Signet Jewelers Limited (SIG) Q2 2013 Earnings Call August 23, 2012 8:30 am ET Executives Michael Barnes – Chief Executive Officer Ronald Ristau – Chief Financial Officer Tim Jackson – Director, Investor Relations Analysts David Wu – Telsey Advisory Group Ike Boruchow – JP Morgan Jennifer Davis – Lazard Capital Markets Rick Patel – Bank of America Merrill Lynch Bill Armstrong – CL King & Associates Jessica Shoen – Barclays Capital Anthony Lebiedzinski – Sidoti & Co. Rod Whitehead – Deutsche Bank Jeff Stein – Northcoast Research Steve Kernkraut – Berman Capital Presentation Operator
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I will now hand over to Mike.Michael Barnes Thanks, Tim, and good morning everyone. We’re pleased with our second quarter and first half results, and we’re excited by the prospects for the remainder of the year. We delivered another strong set of financial results with same store sales up 7.1%. The U.S. division was up 8.2% driven by Kay, and the U.K. division was up 2.1% driven by Ernest Jones, leading to U.K. operating results that exceeded our expectations. Ecommerce sales were another highlight, increasing by approximately 40% in the quarter. Our overall operating margin increased to 13%, up 20 basis points from prior year. Our earnings per share were $0.85, an increase of 11.8%. We utilized our strong cash flow generation to repurchase $196.5 million of shares in the quarter. Since mid-January when the program began, we’ve repurchased 6.7 million shares at a cost of $300 million. I would like to thank all of our Signet team members for contributing to these record results. Now let’s review the U.S. performance in a little more detail. U.S. total sales were $701.9 million, up 58.9 million, an increase of 9.2% with same store sales up 8.2%. Our merchandise initiatives delighted customers as branded, differentiated and exclusive merchandise drove sales growth. Kay same store sales increased by 12.5% on top of a 13.5% same store sales increase last year. A successful Mother’s Day contributed to this strong performance, and branded programs such as Open Hearts by Jane Seymour, Charmed Memories, Le Vian, Tolkowsky, and Neil Lane Bridal performed well in the quarter. Jared same store sales grew 2.4% on top of a 12.6% same store sales increase last year, driven by the bridal performance. The lower rate of comparable store sales growth was primarily caused by the exit of Rolex, slowing Pandora sales, and several brands that comped strongly yet at lower rates than realized during last year’s outstanding performance. We expect Jared same store sales in the third quarter to continue to be negatively impacted by the exit of Rolex, with Jared sales in the fourth quarter benefiting sequentially from new products and increases in advertising.
Operating income was $117.3 million, up $12.9 million or 12.4%. Operating margin expanded 50 basis points to 16.7%, a record for the second quarter. Building on the first half performance and based on the exciting initiatives we have underway, we believe we are well positioned for a strong second half.I’ll now take you through some of the key initiatives. As we begin the second half of the year, we remain confident in our ability to deliver outstanding product ranges that meet our customers’ desires, having tested new programs with great results. New products that will roll out in the second half include Neil Lane Designs. We are now taking the Neil Lane franchise into the fashion category, building on the success we are having already in the bridal category. This is a very exciting expansion for us. We’ve added also to the highly popular Jane Seymour Open Hearts range with a line titled The Family Collection. I mentioned it briefly on the last call and we are in a roll-out mode as we speak. I think this will be a great addition as well. We’re capitalizing on the hot trend of colored diamonds with a new line called Shades of Wonder, which uses rare natural colored diamonds from Australia to create beautifully designed jewelry pieces in natural earth tones. Yet another hot color trend is blue, and we have a complete range of blue diamond jewelry that has done very well in test and is also in the process of being rolled out. In addition, we’ll be leveraging the success of our Tolkowsky range into the Jared stores, as well as Kay. These initiatives, together with a variety of other new and exciting product offerings will, we believe, produce an exciting and successful holiday season. I believe our team of merchants has done a great job and are continuing to stay at the forefront of new products and trends.
I’m also very excited about the number of major digital initiatives underway that continue to drive our growth in digital sales, which were up 48.8% in the U.S. for the second quarter. We will soon launch our new Kay and Jared websites that include greatly improved functionality in areas such as search, navigation, and product selection. This will support the strong sales growth we anticipate over time, and our consumers testing shows a record response to our new designs.We continue to significantly enhance our social media and mobile capabilities and we’re very pleased with our customers’ response to the great content that we’re delivering. We’ve added more emotional content into our social media. For example, we’re incorporating bridal stories and a variety of multimedia content into how we connect with consumers, and this fall we plan to launch mobile-friendly transactional websites for Kay and Jared as well, making it easier for the customers to complete transactions on their phones. This commitment to sales-enhancing technology will also be reflected in-store with all Kay and Jared stores having digital sales technology. These are key selling tools for our sales teams. They have features such as access to our ecommerce websites, expanded product ranges, and selling support systems to provide the customer with the knowledge to make informed purchase decisions. These are all steps along the way to achieving our goal of becoming the best in class in all aspects of the digital environment. Read the rest of this transcript for free on seekingalpha.com