Signet Jewelers Limited · NYSE:SIG
Signet Jewelers — FY2008 Earnings Presentation
97 slides from Signet Jewelers's earnings presentation, Apr 9, 2008
Slide 1: Results Presentation Year Ended 2 February 2008
Results Presentation Year Ended 2 February 2008 9 April 2008 1
Slide 2: Safe Harbor Statement
Safe Harbor Statement (Private Securities Litigation Reform Act of 1995) This release includes 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 made
Slide 3: Results
Results Change 52 weeks constant 2007/08 2006/07 Reported exchange 52 weeks 53 weeks Change rates(1) Like for like sales (0.7)% 4.8% Sales $3,665.3m $3,559.2m 3.0% 3.2% Profit before tax $333.5m $400.8m (16.8)% (17.7)% Earnings per share 12.6c 15.4c (18.2)% (19.2)% Dividend per share 7.277c 7.162c(2
Slide 4: Balanced Use of Capital
Balanced Use of Capital Investment Investment to to improve improve the the business business •maintain •maintainhigh highquality qualityof ofassets assets (2007/08: (2007/08:maintenance maintenancecapex capex$79m) $79m) •new •newspace spacegrowth growth(2007/08: (2007/08:$179m $179minvestment) inve
Slide 5: Actions for 2008/09
Actions for 2008/09 Ö Changed background Ö challenging economic environment Ö international credit market uncertainty Ö Appropriately prudent approach taken Ö cost reduction programme Ö more moderate store investment programme Ö Net debt expected to increase by c.$60 million in 2008/09 Ö Maintain st
Slide 6: US Jewellery
US Jewellery “Further growth from a proven strategy” 6 6
Slide 7: US Results
US Results Change 52 weeks constant 2007/08 2006/07 Reported exchange 52 weeks 53 weeks Change rates(1) Sales $2,705.7 $2,652.1m 2.0% 4.1% Like for like sales (1.7)% 6.2% Operating profit $262.2m $326.7m (19.7)% (19.6)% Operating margin 9.7% 12.3% ROCE 14.9% 21.5% (1) See slides 47/48 for reconcilia
Slide 8: Industry Leading Performance
Industry Leading Performance Ö Operating margin (5 year average) Ö Signet US – 12.0%(a) Ö Zale Corp. – 4.8% (b) Ö Typical US speciality jeweller – 5.4% (c) Ö EBIT / Total Assets (5 year average) Ö Signet US – 14.9%(a) Ö Zale Corp. – 8.2% b Ö Typical US speciality jeweller – 7.7% (c) (a) To y.e. 2 Fe
Slide 9: Business Development Highlights
Business Development Highlights Ö New store space +10% Ö Completed roll-out of enhanced training procedures Ö Continued development of rough diamond initiative Ö Expansion of exclusive merchandise ranges Ö Start of national network TV advertising for Jared Ö Continued improvement of in-store executi
Slide 10: US Trading Environment
US Trading Environment Ö Current Ö macro economic driven issues Ö record gold price Ö accelerated consolidation anticipated Ö y.t.d. like for like sales down c.4% Ö Longer term Ö increasing demand for jewellery Ö number of weddings forecast to increase Ö jewellery prices supported by imbalance in di
Slide 11: Consolidation in US Market
Consolidation in US Market Estimated US Speciality Jewellery(1) Market Share 1998 2005 2006 2007 Signet US(2) 4.9% 8.2% 8.8% 8.8% Zale Corp. US(2) 6.4% 7.7% 7.3% 6.4% Chains ranked 3-7(3) 8.4% 10.3% 10.0% n/a Chains ranked 8-15(3) 5.4% 5.4% 6.2% n/a Other speciality jewelers 74.9% 68.3% 67.6% n/a (s
Slide 12: Response to Current Environment
Response to Current Environment Ö Manage business tightly Ö closely monitor gross margin dollars Ö strict control of inventory Ö cost realignment Ö consistent credit standards and procedures Ö stringent real estate investment criteria with sales models stressed 12 12
Slide 13: Dynamics of Gross Margin
Dynamics of Gross Margin Ö Diamonds Ö c.50% of cost of goods sold in 2007/08 Ö polished diamond prices little changed in 2006/07 & 2007/08 Ö increasing pressure from higher rough prices Ö Gold Ö c.20% of cost of goods sold in 2007/08 Ö gold costs +c.30% pa in 2006/07 & 2007/08 Ö further significant
Slide 14: New Pricing Architecture
New Pricing Architecture Ö Extensive analysis and planning Ö Implementation Ö increases in basic and fashion ranges Ö clear communications to sales associates Ö efficient execution in store Ö enhanced training in overcoming customer objections Ö additional targeted promotional activity Ö Competitor
Slide 15: Cost Control Action
Cost Control Action Ö Realign marketing spend Ö Flex store staffing Ö minimum level required Ö retain well trained, motivated staff Ö Home office Ö freeze staffing levels Ö focus on short term initiatives Ö trim miscellaneous costs Ö Improve operating procedures Ö benefits of Sterling Performance Ma
Slide 16: Reduced Space Growth in 08/09
Reduced Space Growth in 08/09 Planned net 2 February openings Long term Store numbers 2008 2008/09 potential Kay Mall 789 6 850+ Off-mall 92 19 500+ Outlet centres 10 8 50-100 Metropolitan 3 nil 30+ Kay Total 894 33 1,430+ Regionals 351 (14) c.700 Jared* 154 17 c.300 Total 1,399 36 2,430+ * A Jared
Slide 17: Kay
Kay 2002/03 2007/08 Sales (million) $1,011 $1,490 Stores at y.e. 676 894 Average sales per store (000) $1,470 $1,710 Ö Sales c.40% greater than No.2 brand in market Ö High brand name recognition driven by multi channel marketing Ö Net increase of 62 stores in fiscal 2008 Ö Planned net increase of 33
Slide 18: Jared
Jared 2002/03 2007/08 Sales (million) $259 $756 Stores at y.e. 67 154 Average sales per store (000) $4,277 $5,341 Ö Only c.44% of stores more than 5 years old Ö National network TV advertising commenced Christmas 2007 Ö National radio advertising planned 2008/09 18 18
Slide 19: Jared Performance
Jared Performance Actual 2007/08 Average of 6+ years $6.4m sto re sales $m A verag e 1% 3% 5 20% 18% 6% 19 24 18 14 12 12 12 15 13 8 7 stores stores stores stores stores stores stores stores 0 stores stores stores ar ar ar ar ar ar ar ar r d s ea c te ye ye ye ye ye ye ar ye ye ty ye o je h h h h h
Slide 20: Regional Brands
Regional Brands 2002/03 2007/08 Sales (million) $461 $460 Stores at y.e. 307 351 Average sales per store (000) $1,536 $1,344 Ö New markets not meeting sales expectations Ö Limit openings to areas with marketing support Ö Review stores applying strict ROCE and return on marketing standard Ö Acquisiti
Slide 21: Growing Off-mall Presence
Growing Off-mall Presence % of Total Space % of Space Growth 24% 27% 29% 32% 33% 36% 44% 69% 50% 1% 66% 59% 62% 1% 2% 4% 6% 7% 10% 12% 38% 11% 15% 75% 72% 44% 69% 64% 40% 61% 57% 29% 23% 22% 18% -7% 4 5 6 7 8 t t /0 /0 /0 /0 /0 as /0 4 /0 5 /0 6 /0 7 /0 8 ca s 03 04 05 06 07 rec 03 04 05 06 07 re 0
Slide 22: UK Jewellery
UK Jewellery “Making existing space work harder” 22 22
Slide 23: UK Results
UK Results Change 52 weeks constant 2007/08 2006/07 Reported exchange 52 weeks 53 weeks Change rates(1) Sales $959.6m $907.1m 5.8% 0.9% Like for like sales 2.0% 1.2% Operating profit $105.1m $103.4m 1.6% (1.3)% Operating margin 11.0% 11.4% ROCE 29.9% 32.7% (1) See slides 47/48 for reconciliation 23
Slide 24: Business Development Highlights
Business Development Highlights Ö Continued to develop training programmes Ö Successfully tested enhanced Ernest Jones store design Ö More effective H.Samuel TV advert Ö Increased product availability Ö Better targeted promotional activity Ö Introduced branded store card via third party Ö Reduced nu
Slide 25: Trading Environment
Trading Environment Ö Uncertain macro economic background Ö pressure on discretionary disposable income Ö inflationary concerns limiting interest rate cuts Ö employment stable Ö increase in sterling cost of gold Ö y.t.d. like for like sales up mid single digits Ö Response Ö tight control of costs an
Slide 26: Ernest Jones
Ernest Jones 2002/03 2007/08 Sales (million) £188.0 £219.4 Stores at y.e. 192 204 Average sales per store (000) £1,030 £1,105 Ö Like for like sales up 2.9% in fiscal 2008 Ögood growth in watch sales Ödiamond body jewellery weak Ö Very encouraging performance from enhanced store design 26 26
Slide 27: Benefits of Enhanced Design
Benefits of Enhanced Design Ö Increased differentiation Ö Enhanced utilisation of store space Ö Expanded display of watches, with clearer branding Ö Improved diamond bridal sales area 27 27
Slide 28: H.Samuel
H.Samuel 2002/03 2007/08 Sales (million) £279.0 £256.7 Stores at y.e. 418 359 Average sales per store (000) £677 £722 Ö Like for like sales up 1.3% in fiscal 2008 Ö Successfully repositioning brand Ö greatly improved customer service Ö more customer oriented store design Ö rationalised merchandise r
Slide 29: Improve H.Samuel Returns
Improve H.Samuel Returns Ö Focus on larger centres Ö reflect customers’ shopping patterns Ö net 27 stores closed over last two years, net c.12 planned in 2008/09 Ö Improved returns due to store closures Ö release working capital Ö marginal profit contribution Ö transfer sales help drive productivity
Slide 30: Customer Oriented Format
Customer Oriented Format 7% 9% 18% % of store numbers 26% 30% 37% 41% 47% 51% 52% 29% 28% 19% 27% 12% 9% 22% 16% 11% 9% 2006/07 2007/08 Forecast Forecast Forecast 2008/09 2009/10 2010/11 HS Traditional EJ Traditional HS Customer oriented EJ Customer oriented 30 30
Slide 31: Group Summary
Group Summary Ö Continue to implement proven strategy Ö Adjust execution to very challenging trading environment Ö tight control of costs, gross margins and inventory Ö closely monitor receivables Ö disciplined investment Ö Maintain strong balance sheet 31 31
Slide 32: Financial Review
Financial Review SIGNET 32
Slide 33: Financial Highlights
Financial Highlights 2007/08 2006/07 Reported Change 52 weeks basis constant exchange rates(1) Sales $3,665.3m $3,559.2m 3.0% 3.2% Profit before tax $333.5m $400.8m (16.8)% (17.4)% Earnings per share 12.6c 15.4c (18.2)% (18.7)% Dividend per share 7.277c 7.162c 1.6% Interest cover 19.7 27.0 Fixed cha
Slide 34: 2007/08 Sales Growth
2007/08 Sales Growth US UK Group % % % Like for like on a 52 week basis (1.7) 2.0 (0.7) Change in space 5.8 (1.1) 3.9 Exchange translation - 6.5 1.7 4.1 7.4 4.9 Impact of 53rd week in 2006/07 (2.1) (1.6) (1.9) Total sales growth 2.0 5.8 3.0 34 34
Slide 35: Profit Analysis
Profit Analysis 2007/08 2006/07 at 2006/07 constant reported $m rate $m $m US Jewellery 262.2 326.2 326.2 UK Jewellery 105.1 106.5 100.1 Group costs (16.0) (14.8) (13.9) Operating profit 351.3 417.9 412.4 Net financial expense (17.8) (14.2) (14.8) Profit before tax 333.5 403.7 397.6 Benefit of 53rd
Slide 36: Operating Margin Movement
Operating Margin Movement US % UK % Group % 2006/07 margin 12.3 11.4 11.7 53rd week 0.2 (0.2) 0.1 2006/07 52 week basis 12.5 11.2 11.8 Gross margin (0.3) (0.6) (0.4) Expense leverage (1.9) 0.4 (1.4) New space (0.6) - (0.4) 2007/08 margin 9.7 11.0 9.6 36 36
Slide 37: Receivables
Receivables Ö Tight range of performance over last 10 years Ö Consumer’s financial position deteriorating Ö Increased net bad debt somewhat offset by additional income due to reduction in collection rate Ö Enhanced collection procedures Ö Financed by long term borrowings and retained earnings 37 37
Slide 38: Full Year Receivables Performance
Full Year Receivables Performance 10.0 15.0 9.0 8.0 12.0 7.0 6.0 9.0 Net bad 5.0 Average debt monthly as % 4.0 6.0 collection of credit 3.0 rate % sales 2.0 3.0 1.0 0.0 0.0 19 8 19 9 20 0 20 1 20 2 20 3 20 4 20 5 20 6 20 7 8 /9 /9 /0 /0 /0 /0 /0 /0 /0 /0 /0 97 98 99 00 01 02 03 04 05 06 07 19 38 38
Slide 39: Taxation
Taxation Ö 2007/08 tax rate at 35.5% Ö change in geographic mix Ö favourable resolution of certain prior year tax positions Ö Tax rate in 2008/09 Ö remain at about 35.5% Ö subject to outcome of various uncertain tax positions Ö Tax payments in 2008/09 Ö decrease reflecting lower Q4 2007/08 profit 39
Slide 40: Operating Cash Flow
Operating Cash Flow 2007/08 2006/07 $m $m Operating cash flows 465.7 519.9 Change in working capital (52.2) (54.1) (ex US space growth) Net interest paid (23.5) (14.5) Taxation (128.5) (130.1) Net capital expenditure (79.3) (66.5) (ex US space growth) Cash generated from operations 182.2 254.7 US sp
Slide 41: Movement in Net Debt
Movement in Net Debt 2007/08 2006/07 $m $m Opening net debt (233.2) (174.5) Cash inflow / (outflow) Cash from operations 182.2 254.7 US space growth (178.9) (176.7) Distribution to shareholders (146.9) (164.4) (143.6) (86.4) Exchange adjustments 2.2 27.7 Closing net debt (374.6) (233.2) 41 41
Slide 42: 2008/09 US New Store Investment
2008/09 US New Store Investment Planned 2008/09 2007/08 Jared c.$77m $84m Mall brands c.$58m $95m Total investment c.$135m $179m Ö Strict operational criteria Ö 20% IRR over 5 years required Ö well in excess of cost of capital Ö ROCE & fixed charge cover impacted 42 42
Slide 43: Cash Flow Outlook
Cash Flow Outlook Ö Fixed & working capital investment Ö expected decrease in US store investment, down c.$45m Ö planned increase in UK refurbishment, up c.$30m Ö realignment of inventory Ö investment in rough diamond initiative Ö Lower tax payments Ö Subject to general economic uncertainties, $40m
Slide 44: Domicile and Listing
Domicile and Listing Ö Rationale for primary US listing: Ö over 70% of assets and profits in US • US investors have first hand knowledge of brands • closer to economy • lesser foreign exchange risk Ö reflect changing shareholder base Ö remove dual reporting requirement Ö Following consultation belie
Slide 45: Logistics of Possible Change
Logistics of Possible Change Ö Separate from possibility of becoming a domestic issuer for SEC purposes Ö 75% majority of those voting at a general meeting Ö High Court approval Ö Bermuda domicile Ö similar legal system Ö help shareholder transition Ö avoid tax disadvantages of US domicile 45 45
Slide 46: Regulation G
Regulation G SIGNET
Slide 47: 2007/08 Sales
2007/08 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 usefu
Slide 48: 2007/08 Profit/(Loss)
2007/08 Profit/(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 to be
Slide 49: Appendix
Appendix SIGNET 49
Slide 50: US Listing Details
US Listing Details Page Growth of US Ownership 2 Major Shareholders 2 US Investor Information 3 50 50
Slide 51: Growth of US Interest
Growth of US Interest 35% 30% 25% 20% 15% 10% 5% 0% Apr- Oct- Apr- Oct- Apr- Oct- Apr- Oct- Apr- Oct- Apr- Oct- Apr- Oct- 01 01 02 02 03 03 04 04 05 05 06 06 07 07 US-based fund management* * US beneficial holders amounted to just under 50% in mid 51 December 2007 51
Slide 52: Major Shareholders April 2008
Major Shareholders April 2008 % % Harris Associates 17.8 Legal & General 4.8 Capital 9.6 First Pacific 4.2 Sprucegrove 7.2 Sanderson 4.4 Artisan 5.1 Investec 3.8 Hermes 5.1 52 52
Slide 53: US Investor Information
US Investor Information IR : Tim Jackson ADS: Deutsche Bank Trust Co Investor Relations Director 85 Challenger Road Signet Group plc Ridgefield Park 15 Golden Square New Jersey 07660 London W1F 9JG (866) 249 2593 +44 (0)20 7317 9711 IR US: Brian Rafferty Specialists: Lehman Brothers Taylor Rafferty
Slide 54: Group 5 Year Record
Group 5 Year Record Page Group LfL Performance 4 Group Financial Performance 4 Group Summary Financials, £ 5 Group Gearing 5 Capital Expenditure & Amortisation 6 54 54
Slide 55: Group LfL Performance
Group LfL Performance Group Like for Like Sales 5 year c.a.g.r. 3.3% to 2007/08 4.9 5.0 4.8 2.4 -0.7 2003/04 2004/05 2005/06 2006/07 * 2007/08 US Like for Like Sales UK Like for Like Sales 5 year c.a.g.r. 4.4% to 2007/08 5 year c.a.g.r. 0.8% to 2007/08 7.1 5.5 5.9 6.2 3.0 4.6 2.0 -8.2 1.2 1.7 2003/0
Slide 56: Group Financial Performance
Group Financial Performance Operating Margin % Earnings per share, cents 12.7 13.2 11.9 11.7 9.6 14.5 15.4 13.6 12.6 12.1 15.4 2003/04 2004/05 2005/06 2006/07 2007/08 2003/04 2004/05 2005/06 2006/07* 2007/08 Dividend per share, cents ROCE % 25.7 26.3 7.2 7.277 22.4 22.8 5.6 5.9 16.8 4.2 2003/04 2004
Slide 57: Group Financial Performance
Group Financial Performance Sales, $m Profit Before Tax, $m 3,559.2 3,665.3 3,004.8 3,154.1 2,697.2 400.8 379.3 360.7 323.7 333.5 15.4 2003/04 2004/05 2005/06 2006/07 2007/08 2003/04 2004/05 2005/06 2006/07* 2007/08 Net Debt, $m Gearing % 20.7 374.6 233.2 13.4 11.4 10.8 11.2 157.9 174.5 145.3 2003/0
Slide 58: Capital Expenditure, Depreciation & Amortisation
Capital Expenditure, Depreciation & Amortisation 2003/04 2004/05 2005/06 2006/07 2007/08 $m $m $m $m $m Capital expenditure US 55.6 77.6 88.4 101.1 111.1 UK 29.9 53.5 48.2 23.3 29.3 Total 85.5 131.0 136.6 124.4 140.4 Depreciation and amortisation US 41.5 45.2 51.3 61.3 72.1 UK 26.3 32.4 31.9 37.1 42
Slide 59: US Jewellery Division
US Jewellery Division Page Summary Financials 6 Sales Mix 7 Test Before We Invest 7 Average Retail Price of Merchandise Sold 8 Average Sales Per Store 8 Growth in US Stores 9 Receivables Profile 9 Diamond Supply Chain 10 59 59
Slide 60: US Summary Financials
US Summary Financials 2003/04(1) 2004/05 2005/06 2006/07 2007/08 Sales - $m 1,866.8 2,060.5 2,308.9 2,652.1 2,705.7 Like for like sales growth 4.6% 5.9% 7.1% 6.2% (1.7)% Total sales growth 7.9% 10.4% 12.1% 14.9% 2.0% Operating profit - $m 224.6 264.9 300.7 326.7 262.2 Operating 12.0% 12.9% 13.0% 12.
Slide 61: US Merchandise Mix
US Merchandise Mix 2003/04 2004/05 2005/06 2006/07 2007/08 % % % % % Diamonds & diamond 72 72 74 75 75 jewellery Gold jewellery 8 8 7 7 7 Other jewellery 13 13 12 11 11 Watches 7 7 7 7 7 Total 100 100 100 100 100 Excluding repairs, warrantees and other miscellaneous sales 61 61
Slide 62: Test Before We Invest
“Test Before We Invest” Leo Diamond Right Hand Ring “Journey” 2000 Selected Jared stores 2001 All Jared & 300 mall stores 2002 All stores Styles expanded 2003 Additional cuts tested Test range 2004 Increased availability Initial roll out of ranges 2005 Bridal test Expanded range 2006 Fashion jewelle
Slide 63: Average Retail Price of Merchandise Sold ($)
Average Retail Price of Merchandise Sold ($) 2003/04 2004/05 2005/06 2006/07 2007/08 Kay 257 282 305 317 327 Regionals 281 304 324 332 343 Jared 586 644 697 719 747 63 63
Slide 64: Average Sales Per Store
Average Sales Per Store 2003/04 2004/05 2005/06 2006/07* 2007/08 Kay ($’000) 1,528 1,584 1,665 1,815 1,710 Jared ($’000) 4,573 4,975 5,453 5,676 5,341 Regionals ($’000) 1,532 1,533 1,514 1,517 1,344 Includes only stores operated for the full financial year * 53 week year 64 64
Slide 65: Growth in US Stores
Growth in US Stores Kay & Jared* Total Space Cumulative space Regionals increase 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 66: US Receivables Profile
US Receivables Profile 2003/04 2004/05 2005/06 2006/07 2007/08 Average outstanding $729 $792 $841 $957 $997 balance Average monthly 14.8% 14.8% 14.5% 14.6% 13.9% collection rate Credit sales as % of 50.5% 51.2% 51.6% 51.7% 51.6% sales Net bad debt as % of 5.5% 5.5% 5.8% 5.3% 6.7% credit sales 66 66
Slide 67: 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 Rough Diamond Initiative Contract Manufacture Complete Signet 67 67
Slide 68: US Jewellery Market
US Jewellery Market Page Long Term Industry Growth 11 Jewellery Sector Performance 11 Market Structure 12 Major Jewellery Retailers 12 Fewer Speciality Jewellery Firms 13 Superior Space Growth 13 Test Before We Invest 14 68 68
Slide 69: Long Term Industry Growth
Long Term Industry Growth (nominal) 70 .r. 5 .6% 60 c.a.g 50 40 $bn 30 20 10 0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 19 19 19 19 19 19 19 19 19 19 20 20 20 20 US Jewellery and Watch Market Source: US Department of Commerce 69 69
Slide 70: US Jewellery Sector Performance
US Jewellery Sector Performance 18% 15% 12% Growth p.a. 9% 6% 3% 0% -3% ) ) 98 99 02 03 04 05 06 07 (a (a 19 19 20 20 20 20 20 20 00 01 20 20 Furniture & Household excl. Electricals Electricals & Electronics Clothing Jewellery & Watches Signet US (a) Excludes Marks & Morgan acquisition Source: US De
Slide 71: US Market Structure
US Market Structure 2003 2006 US Market size $54bn $62bn Independent Jewelers 36% 33% Chain Jewelers ($100m+ sales) 14% 15% Total speciality 50% 48% Chain Department Stores 12% 12% Mass Merchants 10% 10% TV Home Shopping 4% 5% Other (General, clothing & misc.) 21% 21% Total non-speciality 47% 48% In
Slide 72: Major Jewellery Retailers 2006
Major Jewellery Retailers 2006 General Retailers Sales $ Speciality Sales $ bn Retailers bn Wal-Mart 2.81 Signet US 2.7 QVC 1.51 Zale Corp US 2.2 JC Penney 1.31 Tiffany 1.3 Sears 1.11 Helzberg 0.51 Finlay 0.9 Fred Meyer 0.51 Jewelry Television 0.51 Friedman’s 0.31 Costco 0.51 Ross-Simons 0.31 Macy’s
Slide 73: Fewer Speciality Jewellery Firms
Fewer Speciality Jewellery Firms 35,000 -c.1.5% pa 30,000 Number of firms 25,000 20,000 15,000 10,000 5,000 0 87 88 99 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 Source: Jewelers Board of Trade 73 73
Slide 74: Superior Space Growth
Superior Space Growth Store numbers 1997 2002 2007 1997-2006 CAGR Signet US – Mall brands Signet US - Jared 761 7 970 55 1,245 154 } 9.0% (a) Zales US 1,138 1,267 1,200 0.5% (ex Piercing Pagoda) Tiffany US 28 48 74 10.2% Helzberg 190 254 268 3.5% Fred Meyer inc. Littman 260 442 400 4.4% Friedman 425
Slide 75: Test Before We Invest New Kay Formats
Test Before We Invest New Kay Formats Openings Stores Expected Potential 2003/04 2004/05 2005/06 2006/07 2007/08 at 2 Feb net Stores 2008 openings 2008/09 Mall (net) 31 15 25 26 17 789 6 850+ Off-mall 10 10 11 21 40 92 19 500+ Outlet - - - 4 5 10 8 50-100 - - 3 - 30+ Metro - - 3 Total 41 25 39 51 62
Slide 76: Jared
Jared Page Jared Investment Model 15 Jared Locations 15 Jared Development 16 Test Before We Invest 16 76 76
Slide 77: Jared Investment Model
Jared Investment Model Ö Initial investment – c.$4.0m per store Ö First full year sales – c.$3.25m Ö Year 5 sales - $5m to $6m Ö At maturity, EBIT% similar to mall stores Ö 67 Jared stores over 5 years old Ö achieved average sales of c.$5.6m in year 5 Ö sales continue to grow beyond year 5 Ö store c
Slide 78: Jared Stores in 2007
Jared Stores in 2007 Existing stores Opened in 2007/08 78 78
Slide 79: Jared Development
Jared Development Ö 1993/94: 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 planned 79 79
Slide 80: Test Before We Invest
“Test Before We Invest” Stage Jared Kay off-mall Kay outlet Test initial 1993 – 1998 2002-2005 2006 & 2007 concept 15 store test Test c.10 p.a. Test up to 5 p.a. Initial 1999 – 2004 2006 – 21 stores 2008 – Test 8 roll-out 12 to 15 stores p.a. 2007 – 40 stores 2008 – 19 stores Investment 2004: 28 sto
Slide 81: Real Estate
Real Estate Page Typical Mall Layout 17 In-Line v. Corner Location 18 Typical Power Strip 18 Typical Lifestyle Centre 19 81 81
Slide 82: 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 82 82
Slide 83: In-Line v. Corner Location
In-Line v. Corner Location Mall Mall Mall Display cases 83 83
Slide 84: Typical Power Strip
Typical Power Strip od ng Us th Kay Sp cks uy rs Go orti Ba s R de B Di nd ys st r d & MAJOR ROAD Bo yo Be Be To Be Kay * * t t an D an RE ur ur nk sta sta JA Ba Re Re MAJOR ROAD Speciality retailers * Note: Kay and Jared are unlikely to be sited in the same power strip mall 84 84
Slide 85: Typical Lifestyle Centre
Typical Lifestyle Centre m tr o ma ds ne r Ci No Pedestrian area Kay MAJOR ROAD rs de r Bo Pedestrian Pedestrian area area MAJOR ROAD Speciality Restaurants Health & Beauty 85 retailers 85
Slide 86: UK Jewellery
UK Jewellery Page Like For Like Sales Growth 20 Store Count 20 Average Sales 21 Sales Mix (HS) 21 Sales Mix (EJ) 22 Average Retail Price 22 Store Investment (HS) 23 Store Investment (EJ) 23 86 86
Slide 87: Like for Like Sales Growth
Like for Like Sales Growth H.Samuel Ernest Jones 5 year c.a.g.r. (0.4)% to 2007/08 5 year c.a.g.r. 1.9% to 2007/08 8.4 3.5 1.9 1.3 4.5 -8.7 0.7 2.9 1.7 -7.5 2003/04 2004/05 2005/06 2006/07 2007/08 2003/04 2004/05 2005/06 2006/07 2007/08 87 87
Slide 88: UK Store Count
UK Store Count 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 H.Samuel 422 418 407 398 386 375 359 Ernest Jones 184 192 197 204 207 206 204 Total 606 610 604 602 593 581 563 88 88
Slide 89: UK Average Sales
UK Average Sales 2003/04 2004/05 2005/06 2006/07* 2007/08 H.Samuel (£’000) 707 723 681 695 722 Ernest Jones (£’000) 1,101 1,150 1,065 1,079 1,105 Average sales per store excluding VAT. Includes only stores operated for the full financial year * 53 week year 89 89
Slide 90: UK Merchandise Mix H.Samuel
UK Merchandise Mix H.Samuel 2003/04 2004/05 2005/06 2006/07 2007/08 % % % % % Gold jewellery 32 32 32 31 31 Watches 24 24 24 24 25 Diamond jewellery 17 19 20 21 22 Other jewellery 9 9 9 10 10 Gifts and other 18 17 15 14 12 Total 100 100 100 100 100 90 90
Slide 91: UK Merchandise Mix Ernest Jones
UK Merchandise Mix Ernest Jones 2003/04 2004/05 2005/06 2006/07 2007/08 % % % % % Gold jewellery 25 25 25 25 25 Watches 32 31 30 31 33 Diamond jewellery 34 36 36 35 34 Other jewellery 5 5 6 6 6 Gifts and other 4 3 3 3 2 Total 100 100 100 100 100 91 91
Slide 92: Average Retail Price of Merchandise Sold (£)
Average Retail Price of Merchandise Sold (£) 2003/04 2004/05 2005/06 2006/07 2007/08 H.Samuel 35 37 38 42 44 Ernest Jones 139 141 148 163 180 92 92
Slide 93: H.Samuel Store Investment
H.Samuel Store Investment 93 Before After 93
Slide 94: Ernest Jones Store Investment
Ernest Jones Store Investment 94 Before After 94
Slide 95: UK Jewellery Market
UK Jewellery Market Page Retail Market Map 24 Growth of UK Jewellery Market 25 95 95
Slide 96: UK Retail Market Map
UK Retail Market Map £150 (ex. Independents) Leslie Goldsmiths HIGH Davis Ernest Jones Beaverbrooks Estimated Average Transaction H.Samuel Value Argos LOW Warren James F. Hinds Half Price Asda Jewellers £0 FEW MANY 96 Range of Products 96
Slide 97: Growth of UK Jewellery Market
Growth of UK Jewellery Market 5000 .r. 5 .1% 4000 c.a.g 3000 £m 2000 1000 0 1 98 0 1 98 2 1 98 4 1 98 6 1 98 8 1 99 0 1 99 2 1 99 4 1 99 6 1 99 8 2 00 0 2 00 2 2 00 4 2 00 6 Source: Office National Statistics 97 97