10K - 1.31.2015 - Q4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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x | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the fiscal year ended January 31, 2015 |
Commission file number 1-32349
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SIGNET JEWELERS LIMITED (Exact name of Registrant as specified in its charter) |
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Bermuda | | Not Applicable |
(State or other jurisdiction of incorporation) | | (I.R.S. Employer Identification No.) |
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
(441) 296 5872
(Address and telephone number including area code of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | | Name of Each Exchange on which Registered |
Common Shares of $0.18 each | | The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every interactive data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained to the best of Registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of voting common shares held by non-affiliates of the Registrant (based upon the closing sales price quoted on the New York Stock Exchange) as of August 1, 2014 was $8,186,100,543.
Number of common shares outstanding on March 16, 2015: 80,251,059
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant will incorporate by reference information required in response to Part III, Items 10-14, from its definitive proxy statement for its annual meeting of shareholders, to be held on June 12, 2015.
SIGNET JEWELERS LIMITED
FISCAL 2015 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS | | | | |
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| | PART I | | | | |
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ITEM 1. | | BUSINESS | | | | |
ITEM 1A. | | RISK FACTORS | | | | |
ITEM 1B. | | UNRESOLVED STAFF COMMENTS | | | | |
ITEM 2. | | PROPERTIES | | | | |
ITEM 3. | | LEGAL PROCEEDINGS | | | | |
ITEM 4. | | MINE SAFETY DISCLOSURE | | | | |
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| | PART II | | | | |
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ITEM 5. | | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | | | | |
ITEM 6. | | SELECTED CONSOLIDATED FINANCIAL DATA | | | | |
ITEM 7. | | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | | | | |
ITEM 7A. | | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | | | | |
ITEM 8. | | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | | | | |
ITEM 9. | | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | | | | |
ITEM 9A. | | CONTROLS AND PROCEDURES | | | | |
ITEM 9B. | | OTHER INFORMATION | | | | |
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| | PART III | | | | |
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ITEM 10. | | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | | | | |
ITEM 11. | | EXECUTIVE COMPENSATION | | | | |
ITEM 12. | | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | | | | |
ITEM 13. | | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | | | | |
ITEM 14. | | PRINCIPAL ACCOUNTING FEES AND SERVICES | | | | |
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| | PART IV | | | | |
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ITEM 15. | | EXHIBITS, FINANCIAL STATEMENT SCHEDULES | | | | |
REFERENCES
Unless the context otherwise requires, references to “Signet” or the “Company,” refer to Signet Jewelers Limited (and before September 11, 2008 to Signet Group plc) and its consolidated subsidiaries. References to the “Parent Company” are to Signet Jewelers Limited.
PRESENTATION OF FINANCIAL INFORMATION
All references to “dollars,” “US dollars,” “$,” “cents” and “c” are to the lawful currency of the United States of America. Signet prepares its financial statements in US dollars. All references to “British pound,” “pounds,” “British pounds,” “£,” “pence” and “p” are to the lawful currency of the United Kingdom. All references to “Canadian dollar" or "C$" are to the lawful currency of Canada.
Percentages in tables have been rounded and accordingly may not add up to 100%. Certain financial data may have been rounded. As a result of such rounding, the totals of data presented in this document may vary slightly from the actual arithmetical totals of such data.
Throughout this Annual Report on Form 10-K, financial data has been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). However, Signet gives certain additional non-GAAP measures in order to provide increased insight into the underlying or relative performance of the business. An explanation of each non-GAAP measure used can be found in Item 6.
Fiscal year and fourth quarter
Signet’s fiscal year ends on the Saturday nearest to January 31. As used herein, "Fiscal 2017," “Fiscal 2016,” “Fiscal 2015,” “Fiscal 2014,” “Fiscal 2013,” “Fiscal 2012,” “Fiscal 2011” and “Fiscal 2010” refer to the 52 week periods ending January 28, 2017, January 30, 2016, January 31, 2015, February 1, 2014, the 53 week period ending February 2, 2013, and the 52 week periods ending January 28, 2012, January 29, 2011 and January 30, 2010, respectively. Fourth quarter references the 13 weeks ended January 31, 2015 (“fourth quarter”) and the 13 weeks ended February 1, 2014 (“prior year fourth quarter”).
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains 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 and expectations as well as on assumptions made by and data currently available to management, appear in a number of places throughout this Annual Report on Form 10-K and include statements regarding, among other things, Signet’s results of operation, financial condition, liquidity, prospects, growth, strategies and the industry in which Signet operates. The use of the words “expects,” “intends,” “anticipates,” “estimates,” “predicts,” “believes,” “should,” “potential,” “may,” “forecast,” “objective,” “plan,” or “target,” and other similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, including but not limited to general economic conditions, a decline in consumer spending, the merchandising, pricing and inventory policies followed by Signet, the reputation of Signet and its brands, the level of competition in the jewelry sector, the cost and availability of diamonds, gold and other precious metals, regulations relating to customer credit, seasonality of Signet’s business, financial market risks, deterioration in customers’ financial condition, exchange rate fluctuations, changes in Signet's credit rating, changes in consumer attitudes regarding jewelry, management of social, ethical and environmental risks, security breaches and other disruptions to Signet’s information technology infrastructure and databases, inadequacy in and disruptions to internal controls and systems, changes in assumptions used in making accounting estimates relating to items such as extended service plans and pensions, risks relating to Signet being a Bermuda corporation, the impact of the acquisition of Zale Corporation on relationships, including with employees, suppliers, customers and competitors, the impact of stockholder litigation with respect to the acquisition of Zale Corporation, and our ability to successfully integrate Zale Corporation’s operations and to realize synergies from the transaction.
For a discussion of these risks and other risks and uncertainties which could cause actual results to differ materially from those expressed in any forward looking statement, see Item 1A and elsewhere in this Annual Report on Form 10-K. Signet undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.
PART I
ITEM 1. BUSINESS
OVERVIEW
Signet is the largest specialty retail jeweler by sales in the US, Canada and UK. Signet is incorporated in Bermuda and its address and telephone number are shown on the cover of this document. Its corporate website is www.signetjewelers.com, from where documents that the Company is required to file or furnish with the US Securities and Exchange Commission (“SEC”) may be viewed or downloaded free of charge.
On May 29, 2014, the Company acquired 100% of the outstanding shares of Zale Corporation (the "Acquisition") for $1,458.0 million, including $478.2 million to extinguish Zale Corporation’s existing debt. The Acquisition was funded by the Company through existing cash and the issuance of $1,400.0 million of long-term debt. The Acquisition aligns with the Company’s strategy to diversify its businesses and expand its footprint. See Notes 3 and 19 of Item 8 for additional information related to the Acquisition and the issuance of long-term debt to finance the transaction, respectively.
Prior to the Acquisition, the Company managed its business as two geographical reportable segments, being the United States of America (the “US”) and the United Kingdom (the “UK”) divisions. In connection with the Acquisition, the Company no longer manages its business geographically, but by store brand grouping, a description of which follows:
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• | The Sterling Jewelers division, formerly the US division, operated 1,504 stores in all 50 states at January 31, 2015. Its stores operate nationally in malls and off-mall locations as Kay Jewelers (“Kay”), and regionally under a number of well-established mall-based brands. Destination superstores operate nationwide as Jared The Galleria Of Jewelry (“Jared”). Signet acquired Ultra Stores, Inc. (“Ultra”) on October 29, 2012 (“Ultra Acquisition”). The majority of the Ultra stores acquired were converted to the Kay brand during Fiscal 2014. |
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• | The Zale division consists of two reportable segments: |
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◦ | Zale Jewelry, which operated 972 jewelry stores at January 31, 2015, is located primarily in shopping malls throughout the US, Canada and Puerto Rico. Zale Jewelry includes national brands Zales Jewelers, Zales Outlet and Peoples Jewellers, along with regional brands Gordon’s Jewelers and Mappins Jewellers. |
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◦ | Piercing Pagoda, which operated 605 mall-based kiosks at January 31, 2015, is located primarily in shopping malls throughout the US and Puerto Rico. |
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• | The UK Jewelry division, formerly the UK division, operated 498 stores at January 31, 2015. Its stores operate in major regional shopping malls and prime ‘High Street’ locations (main shopping thoroughfares with high pedestrian traffic) as “H.Samuel,” “Ernest Jones” and “Leslie Davis.” |
Operations not incorporated into the reportable segments above include the Company’s diamond sourcing function. On November 4, 2013, the Company acquired a diamond polishing factory in Gaborone, Botswana, which expanded Signet’s long-term diamond sourcing capabilities, including the ability to cut and polish stones. In addition, the Company has been named a sightholder by multiple international diamond mining companies, established a diamond buying office in India and a design center in New York allowing the Company to secure additional, reliable and consistent supplies of diamonds for our guests. Company activities associated with the diamond sourcing function are managed as a separate operating segment, and are aggregated with unallocated corporate administrative functions for financial reporting purposes. See Note 4 of Item 8 for additional information regarding the Company's operating segments.
MISSION, STRATEGY, COMPETITIVE STRENGTHS AND OBJECTIVES
Signet's mission is to help guests “Celebrate Life and Express Love.” Our Vision 2020 strategy is a road map for on-going Signet success which includes five strategic pillars:
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• | Best in class digital ecosystem |
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• | People, purpose and passion |
These strategic pillars guide Signet in building profitable market share. Maximizing the mid-market drives our competitive strengths focused on merchandising initiatives, marketing, store growth and productivity. Being the best in bridal is expected to be achieved by continuing to develop differentiated bridal jewelry products, increasing targeted marketing programs, delivering the best guest experience by our sales associates, vertical integration in our supply chain and by offering credit financing. Enhancing our digital ecosystem is expected to simplify and accelerate guests’ engagement with our brands and support our physical channels of distribution. Expanding our geographic footprint is expected to enable cross-collaboration among and between our domestic and international teams and further growth and diversification of our real estate portfolio.
In order to truly accomplish our core mission of helping our guests “Celebrate Life and Express Love”, we must have people with high capability and passion. We will continue our efforts to attract, develop and retain the best and the brightest individuals in the jewelry and watch industry.
The expression of romance and appreciation through bridal jewelry and gift giving are very important to our guests, as is self-reward. Guests associate Signet's brands with high quality jewelry and an outstanding guest experience. As a result, the training of sales associates to understand the guests’ requirements, communicate the value of the merchandise selected and ensure guest needs are met remains a high priority. Signet increases the attraction of its store brands to guests through the use of branded differentiated and exclusive merchandise, while offering a compelling value proposition in more basic ranges. Signet accomplishes this by utilizing its supply chain and merchandising expertise, scale and balance sheet strength. The Company intends to further develop national television advertising, digital media and customer relationship marketing, which it believes are the most effective and cost efficient forms of marketing available to grow its market share. Management follows the operating principles of excellence in execution; testing before investing; continuous improvement; and disciplined investment, in all aspects of the business.
Competition
Jewelry retailing is highly fragmented and competitive. We compete against other specialty jewelers as well as other retailers that sell jewelry, including department stores, mass merchandisers, discount stores, apparel and accessory fashion stores, brand retailers, shopping clubs, home shopping television channels, direct home sellers and online retailers and auction sites. The jewelry category competes for customers’ share-of-wallet with other consumer sectors such as electronics, clothing and furniture, as well as travel and restaurants. This competition for consumers’ discretionary spending is particularly relevant to gift giving.
Signet's competitive strengths include: strong store brands, outstanding guest experience, branded differentiated and exclusive merchandise, sector leading advertising, diversified real estate portfolio, supply chain leadership, customer finance programs, and financial strength and flexibility.
Operational Strategy
In setting financial objectives for Fiscal 2016, consideration was given to several factors including the Zale integration, Signet's Vision 2020 and the economic environments in which the Company does business. The economies of the US, Canada and UK have improved slightly over the past year due to relatively low unemployment, inflation, interest rates and energy prices, offset by higher food and health care costs and by higher consumer savings. Consumer confidence has been on the rise in the US, Canada and UK. Signet will execute its strategic priorities and continue to make strategic investments for the future. The cost of diamonds, Signet's most significant input cost, is currently expected to increase at low-to-mid single digit rates. Consumer credit is important for Signet. Signet takes a hybrid approach to credit by assuming the risk-and-reward of owning in-house accounts receivable for its Sterling Jewelers division while using third party financing programs for its other divisions. Financing will continue to support sales growth and we expect the receivables portfolio to grow and perform strongly. Signet intends to improve results through realization of synergies associated with the Zale acquisition and other initiatives around merchandising, real estate optimization, channel expansion and cost control.
Signet’s goal in Fiscal 2016 is to deliver strong results building on our recent performance, while making strategic investments necessary for future growth. Financial objectives for the business in Fiscal 2016 are to position the Company for long-term growth by:
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• | Advancing our integration activities of Zale, including continued realization of cost and operating synergies. Signet anticipates realizing $150 million to $175 million in cumulative 3-year synergies through January 2018. At least 20% of that goal is expected to be realized in Fiscal 2016. |
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• | Gaining profitable market share through brand differentiation and market segmentation, product cost control and asset management. |
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• | Securing additional, reliable and consistent supplies of diamonds for our guests while achieving efficiencies in the supply chain through our diamond polishing factory and our position as a DeBeers and Rio Tinto sightholder. |
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• | Developing multi-channel marketing programs and supporting new initiatives, while optimizing the selling, general and administrative expense to sales ratio. |
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• | Investing $275 to $325 million of capital in new stores, store remodels and enhancing information technology infrastructure to drive future growth. |
Signet has the opportunity to take advantage of its competitive position as one of the world's largest and most profitable jewelry retailers. Signet's ability to deliver sales growth allows the business to strengthen relationships with suppliers, facilitate the ability to develop further branded differentiated and exclusive merchandise, improve the efficiency of its supply chain, support marketing investments and improve operating margins. Signet's financial flexibility and access to capital markets allow it to take advantage of investment opportunities, including space growth and strategic developments that meet investment criteria.
Capital Strategy
The Company expects to maintain a strong balance sheet that provides the flexibility to execute its strategic priorities, invest in its business, and return excess cash to shareholders while ensuring adequate liquidity. Signet is committed to maintaining its investment grade rating because long-term, it intends to pursue value-enhancing strategic growth initiatives. Among the key tenets of Signet's capital strategy:
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• | Achieve adjusted debt1/ adjusted EBITDAR1 ("adjusted leverage ratio") of 3.5x or below. At year-end, adjusted leverage ratio was 4.0x which implies no additional debt financing in Fiscal 2016, but should allow for utilizing available sources of debt in Fiscal 2017 and beyond. |
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• | Distribute 70% to 80% of annual free cash flow1 in the form of stock repurchases or dividends barring any other strategic uses of capital. |
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• | Consistently increase the dividend annually barring any other strategic uses of capital. |
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• | Repurchase $100 million to $150 million of Signet stock by the end of Fiscal 2016. The Company has a remaining authorization of $265.6 million. As the current program runs out, Signet plans to initiate a new program in-line with leverage and free cash flow targets. |
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• | Evaluate utilizing additional capacity under Signet’s asset backed securitization ("ABS") facility beginning in Fiscal 2017. This evaluation will be done in conjunction with Signet’s strategic growth initiatives and adjusted leverage ratio target of 3.5x or below. |
1. Adjusted debt, adjusted EBITDAR, and free cash flow are non-GAAP measures. Signet believes they are useful measures to provide insight into how the Company intends to use capital. See Item 6 for reconciliation.
BACKGROUND
Operating segments
The business is managed as four reportable segments: the Sterling Jewelers division (65.6% of sales and 108.3% of operating income), the UK Jewelry division (13.0% of sales and 9.0% of operating income), and the Zale division, which is comprised of the Zale Jewelry segment (18.6% of sales and (0.3)% of operating income) and the Piercing Pagoda segment (2.6% of sales and (1.1)% of operating income). All divisions are managed by executive committees, which report to Signet’s Chief Executive Officer, who reports to the Board of Directors of Signet (the “Board”). Each divisional executive committee is responsible for operating decisions within parameters established by the Board. Additionally, in the fourth quarter of Fiscal 2014, subsequent to the November 4, 2013, acquisition of a diamond polishing factory in Gaborone, Botswana, management established a separate reportable segment (“Other”) (0.2% of sales and (15.9)% of operating income), which consists of all non-reportable segments including subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones and corporate administrative functions. Detailed financial information about Signet’s segment information is found in Note 4 of Item 8.
Trademarks and trade names
Signet is not dependent on any material patents or licenses in any of its divisions. Signet has several well-established trademarks and trade names which are significant in maintaining its reputation and competitive position in the jewelry retailing industry. Some of these registered trademarks and trade names include the following:
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• | Sterling Jewelers division: Kay Jewelers®; Kay Jewelers Outlet®; Jared The Galleria Of Jewelry®; Jared VaultTM; Jared Jewelry BoutiqueTM; Jared Vivid®; JB Robinson® Jewelers; Marks & Morgan Jewelers®; Every kiss begins with Kay®; He went to Jared®; Celebrate Life. Express Love.®; the Leo® Diamond; Hearts Desire®; Artistry Diamonds®; Charmed Memories®; Diamonds in Rhythm®; and Open Hearts by Jane Seymour®. |
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• | Zale division: Zales®; Zales JewelersTM; Zales the Diamond Store®; Zales the Online Diamond StoreTM; Zales Outlet®; Gordon's Jewelers®; Peoples Jewellers®; Peoples the Diamond Store®; Peoples Outlet the Diamond Store®; Mappins®; Piercing Pagoda®; Arctic Brilliance Canadian DiamondsTM; Candy Colored Diamonds and Gemstones®; Celebration Diamond®; The Celebration Diamond Collection®; and Unstoppable LoveTM. |
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• | UK Jewelry division: H.Samuel; Ernest Jones; Ernest Jones Outlet Collection; Leslie Davis; and Forever Diamonds. |
Store locations
Signet operates retail jewelry stores in a variety of real estate formats including mall-based, free-standing, strip center and outlet store locations. As of January 31, 2015, Signet operated 3,579 stores and kiosks across 4.8 million square feet of retail space. This represented an increase of 82.2% and 48.1% in locations and retail space, respectively, due primarily to the Acquisition. Excluding Zale, locations and retail space increased by 1.9% and 4.4%, respectively. During Fiscal 2015, Signet opened 95 stores, acquired 1,619 stores in the Acquisition and closed 99 stores. Store locations by country and territory as of January 31, 2015, are as follows:
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| Sterling Jewelers division | | Zale division | | UK Jewelry division | | Signet |
| Kay | | Jared | | Regional brands | | Total | | Zales | | Peoples | | Regional brands | | Total Zale Jewelry | | Piercing Pagoda | | Total | | H.Samuel | | Ernest Jones | | Total | | Total stores |
US | 1,094 |
| | 253 |
| | 157 |
| | 1,504 |
| | 706 |
| | — |
| | 67 |
| | 773 |
| | 591 |
| | 1,364 |
| | — |
| | — |
| | — |
| | 2,868 |
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Canada | — |
| | — |
| | — |
| | — |
| | — |
| | 144 |
| | 43 |
| | 187 |
| | — |
| | 187 |
| | — |
| | — |
| | — |
| | 187 |
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Puerto Rico | — |
| | — |
| | — |
| | — |
| | 10 |
| | — |
| | 2 |
| | 12 |
| | 14 |
| | 26 |
| | — |
| | — |
| | — |
| | 26 |
|
United Kingdom | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 280 |
| | 189 |
| | 469 |
| | 469 |
|
Republic of Ireland | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 20 |
| | 6 |
| | 26 |
| | 26 |
|
Channel Islands | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 1 |
| | 3 |
| | 3 |
|
Total | 1,094 |
| | 253 |
| | 157 |
| | 1,504 |
| | 716 |
| | 144 |
| | 112 |
| | 972 |
| | 605 |
| | 1,577 |
| | 302 |
| | 196 |
| | 498 |
| | 3,579 |
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Store locations by US state, Canadian province and Puerto Rico, as of January 31, 2015, are as follows: |
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| Sterling Jewelers division | | Zale division | | Signet |
| Kay | | Jared | | Regional brands | | Total | | Zales | | Peoples | | Regional brands | | Total Zale Jewelry | | Piercing Pagoda | | Total | | Total Stores |
Alabama | 23 |
| | 1 |
| | 4 |
| | 28 |
| | 12 |
| | — |
| | — |
| | 12 |
| | 2 |
| | 14 |
| | 42 |
|
Alaska | 3 |
| | — |
| | 1 |
| | 4 |
| | 2 |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
| | 6 |
|
Arizona | 16 |
| | 9 |
| | 1 |
| | 26 |
| | 14 |
| | — |
| | 1 |
| | 15 |
| | 11 |
| | 26 |
| | 52 |
|
Arkansas | 7 |
| | 1 |
| | — |
| | 8 |
| | 9 |
| | — |
| | 4 |
| | 13 |
| | — |
| | 13 |
| | 21 |
|
California | 80 |
| | 17 |
| | 3 |
| | 100 |
| | 61 |
| | — |
| | — |
| | 61 |
| | 35 |
| | 96 |
| | 196 |
|
Colorado | 15 |
| | 6 |
| | 3 |
| | 24 |
| | 16 |
| | — |
| | — |
| | 16 |
| | 5 |
| | 21 |
| | 45 |
|
Connecticut | 12 |
| | 2 |
| | 3 |
| | 17 |
| | 9 |
| | — |
| | — |
| | 9 |
| | 14 |
| | 23 |
| | 40 |
|
Delaware | 4 |
| | 1 |
| | — |
| | 5 |
| | 4 |
| | — |
| | 2 |
| | 6 |
| | 6 |
| | 12 |
| | 17 |
|
Florida | 79 |
| | 22 |
| | 10 |
| | 111 |
| | 56 |
| | — |
| | 7 |
| | 63 |
| | 70 |
| | 133 |
| | 244 |
|
Georgia | 46 |
| | 11 |
| | 5 |
| | 62 |
| | 18 |
| | — |
| | — |
| | 18 |
| | 8 |
| | 26 |
| | 88 |
|
Hawaii | 6 |
| | — |
| | — |
| | 6 |
| | 7 |
| | — |
| | — |
| | 7 |
| | — |
| | 7 |
| | 13 |
|
Idaho | 4 |
| | 1 |
| | — |
| | 5 |
| | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | 6 |
|
Illinois | 43 |
| | 12 |
| | 6 |
| | 61 |
| | 25 |
| | — |
| | — |
| | 25 |
| | 20 |
| | 45 |
| | 106 |
|
Indiana | 26 |
| | 6 |
| | 7 |
| | 39 |
| | 12 |
| | — |
| | — |
| | 12 |
| | 11 |
| | 23 |
| | 62 |
|
Iowa | 15 |
| | 1 |
| | 1 |
| | 17 |
| | 6 |
| | — |
| | — |
| | 6 |
| | 3 |
| | 9 |
| | 26 |
|
Kansas | 8 |
| | 2 |
| | 2 |
| | 12 |
| | 7 |
| | — |
| | — |
| | 7 |
| | 4 |
| | 11 |
| | 23 |
|
Kentucky | 18 |
| | 3 |
| | 6 |
| | 27 |
| | 7 |
| | — |
| | — |
| | 7 |
| | 7 |
| | 14 |
| | 41 |
|
Louisiana | 16 |
| | 3 |
| | 1 |
| | 20 |
| | 15 |
| | — |
| | 8 |
| | 23 |
| | — |
| | 23 |
| | 43 |
|
Maine | 5 |
| | 1 |
| | 1 |
| | 7 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 2 |
| | 3 |
| | 10 |
|
Maryland | 30 |
| | 9 |
| | 7 |
| | 46 |
| | 14 |
| | — |
| | — |
| | 14 |
| | 23 |
| | 37 |
| | 83 |
|
Massachusetts | 23 |
| | 4 |
| | 5 |
| | 32 |
| | 10 |
| | — |
| | — |
| | 10 |
| | 28 |
| | 38 |
| | 70 |
|
Michigan | 37 |
| | 7 |
| | 10 |
| | 54 |
| | 20 |
| | — |
| | — |
| | 20 |
| | 10 |
| | 30 |
| | 84 |
|
Minnesota | 17 |
| | 5 |
| | 3 |
| | 25 |
| | 9 |
| | — |
| | — |
| | 9 |
| | 8 |
| | 17 |
| | 42 |
|
Mississippi | 11 |
| | — |
| | — |
| | 11 |
| | 8 |
| | — |
| | — |
| | 8 |
| | — |
| | 8 |
| | 19 |
|
Missouri | 17 |
| | 5 |
| | — |
| | 22 |
| | 11 |
| | — |
| | 1 |
| | 12 |
| | 6 |
| | 18 |
| | 40 |
|
Montana | 3 |
| | — |
| | — |
| | 3 |
| | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| | 4 |
|
Nebraska | 7 |
| | — |
| | — |
| | 7 |
| | 3 |
| | — |
| | — |
| | 3 |
| | 1 |
| | 4 |
| | 11 |
|
Nevada | 11 |
| | 3 |
| | 1 |
| | 15 |
| | 6 |
| | — |
| | 2 |
| | 8 |
| | 5 |
| | 13 |
| | 28 |
|
New Hampshire | 11 |
| | 4 |
| | 2 |
| | 17 |
| | 6 |
| | — |
| | — |
| | 6 |
| | 8 |
| | 14 |
| | 31 |
|
New Jersey | 28 |
| | 6 |
| | — |
| | 34 |
| | 18 |
| | — |
| | — |
| | 18 |
| | 30 |
| | 48 |
| | 82 |
|
New Mexico | 5 |
| | 1 |
| | — |
| | 6 |
| | 9 |
| | — |
| | 4 |
| | 13 |
| | 4 |
| | 17 |
| | 23 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
New York | 59 |
| | 7 |
| | 5 |
| | 71 |
| | 38 |
| | — |
| | 1 |
| | 39 |
| | 63 |
| | 102 |
| | 173 |
|
North Carolina | 41 |
| | 11 |
| | 1 |
| | 53 |
| | 15 |
| | — |
| | 1 |
| | 16 |
| | 19 |
| | 35 |
| | 88 |
|
North Dakota | 4 |
| | — |
| | — |
| | 4 |
| | 4 |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
| | 8 |
|
Ohio | 56 |
| | 17 |
| | 28 |
| | 101 |
| | 13 |
| | — |
| | — |
| | 13 |
| | 25 |
| | 38 |
| | 139 |
|
Oklahoma | 8 |
| | 2 |
| | — |
| | 10 |
| | 10 |
| | — |
| | 5 |
| | 15 |
| | — |
| | 15 |
| | 25 |
|
Oregon | 15 |
| | 3 |
| | 1 |
| | 19 |
| | 5 |
| | — |
| | — |
| | 5 |
| | 4 |
| | 9 |
| | 28 |
|
Pennsylvania | 61 |
| | 10 |
| | 8 |
| | 79 |
| | 35 |
| | — |
| | 1 |
| | 36 |
| | 64 |
| | 100 |
| | 179 |
|
Rhode Island | 3 |
| | — |
| | — |
| | 3 |
| | 1 |
| | — |
| | — |
| | 1 |
| | 3 |
| | 4 |
| | 7 |
|
South Carolina | 24 |
| | 4 |
| | 2 |
| | 30 |
| | 9 |
| | — |
| | — |
| | 9 |
| | 5 |
| | 14 |
| | 44 |
|
South Dakota | 2 |
| | — |
| | — |
| | 2 |
| | 3 |
| | — |
| | — |
| | 3 |
| | 1 |
| | 4 |
| | 6 |
|
Tennessee | 25 |
| | 8 |
| | 4 |
| | 37 |
| | 16 |
| | — |
| | 1 |
| | 17 |
| | 2 |
| | 19 |
| | 56 |
|
Texas | 69 |
| | 29 |
| | — |
| | 98 |
| | 98 |
| | — |
| | 28 |
| | 126 |
| | 21 |
| | 147 |
| | 245 |
|
Utah | 10 |
| | 3 |
| | — |
| | 13 |
| | 4 |
| | — |
| | — |
| | 4 |
| | 3 |
| | 7 |
| | 20 |
|
Vermont | 2 |
| | — |
| | — |
| | 2 |
| | 2 |
| | — |
| | — |
| | 2 |
| | 1 |
| | 3 |
| | 5 |
|
Virginia | 39 |
| | 9 |
| | 8 |
| | 56 |
| | 26 |
| | — |
| | — |
| | 26 |
| | 25 |
| | 51 |
| | 107 |
|
Washington | 19 |
| | 3 |
| | 8 |
| | 30 |
| | 14 |
| | — |
| | — |
| | 14 |
| | 10 |
| | 24 |
| | 54 |
|
West Virginia | 9 |
| | — |
| | 6 |
| | 15 |
| | 6 |
| | — |
| | 1 |
| | 7 |
| | 11 |
| | 18 |
| | 33 |
|
Wisconsin | 20 |
| | 4 |
| | 4 |
| | 28 |
| | 7 |
| | — |
| | — |
| | 7 |
| | 13 |
| | 20 |
| | 48 |
|
Wyoming | 2 |
| | — |
| | — |
| | 2 |
| | 3 |
| | — |
| | — |
| | 3 |
| | — |
| | 3 |
| | 5 |
|
US | 1,094 |
| | 253 |
| | 157 |
| | 1,504 |
| | 706 |
| | — |
| | 67 |
| | 773 |
| | 591 |
| | 1,364 |
| | 2,868 |
|
| | | | | | | | | | | | | | | | | | | | | |
Alberta | — |
| | — |
| | — |
| | — |
| | — |
| | 25 |
| | 8 |
| | 33 |
| | — |
| | 33 |
| | 33 |
|
British Columbia | — |
| | — |
| | — |
| | — |
| | — |
| | 21 |
| | 4 |
| | 25 |
| | — |
| | 25 |
| | 25 |
|
Manitoba | — |
| | — |
| | — |
| | — |
| | — |
| | 5 |
| | 1 |
| | 6 |
| | — |
| | 6 |
| | 6 |
|
New Brunswick | — |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | — |
| | 4 |
| | — |
| | 4 |
| | 4 |
|
Newfoundland | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
| | 2 |
| | 2 |
|
Nova Scotia | — |
| | — |
| | — |
| | — |
| | — |
| | 8 |
| | 2 |
| | 10 |
| | — |
| | 10 |
| | 10 |
|
Ontario | — |
| | — |
| | — |
| | — |
| | — |
| | 68 |
| | 27 |
| | 95 |
| | — |
| | 95 |
| | 95 |
|
Prince Edward Island | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 1 |
| | 3 |
| | — |
| | 3 |
| | 3 |
|
Saskatchewan | — |
| | — |
| | — |
| | — |
| | — |
| | 9 |
| | — |
| | 9 |
| | — |
| | 9 |
| | 9 |
|
Canada | — |
| | — |
| | — |
| | — |
| | — |
| | 144 |
| | 43 |
| | 187 |
| | — |
| | 187 |
| | 187 |
|
| | | | | | | | | | | | | | | | | | | | | |
Puerto Rico | — |
| | — |
| | — |
| | — |
| | 10 |
| | — |
| | 2 |
| | 12 |
| | 14 |
| | 26 |
| | 26 |
|
| | | | | | | | | | | | | | | | | | | | | |
Total North America | 1,094 |
| | 253 |
| | 157 |
| | 1,504 |
| | 716 |
| | 144 |
| | 112 |
| | 972 |
| | 605 |
| | 1,577 |
| | 3,081 |
|
Guest experience
The guest experience is an essential element in the success of our business and Signet strives to continually improve the quality of the guest experience. Therefore the ability to recruit, develop and retain qualified sales associates is an important element in enhancing guest satisfaction. Accordingly, each division has in place comprehensive recruitment, training and incentive programs; uses employee and guest satisfaction metrics to monitor and improve performance; and engages in an annual flagship training conference ahead of the holiday season.
Digital ecosystem
As a specialty jeweler, Signet's business differs from many other retailers such that a purchase of merchandise from any of Signet's stores is personal, intimate and typically viewed as an important experience. Due to this dynamic, guests often invest time on Signet websites and social media to experience the merchandise assortments prior to visiting brick-and-mortar stores to execute a purchase transaction. At times, particularly related to high value transactions, guests will supplement their on-line experience with an in-store visit prior to finalizing a fashion or gift-giving decision. Distinguishing whether the Company's performance is driven by the initial exposure to the on-line assortment versus the merchandising and experience with in-store professionals is not a primary focus of management, as electronic efforts are a support channel for all store brands.
Signet's websites provide guests with a source of information on merchandise available, as well as the ability to buy online. Our websites are integrated with each division’s stores, so that merchandise ordered online may be picked up at a store or delivered to the guest. Our websites make an important and growing contribution to the guest experience, as well as to each division’s marketing programs. In recent years, significant investments and initiatives have been completed to drive growth within our eCommerce selling channel. These investments include:
| |
• | Optimization of brand websites for both desktop and mobile devices with improved functionality in product search and navigation; |
| |
• | Increased merchandise assortment; |
| |
• | Investments in social media, including Facebook and Twitter, as well as a YouTube channel; and |
| |
• | Improvements in store broadband to enhance in-store eCommerce sales. |
Signet’s supplier relationships allow it to display suppliers’ inventories on the brand websites for sale to guests without holding the items in its inventory until the products are ordered by guests, which are referred to as “virtual inventory.” Virtual inventory expands the choice of merchandise available to guests both online and in-store.
Raw materials
The jewelry industry generally is affected by fluctuations in the price and supply of diamonds, gold and, to a much lesser extent, other precious and semi-precious metals and stones. Diamonds account for about 45%, and gold about 15%, of Signet’s cost of merchandise sold, respectively.
Signet undertakes hedging for a portion of its requirement for gold through the use of net zero-cost collar arrangements, forward contracts and commodity purchasing. It is not possible to hedge against fluctuations in the cost of diamonds. The cost of raw materials is only part of the costs involved in determining the retail selling price of jewelry, with labor costs also being a significant factor.
Diamond sourcing
Signet procures its diamonds mostly as finished jewelry and to a smaller extent as loose cut-and-polished stones and rough stones.
Finished jewelry
Merchandise is purchased as finished product where the items are relatively more complex, have less predictable sales patterns or where it is cost effective to do so. This method of buying inventory provides the opportunity to reserve inventory held by vendors and to make returns or exchanges with suppliers, thereby reducing the risk of over- or under-purchasing. Signet’s scale, strong balance sheet and robust procurement systems enable it to purchase merchandise at advantageous prices and on favorable terms.
Loose diamonds
Signet purchases loose polished diamonds in global markets (e.g. India, Israel) from a variety of sources (e.g. polishers, traders). Signet mounts stones in settings purchased from manufacturers using third parties and in-house resources. By using these approaches, the cost of merchandise is reduced and the consistency of quality is maintained enabling Signet to provide better value to guests. Buying loose diamonds helps allow Signet’s buyers to gain a detailed understanding of the manufacturing cost structures and, in turn, leverage that knowledge with regard to negotiating better prices for the supply of finished products.
Rough diamonds
Signet continues to take steps to advance its vertical integration, which includes rough diamond sourcing and manufacturing. Signet’s objective with this initiative is to secure additional, reliable and consistent supplies of diamonds for guests of all divisions while achieving further efficiencies in the supply chain. In Fiscal 2013, Signet was appointed by Rio Tinto as a Select Diamantaire, which provides the Company with a contracted allocation of rough diamonds provided by Rio Tinto, as well as entering into other supplier agreements. In Fiscal 2014, Signet acquired a diamond polishing factory in Gaborone, Botswana and established a diamond buying office in India. In Fiscal 2015, Signet was appointed a sightholder by DeBeers, which further increased Signet's supply of rough diamonds, and Signet established a jewelry design center in New York. These developments in Signet’s long-term diamond sourcing capabilities allow Signet to buy rough diamonds directly from the miners and then have the stones marked, cut and polished in its own polishing facility. Any stones deemed unsuitable for Signet's needs are sold to third parties with the objective of recovering the original cost of the stones. Signet's sourcing initiative in Fiscal 2014 and 2015 was primarily focused on supplying the diamond needs of the Sterling Jewelers division which has since been expanded to include all Signet divisions. In Fiscal 2015, Signet's rough diamond to polish initiative, through its Signet Direct Diamond Sourcing subsidiary, was responsible for approximately 50% of the Sterling Jewelers division's loose diamond purchases.
Merchandising and purchasing
Management believes that merchandise selection, availability and value are critical success factors for its business. The range of merchandise offered and the high level of inventory availability are supported centrally by extensive and continuous research and testing. Best-selling products are identified and replenished rapidly through analysis of sales by stock keeping unit. This approach enables Signet to deliver a focused assortment of merchandise to maximize sales and inventory turn, and minimize the need for discounting. Signet believes it is better able to offer greater value and consistency of merchandise than its competitors, due to its supply chain strengths. In addition, in recent years management has continued
to develop, refine and execute a strategy to increase the proportion of branded differentiated and exclusive merchandise sold, in response to guest demand.
The scale and information systems available to management and the gradual evolution of jewelry fashion trends allow for the careful testing of new merchandise in a range of representative stores. This enables management to make more informed investment decisions about which merchandise to select, thereby increasing Signet's ability to satisfy guests’ requirements while reducing the likelihood of having to discount merchandise.
Merchandise mix
Details of merchandise mix (excluding repairs, warranty and other miscellaneous sales) are shown below:
|
| | | | | | | | | | | |
| Sterling Jewelers division | | Zale division | | UK Jewelry division | | Total Signet |
Fiscal 2015 | | | | | | | |
Diamonds and diamond jewelry | 76 | % | | 61 | % | | 31 | % | | 63 | % |
Gold and silver jewelry, including charm bracelets | 10 | % | | 26 | % | | 19 | % | | 14 | % |
Other jewelry | 8 | % | | 9 | % | | 17 | % | (1) | 11 | % |
Watches | 6 | % | | 4 | % | | 33 | % | | 12 | % |
| 100 | % | | 100 | % | | 100 | % | | 100 | % |
Fiscal 2014 | | | | | | | |
Diamonds and diamond jewelry | 75 | % | | n/a |
| | 30 | % | | 64 | % |
Gold and silver jewelry, including charm bracelets | 11 | % | | n/a |
| | 19 | % | | 15 | % |
Other jewelry | 8 | % | | n/a |
| | 18 | % | (1) | 8 | % |
Watches | 6 | % | | n/a |
| | 33 | % | | 13 | % |
| 100 | % | | n/a |
| | 100 | % | | 100 | % |
Fiscal 2013 | | | | | | | |
Diamonds and diamond jewelry | 74 | % | | n/a |
| | 28 | % | | 63 | % |
Gold and silver jewelry, including charm bracelets | 11 | % | | n/a |
| | 20 | % | | 12 | % |
Other jewelry | 9 | % | | n/a |
| | 19 | % | (1) | 11 | % |
Watches | 6 | % | | n/a |
| | 33 | % | | 14 | % |
| 100 | % | | n/a |
| | 100 | % | | 100 | % |
(1) UK Jewelry division's other jewelry sales include gift category sales.
n/a Not applicable as Zale division was acquired on May 29, 2014.
The bridal category, which includes engagement, wedding and anniversary purchases, is predominantly diamond jewelry. The bridal category experiences stable demand, but is still dependent on the economic environment as guests can trade up or down price points depending on their available budget. In Fiscal 2015, bridal growth was driven primarily by the branded bridal portfolio and bridal represented approximately 50% of Signet's total merchandise sales. Customer financing is an important element in enabling Signet's bridal business.
Gift giving is particularly important during the Holiday Season, Valentine’s Day and Mother’s Day. In Fiscal 2015, Signet had several successful fashion jewelry collections including Le Vian®, Diamonds in Rhythm®, Unstoppable Love®, and Michael Kors (not all collections are sold in every store brand).
A further categorization of merchandise is core merchandise, third party branded as well as branded differentiated and exclusive. Core merchandise includes items and styles, such as solitaire rings and diamond stud earrings, which are uniquely designed, as well as items that are generally available from other jewelry retailers. It also includes styles such as diamond fashion bracelets, rings and necklaces. Third party branded merchandise includes mostly watches, but also includes ranges such as charm bracelets produced by Pandora®. Branded differentiated and exclusive merchandise are items that are branded and exclusive to Signet within its marketplaces, or that are not widely available in other jewelry retailers.
Branded differentiated and exclusive ranges
Management believes that the development of branded differentiated and exclusive merchandise raises the profile of Signet’s stores, helps to drive sales and provides its well-trained sales associates with a powerful selling proposition. National television advertisements include elements that drive brand awareness and purchase intent of these ranges. Management believes that Signet’s scale and proven record of success in developing branded differentiated and exclusive merchandise attracts offers of such programs from jewelry manufacturers, designers and others ahead of
competing retailers, and enables it to leverage its supply chain strengths. Management plans to develop additional branded differentiated and exclusive ranges as appropriate and to further expand and refine those already launched.
Branded differentiated and exclusive merchandise offered in our various store brands includes:
| |
• | Artistry Diamonds®, genuine diamonds in an ultimate palette of colors; |
| |
• | Celebration Diamond® Collection, diamond jewelry that has been expertly cut to maximize its brilliance and beauty; |
| |
• | Charmed Memories®, a create your own charm bracelet collection; |
| |
• | Diamonds in Rhythm®, diamonds set at precise angle to allow for continuous movement of center diamond and amazing effect; |
| |
• | Jared Vivid® Diamonds, the brilliance of diamonds combined with the vitality of color; |
| |
• | Le Vian®exclusive collections of jewelry, famed for its handcrafted unique designs and colors; |
| |
• | Leo® Diamond collection, the first diamond to be independently and individually certified to be visibly brighter; |
| |
• | Lois Hill®, reaches back through the centuries and across the globe to create her collection of jewelry; |
| |
• | Neil Lane Bridal® , a vintage-inspired bridal collection by the celebrated jewelry designer Neil Lane; |
| |
• | Neil Lane Designs®, hand-crafted diamond rings, earrings and necklaces inspired by Hollywood’s glamorous past; |
| |
• | Open Hearts by Jane Seymour®, a collection of jewelry designed by the actress and artist Jane Seymour; |
| |
• | Tolkowsky®, an ideal cut diamond “Invented by Tolkowsky, Perfected by Tolkowsky”®; |
| |
• | Unstoppable LoveTM, features shimmering diamonds in movable settings that sparkle with every turn; |
| |
• | Vera Wang LOVE® collection, bridal jewelry designed by the most recognizable name in the wedding business, Vera Wang. |
Merchandise held on consignment
Merchandise held on consignment is used to enhance product selection and test new designs. This minimizes exposure to changes in fashion trends and obsolescence, and provides the flexibility to return non-performing merchandise. Primarily all of Signet’s consignment inventory is held in the US.
Suppliers
In Fiscal 2015, the five largest suppliers collectively accounted for approximately 16% of total purchases, with the largest supplier comprising 4%. Signet transacts business with suppliers on a worldwide basis at various stages of the supply chain with third party diamond cutting and jewelry manufacturing being predominantly carried out in Asia.
Marketing and advertising
Customers’ confidence in our retail brands, store brand name recognition and advertising of branded differentiated and exclusive ranges are important factors in determining buying decisions in the jewelry industry where the majority of merchandise is unbranded. Therefore, Signet continues to strengthen and promote its store brands and merchandise brands by delivering superior customer service and building brand name recognition. The marketing channels used include television, digital media (desktop, mobile and social), radio, print, catalog, direct mail, telephone marketing, point of sale signage and in-store displays, as well as coupon books and outdoor signage for the Outlet channels.
While marketing activities are undertaken throughout the year, the level of activity is concentrated at periods when guests are expected to be most receptive to marketing messages, which is ahead of Christmas Day, Valentine’s Day and Mother’s Day. A significant majority of the expenditure is spent on national television advertising, which is used to promote the store brands. Within such advertisements, Signet also promotes certain merchandise ranges, in particular its branded differentiated and exclusive merchandise and other branded products. Statistical and technology-based systems are employed to support customer relationship marketing programs that use a proprietary database to build guest loyalty and strengthen the relationship with guests through mail, telephone, eMail and social media communications. The programs target current guests with special savings and merchandise offers during key sales periods. In addition, invitations to special in-store promotional events are extended throughout the year.
Details of gross advertising spending by division, including as a percentage of divisional sales, are shown below:
|
| | | | | | | | | | | | | | | | | | |
| | Fiscal 2015 | | Fiscal 2014 | | Fiscal 2013 |
| | Gross advertising spending | as a % of divisional sales | | Gross advertising spending | as a % of divisional sales | | Gross advertising spending | as a % of divisional sales |
| | (in millions) | | | (in millions) | | | (in millions) | |
Sterling Jewelers division | | $ | 246.6 |
| 6.6 | % | | $ | 233.6 |
| 6.6 | % | | $ | 224.3 |
| 6.9 | % |
Zale division | | 64.6 |
| 5.3 | % | | n/a |
| n/a |
| | n/a |
| n/a |
|
UK Jewelry division | | 21.8 |
| 2.9 | % | | 20.2 |
| 3.0 | % | | 21.5 |
| 3.0 | % |
Signet | | $ | 333.0 |
| 5.8 | % | | $ | 253.8 |
| 6.0 | % | | $ | 245.8 |
| 6.2 | % |
n/a Not applicable as Zale division was acquired on May 29, 2014.
Real estate
Management has specific operating and financial criteria that have to be satisfied before investing in new stores or renewing leases on existing stores. Substantially all the stores operated by Signet are leased. In Fiscal 2015, global net store space increased 48.1% due to the Zale acquisition as well as new store growth. Excluding Zale, global net store space increased 4.4%. The greatest opportunity for new stores is in locations outside traditional covered regional malls.
Recent investment in the store portfolio is set out below:
|
| | | | | | | | | | | | | | | |
(in millions) | Sterling Jewelers division | | Zale division | | UK Jewelry division | | Total Signet |
Fiscal 2015 | | | | | | | |
New store capital investment | $ | 52.6 |
| | $ | 4.4 |
| | $ | 2.4 |
| | $ | 59.4 |
|
Remodels and other store capital investment | 52.6 |
| | 15.1 |
| | 11.3 |
| | 79.0 |
|
Total store capital investment | $ | 105.2 |
| | $ | 19.5 |
| | $ | 13.7 |
| | $ | 138.4 |
|
| | | | | | | |
Fiscal 2014 | | | | | | | |
New store capital investment | $ | 54.0 |
| | n/a |
| | $ | 1.5 |
| | $ | 55.5 |
|
Remodels and other store capital investment | 46.3 |
| | n/a |
| | 10.3 |
| | 56.6 |
|
Total store capital investment | $ | 100.3 |
| | n/a |
| | $ | 11.8 |
| | $ | 112.1 |
|
| | | | | | | |
Fiscal 2013 | | | | | | | |
New store capital investment | $ | 29.1 |
| | n/a |
| | $ | 0.6 |
| | $ | 29.7 |
|
Remodels and other store capital investment | 48.3 |
| | n/a |
| | 13.2 |
| | 61.5 |
|
Total store capital investment | $ | 77.4 |
| | n/a |
| | $ | 13.8 |
| | $ | 91.2 |
|
n/a Not applicable as Zale division was acquired on May 29, 2014. See Note 3 of Item 8 for additional information.
Seasonality
Signet’s sales are seasonal, with the first quarter slightly exceeding 20% of annual sales, the second and third quarters each approximating 20% and the fourth quarter accounting for almost 40% of annual sales, with December being by far the most important month of the year. The “Holiday Season” consists of sales made in November and December. As a result, approximately 45% to 55% of Signet’s operating income normally occurs in the fourth quarter, comprised of nearly all of the UK Jewelry and Zale divisions’ operating income and about 40% to 45% of the Sterling Jewelers division’s operating income.
Employees
In Fiscal 2015, the average number of full-time equivalent persons employed was 28,949. In addition, Signet usually employs a limited number of temporary employees during its fourth quarter. None of Signet’s employees in the UK and less than 1% of Signet’s employees in the US and Canada are covered by collective bargaining agreements. Signet considers its relationship with its employees to be excellent.
|
| | | | | | | | | |
| Fiscal 2015 | | Fiscal 2014 | | Fiscal 2013 | |
Average number of employees:(1) | | | | | | |
Sterling Jewelers | 16,147 |
| | 14,829 |
| | 14,686 |
| (2) |
Zale(3) | 9,241 |
| | n/a |
| | n/a |
| |
UK Jewelry | 3,292 |
| | 3,104 |
| | 3,156 |
| |
Other(4) | 269 |
| | 246 |
| | 35 |
| |
Total | 28,949 |
| | 18,179 |
| | 17,877 |
| |
(1) Full-time equivalents ("FTEs").
(2) Average number of employees includes 830 FTEs employed by Ultra.
(3) Includes 1,217 FTEs employed in Canada.
(4) Includes corporate employees and employees employed at the diamond polishing plant located in Botswana.
n/a Not applicable as Zale division was acquired on May 29, 2014.
Regulation
Signet is required to comply with numerous laws and regulations covering areas such as consumer protection, consumer privacy, data protection, consumer credit, consumer credit insurance, health and safety, waste disposal, supply chain integrity, truth in advertising and employment legislation. Management monitors changes in these laws to endeavor to comply with applicable requirements.
THE MARKET
Sector
Signet's divisions operate in the US, Canada and UK markets. A description follows of the data used by Signet to understand the size and structure of each market:
US
Calendar 2013 estimates are used by Signet to understand the size and structure of the US jewelry market as the provisional estimates for calendar 2014 available at the time of filing have historically been subject to frequent and sometimes large revisions.
Total US jewelry sales, including watches and fashion jewelry, are estimated by the US Bureau of Economic Analysis (“BEA”) to have been $76.9 billion in calendar 2013 in their February 2015 data release. The US jewelry market has grown at a compound annual growth rate of 4.1% over the last 25 years to calendar 2013 with significant variation over shorter term periods.
In calendar 2013, the US jewelry market grew by an estimated 6.3% (source: BEA, February 2015). The specialty jewelry sector is estimated to have grown by 5.6% to $33.2 billion in calendar 2013 (source: US Census Bureau, February 2015). The specialty sector of the jewelry market share in calendar 2013 was 43.2% as compared to 43.5% in calendar 2012. The Bureau of Labor Statistics estimated that, in calendar 2013, there were 21,932 specialty jewelry stores in the US (2012: 22,080), a reduction of 0.7% compared to the prior year.
Canada
Calendar 2013 estimates are used by Signet to understand the size and structure of the Canadian jewelry market as calendar 2014 estimates are unavailable at the time of the annual report.
Total Canadian jewelry sales, including watches and fashion jewelry, are estimated by Euromonitor International to have been C$5.8 billion in calendar 2013, an increase of 3.0% compared to calendar 2012. The Canadian jewelry market has grown at a compound annual growth rate of 4.8% over the last 4 years to calendar 2013.
UK
The UK market includes specialty retail jewelers and general retailers who sell jewelry and watches, such as catalog showrooms, department stores, supermarkets, mail order catalogs and internet based retailers. The retail jewelry market is very fragmented and competitive, with a substantial number of independent specialty jewelry retailers. There are approximately 4,000 specialty retail jewelry stores in the UK as of December 2014, a decrease from approximately 4,030 specialty retail jewelry stores in December 2013 (source: IBISWorld).
STERLING JEWELERS DIVISION
US market
Sterling Jewelers’ share of sales made by jewelry and watch retailers in the US market was 4.6% in calendar 2013 (calendar 2012: 4.5%), and its share of sales made by specialty jewelry retailers was 10.6% in calendar 2013 (calendar 2012: 10.4%), based on estimates by the US Census Bureau.
Sterling Jewelers store brand reviews
Store activity by brand
|
| | | | | | | | | | | | |
| Fiscal 2015 | | Fiscal 2014 | | Fiscal 2013 | |
Kay | 58 |
| | 63 |
| | 46 |
| (2) |
Jared | 17 |
| | 13 |
| | 7 |
| |
Regional brands | — |
| | 35 |
| (1) | 110 |
| (3) |
Total stores opened or acquired during the year | 75 |
| | 111 |
| | 163 |
| |
| | | | | | |
Kay | (20 | ) | | (22 | ) | | (17 | ) | |
Jared | — |
| | — |
| | — |
| |
Regional brands | (22 | ) | | (61 | ) | (1) | (21 | ) | |
Total stores closed during the year | (42 | ) | | (83 | ) | | (38 | ) | |
| | | | | | |
Kay | 1 |
| | 65 |
| | — |
| |
Jared | 33 |
| | — |
| | — |
| |
Regional brands | (34 | ) | | (65 | ) | | — |
| |
Total logo conversions | — |
| | — |
| | — |
| |
| | | | | | |
Kay | 1,094 |
| | 1,055 |
| | 949 |
| |
Jared | 253 |
| | 203 |
| | 190 |
| |
Regional brands | 157 |
| | 213 |
| | 304 |
| (5) |
Total stores open at the end of the year | 1,504 |
| | 1,471 |
| | 1,443 |
| |
| | | | | | |
Kay | $ | 2.112 |
| | $ | 2.033 |
| | $ | 2.002 |
| |
Jared | $ | 4.794 |
| | $ | 5.299 |
| | $ | 5.201 |
| |
Regional brands | $ | 1.318 |
| | $ | 1.243 |
| | $ | 1.292 |
| (6) |
Average sales per store (millions)(4) | $ | 2.467 |
| | $ | 2.361 |
| | $ | 2.351 |
| |
| | | | | | |
Kay | 1,597 |
| | 1,489 |
| | 1,288 |
| |
Jared | 1,089 |
| | 983 |
| | 923 |
| |
Regional brands | 196 |
| | 276 |
| | 411 |
| (7) |
Total net selling square feet (thousands) | 2,882 |
| | 2,748 |
| | 2,622 |
| |
| | | | | | |
Increase in net store space | 5 | % | | 5 | % | | 11 | % | |
(1) Includes the remaining 30 Ultra stores not converted to the Kay brand in Fiscal 2014.
(2) Includes five mall stores that relocated to an off-mall location in Fiscal 2013.
(3) Excludes 33 Ultra licensed jewelry departments.
(4) Based only upon stores operated for the full fiscal year and calculated on a 52 week basis.
(5) Includes 110 Ultra stores, which were previously disclosed separately.
(6) Excludes impact of Ultra stores, which were acquired during Fiscal 2013.
(7) Includes 170 thousand net selling square feet from Ultra stores, which were previously disclosed separately.
Sales data by brand |
| | | | | | | | | |
| | | Change from previous year |
Fiscal 2015 | Sales
(millions) | | Total
sales | | Same store
sales |
Kay | $ | 2,346.2 |
| | 8.6 | % | | 5.7 | % |
Jared | 1,188.8 |
| | 8.9 | % | | 3.8 | % |
Regional brands | 230.0 |
| | (13.4 | )% | | 0.3 | % |
Sterling Jewelers | $ | 3,765.0 |
| | 7.0 | % | | 4.8 | % |
Kay Jewelers
Kay accounted for 41% of Signet's sales in Fiscal 2015 (Fiscal 2014: 51%) and operated 1,094 stores in 50 states as of January 31, 2015 (February 1, 2014: 1,055 stores). Since 2004, Kay has been the largest specialty retail jewelry store brand in the US based on sales, and has subsequently increased its leadership position. Kay targets households with an income of between $35,000 and $100,000, with a midpoint target of approximately $70,000.
Details of Kay’s performance over the last three years is shown below:
|
| | | | | | | | | | | |
| Fiscal 2015 | | Fiscal 2014 | | Fiscal 2013 |
Sales (millions) | $ | 2,346.2 |
| | $ | 2,157.8 |
| | $ | 1,953.3 |
|
Average sales per store (millions) | $ | 2.112 |
| | $ | 2.033 |
| | $ | 2.002 |
|
Stores at year end | 1,094 |
| | 1,055 |
| | 949 |
|
Total net selling square feet (thousands) | 1,597 |
| | 1,489 |
| | 1,288 |
|
Kay mall stores typically occupy about 1,600 square feet and have approximately 1,300 square feet of selling space, whereas Kay off-mall stores typically occupy about 2,200 square feet and have approximately 1,800 square feet of selling space. Kay operates in regional malls and off-mall stores. Off-mall stores primarily are located in outlet malls and power centers. Management believes off-mall expansion is supported by the willingness of guests to shop for jewelry at a variety of real estate locations and that increased diversification is important for growth as increasing the store count further leverages the strong Kay brand, marketing support and the central overhead.
The following table summarizes the current composition of stores as of January 31, 2015 and net openings (closures) in Fiscal 2015:
|
| | | | | | | | | | | |
| | | Net openings (closures) |
| Stores at
January 31,
2015 | | Fiscal 2015 | | Fiscal 2014 | | Fiscal 2013 |
Mall | 764 |
| | 2 |
| | 5 |
| | (3 | ) |
Off-mall and outlet | 330 |
| | 37 |
| | 101 |
| | 32 |
|
Total | 1,094 |
| | 39 |
| | 106 |
| | 29 |
|
Jared The Galleria Of Jewelry
With 253 stores in 39 states as of January 31, 2015 (February 1, 2014: 203 stores), Jared is a leading off-mall destination specialty retail jewelry store chain, based on sales. Jared accounted for 21% of Signet's sales in Fiscal 2015 (Fiscal 2014: 25%). The first Jared store was opened in 1993, and since its roll-out began in 1998, it has grown to become the fourth largest US specialty retail jewelry brand by sales. Based on its competitive strengths, particularly its scale, management believes that Jared has significant opportunity to grow. Potential guests who visit a destination store have a greater intention of making a jewelry purchase. Jared targets households with an income of between $50,000 and $150,000, with a midpoint target of approximately $100,000.
Details of Jared’s performance over the last three years is shown below:
|
| | | | | | | | | | | |
| Fiscal 2015 | | Fiscal 2014 | | Fiscal 2013 |
Sales (millions) | $ | 1,188.8 |
| | $ | 1,064.7 |
| | $ | 1,003.1 |
|
Average sales per store (millions) (1) | $ | 4.794 |
| | $ | 5.299 |
| | $ | 5.201 |
|
Stores at year end | 253 |
| | 203 |
| | 190 |
|
Total net selling square feet (thousands) | 1,089 |
| | 983 |
| | 923 |
|
(1) In Fiscal 2015, average sales per store reflect impact of Jared outlet and mall store concepts.
Jared offers superior guest service and enhanced selection of merchandise. As a result of its larger size, more specialist sales associates are available to assist guests. In addition, every Jared store has an on-site design and service center where most repairs are completed within the same day. Each store also has at least one diamond viewing room, a children’s play area and complimentary refreshments.
The typical Jared store has about 4,800 square feet of selling space and approximately 6,000 square feet of total space. Jared locations are normally free-standing sites with high visibility and traffic flow, positioned close to major roads within shopping developments. Jared stores usually operate in retail centers that normally contain strong retail co-tenants, including big box, destination stores and some smaller specialty units.
Jared also operates an outlet-mall concept known as Jared Vault. These stores, converted from a previous outlet store acquisition, are smaller than off-mall Jareds and offer a mix of identical products as Jared as well as different, outlet-specific products at lower prices.
In Fiscal 2015, Signet began to test new Jared store concepts within malls, branded Jared Jewelry Boutiques. These mall stores have a smaller footprint than standard Jared locations, and generally less than 2,000 square feet of selling space.
|
| | | | | | | | | | | |
| | | Net openings (closures) |
| Stores at
January 31,
2015 | | Fiscal 2015 | | Fiscal 2014 | | Fiscal 2013 |
Mall | 8 |
| | 8 |
| | — |
| | — |
|
Off-mall and outlet | 245 |
| | 42 |
| | 13 |
| | 7 |
|
Total | 253 |
| | 50 |
| | 13 |
| | 7 |
|
Sterling Jewelers regional brands
The Sterling Jewelers division also operates mall stores under a variety of established regional nameplates. Regional brands in the Sterling Jewelers division accounted for 4% of Signet's sales in Fiscal 2015 (Fiscal 2014: 7%) and as of January 31, 2015, include 157 regional brand stores in 32 states (February 1, 2014: 213 stores in 36 states). The leading brands include JB Robinson Jewelers, Marks & Morgan Jewelers and Belden Jewelers. Also included in the regional nameplates are Goodman Jewelers, LeRoy's Jewelers, Osterman Jewelers, Rogers Jewelers, Shaw's Jewelers and Weisfield Jewelers. All of these regional brand stores are located where there is also a Kay location.
Details of the regional brands’ performance over the last three years is shown below:
|
| | | | | | | | | | | | |
| Fiscal 2015 | | Fiscal 2014 | | Fiscal 2013 | |
Sales (millions) | $ | 230.0 |
| | $ | 295.1 |
| | $ | 317.5 |
| (1) |
Average sales per store (millions) | $ | 1.318 |
| | $ | 1.243 |
| | $ | 1.292 |
| (2) |
Stores at year end | 157 |
| | 213 |
| | 304 |
| (3) |
Total net selling square feet (thousands) | 196 |
| | 276 |
| | 411 |
| (4) |
(1) Includes $45.7 million in sales from Ultra stores, which were previously disclosed separately.
(2) Excludes the average sales per store from the Ultra stores which were acquired during 2013.
(3) Includes 110 Ultra stores, which were previously disclosed separately.
(4) Includes 170 thousand net selling square feet from Ultra stores which were previously disclosed separately.
Sterling Jewelers operating review
Other sales
Custom design services represent less than 5% of sales but provide higher than average profitability. The Sterling Jewelers division expanded the custom jewelry initiative by creating a proprietary selling system and expanding in-store capabilities. Design & Service Centers, located in Jared stores, are staffed with skilled artisans who support the custom business generated by other Sterling Jewelers division stores as well as the Jared stores in which they are located. The custom design and repair function has its own field management and training structure.
Repair services represent less than 10% of sales and approximately 30% of transactions and are an important opportunity to build customer loyalty. The Jared Design & Service Centers, open the same hours as the store, also support other Sterling Jewelers division stores' repair business.
The Sterling Jewelers division sells, as separate items, extended service plans including lifetime repair service plans for jewelry and jewelry replacement plans. The lifetime repair service plans cover services such as ring sizing, refinishing and polishing, rhodium plating of white gold, earring repair, chain soldering and the resetting of diamonds and gemstones that arise due to the normal usage of the merchandise. Jewelry replacement plans require the issuance of new replacement merchandise if the original merchandise is determined to be defective or damaged within a defined period in accordance with the plan agreement. Any repair work is performed in-house.
Customer finance
In the US market, offering financing benefits our guests and managing the process in-house is a strength of Signet’s Sterling Jewelers division. The Sterling Jewelers division establishes credit policies that take into account the overall impact on the business. In particular, the Sterling Jewelers division’s objective is to facilitate the sale of jewelry and to collect the outstanding credit balance as quickly as possible, minimizing
risk and enabling the guest to make additional jewelry purchases using their credit facility. In contrast, management believes that many financial institutions focus on earning interest by maximizing the outstanding credit balance. The program:
| |
• | utilizes proprietary authorization and collection models which consider information on the behavior of the division’s guests; |
| |
• | allows management to establish and implement service standards appropriate for the business; |
| |
• | provides a database of regular guests and their spending patterns; and |
| |
• | maximizes cost effectiveness by utilizing in-house capability. |
The various customer finance programs assist in establishing and enhancing customer loyalty and complement the marketing strategy by enabling a greater number of purchases, higher units per transaction and greater value sales.
In addition to interest-bearing transactions that involve the use of in-house customer finance, a portion of credit sales are made using interest-free financing for one year, subject to certain conditions. In most US states, guests also are offered optional third-party credit insurance.
The customer financing operation is centralized and fully integrated into the management of the Sterling Jewelers division and is not a separate operating division nor does it report separate results. All assets and liabilities relating to customer financing are shown on the balance sheet and there are no associated off-balance sheet arrangements. The Sterling Jewelers division’s customer finance facility may only be used for purchases from the Sterling Jewelers division.
Allowances for uncollectible amounts are recorded as a charge to cost of goods sold in the income statement. The allowance is calculated using factors such as delinquency rates and recovery rates. A 100% allowance is made for any amount that is more than 90 days aged on a recency basis and any amount associated with an account the owner of which has filed for bankruptcy, as well as an allowance for those amounts 90 days aged and under based on historical loss information and payment performance. The calculation is reviewed by management to assess whether, based on economic events, additional analyses are required to appropriately estimate losses inherent in the portfolio.
Each individual application for credit is evaluated centrally against set lending criteria. In Fiscal 2015 the Sterling Jewelers division invested in a new decision engine, which preserves requirements while allowing more refined scoring of applicants, allowing for optimum credit extensions. The risks associated with the granting of credit to particular groups of guests with similar characteristics are balanced against the gross merchandise margin earned by the proposed sales to those guests. Management believes that the primary drivers of the net bad debt to total Sterling Jewelers sales ratio are the effectivenes of the proprietary customer credit models used when granting customer credit, the procedures used to collect the outstanding balances, credit sales as a percentage to total Sterling Jewelers sales and the overall macro-economic environment. Cash flows associated with the granting of credit to guests of the individual store are included in the projections used when considering store investment proposals.
Customer financing statistics (1) |
| | | | | | | | | | | |
| Fiscal 2015 | | Fiscal 2014 | | Fiscal 2013 |
Total sales (million) | $ | 3,765.0 |
| | $ | 3,517.6 |
| | $ | 3,273.9 |
|
Credit sales (million) | $ | 2,277.1 |
| | $ | 2,028.0 |
| | $ | 1,862.9 |
|
Credit sales as % of total Sterling Jewelers sales (2) | 60.5 | % | | 57.7 | % | | 56.9 | % |
Net bad debt expense (million) (3) | $ | 160.0 |
| | $ | 138.3 |
| | $ | 122.4 |
|
Net bad debt as a % of total Sterling Jewelers sales | 4.2 | % | | 3.9 | % | | 3.7 | % |
Net bad debt as a % of Sterling Jewelers credit sales | 7.0 | % | | 6.8 | % | | 6.6 | % |
Opening receivables (million) | $ | 1,453.8 |
| | $ | 1,280.6 |
| | $ | 1,155.5 |
|
Closing receivables (million) | $ | 1,660.0 |
| | $ | 1,453.8 |
| | $ | 1,280.6 |
|
Number of active credit accounts at year end (4) | 1,352,298 |
| | 1,256,003 |
| | 1,173,053 |
|
Average outstanding account balance at year end | $ | 1,245 |
| | $ | 1,175 |
| | $ | 1,110 |
|
Average monthly collection rate | 11.9 | % | | 12.1 | % | | 12.4 | % |
Ending bad debt allowance as a % of ending account receivables |