Accounts Receivable, Net

12 Months Ended

Feb. 03, 2018

Receivables [Abstract]

Accounts receivable, net

Credit transaction, net

In October 2017, Signet, through its subsidiary Sterling, completed the sale of the prime-only credit quality portion of Sterling’s in-house finance receivable portfolio to Comenity. The following events summarize the credit transaction:

Receivables reclassification: In the second quarter of Fiscal 2018, certain in-house finance receivables that met the criteria for sale to Comenity were reclassified from "held for investment" to "held for sale." Accordingly, the receivables were recorded at the lower of cost (par) or fair value, resulting in the reversal of the related allowance for credit losses of $20.7 million. This reversal was recorded in credit transaction, net in the consolidated income statement during the second quarter of Fiscal 2018.

Proceeds received: In October 2017, the Company received $952.5 million in cash consideration reflecting the par value of the receivables sold. In addition, the Company recognized a beneficial interest asset of $10.2 million representing the present value of the cash flows the Company expects to receive under the economic profit sharing agreement related to the receivables sold. The gain upon recognition of the beneficial interest asset was recorded in credit transaction, net in the consolidated income statement during the third quarter of Fiscal 2018.

Expenses: During Fiscal 2018, the Company incurred $29.6 million of transaction-related costs. These costs were recorded in credit transaction, net in the consolidated income statement during Fiscal 2018.

Asset-backed securitization facility termination: In October 2017, the Company terminated the asset-backed securitization facility in order to transfer the receivables free and clear. The asset-backed securitization facility had a principal balance outstanding of $600.0 million at the time of termination. The payoff was funded through the proceeds received from the par value of receivables sold. See Note 21 for additional information regarding the asset-backed securitization facility.

Program agreement: Comenity provides credit to prime-only credit quality customers with an initial term of seven years and, unless terminated by either party, additional renewal terms of two years. Under the Program Agreement, Comenity established a program to issue Sterling credit cards to be serviced, marketed and promoted in accordance with the terms of the agreement. Subject to limited exceptions, Comenity is the exclusive issuer of private label credit cards or an installment or other closed end loan product in the United States bearing specified Company trademarks, including “Kay”, “Jared” and specified regional brands, but excluding “Zale”, during the term of the agreement. The pre-existing arrangement with Comenity for the issuing of Zale credit cards was unaffected by the execution of the Program Agreement. Upon expiration or termination by either party of the Program Agreement, Sterling retains the option to purchase, or arrange the purchase by a third party of, the program assets from Comenity on terms that are no more onerous to Sterling than those applicable to Comenity under the Purchase Agreement, or in the case of a purchase by a third party, on customary terms. Additionally, the Company received a signing bonus, which may be repayable under certain conditions if the Program Agreement is terminated, and a right to receive future payments related to the performance of the credit program under an economic profit sharing agreement. The Program Agreement contains customary representations, warranties and covenants.

Additionally, Signet and Genesis Financial Solutions (“Genesis”) entered into a five-year servicing agreement in October 2017, under which Genesis will provide credit servicing functions for Signet’s existing non-prime accounts receivable, as well as future non-prime account originations.

During March 2018, the Company announced that it entered a definitive agreement with CarVal Investors (“CarVal”) to sell all eligible non-prime in-house accounts receivable. This agreement, in conjunction with the previously executed prime credit transaction with Comenity and the outsourcing of the servicing of the non-prime credit program to Genesis, will complete Signet’s transition to an outsourced credit structure. The sale is expected to close during the second quarter of Fiscal 2019 subject to certain closing conditions. In addition, for a five-year term, Signet will remain the issuer of non-prime credit with investment funds managed by CarVal Investors purchasing forward receivables at a discount rate determined in accordance with the agreement. Servicing of the non-prime receivables, including operational interfaces and customer servicing, will continue to be provided by Genesis.

During the first quarter of Fiscal 2019, the Company will reclassify its existing in-house finance receivables from held for investment to held for sale. The Company expects to recognize a loss of approximately $140.0 million upon reclassification as held for sale receivables are required to be valued at the lower of cost (par) or fair value, which incorporates an expectation of future losses. As of February 3, 2018, the Company’s non-prime accounts receivable are presented net of an allowance for credit losses, which represents management’s estimate of expected losses incurred in the accounts receivable portfolio as of the balance sheet date, as required under US GAAP (Topic 310 of the FASB Accounting Standards Codification). The transaction is expected to close in the second quarter of Signet's Fiscal 2019 subject to certain closing conditions.

Accounts receivable, net

In October 2017, the Company completed the sale of the prime-only credit quality portion of the Sterling Jewelers customer in-house finance receivable portfolio. The receivables sold, which were classified as "held for sale" as of the second quarter of Fiscal 2018, are no longer reported within the consolidated balance sheet. See Note 3 for additional information regarding the sale of these receivables. 

Signet’s accounts receivable primarily consist of US customer in-house financing receivables. The in-house finance receivable portfolio consists of a population that is of similar characteristics and is evaluated collectively for impairment.

(in millions)	February 3, 2018		January 28, 2017
Accounts receivable by portfolio segment, net:
Sterling Jewelers customer in-house finance receivables	$	649.4	$	1,813.3
Zale customer in-house finance receivables	33.5		33.4
Other accounts receivable	9.6		11.3
Total accounts receivable, net	$	692.5	$	1,858.0

Signet grants credit to customers based on a variety of credit quality indicators, including consumer financial information and prior payment experience. On an ongoing basis, management monitors the credit exposure based on past due status and collection experience, as it has found a meaningful correlation between the past due status of customers and the risk of loss.

During the third quarter of Fiscal 2016, Signet implemented a program to provide in-house credit to customers in the Zale division’s US locations. The allowance for credit losses associated with Zale customer in-house finance receivables was immaterial as of February 3, 2018 and January 28, 2017. Effective October 20, 2017, the Zale customer in-house financing programs are being underwritten and serviced by a third party for newly originated balances after the effective date.

Other accounts receivable is comprised primarily of accounts receivable relating to the insurance loss replacement business in the UK Jewelry division of $9.3 million (January 28, 2017: $11.0 million).

Sterling Jewelers customer in-house finance receivables

The allowance for credit losses associated with the portion of Sterling Jewelers customer in-house finance receivables sold in October 2017 was reversed during the second quarter of Fiscal 2018. The allowance for credit losses on Sterling Jewelers remaining customer in-house finance receivables is shown below:

(in millions)	Fiscal 2018			Fiscal 2017			Fiscal 2016
Beginning balance:	$	(138.7	)	$	(130.0	)	$	(113.1	)
Charge-offs, net	221.2			203.4			173.6
Recoveries	34.3			35.1			35.3
Provision	(251.0		)	(247.2		)	(225.8		)
Reversal of allowance on receivables sold	20.7			—			—
Ending balance	(113.5		)	(138.7		)	(130.0		)
Ending receivable balance evaluated for impairment	762.9			1,952.0			1,855.9
Sterling Jewelers customer in-house finance receivables, net	649.4			1,813.3			1,725.9

Net bad debt expense is defined as the provision expense less recoveries.

As a result of the sale of the prime-only credit portion of the Sterling Jewelers customer in-house finance receivable portfolio and the outsourcing of the credit servicing on the remaining in-house finance receivable portfolio disclosed in Note 3, the Company revised its methodology for measuring delinquency to be based on the contractual basis. The credit quality indicator and age analysis of Sterling Jewelers customer in-house finance receivables are shown below under the contractual basis:

	February 3, 2018
(in millions)	Gross		Valuation allowance
Performing (accrual status):
0 - 120 days past due	$	703.4	$	(54.0	)
121 or more days past due	59.5		(59.5		)
	$	762.9	$	(113.5	)
Valuation allowance as a % of ending receivable balance			14.9		%

Prior to the fourth quarter of Fiscal 2018, the Company’s calculation of the allowance for credit losses was based on a recency measure of delinquency. The credit quality indicator and age analysis of Sterling Jewelers customer in-house finance receivables prior to the sale of the prime-only credit portion of the in-house receivable portfolio as of January 28, 2017 and January 30, 2016 are shown below under the recency basis:

	January 28, 2017					January 30, 2016
(in millions)	Gross		Valuation allowance			Gross		Valuation allowance
Performing (accrual status):
Current, aged 0 – 30 days	$	1,538.2	$	(47.2	)	$	1,473.0	$	(45.4	)
Past due, aged 31 – 60 days	282.0		(9.0		)	259.6		(8.3		)
Past due, aged 61 – 90 days	51.6		(2.3		)	49.2		(2.2		)
Non Performing (nonaccrual status):
Past due, aged more than 90 days	80.2		(80.2		)	74.1		(74.1		)
	$	1,952.0	$	(138.7	)	$	1,855.9	$	(130.0	)
Valuation allowance as a % of ending receivable balance			7.1		%			7.0		%

As a result of the sale of the prime-only credit portion of the in-house finance receivable portfolio, the change in measure of delinquency during the fourth quarter of Fiscal 2018, and the difference in collection strategies (including minimum payments and customer contact schedules) utilized by the outsourced service provider in the fourth quarter of Fiscal 2018 as compared to the in-house collection methodologies applied by Signet in prior periods, the comparability of the portfolio performance and aging may be limited.

Securitized credit card receivables

The Sterling Jewelers division previously securitized its credit card receivables through its Sterling Jewelers Receivables Master Note Trust. As a condition of closing the credit transaction during the third quarter of Fiscal 2018, the Company terminated the asset-backed securitization facility to transfer the receivables free and clear. See Note 21 for additional information regarding this asset-backed securitization facility.