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Good morning, ladies and gentlemen, and welcome to the Signet Jewelers Q2 Earnings Conference Call. At this time all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, August 31, 2023. I would now like to turn the conference over to Rob Ballew, SVP of Investor Relations. Please go ahead, sir.

Good morning. Welcome to Signet Jewelers second quarter earnings 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. 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 a reconciliation of the non-GAAP financial measures most directly comparable to those 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.

Thank you, Rob, and thanks to all of you for joining us today. Before getting into our prepared remarks, I want to thank our Signet team for their dedication, resilience and disciplined execution this quarter. In a challenging environment, we over-delivered on our commitments. Signet’s recognition as a great place to work is driven entirely by our team members' capability and commitment and the winning and inclusive culture we continue to build together. There are three key messages I'd like to emphasize today. First, we are on track to deliver the year. In the second quarter, we exceeded our revenue and bottom-line commitments, and we remain confident in our full year guidance. We delivered these results in a challenging macro environment, which impacts our mid-market customers disproportionately, and as we predicted, with significantly fewer engagements in the quarter resulting from COVID’s disruption of dating three years ago. Our performance against these headwinds reflects both the agility of our team and our flexible operating model. Second, trends are modestly improving. We've seen generally modest improvement in customer traffic and purchase behavior since early June, with lower price points rebounding, particularly in fashion. Average transaction value or ATV appears to have stabilized and is trending roughly in line with last year. Further, our data capabilities now allow us to track 45 signals of couples progressing toward engagement, and these are falling in line as we anticipated, pointing to a multiyear recovery beginning in our fourth quarter. These are all positive signs as we finalize our preparations for the holiday season. Third, we are widening our moat of competitive advantages, especially in our personalized marketing, digital experience, data analytics and services. We are generating meaningful cost savings, on track to land between $225 million to $250 million this year and reinvesting to drive market share growth over time. We remain confident that we can deliver the midterm goals we outlined at our Investor Day earlier this year. Let's take a closer look at each of these three messages, beginning with our performance in the second quarter. We exceeded the high end of our guidance in Q2, delivering approximately $1.6 billion in sales and $103 million in non-GAAP operating income. We achieved this quarter's results despite the meaningful drags of both the challenging macro environment and the predicted decline in engagements. We believe we continue to grow bridal share during this trough and we are confident that engagements are on track to begin their multiyear recovery later this year. Non-GAAP operating income reflects core merchandise margin expansion of more than 180 basis points compared to last year, driven by an increase in services mix, our scaled sourcing efforts and higher lab-created diamond mix, which remains a mid-teen percentage of our diamond business mix. Because of Signet's strategic efforts in branding, style offerings and specialty cuts, the items we are selling with LCDs carry both a higher margin and higher ATV than natural diamonds. Importantly, compared to this time pre-pandemic, non-GAAP operating margin is up 250 basis points on 18% higher sales despite 16% fewer stores, showcasing that our transformation and flexible operating model is working as intended. The second point I want to emphasize is the modest improvement we're seeing in the overall health of our customer. Fashion merchandise sales increased sequentially in the second quarter, up 4 points year-over-year compared to the first quarter results. This was led by stronger performances at Kay and Banter which saw improved same-store sales for much of the second half of the quarter. While overall fashion sales improved modestly, we saw a robust improvement through the quarter for fashion merchandise below $1,000. For example, Kay drove great performance in our refreshed basics assortment, comprised of timeless core product like [soups] (ph) and diamonds and gold as well as classic styles in neck and bracelet pieces. We've seen the same trend at accessible price points in Banter, pieces that provide customers with versatility and that they can wear every day. Kay,

Thanks, Gina, and good morning, everyone. Our performance this quarter reflects the strength and importance of our flexible operating model as we delivered on our commitments amidst a challenging retail landscape. We drove over $1.6 billion in sales this quarter, down 8.1% to this time last year, with same-store sales down 12%. We have seen top-line improvements since the May time frame with second quarter comp sales better than the first quarter, driven by a stronger June and July. Bridal performed as we expected, and we saw an increase in conversion in the second quarter compared to the first quarter. We saw sequential improvement in price points below $1,000, particularly within the fashion assortment. Our average transaction value in North America grew more than 4%, with 5 points attributable from Blue Nile. Comparable ATV was relatively flat, consistent with the last quarter. Compared to pre-pandemic, our core banners have grown low single digits driven by off-mall and e-commerce growth. Services represents nearly half of the growth in our core banners over the last four years with fashion driving the balance, consistent with our strategic priorities. Consumer access to credit in the quarter was healthy and approval rates remain near historical norms with overall payment plant penetration at 44%, and the amount financed are both relatively consistent to last year. While we're not directly impacted by rising or declining delinquency rates, those rates among our finance partners have been stable in recent months. Within our agreements, we have guaranteed commitment levels. Turning now to gross margin. We delivered $611 million of gross margin or 38% of sales, roughly in line with last year. Overall merchandise margin expanded 80 basis points, largely due to higher services margin as well as a higher penetration of services. Additionally, while organized retail crime loss is up across retailers generally, our mitigation efforts have resulted in a decrease and store losses compared to the same time last year, boosting gross margins by 15 basis points. Offsetting those gains is deleveraging of fixed costs such as occupancy on lower sales. Now turning to SG&A. Our non-GAAP spend of $507 million or 31% of revenue was 420 basis points higher than last year. Our total SG&A dollars increased due to the Blue Nile acquisition. As we said, we continue to make strategic investments to enhance our moat of competitive advantages which was approximately 120 basis points of the deleverage in SG&A during the quarter. The remaining balance is due to advertising shift into Q2 from Mother's Day timing and deleveraging of fixed cost on lower volume. As a result, we drove a non-GAAP operating margin of $103 million this quarter or 6.4% of sales, above our guidance range on the improved performance in June and July. We remain on track to deliver cost savings in the range of $225 million to $250 million, which is reflected in our guidance, which is split fairly evenly between gross margin and SG&A. Key drivers of the savings include non-customer impact initiatives such as product sourcing initiatives through the loop, cloud integration, enhanced credit agreements and advertising efficiencies. Tracking as we expected through the first half of the year, we achieved approximately $75 million of savings. As we mentioned last quarter, we plan to close up to 150 stores as part of our fleet optimization efforts over the next 12 months. Approximately 90% of these expected store closures are in mall locations and/or are among the lower performing stores in the UK market. We also expect to open between 30 to 35 new stores, primarily Kay, Jared and Diamond Direct locations, which have bigger stores and higher ATVs than the closures. This means that while our store count will decline by roughly 4%, our total square footage will be similar to the prior year. We ended the quarter with $2.1 billion in inventory, which was down $97 million to last year. Inventory, excluding Blue Nile, was down $167 million or 8% and compared to last year and when compared to pre-pandemic, it was down 20%, excluding acquisitions. Our inventory turns at 1.4 times, consistent with the first quarter is 40% improved compared to pre-pandemic. We see opportunities to further improve our turns over time. The health of our inventory has improved significantly over the last four years, with clearance inventory reduced by approximately 50% compared to pre-pandemic, providing room for critical newness within our assortment. Now turning to the balance sheet. We ended the quarter with over $690 million of cash and equivalents, down $162 million compared to a year ago. Recall that we paid out $200 million in legal settlements in the first quarter as well as acquired Blue Nile last Q3 for nearly $390 million. Excluding those onetime items, we would have increased our cash position by roughly $425 million compared to the prior year. Our forward capital allocation priorities continue to be led by strategic investments to drive organic growth, including $75 million in expenses this year focused on our digital and consumer insight capabilities and up to $200 million in capital investments. Our other three capital allocation priorities include capital returns to shareholders, maintaining a strong balance sheet and small capability building tuck-in acquisitions like SJR Repair. Capital returns to shareholders remain an important part of capital allocation. We repurchased $43.3 million of shares in the quarter or nearly 700,000 shares and have repurchased $82.4 million year-to-date. We had approximately $718 million in remaining repurchase authorization at the end of the quarter. This morning, we also declared a $0.23 dividend to common shareholders which, as a reminder, is 15% higher than a year ago, and we believe being a dividend growth company is an integral part of our capital allocation strategy. Within our debt structure, $148 million in bonds are now current, and we anticipate paying those off at maturity next June with cash on hand. The convertible preferred shares, which dilutes our share count by approximately 15% are resumable in November 2024 and we are weighing our options to address those at this time and look forward to sharing those plans when we are able. Turning to guidance. Consistent with my comments last quarter, we continue to anticipate a cautious consumer driven by macro pressure reflected in traffic decreases. We will continue to use strategic levels of promotion to encourage traffic and conversion. For the third quarter, we expect revenue in the range of $1.36 billion to $1.41 billion and non-GAAP operating income in the range of $10 million to $25 million. The top end of our range assumes comp trends similar to the first half. We continue to expect a deleverage of fixed costs to continue in the third quarter on lower sales. as well as the impact of strategic investments, which will be marginally higher as a percentage of sales in the third quarter due to seasonally slower revenue. We expect to achieve approximately $65 million of cost savings in the third quarter. Of note, Blue Nile becomes comparable beginning in the third quarter. For the full year, we are reaffirming revenue and non-GAAP operating income guidance. Recall that fiscal '24 revenue guidance is in the range of $7.1 billion to $7.3 billion, and non-GAAP operating income in the range of $635 million to $675 million. We are raising our non-GAAP earnings per share guidance to be in the range of $9.55 to $10.14, reflecting share repurchases in the second quarter. Recall in the fourth quarter, we believe we will begin a multiyear engagement recovery. We will cycle shutdowns in the UK in the fourth quarter, and our strategic investment impact is lower as a percent of sales due to the seasonally strong holiday revenue. Before we move on to Q&A, I want to thank our team for their focus on the consumer, which enabled us to exceed our revenue and bottom-line commitments in the quarter and advance our strategic priorities. With that, we'll open the line for Q&A.

Thank you, Ma’am. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Ike Boruchow from Wells Fargo. Please go ahead.

Hey. Okay. Good morning, everyone. I guess two questions from me. Maybe, Joan, just a little bit more, just back to credit, given what's in the headlines of late. Can you just make sure we all understand, like, is there a profit share that's embedded in your credit arrangements today? I know your credit business is very different than what it was five years ago. So, I guess my first question there is, is there a profit share -- and then how do you -- yes or no, how do you think about potential headwinds on your top-line in a tightening credit environment? And then I have a follow-up after that.

Great. Ike, thanks for the question. As you know, we -- our consumers have access to a broad range of credit through strong partnerships that provide a variety of financing options and it's on a cascading level. We've continued to achieve a financing penetration that's roughly flat year-to-date to last year. It's 44% just to dimension it. And 39% of that is with our private label credit card program. We have guaranteed commitment levels with our financing partners in terms of credit approval. And as you know, we have no consumer credit balance sheet risk, and we have no revenue or loss sharing provisions within our agreement. So while we don't share in -- the credit risk with our credit partners, our partners have indicated that our portfolio delinquency rates are in line with last year. And we also have strong partnerships, including second looks for lower credit scores.

Got it. And then just one more follow-up. Just on margin, so can you just kind of -- looking at the back half and specifically to 4Q, can you kind of talk about the bridge of the margin that you've seen in the first half and the improvement or the stabilization you're kind of planning in the back half? Thanks.

Sure, Ike, thanks for the question. In the first half of the year, we saw a point of impact from Blue Nile, roughly 1 point from strategic investments that of roughly [$75 million] (ph) that we anticipate for the year and 2 points essentially from the deleverage on fixed costs given the lower comp range of double digit. In the third quarter, the strategic investments will be slightly higher impact because of the seasonally lower sales. But for the overall back half, the Blue Nile impact will begin to abate, we'll have less deleverage on fixed costs with improved comp sales in from engagement recovery in UK cycling of the shutdowns and then more cost synergies, particularly in 4Q. This will allow operating margins to improve in the back half of the year.

Great. Thanks.

Thank you. Your next question comes from the line of Lorraine Hutchinson from Bank of America. Please go ahead.

Thank you. Good morning. Can you talk to the factors driving the improved fourth quarter sales? And maybe just give us some more clarity on how much benefit you've included from the expected recovery engagements, the lapping of the issues in the UK and any other considerations?

Sure. Hi, Lorraine. Let me start on that and then, Joan, feel free to jump in. We -- let me go through a little bit what's included in our guidance and what's not included in our guidance. So what is included is an assumption that the overall consumer environment stays the same or even worsens modestly. The cost savings that Joan talked about in her remarks of $225 million to $250 million, which is largely back-ended engagement decline. So we are expecting the -- that engagements will begin to improve. The trough in Q3 and will begin to come up in Q4, but it is a multiyear recovery. So we have assumptions and that engagements will still be below a year ago in the fourth quarter. And we are assuming that the UK cycles, the shutdowns that were in fourth quarter last year. So said a different way, what's not in is we're not assuming improvements in macro trends. We're not assuming weather improvements, and we're not assuming any change in the normal flow-through from sales.

Thank you. And then…

I was just going to add on the low end of guidance. It allows for softening trends, a softer macro economy or slower recovery engagements might occur and modest higher student loan repayment impact. So just a little bit of modest impact related to that in the low end of our guidance. Sorry, Lorraine, go ahead with your next question.

Thank you. Joan, I was just hoping you could talk us through your priorities for cash flow as you enter the back half.

So as cash flow in the back half, we've talked about the strategic investments that we're making, and there's roughly $75 million of those throughout the year, but we're committed to advancing our strategic priorities. Our intention is to continue with returning capital to shareholders. We announced today our dividend, which is 15% higher than last year this time. And we'll continue to manage our inventories consistent with the advancements that we've made with digital -- with our analytics capabilities. And what's really important about the inventory management is in my remarks, we were 4% down to last year, 8% down, excluding acquisitions, our inventory is healthy, and it's a true strength for us. And so when we look at this, Lorraine, to previous pre-pandemic levels, we're 20% down overall, but 50% down in clearance. Why that's important to our cash flow is that is enabling us to bring in newness that we're excited about. Gina mentioned a number of those ideas within her prepared remarks. So continuing to manage inventory diligently, leveraging analytics, inventory right place, right time, and continuing to manage churn effectively.

Thank you.

Thank you. Your next question comes from the line of Paul Lejuez from Citi. Please go ahead.

Hey, everyone. It's Brandon Cheatham on for Paul. I just want to circle back on like the credit question. Are you seeing any difference in approval rates? I understand that you probably have an agreement that a certain FICO score has to get approved. But are you seeing differences in like the customers that are purchasing on credit? Is there any kind of difference in like the FICO score that they have? And then the amount of customers that are using credit to make purchases, can you give us any details where that is now compared to pre-pandemic, I think during the pandemic that came down, but are you seeing that starting to normalize?

Thanks, Brandon. With respect to the private label credit card program, as I mentioned, our penetration rate is 39%, and it's really relatively consistent to the prior year, lower than pre-pandemic, we saw a shift in customer usage. Pre-pandemic, it was above 50%. And so we've seen that shift, but that's been relatively consistent over the last couple of years. What we are seeing is that approval rates are consistent in-store but down related to the ability to apply for credit online. So it's really just a shift in channel, but our core 80% of our business in store is relatively consistent with respect to approval rates. What we are also seeing is that the average amount financed has increased to last year, which really is in sync with our average transaction value, including our Blue Nile acquisition is up over the prior year. So amount financed is -- continues to be strong for us. So we're very pleased with the credit portfolio and the work that we're doing to continue to offer a wide variety of options for our customers.

Yeah. The only thing I'd add is that we do have two financing alternatives that are not FICO dependent. That's progressive leasing and our installment loans kind of pay later split pay with the firm. And those are really catching hold. So I think the way that Joan’s team has built this cascade of financing alternatives is working in our favor.

Thanks. That's very helpful. And then I was wondering if you could talk about like how material costs are trending. I think I've seen diamond prices have started to come down. Does that end up helping your margins? And anything that you can talk about on that?

There are a couple of things that are helping our margins. That was a good story in the quarter. One is the strategic sourcing efforts that we've put in place. So we work with our vendors, far in advance to make sure that we can get the best pricing on our product. And then that can be passed through to our customers in great value to drive top-line as well as have a bottom-line benefit. So that's an ongoing effort for us. We also have put increasingly more analytics against what we call strategic revenue management. So how we manage the combination of pricing, promotion, discounting and assortment levels at different price points, and that work is really helping the margin. And then finally, it's what Joan talked about, which we have very healthy inventory. And so we're taking marks earlier and not rolling as many things through the clearance, which is a great story. So that's really helped. So in terms of the material cost, we think we're well positioned to kind of continue on the path that we've been on and deliver the strong margins that we've committed to.

Great. Thank you. And, good luck.

Thank you.

Thank you. Your next question comes from the line of Mauricio Serna from UBS. Please go ahead.

Great. Good morning, and thanks for taking my questions. I guess I just wanted to ask first about the Q3 sales guidance. Does that like imply any type of divergence in performance if we think about the banners segmented according to price points, the low to mid-tier versus the higher end? And then maybe you could talk about thinking about the Q4 implied operating income guidance, I think it implies a modest operating margin expansion, roughly 30 basis points. Just want to understand if that's like coming both from gross margin improvement and also SG&A as a percentage of sales? Thank you.

Let me -- hey, Mauricio, let me start first with some of the consumer dynamics that we're seeing. And then, Joan, maybe you can get into the guidance aspect. But from a consumer dynamic, there are really three strategies that we have to address our holiday shoppers this year. There is always an early savvy shopper, typically, a woman typically buying at lower price points, typically comes into the category, September, October and is done with her shopping by Black Friday. We expect that shopper to shop a bit later this year, and we've really structured our marketing, our promotions, our assortment to draw her in early, but also cater to her natural cautious outlook on the economy right now and her desire to get the best deal. Then as we move into the fourth quarter, we see more romantic gifting happened, tends to be at higher price points. We see bridal beginning its three-year recovery. And so I think those are some of the consumer trends that we consistently look at and manage our marketing inventory, store, labor, all of those to meet the consumer where they are during shopping.

And then with respect to the guidance in Q3, we were pleased with what we saw in June and July. We were pleased with the selling under $1,000. We saw that pick up, particularly in fashion. So we have translated that into our Q3, Q4 guidance as well, Mauricio. So that's a bit underneath the covers from a [folio] (ph) perspective. And we're assuming consistent trends with the first half of the year in Q3. And then as I said, the cycling of UK shutdowns and the beginning of the bridal recovery in Q4 is what's driving some of that increase in the fourth quarter. And then when you think about the front half, back half with respect to the operating margin, as I said in the first half, we had a point of impact from Blue Nile, 1 point from strategic investments and 2 points from the deleverage of fixed costs. So when you look into the back half of the year and particularly in the fourth quarter on stronger seasonal selling in the fourth quarter, the deleverage impact abates. We are also seeing the pressure coming from Blue Nile acquisition begin to abate in the back half. Gina mentioned in her prepared remarks that we've completed the re-platforming for Blue Nile, James Allen, and that was a critical element of us driving the synergies from that acquisition. And that went very well. The team worked very hard to bring that to be with we could start the back half off on the new platform and be able to really harvest those synergies. And then there is some deleverage from -- or some impact related to the strategic investments as well. So overall, that's the dynamic between front half, back half and the improvement that we're seeing in our bank.

Got it. Very helpful. And then just very quickly, just one clarification on the Q3 guide, I think you mentioned that this quarter, to Q3, Blue Nile is like already [uncomfortable] (ph). But I think -- I thought like the -- you started like consolidating Blue Nile in September, so I thought we would still get like one-month contribution. Just want to clarify that point. Thanks.

Yeah. We acquired the Blue Nile on August 18. So there's a couple of weeks of non-comp.

Okay. Perfect. Thank you.

Thank you.

Thank you. Your next question comes from the line of Jim Sanderson from Northcoast Research. Please go ahead.

Hey, good morning. Thanks for the question. Just wanted to follow up on the credit concerns we've heard in the marketplace. I think you had mentioned that your percentage of sales on credit had maintained at 44% in the quarter. Is that correct?

That is correct.

Is that -- I think that's a little bit weaker than prior quarters. How should we look at that slight shift in sales mix.

It's roughly the same, Jim, from quarter-to-quarter. So we've been very pleased with the penetration. And as I mentioned earlier, the amount finance has increased, we've been able to offer credit online to our customers. And while the approval rate online is not as high in store, we're very pleased with the response to that advancement.

All right. And I just had a question about the EBIT margin. I think at the IR Day, you had guided to a midterm goal of about 11%. If we take out the incremental investments made this year in some technology, is that a good run rate for the type of EBIT margin we could achieve -- Signet could achieve next year?

So just thinking about the Investor Day, that was a midterm goal, which is really three to five years is the dynamics that we wrapped around our goal. What we are doing to drive those increases really related to something Gina just mentioned was strategic revenue management is a key lever for us and really through analytics, understanding the elasticity of pricing and promotion and then also strategic sourcing initiatives that we talked about at the Investor Day where we engage in things with our vendors really driving joint business planning, so that we're driving inventories into our business or receive into our business just in time and with cost transparency. So we're able to optimize our margins. That's a critical lever for us in that growth -- in that margin expansion as well as continuing with the analytics around our very healthy inventories and continuing to drive further productivity there. And then with respect to cost savings and expansion. We will continue to optimize our fleet and assess the right balance of e-commerce and store and really bringing even more to life to connect the commerce experience for our customer. So we're excited about the opportunity to drive into these initiatives over the next several years.

Okay. Okay. Understood. And just one last question on the store closures and new unit openings. I think you mentioned potentially, was it a 4% drag on same-store sales related to closures but offset by the incremental revenue from the new store openings for the next 12 months? Is that the right way to look at that balance between openings and closings?

Yeah. What we said is that the openings, Jim, relate to larger stores and higher volume stores. So that's helping us with the top-line. And then the larger stores is what keeps -- even though we're closing up to 150 and opening 30 to 35, they're larger stores. So therefore, our square footage remains similar to the prior year.

Understood. Thank you very much.

You’re welcome.

Thank you. Your next question comes from the line of Dana Telsey from Telsey Group. Please go ahead.

Hi, good morning, everyone. It was encouraging to see that the ATV increased 4% and Blue Nile obviously, being a contributor to that. If you ex out Blue Nile, what did you see throughout the banners, and obviously, lower price point fashion is a big mention. What are you seeing there across the banners, how is the margin profile on that, especially given the strength in the gross margin that we saw this quarter, the opportunity for that to continue? Thank you.

Thanks, Dana. So [excluding] (ph) Blue Nile, we saw relatively consistent ATV performance to the prior quarter, down slightly -- relatively flat, down slightly is the way I picture that for you. And what contributed to that was we saw a consistent performance in some buckets, some price points, but what we were very pleased with was the improvement in the price points under 1,000 and specific bands over 1,000 were also strong. And we saw that happen more so in June and July. So as we think about that leading into the holiday season, we were very encouraged by that and the response to the fashion assortment that we have. Bridal in and of itself was relatively consistent throughout the quarter as we -- in line with our expectations. And so as we -- and as you know, we are at 50%, roughly 50% penetration in bridal in our business. So as we lean into the recovery of bridal or engagements in the fourth quarter, we would expect to see ATV that have a positive impact on ATV.

Got it. Thank you. And then any more color on the gross margin, Joan, that you would add for the balance of the year into next year, what's sticky, what's not?

Yeah. So what we've said is within our cost savings, roughly half of those of the $225 million to $250 million is within gross margin. It really back ended for the year and a significant portion of that just proportionately in the fourth quarter. So that's something that will continue to be a positive for us as we progress through the year. I think inventory health is just another very strong management by our team across all banners. We have very strong inventory discipline in the analytics to tell us right assortment, right place, right timing is we're really leaning into that. And we'll use strategic promotion, as we always do, and we have -- I think Gina mentioned in her prepared remarks that we have items at a price that bring value to our customers, but they've been strategically positioned within our assortment to manage gross margin.

Thank you.

We've talked in the past a value engineering that we do with our vendors where we can use off-weight diamonds to construct pieces that offer consumers a better value but also give us a higher margin. So we have a number of strong value-engineered items at a price in this year's holiday assortment.

Thank you.

Thank you. We do have a follow-up question coming from Mauricio Serna from UBS. Please go ahead.

Great. Thanks. Just wanted to follow up on -- do you have any additional commentary on lab-grown diamonds. There's still like concerns about the impact on price and profitability. I think you alluded to, it has been a benefit to you so far, but maybe what you're seeing across the industry? Or do you have like any concerns going into the back half, a consumer that's still very constrained on their discretionary spending and whether an increasing shift to that particular lab-grown diamonds could affect you at some point? Thanks.

Thanks, Mauricio. So we are seeing consumers gravitate increasingly to lab-created diamonds. They do offer a great value for customers, especially in the kind of macroeconomic environment that we found ourselves in. And so we're seeing that increase. They still represent a mid-teen percentage of our mix of our diamond mix. So not incredibly significant in that sense. But through our scaled sourcing efforts and the work that we've done on branding, style offerings, special cuts, our LCD items actually carry both a higher margin and a higher ATV than natural diamonds on average. So we believe that our efforts to strategically brand our assortments are working and that consumers who often come in with a budget in mind are actually trading up to higher size or higher-quality lab-created diamonds, which gives them an even more beautiful look and creates great lifetime relationship potential for us. So our teams have done a terrific job making that a higher margin and higher ATV offering for us.

Great. Thank you so much.

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Ms. Gina Drosos, CEO, for any closing remarks.

Well, thank you again for joining us today. We continue to navigate this pressured environment and are confident in our capabilities. We're leaning in to widen our competitive advantages to drive market share growth. Thank you.