related to goodwill and intangible impairment1 | 7.59 | 7.56 | ||||||||||||||||||||||||||
Loss related to sale of non-prime receivables1 | 2.06 | 2.08 | ||||||||||||||||||||||||||
2019 Non-GAAP Diluted EPS | $4.15 | $4.40 |
1Reconciliation of GAAP and non-GAAP charges and losses includes related tax impact.
Additional Information Regarding Credit Outsourcing
From a financial perspective, Signet received nearly $1.4 billion due to the combined sale of its prime and non-prime receivables portfolios. While the outsourcing of our credit portfolio lowers our operating profit, it also lowers share count and interest expense as proceeds from the sale transactions have been used to pay down debt and repurchase shares. Additionally, the transactions result in lower working capital requirements going forward as Signet has no need for funding accounts receivable for future sales to its prime customers and will only hold non-prime receivables temporarily for two business days.
From an earnings perspective, after the prime and non-prime portfolio of receivables were reclassified to held for sale and subsequently sold, Signet no longer earns finance or late charge income on those accounts and no longer incurs bad debt expense. Signet will continue to pay some minimal fees directly to Genesis for new account originations, while all other servicing costs are included in the discount on forward receivables sold to investment funds managed by CarVal and Castlelake. The discount on forward receivables will be partially offset by the elimination of the costs related to our former in-house credit operations.
In Fiscal 2018 there was a reduction in operating income of $21 million in the fourth quarter solely reflecting the impact of the initial credit outsourcing of prime receivables to ADS and servicing of non-prime receivables to Genesis. Our Fiscal 2019 non-GAAP guidance embeds an approximately $152 - $156 million incremental year-over-year reduction in operating income reflecting a combination of (1) an additional 8 months of impacts of the prime outsourcing; (2) 2 months of servicing costs on the non-prime portfolio receivables; and (3) 7 months of the impacts from the future discount rate associated with new credit sales that investment funds managed by CarVal Investors and Castlelake will purchase. For Fiscal 2020, we expect a zero - $5 million positive year-over-year impact on operating income. The 2020 estimate is based on a contractual step up in revenue share profit percentage associated with the prime outsourcing and an assumed discount rate for the CarVal and Castlelake arrangement, and could change if the discount rate were to reset higher or lower under certain review provisions in the agreement.
(in millions) | Fiscal 2018 | Fiscal 2019E | Fiscal 2020E | |||||||||
Operating profit impact | $ | 18 | $ | (134 | )-$(138) | $ | (129 | )-$(138) | ||||
Operating profit impact year-over-year change | $ | (21 | ) | $ | (152 | )-$(156) | $ | 0-$5 | ||||
Proceeds from sale of prime and non-prime receivables | $ | 952 | $ | 445.5 | — |
Note: Proceeds are shown pre-transaction costs. Estimated operating profit impact is based on anticipated levels of credit sales and accounts receivable. |
(in millions) | Fiscal Q1'19 | Fiscal Q2'19 | Fiscal Q3'19 | Fiscal Q4'19 | ||||||||||||
Operating profit impact year over year change | $ | (69 | ) | $ | (39 | ) | $ | (46 | ) | $ | 2-$(2 | ) |
Note: Q4 estimated operating profit impact is based on anticipated levels of credit sales and accounts receivable. |
Condensed Consolidated Income Statements (Unaudited) |
||||||||||||||||
13 weeks ended | 39 weeks ended | |||||||||||||||
(in millions, except per share amounts) |
November 3, |
October 28, |
November 3, |
October 28, |
||||||||||||
Sales | $ | 1,191.7 | $ | 1,156.9 | $ | 4,092.4 | $ | 3,959.9 | ||||||||
Cost of sales | (820.5 | ) | (835.8 | ) | (2,746.2 | ) | (2,689.7 | ) | ||||||||
Restructuring charges - cost of sales | — | — | (63.2 | ) | — | |||||||||||
Gross margin | 371.2 | 321.1 | 1,283.0 | 1,270.2 | ||||||||||||
Selling, general and administrative expenses | (410.3 | ) | (375.9 | ) | (1,337.9 | ) | (1,237.7 | ) | ||||||||
Credit transaction, net | (0.4 | ) | (12.2 | ) | (167.4 | ) | 2.6 | |||||||||
Restructuring charges | (9.5 | ) | — | (35.6 | ) | — | ||||||||||
Goodwill and intangible impairments | — | — | (448.7 | ) | — | |||||||||||
Other operating income, net | 0.2 | 72.5 | 25.5 | 221.3 | ||||||||||||
Operating income (loss) | (48.8 | ) | 5.5 | (681.1 | ) | 256.4 | ||||||||||
Interest expense, net | (10.6 | ) | (16.6 | ) | (28.9 | ) | (42.7 | ) | ||||||||
Other non-operating income | 0.3 | — | 1.4 | — | ||||||||||||
Income (loss) before income taxes | (59.1 | ) | (11.1 | ) | (708.6 | ) | 213.7 | |||||||||
Income taxes | 29.2 | 7.2 | 159.1 | (45.7 | ) | |||||||||||
Net income (loss) | $ | (29.9 | ) | $ | (3.9 | ) | $ | (549.5 | ) | $ | 168.0 | |||||
Dividends on redeemable convertible preferred shares | (8.2 | ) | (8.2 | ) | (24.6 | ) | (24.6 | ) | ||||||||
Net income (loss) attributable to common shareholders | $ | (38.1 | ) | $ | (12.1 | ) | $ | (574.1 | ) | $ | 143.4 | |||||
Earnings (loss) per common share: | ||||||||||||||||
Basic | $ | (0.74 | ) | $ | (0.20 | ) | $ | (10.31 | ) | $ | 2.24 | |||||
Diluted | $ | (0.74 | ) | $ | (0.20 | ) | $ | (10.31 | ) | $ | 2.24 | |||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 51.5 | 60.1 | 55.7 | 64.0 | ||||||||||||
Diluted | 51.5 | 60.1 | 55.7 | 64.1 | ||||||||||||
Dividends declared per common share | $ | 0.37 | $ | 0.31 | $ | 1.11 | $ | 0.93 | ||||||||
Condensed Consolidated Balance Sheets (Unaudited) |
||||||||||||
(in millions, except par value per share amount) |
November 3, |
February 3, |
October 28, |
|||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | $ | 130.7 | $ | 225.1 | $ | 113.4 | ||||||
Accounts receivable, held for sale | 4.8 | — | — | |||||||||
Accounts receivable, net | 9.3 | 692.5 | 640.1 | |||||||||
Other receivables | 58.3 | 87.2 | 80.3 | |||||||||
Other current assets | 159.9 | 158.2 | 145.0 | |||||||||
Income taxes | — | 2.6 | 17.3 | |||||||||
Inventories | 2,647.1 | 2,280.5 | 2,466.1 | |||||||||
Total current assets | 3,010.1 | 3,446.1 | 3,462.2 | |||||||||
Non-current assets: | ||||||||||||
Property, plant and equipment, net of accumulated depreciation of
$1,283.4, |
810.4 | 877.9 | 855.1 | |||||||||
Goodwill | 509.0 | 821.7 | 867.1 | |||||||||
Intangible assets, net | 340.2 | 481.5 | 410.4 | |||||||||
Other assets | 168.6 | 171.2 | 169.1 | |||||||||
Deferred tax assets | 36.2 | 1.4 | 1.3 | |||||||||
Retirement benefit asset | 33.0 | 39.8 | 35.5 | |||||||||
Total assets | $ | 4,907.5 | $ | 5,839.6 | $ | 5,800.7 | ||||||
Liabilities and Shareholders’ equity | ||||||||||||
Current liabilities: | ||||||||||||
Loans and overdrafts |
$ | 322.6 | $ | 44.0 | $ | 291.8 | ||||||
Accounts payable | 339.6 | 237.0 | 324.9 | |||||||||
Accrued expenses and other current liabilities | 431.3 | 448.0 | 430.5 | |||||||||
Deferred revenue | 253.1 | 288.6 | 270.3 | |||||||||
Income taxes | 19.1 | 19.6 | — | |||||||||
Total current liabilities | 1,365.7 | 1,037.2 | 1,317.5 | |||||||||
Non-current liabilities: | ||||||||||||
Long-term debt | 660.4 | 688.2 | 696.8 | |||||||||
Other liabilities | 233.2 | 239.6 | 244.4 | |||||||||
Deferred revenue | 671.7 | 668.9 | 646.1 | |||||||||
Deferred tax liabilities | 12.7 | 92.3 | 143.8 | |||||||||
Total liabilities | 2,943.7 | 2,726.2 | 3,048.6 | |||||||||
Commitments and contingencies | ||||||||||||
Series A redeemable convertible preferred shares of $.01 par value: |
614.8 | 613.6 | 613.1 | |||||||||
Shareholders’ equity: | ||||||||||||
Common shares of $0.18 par value: authorized 500 shares, 51.9
shares |
15.7 | 15.7 | 15.7 | |||||||||
Additional paid-in capital | 294.2 | 290.2 | 285.6 | |||||||||
Other reserves | 0.4 | 0.4 | 0.4 | |||||||||
Treasury shares at cost: 35.3 shares (February 3, 2018: 26.7
shares; |
(2,418.0 | ) | (1,942.1 | ) | (1,945.2 | ) | ||||||
Retained earnings | 3,763.5 | 4,396.2 | 4,074.9 | |||||||||
Accumulated other comprehensive loss | (306.8 | ) | (260.6 | ) | (292.4 | ) | ||||||
Total shareholders’ equity | 1,349.0 | 2,499.8 | 2,139.0 | |||||||||
Total liabilities, redeemable convertible preferred shares and
shareholders’ |
$ | 4,907.5 | $ | 5,839.6 | $ | 5,800.7 | ||||||
Condensed Consolidated Statements of Cash Flows (Unaudited) |
||||||||
39 weeks ended | ||||||||
(in millions) |
November 3, |
October 28, |
||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | (549.5 | ) | $ | 168.0 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 138.4 | 147.1 | ||||||
Amortization of unfavorable leases and contracts | (5.9 | ) | (10.8 | ) | ||||
Pension benefit | (0.7 | ) | (3.6 | ) | ||||
Share-based compensation | 15.5 | 11.0 | ||||||
Deferred taxation | (113.2 | ) | 41.7 | |||||
Credit transaction, net | 160.4 | (30.9 | ) | |||||
Goodwill and intangible impairments | 448.7 | — | ||||||
Restructuring charges | 80.2 | — | ||||||
Amortization of debt discount and issuance costs | 1.5 | 3.2 | ||||||
Other non-cash movements | (4.1 | ) | 1.5 | |||||
Changes in operating assets and liabilities: | ||||||||
Decrease in accounts receivable held for investment | 37.6 | 286.1 | ||||||
Decrease in accounts receivable held for sale | 17.5 | — | ||||||
Proceeds from sale of in-house finance receivables | 445.5 | 960.2 | ||||||
Decrease in other assets and other receivables | 31.9 | 17.1 | ||||||
(Increase) decrease in inventories | (456.6 | ) | 4.6 | |||||
Increase in accounts payable | 106.5 | 39.7 | ||||||
Decrease in accrued expenses and other liabilities | (7.3 | ) | (5.4 | ) | ||||
Decrease in deferred revenue | (31.8 | ) | (29.5 | ) | ||||
Increase (decrease) in income taxes payable | 2.0 | (115.3 | ) | |||||
Pension plan contributions | (3.1 | ) | (2.4 | ) | ||||
Net cash provided by operating activities | 313.5 | 1,482.3 | ||||||
Investing activities | ||||||||
Purchase of property, plant and equipment | (93.4 | ) | (166.1 | ) | ||||
Proceeds from sale of assets | 5.5 | — | ||||||
Purchase of available-for-sale securities | (0.6 | ) | (1.7 | ) | ||||
Proceeds from sale of available-for-sale securities | 9.0 | 0.9 | ||||||
Acquisition of R2Net Inc., net of cash acquired | — | (332.4 | ) | |||||
Net cash used in investing activities | (79.5 | ) | (499.3 | ) | ||||
Financing activities | ||||||||
Dividends paid on common shares | (59.8 | ) | (57.7 | ) | ||||
Dividends paid on redeemable convertible preferred shares | (23.4 | ) | (26.9 | ) | ||||
Repurchase of common shares | (485.0 | ) | (460.0 | ) | ||||
Proceeds from term loans | — | 350.0 | ||||||
Repayments of term loans | (22.3 | ) | (365.7 | ) | ||||
Proceeds from securitization facility | — | 1,745.9 | ||||||
Repayments of securitization facility | — | (2,345.9 | ) | |||||
Proceeds from revolving credit facility | 698.0 | 605.0 | ||||||
Repayments of revolving credit facility | (416.0 | ) | (405.0 | ) | ||||
Repayments of bank overdrafts | (10.1 | ) | (5.9 | ) | ||||
Other financing activities | (2.1 | ) | (4.5 | ) | ||||
Net cash used in financing activities | (320.7 | ) | (970.7 | ) | ||||
Cash and cash equivalents at beginning of period | 225.1 | 98.7 | ||||||
(Decrease) increase in cash and cash equivalents | (86.7 | ) | 12.3 | |||||
Effect of exchange rate changes on cash and cash equivalents | (7.7 | ) | 2.4 | |||||
Cash and cash equivalents at end of period | $ | 130.7 | $ | 113.4 |
Real Estate Portfolio:
Signet has a diversified real estate portfolio. On November 3, 2018, Signet had 3,478 stores totaling 4.9 million square feet of selling space. In the third quarter, store count decreased by 15 and square feet of selling space decreased 0.3%. Compared to year end Fiscal 2018, store count decreased by 78 and square feet of selling space decreased 1.9%.
Store count by banner | February 3, 2018 | Openings | Closures |
November 3, 2018 |
|||||||
Kay | 1,247 | 30 | (31 | ) | 1,246 | ||||||
Zales | 704 | 3 | (24 | ) | 683 | ||||||
Peoples | 129 | 1 | (6 | ) | 124 | ||||||
Jared | 274 | 1 | (5 | ) | 270 | ||||||
Piercing Pagoda | 598 | — | (16 | ) | 582 | ||||||
Regional banners | 100 | — | (21 | ) | 79 | ||||||
North America segment | 3,052 | 35 | (103 | ) | 2,984 | ||||||
H.Samuel | 301 | — | (6 | ) | 295 | ||||||
Ernest Jones | 203 | 3 | (7 | ) | 199 | ||||||
International segment | 504 | 3 | (13 | ) | 494 | ||||||
Signet | 3,556 | 38 | (116 | ) | 3,478 | ||||||
CONTACT:
Investors:
Randi Abada
SVP Corporate Finance
Strategy & Investor Relations
+1-330-668-3489
randi.abada@signetjewelers.com
Media:
David Bouffard
VP Corporate Affairs
+1-330-668-5369
david.bouffard@signetjewelers.com