Signet Jewelers Limited · NYSE:SIG
Signet Jewelers — UKSA June 2009
36 slides from Signet Jewelers's conference presentation, June 2009
Slide 1: Competitive Advantages Reinforcing Sector Leadership
“Competitive Advantages Reinforcing Sector Leadership” UKSA June 2009
Slide 2: World's Largest Specialty Jeweler
World’s Largest Specialty Jeweler Group sales $3,344 million – 76% US / 24% UK Kay Jewelers - #1 mid market brand H.Samuel - #1 in UK Sales: $1,439m Stores: 926 in 50 states Sales: £250m Stores: 352 Jared - #1 Off-Mall “Category Killer” Ernest Jones - #1 UK upper middle market Sales: $726m Stores: 1
Slide 3: Fiscal 2009 Results as Expected Before Goodwill Impairment
Fiscal 2009 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
Slide 4: Financial Overview
Financial Overview 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 Gearing(3) 29.2% 21.2% ROCE(3) 9.6% 17.3% (1) Cash flow from operations and investing activities (2) Excluding go
Slide 5: Sales Growth
Sales Growth US UK Group % % % Same store sales (9.7) (3.3) (8.2) Change in space 3.4 (0.5) 2.5 At constant exchange rates (6.3) (3.8) (5.7) Exchange translation - (12.0) (3.1) Total sales growth (6.3) (15.8) (8.8) 5
Slide 6: Operating Margin Movement Before Impairment and Relisting Costs
Operating Margin Movement Before Impairment and Relisting Costs US % UK % Group % Fiscal 2008 margin 9.8 11.4 9.8(1) Gross merchandise margin 1.2 - 0.9 Expense deleverage (3.8) (2.6) (3.5) New space (0.4) - (0.3) Fiscal 2009 margin 6.8 8.8 6.9(1) (1) Included unallocated costs, principally Group exp
Slide 7: Goodwill Impairment
Goodwill Impairment Ö Fiscal 2008 year end Ö reported under IFRS, $30.6m of purchased goodwill Ö Move to NYSE and adoption of US GAAP, additional purchased goodwill of $486.3m Ö additional purchased goodwill relates to transactions prior to 1991 Ö Fiscal 2009 year end Ö annual review and triggering
Slide 8: Amended Borrowing Agreements
Amended Borrowing Agreements Ö Key amendments Ö fixed charge cover reduced to 1.4x from c.1.85x Ö prepay $100m of Notes at par & accrued interest Ö revolver facility reduced to $370 million Ö fees & associated costs of $9.5 million Ö restrictions on shareholder distributions Ö Key features Ö fixed c
Slide 9: Group Strategy & Objectives
Group Strategy & Objectives Ö Group Strategy Ö enhance position as strongest middle market specialty retail jeweler Ö focus on profit & cash flow maximization to further strengthen balance sheet Ö reduce business risk Ö Group Financial Objectives in fiscal 2010 Ö $100 million US cost saving program
Slide 10: US Jewelry
US Jewelry “Further growth from a proven strategy” 10
Slide 11: US Market Characteristics
US Market Characteristics Ö $65.8 billion total jewelry market Ö c.50% world diamond sales Ö $28.3 billion specialty jewelry market Ö Signet US Ö market leader with 9.0% share Ö 1.5x size of second largest operator Ö sales driven by bridal (45%-50%) and gift giving categories Ö c.75% of sales diamon
Slide 12: Kay
Kay Fiscal 2005 Fiscal 2009 Sales (million) $1,174 $1,439 Stores at y.e. 742 926 Average sales per store (,000) $1,584 $1,536 Average selling price $282 $331 ÖCustomer’s household income $35k to $100k ÖSales c.40% greater than No.2 mid market brand ÖHigh store productivity ÖEvery store has a qualifi
Slide 13: Jared
Jared Fiscal 2005 Fiscal 2009 Sales (million) $415 $726 Stores at y.e. 93 171 Average sales per store (,000) $4,975 $4,491 Average selling price $644 $714 ÖCustomer’s household income $50k to $150k ÖConcept tested 1993 to 1997 ÖThird largest mid market brand ÖNational TV advertising since Christmas
Slide 14: Signet US Leading Performance
Signet US Leading Performance Operating EBIT/Total Average 2002 to 2007 Margin Assetsa Signet USb 12.0% 14.9% Zale Corpc 5.3% 8.8% Typical US Specialty Jewelerd 5.5% 7.7% Signet US 2008e 6.8% 7.5% Zale Corp 2008f (5.5)% (8.8)% a Total assets excludes goodwill b To y.e. February 2, 2008 c To y.e. Jan
Slide 15: Outperformance of Sector
Outperformance of Sector Q4 Fiscal 09 Q1 Fiscal 10 Same Store Gross Same Store Gross Sales Margin Sales Margin Signet US (16.1)% c.+250 bptsa (2.6)% +90 bpts a Zales (inc Canada) (17.9)% -530 bpts (20.0)% +260 bpts Finlay specialty jewelry c.(35.0)% n/a c.(20.0)% n/a Blue Nile (US) b c.(28.0)% c.-50
Slide 16: Drivers of Outperformance
Drivers of Outperformance Ö Excellence in customer service Ö staff training, development and incentivization programs Ö every store manager a diamontologist Ö Superior merchandising Ö leading middle market supply chain expertise and merchandising systems Ö ability to develop differentiated ranges Ö
Slide 17: Current Trading Environment
Current Trading Environment Ö Extremely challenging retail marketplace Ö lack of consumer confidence Ö highly promotional Ö Jewelry sector & supply chain very fragmented Ö Many competitors and suppliers in weak financial condition Ö Industry consolidation expected to continue at accelerated level 17
Slide 18: Accelerated Consolidation
Accelerated Consolidation Sales $m No. of stores Calendar 2008 2007 2002 2008 2007 2002 Kaya 1,439 1,490 1,011 926 894 676 Zalesab Gordonsab 1,554 { 1,089 329 1,004 321 1,045 { 789 282 757 298 Jareda 726 756 259 171 154 67 Fred Meyerde 410 465 475 386 400 442 Helzbergd 400 500 550 235 268 254 Friedm
Slide 19: US Initiatives
US Initiatives Ö Support store staff Ö maintain focus on training Ö Merchandising Ö offer superior value in unbranded ranges Ö further develop differentiated collections Ö target to at least maintain gross merchandise margin Ö Focus on network television advertising Ö $100 million expense savings pl
Slide 20: Reduce US Space Growth
Reduce US Space Growth Change Kay Kay in Mall Off Mall Regionals Jared Total Space 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% Opened 27 † 30 3 17 77 Closed (21) (4) (50)† - (75) Jan 2009 795 131 304 171 1,401 4% † Openings (fo
Slide 21: Profitable Market Share Opportunity
Profitable Market Share Opportunity Ö Fragmented and weak competition Ö Sector rationalization accelerating Ö Signet’s sustainable competitive advantages becoming greater Ö Benefits of market share gain through existing stores Ö improved operational leverage Ö limited additional investment required
Slide 22: UK Jewelry
UK Jewelry “Making existing space work harder” 22
Slide 23: UK Market Characteristics
UK Market Characteristics Ö Market size c.£5.5 billion Ö Signet market share c.10% Ö bigger than next 5 UK specialty competitors combined Ö c.60% larger than 3rd largest US mid market jeweler Ö Signet UK’s merchandise mix broader than US Ö Market condition & outlook very similar to US 23
Slide 24: H.Samuel
H.Samuel Fiscal 2005 Fiscal 2009 Sales (million) £282 £250 Stores at y.e. 398 352 Average sales per store (,000) £723 £718 Average selling price £37 £48 Merchandise mix Gold jewelry 32% 30% Diamond jewelry 19% 22% Watches 24% 26% ÖCustomer’s household income £15k to £40k ÖLeading middle market brand
Slide 25: Ernest Jones
Ernest Jones Fiscal 2005 Fiscal 2009 Sales (million) £221 £208 Stores at y.e. 204 206 Average sales per store (,000) £1,150 £1,047 Average selling price £141 £202 Merchandise mix Gold jewelry 25% 25% Diamond jewelry 36% 33% Watches 31% 35% ÖCustomer’s household income £30k to £50k ÖLeading upper mid
Slide 26: Industry Leader in UK
Industry Leader in UK Average 2002 to 2007 Operating Margin EBIT/Total Assetsa Signet UKb 12.7% 23.5% Typical UK Specialty 7.1% 10.3% Jewelersc Signet UK 2008d 8.8% 20.8% a Total assets excludes goodwill b To y.e. February 2, 2008 c Based on latest Companies House filings for 5 largest specialty jew
Slide 27: UK Initiatives
UK Initiatives Ö Focus on training and improving customer service Ö Increase key volume lines Ö Expand customer relationship marketing and increase proportion of 10 second TV adverts Ö Target gross merchandise margin somewhat down Ö Budget a stable cost base Ö Reduce inventory by c.$15 million Ö Cut
Slide 28: Fiscal 2010 Update
Fiscal 2010 Update JEWELERS
Slide 29: Q1 Results
Q1 Results Ö Significant progress made towards achieving financial objectives for fiscal 2010 Ö Same store sales down 2.9% Ö US down 2.6% Ö UK down 4.2% Ö Income before tax up 3.2% to $41.4m Ö Free cash inflow of $181.2m (Q1 fiscal 2009: outflow $3.4m) Ö net debt at end Q1 $290.2m (end Q1 fiscal 200
Slide 30: Strong Free Cash Flow Trend
Strong Free Cash Flow Trend Fiscal Fiscal Consensus $ million 2008 2009 Fiscal 2010 Adjusted net income(1) 333.6 259.8 c.215 Change in operating assets & liabilities (ex new US stores) (74.1) (28.9) c.85 Investing activities (ex new US stores) (79.3) (74.3) c.(45) Investment in new US stores(2) (178
Slide 31: Outlook
Outlook Ö Economic outlook remains very uncertain Ö Further significant capacity reductions from competitors Ö Opportunity to increase sector leadership by Ö focusing on reinforcing competitive advantages Ö gaining profitable market share in existing stores Ö quickly responding to changing condition
Slide 32: Regulation G
Regulation G JEWELERS
Slide 33: 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 34: 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
Slide 35: Fiscal 2010 Q1 Sales
Fiscal 2010 Q1 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
Slide 36: Fiscal 2010 Q1 Results
Fiscal 2010 Q1 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 b