Signet Jewelers Limited (SIG)
Q2 2012 Earnings Call
August 25, 2011 8:30 am ET
Michael Barnes – Chief Executive Officer
Ronald Ristau – Chief Financial Officer
Tim Jackson – Director, Investor Relations
Rick Patel – Bank of America Merrill Lynch
Bob Drbul – Barclays Capital
Jennifer Davis – Lazard Capital Markets
David Wu – Telsey Advisory Group
Anthony Lebiedzinski – Sidoti & Co.
Ike Boruchow – JP Morgan
Bill Armstrong – C.L. King & Associates
Rod Whitehead – Deutsche Bank
John Baillie – Société Générale
David Berman – Berman Capital Management
Michael Lopiano – Fidelity International
Michael Friedman - Cumberland
Good day and welcome to the Signet Jewelers Second Quarter Results conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to your host today, Mr. Tim Jackson. Please go ahead.
Thank you, Operator. Good morning and welcome to the conference call for Signet’s second quarter fiscal 2012 results. I am Tim Jackson, Investor Relations Director. With me are Mike Barnes, CEO, and Ron Ristau, CFO. The presentation deck we will be talking to is available from the Webcast section of the Company’s website,
Before I hand over to Mike, I will give the Safe Harbor statement. During today’s presentation, we will in places discuss Signet’s business outlook and make certain forward-looking statements. Any statements that are not historical fact are subject to a number of risks and uncertainties, and actual results may differ materially. We urge you to read the risk factors, cautionary language and other disclosures in the annual report on Form 10-K that was filed with the SEC on March 30, 2011. We also draw your attention to this slide.
Thanks, Tim. We’re very pleased with the record results in our second quarter which reflect the ongoing success of our business, driven by our competitive advantages. For the quarter, total Signet same store sales were up 9.9%, led by the U.S., with a 12.2% comp store sales increase and followed by the U.K. which comped positive 1.4%. Some other key highlights include operating margin was 12.8%, an increase of 430 basis point; income before taxes was $99.8 million, up $45.1 million or 82.4%; diluted earnings per share were $0.76, up $0.31 or 68.9%; and the free cash flow was $61.4 million.
Reflecting the strength of our business model and its cash flow, the Board has declared a quarterly dividend of $0.10 a share. We feel this is an excellent way to return value to our shareholders while still maintaining financial flexibility to invest in future business initiatives.
Now looking at the results in a little bit more detail and starting with the U.S. division performance – total U.S. sales were $643 million, up $65.3 million, an increase of 11.3%. Kay had another outstanding quarter and increased same store sales by 13.5%, up from the 2.7% growth achieved in the same second quarter of fiscal 2011. Jared again performed extremely well with comps of 12.6% following a 14.1% increase last year – outstanding two-year comps. Overall, U.S. same store sales increased by 12.2% compared to an increase of 6% last year.
Average selling price, excluding the charm bracelet category, was up 12% for Kay and 8.6% for Jared, 13.3% for the regional brands. This reflects not only price increases but also importantly our consumers trading up our pricing architecture, including to new higher price point merchandise in the bridal category. Operating income was $104.4 million, up $43.7 million which was a 72% increase. The U.S. division’s operating margin increased by 570 basis points to 16.2%.
In jewelry retailing, a superior in-store customer experience is central to our success. It’s that final two feet of supply chain right over the display case that’s crucial. It’s here where the relationship with the customer is created, where there is an opportunity to up-sell, to sell add-ons, and where the sales is completed, allowing the opportunity to create a customer for life. Before joining Signet, I didn’t fully appreciate the emphasis Signet placed on the customer experience, the sophistication of the systems underlying the in-store execution, the resources put into associate training and development, and how central it is to the culture of our company.
Our results call – I can’t do it justice, but I would urge you to go into any of our stores and experience it for yourself, and we hope that you have the chance to attend our investor relations day and store visits on October 4, held in New York when we’ll have the opportunity to meet some of our store team members. A great in-store customer experience takes many years of dedication to achieve, and it’s far from easy to replicate.
The in-store experience is particularly important in the bridal category, which was again one of our cornerstones of our performance. Neil Lane Bridal is largely a non-comp business in the second quarter, and the range is now available in all Kay and Jared stores with the rollout to all regional stores planned for the third quarter. There was further store expansion for the Tolkowsky Diamond as well, which is now available in 600 doors. Neil Lane Bridal and Tolkowsky Diamond have price points that are higher than the average bridal purchase for our mall stores and have been important contributors to the growth in average selling price and store productivity as well. Our unbranded bridal selection, which still accounts for the majority of the bridal sales, continues to offer great value to the customer.