Signet Jewelers Limited

Good morning and welcome to the Cigna Jewelers First Quarter Fiscal 2022 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I'd now like to turn the conference over to Vinny Sinisi, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Hey, great. Thanks very much, Jason. And good morning, everyone. Welcome to our first quarter earnings conference call. On the call today are Cignet's CEO, Jenna Drossos, and CFO, Joan Hilson. During today's presentation, we'll 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 risk factors, cautionary language, and other disclosures in our annual report on 10-K, quarterlies on 10-Q, and current reports on 8-Ks. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events. During the call, we'll discuss certain non-GAAP financial measures. For further discussion of the non-GAAP measures as well as reconciliations of them to the most directly comparable GAAP measures, investors should review the news release we posted on our website at www.signatoolers.com slash investors. And with that, I'll turn the call over to Jenna.

Thank you, Vinny. And thanks to all of you who are on the call with us today. I also want to thank our signet team members who continue to inspire me with their relentless dedication to our customers and to each other. We are embracing new capabilities in connected commerce with excellence, as evidenced in this quarter's results. Thanks to our team, we built on the momentum of a very strong holiday performance and delivered both a strong Valentine's Day and strong Mother's Day. by continuing to serve customers whenever, wherever, and however they choose to shop with us. Further to this, we are unlocking our team members' potential. We know from listening and from our ongoing surveys that our team members are inspired by our purpose. They're proud to be part of our organization, and they're confident in the tightly integrated strategies that are guiding our growth. Our team members' inspiration, pride, confidence, expertise, and growing digital capabilities are the most important drivers of my confidence in our long-term success. It is an honor to work at their side. As I review Cigna's performance in Q1, I want to leave you with three messages. Number one, we outperformed Q1 expectations and are raising our fiscal 22 guidance today. Number two, We're making steady progress in all four of our where to play strategic focus areas and all three of our how to win core strengths, consumer inspired insights, connected commerce presence, and our culture of innovation and agility. We are continuing to expand these strengths because we know they are sources of competitive advantage. We're outpacing market growth and as a result, we're growing share. I'll talk through each of these points, but first let's look high level at the Q1 numbers. Total sales were $1.7 billion, an increase of more than $250 million or 18% compared to Q1 two years ago. This is significant because two years ago we had 467 more stores than we have today. E-commerce is playing an increasingly important role with sales up more than 110% in the quarter versus last year and 124% versus two years ago. Cash flow from operating activities of $161 million year-to-date was up $169 million compared to last year and $56 million compared to two years ago. Having already paid down debt and with $1.3 billion of cash at quarter end, We are continuing to invest in growing our business and, as Joan will discuss, returning cash to shareholders. Ending inventory was $2 billion, $373 million lower than last year. Our inventory reduction efforts are now institutionalized, less about rationalization and more about optimizing our merchandise mix and availability. getting the right product to the right places to maximize speed of delivery and sales. Our digital capabilities give customers access to virtually every piece of jewelry in our system, no matter where it is, which is unlocking new levels of inventory productivity. So this has become more than a working capital story. We're increasing our ability to flow newness into our inventory pipeline, bringing more innovative new products to more customers more frequently. And with data analytics, we're ensuring we have optimized assortments where we need them. Our Q1 performance demonstrates that we are off to a strong start implementing phase two of Cigna's transformation, which we call inspiring brilliance. On that note, I want to transition now to taking a closer look at the progress we're making in each of the four where to play strategic focus areas that we outlined two months ago in our virtual investor event. First, we are winning in our biggest businesses. Our strategy for keeping our core strong and growing is holistic. It begins with the work we've done to differentiate our banners, including merchandise assortment, price tiers, balancing self-purchase and gifting, and offering brands that are designed to appeal to each banner's distinct target customer. For example, We're generating compelling and highly targeted content that's tailored for each channel where we communicate with customers and for the moment in their journey when they are engaging with us. Our merchandise assortment is also uniquely targeted for each banner, including Neil Lane and Adriana Papel at Kay, Vera Wang and Disney Enchanted at Zales, Levian and Penina Tournay at Jared, and others across our portfolio. Perhaps most importantly, we're focused on product. Our merchants are continuing to innovate and scour the market for emerging ideas. In bridal, this means larger, high-quality diamonds with more radiance in sleeker designs. For the gift giver, collections with meaning really help our customers express their feelings. And for the self-purchasing woman and man, our most innovative collections reflect the style changes that we have seen this year. yellow gold, layered neck pieces, and fully outfitted ears. We're finding that customers want to wear jewelry with all looks, including casual, athleisure, professional, and they want to do so particularly now that they are reigniting their social lives. Our differentiated banner propositions are working. All of our U.S. banners delivered double-digit revenue growth compared to two years ago, We attribute much of this to the success we're having attracting new customers across our banners with our holistic marketing and customer experience strategies, while maintaining the loyalty of existing customers as well. For example, roughly 60% of our sales growth in Q1 across K and Zales came from new customers. We've benefited from stimulus spending and other tailwinds, of course, but we believe that we've captured more than our fair share of this spending by having the right targeted assortments with the right level of newness differentiated by banner. This is evidenced by Kay's strong growth in gifting and Zales' in self-purchase. Further, increasingly optimized assortments for our target customers led to an ATV increase of nearly 20% in these banners versus two years ago. When we combine our knowledge of product as a jeweler and our knowledge of customers as a retailer, along with the scale of our data-driven operations, we win, especially in our biggest businesses. Second, we're making progress on our strategy to accelerate services, which are returning to pre-pandemic levels. Services are especially important because they are a long-term relationship builder, the glue that connects a lifetime value of relationship and purchases between a customer and our signet team. We jump-started services in Q1 in several ways. We enhanced our financial services by expanding and strengthening payment offerings for customers. We recently announced a new and more favorable agreement with two long-term partners, ADS and Genesis. This gives us the ability to provide more payment flexibility more simply and more profitably than we could before. We're also continuing to expand customization services. This remains a growing trend. Among recently engaged people, 13% designed their ring from scratch. We're offering customization tools across all our largest banners. With the Vera Wang Love Configurator, Zales customers can choose a diamond or a gemstone center. Kay enables customers to create a completely customizable engagement ring with the Create Your Own Design tool or design a ring with Neil Lane to get that handcrafted Hollywood glamour style just the way they want. And Jared customers have a variety of ways to put their personal touches on jewelry, whether adding an engraved phrase to a ring or working directly with Jared Artisans online or in person at one of our in-store foundry studios. Consistent with this, customization sales are up low double digits in Jared's stores with a foundry. We also continue to build on our investments in James Allen, a specialist in the custom jewelry space, and we're seeing strong results with more than 130% revenue growth to last year. Further, we launched custom design and restoration events across Kay, Zales, and Jared in Q1. We offered customers a 10% discount to bring in existing pieces of jewelry to be reimagined or restored to their previous brilliance. These events, on their own, enabled us to exceed our goals for the quarter, and we plan to continue hosting them banner by banner going forward. We're also moving into new areas, such as jewelry rental subscriptions, with the acquisition of Roxbox. And we're quickly growing brand awareness through cross-promotion within our banners. Jared, for example, offered customers a free two-month subscription to Roxbox when purchasing a Jared piece and then provided a bounce-back coupon to anyone who activated a Roxbox subscription. We'll be offering a growing range of cross-banner promotions like this in the months ahead, including a Roxbox rental offering partnership with Pearson Pagoda this summer. We are building momentum in services, which we continue to believe is a billion-dollar growth opportunity on the path to the $9 billion overall revenue goal we laid out at our virtual investor event. The third strategic focus area where we're making progress is expanding mid-market accessible luxury and value. We're focused sharply on growing the top end of the mid-market with more intentional accessible luxury offerings. For example, Jared's fastest growth this quarter came through higher price point merchandise, primarily above $3,000. This includes Jared's new premium diamond assortment. with sales of larger stones up roughly 30% to two years ago. Chosen Platinum, Panina Tournée, and Royal Asher were strong merchandise drivers. Piercing Pagoda is expanding our strength at the value end of the mid-market, delivering its strongest quarter ever in Q1. Just to emphasize, ever means Q1 fiscal 22 with higher total revenue than any prior quarter for Pagoda, including fourth quarters. Customers are highly receptive to our new assortment, with particular emphasis on gold, which represents 75% of Pagoda sales. Pagoda now has more than 135 stores on track to deliver a million dollars in sales this year. And we currently have four Pagoda locations that already have more than a million dollars in sales to date this fiscal year, a feat that took until August to achieve in fiscal 20. We're eager to keep Piercing Pagoda growing and highly relevant. We're taking two critical steps in that direction by investing in advertising and launching a branding refresh. The strong return on our additional investment in advertising was proven this quarter. as we continue to increase Pagoda's banner awareness. Sales were up three times to Q1 of last year and up 80% to two years ago on a smaller store base in both years. Our second step, updating branding, is one that we believe will further accelerate our return on advertising spend. Our customer research indicates that the piercing Pagoda name doesn't have the same modernity that our merchandise and banner experience bring. So we're testing the opportunity to freshen and broaden Pagoda's brand equity and attract new customers while retaining existing ones. Our fourth strategy is to lead digital commerce in the jewelry industry. Our ability to combine digital and in-store experiences at the scale we are able to is a significant competitive advantage, and we're continuing to innovate and to invest in both. For perspective, Kay delivered nearly 17% more brick and mortar sales per square foot of physical store space than in the first quarter two years ago, and Zales is delivering 35% more. In total, Q1 e-commerce sales were up more than 110% compared to last year, And brick-and-mortar same-store sales were up more than 105%. As part of our growing connected commerce approach, we are integrating our physical stores into the digital customer experience with data-driven in-store consultations, buy online, pick up in-store, and curbside, and increasingly seamless interaction across our websites, stores, and inventory pipelines. This integration is making a difference. While physical foot traffic is still down compared to this time two years ago, we've delivered growth through both higher conversion and higher average transaction value. We believe this is because we are starting to provide a best-in-class experience, from the first touchpoint of the digital shopping experience all the way through in-person store consultations and fulfillment. We added more than 100 new features and capabilities across our digital platforms in Q1 to ensure every digital touchpoint is a moment of customer delight. Virtual try-on for K drove over a 110% increase in its add-to-cart rate and nearly a 70% increase in order conversion in Q1. We also rolled out Google Business Messages and Apple Business Chat, features that allow customers to engage virtual jewelry consultants in real time or offline from search results or maps. Applications like these are laying the groundwork for further enhancements later this year as we build our Agile team infrastructure and iterative innovation capabilities. Last year, we implemented virtual selling at the end of Q1 and had around 50,000 virtual interactions with customers. This quarter, we had more than 450,000 virtual interactions. And importantly, conversion is also improving as our team's capabilities continue to mature. Further, our cart-to-checkout conversion rate is up. and the rate of site visits that turn into cart views is up as well. Our digital development teams are not settling for creating the best online jewelry experience. They're setting the bar higher by finding and innovating the best online consumer experiences in any category and then bringing those experiences for our jewelry customers. I'll share one quick example of how this integration and growing digital capability is working. We recently worked with a customer who came to us through our virtual chat feature with a mission and a deadline. He wanted to propose to his girlfriend the next day. Erica, one of our virtual consultants, noticed the urgency in his messages, and she made it her mission to help him achieve his. This customer's soon-to-be fiance had a dream ring in mind, a cushion cut, two-carat thin pave ring in white gold. Erica immediately began searching our virtual inventory to identify stores nationwide that had or could create the piece he was looking for. She found a store near him that had the cushion cut with the color, clarity, and size that he needed. Erica connected him directly to that store. The next morning, he was greeted in person by our in-store consultant, Yara, who was ready to serve. The customer loved the ring and bought it on the spot. A $25,000 sale, I might add. The team sat and sized the ring while he waited. He proposed that evening, she said yes, and he sent our team photos of the happy moment. This customer told us he loved being able to start his shopping journey virtually, look at pieces online, chat with a virtual consultant, have us do the shopping with him, and then have the diamond and ring together for him to view in person. That's the power of Signet connecting digital and physical alongside our mission of helping all people celebrate life and express their love, even in 24 hours or less. What I hope you can see is that we are growing in each of our integrated strategic focus areas. The best strategies are tightly integrated and create more value because they are mutually reinforcing. It's making a difference as we've outpaced market growth over the last year and are gaining market share. I also want to emphasize that we are delivering the performance I've outlined with a deep sense of purpose. We are committed to ongoing leadership in corporate citizenship and sustainability. and we view ESG initiatives as an important growth driver. This past quarter, we released the company's first-ever Corporate Citizenship and Sustainability Report. This reflects our continued leadership, prioritization, and board oversight of ESG initiatives. We announced our 2030 Corporate Sustainability Goals through our three loves, love for all, love for our team, and love for our planet and products. As we enhance our corporate citizenship and sustainability goals, we believe in prioritizing our own team. This quarter, we launched Cignet's first team member experience, which is focused on providing team members with an exceptional and inclusive place to work while also providing a robust set of learning and career development opportunities. Having been named a certified Great Place to Work company last year, we aim to keep our high engagement and discretionary effort momentum going. And we are active in the communities we serve as advocates for change. We made the first donation from our Signet Love Inspires Foundation to the Equal Justice Initiative, as there is much to be done to fight systemic racism. And in line with our mission of celebrating life and expressing love for all, the company is celebrating Pride Month across signet banners and has endorsed the Human Rights Council's business statement on anti-LGBTQ plus state legislation. As a global company with longstanding partners and vendors around the world, we donated to the Gujarat Charitable Trust in India, with the intention of support for COVID relief efforts. We believe these purpose inspired actions are attracting even more top talent to our highly dedicated team and are attracting and appealing to customers who are voting with their wallets in support of companies and brands that share their values and take a stand. In summary, The inspiring brilliance phase of our transformation is off to a strong start. We outperformed expectations in Q1, and we're making progress in all of our strategic focus areas. We're growing our core strengths into meaningful competitive advantages. And most importantly, we are outpacing the market, growing share, and fulfilling our purpose as a company. We still have plenty of hard work to do to sustain our performance and deliver long-term growth, but we're encouraged by the momentum that's building and inspired by the opportunity to serve our customers and help grow the jewelry industry. I'll now turn the call over to Joan.