SIG), the world's largest specialty retail jeweler, today
announced its results for the 13 weeks ("fourth quarter") and for the 52
weeks ("Fiscal 2011") ended January 29, 2011.
Fiscal 2011
-----------
-- Same store sales up 6.7%
-- Income before income taxes $300.4 million, up 30.3%
-- Adjusted income before income taxes excluding
non-recurring item(1) $347.9 million, up 50.9%
-- Diluted earnings per share $2.32, up 26.8%
-- Adjusted diluted earnings per share excluding
non-recurring item(2) $2.66, up 45.4%
-- Free cash flow(3) excluding non-recurring item(1) $315.8 million
Mike Barnes, Chief Executive Officer, commented: "Fiscal 2011 was an
outstanding year for Signet with same store sales up 6.7%, adjusted income
before tax increasing 50.9% and free cash flow of $315.8 million before the
Make Whole Payment. I would like to thank all members of the Signet team
for their contribution to this great performance.
We believe that Signet is well positioned to gain profitable market share
and improve operating margins as a result of our competitive strengths in
the bridal category, the further development of brands that differentiate
us from our competitors, our long term focus on best in class customer
service, and traffic generating marketing campaigns that leverage our
leading share of voice. These strengths are increasingly setting us apart
in the retail marketplace.
We have had an encouraging start to Fiscal 2012, with same store sales in
the first seven weeks up by 8.5%, compared with 6.6% for the comparable
period last year. The US division increased by 11.4%, against 8.2% last
year, and the UK division was down by 4.6%, compared to a decrease of 0.1%
last year."
(1) The non-recurring item is a $47.5 million Make Whole payment arising
from prepayment of private placement notes on November 26, 2010, after
tax cost $29.5 million (the "Make Whole Payment"); non-GAAP measure,
see Note 6. This may also be referred to as "Adjusted income before
tax."
(2) Diluted earnings per share excluding Make Whole Payment; non-GAAP
measure see Note 6.
(3) Net cash provided by operating activities less cash flow used in
investing activities; non-GAAP measure, see Note 6.
Signet operated 1,857 specialty retail jewelry stores at January 29, 2011,
these included 1,317 stores in the US, where its store brands include "Kay
Jewelers", "Jared The Galleria Of Jewelry" and a number of regional names.
At the same date, Signet also operated 540 stores in the UK, where its
store brands are "H.Samuel", "Ernest Jones" and "Leslie Davis". Further
information on Signet is available at www.signetjewelers.com. See also
www.kay.com, www.jared.com, www.hsamuel.co.uk and www.ernestjones.co.uk.
Conference Call
There will be a conference call today at 8.30 a.m. Eastern Time (1.30 p.m.
BST and 5.30 a.m. Pacific Time) and a simultaneous audio webcast and slide
presentation available at www.signetjewelers.com. The slides are available
to be downloaded from the website ahead of the conference call. To help
ensure the conference call begins in a timely manner, all participants
should dial in 5 to 10 minutes prior to the scheduled start time. The call
details are:
US dial-in: +1 (212) 444 0895 Access code: 2553140
European dial-in: +44 (0)20 7138 0844 Access code: 2553140
A replay of the conference call and a transcript of the call will be posted
on Signet's website as soon as is practical after the call has ended and
will be available for one year.
This release contains statements which are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements, based upon management's beliefs and expectations as well
as on assumptions made by and data currently available to management,
appear in a number of places throughout this release and include statements
regarding, among other things, Signet's results of operation, financial
condition, liquidity, prospects, growth, strategies and the industry in
which Signet operates. The use of the words "expects," "intends,"
"anticipates," "estimates," "predicts," "believes," "should," "potential,"
"may," "forecast," "objective," "plan," or "target," and other similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are not guarantees of future performance and are
subject to a number of risks and uncertainties, including but not limited
to general economic conditions, the merchandising, pricing and inventory
policies followed by Signet, the reputation of Signet and its brands, the
level of competition in the jewelry sector, the cost and availability of
diamonds, gold and other precious metals, regulations relating to consumer
credit, seasonality of Signet's business, financial market risks,
deterioration in consumers' financial condition, exchange rate
fluctuations, changes in consumer attitudes regarding jewelry, management
of social, ethical and environmental risks, inadequacy in and disruptions
to internal controls and systems, changes in assumptions used in making
accounting estimates relating to items such as extended service plans and
pensions, and risks relating to Signet being a Bermuda corporation.
For a discussion of these and other risks and uncertainties which could
cause actual results to differ materially, see the "Risk Factors" section
of Signet's Fiscal 2010 Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission on March 30, 2010. Actual results may
differ materially from those anticipated in such forward-looking
statements. Signet undertakes no obligation to update or revise any
forward-looking statements to reflect subsequent events or circumstances,
except as required by law.
FISCAL 2011 OVERVIEW
The strong results for Fiscal 2011 were led by a same store sales increase
of 6.7% (52 weeks to January 30, 2010 ("Fiscal 2010"): decrease of 0.4%),
total sales were up by 5.0% to $3,437.4 million (Fiscal 2010: $3,273.6
million) and operating margin improving by 270 basis points to 10.8%
(Fiscal 2010: 8.1%). As a result, income before income taxes and diluted
earnings per share rose to $300.4 million (Fiscal 2010: $230.5 million) and
$2.32 (Fiscal 2010: $1.83), up by 30.3% and 26.8% respectively. Excluding
the Make Whole Payment, income before income taxes and diluted earnings per
share rose to $347.9 million and $2.66, up by 50.9% and 45.4% respectively,
non-GAAP measures, see Note 6.
Free cash flow at $315.8 million excluding the Make Whole Payment; non-GAAP
measure, see Note 6 (Fiscal 2010: $471.9 million), was substantially higher
than the original objective for the year of $150 million to $200 million.
Signet took advantage of its strong balance sheet and financial flexibility
to prepay all outstanding Private Placement Notes (the "Notes"),
significantly reducing future interest expense and eliminating restrictive
covenants, including limitations on shareholder distributions and capital
expenditure. As a result, a Make Whole Payment of $47.5 million was
incurred. At January 29, 2011, Signet had no long term debt (January 30,
2010: $280 million) and cash and cash equivalents of $302.1 million
(January 30, 2010: $316.2 million).
RESULTS OF OPERATIONS
Fiscal 2011
Sales and operating income
In Fiscal 2011, Signet's same store sales increased by 6.7%, compared to a
decline of 0.4% in Fiscal 2010. Total sales rose by 5.0% to $3,437.4
million (Fiscal 2010: $3,273.6 million). The breakdown of the sales
performance is set out in Table 1 below.
Table 1 Fiscal 2011
-------------------------------
US UK Signet
Sales, million $ 2,744.2 $ 693.2 $ 3,437.4
% of total 79.8% 20.2% 100.0%
Change in sales US UK Signet
% % %
--------- --------- ---------
Same store sales 8.9 (1.4) 6.7
Change in store space (0.9) (1.6) (1.1)
--------- --------- ---------
Total change in sales at constant exchange
rates(1,2) 8.0 (3.0) 5.6
Exchange translation -- (2.5) (0.6)
--------- --------- ---------
Change in sales as reported 8.0 (5.5) 5.0
--------- --------- ---------
(1) The average US dollar to pound sterling exchange rate in Fiscal 2011
was $1.55 (Fiscal 2010: $1.59).
(2) Non-GAAP measure, see Note 6.
In Fiscal 2011, Signet's gross margin was $1,242.9 million (Fiscal 2010:
$1,065.6 million), an increase of 16.6%. The gross margin rate increased
by 360 basis points to 36.2% (Fiscal 2010: 32.6%). The gross merchandise
margin improved by 80 basis points, driven by price increases, lower
diamond costs, less discounting, and favorable mix changes, which more than
offset the impact of higher gold costs and the weakness of the pound
sterling against the US dollar. The net bad debt to total US sales ratio
improved compared to Fiscal 2010 and leverage on store occupancy costs,
particularly in the US, also benefited gross margin.
Selling, general and administrative expenses for Fiscal 2011 were $980.4
million (Fiscal 2010: $916.5 million), up by 7.0%. The increase primarily
reflected higher incentive payments, the non-recurrence of the Fiscal 2010
benefit due to the change in US vacation entitlement policy, management
transition costs and higher advertising expenditure.
In Fiscal 2011, other operating income was $110.0 million (Fiscal 2010:
$115.4 million), down by 4.7%. This reflected the impact of the amendments
to the Truth in Lending Act that were implemented during the year and were
largely offset by a higher level of outstanding customer finance balances
and an increase in rate of interest charged.
In Fiscal 2011, net operating income increased by 40.8% to $372.5 million
(Fiscal 2010: $264.5 million, after a $13.4 million non-recurring,
favorable impact from a change in US vacation entitlement policy).
Operating margin was 10.8% (Fiscal 2010: 8.1%). The net direct adverse
impact on operating income from the amendments to the Truth in Lending Act
was estimated by management to be $11.9 million.
Interest income and expense
In Fiscal 2011, interest income was $0.7 million (Fiscal 2010: $0.8
million). Interest expense was $72.8 million (Fiscal 2010: $34.8 million),
the majority of which related to the $47.5 million Make Whole Payment
incurred as a result of prepaying the Notes in full during the fourth
quarter. The Notes incurred a blended fixed rate of interest of 8.11%.
Income before income taxes
For Fiscal 2011, income before income taxes was up 30.3% to $300.4 million
(Fiscal 2010: $230.5 million), and income before income taxes excluding the
Make Whole Payment was up 50.9% to $347.9 million (Fiscal 2010: $230.5
million); non-GAAP measure, see Note 6.
Income taxes
The charge to income taxes for Fiscal 2011 was $100.0 million (Fiscal 2010:
$73.4 million), an effective tax rate of 33.3% (Fiscal 2010: 31.8%), the
increase reflecting a higher proportion of profits earned in the US where
the tax rate is higher, offset by the benefit from intra-group financing
arrangements and the favorable resolution of certain prior year tax issues.
Net income
Net income for Fiscal 2011 was up 27.6% to $200.4 million (Fiscal 2010:
$157.1 million), and net income excluding the Make Whole Payment was up
46.3% to $229.9 million; non-GAAP measure, see Note 6.
Earnings per share
For Fiscal 2011, basic and diluted earnings per share were $2.34 and $2.32
(Fiscal 2010: $1.84 and $1.83) an increase of 27.2% and 26.8% respectively.
Excluding the Make Whole Payment, basic and diluted earnings per share were
$2.68 and $2.66, up 45.7% and 45.4% respectively; non-GAAP measures, see
Note 6.
Fourth Quarter Fiscal 2011
Sales and operating income
In the fourth quarter same store sales were up 8.1%, compared to an
increase of 5.1% in the fourth quarter of Fiscal 2010, and total sales rose
by 6.2% to $1,270.5 million (13 weeks to January 30, 2010: $1,196.8
million). The breakdown of the sales performance is set out in Table 2
below.
Table 2 Fourth Quarter
-------------------------------
US UK Signet
Sales, million $ 1,007.0 $ 263.5 $ 1,270.5
% of total 79.3% 20.7% 100.0%
Change in sales US UK Signet
% % %
--------- --------- ---------
Same store sales 11.4 (2.9) 8.1
Change in store space (1.2) (1.6) (1.3)
--------- --------- ---------
Total change in sales at constant exchange
rates(1) 10.2 (4.5) 6.8
Exchange translation -- (2.3) (0.6)
--------- --------- ---------
Change in sales as reported 10.2 (6.8) 6.2
--------- --------- ---------
(1) Non-GAAP measure, see Note 6.
In the fourth quarter, gross margin was $518.5 million (13 weeks to January
30, 2010: $431.4 million), an increase of 20.2%. Gross margin rate
increased by 480 basis points to 40.8% (13 weeks to January 30, 2010:
36.0%). Gross merchandise margin increased by 80 basis points. Selling,
general and administrative expenses were $336.7 million (13 weeks to
January 30, 2010: $282.6 million). Other operating income in the fourth
quarter was $28.7 million (13 weeks to January 30, 2010: $28.4 million),
and the net direct adverse impact of the amendments to the Truth in Lending
Act was estimated to be $2.1 million. Fourth quarter net operating income
increased by 18.8% to $210.5 million (13 weeks to January 30, 2010: $177.2
million), and the operating margin was 16.6% (13 weeks to January 30, 2010:
14.8%).
Interest income and expense
Interest income was $0.1 million for the fourth quarter (13 weeks to
January 30, 2010: $0.1 million) and interest expense was $51.0 million (13
weeks to January 30, 2010: $7.6 million).
Income before income taxes
For the fourth quarter, income before income taxes was down 6.0% to $159.6
million (13 weeks to January 30, 2010: $169.7 million), income before
income taxes excluding the Make Whole Payment was up 22.0% to $207.1
million; non-GAAP measure, see Note 6.
Income taxes
The charge to income taxes in the fourth quarter was $54.2 million (13
weeks to January 30, 2010: $54.2 million), an effective tax rate of 34.0%
(13 weeks to January 30, 2010: 31.9%).
Net income
For the fourth quarter, net income was down 8.7% to $105.4 million (13
weeks to January 30, 2010: $115.5 million), and net income excluding the
Make Whole Payment was up 16.8% to $134.9 million; non-GAAP measure, see
Note 6.
Earnings per share
In the fourth quarter, basic and diluted earnings per share were $1.23 and
$1.21 (13 weeks to January 30, 2010: $1.35 and $1.34), down 8.9% and 9.7%
respectively. Excluding the Make Whole Payment, basic and diluted earnings
per share were $1.57 and $1.55, up 16.3% and 15.7% respectively; non-GAAP
measures, see Note 6.
CAPITAL EXPENDITURE AND FREE CASH FLOW
In Fiscal 2011, capital expenditure was $57.5 million (Fiscal 2010: $43.6
million). The US division's capital expenditure was $44.5 million (Fiscal
2010: $31.1 million), and the UK division's was $13.0 million (Fiscal 2010:
$12.5 million).
In Fiscal 2011, positive free cash flow, excluding the Make Whole Payment,
was $315.8 million (Fiscal 2010: $471.9 million); non-GAAP measure, see
Note 6.
At January 29, 2011, Signet had no long term debt (January 30, 2010: $280.0
million). On March 9, 2010, Signet made a prepayment at par of $50.9
million of the Notes. On November 26, 2010, Signet exercised its right to
prepay in full the remaining $229.1 million of outstanding Notes. This
resulted in a reduction in interest expense of $101.7 million over the
remaining term of the Notes. The prepayment required the payment of all
accrued interest up to the Prepayment Date plus a premium, the Make Whole
Payment, which amounted to $47.5 million. At January 29, 2011, Signet had
cash and cash equivalents of $302.1 million (January 30, 2010: $316.2
million).
OPERATING REVIEW
US division (79.8% of annual sales)
Fiscal 2011
In Fiscal 2011, the US division's sales were up by 8.0% to $2,744.2 million
(Fiscal 2010: $2,540.4 million) and same store sales rose by 8.9% compared
to a rise of 0.2% in Fiscal 2010. See Table 3 below for analysis of sales
growth.
Table 3 Change from previous year
--------------------------
Fiscal 2011 Average Average
unit Same unit
selling Total store selling
Sales price(1) sales sales price(1)
Kay $1,592.9m $330 6.4% 7.0% 7.6%
Jared $848.3m $763 18.1% 15.7% 7.0%
Regional brands $303.0m $342 (6.8)% 1.9% 4.0%
----------
US division $2,744.2m $389 8.0% 8.9% 8.0%
==========
(1) Excludes the charm bracelet category, a product with an average unit
selling price considerably lower, and a multiple purchase and frequency
of purchase much greater, than products historically sold by the
division.
In Fiscal 2011, the US division's net operating income increased by 52.7%
to $342.7 million (Fiscal 2010: $224.5 million, after a $13.4 million
non-recurring, favorable impact from a change in US vacation entitlement
policy). The net direct adverse impact from amendments to the Truth in
Lending Act is estimated by management to be $11.9 million in Fiscal 2011.
The operating margin in Fiscal 2011 was up by 370 basis points to 12.5%
(Fiscal 2010: 8.8%), reflecting higher sales per store resulting in
leverage of store occupancy costs, an increased gross merchandise margin
and a lower net bad debt to total US sales ratio, which more than offset
the adverse impact of the amendments to the Truth in Lending Act, the
absence of the non-recurring benefit in Fiscal 2010 from the change in
vacation entitlement policy, higher incentive pay and increased advertising
expenditure.
In Fiscal 2011, both the bridal category and branded differentiated and
exclusive products increased their share of the US division's sales. In
the bridal category, the convergence of superior customer service, supply
chain expertise and the ability to offer in-house customer finance resulted
in an outstanding customer experience, giving the US division a significant
competitive sales advantage. Within the bridal category, Neil Lane Bridal(tm)
and the Tolkowsky® Diamond were tested successfully. Branded
differentiated and exclusive merchandise, such as The Leo Diamond®, Open
Hearts by Jane Seymour®, Love's Embrace(tm), Le Vian® and Charmed Memories®,
increased their participation by about 300 basis points to 22% of the US
division's merchandise sales. In addition, Jared also benefited from a
recovery in spending among US households with above average incomes, and
the continued expansion of the Pandora® range. The US division's market
share of the specialty jewelry market increased by 30 basis points to 9.3%.
In Fiscal 2011, average unit selling price for the US division, excluding
the charm bracelet category, rose by 8.0%, reflecting changes in the store
brand sales mix, customers trading up the US division's pricing structure,
merchandising initiatives, and selective price increases made during Fiscal
2011. Including the charm bracelet category, the average unit selling
price decreased, but was more than compensated for by the volume of units
sold, which increased significantly.
In Fiscal 2011, the US division's gross merchandise margin was up by 120
basis points compared to Fiscal 2010 and benefited from selective price
increases implemented in the first and third quarters of Fiscal 2011, lower
average diamond inventory costs, and reduced price discounting, which more
than offset a higher cost of gold.
In-house customer finance participation in the US division was 54.2%
(Fiscal 2010: 53.9%) and the net bad debt to total US sales ratio was 4.2%
(Fiscal 2010: 5.6%). Management believes this reduction reflected the
quality of credit authorization and collection procedures, and a more
stable rate of unemployment. The average monthly collection rate was 12.6%
(Fiscal 2010: 12.5%). Net US customer in-house finance receivables at
January 29, 2011 were $927.7 million (January 30, 2010: $849.3 million).
Selling, general and administrative expenses were tightly controlled in
Fiscal 2011, but variable expenses rose due to the level of sales and
operating income growth achieved. Also in Fiscal 2011, gross advertising
expenditure increased by 5.6% to $161.5 million (Fiscal 2010: $153.0
million), a marketing to sales ratio of 5.9% (Fiscal 2010: 6.0%). The
higher level of gross advertising expenditure mainly reflected fourth
quarter activity, with both an increased level of television advertising
impressions and media cost inflation. Television adverting impressions in
the fourth quarter of Fiscal 2011 were up 5% for Kay and 10% for Jared.
Stores opened and closed in Fiscal 2011 and in the fourth quarter and are
set out in Table 4 below.
Annual
Table 4 Kay Kay Regional net space
mall(1) off-mall brands Jared(2) Total change
January 30, 2010 794 129 260 178 1,361 (1)%
Opened 1 1 -- 2 4
Closed (11) (3) (9) -- (23)
-------- -------- -------- --------- --------
October 30, 2010 784 127 251 180 1,342
Opened 1 1 -- -- 2
Closed (5) -- (22) -- (27)
-------- -------- -------- --------- --------
January 29, 2011 780 128 229 180 1,317 (2)%
======== ======== ======== ========= ========
(1) Includes stores in downtown locations.
(2) A Jared store is equivalent in size to about four mall stores.
Fourth Quarter Fiscal 2011
In the fourth quarter, the US division's sales were $1,007.0 million (13
weeks to January 30, 2010: $914.0 million) up by 10.2%, and same store
sales rose by 11.4% compared to a rise of 7.3% in the fourth quarter of
Fiscal 2010. See Table 5 below for further analysis of sales.
Table 5 Change from previous year
-------------------------------
Fourth quarter Fiscal 2011 Average Average
unit Same unit
selling Total store selling
Sales price(1) sales sales price(1)
Kay $608.8m $298 9.9% 10.7% 9.0%
Jared $292.2m $721 18.8% 17.5% 9.2%
Regional brands $106.0m $315 (7.2)% 1.3% 9.4%
----------
US division $1,007.0m $351 10.2% 11.4% 10.8%
==========
(1) Excludes the charm bracelet category, a product with an average unit
selling price considerably lower, and a multiple purchase and frequency
of purchase much greater, than products historically sold by the
division.
In the fourth quarter, the US division's net operating income increased by
38.2% to $167.9 million (13 weeks to January 30, 2010: $121.5 million,
which included a $1.6 million non-recurring, adverse impact from a change
in vacation entitlement policy), and the operating margin was 16.7% (13
weeks to January 30, 2010: 13.3%). In-house customer finance participation
was 51.5% in the fourth quarter (13 weeks to January 30, 2010: 50.8%). The
net bad debt to total US sales ratio was 3.8% (13 weeks to January 30,
2010: 5.0%). The average monthly collection rate was 12.2% in the fourth
quarter (13 weeks to January 30, 2010: 12.0%). Gross merchandise margin
was up 140 basis points compared to the fourth quarter of Fiscal 2010. The
net direct adverse impact of amendments to the Truth in Lending Act was
estimated to be $2.1 million in the fourth quarter.
UK division (20.2% of annual sales)
Fiscal 2011
In Fiscal 2011, the UK division's sales were down by 5.5% to $693.2 million
(Fiscal 2010: $733.2 million), and down 3.0% at constant exchange rates;
non-GAAP measure, see Note 6. Same store sales decreased by 1.4%, compared
to a decline of 2.4% in Fiscal 2010. See Table 6 below for further
analysis of sales.
Change from previous year
Table 6 ------------------------------------
Fiscal 2011 Average Sales at Average
unit constant Same unit
selling Total exchange store selling
Sales price(1,2) sales rates(3,4) sales price(2)
H.Samuel $373.4m GBP 57 (5.2)% (2.8)% (1.6)% 8.0%
Ernest Jones(5) $319.5m GBP 249 (4.2)% (1.7)% (1.1)% 9.3%
Other $0.3m nm nm nm nm nm
--------
UK division $693.2m GBP 89 (5.5)% (3.0)% (1.4)% 9.2%
========
(1) The average unit selling price2 for H.Samuel was $88, for Ernest Jones
was $386 and for the UK division was $138.
(2) Excludes the charm bracelet category, a product with an average unit
selling price considerably lower, and a multiple purchase and frequency
of purchase much greater, than product historically sold by the
division.
(3) Non-GAAP measure, see Note 6.
(4) The exchange translation impact on the total sales of H.Samuel was
(2.4)%, and for Ernest Jones was (2.5)%.
(5) Includes stores selling under the Leslie Davis nameplate.
nm - not meaningful.
In Fiscal 2011, net operating income for the UK division increased by 0.9%
to $57.0 million (Fiscal 2010: $56.5 million), an increase of 3.4% at
constant exchange rates; non-GAAP measure, see Note 6. The UK division's
operating margin increased by 50 basis points to 8.2% (Fiscal 2010: 7.7%),
reflecting a tight control of costs, which more than offset lower sales and
a decrease in gross merchandise margin.
In Fiscal 2011, the charm bracelet category continued to perform well, as
did fashion watches and the bridal category, including gold rings. Average
unit selling price, excluding the charm bracelet category, increased by
9.2% in Fiscal 2011, primarily reflecting price increases implemented to
counter pressure on gross merchandise margin. The UK division's gross
merchandise margin rate was down by 40 basis points in Fiscal 2011 compared
to Fiscal 2010. The impact of a weak pound sterling to US dollar exchange
rate, an increase in the cost of gold and a higher rate of value added tax
were largely offset by price increases. Store occupancy costs were
tightly controlled. Selling, general and administrative expenses were also
closely managed. In Fiscal 2011, gross advertising expenditure increased
by 1.8% to $16.6 million (Fiscal 2010: $16.3 million), a marketing to sales
ratio of 2.4% (Fiscal 2010: 2.2%), and an increase of 4.5% in pounds
sterling. The higher level of gross advertising expenditure reflected
fourth quarter activity, with both an increased level of television
advertising impressions and media inflation.
Stores closed in Fiscal 2011 and the fourth quarter are set out in Table 7
below.
Table 7
Ernest Annual net
H.Samuel Jones(1) Total space change
January 30, 2010 347 205 552 (1)%
Opened -- -- --
Closed (5) (3) (8)
--------- --------- ---------
October 30, 2010 342 202 544
Opened -- -- --
Closed (4) -- (4)
--------- --------- ---------
January 29, 2011 338 202 540 (2)%
========= ========= =========
(1) Includes stores selling under the Leslie Davis nameplate.
Fourth Quarter Fiscal 2011
In the fourth quarter, sales were down by 6.8% to $263.5 million (13 weeks
to January 30, 2010: $282.8 million), reflecting an adverse impact of 2.3%
from movements in the pound sterling to US dollar exchange rate, a
reduction of 1.6% due to changes in space and a decrease in same store
sales of 2.9% (13 weeks to January 30, 2010: down 1.5%). See Table 8 below
for further analysis of sales.
Change from previous year
Table 8 ------------------------------------
Fourth quarter Fiscal 2011 Average Sales at Average
unit constant Same unit
selling Total exchange store selling
Sales price(1,2) sales rates(3,4) sales price(2)
H.Samuel $149.7m GBP 56 (5.2)% (2.8)% (1.7)% 5.2%
Ernest Jones(5) $113.8m GBP 231 (8.2)% (6.0)% (4.6)% 8.6%
--------
UK division $263.5m GBP 84 (6.8)% (4.5)% (2.9)% 5.8%
========
(1) The average unit selling price2 in the fourth quarter for H.Samuel was
$87, for Ernest Jones was $358 and for the UK division was $130.
(2) Excludes the charm bracelet category, a product with an average unit
selling price considerably lower, and a multiple purchase and
frequency of purchase much greater, than product historically sold by
the division.
(3) Non-GAAP measure, see Note 6.
(4) The exchange translation impact on the total sales of H.Samuel was
(2.4)% and for Ernest Jones was (2.2)%.
(5) Includes stores selling under the Leslie Davis nameplate.
In the fourth quarter, the UK division's net operating income decreased by
8.4% to $55.3 million (13 weeks to January 30, 2010: $60.4 million), a
decrease of 6.3% at constant exchange rates; non-GAAP measure, see Note 6.
The gross merchandise margin percentage was down 50 basis points from the
fourth quarter of Fiscal 2010. The operating margin in the fourth quarter
was 21.0% (13 weeks to January 30, 2010: 21.4%).
Unallocated costs
Unallocated costs, principally central costs that are not allocated to the
US or UK division in Signet's management accounts, were $27.2 million in
Fiscal 2011 (Fiscal 2010: $16.5 million). The increase primarily reflected
the cost to transition management.
In the fourth quarter, unallocated costs were $12.7 million (13 weeks to
January 30, 2010: $4.7 million).
STRATEGY & FINANCIAL OBJECTIVES
Fiscal 2011 was an outstanding year for Signet. In Fiscal 2012, profit
growth and generation of strong cash flow remain priorities. Therefore, the
strategy in Fiscal 2012 is broadly similar to that of Fiscal 2011. Both the
US and the UK divisions are specialty jewelry industry leaders and continue
to endeavor to meet customer expectations by further enhancing our
competitive advantages. This is expected to increase the performance gap
between Signet and others in the sector in the basic retail disciplines of
store operations, supply chain management, merchandising, marketing and
quality retail estate.
Signet's strategy in Fiscal 2012 is to:
-- further enhance Signet's position as the world's largest specialty
retail jeweler, through superior execution;
-- improve store productivity;
-- increase investment to strengthen the competitive position of the
business; and
-- maintain a strong balance sheet and financial flexibility.
Accordingly, we plan to invest in our sales associates to drive
improvements in customer service; continue to develop and expand
distribution of branded differentiated and exclusive merchandise; increase
advertising expenditure; invest in information systems, including internet
technology that will assist the business to execute more efficiently and
effectively; seek ways to improve the supply chain; and increase the number
of store refurbishments and openings. The goal is to deliver a superior
customer experience by being best in class in all areas of the business, as
is appropriate for the industry leader.
In setting the financial objectives for Fiscal 2012, consideration was
given to the current operating environment, which remains challenging, with
the developments in the US and UK economies becoming increasingly
divergent. There is stabilization in the US economy and growth in the US
jewelry market. The UK economy is being impacted by pressure on
discretionary spending due to the government's austerity program, which
includes an increase in the value added tax rate implemented on January 4,
2011, and higher consumer inflation at a time of limited growth in personal
disposable income.
In Fiscal 2012, management's financial objectives for the business are the
following:
-- gain profitable market share;
-- improve gross margin ratio;
-- maintain selling, general and administrative expenses to sales ratio
broadly similar to the level of Fiscal 2011, flexing primarily with
expenses which vary with sales;
-- capital expenditure of $110 million to $130 million; and
-- positive free cash flow of between $150 million and $200 million;
non-GAAP measure, see Note 6.
Management anticipates that the gross margin ratio will benefit from
improved store productivity, which is expected to offset the impact of
changes in the cost of commodities, in particular the cost of diamonds and
gold, and provide leverage of occupancy costs and net bad debt expense.
The projected interest expense in Fiscal 2012 is $6 million to $7 million,
primarily reflecting facility fees and bank service charges. It is
expected that, subject to the geographic mix of taxable income and the
outcome of uncertain tax positions, Signet's effective tax rate in Fiscal
2012 will be approximately 36%.
Investment will be directed, where prudent, to both inventory and capital
projects, which are intended to build competitive advantage and support
sales growth. It is planned to carry out 105 major store refurbishments
and relocations (Fiscal 2011: 64 stores), and increase the number of store
openings in the US to 25 (Fiscal 2011: 6), see Table 9 below. The UK
division plans to open two and close 22 stores in Fiscal 2012 (Fiscal 2011:
opened 0 and closed 12). It is therefore expected that net square footage
in the US division will be unchanged and that in the UK division it will
decrease by approximately 3%.
Net
Table 9 Kay Kay Regional space
Change in US stores mall(1) off-mall brands Jared(2) Total change
January 29, 2011 780 128 229 180 1,317 (2)%
Openings (planned) 8 13 -- 4 25
Closures (forecast) (7) (8) (21) -- (36)
------- -------- -------- -------- -------
January 28, 2012 781 133 208 184 1,306 0%
------- -------- -------- -------- -------
(1) Includes stores in downtown locations.
(2) A Jared store is equivalent in size to about four mall stores.
IR PROGRAM DETAILS
TAG Conference, New York, on Thursday, March 31, 2011
Signet will be taking part in the TAG Conference, New York, on Thursday,
March 31, 2011 in New York. Present will be Mike Barnes, Chief Executive
Officer and Ron Ristau, Chief Financial Officer.
Barclays Capital Conference, New York, on Wednesday, April 27, 2011
Signet will be taking part in the Barclays Capital Conference, New York, on
Wednesday, April 27, 2011 in New York. Present will be Mike Barnes, Chief
Executive Officer and Ron Ristau, Chief Financial Officer.
Condensed consolidated income statements
13 weeks 13 weeks
ended ended
January January Fiscal Fiscal
29, 2011 30, 2010 2011 2010
$million $million $million $million Notes
-------- -------- -------- -------- -----
Sales 1,270.5 1,196.8 3,437.4 3,273.6
Cost of sales (752.0) (765.4) (2,194.5) (2,208.0)
-------- -------- -------- -------- -----
Gross margin 518.5 431.4 1,242.9 1,065.6
Selling, general and
administrative expenses (336.7) (282.6) (980.4) (916.5)
Other operating income, net 28.7 28.4 110.0 115.4
-------- -------- -------- -------- -----
Operating income, net 210.5 177.2 372.5 264.5
Interest income 0.1 0.1 0.7 0.8
Interest expense (51.0) (7.6) (72.8) (34.8)
-------- -------- -------- -------- -----
Income before income taxes 159.6 169.7 300.4 230.5
Income taxes (54.2) (54.2) (100.0) (73.4) 3
-------- -------- -------- -------- -----
Net income 105.4 115.5 200.4 157.1
-------- -------- -------- -------- -----
Earnings per share - basic $ 1.23 $ 1.35 $ 2.34 $ 1.84 4
- diluted $ 1.21 $ 1.34 $ 2.32 $ 1.83 4
-------- -------- -------- -------- -----
The accompanying notes are an integral part of these condensed consolidated
financial statements
Condensed consolidated balance sheets
January 29, January 30,
2011 2010
$million $million Notes
----------- ----------- -----
Assets
----------- ----------- -----
Current assets:
Cash and cash equivalents 302.1 316.2
Accounts receivable, net 935.9 858.0
Other receivables 38.2 27.9
Other current assets 79.2 75.8
Deferred tax assets 2.7 2.2 3
Inventories 1,184.2 1,173.1
----------- ----------- -----
Total current assets 2,542.3 2,453.2
----------- ----------- -----
Non-current assets:
Property, plant and equipment, net of
accumulated depreciation of $614.4 million,
and $566.0 million, respectively 351.5 396.9
Other intangible assets, net 27.5 24.2
Other assets 59.7 58.3
Deferred tax assets 86.0 112.3 3
Retirement benefit asset 22.8 --
----------- ----------- -----
Total assets 3,089.8 3,044.9
----------- ----------- -----
Liabilities and Shareholders' equity
Current liabilities:
Loans and overdrafts 31.0 44.1
Accounts payable 125.9 66.2
Accrued expenses and other current
liabilities 292.4 272.1
Deferred revenue 146.0 137.7 5
Deferred tax liabilities 77.1 74.7 3
Income taxes payable 38.6 44.1
----------- ----------- -----
Total current liabilities 711.0 638.9
----------- ----------- -----
Non-current liabilities:
Long-term debt -- 280.0
Other liabilities 86.6 79.6
Deferred revenue 353.2 338.0 5
Retirement benefit obligation -- 4.8
----------- ----------- -----
Total liabilities 1,150.8 1,341.3
----------- ----------- -----
Shareholders' equity:
Common shares of $0.18 par value:
authorized 500 million shares, 86.2
million shares issued and outstanding
(2010: 85.5 million shares issued and
outstanding) 15.5 15.4
Additional paid-in capital 196.8 169.9
Other reserves 235.2 235.2
Treasury shares -- (1.1)
Retained earnings 1,662.3 1,462.4
Accumulated other comprehensive loss (170.8) (178.2)
----------- ----------- -----
Total shareholders' equity 1,939.0 1,703.6
----------- ----------- -----
Total liabilities and shareholders' equity 3,089.8 3,044.9
----------- ----------- -----
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Condensed consolidated statements of cash flows
13 weeks 13 weeks
ended ended
January January Fiscal Fiscal
29, 2011 30, 2010 2011 2010
$million $million $million $million
--------- --------- --------- ---------
Cash flows from operating
activities:
Net income 105.4 115.5 200.4 157.1
Adjustments to reconcile net
income to cash flows provided
by operating activities:
Depreciation of property,
plant and equipment 24.2 26.3 89.7 101.0
Amortization of other
intangible assets 2.3 2.4 8.1 7.9
Pension (2.0) (2.5) (7.0) (5.3)
Share-based compensation 9.5 1.3 17.2 5.6
Deferred taxation 5.0 14.1 25.1 11.2
Facility amendment fees
included in net income 1.6 0.3 4.8 4.3
Other non-cash movements (0.7) 1.7 (2.6) 0.8
Profit on disposal of
property, plant and equipment (0.1) (0.4) (1.0) --
Changes in operating assets and
liabilities:
Increase in accounts receivable (166.3) (127.9) (78.7) (32.4)
(Increase)/decrease in other
receivables and other assets (21.0) (7.0) (14.9) 47.2
Increase in other current
assets (5.8) (12.5) (4.0) (29.3)
Decrease/(increase) in
inventories 106.4 127.3 (19.5) 226.5
(Decrease)/increase in accounts
payable (52.6) (72.9) 59.4 22.0
Increase/(decrease) in accrued
expenses and other liabilities 45.6 42.7 25.1 (5.5)
Increase in deferred revenue 34.5 32.7 23.6 14.8
Increase/(decrease) in income
taxes payable 39.9 24.5 (3.7) (9.8)
Effect of exchange rate changes
on currency swaps 1.1 0.7 1.9 (0.7)
--------- --------- --------- ---------
Net cash provided by operating
activities 127.0 166.3 323.9 515.4
--------- --------- --------- ---------
Investing activities:
Purchase of property, plant and
equipment (12.7) (11.4) (46.0) (35.8)
Purchase of other intangible
assets (3.6) (1.8) (11.5) (7.8)
Proceeds from sale of property,
plant and equipment 0.2 -- 1.9 0.1
--------- --------- --------- ---------
Net cash used in investing
activities (16.1) (13.2) (55.6) (43.5)
--------- --------- --------- ---------
Financing activities:
Proceeds from issue of common
shares 9.3 0.1 11.3 1.0
Facility amendment fees paid -- -- (1.3) (9.3)
(Repayment of)/proceeds from
short-term borrowings (6.6) 27.8 (13.1) (143.4)
Repayment of long-term debt (229.1) -- (280.0) (100.0)
--------- --------- --------- ---------
Net cash (used in)/provided by
financing activities (226.4) 27.9 (283.1) (251.7)
--------- --------- --------- ---------
Cash and cash equivalents at
beginning of period 414.9 139.6 316.2 96.8
(Decrease)/increase in cash and
cash equivalents (115.5) 181.0 (14.8) 220.2
Effect of exchange rate changes
on cash and cash equivalents 2.7 (4.4) 0.7 (0.8)
--------- --------- --------- ---------
Cash and cash equivalents at
end of period 302.1 316.2 302.1 316.2
--------- --------- --------- ---------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
Condensed consolidated statement of shareholders' equity
Accumulated
Common other Total
shares Additional compre- share-
at par paid-in Other Treasury Retained hensive holders'
value capital reserves shares earnings loss equity
$million $million $million $million $million $million $million
-------- -------- -------- ------- ------- ------- -------
Balance at
January 30,
2010 15.4 169.9 235.2 (1.1) 1,462.4 (178.2) 1,703.6
Net income -- -- -- -- 200.4 -- 200.4
Foreign
currency
translation -- -- -- -- -- (1.9) (1.9)
Changes in
fair value
of derivative
instruments,
net of tax -- -- -- -- -- (5.2) (5.2)
Pension plan,
net of tax -- -- -- -- -- 14.5 14.5
Share options
exercised 0.1 12.1 -- 1.1 (0.5) -- 12.8
Share-based
compensation
expense -- 14.8 -- -- -- -- 14.8
-------- -------- -------- ------- ------- ------- -------
Balance at
January 29,
2011 15.5 196.8 235.2 -- 1,662.3 (170.8) 1,939.0
-------- -------- -------- ------- ------- ------- -------
Condensed consolidated statements of comprehensive income
13 weeks 13 weeks
ended ended
January January Fiscal Fiscal
29, 2011 30, 2010 2011 2010
$million $million $million $million
------- ------- ------- -------
Net income 105.4 115.5 200.4 157.1
Foreign currency translation 0.4 (5.0) (1.9) 21.4
Changes in fair value of derivative
instruments (10.2) (3.5) (7.7) (8.6)
Pension plan 17.2 1.3 20.0 4.0
Deferred tax on items recognized in
equity (1.2) (0.2) (3.0) 0.5
------- ------- ------- -------
Comprehensive income 111.6 108.1 207.8 174.4
------- ------- ------- -------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1. Basis of preparation
This financial information has been prepared in accordance with accounting
principles generally accepted in the United States of America ("US GAAP")
and has been prepared on the basis of the accounting policies set out in
Signet's audited financial statements which will be filed as part of the
annual report on Form 10-K for Fiscal 2011.
This financial information does not constitute Signet's financial
statements for Fiscal 2011 or Fiscal 2010, but is derived from these
financial statements. Signet's audited financial statements will be filed
as part of the annual report on Form 10-K for Fiscal 2011. This is
expected to be filed with the SEC on March 30, 2011 and will be available
for download from Signet's website www.signetjewelers.com.
Correction of immaterial error
During the third quarter of Fiscal 2011, Signet changed its accounting for
extended service plans. Previously, revenue from the sale of extended
service plans was deferred, net of direct costs arising from the sale, and
was recognized in proportion to the historical actual claims incurred.
Signet has conducted a review of the claims cost patterns, including
estimates of future claims costs expected to be incurred, and concluded
that the deferral period required extension and that claims cost is a more
appropriate basis for revenue recognition than the number of claims
incurred. In addition, Signet now defers all revenues and recognizes
direct costs in proportion to the revenue recognized. These changes are in
accordance with ASC 605-20-25. This resulted in an overstatement of
extended service plan revenue and an understatement of deferred revenue.
These plans are only sold by the US division and therefore only affect the
US segment reporting.
Signet has evaluated the effects individually and in the aggregate and
determined that its prior period financial statements are not materially
misstated. However, Signet has determined that the cumulative effect of
adjusting this would be material to the Fiscal 2011 financial statements.
Therefore, Signet has adjusted the affected prior periods and presented
the results in this report.
As a result of applying this correction, the following consolidated
balance sheet, consolidated income statement and consolidated statement
of cash flows were impacted as follows:
Impact on consolidated balance sheet January 30, 2010
$million
-------------------------
Amounts
previously
reported As corrected
------------ ------------
Assets
Current assets:
Other current assets 58.4 75.8
Total current assets 2,435.8 2,453.2
Non-current assets:
Other assets 12.6 58.3
Deferred tax assets 54.7 112.3
Total assets 2,924.2 3,044.9
Liabilities and Shareholders' equity
Current liabilities:
Deferred revenue 120.1 137.7
Total current liabilities 621.3 638.9
Non-current liabilities:
Deferred revenue 140.9 338.0
Total liabilities 1,126.6 1,341.3
Total shareholders' equity 1,797.6 1,703.6
Total liabilities and shareholders' equity 2,924.2 3,044.9
------------ ------------
Impact on consolidated income
statement 13 weeks ended 52 weeks ended
January 30, 2010 January 30, 2010
$million $million
------------------- -------------------
Amounts Amounts
previously As previously As
reported corrected reported corrected
--------- -------- --------- --------
Sales 1,203.6 1,196.8 3,290.7 3,273.6
Cost of sales (769.5) (765.4) (2,213.8) (2,208.0)
Gross margin 434.1 431.4 1,076.9 1,065.6
Operating income 179.9 177.2 275.8 264.5
Income before income taxes 172.4 169.7 241.8 230.5
Income taxes (55.2) (54.2) (77.7) (73.4)
Net income 117.2 115.5 164.1 157.1
Earnings per share - basic $ 1.37 $ 1.35 $ 1.92 $ 1.84
Earnings per share - diluted $ 1.36 $ 1.34 $ 1.91 $ 1.83
--------- -------- --------- --------
Impact on consolidated statement
of cash flows 13 weeks ended 52 weeks ended
January 30, 2010 January 30, 2010
$million $million
------------------- -------------------
Amounts Amounts
previously As previously As
reported corrected reported corrected
--------- -------- --------- --------
Cash flows from operating
activities:
Net income 117.2 115.5 164.1 157.1
Adjustments to reconcile net
income to cash flows provided
by operating activities:
Deferred income taxes 15.1 14.1 15.5 11.2
Changes in operating assets and
liabilities:
(Increase)/decrease in other
receivables and other assets (4.0) (7.0) 51.4 47.2
Increase in other current assets (11.4) (12.5) (27.7) (29.3)
Increase/(decrease) in deferred
revenue 25.9 32.7 (2.3) 14.8
--------- -------- --------- --------
2. Foreign currency translation
The exchange rates used for the translation of UK pound sterling
transactions and balances in these condensed consolidated financial
statements are as follows:
Fiscal Fiscal
2011 2010
-------- --------
Income statement (average rate) 1.55 1.59
Balance sheet (period end rate) 1.59 1.60
-------- --------
The year-to-date average exchange rate is used to prepare the income
statement for the 52 weeks ended January 29, 2011 and is calculated from
the weekly average exchange rates weighted by sales of the UK division.
The income statement for the 13 weeks ended January 29, 2011 is calculated
as the difference between the income statement for the 52 weeks ended
January 29, 2011 and the previously reported income statement for the 39
weeks ended October 30, 2010. Therefore, the fourth quarter's income
statement includes the impact of the change in the year-to-date exchange
rates between these quarter ends.
3. Income taxes
Fiscal Fiscal
2011 2010
$million $million
--------- ---------
Current taxation - US 63.6 42.5
- Foreign 11.3 19.7
Deferred taxation - US 25.3 13.8
- Foreign (0.2) (2.6)
--------- ---------
Total income taxes 100.0 73.4
--------- ---------
Signet has business activity in all states within the US and files income
tax returns for the US federal jurisdiction and all applicable states.
Signet also files income tax returns in the UK and certain other foreign
jurisdictions. Signet is subject to US federal and state examinations by
tax authorities for tax years after October 28, 2006 and is subject to
examination by the UK tax authority for tax years after January 31, 2008.
As of January 29, 2011 Signet had approximately $9.0 million (Fiscal 2010:
$14.9 million) of unrecognized tax benefits in respect of uncertain tax
positions, all of which would favorably affect the effective income tax
rate if resolved in Signet's favor. These unrecognized tax benefits relate
to financing arrangements and intra-group charges which are subject to
different and changing interpretations of tax law.
During Fiscal 2011, agreement was reached in respect of the treatment of
certain financing arrangements in the UK and a cash settlement was paid of
approximately $1.6 million, excluding interest thereon. A benefit of
approximately $2.8 million has been recognized in income tax expense during
Fiscal 2011.
During Fiscal 2011, the statute of limitations lapsed in the US in respect
of the tax year ended October 28, 2006 with no adjustment to taxable
income. A benefit of approximately $1.8 million has been recognized in
income tax expense during Fiscal 2011.
Apart from the above, there has been no material change in the amount of
unrecognized tax benefits in respect of uncertain tax positions during
Fiscal 2011.
Signet recognizes accrued interest and, where appropriate, penalties
related to unrecognized tax benefits within income tax expense. In Fiscal
2011, the total amount of interest and penalties recognized in income tax
expense in the consolidated income statement was $1.2 million, net credit
(Fiscal 2010: $0.3 million, net credit). As of January 29, 2011, Signet had
accrued interest of $1.0 million (Fiscal 2010: $2.2 million).
Over the next twelve months, management believes that it is reasonably
possible that there could be a reduction of substantially all of the
unrecognized tax benefits as of January 29, 2011, due to settlement of the
uncertain tax positions with the tax authorities.
4. Earnings per share
13 weeks 13 weeks
ended ended
January January Fiscal Fiscal
29, 2011 30, 2010 2011 2010
---------- ---------- ---------- ----------
Net income ($million) 105.4 115.5 200.4 157.1
---------- ---------- ---------- ----------
Basic weighted average number
of shares in issue (million) 85.8 85.5 85.7 85.3
Dilutive effect of share
options (million) 1.0 0.5 0.7 0.4
---------- ---------- ---------- ----------
Diluted weighted average number
of shares in issue (million) 86.8 86.0 86.4 85.7
---------- ---------- ---------- ----------
Earnings per share - basic $ 1.23 $ 1.35 $ 2.34 $ 1.84
Earnings per share - diluted $ 1.21 $ 1.34 $ 2.32 $ 1.83
---------- ---------- ---------- ----------
The basic weighted average number of shares excludes shares held by the
Employee Stock Ownership Trust or as Treasury Shares as such shares are not
considered outstanding and do not qualify for dividends. The effect of
excluding these shares is to reduce the average number of shares in the 13
and 52 week periods ended January 29, 2011 by 10,994 and 11,365 shares
respectively (13 and 52 week periods ended January 30, 2010: 31,694 and
64,085 shares respectively). The calculation of fully diluted earnings per
share for the 13 and 52 week periods ended January 29, 2011 excludes
options to purchase 438,713 and 815,562 shares respectively (13 and 52 week
periods ended January 30, 2010: 972,388 and 2,333,995 share options
respectively) on the basis that their effect on earnings per share was
anti-dilutive.
5. Deferred revenue
Deferred revenue represents income under extended service warranty plans,
voucher promotions and other items.
January January
29, 2011 30, 2010
$million $million
---------- ----------
Warranty deferred revenue 481.1 458.3
Voucher promotions and other items 18.1 17.4
---------- ----------
Total deferred revenue 499.2 475.7
---------- ----------
Current liabilities 146.0 137.7
Non-current liabilities 353.2 338.0
---------- ----------
Total deferred revenue 499.2 475.7
---------- ----------
13 weeks 13 weeks
ended ended
January January Fiscal Fiscal
29, 2011 30, 2010 2011 2010
$million $million $million $million
--------- --------- --------- ---------
Warranty deferred revenue,
beginning of period 458.4 436.1 458.3 440.8
Warranties sold 60.4 58.0 171.1 159.2
Revenues recognized (37.7) (35.8) (148.3) (141.7)
--------- --------- --------- ---------
Warranty deferred revenue,
end of period 481.1 458.3 481.1 458.3
--------- --------- --------- ---------
6. Non-GAAP measures and other information
Income statement as a percentage of sales
13 weeks 13 weeks
ended ended
January January Fiscal Fiscal
29, 2011 30, 2010 2011 2010
% % % %
------- ------- ------- -------
Sales 100.0 100.0 100.0 100.0
Cost of sales (59.2) (64.0) (63.8) (67.4)
------- ------- ------- -------
Gross margin 40.8 36.0 36.2 32.6
Selling, general and administrative
expenses (26.5) (23.6) (28.5) (28.0)
Other operating income, net 2.3 2.4 3.1 3.5
------- ------- ------- -------
Operating income, net 16.6 14.8 10.8 8.1
Net interest expense (4.0) (0.6) (2.1) (1.1)
------- ------- ------- -------
Income before income taxes 12.6 14.2 8.7 7.0
Income taxes (4.3) (4.5) (2.9) (2.2)
------- ------- ------- -------
Net income 8.3 9.7 5.8 4.8
------- ------- ------- -------
A number of non-GAAP measures are used by management to analyze and manage
the performance of the business, and the required disclosures for these
non-GAAP measures are given below. Management does not, nor does it suggest
investors should consider such non-GAAP measures in isolation from, or in
substitution for, information prepared in accordance with US GAAP.
Income statement at constant exchange rates
Movements in the US dollar to pound sterling exchange rate have an impact
on Signet's results. The UK division is managed in pounds sterling as sales
and costs are incurred in that currency and its results are then translated
into US dollars for external reporting purposes. Management believes it
assists in understanding the performance of Signet and its UK division if
constant currency figures are given. This is particularly so in periods
when exchange rates are volatile. The constant currency amounts are
calculated by retranslating the prior year figures using the current year's
exchange rate. Management considers it useful to exclude the impact of
movements in the pound sterling to US dollar exchange rate to analyze and
explain changes and trends in Signet's sales and costs.
a) Fiscal 2011 percentage change in results at constant exchange rates
Fiscal
Fiscal 2011
2010 at change at
Impact of constant constant
exchange exchange exchange
Fiscal Fiscal rate rates rates
2011 2010 movement (non-GAAP)(non-GAAP)
$million $million Change % $million $million %
-------- -------- -------- -------- -------- --------
Sales 3,437.4 3,273.6 5.0 (18.5) 3,255.1 5.6
Cost of sales (2,194.5) (2,208.0) (0.6) 12.6 (2,195.4) --
-------- -------- -------- -------- -------- --------
Gross margin 1,242.9 1,065.6 16.6 (5.9) 1,059.7 17.3
Selling,
general and
administrative
expenses (980.4) (916.5) 7.0 4.9 (911.6) 7.5
Other operating
income, net 110.0 115.4 (4.7) -- 115.4 (4.7)
-------- -------- -------- -------- -------- --------
Operating
income, net 372.5 264.5 40.8 (1.0) 263.5 41.4
Interest income 0.7 0.8 (12.5) -- 0.8 (12.5)
Interest expense (72.8) (34.8) 109.2 -- (34.8) 109.2
-------- -------- -------- -------- -------- --------
Income before
income taxes 300.4 230.5 30.3 (1.0) 229.5 30.9
Income taxes (100.0) (73.4) 36.2 0.3 (73.1) 36.8
-------- -------- -------- -------- -------- --------
Net income 200.4 157.1 27.6 (0.7) 156.4 28.1
-------- -------- -------- -------- -------- --------
Earnings per
share - basic $ 2.34 $ 1.84 27.2 $ (0.01) $ 1.83 27.9
Earnings per
share -
diluted $ 2.32 $ 1.83 26.8 $ (0.01) $ 1.82 27.5
-------- -------- -------- -------- -------- --------
b) Fourth quarter Fiscal 2011 percentage change in results at constant
exchange rates
13 weeks 13 weeks
ended ended
January January
30, 2010 29, 2011
at change at
13 weeks 13 weeks Impact of constant constant
ended ended exchange exchange exchange
January January rate rates rates
29, 2011 30, 2010 movement (non-GAAP)(non-GAAP)
$million $million Change % $million $million %
-------- -------- -------- -------- -------- --------
Sales 1,270.5 1,196.8 6.2 (7.0) 1,189.8 6.8
Cost of sales (752.0) (765.4) (1.8) 4.2 (761.2) (1.2)
-------- -------- -------- -------- -------- --------
Gross margin 518.5 431.4 20.2 (2.8) 428.6 21.0
Selling,
general and
administrative
expenses (336.7) (282.6) 19.1 1.5 (281.1) 19.8
Other operating
income, net 28.7 28.4 1.1 -- 28.4 1.1
-------- -------- -------- -------- -------- --------
Operating
income, net 210.5 177.2 18.8 (1.3) 175.9 19.7
Interest income 0.1 0.1 -- -- 0.1 --
Interest expense (51.0) (7.6) nm -- (7.6) nm
-------- -------- -------- -------- -------- --------
Income before
income taxes 159.6 169.7 (6.0) (1.3) 168.4 (5.2)
Income taxes (54.2) (54.2) -- 0.4 (53.8) 0.7
-------- -------- -------- -------- -------- --------
Net income 105.4 115.5 (8.7) (0.9) 114.6 (8.0)
-------- -------- -------- -------- -------- --------
Earnings per
share - basic $ 1.23 $ 1.35 (8.9) $ (0.01) $ 1.34 (8.2)
Earnings per
share -
diluted $ 1.21 $ 1.34 (9.7) $ (0.01) $ 1.33 (9.0)
-------- -------- -------- -------- -------- --------
nm - not meaningful
c) Fiscal 2011 reconciliation to underlying results
Impact Fiscal
of Make 2011
Fiscal Whole underlying
2011 Payment (non-GAAP)
$million $million $million
--------- --------- ---------
Sales by origin and destination:
US 2,744.2 -- 2,744.2
UK 693.2 -- 693.2
--------- --------- ---------
Total sales 3,437.4 -- 3,437.4
--------- --------- ---------
Operating income/(loss):
US 342.7 -- 342.7
UK 57.0 -- 57.0
Unallocated (27.2) -- (27.2)
--------- --------- ---------
Total operating income 372.5 -- 372.5
Interest income 0.7 -- 0.7
Interest expense (72.8) 47.5 (25.3)
--------- --------- ---------
Income before income taxes 300.4 47.5 347.9
Income taxes (100.0) (18.0) (118.0)
--------- --------- ---------
Net income 200.4 29.5 229.9
--------- --------- ---------
Earnings per share - basic $ 2.34 $ 0.34 $ 2.68
Earnings per share - diluted $ 2.32 $ 0.34 $ 2.66
--------- --------- ---------
d) Fiscal 2011 percentage change in underlying results compared to Fiscal
2010 as reported and at constant exchange rates
Fiscal
2011
under-
Fiscal lying
Fiscal 2010 at change at
2011 Under- constant constant
under- lying exchange exchange
lying change rates rates
Fiscal Fiscal (non- (non- (non- (non-
2011 2010 Change GAAP) GAAP) GAAP) GAAP)
$million $million % $million % $million %
------- ------- ------- ------- ------- ------- -------
Sales by
origin and
destination:
US 2,744.2 2,540.4 8.0 2,744.2 8.0 2,540.4 8.0
UK 693.2 733.2 (5.5) 693.2 (5.5) 714.7 (3.0)
------- ------- ------- ------- ------- ------- -------
Total sales 3,437.4 3,273.6 5.0 3,437.4 5.0 3,255.1 5.6
------- ------- ------- ------- ------- ------- -------
Operating
income/(loss):
US 342.7 224.5 52.7 342.7 52.7 224.5 52.7
UK 57.0 56.5 0.9 57.0 0.9 55.1 3.4
Unallocated (27.2) (16.5) 64.8 (27.2) 64.8 (16.1) 68.9
------- ------- ------- ------- ------- ------- -------
Total operating
income 372.5 264.5 40.8 372.5 40.8 263.5 41.4
------- ------- ------- ------- ------- ------- -------
Income before
income taxes 300.4 230.5 30.3 347.9 50.9 229.5 51.6
------- ------- ------- ------- ------- ------- -------
Net income 200.4 157.1 27.6 229.9 46.3 156.4 47.0
------- ------- ------- ------- ------- ------- -------
Earnings per
share -
basic $ 2.34 $ 1.84 27.2 $ 2.68 45.7 $ 1.83 46.4
Earnings per
share -
diluted $ 2.32 $ 1.83 26.8 $ 2.66 45.4 $ 1.82 46.2
------- ------- ------- ------- ------- ------- -------
e) Fourth quarter Fiscal 2011 percentage change in underlying results
compared to fourth quarter Fiscal 2010 as reported and at constant exchange
rates
13 weeks
ended
13 weeks January
ended 29, 2011
13 weeks January under-
ended 30, lying
January 2010 at change at
29, 2011 Under- constant constant
13 weeks 13 weeks under- lying exchange exchange
ended ended lying change rates rates
January January (non- (non- (non- (non-
29, 2011 30, 2010 Change GAAP) GAAP) GAAP) GAAP)
$million $million % $million % $million %
------- ------- ----- ------- ------- ------- -------
Sales by origin
and destination:
US 1,007.0 914.0 10.2 1,007.0 10.2 914.0 10.2
UK 263.5 282.8 (6.8) 263.5 (6.8) 275.8 (4.5)
------- ------- ----- ------- ------- ------- -------
Total sales 1,270.5 1,196.8 6.2 1,270.5 6.2 1,189.8 6.8
------- ------- ----- ------- ------- ------- -------
Operating
income/(loss):
US 167.9 121.5 38.2 167.9 38.2 121.5 38.2
UK 55.3 60.4 (8.4) 55.3 (8.4) 59.0 (6.3)
Unallocated (12.7) (4.7) 170.2 (12.7) 170.2 (4.6) 176.1
------- ------- ----- ------- ------- ------- -------
Total operating
income 210.5 177.2 18.8 210.5 18.8 175.9 19.7
------- ------- ----- ------- ------- ------- -------
Income before
income taxes 159.6 169.7 (6.0) 207.1 22.0 168.4 23.0
------- ------- ----- ------- ------- ------- -------
Net income 105.4 115.5 (8.7) 134.9 16.8 114.6 17.7
------- ------- ----- ------- ------- ------- -------
Earnings per
share - basic $ 1.23 $ 1.35 (8.9) $ 1.57 16.3 $ 1.34 17.2
Earnings per
share -
diluted $ 1.21 $ 1.34 (9.7) $ 1.55 15.7 $ 1.33 16.5
------- ------- ----- ------- ------- ------- -------
The underlying results are the results adjusted for the $47.5 million Make
Whole Payment in the 13 weeks ended January 29, 2011.
f) Free cash flow
Fiscal Fiscal
2011 2010
$million $million
--------- ---------
Net cash provided by operating activities 323.9 515.4
Net cash used in investing activities (55.6) (43.5)
--------- ---------
Free cash flow, including Make Whole Payment 268.3 471.9
Make Whole Payment 47.5 --
--------- ---------
Free cash flow, excluding Make Whole Payment 315.8 471.9
--------- ---------