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Hello and welcome to the Signet Jewelers' Fourth Quarter Fiscal 2023 Earnings Call. My name is Alex and I'll be coordinating the call today. [Operator Instructions] I'll now hand over to your host, Vince Ciccolini, Senior Vice President Finance and Chief Accounting Officer, to begin. Please, go ahead.

Good morning, and welcome to our fourth quarter earnings conference call. On the call today are Signet's CEO, Gina Drosos; and Chief Financial, Strategy and Services Officer, Joan Hilson. During today's presentation, we will 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 the risk factors, cautionary language and other disclosure 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'll discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures, investors should review the news release we posted on our website at www.signetjewelers.com/investors. With that, I'll turn the call over to Gina.

Thanks to all of you for joining us today. Let me begin by thanking our entire Signet team for delivering on our commitment. Their dedication to our customers and their agility in the face of unrelenting challenges and change continues to be our most enduring competitive advantage. Through fiscal '23, our company has been recognized as a great place to work certified company for 3 years in a row. And for the fourth consecutive year, we've been honored as the only specialty retailer included in the Bloomberg Gender-Equality Index. I'm grateful to lead such a strong and diverse team. There's one clear message I want to convey today. Our Signet team delivered in fiscal year '23, and are poised to do it again in fiscal '24. There are 3 reasons for our confidence. First, Signet is uniquely positioned to grow market share because of our differentiated and broad banner portfolio, industry leading connected commerce presence, and ability to invest in our competitive advantages consistently and sustainably. Second, we are confident in our ability to deliver an annual double digit non-GAAP EBIT margin based on our transformed operating model and the flexibility it creates. And third, our healthy balance sheet and strong cash generation enables us to invest in our business, while also consistently returning meaningful cash to shareholders. At this time last year, we expected the U.S. jewelry and watch market to be down low to mid-single digits, with particular pressure at lower price points, coupled with the difficult year-over-year comps. Added to that was the volatility created by the war in Ukraine, inflationary shocks, economic turmoil in the UK, and a major winter storm occurring in the peak selling period before Christmas. As a result, the category declined to the lowest end of our range. These were serious headwinds. During 3 of the highest revenue days of the year, winter storm Elliott caused almost 1/3 of our stores to close or operate at reduced hours. And consumers in roughly 3/4 of our trade areas were under a travel advisory warning. For perspective, these days are 8x more valuable than an average shopping day in January, for example, in a way that is unique to jewelry. A critical consumer segment for our category at holiday is the late inspiration seeker, who typically spends more than other consumer segments and buys gifts in person for their significant other in the last days before Christmas. Many of these shoppers delayed their purchases as long as possible this year, with the storm disrupting their normal behavior at a critical time. But our team pivoted quickly in the face of all these challenges, enabling us to deliver our commitments and provide strong returns to shareholders. This is a testament to our culture of agility and innovation, the flexibility we've created in our operating model and to our financial liquidity. We've created both the culture and the capabilities to adjust as market conditions require. For fiscal '23, we estimate, we again outpaced category growth and gained 40 basis points of market share, driving our share to 9.7%. We delivered $7.8 billion of revenue, up slightly versus fiscal '22 and an annual EBIT margin of 10.8%, despite a negative 6.1% sales comp. We also executed well on our capital priorities, which are to; first, invest in growth through organic investments and M&A. Second, optimize our capital structure and maintain a leverage ratio less than 2.75x EBITDA. And third, return cash to shareholders through share repurchases and dividends, in line with our commitment to be a dividend growth company. We allocated more than $1 billion of capital in fiscal '23 to achieve these priorities. Specifically, this included $210 million of CapEx, $426 million of share repurchases, $390 million for the cash acquisition of Blue Nile, and $37 million to shareholders in the form of common dividends, all while maintaining a 2x leverage ratio that is well below our stated goal. Our strong liquidity position allowed for these investments and shareholder returns. Based on our confidence in our operating performance and cash flow, we are raising the dividend to $0.23 per share on a quarterly basis, and are increasing our multi-year share repurchase program by $263 million for a total authorization of $775 million. For the fourth quarter, revenue came in at $2.7 billion, down 5.2% or down 9.1% comp. Blue Nile contributed to our total growth and performed ahead of sales and profit expectations in its first full quarter as part of our portfolio. It was slightly accretive to the quarter. We continue to see strength at higher price points overall and the strength of our fashion assortment continues, helping to partially offset the expected decline in bridal. Importantly, we saw some recovery post-holiday and we had one of our strongest January in Signet history. As we look ahead to fiscal '24, we believe the jewelry industry will continue to be pressured by a combination of macroeconomic and industry specific bridal dynamics. We forecast the jewelry industry to be down mid-single digits this year. Given this, we expect to deliver topline results that are flat to down low single digits, and believe we are well positioned to continue gaining market share. Despite the anticipated economic and industry headwinds, we also believe our strength in the operating model will continue to deliver annual double digit operating margins. And we expect to maintain our approach to capital allocation, investing to widen our competitive advantages and deliver strong returns to shareholders. I want to comment briefly on bridal, which has been temporarily impacted by COVID. The jewelry industry's bridal segment is composed of 2 distinct parts; weddings and engagements. After a decline during COVID, fiscal '23 was the year of the wedding, a 40-year high. Having anticipated this, Signet delivered strong growth in wedding bands and bridal jewelry. Meanwhile, engagements held flat during COVID at pre-pandemic levels, but declined low double digits in fiscal '23, and will again decline low double digits in fiscal '24. We expect fiscal '24 to be the trough of engagements, with fiscal '25 seeing a return to growth and fiscal '26 returning to normalized levels. So why this shift? It's temporary and COVID driven. We have rich proprietary data on couples' behavior. Engagements typically occur approximately 3 years after couples begin dating. COVID had a meaningful impact on dating, delaying the formation of new relationships because of the lack of in-person activities for the majority of 2020. So as we began to lapse that 3 year period, since COVID began, we expect engagements and engagement ring sales to start recovering toward the end of fiscal '24 and continue rebounding in fiscal '25 and '26. The important point is this: Bridal jewelry is a great business to be in. Absent COVID, it has been and we believe will be, again, a very steady business with roughly 2.8 million engagements and 2.2 million weddings each year. It is the financial and emotional point of market entry to our category, and the opportunity to build relationships and trust that drive lifetime value. With our leadership position in this important segment, Signet is well positioned to take full advantage of the engagement recovery as it happens, both to grow sales and gain market share. In fiscal '24, we will continue to widen the mode of competitive advantages that we've built around our business in 3 interdependent ways. First, we're continuing to differentiate our banners with improved in-store experiences, including new store concept pilots and, where appropriate, higher price point assortments. As we cast our net wider covering more customer demographics, we have higher potential to grow market share. Second, we are continuing to strengthen our capabilities to accelerate new customer acquisition, to increase repeat purchases, to drive higher transaction values, and to improve the increasing sophistication of our supply chain. Third, we're growing the value of our lifetime customer relationships by strengthening our service offerings through warranty programs, repair services, piercing services, and our new loyalty program. Let's take a closer look at each of these efforts. First, we're continuing to differentiate our banners. Given our breadth, we're able to serve accessible luxury customers, digitally native customers, and value-conscious customers in a scaled way that no other company in our industry can. We have clarified our banner value propositions, significantly reduced overlap, and created the flexibility to lean into trends to best meet changing customer's needs and economic conditions. For example, over the past several years, we've successfully tiered up our product mix, to drive penetration at higher price points, and to move our customers up the value chain where appropriate within each banner. Signet's average transaction value is up over 30% as a result with higher price points also resulting in higher service plan attachment. In addition, in anticipation of some cyclicality in the bridal segment, we heightened focus on sentimental gifting and self-purchase occasions, resulting in fashion driving nearly 36% growth since pre-pandemic. These 2 strategic actions helped us to partially offset the double-digit decline in engagements in FY '23. The next way we're differentiating our banners is by optimizing our store footprint. We've aggressively closed underperforming doors, over 1,000 of them over the past 6 years, wearing in technology, to enhance the connected commerce experience, and leveraging data to provide highly personalized service. In fact, our sales per square foot productivity has improved nearly 50% since the beginning of our transformation. In fiscal '24, we expect to invest more than $100 million in our fleet to showcase our banner's unique differentiators. This includes expansion of new stores with proven formats in key markets, continued repositioning or closing of low-performing stores, important sustainability investments like LED lighting and modern HVAC, and cosmetic upgrades in key markets to bring more doors to brand standard and deliver seamless banner experiences across channels. Here are a few examples that I'm especially excited about. We will be piloting new accessible luxury Jared concepts as we continue to shift to higher price points, along with additional selling features, offerings and technology. We are accelerating Diamonds Direct growth, leveraging Signet's scale to double our pace of store openings, and give us more exposure to this highly efficient mega store model. And we are opening a number of new Kay modular concepts, which require lower inventory and build-out costs, and delivered a very attractive return in our pilot. Importantly, fiscal '24 is also a year of marketing transformation. Marketing has been a competitive advantage for Signet for some time, given our scale and ability to build national brand recognition, coupled with local marketing spend. With our new CDP coming online in fiscal '24, our marketing will become increasingly personalized. This advanced database and localized approach is important because we are seeing as much as a 40% increase in marketing efficiency when we can identify a customer in social media, present them with the right item based on what we know about their needs, and to then send them directly to a nearby store to complete the transaction. Personalization is also an important theme for product in fiscal '24. Customers have a broad mindset when they think about custom jewelry. For some, it's simple, like engraving or tailored sizing. For others, it's configuring a piece from a set of options with a consultant in the store or virtually. For example, Kay and

Thanks, Gina, and good morning, everyone. Our key message today is clear. In fiscal '23, we delivered on our stated commitment of a double-digit annual non-GAAP operating margin or 10.8% on a negative comp of 6.1%. We delivered a consistent inventory turn of 1.4x, and we maintained a 2x leverage ratio even with the acquisition of Blue Nile, and cash returned to shareholders. Our performance reflects our commitment to disciplined capital allocation. And inventory strategy that enables us to respond to market dynamics. And a data spending practice that maximizes returns on invested capital. We are confident in our ability to deliver our commitments again this year because our strategies and our operating models are working as designed, even when faced with the challenging headwinds that we expect in fiscal '24. For the fourth quarter, we delivered total sales of $2.66 billion, a decrease of 5.2% from last year, and a down comp of 9.1%. This includes a 2 to 3-point negative impact related to severe weather on Signet's largest shopping days of the year, along with labor strikes and volatility in the U.K. economy. Services posted 4% revenue growth based on the success of our warranty program and service bundles, which as you'll remember, we rolled out over the summer. In addition, Blue Nile delivered sales ahead of expectations, and was slightly accretive in the fourth quarter. As a reminder, we expect more significant synergies over the summer of fiscal '24 as the integration is fully completed. During the quarter, bridal declined on the expected engagement headwinds, while fashion had a sequential improvement throughout the quarter on strength at higher price points. Coming into the quarter, we expected that engagements would be down low double digits based on the consumer insights work that our teams have done. So we pivoted appropriately, moving our assortment into higher price points across our banners, value engineering products at the more value-sensitive tiers and refining our marketing and labor approach to capture share. By leveraging the rich data we have, our team began tracking consumer behavior in time-based segments, last-minute customers, late in the year engagements, and post-holiday self-purchasing. We adjusted as needed to appeal to those customers at precisely the time they needed us most. While we knew the overall trend was negative, we still expected the week between Christmas and New Year to be an important period for engagement and other shopping. We also think of that period after Christmas and New Year, January 2 through Martin Luther King Day as the self-purchaser's holiday, which includes the redemption of gift cards. Our plan allowed us to partially recover from the storm, by having marketing already in place during these key windows. For example, we made it easy to exchange gifts, and helped customers purchase gifts for others that they weren't able to get to in time for Christmas. The net result of all of this activity was that we were able to deliver within our guidance despite the storm. And post a record high January for Signet with only slightly elevated promotional activity to effectively manage our inventory position. Average transaction value in North America was up 3.9% in the fourth quarter and 11.2% for the year. Reflecting both the shift in our portfolio towards accessible luxury, and a tiering up of assortments within each banner where appropriate. As Gina mentioned, the anticipated decline in bridal impacted ATV in the quarter as did a more normalized mix of Banter in our portfolio. Compared to pre-pandemic levels, sales per square foot were up 35% in the quarter and 40% for the year, demonstrating the strength of our connected commerce presence, our data analytics capabilities and our optimized fleet. Now turning to gross margin. Non-GAAP gross margin in the quarter was 41.6%, up 40 basis points compared to last year. This improvement reflects the expected dilution of Blue Nile, which was more than offset by a 100 basis point merchandise margin expansion in our core businesses and growth in services. Sourcing is also a margin driver, as Gina mentioned earlier. We expect to capture nearly $20 million in sourcing savings in fiscal '24, reflecting the benefit of investments in our proprietary sourcing model. Core inventory was flat compared to last year, excluding acquisitions. Compared to pre-pandemic levels, inventory is down $485 million or 21%, and down 8% with acquisitions. Clearance and sell down are relatively flat compared to last year, and down 12% compared to pre-pandemic levels in our core banners. Non-GAAP SG&A was approximately $695 million or 26% of sales, leveraging slightly year-over-year on a high single-digit negative comp, and leveraged 340 basis points compared to fiscal '20. This is due in part to incentive compensation, but is also a good example of the agility that is built into our operating system. We have a gated approach to spending and a flexible labor productivity model. This was effective in Q4 and throughout the year. In fiscal '23, we took $96 million of cost savings out of the operating model in anticipation of volatile market conditions and delivered leverage on a down 6.1% comp. This strategy is intentional. We are fueling investment in critical areas as we continue to strengthen our competitive advantages. Fourth quarter non-GAAP operating income of $405 million was slightly down from $411 million last year, and is a 15.2% margin, a 60 basis point improvement from last year. Non-GAAP operating income excluded $35.2 million in charges related to asset impairments and nonrecurring litigation, as well as acquisition and integration charges related to Blue Nile. Non-GAAP diluted EPS of $5.52, is up from $5.01 in Q4 of fiscal '22. For the year, non-GAAP diluted EPS of $11.80 was down from $12.28 in fiscal '22. Turning to the balance sheet. We had another positive year with $659 million of free cash flow, resulting in $1.2 billion in cash on hand and $2.6 billion in overall liquidity at year-end. Further, we were able to maintain a strong DPO due to continued terms management. Our debt leverage ratio of 2x EBITDAR is down nearly half from pre-pandemic levels and well below our stated goal of 2.75x. Looking forward, we expect capital investments of up to $200 million for fiscal '24. Roughly half will go to investments in our fleet, with the balance being invested in digital and technology advancements, as well as other critical capabilities. We will focus on marketing transformation and personalized communication, next-gen automation and demand planning in our supply chain, and digital features that drive e-commerce conversion. There's one important point that I want to make regarding capital allocation. Our strong cash position and disciplined capital management enables us to generate free cash flow that funds critical investments even during a slower economy. This ensures that we'll have the capability we need to win with customers and to grow share as economic conditions improve. This is a meaningful advantage. We've created a cash generation engine that enables us to invest when others cannot. We will continue to invest and return cash to shareholders despite challenging market and economic conditions. I'll turn to guidance shortly, but first, I want to talk about the ongoing potential we see in our services business. Services are a big piece of the jewelry ownership cycle and a key driver of lifetime value. Service customers are 78% more likely to return for a repeat purchase, and repeat service customers have a 3x higher spend than other customers. Every additional 1% of repeat services customers is worth $100 million in incremental revenue to Signet. We've made meaningful progress in this business, growing revenue by roughly $150 million over the past 3 years. We are building awareness of our services offering by mobilizing and training our store teams, amplifying marketing and by bringing even sharper insights through data analytics into the role that services play in our customers' jewelry ownership experience. For instance, we've really come to understand how much anxiety some people have when they place a piece of jewelry that they treasure into the hands of someone else for repair. We've acted on that understanding by making that process much more transparent. With online customer repair trackers, for example, customer usage of this tracker has increased by 29x since we expanded it across all banners. And we know that repair customers check the tracker 3x on average during the course of a repair. All of which are further opportunities to connect and communicate. We're also working with strategic partners on tracking technology innovation to increase transportation visibility throughout our network. In addition, we know that our warranty program, our largest services business, provides peace of mind for engagement rings, wedding bands and other sentimental pieces that customers think of as their forever jewelry. We are communicating peace of mind as a key benefit of repair, along with the quality of a repair itself. Another example is our Vault Rewards loyalty program. Loyalty members generate 55% higher average transaction rate than nonmembers, but that's not their only value. They are also enabling our personalization efforts. The Vault Rewards program enables us to identify and get to know our customers with increasing precision, who they are, how they like to shop with us, where we exceed their expectations and where we have opportunity. We've launched Vault Rewards in Jared, Kay and

[Operator Instructions] Our first question for today comes from Lorraine Hutchinson from Bank of America.

I just wanted to understand the cadence of the guidance. It looks like a tougher first quarter and the Mother's Day shift commentary was helpful. But with a nice recovery as we move through the year in both sales and margins. So can you talk about some of the factors at play in the guidance that would get you there?

Yes. Thanks, Lorraine, for the question. As we mentioned, we saw in the -- for the Q1 guidance, we're assuming the trend in bridal for Q4 continues. As well as the wrap effect of stimulus, which we estimate to be 2 to 3 points in the quarter. And Mother's Day selling shift really meaning the build of Mother's Day selling moves more into the second quarter. And that's roughly a 3-point impact. And then just to pull -- wrapping all of that, last quarter -- last year for the first quarter, was at an 8.9% high mark for last year. That sums up the impact for Q1. If we look at the way that we think about the full year revenue guidance, we expect bridal headwinds to begin to moderate later in the year. Gina mentioned, a more towards holiday period, which is the peak period for bridal and engagement is when we begin to see recovery. So that's a critical point to consider as you're thinking about the year. Services as well is a key component for us, as we look throughout the balance of the year. As we wrap services impact for bundles as well as our warranty programs, which we've added additional designs to that program, which will serve as a non-comp opportunity for us. So as we look to the year, bridal, just to summarize, bridal base towards the fourth quarter. We expect to see -- we're anticipating -- we're anniversarying a high comp in the prior year in the first quarter and the shift of the Mother's Day. So second quarter should see an improvement and then continue to drive that throughout the year.

And then how much pressure will you face with the rebuild of incentive comp? And how should we think about SG&A as we move through the year?

Yes. What I said in my remarks is that there's -- we had pressure in the full year restoring incentive compensation throughout the year, not only for support center, but also for our field teams as against this performance that we're forecasting. So without -- we're just positioning it to return to normalized levels. Another thing to think about there is we have $100 million of cost savings that we've included in our guidance. And that's helping us to offset some of that incentive compensation, as well as the ramp of investments and the continued investments that I mentioned in my remarks throughout the year. So cost savings, as you've seen in our history, we've saved over $500 million of costs when you look back over time. And this is how we've been able to fund the investments and manage some of the ups and downs in the SG&A line. And then just as a reminder, the Blue Nile integration is expected to be completed by the third quarter. And when that's fully integrated, we expect to be able to get the benefit of the synergies that we signed in our acquisition model. So -- and we're optimistic about that.

Our next question for today comes from Ike Boruchow from Wells Fargo.

A couple of questions. Gina, just a clarification from you. I think you said earlier on the call, you expect the engagement trends, which you gave us a lot of color on to inflect in late 2024. Was that fiscal year '24, meaning later this year? Or are you talking about calendar '24 when you made those comments about the industry.

Yes, all fiscal year are related. So we expect this to be the trough of the year of engagements. They were down low double digits in our fiscal '23. So last year, calendar '22, we expect them to be down low double digits again in our fiscal '24 but begin to moderate toward the end of this year. And then we'll see an uptick in our fiscal '25 with a return to normal levels of engagements by FY '26. So this is really the -- is an important part of our strategy and why we're continuing to invest, so that we're ready to be able to take full advantage of those inflection points.

And should we assume that the organic comps in the business likely remain negative up until the point of that category inflecting back positively?

Yes. I mean, remember, bridal represents roughly 50% of our business. We love that. It's a great business to be in. And absent COVID it's a very steady business to be in. It's the point of market entry, creates relationships, lifetime value, the potential for services, all of that, but we're just seeing a temporary blip from COVID.

And then just one last one for Joan. Just on the accretion of Nile, I think you mentioned that it should inflect pretty meaningfully in the third quarter. Can you just give us maybe a little bit more detail? What exactly is driving that? What are the synergies that you're expecting? And if there's any way you could share what kind of revenue or EBIT or margin you're planning for Nile this year that might help us.

For the synergies, when you think about re-platforming the business, you're taking overhead out as we integrate it into the James Allen platform. So that's the biggest piece of the synergies that we see. That's been creating cost savings for us as well as we see the opportunity for continued margin expansion within gross margin as we refine the assortment and integrate into Signet's buying practices, would be the 2 key points that I would call out for you, Ike.

[Operator Instructions] Our next question comes from Jim Sanderson of Northcoast Research.

I just wanted to follow-up on Blue Nile a little bit. How do you look at the actual sales retention post-acquisition? I think at one point, the Blue Nile was generating about $560 million in revenue. I'm just looking at the difference in fourth quarter revenue growth and comp growth, and that differential suggests to me that you're capturing about 60% to 70% of that level. Is that the right way to look at that? And is there any reason why that asset lost sales over the past couple of years?

So we think of Blue Nile on the top line, we really are thinking about Blue Nile and James Allen as a combined entity of digitally native banners. And as we're working through, Jim, that integration and balancing lab-created diamonds, fine jewelry, fashion jewelry along with bridal jewelry. We are continuing to refine the assortment and continuing to understand the differences and the opportunities as we look at the 2 commercial banners. So we will continue to navigate that. We find it as we go through FY '24. And certainly, we are believing in the optimization of the 2 banners together are stronger than individually, as we optimize the back end of the operation as well.

And just a quick follow-up on margin contribution for Blue Nile. Combined, should we expect the segment EBIT margin to be contribute to a stronger EBIT margin in 2024? That's if you take into account the overhead synergies and gross profit margin, that might be a little bit weaker.

Yes. Well, what I said in the guidance, Jim, is that, yes, the first half will continue to feel the pressure, roughly 100 basis points related to the impact of the digitally native banners. And that will then begin to moderate as we move through the back half of the year triggered by the full integration.

I just wanted one last quick question on store count. I think that you had a slight decline in international. Is your square footage in 2024 relatively stable? Or how do we look at that on a year-over-year basis?

Well, we're opening and closing stores. So I would say, yes, relatively stable based on how we're seeing the business today.

We currently have no further questions. So I'll hand back to the speaker team for any further remarks.

Yes. Thank you, everyone. Our key message today is simple and clear. We delivered in fiscal '23, and we believe we'll do it again this year for all the reasons that we've outlined today. Signet is a transformed company with sustainable and growing competitive advantages. And our financial strength allows us to continue smartly investing to widen those advantages, to grow market share, while consistently returning meaningful value to our shareholders. We're eager to go deeper into the ways we've transformed our business and organization. So with that in mind, I'm pleased to invite you to join us at the New York Stock Exchange for our next Investor Day on April 18. I'll be joined by Joan, Jamie and several other Signet lead team members to take you through our strategies and capabilities. And many others will be on hand to meet and talk with you as well. As we continue through fiscal '24 and beyond, we remain focused on our priorities, growing share, delivering double-digit EBIT margin and maintaining our disciplined capital allocation to invest in our business, and deliver enhanced shareholder return. Thank you.