Signet Jewelers Limited · NYSE:SIG
Signet Jewelers — FY2010 Earnings Presentation
34 slides from Signet Jewelers's earnings presentation, Mar 25, 2010
Slide 1: Results Presentation Year Ended January 30, 2010
Results Presentation Year Ended January 30, 2010 March 25, 2010
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: Fiscal 2010 Results Above January Expectations
Fiscal 2010 Results Above January Expectations Ö Same store sales little changed, down 0.4% Ö Sales down 1.6%, up 0.6% at constant exchange rates Ö $241.8 million income before income tax Ö up 13.7% on an underlying basis(1) Ö Tax rate 32.1% (fiscal 2009: underlying 33.5%) Ö EPS $1.92 (fiscal 2009:
Slide 4: Factors Contributing to Above Expectations Performance
Factors Contributing to Above Expectations Performance Ö January performance Ö sales exceeding expectations Ö Fourth quarter gross merchandise margin benefit Ö Expenses Ö net bad debt Ö other cost savings Ö Favorable inventory count 4
Slide 5: Significantly Strengthened Balance Sheet
Significantly Strengthened Balance Sheet Fiscal Fiscal 2010 2009 Free cash flow(1) $471.9m $51.1m Decrease/(increase) in net $462.8m $(96.1)m debt(2) Fixed charge cover 2.04x 1.93x Interest cover 8.1x 7.9x(3) Gearing 0.4% 29.2% ROCE 11.4% 9.6%(4) (1) Cash flow from operations and investing activitie
Slide 6: Sales Growth
Sales Growth US UK Group % % % Same store sales 0.2 (2.4) (0.4) Change in space 0.6 2.3 1.0 At constant exchange rates 0.8 (0.1) 0.6 Exchange translation - (9.2) (2.2) Total sales growth 0.8 (9.3) (1.6) 6
Slide 7: Operating Margin Movement
Operating Margin Movement US % UK % Group % Underlying fiscal 2009 margin(1) 6.8 8.8 6.9(2) Gross merchandise margin 0.4 (0.2) 0.2 Expenses leverage / deleverage 1.5 (0.9) 0.9 Underlying fiscal 2010 margin 8.7 7.7 8.0(2) US vacation entitlement policy 0.5 - 0.4 change Fiscal 2010 margin 9.2 7.7 8.4(
Slide 8: Cash Inflow More Than Double Fiscal 2010 Objective
Cash Inflow More Than Double Fiscal 2010 Objective Fiscal 2010 2009 Net income adjusted for non-cash items(1) 293.9 259.8 Change in operating assets and liabilities Underlying (ex US space growth) 250.4 20.7 US space growth (28.2) (66.5) Forex impact on currency swaps (0.7) (49.6) 221.5 (95.4) Net c
Slide 9: Substantially Eliminated Net Debt of $470 Million
Substantially Eliminated Net Debt of $470 Million Fiscal 2010 2009 Opening net debt(1) (470.7) (374.6) Free cash flow(2) 471.9 51.1 Net shareholder distribution(3) - (123.8) Net change in common shares 1.0 0.1 Facility amendment fees (9.3) - (7.1) (447.2) Foreign exchange impact (0.8) (23.5) Closing
Slide 10: Changes In Borrowing Structure
Changes In Borrowing Structure Ö $50.9 million prepayment at par to note holders Ö $229.1 million remains outstanding Ö Revolving credit facility reduced to $300 million from $370 million Ö Maintain considerable financial flexibility Ö Reduce expected financing costs during fiscal 2011 10
Slide 11: Fiscal 2010 Operating Review
Fiscal 2010 Operating Review 11
Slide 12: Consistent Gains in US Market Share
Consistent Gains in US Market Share(1) 1999 2004 2007 2008 2009 Signet 4.9% 7.5% 9.0% 9.0% 9.4% Zale(2) 6.4% 7.8% 6.5% 5.8% 5.1% Tiffany 2.8% 3.9% 4.9% 5.2% 4.7% Blue Nile 0.1% 0.6% 1.0% 0.9% 1.0% Finlay(2) nil nil 0.7% 1.1% Liquidated Friedman 1.2% 1.5% na Liquidated - Whitehall 1.1% 1.1% 0.9% Liqu
Slide 13: US Performance Drivers
US Performance Drivers Ö Gained profitable market share Ö superior customer service Ö successful merchandising initiatives Ö focus on TV advertising Ö Achieved gross merchandise margin target Ö further rise in gold costs offset by lower diamond prices Ö more differentiated merchandise balanced by in
Slide 14: Accounts Receivable Performance
Accounts Receivable Performance Ö Driven by macro-economic factors Ö Signet’s credit standards unchanged Ö initial signs of stabilization Ö Fiscal 2010 performance Ö participation up 30bpts to 53.5% Ö net bad debt to total sales up 0.7% to 5.6% Ö collection rate down 60 bpts to 12.5% per month Ö acc
Slide 15: US Receivables Performance
15 as % debt sales of total 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 16: UK Performance Drivers
UK Performance Drivers Ö Maintained pound sterling sales Ö focus on staff training Ö successful merchandising initiatives Ö customer relationship marketing increased Ö Exceeded gross merchandise margin target Ö prices increases largely offset higher cost of goods Ö Pound sterling expenses slightly a
Slide 17: Operating Strategy for Fiscal 2011
Operating Strategy for Fiscal 2011 17
Slide 18: Broadly Maintain Successful Group Strategy
Broadly Maintain Successful Group Strategy 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 Ö mainta
Slide 19: US Specialty Sector Consolidation
US Specialty Sector Consolidation Ö About 1,800 net stores closed in 2008 Ö Friedman Ö Whitehall Ö Estimate that 750 to 1,500 closed in 2009 Ö Zales ~160 Ö Finlay specialty ~108 Ö Signet US 40 Ö Higher than normal level expected in 2010 19
Slide 20: US Differentiated Merchandise
US Differentiated Merchandise Ö Demonstrated unique ability in mid market Ö Over 1,300 stores, sales of more than $2,500mn Ö national television advertising Ö built executional expertise Ö strong balance sheet Ö now “go to” retailer for vendors Ö Advantages Ö stand out from competitors Ö less vulner
Slide 21: US Merchandise Margin Drivers
US Merchandise Margin Drivers Ö Commodity costs Ö diamond prices up on Q1 fiscal 2010 but down on fiscal 2009 • ~55% COGS Ö year to date gold costs up 23% calendar 2010 v calendar 2009 • ~20% COGS • implementing price increases for selected merchandise Ö Use balance sheet strength to our advantage Ö
Slide 22: Tight Control of US Expenses
Tight Control of US Expenses Ö Controllable expenses forecast to be broadly flat Ö benefit from net space reduction Ö Adverse impact from: Ö absence of $13.4 million one-off benefit from change in vacation entitlement policy Ö direct adverse impact of TiLA in fiscal 2011 estimated as net $15-20 mill
Slide 23: US Changes in Square Footage
US Changes in Square Footage Kay Change Kay Off in Mall Mall Regionals Jared* Total Space Jan 2008 789 105 351 154 1,399 10% Opened 27 † 30 3 17 77 † Closed (21) (4) (50) - (75) Jan 2009 795 131 304 171 1,401 4% Openings 5† 3 1 7 16 † Closures (6) (5) (45) - (56) Jan 2010 794 129 260 178 1,361 (1)%
Slide 24: Planned Increase in US Capital Expenditure
Planned Increase in US Capital Expenditure Fiscal Fiscal Fiscal $ million 2011 plan 2010 2009 New stores ~5 10.1 39.0 Other stores ~35 8.1 17.3 Other ~20 12.9 20.4 Total ~60 31.1 76.7 Ö Other store capex up ~$27m on fiscal 2010 Ö 16 Jared remodels Ö 22 Kay remodels Ö Return MIS spend to historic lev
Slide 25: UK Sales & Merchandise Margin
UK Sales & Merchandise Margin Ö Sales initiatives in fiscal 2011 Ö maintain focus on training & customer service Ö test & develop new ranges, including differentiated ranges Ö continue development of customer relationship marketing Ö Gross merchandise margin outlook Ö gold cost increases Ö impact of
Slide 26: UK Cost Initiatives
UK Cost Initiatives Ö Moderate underlying inflationary pressures Ö Opportunities Ö improved store staff scheduling Ö reduced property costs Ö focus on major centers, close 15 stores Ö Cost base targeted to be slightly lower in pounds sterling 26
Slide 27: Planned Increase in UK Capital Expenditure
Planned Increase in UK Capital Expenditure Fiscal Fiscal Fiscal £ million 2011 plan 2010 2009 Stores ~8.5 6.7 18.4 Other ~5.0 1.2 3.4 Total ~13.5 7.9 21.8 Ö Store expenditure up £2m on fiscal 2010 Ö 23 store refurbishments & resites planned Ö ~40 more store redecorations budgeted Ö Increased investm
Slide 28: Free Cash Flow Objective Fiscal 2011
Free Cash Flow Objective Fiscal 2011 Ö Fiscal 2011 free cash inflow objective of between $150 million and $200 million Ö limited scope for a further substantial reduction in working capital Ö Uncertain cash flow impact from amendments to Truth in Lending Act Ö Capital expenditure planned to be ~$80
Slide 29: Current Trading Update
Current Trading Update Ö Encouraging start to the year Ö uncertain economic outlook, particularly in the UK Ö consumer expenditure remains constrained Ö US same store sales up 7.8% Ö Jared performing especially strongly Ö weakened competition Ö UK same store sales down 0.1% Ö better performance by E
Slide 30: Regulation G
Regulation G JEWELERS
Slide 31: Fiscal 2010 Sales
Fiscal 2010 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 32: Fiscal 2010 Results
Fiscal 2010 Results 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
Slide 33: Net Debt
Net Debt Net debt is a “non GAAP financial measure”. Management considers it to be a useful additional measure for analyzing and explaining changes and trends in Signet’s financial position. It is calculated as set out below: January January 30, 2010 31, 2009 $m $m Long-term debt (280.0) (380.0) Loa
Slide 34: Free Cash Flow
Free Cash Flow Free cash flow is a “non GAAP financial measure” defined as the net cash provided by operating activities less net cash flows used in investing activities. Management considers that this is helpful in understanding how the business generating cash from its operating and investing acti