Signet Jewelers Limited · NYSE:SIG
Signet Jewelers — Non-Deal Roadshow (October 2010)
63 slides from Signet Jewelers's roadshow presentation, October 2010
Slide 1: Competitive Advantages Reinforcing Sector Leadership
“Competitive Advantages Reinforcing Sector Leadership” October 2010
Slide 2: Safe Harbor Statement
Safe Harbor Statement (Private Securities Litigation Reform Act of 1995) This presentation 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 a
Slide 3: World's Largest Specialty Jeweler
World’s Largest Specialty Jeweler Group sales $3,290.7 million – 78% US/22% UK Kay Jewelers - #1 mid market brand H.Samuel - #1 in UK Sales: $1,508.2 m Stores: 923 in 50 states Sales: £247.8m Stores: 347 Jared - #1 Off-Mall “Category Killer” Ernest Jones - #1 UK upper middle market Sales: $722.5m St
Slide 4: Broadly Maintain Successful Strategy in Fiscal 2011
Broadly Maintain Successful Strategy in Fiscal 2011 Ö Enhance position as strongest middle market specialty retail jeweler Ö take advantage of capacity reduction Ö many firms less able to compete Ö focus on sustainable competitive advantages Ö Reduce business risk Ö aim to improve store productivity
Slide 5: Free Cash Flow Target Fiscal 2011
(1) Free Cash Flow Target Fiscal 2011 Ö Fiscal 2011 free cash flow(1) Ö original target of between $150 million and $200 million Ö now increased to $225 million to $275 million • better than planned net income in year to date • tight management of working capital Ö Capital expenditure planned to be
Slide 6: Signet's Historic Data
Signet’s Historic Data Sales ($M) EPS (diluted, $) 3 ,665 .3 3 ,5 59.2 2.94 3 ,3 44.3 3,2 90.7 2.86 3,1 54.1 2.74 3,0 04.8 2.55 2.48 2,69 7.2 1.91 1.57 (1) 4 5 6 7 8 9 0 00 00 00 00 00 00 01 4 5 6 7 8 9 0 2 00 2 00 2 00 2 00 2 00 2 00 2 01 2 2 2 2 2 2 2 (1) Fiscal 2009 before goodwill impairment of
Slide 7: US Division
US Division “Further growth from a proven strategy” 7
Slide 8: US Long Term Industry Growth
US 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 • In
Slide 9: 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 10: US Jewelry Sector Performance
US Jewelry Sector Performance 14% 10% Growth p.a. 6% 2% -2% -6% -10% 2000(a) 2001(a) 2002 2003 2004 2005 2006 2007 2008 2009 Furniture & Household excl. Electricals Electricals & Electronics Clothing Jewelry & Watches Signet US (a) Excludes Marks & Morgan acquisition Source: US Department of Commerc
Slide 11: US Non-Specialty Sales
US 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 Ko
Slide 12: 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 13: 2009 US Specialty Jewelry Market
2009 US Specialty Jewelry Market Ö Total specialty jewelry sales of $28.3bn(1) Ö Kay/Jared(2) share 9.1% Ö average selling price ~$350(3) Ö Mid market estimated to be ~$23bn Ö Kay/Jared(2) share ~10.9% Ö Bridal category estimated to be ~$13bn Ö Kay/Jared(2) share ~9-10% Ö engagement, bridal & annive
Slide 14: Consistent Gains in US Specialty Market Share
Consistent Gains in US Specialty Market Share 1999 2004 2007 2008 2009 Kay/Jared(1) 5.2% 7.4% 8.7% 8.6% 9.1% Zale(2,3,4) 5.8% 7.8% 6.3% 5.5% 4.9% Tiffany(2) 3.1% 3.8% 4.8% 4.9% 4.7% Blue Nile(2) 0.1% 0.6% 1.0% 0.9% 1.0% Finlay(2,3) nil nil 0.7% 1.1% Liquidated Friedman(2) 1.2% 1.5% na Liquidated - W
Slide 15: Rationalization of Top US Brands
Rationalization of Top US Brands Mid market brands Sales $m No. of stores Calendar 2004 2008 2009 2004 2008 2009 Kay(1) 1,174 1,439 1,508 832 926 923 Zales(1,2) 1,071 { 1,363 1,110 757 784 693 Gordons(1,2) 314 287 261 202 Jared(1) 415 726 723 135 154 178 Fred Meyer(3,4) 475 410 375 436 386 376 Helzb
Slide 16: 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 17: Fewer US Specialty Jewelry Firms
Fewer US Specialty Jewelry Firms 35,000 ~(1.6)% pa 30,000 Num ber of firm s 25,000 20,000 15,000 2009 10,000 ~(2)% 5,000 0 87 89 91 93 95 97 99 01 03 05 07 09 19 19 19 19 19 19 19 20 20 20 20 20 Source: Jewelers Board of Trade 17
Slide 18: US Rationalization in 2010
US Rationalization in 2010 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 18
Slide 19: US Industry Leading Performance
US 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 20: Signet's US Competitive Advantages
Signet’s US Competitive Advantages Very experienced & stable management Consistency of strategy & execution Store Merchandising Marketing Real Estate Customer Operations Finance • Closely • Differentiated • National • Strict • Provided in- monitored merchandise television criteria, house store • Sto
Slide 21: Signet's US Business Characteristics
Signet’s 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 jewe
Slide 22: Kay
Kay Fiscal Fiscal Fiscal 2005 2009 2010 Sales (million) $1,174 $1,439 $1,508 Stores at y.e. 742 926 923 Average sales per store (‘000) $1,584 $1,536 $1,582 Average selling price $282 $331 $307 Ö~ 1,250 square feet of selling space ÖSales ~50% greater than nearest competitor ÖHigh store productivity
Slide 23: Jared
Jared Fiscal Fiscal Fiscal 2005 2009 2010 Sales (million) $415 $726 $723 Stores at y.e. 93 171 178 Average sales per store (‘000) $4,975 $4,491 $4,046 Average selling price $644 $769(1) $713(1) Ö~4,800 square feet of selling space ÖThird largest mid market brand ÖNational TV advertising since Christ
Slide 24: Jared Locations
Jared Locations Existing stores Opened in fiscal 2010 24
Slide 25: Jared Development
Jared Development Ö 1994: 3 test stores opened Ö 1996 revised format opened in Denver Ö 1997: 3 further test stores opened Ö 1998: 8 stores opened Ö 1999 to 2004: 12-15 stores opened p.a. Ö 2005: 18 stores opened Ö 2006: 25 stores opened Ö 2007: 19 stores opened Ö 2008: 17 stores opened Ö 2009: 7 st
Slide 26: Regional Brands
Regional Brands Fiscal Fiscal Fiscal 2005 2009 2010 Sales (million) $471 $371 $327 Stores at y.e. 321 304 260 Average sales per store (‘000) $1,533 $1,160 $1,163 Average selling price $304 $346 $329 Ö~ 1,250 square feet of selling space ÖNearly all located in malls that also have a Kay store ÖStores
Slide 27: Growth in US Stores
Growth in US Stores Kay & Jared* Total Space Cumulative Regionals increase space increase Jan 2000 799 28 827 +10% +10% Jan 2001 956 43 999 +26% +39% Jan 2002 970 55 1,025 +6% +47% Jan 2003 983 67 1,050 +6% +56% Jan 2004 1,024 79 1,103 +7% +67% Jan 2005 1,063 93 1,156 +8% +80% Jan 2006 1,111 110 1,2
Slide 28: US Changes in Square Footage
US Changes in Square Footage Kay Change Kay Off in Mall Mall Regionals Jared1 Total Space Jan 2008 789 105 351 154 1,399 10% Jan 2009 795 131 304 171 1,401 4% Openings 52 3 1 7 16 Closures (6) (5) (45)2 - (56) Jan 2010 794 129 260 178 1,361 (1)% Openings (forecast) 3 2 - 2 7 Closures (approx.) (13)
Slide 29: Growing Off-mall Presence in US
Growing Off-mall Presence in US % of Space Growth % of Total Space 44% 40% 27% 29% 32% 59% 62% 33% 36% 36% 66% 76% 1% 2% 4% 6% 7% 8% 34% 12% 38% 11% 15% 72% 69% 64% 61% 57% 56% 12% 29% 26% 23% 22% 18% 12% 5 6 7 8 * * 5 6 7 8 9 0 2 00 2 00 2 00 2 00 0 09 0 10 00 00 00 00 00 01 al al al al l2 l2 2 2 2
Slide 30: Typical Mall Layout
Typical Mall Layout No. 1 Department Food entrance store court Dept Dept store store Best locations Good locations Department OK locations store Poor locations 30
Slide 31: Typical Power Strip
Typical Power Strip od ng Us ble s & Sp c k s Be & th Kay y Go orti Bu a s R No rne dB Di nd ys st MAJOR ROAD Ba yo Be Be To Kay* * nt nt D a a RE ur ur nk st a st a JA Ba Re Re MAJOR ROAD Specialty retailers * Note: Kay and Jared are unlikely to be sited in the same power strip mall 31
Slide 32: Typical Lifestyle Centre
Typical Lifestyle Centre m tro ma s ne rd Ci No Pedestrian area MAJOR ROAD Kay & rnes ble No Ba Pedestrian Pedestrian area area MAJOR ROAD Specialty Restaurants Health & Beauty retailers 32
Slide 33: US Merchandise Mix
US Merchandise Mix Fiscal Fiscal Fiscal Fiscal Fiscal 2006 2007 2008 2009 2010 % % % % % Diamonds & diamond 72 74 75 75 76 jewelry Gold & silver 8 7 7 7 8 jewelry Other jewelry 13 12 11 11 9 Watches 7 7 7 7 7 Total 100 100 100 100 100 Excluding repairs, warranties and other miscellaneous sales 33
Slide 34: US Diamond Supply Chain
US Diamond Supply Chain ~75% of US merchandise mix Rough Polished Manufactured Retailers Mines T T r r a Cutters & a Sightholders d polishers d Manufacturers Wholesalers e e r r s s Contract Manufacture Complete Signet 34
Slide 35: US Merchandise Margin Dynamics
US Merchandise 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 Commodity cost movements take time to impact gross merchandise margin Ö Mix cha
Slide 36: Differentiated Ranges
36 Differentiated Ranges EMP¥AaC You will always be surrounded by the strength of my love. Chocolatior Aquamarine and CHOCOLATE DIAMONDS* SIGNET JEWELERS
Slide 37: Leo Diamond
Leo DiamondTM Ö 2000: first tested Ö 2002: introduced to all stores Ö Continued development of range Ö cuts Ö products Ö Leo Artisan TM Ö 2008: improved specification Ö 2009: expanded bridal range Ö “One of the most recognized diamond cuts in the US” 37
Slide 38: Peerless Diamond
Peerless Diamond TM ÖExclusive to Jared ÖLaunched Fall 2005 ÖThe Ideal, Ideal cut diamond Öideal cut Ötriple very high return of light 38
Slide 39: Open Hearts by Jane Seymour
Open Hearts by Jane Seymour TM 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 39
Slide 40: Love's Embrace
Love’s EmbraceTM 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 Launched 2009 Ö Expanding range in 2010 40
Slide 41: Le Vian
Le VianTM 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 assiste
Slide 42: Pandora
PandoraTM 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 42
Slide 43: New US Differentiated Range Tests in Fiscal 2011
New US Differentiated Range Tests in Fiscal 2011 43
Slide 44: US Historic Returns
US Historic Returns(1) (1) Operating Margin/Bad Debt (%) ROCE (%) 12.4 12.8 12.8 12.0 21.3 22.2 22.1 9.8 9.2 21.2 6.8 (3) 15.1 11.1 8.1(2) -2.7 -2.8 -3.0 -2.8 -3.4 -4.9 -5.6 06 07 05 04 09 10 08 04 05 06 07 08 09 10 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Fiscal 2004-2007 average: Fiscal 2004-2007
Slide 45: US Average Sales Per Store
US Average Sales Per Store Fiscal Fiscal Fiscal Fiscal Fiscal 2006 2007* 2008 2009 2010 Kay ($’000) 1,665 1,815 1,710 1,536 1,582 Regionals ($’000) 1,514 1,517 1,344 1,160 1,163 Jared ($’000) 5,453 5,676 5,341 4,491 4,046 Includes only stores operated for the full financial year * 53 week year 45
Slide 46: 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 challenging Ö Market share opportunity Ö capacity withdrawal Ö many remaining competitors operationally weakened and/or financially constrained Ö Potential
Slide 47: 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 US business transacted on in-house credit Ö Used by sales associates to trade customer up Ö higher ASP of about $1,000 Ö Highly effective target marketing vehicle Ö over 3 million account holders Ö loy
Slide 48: Signet's US Credit Operation
Signet’s US Credit Operation Ö 50% to 55% of US 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 par
Slide 49: US Receivables Performance
49 as % debt of US sales US net bad Fi sc a Fi l 1 0.0 1.0 2.0 3.0 4.0 5.0 6.0 sc 99 Fi al 1 7 sc 99 a Fi l 1 8 sc 99 a Fi l 2 9 sc 00 Fi al 2 0 sc 00 a Fi l 2 1 sc 00 a Fi l 2 2 sc 00 a Fi l 2 3 sc 00 Fi al 2 4 sc 00 a Fi l 2 5 sc 00 a Fi l 2 6 sc 00 Fi al 2 7 sc 00 a Fi l 2 8 sc 00 al 9 20 10 0.0
Slide 50: Improvement in Receivables Year To Date
Improvement in Receivables Year To Date 7.0 15.0 6.0 5.0 12.0 US net bad debt 4.0 9.0 Average as % monthly 3.0 collection of total 6.0 US sales 2.0 rate % 3.0 1.0 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 Fi
Slide 51: US Receivables Profile
US Receivables Profile Fiscal Fiscal Fiscal Fiscal Fiscal 2006 2007 2008 2009 2010 Average outstanding $841 $957 $997 $1,028 $1,016 balance Average monthly 14.5% 14.6% 13.9% 13.1% 12.5% collection rate Credit sales as % of 51.6% 51.7% 52.6% 53.2% 53.5% sales Net bad debt as % of 5.8% 5.3% 6.5% 9.2%
Slide 52: UK Division
UK Division “Making existing space work harder” 52
Slide 53: UK Long Term Industry Growth
UK 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 of National Statistics 53
Slide 54: UK Retail Market Map
UK Retail Market Map (ex. independents) £250 Leslie Davies Goldsmiths Ernest Jones HIGH Beaverbrooks H Samuel Estimated Average Transaction Value Argos Warren James LOW F. Hinds Half Price Supermarkets Jewellers £0 FEW MANY RANGE OF PRODUCTS 54
Slide 55: H.Samuel
H.Samuel Fiscal Fiscal Fiscal 2005 2009 2010 Sales (million) £282 £250 £248 Stores at y.e. 398 352 347 Average sales per store (‘000) £723 £718 £712 Average selling price £37 £48 £52 Merchandise mix Gold jewelry 31% 27% 28% Diamond jewelry 19% 22% 22% Watches 23% 26% 25% ÖCustomer’s household income
Slide 56: 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(1) Merchandise mix Gold jewelry 17% 13% 14% Diamond jewelry 40% 40% 39% Watches 31% 35% 35% ÖCustomer’s
Slide 57: Customer Oriented Format
Customer Oriented Format 7% 9% 15% 18% % of store numbers 22% 37% 41% 45% 46% 47% 29% 28% 22% 19% 16% 27% 22% 18% 17% 15% Fiscal Fiscal Fiscal Fiscal Forecast 2007 2008 2009 2010 fiscal 2011 HS Traditional EJ Traditional HS Customer oriented EJ Customer oriented 57
Slide 58: UK Store Count
UK Store Count Fiscal Fiscal Fiscal Fiscal Fiscal 2006 2007 2008 2009 2010 H.Samuel 386 375 359 352 347 Ernest Jones 207 206 204 206 205 Total 593 581 563 558 552 58
Slide 59: UK Sustainable Competitive Advantages
UK 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 f
Slide 60: UK Industry Leading Performance
UK 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 exclu
Slide 61: UK Historic Returns
UK Historic Returns(1) (1) Operating Margin (%) ROCE (%) 15.1 15.3 46.0 44.2 11.0 11.4 34.0 10.5 (2) 33.7 8.8 (2) 7.7 26.0 24.8 20.1 04 05 06 07 08 09 10 20 20 20 20 20 20 20 2004 2005 2006 2007 2008 2009 2010 Fiscal 2004-2007 average: Fiscal 2004-2007 average: 37.6% Operating Margin: 13.0% Ö Primar
Slide 62: Signet History
Signet History 1950 Incorporated and began to grow organically 1986-88 Acquired H.Samuel (337 stores), Ernest Jones (58 stores) and two other UK jewelry chains 1987 Acquired Sterling Inc. (117 stores), first US acquisition 1988 ADRs listed on NASDAQ 1988-90 Acquired three further US jewelry chains 1
Slide 63: Signet History
Signet History 2000 Terry Burman appointed Signet CEO while remaining CEO of the US division 2000 Acquired Marks & Morgan (137 stores) in US 2006 Mark Light appointed US division CEO 2008 Moved primary listing to NYSE from LSE 2010 Ron Ristau appointed CFO 2010 Mike Barnes announced as CEO Designate