Signet Jewelers Limited · NYSE:SIG
Signet Jewelers — Investor Day (June 2010)
120 slides from Signet Jewelers's investor day presentation, Jun 15, 2010
Slide 1: Akron Investor Day
Akron Investor Day Tuesday, June 15, 2010
Slide 2: Terry Burman, Signet CEO
SIGNET JEW ELeER S TERRY BURMAN Signet CEO K AY | JARED? HSAMUEL Ernest Jones ve WEL ERS — TheGalleriaOf Jewelry THE JEWELLER_ The Diamond & Watch Specialist Every kiss begins with Kay” kay.com jared.com
Slide 3: Safe Harbor Statement
Safe Harbor Statement (Private Securities Litigation Reform Act of 1995) This presentation include 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 as well as on assumptions m
Slide 4: Program
Program Ö Welcome Ö Introduce Ron Ristau Ö US Division – Mark Light and US executives Ö Lunch Ö Home Office Tour / Additional presentations Ö Travel to Cleveland Ö Store Tours Ö Travel to Cleveland Airport or return to Akron Ö Dinner with management 4
Slide 5: Operating Principles
Operating Principles Ö Continuous improvement Ö Excellence in execution Ö Narrow and deep Ö Test before invest Ö Disciplined investment Ö Strong balance sheet & financial flexibility Ö Monitor performance and manage risk 5
Slide 6: Continued Progress in Executing Two Year Strategy
Continued Progress in Executing Two Year Strategy Ö Leverage competitive advantages to gain profitable market share Ö Reduce business risk Ö aim to improve store productivity Ö maintain financial strength & flexibility Ö Focus on profit & cash flow maximization Ö Well placed for recovery in consumer
Slide 7: Long Term Strategy
Long Term Strategy Ö Take advantage of economic recovery Ö Gain market share in existing store base Ö Invest in US space growth that satisfies IRR hurdle Ö Acquisitions in N. America of business that meet demanding operating criteria and satisfy required investment returns Ö Consider other investmen
Slide 8: Signet UK
Signet UK “Market Leader, High Returns, Strong Cash Flow” 8
Slide 9: UK Brands
UK Brands Sales: £247.8m Sales: £209.8m Stores: 347 Stores: 205 12% of sales 10% of sales No.1 jeweler in UK No.2 jeweler in UK 9
Slide 10: H.Samuel
H.Samuel Fiscal Fiscal Fiscal 2005 2009 2010 Sales (million) £282 £250 £248 Stores at y.e. 398 352 347 £712 Average sales per store (‘000) £723 £718 Average selling price £37 £48 £52 Merchandise mix Gold & silver jewelry na 27% 28% Diamond jewelry na 22% 22% Watches na 26% 25% ÖLeading middle market
Slide 11: Ernest Jones
Ernest Jones Fiscal Fiscal Fiscal 2005 2009 2010 Sales (million) £221 £208 £210 Stores at y.e. 204 206 205 Average sales per store (‘000) £1,150 £1,047 £1,027 Average selling price £141 £202 £228* Merchandise mix Gold & silver jewelry na 13% 14% Diamond jewelry na 40% 39% Watches na 35% 35% ÖLeading
Slide 12: Long Term Industry Growth
Long Term Industry Growth 6000 5000 .r. 5. 0% c.a.g 4000 £m 3000 2000 1000 0 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 UK Jewelry and Watch Market Source: UK Office National Statistics 12
Slide 13: Industry Leading Performance
Industry Leading Performance Sales Operating EBIT/Total Growth Margin Assets(a) 5 year 5 year 5 year 2004 to 2008 c.a.g.r. average average Signet UK(b) (1.4)% 11.4% 22.9% Typical UK Specialty Jewelers(c) (2.5)% 5.7% 8.2% Total number of specialty jewelry stores in UK ~7,300 (a) Total assets excludes
Slide 14: Sustainable Competitive Advantages
Sustainable Competitive Advantages Ö Leading staff training & development recognized by National Association of Goldsmiths Ö Scale, direct sourcing supply chain capability & merchandising expertise Ö 14 million name database for customer relationship marketing Ö Shopping trend to regional malls favo
Slide 15: UK Strategy
UK Strategy Ö Maintain sector leading operating standards Ö Leverage strong market position Ö enhance selling skills and product knowledge of staff Ö more targeted and differentiated merchandising Ö drive footfall through customer relationship marketing Ö optimize real estate Ö utilize access to US
Slide 16: Opportunity to Regain Historic Returns
Opportunity to Regain Historic Returns(1) (2) Operating Margin (%) ROCE (%) 15.3 15.5 46.0 44.2 43.8 12.9 13.6 39.6 41.2 11.8 10.5 11.0 11.4 (3) 34.0 33.7 8.8 26.0 (3) 7.7 24.8 20.1 001 002 003 004 005 006 007 008 009 010 01 02 03 04 05 06 07 08 09 10 2 2 2 2 2 2 2 2 2 2 20 20 20 20 20 20 20 20 20 2
Slide 17: Challenging Trading Environment
Challenging Trading Environment Ö More tentative economic recovery in UK than in US Ö Uncertainty due to general election & change of government Ö Increase in selling prices due to: Ö sterling weakness Ö higher cost of gold Ö VAT increase Ö Q1 results Ö same store sales down 0.2% Ö gross merchandise
Slide 18: Attractive Business
Attractive Business Ö Clear market leader in scale and operational execution Ö ROCE 20.1% in fiscal 2010 Ö Strong free cash flow Ö Limited forex exposure Ö 1 cent move impacts operating income by ~$0.2m/0.07% Ö High operational leverage with potential to return to historic operating margins 18
Slide 19: Ron Ristau
Ron Ristau Chief Financial Officer Designate
Slide 20: First Thoughts
First Thoughts Ö Initial impression Ö Key financial strengths Ö Starting priorities 20
Slide 21: Initial Operating Impressions
Initial Operating Impressions Ö Depth & experience of management in US & UK Ö Focus on the customer throughout the organization Ö Excellent store service & commitment to consistent training & development of store staff Ö A unique accounts receivables process with strong financial disciplines focused
Slide 22: Effective Financial Management in Difficult Environment
Effective Financial Management in Difficult Environment Ö Proven ability to manage costs & working capital while supporting growth initiatives & key corporate priorities Ö Disciplined investment appraisal procedures & appropriate hurdle rates Ö Strong balance sheet & financial flexibility Ö Signific
Slide 23: Key Starting Objectives
Key Starting Objectives Ö Maintain the consistency of financial services as we transition leadership Ö Effectively relocate selected Group financial support functions to Akron Ö Support the management & Board as we study & establish our future financial structure Ö Maintain & manage the successful n
Slide 24: Mark Light
MARK LIGHT President & CEO, Sterling Jewelers “Further growth from a proven strategy” 24
Slide 25: US Management Structure
US Management Structure Mark Light President and Chief Executive Officer Bob Trabucco Bill Montalto EVP & Chief EVP & Chief Financial Officer Operating Officer Bruce Kenny Bob Knapp SVP Store SVP Supply Planning/Real Chain & Estate Distribution Ed Hrabak Mario Weiss Tryna Kochanek Steve Becker Simon
Slide 26: Morning Program
Morning Program Ö Mark Light - US Overview, Competitive Strengths & Store Operations Ö Ed Hrabak - Merchandising Ö George Murray - Marketing Ö Bob Trabucco - Credit Ö Bill Montalto – Information Support Systems Ö Home Office Tour or Themed Presentations 26
Slide 27: Afternoon Program
Afternoon Program Ö Travel to Cleveland Ö Jared Ö Diamonds, Merchandise & Selling System Ö Design & Repair Center Ö Le Vian Ö Sterling Performance Matrix Ö Mall Ö Store Design & Merchandising Ö Associate Training System Ö Profit Management Ö Store Standards Ö Travel to Cleveland Airport or return to
Slide 28: Our Mission
Our Mission To earn the trust of To conduct To achieve: our customers by ourselves as a delivering: company with: A superior customer Teamwork Return on experience assets Assistance Integrity Continuous improvement Products Communications Services Rewards Value Convenience 28
Slide 29: Competitive Advantages
Competitive Advantages Very experienced & stable management Consistency of strategy & execution Store Merchandising Marketing Real Estate Operations • Closely • Differentiated • National • Strict criteria, monitored merchandise television regularly store • Sophisticated advertising reviewed standard
Slide 30: US Business Characteristics
US Business Characteristics Ö Customer profile Ö Kay & Regionals customer’s household income ~$35k-100k, ASP ~$312 Ö Jared customer’s household income ~$50k- 150k, ASP ~$710(1) Ö Driven by bridal and gift giving categories Ö 45% to 50% bridal related Ö ~75% of merchandise sales diamond jewelry Ö 43%
Slide 31: Factors Supporting Long Term Growth in Jewelry Sales
Factors Supporting Long Term Growth in Jewelry Sales Ö Recession not changed our customers’ desire for jewelry Ö bridal Ö gift giving Ö self reward Ö Jewelry is the most meaningful gift as an expression of love & commitment Ö As real incomes grow, proportion spent on jewelry rises Ö Price inelastic,
Slide 32: Long Term Industry Growth
Long Term Industry Growth US Jewelry and Watch Market(a) ~40% of world diamond sales(b) 70 60 r (4. 5)% yea 50 4. 8 %; 2 er m on g t $bn 40 .r. l 30 c.a.g 20 10 0 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 • Specialty sales • Non-specialty sales • Inter
Slide 33: Non-Specialty Sales
Non-Specialty Sales(1) Discounters / Warehouses share of jewelry sales estimated ~11% Wal-mart $2.8bn Mostly “low end”, minimal bridal, little service element Costco $0.5bn Mostly diamond jewelry, minimal bridal, no service Target $0.5bn Mostly “low end”, minimal bridal, little service element Kohl’
Slide 34: Impact of the Internet
Impact of the Internet Ö Jewelry is very personal and diamonds are not homogeneous, so not suited to remote selling Ö Internet jewelry sales therefore mostly high value certified stones or low value fashion jewelry Ö Estimated to be 4.6(1)% of total jewelry sales Ö only significant specialty interne
Slide 35: 2009 Specialty Jewelry Market
2009 Specialty Jewelry Market Ö Total specialty jewelry sales of $28.3bn(1) Ö Sterling share 9.1% Ö average selling price ~$350(2) Ö Mid market estimated to be ~$23bn Ö Sterling share ~10.9% Ö Bridal category estimated to be ~$13bn Ö Sterling share ~9-10% Ö engagement, bridal & anniversary Ö average
Slide 36: Consistent Gains in US Specialty Market Share
Consistent Gains in US Specialty Market Share 1999 2004 2007 2008 2009 Sterling 5.2% 7.4% 8.7% 8.6% 9.1% Zale(1,2,3) 5.8% 7.8% 6.3% 5.5% 4.9% Tiffany(1) 3.1% 3.8% 4.8% 4.9% 4.7% Blue Nile(1) 0.1% 0.6% 1.0% 0.9% 1.0% Finlay(1,2) nil nil 0.7% 1.1% Liquidated Friedman(1) 1.2% 1.5% na Liquidated - White
Slide 37: Rationalization of Top US Brands
Rationalization of Top US Brands Mid market brands Sales $m No. of stores Calendar 2009 2008 2004 2009 2008 2004 Kay(1) 1,508 1,439 1,174 923 926 832 Zales(1,2) Gordons(1,2) 1,110 1,363 { 1,071 314 693 202 784 261 757 287 Jared(1) 723 726 415 178 154 135 Fred Meyer(3,4) 375 410 475 376 386 436 Helzb
Slide 38: Other Rationalization Since Start 2008
Other Rationalization Since Start 2008 Ö Liquidated Ö Christian Bernard, 15 stores Ö Fortunoff, 20 stores Ö Alpha Omega, 4 stores Ö Chapter 11 restructuring Ö Robbins Brothers, closed 6 stores, -38% Ö Ultra, closed 45 locations, -25% Ö Store closures Ö Reeds Jewelers closed ~28 stores, -30% Ö Don Ro
Slide 39: Consolidation in 2010
Consolidation in 2010 Ö Signet forecast to close 40 - 50 stores Ö Zales closed ~20 year to date Ö Movado to close 26 stores Ö Samuels to close ~30 stores Ö Michael Hill to close 8 stores Ö Estimated ~12% of store base exited specialty sector in 2008 & 2009 combined 39
Slide 40: Industry Leading Performance
Industry Leading Performance Operating EBIT/Total Total Calendar 2008 Performance Margin Assets(1) Sales Signet US(2) 6.8% 7.5% (6.3)% Zale Corp(3) (6.1)% (9.2)% (15.1)% Typical US Chain Jeweler(4) 2.7% 1.3% (13.2)% Calendar 2009 Performance Signet US(5) 8.7% 9.8% 0.8% Zale Corp(3) (13.2)% (19.6)% (
Slide 41: Our People Make the Difference
“Our People Make the Difference” Ö Customer service remains central to selling jewelry Ö every piece is under lock & key Ö customers need to be educated about the product Ö competitive advantages Ö up-selling and add-ons 41
Slide 42: Our People Make the Difference
“Our People Make the Difference” Ö Team Members Ö clear and measurable expectations Ö consistent training and feedback on performance Ö monitoring mechanisms provided daily for every team member Ö excellent incentives Ö “Promotion from Within” culture Ö very good career path opportunities Ö above av
Slide 43: Clear Measurable Expectations
Clear Measurable Expectations Ö Daily store standards Ö store staff “controllables” Ö clear performance expectations Ö individual standards integrated into divisional goals Ö Monitoring Ö overnight reports provided to store staff and District Manager Ö Customer service feedback 43
Slide 44: Strong Team Incentives
Strong Team Incentives Ö Historically 20% - 25% of field payroll performance based Ö Sales associate commission Ö based on own and store performance Ö encourages team work Ö Manager profit bonus Ö profit based bonus Ö monthly store operating statement Ö trained to be profit business managers Ö Distr
Slide 45: Best Support Systems For Our Store Teams
Best Support Systems For Our Store Teams Ö 360 degree communication system Ö Organizes tasks Ö Tracks individual key performance indicators Ö Provides targeted training that is tailored to the needs of the individual Ö Improves executional effectiveness Ö Greater process monitoring and compliance 45
Slide 46: Great Merchandising For Our Store Teams
Great Merchandising For Our Store Teams Ö Most efficient and flexible supply chain Ö Individual store by store merchandising Ö Superior merchandising systems Ö enables testing Ö early identification of trends Ö Ability to develop differentiated ranges 46
Slide 47: Outstanding Marketing Support For Our Store Teams
Outstanding Marketing Support For Our Store Teams Ö Leading share of voice and great execution Ö Ability to use national television advertising Ö built store brand awareness Ö market differentiated product Ö Sophisticated customer relationship marketing Ö Sector leading “brick & click” capability 47
Slide 48: Superior Credit Programs For Our Store Teams
Superior Credit Programs For Our Store Teams Ö Tailored to our customers needs Ö Leading authorization and collections system built on jewelry sector data Ö Operated to our corporate priorities Ö Executed to our customer service standards 48
Slide 49: Sterling's Medium Term Potential
Sterling’s Medium Term Potential Ö Return to historic operating margins and ROCE levels Ö rebuild store productivity Ö reduce net bad debt 49
Slide 50: Opportunity to Regain Historic Returns
Opportunity to Regain Historic Returns(1) (2) Operating Margin/Bad Debt (%) ROCE (%) 12.4 11.1 12.1 12.4 12.8 12.8 12.0 23.0 21.7 21.3 22.2 22.1 21.2 9.8 9.2 19.9 6.8 (3) 15.1 11.1 (3) 8.1 -3.4 -3.2 -2.8 -2.8 -2.8 -3.0 -2.8 -3.4 -4.9 -5.6 01 06 07 03 05 02 04 09 10 08 01 02 03 04 05 06 07 08 09 10 2
Slide 51: Store Productivity/ASP Opportunity
Store Productivity/ASP Opportunity Average ASP Sales per Store(1) Peak Fiscal Peak Fiscal 2010 2010 Kay $1.82m $1.58m $331 $307 Jared $5.68m $4.05m $747 $713(2) Regional Brands $1.52m $1.16m $346 $329 (1) Based only on stores operated for the full fiscal year. (2) Excludes the charm bracelet categor
Slide 52: Q1 Performance
Q1 Performance Ö Challenging marketplace Ö total revenue 6.8% Ö comps. 7.2% Ö Gross merchandise margin up 90 bpts Ö Accounts receivable performance improved by 120 bpts Ö Controllable expenses slightly down Ö Operating margin up 470 bpts Ö Operating profit $91.1m, +61.5% Ö Outlook remains uncertain
Slide 53: US Sales Outlook
US Sales Outlook Ö Potential recovery in specialty jewelry sales Ö 2009 sales down 9.8% from 2007 peak Ö recovery driven by economy, but outlook unclear Ö Market share opportunity Ö capacity withdrawal Ö many remaining competitors operationally weakened and/or financially constrained Ö Potential for
Slide 54: US Changes in Square Footage
US Changes in Square Footage Kay Change Kay Off in Mall Mall Regionals Jared(1) Total Space Jan 2008 789 105 351 154 1,399 10% Jan 2009 795 131 304 171 1,401 4% Openings 5(2) 3 1 7 16 Closures (6) (5) (45)(2) - (56) Jan 2010 794 129 260 178 1,361 (1)% Openings (forecast) 4 2 - 2 8 Closures (approx.)
Slide 55: Growth Potential Built on Increasing Leverage of Competitive Advantages
Growth Potential Built on Increasing Leverage of Competitive Advantages Ö Ability to recruit, train & keep best sales associates and field management Ö Supported by superior execution of other retail disciplines Ö Strong balance sheet means able to focus continually improving execution Ö Consistency
Slide 56: Ed Hrabak
Ed Hrabak SVP Merchandising, Sterling Jewelers “Supply chain & merchandising initiatives” 56
Slide 57: Mission
Mission Ö General Ö right product, right price, right place, right time Ö development of differentiated ranges Ö offer value items for price conscious consumer Ö gross margin management Ö pursue supply chain opportunities Ö Critical to Jewelry Ö importance of commodities • quality control as each di
Slide 58: Competitive Advantages in Supply Chain & Merchandising
Competitive Advantages in Supply Chain & Merchandising Ö Sector leading systems and procedures Ö Direct sourcing of loose polished diamonds Ö Detailed understanding of manufacturer’s costs Ö Attractive partner with vendors due to our volume and financial strength Ö Ability to identify trends early 5
Slide 59: Utilize "Pull" Methodology
Utilize “Pull” Methodology Ö Category has slow changes in fashion & limited seasonality Ö test and run every product/program Ö ability to respond to trends within season Ö GMROI focused Ö Merchandising reflects individual stores selling patterns, local demographic & regional variations Ö Maximizes s
Slide 60: Advantages of Differentiated Merchandise
Advantages of Differentiated Merchandise Ö Drives footfall and differentiates stores Ö Lower risk of competitive discounting Ö Offered manufacturers’ best ideas ahead of competition Ö Speed to market Ö Clearer, more cost effective marketing message Ö Symbiotic marketing leverage Ö Better able to exe
Slide 61: Ideal Partner for Branding
Ideal Partner for Branding Ö Commitment to testing and development of merchandising programs Ö Training of sales associates Ö Ability to provide marketing support Ö Critical mass Ö Established supplier relationships Ö Proven track record in branding Ö Consistency of strategy & execution Ö Financial
Slide 62: Differentiated Merchandise Increasing Opportunity to Drive Share
Differentiated Merchandise Increasing Opportunity to Drive Share Ö Differentiated merchandise combines our competitive advantages reinforcing their impact Ö merchandising Ö marketing Ö store operations Ö balance sheet Ö Opportunities to gain market share from Ö specialty sector competitors Ö non-spe
Slide 63: Highly Recognized Branded Diamond
Highly Recognized Branded Diamond Ö 2000: first tested Ö 2002: introduced to all stores Ö Continued development of range Ö cuts Ö products Ö Leo Artisan Ö 2008: improved specification Ö 2009: expanded bridal range Ö “One of the most recognized diamond cuts in the US” 63
Slide 64: Peerless Diamonds
Peerless Diamonds ÖExclusive to Jared ÖLaunched Fall 2005 ÖThe Ideal, Ideal cut diamond Öideal cut Ötriple very high return of light 64
Slide 65: Rapid Innovative Merchandising
Rapid Innovative Merchandising Ö Opportunity identified early 2008 Ö Tested Mothers Day 2008 Ö Rolled out for Holiday 2008 Ö Continued strong performance Valentines and Mothers Day 2009 Ö Expanded range and improved availability for Holiday 2009 Ö Product and Marketing evolving 65
Slide 66: Major Initiative For Holiday 2009
Major Initiative For Holiday 2009 Ö Followed the Jane Seymour launch template Ö Different product ‘story’ and price points to Open Hearts Ö Concept: for the person who wants to declare their love for another Ö Competition from “Everlon” Ö Expanding range in 2010 66
Slide 67: Partnering With Branded Jewelry Manufacturers
Partnering With Branded Jewelry Manufacturers Ö “Build a memory” Ö Tested 2008 Ö Female self-purchasers Ö Jared rolled-out fall 2009 Ö Jared TV ad for Holiday 2009 Ö Opportunity to convert to Jared customer 67
Slide 68: Le Vian
Le Vian Ö Stocked in all Jared stores Ö Le Vian boutiques in selected Jareds Ö Exclusive to Signet among specialty mall jewelers Ö Many exclusive designs Ö High level of female self-purchase Ö First time advertised on national television Ö Market to Le Vian gala events using CRM Ö Customer assisted
Slide 69: Test Before We Invest
Test Before We Invest Ö Make sure we are backing winners Ö identify best designs within range Ö enables more accurate forecasting Ö ability to identify and react to changes in selling patterns Ö Currently testing a range of new fashion programs Ö silver statement jewelry Ö color range in partnership
Slide 70: Developing Differentiated Ranges for Bridal Category
Developing Differentiated Ranges for Bridal Category Ö Accounts for 45% - 50% of US sales Ö Opportunity to leverage polished diamond sourcing advantages Ö Very few differentiated bridal programs in middle market Ö Potential to advertise outside gift giving seasons 70
Slide 71: Value Items
Value Items Ö Ability to take advantage of market anomalies Ö expertise in marketplace Ö balance sheet strength Ö Selected items only, to minimize adverse impact on gross merchandise margin Ö Caters to more price conscious consumer in challenging environment 71
Slide 72: Gross Margin Dynamics
Gross Margin Dynamics Ö Diamonds ~55% of COGS in fiscal 2010 Ö polished diamond prices down in fiscal 2010 Ö increases in fiscal 2011 Ö Gold ~20% of COGS in fiscal 2010 Ö gold costs +~25% p.a. for last 5 years Ö Able to adjust prices as commodity costs take time to impact gross merchandise margin Ö
Slide 73: Gross Margin Initiatives
Gross Margin Initiatives Ö Able to identify trends early as active in polished diamond markets Ö Systems and procedures in place to allow considered response Ö Supply chain improvements Ö partner with lowest cost suppliers on worldwide basis Ö leverage operational scale, stability and financial stre
Slide 74: Pricing Considerations
Pricing Considerations Ö Inelastic consumer response Ö infrequent purchase of non-standard product Ö intrinsic underlying value Ö Consumer usually has a $ budget not product specification constraint Ö merchandising offers wide range of price points Ö bridal & other categories have different dynamics
Slide 75: Trend in Operating Margin
Trend in Operating Margin Net of changes in Gross Merchandise Margin 14 12 10 8 % 6 4 2 0 Fiscal 05 Fiscal 06 Fiscal 07 Fiscal 08 Fiscal 09 Fiscal 10 Negative impact to operating margin Positive impact to operating margin Ö Fiscal 2011, broadly similar to last year’s level 75
Slide 76: Providing Competitive Advantage to Field Staff
Providing Competitive Advantage to Field Staff Ö Superior quality of merchandise Ö High “in-stock” levels Ö Rapid clearance of slowing lines Ö Appropriately targeted merchandise, including Ö female self purchase Ö value conscious customer Ö younger males Ö younger females Ö Differentiated merchandis
Slide 77: George Murray
George Murray SVP, Marketing, Sterling Jewelers “Sector leading share of voice” 77
Slide 78: Marketing Leadership
Marketing Leadership Ö “Every kiss begins with Kay” Ö largest marketing budget in mid-market sector Ö focus on national television advertising Ö romance & appreciation used as consistent theme over time and across media Ö “He went to Jared” Ö above average advertising/sales support Ö awareness & rea
Slide 79: Focus on TV Advertising
Focus on TV Advertising Ö Visual product & emotional message Ö Benefit of national TV advertising Ö provides greater marketing leverage Ö brand name recognition in new markets Ö better program placement Ö additional benefits such as sponsorship opportunities Ö Limited competition Ö Proven effectiven
Slide 80: Kay v Regional Brands Sales per Store
Kay v Regional Brands Sales per Store 140 120 100 Index 80 60 40 20 0 Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal 2000 2002 2004 2006 2008 2010 Kay Regional Brands 80
Slide 81: Building Brand Equity
Building Brand Equity Ö Kay advertising awareness has built from just under 45% in 2003 to over 75% in 2009 Ö total brand awareness for Kay is 95% Ö Jared advertising awareness has built from low teens to just over 70% Ö Total brand awareness for Jared is in the mid 80%s Ö Customer experience scores
Slide 82: High Advertising/Sales Ratio
High Advertising/Sales Ratio 8 7 6 % revenue 5 4 3 2 1 0 2002 2003 2004 2005 2006 2007 2008 2009 Sterling: Advertising gross of vendor contributions Tiffany: Worldwide spend Zale Corp: y.e. July, advertising net of vendor contributions, including Canada Typical jeweler: JA Cost of Doing Business Tot
Slide 83: Changing Role of De Beers
Changing Role of De Beers Ö Historically a major driver of innovation and marketing within jewelry sector Ö Change in strategy Ö away from generic beacon programs e.g. Journey range Ö focus on branded merchandise e.g. Everlon Ö requires retailer marketing contribution Ö Implications for Signet Ö why
Slide 84: Marketing of Differentiated Product
Marketing of Differentiated Product Ö Establish differentiated product by leveraging strong Kay & Jared brand equity Ö Fully integrated into TV ads Ö Overall budget means product placement possible Ö Leo 10th year anniversary 84
Slide 85: Customer Relationship Marketing
Customer Relationship Marketing Ö Proprietary database of 26 million names built up over more than 15 years Ö Build out customer profiles Ö Utilize multiple “touch” points Ö in-store, on-line, credit, repairs, extended service plans, warranties, gift cards Ö Contact via phone, mail & email Ö Behavio
Slide 86: Kay.com
86 K A y JEWELERS Every kiss begins with Kay.® How can we help you today? » Learning About Diamonds » Soon to be Engaged » Shopping for a gift » Only browsing » About Kay Jewelers » Kay Diamontologist » 900+ Kay Stores » Jewelry Service and Care » Gold Exchange a oe AY / Sign up for special offers a
Slide 87: Jared.com
87 Jared.com D DESIGN- ENGAGEMENT A-RING™ | & WEDDING The Galleria Of Jewelry Customer Service > FIND A STORE FREE SHIPPING ON ALL DESIGN A RING™ Your Jared Card >» SHOP NOW COLOR ; GOLD, SILVER & DIAMONDS |" Gesstones | SEE WATCHES | OTHER JEWELRY Gift Cards Wish List Find a Store Upcoming Events |
Slide 88: Testing New Media
Testing New Media Ö Use normal Return on Investment evaluation methods Ö Tested banner ads but very limited success Ö Search advertising Ö Carrying out research & development using social media Ö Jane Seymour micro-site, YouTube, Facebook, mobile and e-cards 88
Slide 89: Open Hearts website
89 \ "[{ Your Heart ls Open, ¥ Open Heart: Home ne Share Your Story @ View Stories BA Contact Us pam S et ke i 2, Collection > 2 au ad Love Will lays Find Its Way In." | started this Web site because of my mother's Open Heart philosophy. Throughout my life | have heard amazing stories from people wh
Slide 90: Sustainable Competitive Advantage
Sustainable Competitive Advantage Ö National television advertising Ö remains by far the most effective form of advertising in the jewelry sector Ö Kay & Jared are the only retail jewelry brands that have the scale to use it economically and efficiently Ö success with differentiated brands Ö Leading
Slide 91: Bob Trabucco
Bob Trabucco EVP, Chief Financial Officer, Sterling Jewelers “We sell jewelry, not credit” 91
Slide 92: Credit an Important Element of Sales Transaction
Credit an Important Element of Sales Transaction Ö Sales enabler not a sales driver Ö over half of business transacted on credit Ö customers need/prefer to use private label for jewelry Ö Used by sales associates to trade customer up Ö higher ASP of about $1,000 Ö Highly effective target marketing v
Slide 93: In-house Credit Operation A Competitive Advantage
In-house Credit Operation A Competitive Advantage Ö Optimizes control of the business Ö We manage in context of our business priorities, including gross merchandise margin on sale Ö Tailored program to our customers’ needs Ö score cards specific to our customers Ö rapid collection with targeted stra
Slide 94: Third Party Suppliers Have Different Priorities
Third Party Suppliers Have Different Priorities Ö Bank focus is on maximizing portfolio ROA Ö slower repayment schedule maintains higher balances to drive interest income Ö collection is to recoup cash paid to purchase the receivable...not collecting margin Ö lower risk tolerance Ö fluctuating lendi
Slide 95: Highly Disciplined Approach to Credit
Highly Disciplined Approach to Credit Ö Statistical science applied to all aspects of the operation from Lending to Recovery Ö consistent standards over the long-term Ö All portfolios affected by environment Ö ability to respond quickly focusing exclusively on our customer attributes Ö Lending: cont
Slide 96: Credit Within Specialty Jewelry Sector
Credit Within Specialty Jewelry Sector Ö Zales Ö finances ~40% of US fine jewelry sales Ö contract requires $6 million payment Ö February 2010 Citibank advised “intention to tighten certain customer approval criteria and to close certain high risk accounts” Ö Citibank exercised right to terminate Ö
Slide 97: Sterling Credit Customer
Sterling Credit Customer Ö ~50% typical bank credit customer Ö financial flexibility Ö interest free option Ö ~50% specialist lending Ö young with limited, if any, credit history • high level of financial commitments as setting up home Ö High bridal participation Ö ASP well above average Ö Managing
Slide 98: Sterling's Credit Operation
Sterling’s Credit Operation Ö 50% to 55% of sales Ö Integrated into business Ö Included in IRR calculation for store investment Ö Centralized credit function since 1994 Ö periodic review by outside experts Ö Lending Risk Management is highly automated and disciplined Ö automated use of third party i
Slide 99: Sterling's Credit Characteristics
Sterling’s Credit Characteristics Ö Average balance outstanding ~$1,000 Ö Average turn ~8 months Ö Interest rate charged average ~20% APR Ö ~25-30% of portfolio is interest free • 20% down payment and minimum purchase requirement Ö 100% provision for bad debt when aged 90 days on a recency basis Ö A
Slide 100: Consistent Lending Philosophy
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Slide 101: Further Evidence of Improved Receivables Trend in Q1
Further Evidence of Improved Receivables Trend in Q1 6.0 15.0 5.0 12.0 4.0 Net bad 9.0 Average debt 3.0 monthly as % 6.0 collection of total 2.0 rate % sales 1.0 3.0 0.0 0.0 02 03 04 05 06 07 08 09 10 11 20 20 20 20 20 20 20 20 20 20 al al al al al al al al al al sc sc sc sc sc sc sc sc sc sc Fi Fi
Slide 102: Competitive Quarterly Year over Year Performance
Competitive Quarterly Year over Year Performance 2009-2008 800 700 600 500 Q1 400 Q2 Q3 300 Q4 200 100 - bps SIGNET (U.S.) CAPITAL ONE BANK OF AMERICA U.S. BANCORP JP MORGAN CITI TARGET NORDSTROM CHASE • Signet (U.S.) change in net bad debt as a % of average receivables (annualized) •Competitive set
Slide 103: Actions Taken
Actions Taken Ö Changes in lending decisions Ö updated scorecard for segment of customer base Ö adjusted lending decisions on particular characteristics Ö introduced down payment requirement for some additional customers Ö Investment in systems and people Ö improved dialer capability Ö new decision
Slide 104: Credit Legislation Amendments
Credit Legislation Amendments Ö Adverse impact Ö reduced ability to charge interest on late payments related to interest free credit Ö calculation of outstanding balance Ö level of late fees, still open issue Ö elimination of convenience fees Ö Incremental costs Ö one-off and on-going operational ex
Slide 105: Competitive Advantage
Competitive Advantage Ö Most appropriate credit offer, credit being essential in mid market specialty jewelry sector Ö scale to have jewelry specific systems and models Ö managed to maximize return to business not to credit activity Ö Managed to our priorities not those of a third party 105
Slide 106: Bill Montalto
Bill Montalto EVP, Chief Operating Officer, Sterling Jewelers “Sector Leading Systems” 106
Slide 107: Information Technology & Systems
Information Technology & Systems Ö Superior systems are competitive advantage Ö Benefits Ö enhanced customer service Ö better gross merchandise margin Ö more efficient use of inventory Ö sophisticated customer relationship marketing Ö credit procedures for specialty jewelry sector 107
Slide 108: Integrated Jewelry Retail Systems
Integrated Jewelry Retail Systems Merchandise Retail Store and Supply Systems Chain Systems Sterling Systems Portfolio Business Brick and Click Analytics and Multi Channel Financial Marketing Controls 108
Slide 109: Differentiated Systems
Differentiated Systems ÖHighlighted in today’s presentation Ö Store Execution System Ö Merchandise Assortment Planning Ö Design-A-Ring 109
Slide 110: Store Execution System
Store Execution System Ö Supports leadership position in field execution, communication and training Ö provides reporting of performance Ö automatically identifies outliers from standard Ö easy to use task list Ö tasks provide detailed step by step procedures Ö provides immediate feedback loop 110
Slide 111: Store Execution System
111 Store Execution System Monthly Store Summary 84.20% | 82.00% BRYANT, CRYSTAL $8,824.00 $72,481.00 el mmVAse 100.00% 35.90% FAULKNER, TAMMY $31,518.00 $105,380.00 103.80% 106.90% 36.60% 42.90% FELTON, LASHANNON $17,426.00 $68,761.00 37.10% 31.00% HOBBS, LESLIE $33,477.00 $113,591.00 103.10% 104.3
Slide 112: Store Execution System
Store Execution System Show Tasks for | Myself for | Next 7 Days (Go| 1-30 of 39 | Next> | Last>> |_| ~ 5 4 “ te EZ ‘Ts Ansnsisctackauetions = InP a j | Ti Os.ThursdaysStandardsReview _—__Avalable o7rezrao0s —_ye/2008 | | . ’ i SIGNET 112 JEWELERS
Slide 113: Store Execution System
Store Execution System 1-9 of 9 Weekly ETS 06/28/2009 Eastern 13 92% il v v v v Weekly Recalls 07/01/2009 Eastern 13 76% gj Y v x v One (Req'd) Store 07/02/2009 Eastern 3B 61% 5 vy a x x SIGNET JEWELER $ 113
Slide 114: Merchandise Assortment Planning
Merchandise Assortment Planning Ö Supports leadership position in jewelry industry Ö “Pull” merchandise Ö GMROI driven Ö early identification of trends Ö comprehensive testing of new product 114
Slide 115: Merchandise Assortment Planning
Merchandise Assortment Planning Ö Product Bill of Material Ö details the make up of an item Ö product attribute tree Ö Assortment Planning System Ö organize product in Attribute Clusters Ö cluster stores based on sales volume Ö supports micro-merchandising Ö Underpins Manufacturing and Diamond Sourc
Slide 116: Design-A-Ring
Design-A-Ring Ö Available on Jared.com or in store Ö Over 15,000 loose diamonds available in virtual assortment Ö View actual diamond with “virtual loupe” technology Ö Only US brick & click retailer with this technology Ö Diamond delivered to home or store 116
Slide 117: Design-A-Ring website screenshot
117 <€ > C fF) ¥ http://designjared-diamonds.com/loose-diamonds-search/ For quick access, place your bookmarks here on the bookmarks bar. Import bookmarks now... signin | find sstore | cart: 0 items | wish list [Search | +co | Advanced JARED The Galleria Of Jewelry ChooseaDiamond yyy, Choose a Setti
Slide 118: The Common Themes
The Common Themes Ö Systems enabling superior customer service and execution Ö Improve productivity Ö Integrated but responsive systems Ö Uniquely adapted to specialty jewelry sector Ö Continuous investment and improvement 118
Slide 119: Competitive Advantages
Competitive Advantages Very experienced & stable management Consistency of strategy & execution Store Merchandising Marketing Real Estate Operations • Closely • Differentiated • National • Strict criteria, monitored merchandise television regularly store • Sophisticated advertising reviewed standard
Slide 120: Our Mission
Our Mission To earn the trust of To conduct To achieve: our customers by ourselves as a delivering: company with: A superior customer Teamwork Return on experience assets Assistance Integrity Continuous improvement Products Communications Services Rewards Value Convenience 120