Signet Jewelers Limited

Good morning and welcome to the Cigna-Jewelers Second 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 Sinise, Senior Vice President, Investor Relations and Treasury. Please go ahead, sir.

Great. Thanks very much, Jason. And good morning, everyone. Welcome to our second quarter earnings conference call. On the call today are Cignet CEO, Jenna Drossos, and Chief Financial and Strategy Officer, 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 disclosure on our annual report on 10-K, quarterlies on 10-Q, and current reports on Form 8-K. 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 will discuss certain non-GAAP financial measures. For further discussion of those, as well as reconciliations of them to GAAP measures, investors should review the news release we posted on our site at signajewelers.com slash investors. And with that, I'll turn the call over to Jenna.

Thank you, Vinny, and thanks to all of you on the call with us today. First, let me begin by sending our thoughts and prayers to our colleagues and partners who were in the wake of Ida. We hope you and your loved ones are all safe and sound. Now on the quarter. Our performance this quarter reflects continued momentum in our Inspiring Brilliance transformation to maximize jewelry category strength and capture market share over the last year. Specifically, we're advancing and better integrating our banner value propositions, product newness, always-on marketing, and connected commerce experiences. Our team continues to accelerate our transformation and delight new and loyal customers through their passion, dedication, and expanding capabilities and talents. Thank you to the CIGNET team. It's an honor to work alongside them. There are three key messages that I'd like to leave you with today. First, we outperformed expectations and are raising our fiscal 22 guidance. Data-driven insights and our bespoke research capabilities enabled our team to quickly identify and make the most of changing consumer trends. Second, our inspiring brilliant strategies are working in an integrated manner. Our continued refinement of our banner value propositions are serving distinct customers with differentiated product assortments and experiences. Our connected commerce strategy is increasingly enabling more consumers to shop with us whenever, however, and wherever they want. And third, we are continuing to strengthen our culture of innovation and agility, and our team members are embracing new capabilities with excellence. By investing in our people and attracting the best talent across industries, our people and culture are becoming an even stronger competitive advantage. Now let me share some highlights from the second quarter. We delivered total sales of $1.8 billion this quarter. That's the same store sales improvement of 97.4% compared to last year. We're pleased with this performance, but are also mindful that we didn't meaningfully reopen our stores until about two-thirds of the way through the second quarter last year. A better indicator of our performance is the comparison to two years ago, when our fleet was fully operational. On that basis, this quarter represents same-store sales growth of 38.1%. Total revenue was nearly $425 million higher than two years ago, despite having roughly 450 fewer stores, a 16% reduction in store count. This performance points to the importance of both connected commerce and our store footprint optimization. As we continue to transform our operating model, we delivered non-GAAP operating margin of 12.5% this quarter, representing an 860 basis point improvement compared to this time two years ago. As a result of this strong momentum, our view of the back half is more positive than it was a few months ago, particularly for the third quarter. We are seeing a delay in the anticipated shift of spending toward travel and experiences, which we believe is primarily related to the COVID Delta variant. While we continue to put the health and safety of both our employees and customers first, we don't anticipate significant store closures in the back half of the fiscal year. These factors are why we're raising our guidance today, reflecting second quarter outperformance and third quarter momentum while remaining cautious given potential macro headwinds. To explain our second quarter performance, it's important to point out how our inspiring brilliant strategies are enabling our team to stay agile and create competitive opportunities. While category tailwinds existed in Q2, It was our differentiated assortments that resonated with customers, our connected commerce capabilities that increased conversion, and our always-on targeted marketing that all worked in combination to deliver strong growth this quarter. Recall that the inspiring brilliance phase of our transformation is built on four where-to-play strategies, winning in our biggest businesses, accelerating services, expanding accessible luxury and value, and leading in digital commerce. As we aimed to win in our big businesses, we focused on leaning into four consumer trends that our data identified early and our team worked to quickly execute against. The first of these trends is strong consumer confidence. While this index took a step back in August, it was heightened throughout our second quarter and remains similar to levels earlier this year. Confidence is highest among millennials and higher income customers. Our recent research also shows that 80% of U.S. consumers believe they are the same or better off economically today than they were before the pandemic. We've responded by providing additions to our assortment that offer higher quality pieces at higher price points. The second trend is gifting at higher price points as customers continue to celebrate those closest to them. We identified this trend early and leaned into it at Valentine's Day and again at Mother's Day. In the week leading up to Mother's Day, we drove brick-and-mortar same-store sales growth of more than 30% to two years ago, with average transaction value up 18%. Similarly, growth in e-commerce over the same time period was more than 90%, showing that our connected commerce experience is resonating, both in-store and online. The third trend is higher self-purchasing among both women and men. Customers are seeking ways to express themselves by spending discretionary dollars on better quality pieces that both hold their value over time and reflect their personal style. A great example of our response to this trend is our new Serena line being launched this week at the U.S. Open and now available at sales. This new 60-piece collection is a testament to Serena's self-love and strength and has been met with strong initial customer response. Another good example is our decision to expand the fashion assortment available through James Allen. While still a relatively small portion of its overall sales, James Allen's second quarter fashion sales were up more than three-fold to this time two years ago. The fourth trend I'd like to highlight is the rising tide of engagements. Our research indicates 15% of committed couples, or approximately 2.3 million couples, plan to get engaged this calendar year, which is up high single digits to a typical pre-pandemic year. As a company, we have tremendous expertise in providing customers with education and counsel, both in-store and online, which builds trust on such an important decision. Customers are responding, as we saw total sales of our bridal category increase over $150 million, or 25%, this quarter to two years ago. While our strategies are working together to respond to these trends, I think the continued refinement of our banner differentiation shines brightest here. Recall that while our banners are well positioned to serve any customer journey, each of them is best positioned to serve a specific one. For example, our data analytics on Kay shows that new customers are 700 basis points more likely to be on a milestone gifting or holiday purchase journey, aligning with Kay's target of the generous sentimentalist. Meanwhile, Zales continues to refine their approach to attract the bold statement maker, and we can measure our progress. Zales' new customers in the first half of the year are 400 basis points more likely to be on a self-purchase journey than two years ago. One of the ways that we've driven this differentiation is through the continued refinement of our assortment. This includes engagement rings at Kay with larger center stones and more fancy cuts, higher quality diamonds and metals available through the chosen line at Jared, or our increasing assortment of diamond pieces at Pagoda. Alongside our efforts to provide a differentiated and consumer-inspired assortment is our focus on a healthy inventory position. Through a series of integrated initiatives, we've driven a 40% improvement to our overall inventory turn since we began our transformation. First, we've improved the design and testing phase of our merchandise cycle so that we can lean into trends faster and at a scale that is unmatched in our category. Second, we're rationalizing our SKUs dynamically with data-driven precision to focus on assortments that resonate most thereby reducing build-ups of sell-down or clearance merchandise. These efforts enable us to lower inventory levels while giving customers higher access to newness. A clear example here is K. New or high-turn inventory penetration at K is now 50% higher than it was two years ago. I'd also note that we've applied this playbook to our memo inventory as well, a decision that has led to more effective purchasing and has bolstered our vendor relationships. Given potential macroeconomic headwinds, these improvements to our inventory and merchandise strategies are important to helping us remain agile. Services is our second where to play strategy, and we're making good progress here as well. We see an opportunity to grow services into a billion-dollar business. Not only do services carry higher margins, they are strategic as they drive trust in long-term relationships. Trust is key when a customer hands us a treasured piece of jewelry to repair, or when they ask us to safely pierce a part of their body, or when they act on the counsel of our jewelry consultants to choose and customize the perfect engagement ring. Every time we earn a customer's trust, we take a step toward building a relationship that will last a lifetime, and we're working to provide services at every relevant touchpoint in a customer's purchase journey. For example, in July, we took another step in the transformation of our financial services. We now have long-term agreements with strategic credit partners, which lower our costs and provide customers with a broader and more flexible range of payment options. Customization is also an increasingly important service. In a recent survey, 36% of retail consumers expressed interest in customizing their products and services, and 20% indicated that they're willing to pay a premium. Over 80% of bridal customers express interest in some level of customization for their engagement and wedding rings. These insights are reflected in the performance of our Jared Foundry experience. Stores with foundries delivered roughly 10% higher sales than Jared locations without them this quarter. This unique offering combines on-site jewelers, with computer-assisted design software and 3D printing to provide an experience that customers cannot get at most other jewelry stores. With roughly 50 Foundry locations today, we will continue investing in its rollout as we plan to have more than 70 Jareds with Foundry experience this fiscal year. Our third where-to-play strategy is expanding the mid-market. by growing accessible luxury and value through the continued differentiation of our banner portfolio. As an example, take Kay and Jared. Kay is our broadest reaching banner, positioned squarely in the mid-market. We've been pushing Jared toward the higher end of the mid-market, or what we refer to as accessible luxury. The traction of this strategy is proving out in our results. In the second quarter, Jared's average transaction value was 86% higher than Kay's, up from roughly 31% differential this time two years ago. This differentiation allows our scaled banner portfolio to reach more customers with their ideal assortment and value. And we are following this playbook across our portfolio including our UK banners, as we work to further differentiate between Ernest Jones and H. Samuel. On the value end of the mid-market, we've continued the rollout of our rebranding test, Banter, by Pearson Pagoda, that we began in 100 stores at the end of April. Based on promising results, we expanded to bring the total to 200 stores on August 2nd. At the same time, we launched banter.com. This new mobile-first site represents an exciting opportunity because the target customer is digitally savvy and most likely to shop from their mobile device, but our e-commerce penetration has historically been among the lowest of our banners. Results of this new site are still very early, but encouraging. Online traffic has doubled, and interaction times on the site have increased 25%. Importantly, we're seeing lift from both new customers and existing Pagoda customers, unlocking new levels of customer acquisition and growth. Our fourth and final where to play strategy is leading digital commerce in the jewelry industry. I want to put particular emphasis on this because it is so fundamental to our strategy. If winning in our biggest businesses is our foundation, then leading in connected commerce is our accelerator. The two together, combined with services and mid-market expansion, are multipliers. Connected commerce is not brick and mortar or e-commerce or digital. It's the and. The integration of customer experiences, leveraging in-store and online and mobile, and ubiquitous delivery as both a mindset and a capability. It's data-driven and channel agnostic, and it is seamless. It brings our people and our technology together in a more powerful way. In fact, our connected commerce capabilities are adding more opportunities to meet our customers through video calls, buy online, pick up in store services, and more. Customers are also growing more comfortable buying jewelry online. We recognize that the pandemic was a factor in this shift as 78% of consumers have said that the pandemic made them realize that shopping online is better and easier than their previous perception. We continue aiming to be at the forefront of this trend by working to provide an innovative digital shopping experience. Of engaged couples in 2021, roughly 30% said they bought their engagement ring online, which is more than double the amount in calendar 2019. Customers are also looking for convenience. Capabilities like virtual consulting, buy online, pick up in store, and ship from store are changing the way that many customers shop with us. In K, more than 25% of online orders this quarter utilized at least one of these capabilities. And in Jared, it was over 30% of online orders. Last quarter, we implemented Google Business Messenger and Apple Business Chat as additional ways for customers to reach our virtual jewelry consultants. This is important because we know that when our virtual consultants establish a human connection through these conversations or help customers book an in-store appointment, we drive higher rates of conversion. For example, within Ernest Jones, 20% of our in-store business is now the result of appointments that were made online. Of those appointments, over 70% result in a sale that averages four times what a walk-in customer spends. We continue to believe that blending physical and virtual experiences will be a core customer expectation for fine jewelry and a significant competitive advantage in the years to come. Now a few words on the potential headwinds ahead. Our research indicates that younger, unvaccinated customers, those aged 18 to 49, and particularly those with young children, are more concerned about COVID variants than older customers. This growing concern may impact shopping behaviors among younger people, so we're preparing to meet them wherever and however they want to shop with us across our connected commerce ecosystem, including online, curbside pickup, same-day concierge delivery. That said, we also know that these customers are relatively more comfortable being in malls and shopping centers than on planes, in concert venues, and at spas. So as travel and experiences take a back seat, we're advancing our flexible fulfillment options while also meeting customers' desires to celebrate those closest to them with gifts of significance and lasting value. Inflation is the other concern that we're seeing in our research. As prices for essentials increase and as stimulus programs wane, naturally, customers' discretionary income decreases. However, within jewelry, this trend still plays to our competitive strengths and to our optimized assortments. Customers, particularly higher income and engagement customers, will continue to spend discretionary dollars focused on purchases with lasting value. With our scale and trusted network of vendors, we're able to offer product assortments that provide excellent value across a variety of price points, which also align with our margin goals. In summary, our ability to capitalize on category momentum with increasingly strong execution of our inspiring, brilliant strategies, as well as remaining agile in a time of uncertainty, is a reflection of our culture and our people. In a recent survey, 85% of our team members said they are proud to work at Cignet, illustrating the dedication and commitment to performance within our company. We're unlocking incredible discretionary effort among our team while also attracting top talent from within the retail industry and beyond. All of this creates a powerful cycle, capabilities that translate into positive customer experiences, continuing innovation, productive execution, and talent advancements. And it's the strength of our organization and improving agility of our culture that drives my confidence in our near and long-term performance more than any other factor. On that note, I'll turn this over to Joan, who will share her insights into what's working and what's ahead. Joan?