Signet Jewelers Limited

Good morning and welcome to Signet Jewelers' first quarter fiscal 2025 earnings call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press the star zero for the operator. Please note this event is being recorded. Joining us on the call today are Rob Ballou, Senior Vice President of Investor Relations, Gina Drossas, Chief Executive Officer, and Joan Hilson, Chief Financial, Strategy, and Services Officer. At this time, I would like to turn this conference over to Mr. Rob Ballou, Senior Vice President of Investor Relations. Please go ahead, sir.

Good morning. Welcome to Cigna Jewelers' first quarter fiscal 25 earnings conference call. During today's discussion, we will make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially. We urge you to read the risk factors, cautionary language, and other disclosures in our annual report on Form 10-K, quarterly reports on Form 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 the non-GAAP financial measures, as well as reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measure, investors should review the news release we posted on our website at ir.signatjewelers.com. Additionally, a new investor presentation deck was also posted to our IR website this morning that we believe investors will find helpful. With that, I'll turn the call over to Jenna.

Thanks, Rob, and good morning, everyone. I'd first like to thank our Signet team for delivering our expectations for the quarter. This continues to be a challenging environment with macro pressure on the consumer and heightened discount activity among many jewelry participants. Our team's tenacity and commitment to our customers is delivering our success and is an inspiration to me every day. I'd like to leave you with three key takeaways today. First, We delivered quarterly results within our guidance and are seeing momentum in the business driven by the accelerating engagement recovery, the success of our new fashion product offerings, and a continued strong performance in jewelry services. Second, we increased guidance for the year in April and are reaffirming that higher guide, which includes an inflection to positive same store sales in the second half of the year. Third, our flexible operating model is working as designed, driving margin performance, strong free cash flow conversion, and improving our balance sheet, all of which are delivering meaningful growth to adjusted diluted EPS. For perspective, our adjusted diluted EPS this quarter is nearly 14 times higher than pre-pandemic, and we've more than doubled our adjusted operating income. I'll now elaborate on each of these important takeaways. This quarter, we delivered $1.5 billion in sales and $58 million in adjusted operating income in the top half of guidance. Recall that February was sluggish for retail. We saw trends begin to improve with late Valentine's Day shopping and further momentum through March and April, delivering a quarter with meaningful acceleration to Q4. In BRIDAL, we've seen the expected sequential improvement in engagements to last quarter, excluding our digital banners. From low double-digit decline in the fourth quarter, we've seen engagements improve to mid-single-digit decline in Q1, with April and May reflecting low single-digit decline. Our most bridal-focused banner, Diamonds Direct, has already inflected to positive units in April, with Kay and Jared having delivered several weeks of unit growth in recent months. Engagement units below $5,000 were flat last year in April. We are seeing slower recovery at price points above $5,000, in part due to the digital banner challenges we discussed last quarter. which contributed to a small decrease in average transaction value, or ATV. Engagements continued to improve in May, and we anticipate further improvement as the second quarter progresses. Our proprietary data continues to point to a multi-year recovery, and we believe we remain on track to see engagements in the U.S. increase five to 10% for fiscal 2025. We are continuing to leverage our data on 17 million individuals in a dating relationship to do targeted marketing at the right time to win the bridal recovery. Sales of fashion merchandise are also gaining momentum. From March through May, fashion sales improved to nearly 500 basis points compared to February in the fourth quarter, driven by branding and new merchandise items. We continue to see strong sell-through of newness with new merchandise as a percent of sales up more than 25% to this time last year in core banners. For example, revenue from the Shy Collection at Jared and our Unstoppable Love Collection at Kay are both up materially, driven by strong performance of new items in those assortments. Our new product strategy is also working to protect our ATV as well as expand merchandise margins. We leverage our scale to innovate at attractive price points, delivering strong value for our customers. These include items such as lab-created diamond fashion pieces and precious metal jewelry, including gold, silver, and platinum. For example, the strength of our branded Neal Lane collection held a near-flat ATV to this quarter last year, while delivering a 20% increase in units. Further, our value-focused fashion banter by Piercing Pagoda had flat same-store sales in the quarter on the continued strength of our gold assortment. We saw this same trend extend to Peoples in Canada and H. Samuel in the UK. Another key driver of fashion is our loyalty program, which delivers a more personalized shopping experience and grows lifetime value. This includes targeted marketing to drive follow-up purchases in fashion. It's working. In Q1, the penetration of active loyalty members purchasing fashion increased 20 points compared to a year ago. We've also extended efforts to win new members to include engagement ring recipients, which has contributed to a more than 25% increase in total members since fiscal 24 year end. Our targeted marketing provides members value and select merchandise based on their tastes and shopping preferences and is a key strategy in our merchandise margin expansion plan. Before moving on from fashion, I'd like to provide an update on lab-created diamonds, or LCDs. Over the past five years, LCD production has grown more efficient. This has allowed LCD costs in retails to come down, providing attractive options for many price-conscious customers that are looking for larger carat options than they can afford in a natural diamond engagement ring. Our merchandise strategy and trade-up selling has been effective at largely maintaining our ATV, while many engagement ring consumers looking to maintain a long-term value continue to be attracted to natural diamonds for their rarity and uniqueness. In fashion, however, we see meaningful runway for LCD expansion in a segment of the industry that has traditionally seen lower overall penetration of natural diamond assortment. It's a trade-up opportunity. For example, in Q1, we've increased LCD fashion offerings, driving a 14% increase in LCD fashion revenue compared to a year ago. These LCD fashion pieces carry more than two times the ATV of non-LCD pieces at attractive margins for Cignet. My next takeaway builds off my first. We remain on track to inflect positive same store sales in the second half of this year. The building blocks of our Q1 performance will gain strength as the year plays out. We will further increase the penetration of merchandise newness in our inventory through more frequent deliveries and increased depth of new product offerings. We also believe our competitive advantages, such as scale, consumer insights, and technology, provide Cignet the opportunity to continue to drive fashion and bridal categories in a challenging macro environment. There are two leading indicators that we believe point to sales traction. First, our largest banner in each country we operate has delivered flat or positive comp sales in May. Second, our e-commerce sales, excluding our digital banners, also comped positive in May. Our optimized physical and digital footprints are a competitive advantage with jewelry shoppers. It's the combination of both footprints that provide for connected commerce capabilities like ship from store and virtual jewelry consultants, or JC's. More recently, we've introduced social selling capabilities for our JCs, which are showing a positive impact already. Our jewelry consultants are combining their social outreach with personalized storefronts, and we expect social selling will triple its revenue contribution in fiscal 25, or approximately half a point of Signet comp growth this year. Last quarter, we spoke about the integration challenges at our digital banners. Planned interventions are underway and showing progress. For example, we're working to correct or establish inventory API connections with our just-in-time vendors to streamline our supply chain management and improve the speed of our fulfillment. And we've launched a fast shipping program for select wedding bands that we can create in-house. As a reminder, our full year guidance does not include any improvement in our digital banners. will continue to provide operational updates as the year progresses. Service revenue growth outpaced merchandise by more than 10 points in the first quarter, driven by a 550 basis point increase in attachment rate. Our newer service offerings, including post-repair extended service agreements, are performing well. As merchandise sales improve, Services will also benefit, especially from engagement rings, which have more than 80% in-store attachment. Turning to my final takeaway for this quarter, our flexible operating model and strong free cash flow conversion are driving meaningful impact to our adjusted diluted EPS. Recall that we've generated more than $600 million in pro forma free cash flow in each of the last four years driven by operating margin expansion of approximately 400 basis points to pre-pandemic. This provided the dry powder to reduce our debt outstanding by approximately 70% since fiscal 20 to date. We increased our EPS guidance in April by 9 to 10%, reflecting the redemption of preferred shares. This will continue to be a positive impact into fiscal 26, as redemption of the preferreds will reduce our share count by 8.2 million shares from the end of fiscal 2024. We continue to expect strong free cash conversion. With our balance sheet now in great shape, we will focus excess liquidity on investing in the business, returning significant capital to shareholders, and leveraging opportunistic M&A in order to drive shareholder value. To summarize, The three key takeaways for today are, first, we delivered on our commitments again this quarter. Second, we are on track to see an inflection to positive same-store sales in the second half of this year. And third, our flexible operating model is driving EPS growth through higher margins and strong free cash flow. With that, I'll turn it over to Jen.