Signet Jewelers Limited · NYSE:SIG
Signet Jewelers — Morgan Stanley Arizona Field Trip (April 2009)
42 slides from Signet Jewelers's conference presentation, April 2009
Slide 1: Competitive Advantages Reinforcing Sector Leadership
“Competitive Advantages Reinforcing Sector Leadership” April 2009
Slide 2: 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 3: World's Largest Specialty Jeweler
World’s Largest Specialty Jeweler Kay Jewelers - #1 in US H.Samuel - #1 in UK Sales: c.$1.4bn Stores: 926 in 50 states Sales: c.£250m Stores: 352 Jared - #1 Off-Mall “Category Killer” Ernest Jones - #1 UK upper middle market Sales: c.$700m Stores: 171 in 35 states Sales: c.£205m Stores: 206 3 As at
Slide 4: Very Challenging Environment
Very Challenging Environment Ö General consumer weakness Ö US specialty jewelry sales down 18.5% over Holiday Ö second poor Christmas for middle market Ö Volatile commodity costs Ö Weak operators causing short term disruption Ö Outlook uncertain, concerns over increasing unemployment 4
Slide 5: Reasons to Invest in Signet
Reasons to Invest in Signet Ö People will continue to buy jewelry Ö bridal Ö gift giving Ö self reward Ö Accelerated sector rationalization underway Ö fragmented market • c.25,000 specialty doors in US • 22,623 firms with sales of $29 billion Ö Sustainable competitive advantages based on: Ö scale Ö
Slide 6: Signet US Leading Performance
Signet US Leading Performance Sales Operating EBIT/Total Growth Margin Assetsa 5 year 5 year 5 year c.a.g.r. average average Signet USb 9.4% 12.0% 14.9% Zale Corpc (0.9)% 4.8% 8.2% Typical US Specialty 4.4% 5.5% 7.7% Jewelerd a Total assets excludes goodwill b To y.e. February 2, 2008 c To y.e. Janu
Slide 7: Outperformance over Holiday 2008
Outperformance over Holiday 2008 Same Store Sales Gross Margin Signet US (16.1)% c.+250 bptsa Zales (inc Canada) (17.9)% -530 bpts Finlay specialty jewelry c.(35.0)% na Blue Nile (US) c.(28.0)%b c.-50 bptsc Birks & Mayors (US) (28.0)% -590 bptsc Shane (32.0)%d na Tiffany (US) (35.0)% na a Gross merc
Slide 8: Accelerated Consolidation
Accelerated Consolidation Sales $m No. of stores 2007 2002 2007 2002 Kaya 1,490 1,011 894 676 Zalesab 1,089 1,004 789 757 Jareda 756 259 154 67 Helzbergd 500 550 268 254 Fred Meyerde 465 475 400 442 Gordon’sab 329 321 282 298 Friedman’scd 300 674 Liquidated 2008 665 Bailey Banks & Biddleab 284 315 6
Slide 9: Results as Expected Before Goodwill Impairment
Results as Expected Before Goodwill Impairment Ö Exceptional market conditions Ö Same store sales down 8.2% Ö Sales down 8.8%, down 5.7% at constant exchange rates Ö $200.9 million income before income tax, impairment and relisting costs Ö impairment charge of $516.9 million Ö relisting cost $10.5 m
Slide 10: Financial Strength
Financial Strength Fiscal Fiscal 2009 2008 Free cash flow(1) $51.1m $1.4m Movement in net debt $(96.1)m $(141.4)m Interest cover(2) 7.9 x 15.9 x Original fixed charge cover 1.47 x 1.77 x Revised fixed charge cover 1.93 x 2.36 x Gearing(3) 29.2% 21.2% ROCE(3) 9.6% 17.3% (1) Cash flow from operations
Slide 11: Amended Borrowing Agreements
Amended Borrowing Agreements Ö Key amendments Ö fixed charge cover reduced to 1.4x from c1.85x Ö prepay $100m of Notes at par & accrued interest Ö revolver facility reduced to $370 million Ö fees & associated costs of $9.5 million in fiscal 2010 Ö restrictions on shareholder distributions Ö Key feat
Slide 12: Group Strategy & Objectives
Group Strategy & Objectives Ö Group Strategy Ö enhance position as strongest middle market specialty retail jeweler Ö reduce business risk Ö focus on profit & cash flow maximization to further strengthen balance sheet Ö Group Objectives in fiscal 2010 Ö $100 million US cost reduction program Ö signi
Slide 13: Industry Leader in UK
Industry Leader in UK Öc.60% larger than 3rd largest US mid market jeweler ÖBigger than next 5 UK competitors combined ÖSimilar sustainable competitive advantage to US division ÖStrong financial performance 5 year average Operating Margin EBIT/Total Assetsa Signet UKb 12.7% 23.5% Typical UK Specialt
Slide 14: UK Fiscal 2010 Objectives
UK Fiscal 2010 Objectives Ö Very challenging marketplace Ö Strengthen competitive position Ö Gross merchandise margin somewhat below fiscal 2009 Ö higher cost of gold & weakness of pound Ö Stable cost base Ö Reduce inventory by c.$15 million Ö Capex reduced by $24m to c.$15 million Ö First 7 weeks s
Slide 15: Competitive Advantages Reinforcing Sector Leadership
Competitive Advantages Reinforcing Sector Leadership Mark Light CEO US Division
Slide 16: Sustainable competitive advantages
Sustainable competitive advantages Ö Superior customer service Ö Leading supply chain expertise in mid market Ö Proven demand pull merchandising processes Ö Leading share of voice with consistent message in marketing Ö High quality real estate Ö Most appropriate credit offer Ö Experienced jewelry se
Slide 17: Importance of Service
Importance of Service Ö Sales associate critical to every transaction Ö recruit the best and the brightest Ö final 2 feet of supply chain vital Ö Customer seeking reassurance Ö important emotional purchase Ö lacking product knowledge Ö fear of the unknown Ö every product under lock and key Ö Build t
Slide 18: Recruitment & Training a Priority
Recruitment & Training a Priority Ö Right attitude, not experience is key Ö Consistent development of all staff, at all levels Ö Training integrated with merchandising & marketing Ö Execution of programs carefully planned and monitored Ö Training needs regularly reviewed Ö All senior field managemen
Slide 19: Clear Measurable Objectives
Clear Measurable Objectives 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 Coaching Ö store manager coaches staff Ö peer sup
Slide 20: Strongly Incentivized Team
Strongly Incentivized Team Ö 15% - 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 training to be profit business managers Ö District Mana
Slide 21: Performance Matrix
Performance Matrix Ö Helps field operations identify, understand, prioritize and schedule tasks Ö Increased gross margin through greater process monitoring and compliance Ö Improved productivity of district and store managers Ö Better feedback and problem resolution Ö Enhanced workload optimization
Slide 22: GMROI Focused
GMROI Focused Ö Utilize “Pull” merchandise methodology Ö jewelry category has slow changes in fashion Ö test and run every product/program Ö rapid response to emerging trends Ö merchandising of stores reflects local demographic and regional variations Ö maximizes sales, minimizes mistakes 22
Slide 23: US Merchandise Margin Initiatives
US Merchandise Margin Initiatives Ö Maximize gross merchandise margin $ Ö continue pricing discipline Ö commodity costs volatile Ö use supply chain expertise Ö further develop exclusive merchandise Ö Year to date Ö meaningful increase Ö wrap around of price and merchandise mix changes Ö Target is to
Slide 24: 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 25: Marketing Leadership
Marketing Leadership Ö “Every kiss begins with Kay” Ö largest marketing budget in sector Ö consistent message over time and across media Ö Regional brands Ö very well established local identities Ö “He went to Jared” Ö nearly double typical advertising / sales support Ö established clear brand ident
Slide 26: Scale to Use National Advertising
Scale to Use National Advertising 250 8 200 7 Advertising spend, $m 6 150 5 % revenue 4 100 3 2 50 1 0 0 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 Sterling: Advertising gross of vendor contributions Zale Corp: y.e. July, advertising net of vendor contributions, including Canada 26
Slide 27: Kay
Kay 2003/04 2008/09 Sales (million) $1,080 $1,439 Stores at y.e. 717 926 Average sales per store (000) $1,528 $1,536 ÖSales c.40% greater than No.2 brand in market Öhigh store productivity ÖEvery store has a qualified diamontologist ÖSuccessful development of off-mall formats Öincrease marketing lev
Slide 28: Jared
Jared 2003/04 2008/09 Sales (million) $323 $726 Stores at y.e. 79 171 Average sales per store (000) $4,573 $4,491 Ö Concept tested 1993 to 1997 Ö Rolled out over last 10 years to be third largest mid market brand Ö National network TV advertising commenced Christmas 2007 Ö At maturity store contribu
Slide 29: Reduce Space Growth
Reduce Space Growth Kay Kay Off Mall Mall Regionals Jareda Total Change Jan 2007 772 60 341 135 1,308 11% Opened 23 45 21 19 108 Closed (6) - (11) - (17) Jan 2008 789 105 351 154 1,399 10% b Opened 27 30 3 17 77 b Closed (21) (4) (50) - (75) Jan 2009 Expected 795 131 304 171 1,401 4% Openings (forec
Slide 30: Receivables Performance
Receivables Performance 10.0 15.0 9.0 8.0 12.0 7.0 Net bad Average 6.0 9.0 debt monthly 5.0 collection as % 4.0 6.0 rate % of credit 3.0 sales 2.0 3.0 1.0 0.0 0.0 9 19 7 19 8 19 9 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 20 8 /9 /9 /9 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 08 96 97 98 99 00 01 02 03 04 05 06
Slide 31: Reasons for In-house Credit
Reasons for In-house Credit Ö Important element of jewelry sales transaction Ö Credit risk hidden not eliminated by outsourcing Ö Factors under our control Ö score cards Ö collection strategies Ö customer service Ö Competitive sales advantage 31
Slide 32: Proven Management
Proven Management Ö Strategic record Ö strict investment disciplines Ö culture of continuous improvement Ö test before investing Ö Ability to implement Ö depth of experience Ö systems & procedures in place Ö speed of response Ö driven by micro performance Ö Consistency of execution 32
Slide 33: Management Priorities in 2010
Management Priorities in 2010 Ö Reinforce position as market leader Ö leverage competitive strengths Ö maximise gross merchandise dollars Ö Reduce risk Ö meaningful expense saving program Ö eliminate space growth Ö Cash generation Ö maximize profit Ö significant inventory reduction Ö greatly reduced
Slide 34: US Sales Initiatives
US Sales Initiatives Ö Support store staff Ö maintain focus on training Ö Merchandising Ö offer superior value in unbranded ranges Ö further develop exclusive collections Ö Focus on network television advertising Ö Same store sales down 2.7% in first 7 weeks Ö Valentine’s Day trading stronger than t
Slide 35: US Expense Initiatives
US Expense Initiatives Ö Expense pressures Ö anticipate 1% to 2% inflation Ö negligible net space impact Ö further increase in bad debt Ö $100 million expense savings planned Ö store related Ö home office related Ö advertising Ö $13 million one-off benefit from change in vacation policy 35
Slide 36: US Inventory Initiatives
US Inventory Initiatives Ö Net change in space neutral Ö Elimination of remaining rough inventory Ö Minimize non-productive inventory Ö Focus on GMROI Ö be responsive to consumer buying patterns Ö accelerate clearance process Ö Reduce ‘open to buy’ Ö C.$90 million inventory reduction target 36
Slide 37: US Capital Expenditure Initiatives
US Capital Expenditure Initiatives Fiscal Fiscal Fiscal $ million 2010 plan 2009 2008 New stores 14.9 39.0 60.1 Other stores 7.7 17.3 28.0 Other 13.0 20.4 23.0 Total 35.6 76.7 111.1 Ö New store capex down 62% in fiscal 2009 Ö Consistent historic investment Ö delay refits where appropriate Ö defer ce
Slide 38: Profitable Market Share Opportunity
Profitable Market Share Opportunity Ö Long term industry growth Ö Fragmented sector Ö Rationalization accelerating Ö Gain share through improved store productivity Ö Signet performance based on Ö superior retail execution Ö leading operating metrics Ö strong balance sheet Ö proven management 38
Slide 39: Competitive Advantages Reinforcing Sector Leadership
“Competitive Advantages Reinforcing Sector Leadership” April 2009
Slide 40: Regulation G
Regulation G JEWELERS
Slide 41: Fiscal 2009 Sales
Fiscal 2009 Sales The Group has historically used constant exchange rates to compare period-to-period changes in certain financial data. This is referred to as ‘at constant exchange rates’ throughout this presentation and constitutes a “non GAAP financial measure”. The Group considers this to be a u
Slide 42: Fiscal 2009 Operating Loss
Fiscal 2009 Operating Loss The Group has historically used constant exchange rates to compare period-to-period changes in certain financial data. This is referred to as ‘at constant exchange rates’ throughout this presentation and constitutes a “non GAAP financial measure”. The Group considers this
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