Signet Jewelers' CEO Discusses F4Q12 Results - Earnings Call Transcript

Signet Jewelers Ltd. ( SIG)

Q4 2012 Earnings Call

March 22, 2012 8:30 am ET

Executives

Michael Barnes – Chief Executive Officer

Ronald Ristau – Chief Financial Officer

Tim Jackson – Director, Investor Relations

Analysts

Ike Boruchow – JP Morgan

Bob Drbul – Barclays

Jennifer Davis – Lazard Capital Markets

Bill Armstrong – CL King & Associates

David Wu – Telsey Advisory Group

Rick Patel – Bank of America

Jeff Stein – Northcoast Research

Anthony Lebiedzinski – Sidoti & Co.

Rod Whitehead – Deutsche Bank

David Jeary – Investec

Andrew Hughes - UBS

Presentation

Operator

Good day and welcome to fiscal 2012 Signet results conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Tim Jackson. Please go ahead, sir.

Tim Jackson

Thank you, Operator. Good morning and welcome to the conference call for Signet’s 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 webcast section of the Company’s website, www.signetjewelers.com.

I will now 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 facts 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 disclosure in the annual report on Form 10-K that will be filed with the SEC on today, March 22, 2012. We also draw your attention to this slide.

I will now hand over to Mike.

Michael Barnes

Thanks Tim, and good morning to you all. I’ll begin with the highlights of our excellent fiscal 2012 results. Same store sales were up 9%. The U.S., which represents about 80.9% of our sales, delivered same store sales results of 11.1%, which was outstanding after an increase of 8.9% last year. In the U.K., we’re pleased with the return to positive same store sales for the year in a very challenging environment.

Income before income taxes was $502.1 million, an increase of 67.1%. After a tax grade of 35.4%, this gave diluted earnings per share of $3.73, up from $2.32 last year, an increase of 60.8%. I’d like to thank all the team members at Signet for their contribution to these great results.

As most of you know, the Board approved two forms of shareholder distribution during fiscal 2012. First, a $0.10 per share quarterly dividend was initiated and we’re very pleased to announce today that the Board has now approved an increase in the quarterly dividend to $0.12, representing a 20% increase. Second, the Board authorized a $300 million share repurchase program effective from January 16, 2012. By January 28, we had already executed $11.8 million under the program, which continues to remain in effect.

Now looking at the U.S. performance in a little bit more detail – U.S. total sales were $3.341 billion, up $289.9 million which was an increase of 10.6%. Kay increased same store sales by 11.8% in fiscal 2012, an acceleration from the 7% growth achieved in fiscal 2011. Jared had another outstanding year with comps up 12.1% for the year following an increase of 15.7% last year. Overall, U.S. same store sales increased by 11.1% in fiscal 2012 compared to 8.9% last year. Operating income was $478 million, and that was up $135.3 million or a 39.5% increase, and the operating margin increased by 330 basis points to 15.8%. This great performance was driven by all parts of the business working successfully together, but I’d like to highlight some of the major drivers for you.

First merchandising, where performance was driven by initiatives in all categories. For example, in bridal we rolled out Neil Lane Bridal and the Tolkowsky Diamond, and we began training our store associates using our enhanced bridal program in the second half of the year. In fashion, Charmed Memories continued to shine and was a non-comp for the first three quarters. Le Vian also performed very well. Our core collection showed great performance, in particular in the earring category. Overall, our differentiated ranges now account for about 26% of U.S. merchandise sales, which is up 400 basis points from last year. We’ve also been working strategically with our watch partners and we’ve been very pleased by the results achieved.

We were successful in maintaining gross merchandise margin rate in the U.S. despite the significant increases in commodity costs. This reflects our ability to carefully execute price increases and build a pricing architecture that continues to provide attractive opening price points and hits other key price points along a broad spectrum with appropriate merchandise.

Second, marketing – our marketing investment last year reached $188.4 million, up 16.7% and continues to be a driving force for the business. An important feature during the year was an increased focus on marketing support for the bridal category, including campaigns for the Leo Diamond and Neil Lane Bridal. We also started a multi-year investment in the digital environment with major upgrades to both the Kay and the Jared websites that were implemented for the holiday season. As a result, we saw a 45.7% increase in U.S. ecommerce sales in fiscal 2012.

A third major driver of our performance was our in-house customer financing. The ability to offer customer finance is a must in the jewelry category, and to be able to manage it in-house is an important competitive strength. By carrying out this function in-house, we can tailor our scorecards to the jewelry customer which has different characteristics from when they make other credit transactions. Our in-house customer finance program was used by our customers for 56.1% of all U.S. sales in fiscal 2012, up 190 basis points. This, aided by the reduction in net bad debt, was an important contributor to the increase in operating margin in fiscal 2012.

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