Signet Jewelers Limited

Good morning and welcome to the Signet Jewelers second 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 star zero for the operator. Please note, this event is being recorded. Joining us on the call today are Rob Ballew, Senior Vice President of Investor Relations, Jenna Choso, 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 Ballew, Senior Vice President of Investor Relations. Please go ahead, sir.

Good morning. Welcome to Signature Jewelers' second 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 the most directly comparable gap measures, investors should review the news release we posted on our website at ir.signatjewelers.com. With that, I'll turn the call over to Jenna.

Thanks, Rob, and good morning, everyone. I'd like to first thank our Signet team for delivering another quarter of sequential same-store sales improvement and an encouraging start to the third quarter. Our team is our greatest competitive advantage and the key to our success. That's never more abundantly clear to me than at earnings time when we have the chance to see the tangible impact of our knowledgeable, dedicated, and empowered team members. I'd like to leave you with three key takeaways today. First, we continue to see momentum in same store sales, improving more than five points from the first quarter led by strong fashion sales to deliver results in the top half of our expectations. This sequential acceleration is both the fifth consecutive quarter of same store sales improvement and the largest improvement we've delivered in more than two years, driven by higher levels of new and innovative merchandise as we emerge from the engagement trough caused by COVID. Second, we grew merchandise margin and average transaction value, or ATV, as our merchandise strategy continues to drive performance in a dynamic time for the industry. Third, we are on track to deliver on our fiscal 25 guidance. Our momentum has carried into Q3 with same store sales turning positive third quarter to date and engagement units now growing. Let's go into each of these in detail. Same store sales improved to a low single digit decline in the second quarter, led by an acceleration in fashion but also with improvement in bridal and continued strength in services. As I mentioned last quarter, we continue to focus on new, innovative, and on-trend pieces. This is a proven strategy for us in tougher macro environments, and there's been a strong response from customers. In the second quarter, we delivered a 50% increase in revenue from new merchandise, which comprised 25% of sales in our core banners. up eight points from a year ago. In fashion, this trend was broad-based as all banners improved sequentially this quarter, led by our three largest banners, Jared, Zales, and Kay. In fact, we delivered positive fashion same-store sales in July, August, and September to date. As we head toward the key gifting season of the year, we expect this trend to continue. we are well positioned to further grow our penetration of new merchandise while maintaining our inventory discipline. We see our ability to be nimble and manage our merchandise assortment as a real competitive advantage. When compared to industry data, we turn our inventory roughly two times as fast as independent jewelers, which to consumers means more frequency of great new products at the right price points. Our innovation in fashion includes sculpted gold that allows us to provide big chunky looks at attractive price points. Lab diamond fashion jewelry continues to grow up more than 25% in the quarter to last year and is a driver of ATV. We're also seeing traction and watches led by new designs in Citizen and Boliva. Further, our proprietary branding is aiding bridal ATV led by pieces from Chosen, Neil Lane, and Monique Lillier. We're also leveraging our De Beers partnership to advance jewelry consultant training, natural diamond marketing, and several new branded natural diamond merchandise collections launching in the third quarter. Services continues to be a source of strength for Cignet, growing 1.4% in the quarter. with extended service agreement or ESA attachment rates up 210 basis points, led by strong attachment and engagement and early traction on new products like post-repair ESA. Importantly, the attachment rate on lab diamond jewelry is well above other merchandise in both bridal and fashion categories. Services has grown every quarter for the past two years outpacing merchandise revenue by over 20 points. The progress we've made will be an important tailwind as merchandise same-store sales improve in the back half of the year, particularly as engagements continue to increase. Engagements also improved in the second quarter by approximately 400 basis points on a same-store sales basis. As predicted, the engagement recovery is happening. Google and Instagram searches for engagement rings are now up significantly in recent months. Couples achieving at least 26 of our proprietary engagement milestones, where they become highly likely to get engaged, is now 900 basis points higher than last year and the highest number of couples ready to get engaged we've seen since we began tracking these milestones a few years ago. Based on these leading indicators, and the positive engagement unit growth we've seen third quarter to date, we have confidence that we're well positioned for the upcoming peak engagement season over the holidays and the multi-year engagement recovery back to pre-pandemic levels. That said, separately, customers are approaching engagement in a more cautious way in this macro environment, slowing the recovery. For example, customers are visiting our sites 15% more often than a year ago before making a purchase. Our digital banners progress has been steady as we saw sequential improvement of 600 basis points in same store sales compared to the first quarter with further improvement into the third quarter. We now have the majority of our vendor API connections corrected, facilitating more real-time communication for custom pieces and we expect more vendor connections to be updated ahead of the holiday season. We're also making improvements to the customer website experience, and we've significantly expanded our new merchandise assortment. My second takeaway today is that we grew both merchandise margin and ATV despite industry promotional pressure. Our merchandise strategy is to deliver the right products at the right value while balancing market share margins and long-term value of natural diamonds. This strategic balance is working to offset competitive price pressure on loose diamonds. For example, North America bridal ATV was nearly flat in the second quarter. Further, our merchandise innovation drove North America fashion ATV up mid single digits in the second quarter and helped expand merchandise margins. We are investing ahead of holiday to improve the customer shopping experience. This includes additional training for our jewelry consultants, further rollout of personalized digital storefronts, enhanced Wi-Fi across the fleet, as well as more than 300 store renovations. At Kay, we're renovating over 200 stores this year. At Jared, we've invested in both the fleet and up-tiering of the assortment. delivering fashion ATV up nearly double digits in the second quarter. In marketing, we're increasingly leveraging data and AI to personalize our messaging. In digital, we're launching a number of new features, including self-learning search capability on our websites, which will curate results and listings to the most relevant products. We believe all these investments will drive incremental sales over the holidays. This tight-knit combination of merchandise and banner strategy has been a competitive advantage for Cignet. Since wide-scale availability in 2019, price decreases in lab diamonds have been an ongoing story. In the second quarter and across this longer time period, our merchandise strategy delivered growth both in our ATV and merchandise margins. driven by our strengths in sourcing, branding, and diamond expertise. The consumer remains dynamic and is focused on value, promotions, and new on-trend merchandise, and we believe we have the right playbook to navigate this environment. This leads me to my third and final takeaway, that we are on track to deliver our fiscal 2025 guide. We've seen strong progression in same-store sales with the shape of the year on track with our expectations. Our confidence is also supported by the multiple ways to achieve our guide. We continue to expect positive engagement units in the second half of the year, and we believe our new merchandise assortment will continue to drive strong fashion sales. And while we expect sequential improvement in both categories, it's not required. Simply maintaining our current pace of sales would deliver within our provided range. Further, our flexible operating model and continued efforts to streamline operations is leading us to increase our cost savings target for the year to up to $200 million. These savings will help balance the continued promotional environment as we go into the back half of the year. We're also increasing our three-year savings target from $350 to $450 million. In summary, our same-store sales progress continues and has turned positive. We're successfully managing margins and ATV, and we are on track to deliver the year. With that, I'll turn it over to Joan.