SIG - NYSE

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. [Operator Instructions] Please note, this event is being recorded. Joining us on the call today are Rob Ballew, Senior Vice President of Investor Relations; Gina Drosos, 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 Signet 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 discussions of the non-GAAP financial measures, as well as reconciliation 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 ir.signetjewelers.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 Gina.

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 to 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 5% 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 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 Neil Lane collection held a near-flat ATV to this quarter last year, while delivering a 20% increase in units. Further, our value-focused fashion banner, 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 U.K. 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 in 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 is 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 2 times the ATV of non-LCD pieces at attractive margins for Signet. 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 Signet 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 JCs. 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 0.5 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. We'll 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 Joan

Thanks, Gina, and good morning, everyone. Revenue for the quarter was $1.5 billion, just above the midpoint of our guidance. Same-store sales were down 8.9% to last year, including approximately two points of pressure from the digital banners as expected. This also reflects improvements in March and April from the slower start we saw in February. We were able to largely hold ATV even with continued heightened promotions in our industry as North America declined just 1.6% to last year. Loose Stone saw the largest decline in ATV, which disproportionately impacts Jared, Diamonds Direct and our digital banners. While finished products maintained ATV through branding and product innovation, traffic was down low-single-digits, services grew 1.3% reflecting an increased attachment rate and pricing on ESAs. We continue to develop training and technology improvements that our jewelry consultants use to educate customers on the lifetime value of our service offerings. With an in-store bridal attachment rate over 80%, we will see tailwinds from the engagement recovery and we see significant opportunity to further build on the current fashion attachment rate of approximately 40%. We delivered gross margin of $572 million this quarter, or approximately 38% of sales in line with the prior year on lower revenue. Adjusted merchandise margin expanded by 100 basis points, led by growth in services and product newness, including expansion of lab-grown diamonds within fashion, but was offset by deleveraging of occupancy costs on lower sales. Turning to SG&A, our adjusted expense of $515 million was $9 million lower than last year, even with increased marketing spend from Mother's Day. Adjusted SG&A was 34% of sales, or 270 basis points higher than last year, as we deleveraged fixed costs on lower revenue. Adjusted operating income was $58 million for the quarter, or 4% of sales and at the high-end of our guidance expectations. Adjusted EPS for the quarter was $1.11 per diluted share. With the redemption of half of the preferred shares and the net shares settlement agreement, we averaged 48 million fully diluted shares this quarter, a reduction of 10% from the end of fiscal ‘24. Turning to inventory, we ended the quarter at $2 billion, down 9% to last year in line with revenue, even while investing in additional new products. We're optimizing the pace at which we take markdowns and are strategically using clearance to reduce inventory levels of less productive and lower-margin products in order to bring in higher-margin, more relevant merchandise. Turning to leverage, we ended the quarter with gross debt to adjusted EBITDA at 2.2 times turns, with net debt to adjusted EBITDA approximately flat, which reflects the preferred share redemption in April. We will retire our unsecured senior debt in the coming days, and we have the liquidity to address the remaining preferred shares this year. These efforts on our balance sheet have been noted by recent ratings upgrades by both S&P and Fitch. While we are on track to have zero debt in the coming months, we believe a modest amount of debt in our capital structure is the most efficient way to drive returns for our shareholders. Funded debt is also required to maintain a public credit rating, which is important to provide flexibility in the future. As such, we will explore options in the market this year to lower our weighted average cost of capital, boost dry powder for opportunistic investments, and return excess cash to shareholders, all while remaining well below our leverage targets. Any amount borrowed will be modest and materially lower than where we ended the year in fiscal ‘24. On fleet optimization, we closed 23 stores this quarter, primarily in our Ernest Jones banner. We also materially reduced our overhead costs in the U.K. going forward. Both were part of our previously announced efforts to improve the performance and margins of our U.K. business. We remain on track to open 20 to 30 stores and renovate approximately 300 existing stores this year. Looking to guidance, we expect second quarter revenue in the range of $1.46 billion to $1.52 billion with same-store sales down in the range of 6% and 2%, a material improvement from the first quarter. We believe that engagements will continue to improve in the second quarter with some AUR pressure in Loose Stone. We expect flat to higher gross margins with similar SG&A deleverage, compared to the first quarter. We expect adjusted operating income between $50 million and $75 million and adjusted EBITDA between $98 million to $123 million. We are reaffirming our full-year guidance today. However, there are two potential impacts we are watching. First, the potential early redemption of further outstanding preferred shares may lower our diluted share count and reduce our preferred dividends this year, both of which would boost our adjusted diluted EPS. Second, heightened competitive discounting may pressure margins into the back half more than we expected at the beginning of the year. We are monitoring the potential impact of this discounting to our gross margins for the full-year, while we work to mitigate that impact in the second-half of fiscal ‘25 through assortment architecture and balanced promotional strategies. We continue to expect engagement incidents to be up 5% to 10% for the year, and we also continue to expect to spend $160 million to $180 million in capital expenditures. Before we move on to Q&A, I'd like to thank our Signet team in our stores, in our support centers, our repair shops, and in our distribution centers. Thank you for your commitment to excellence in the execution of our strategy and your devotion to our purpose of inspiring love. Your efforts are a steady source of inspiration for all of us. Operator, let's now go to questions.

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Lorraine Hutchinson with Bank of America. Please go ahead.

Hi. Thanks. This is Melanie on Lorraine. I just wanted to touch on the margins a bit specifically for 2Q. They did look a little different than what was expected. So can you just break that apart a little bit more? And then what gives you the confidence in getting those better for the second half? Thanks.

Well. Thanks, Melanie. That margins for Q2 are impacted by a few things. One, higher marketing expense and which we've seen be impactful for us and improved ROAs and just return on ad spend, so that's number one. We see higher staffing costs, as well as we are seeing some deleverage on our fixed costs within SG&A. We would expect that to abate somewhat over the back half of the year as we inflect to positive comps.

Thanks. And then just to follow-up on that a bit, just, can you talk about the promotionality that you're seeing in the industry? I know you said it's heightened just what you're doing to respond to that and how you see that trending for the year. Thanks.

Sure. So we've continued to see a highly promotional category. Independent jewelers were significantly over-inventoried for the last 18 months. That has been now getting back to a more normalized level. So we'd hope to see the competitive environment get back to a level of normalcy potentially in Q2 and Q3, although we haven't accounted for that in our plans. And I think what we've been doing, I really feel great about. So we use our scale in newness to really find great values as we are buying gemstones and metals and then offer those great values to our customers in our fashion assortment. That's been one of the key drivers of our fashion assortment, which was a great story in the first quarter, up nearly 500 basis points in the last three months, compared to Q4 in February. A second strategy for us is our loyalty program. We're increasingly offering targeted value opportunities to the right customers at the right time. That allows us to reduce broad-scale discounting and instead be much more targeted. So we have a number of strategies that we've put in place that we think help us to have the right level of promotionality in this kind of a challenged environment. And hopefully, we'll see competition also utilize more healthy strategies.

Great, thank you.

Your next question comes from the line of Paul Lejuez with Citigroup. Please go ahead.

Hey. Thanks, guys. Curious, as you're seeing engagements recover, can you talk about the composition of what customers are buying between natural versus lab-created? And is the mix any different than what you expected? And then second, can you just talk about the pricing in both natural and lab-created on both the engagement piece of the business, as well as the fashion piece? Thank you.

Hey Paul, thanks for your question. So in engagement, we still are seeing far and away a choice of natural diamonds by customers for engagement. Lab created has been a good choice for more price-conscious customers. We've had a challenge consumer environment for a while now. And so, I think that it has been a good innovation in that context for people who can't afford to get the size and clarity of stone they'd like in natural. And so, we can -- we continue to offer that choice to customers both in our finished product and in our loose diamonds. We have continued to be able to leverage lab created as a trade-up opportunity in engagement, still with a higher AUR on LCD than we have on natural. But I think fashion is the real interesting story here. So one of the things I said in the prepared remarks is that we grew our LCD fashion assortment 14% in the first quarter and that's at an ATV, more than twice the average ATV of fashion. So it's really a trade-up opportunity in fashion. At the general price points that we're selling, it's very expensive to have natural diamonds in fashion product, but LCD gives us an opportunity to add bling to those fashion pieces and then help consumers trade up into a more expensive and sometimes a more beautiful piece. Obviously, that's at a very healthy margin also for Signet. So little bit of a different story on both. But our diamond strategy has worked very effectively both in engagement and in fashion. And we're seeing continued opportunity.

Yes. And then just on the pricing, the -- are you seeing year-over-year declines in natural or lab created?

Yes. So it's our expectation that the pricing on lab-created continues to decline. There's significant availability. The production has become much more efficient. Costs have come down. Retails have come down at a slower rate, but still are pressured. That's why the need for a good strategy on it. It matters, which is what we've put in place. And as I said, we've been able to continue to use lab-created as a way to drive a higher AUR, even though the cost per carat has come down to some extent. In natural, we see that kind of getting to a normalized level. There has been pressure in general in the category due to heavy discounting, primarily by independent jewelers.

Thank you. Good luck.

Thank you.

Your next question comes from the line of Ike Boruchow with Wells Fargo. Please go ahead.

Hey, good morning, everyone. Two questions for me. Maybe first for Gina. Just you give some color around May and you give some interesting details. Gina, could you just tell us specifically how was Mother's Day, how was the Mother's Day selling season overall for you guys? And just maybe quarter-to-date, where are you guys running relevant to that guide? And then, Joan, could you just to really simplify it for us, just on the share count and the preferred dividends, like what diluted share count are we using for the second quarter and preferreds, as well as I don't know if you can give Q3 and Q4, but exiting the year, the diluted share count would also be helpful. Just trying to make sure that we all get the models straight. Thank you. A - Gina Drosos Yeah. Hi, Ike. And thanks a lot for your question. I think probably the keyword for this call is momentum. I mean, that is the word that the Signet team is resonating with from the C-Suite to every store team member. If you recall, February was a pretty sluggish start to the quarter, not only for Signet, but all of retail. We started to see the business come back post-Valentine's Day with some late Valentine's Day shopping. We saw momentum through March and April and May and Mother's Day actually were in the top half of our Q2 guide. So significant momentum in the business that we are really leaning into that is broad scale. So significant improvement in engagement units, fashion accelerating significantly versus where we were in the fourth quarter and February over the last three months, with May being at the high end of that acceleration. So we're seeing a lot of momentum in the business right now, and we're leaning into what's working. So one of those things is newness. Our investment in consumer insights and data analytics not only allowed us to predict this COVID lull in engagements that is finally abating and be more prepared for that than anyone in the industry, but it also allows us to predict customer trends. We're seeing a very value-conscious customer right now and so we are targeting sharp price points with value-engineered product that offers an incredible value. And with our scale, a value-conscious customer actually plays to our strength. So we're leaning into what's working to keep driving that momentum. The second quarter with our guide is shaping up to be our fifth consecutive quarter of same-store sales improvement. So we have a good trend going here and we're leaning into what's working in Q2.

Ike, with respect to the diluted share count, Q1 was 48 million shares. For the full-year, we expect the view to be 46.3 million shares. That's what's considered in the guidance that we've given for the full-year.

Can you help on the second quarter as well?

Just from a view, I would think about it as 46 million shares throughout the balance of the year and stay tuned as I mentioned in my shared remarks that any earlier redemptions then the retirement date would impact that number.

Great. Very helpful. Thank you.

And your next question comes from the line of Mauricio Serna with UBS. Please go ahead.

Great. Good morning, and thanks for taking my questions. First, I would like to just follow-up on that commentary about Mother's Day. Could you talk about what sales have looked like post-Mother's Day? Just, it seems like, you know, yes, it was a good event, but just trying to understand whether there was -- the momentum has carried. I know you mentioned that, but just wanted to make sure about it. And then on the Q2 sales guidance, what kind of engagement volumes are considered in the Q2 sales guidance? Thank you.

Hi, Mauricio. So as I said in answer to Ike's question, Mother's Day, week and May, overall we're in the top half of our Q2 guide. So a strong month. We continue to see strong sales in our fashion business. Our newness sell-through was up 25% versus year ago, and it's a significantly higher percent also of our receipts. So Joan talked in her remarks about the great job that our teams have done managing inventory. Despite all the newness that we've launched in, our inventory was down 9% in the quarter. And if you look pre-pandemic, I mean, it's down significantly. So we're in a very healthy place to be able to lean into particular items that are working to spread those quickly across our fleet. We use our ship-from-store capabilities, so that every jewelry consultant across the country can access those new items from another new store if they sold out in their own store. So that is, I think, something we're really leaning into at this point in time. And as I mentioned, we think it's a competitive advantage for us, because of our scale and the way we construct new items in a value-conscious environment like this to really have sharp price points and a great value for our customers. The other super interesting thing on fashion is how our loyalty program is kicking in. So we only launched it a couple of years ago, but we are growing it quickly. We had 25% new users come into the loyalty program just in Q1, and we had a 50% increase in the number of loyalty members, the active loyalty members who made a purchase. So we're really now able to use this combination of our consumer data platform, our personalized marketing content and messaging to laser target our customers and provide them opportunities or visibility to items that they might be interested to buy. And that is one of the things that's helping to drive our fashion purchases. So it's another thing that we're really leaning into to achieve that positive inflection to same-store sales that we talked about.

And with respect to the bridal question. In Q2, we would expect, excluding the digital banners, as we have talked about, we would expect up mid-single-digit to flat in terms of bridal unit selling. Once again, that's excluding digital. And it's what this reflects is the continued momentum and the recovery of engagements throughout the fiscal year. And as we said, we expect the back half of the fiscal year to inflect positive on the high end of our guidance.

Sorry, I just want to make sure this was up mid-single digits to flat for, in total bridal units?

For engagement units.

Okay. Got it. And then…

Including digital.

Digital. And then just quick follow-up on the merchandise margin. Could you talk about what kind of trends you saw, like on brick and mortar versus online? And one thing just to understand, on the last commentary on the risk to the guide, are you expecting higher promotions year-over-year? And why would that be? It seems like independent jewelers, like independent inventory, should be getting in better shape, shouldn't they? Thank you.

Yes. Versus what Gina had said. Yes, the inventories are in better shape, but I think in general, the consumer is cautious and our guidance incorporates that for the full year. We are cognizant of the promotional environment overall in the industry and we are -- and in retail. And so we are prepared for that within our guidance. And we are working through a lot of the great newness that the team has brought forward for our customers. That's helping us to mitigate promotion -- potential promotion impact, as well as services as it continues to ramp up, Mauricio, is a key lever for us in our merchandise margin expansion. We saw that in Q1 and we expect to see that for the remainder of the year. So it's merchandise, new merchandise, add strong margins, services and the influence of LCD within the fashion assortment that Gina mentioned is also a contributor for us within the merchandise margin. Between stores and e-commerce, not a meaningful difference in merchandise margin. As you know, we have shipped from store and we were able to really reduce our clearance inventories, which have tended to be more online in prior years. But we are in a very healthy place from in terms of inventory hygiene and clearance, so we don't really see a significant difference between the two channels.

The one other thing I would say on promotionality, Mauricio, is, remember that it is not our strategy to be the promotion leader in the category. We follow and we remain competitive. The way we win is on the tenured excellence of our store team who provide great counsel and advice to our customers, our winning brand equities, our ability to innovate quickly, and the investments in competitive advantage that we've made in digital and data. So we don't lead promotionality, but we do stay competitive to make sure that we can close sales and bring customers into our Signet family to drive lifetime value.

Understood. Thanks so much and best of luck.

Thank you.

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

Hey. Good morning. Thanks for the question. I wanted to go back to the commentary on average transaction value being down slightly in the first quarter. What is included in your guidance for the year? How should that ATV progress going forward given the momentum you're experiencing today?

Yes, we would expect to see a similar ATV or average transaction value for the balance of the year. In terms of the comp performance of ATV, what Gina talked about, Jim, is really critical in terms of driving LCD into our fashion product. We are seeing a nice performance in bridal continue to recover. So between those two factors, we really expect to see an ATV that we're able to hold a similar level as we saw.

Okay, okay. So maybe possibly a slight decline, but very, very modest. Right way to look at it.

Slight decline, yes.

And does that include an assumption that you'll maintain those 80% and 40%, attach rates on the services warranties or the engagement?

Great question. Yeah, it's a great question. We -- yes, definitely in bridal, and we see opportunity with the engagement tailwind to continue to drive revenue growth. But in fashion, with the 40% overall attachment rate, we see opportunity there as price points increase with the infusion of LCD in fashion. We would expect to see an attachment rate increase. Just to make a note that services is not included in our ATV count, but it is a considerable driver for us as we progress through the year.

Okay, thank you for that. Just another follow-up question on lab-created diamonds. Did you provide an estimate of what your sales mix for lab-grown diamonds in the engagement category is in bridal?

No, we didn't. We continue to offer consumers choice, both in finished engagement rings, as well as loose diamonds as a choice. We see a lot of consumers who have a budget to be able to afford it, leaning into natural, which has the specialness, rarity and traditionally holds its value over time. But we didn't provide any kind of a mix.

Okay, last question for me. I think the De Beers announced that they will be partnering with you in the United States in the back half of the year with a major training initiative, as I understood it. So I'm wondering, what do you expect from De Beers as far as their training incrementally to your sales team that you haven't been able to offer the U.S. consumer to date? Thank you.

Yes. So we're very excited about partnering with De Beers. It's a great thing when the world's largest specialty retail jeweler of diamonds and the world's largest producer of diamonds get together, we have already a relationship with them, obviously, because we're one of very few retail site holders who are vertically integrated and buy rough diamonds directly from the mine. So this is really an extension of that partnership, and it's a return to what I would say was the historical approach of helping customers to understand the specialness, uniqueness, and allure of natural diamonds. I mean, what forms over a billion years in the center of the earth's core, in the tubes of prehistoric volcanoes, is a very rare and special thing with natural diamonds. And so we thought it would be a great time to remind our store teams about that specialness, to share with them some of the excitement that I myself saw when I was in Botswana, seeing the wonderful improvements in that economy and the life of people of that country to be able to share that with them. So it's really an educational opportunity for our teams, just like we would train and coach them on any new item that we would launch. We're kind of treating natural diamonds almost like new item, again, like a reminder of that specialness and uniqueness. So it's a great partnership. It'll exist not only on the training front, but also on marketing to consumers. We find that one of the key questions that young consumers, especially, who are buying a diamond for the first time, are asking is what's the difference? And so having our store teams be able to clearly answer that question, and I'll also providing education directly to consumers is a goal of the partnership.

All right. Thank you.

And your next question comes from the line of Dana Telsey from Telsey Group. Please go ahead.

Hi. Good morning, everyone. Given the more cautious or discerning consumer and the promotional levels that are out there, is the promotional levels different by banner in terms of what you're seeing? And then on the newness that you're offering, how is that increased by banner? Is it different? And is the opening price points changing? How are you adjusting them in this environment? And that impact on margins? Thank you.

Hi, Dana. Good morning. So we have pretty differentiated strategies on our banners across the board. So which customers they're targeting, how we think about average price points in our assortments, even the real estate strategy of how much on mall or off mall. So we don't say a lot about those differentiated strategies, obviously for competitive reasons. And I think the promotional strategy would be one of those things. But what I can say is that within each banner, we've done some great consumer work to say, what are value-conscious customers for this banner looking for? So a value-conscious customer in Jared might be quite different from a value-conscious customer in Banter by Piercing Pagoda. And the price point that they're looking for would also be different, the value that they're looking for. So we have looked at that and designed our assortment to hit price points, that we think are really right for those customers. So take gold as an example. We have done, I think, some really innovative things with a technology we call sculpted gold, which creates a very big look at a lower price point. And we're able to offer something like that at a higher end with more gold in a Jared and at a lower end with a bit less gold in a Banter by Piercing Pagoda. But it still is an innovation that's allowing us to get to a sharp price point in both of those banners.

Thank you.

Dana, to answer the newness aspect of it, we've infused newness across all of our banners, and it's a key merchandise strategy for us. And we'll be flowing newness in and importantly, as we are flowing and increasing the penetration of newness, we are reducing older inventory and getting through that in a meaningful, strategic way for our customers as we progress through the year. So balanced approach to increasing newness by taking out old inventory but really bringing forth new assortments for our customer across banners. but really bringing forth new assortments for our customer across banners.

And newness naturally can come with lower promotionality. It's new, it's hot. We're designing some of our lines with the intention that they'll sell out and so you need to get it quickly or you know, it won't be available and that then precludes the need for discounting.

Thank you.

And that concludes our question-and-answer session. I would like to turn it back to Gina Drosos for closing remarks.

Before we end the call, I'd like to highlight our recently published Corporate Citizenship and Sustainability Report, which provides great insight into our purpose-led accomplishments and goals, our industry-leading standards for responsible sourcing, which we believe is a key driver of attracting and retaining younger customers in the jewelry category. Another bright spot is our doubling of the rate of recycled materials at our core banners. These are resonating with customers. The full report is now available on our website and I hope you'll take a look at it. Thank you all for joining our call this morning. Goodbye.