REG - Signet Jewelers Ltd - Form 10Q <Origin Href="QuoteRef">SIG.N</Origin> - Part 4
29/10/2014 11:09
- Part 4: For the preceding part double click ID:nRSK4136Rc
114.6
Deferred revenue - - 418.4 - - 418.4
Total liabilities 12.2 - 2,619.4 9.2 (1,373.1 ) 1,267.7
Total shareholders' equity 2,372.6 - 2,406.4 2,542.0 (4,948.4 ) 2,372.6
Total liabilities and shareholders' equity $ 2,384.8 $ - $ 5,025.8 $ 2,551.2 $ (6,321.5 ) $ 3,640.3
Total liabilities and shareholders' equity
$ 2,384.8
$ -
$ 5,025.8
$ 2,551.2
$ (6,321.5 )
$ 3,640.3
Condensed Consolidated Statement of Cash Flows
For the 13 week period ended August 2, 2014
(Unaudited)
Cash flows from operating activities
Other cash provided by operating activities $ 49.6 $ 3.8 $ 76.9 $ 30.1 $ (50.0 ) $ 110.4
Net cash provided by operating activities 49.6 3.8 76.9 30.1 (50.0 ) 110.4
Investing activities
Purchase of property, plant and equipment - - (61.8 ) (0.1 ) - (61.9 )
Investment in subsidiaries - - (7.4 ) - 7.4 -
Purchase of available-for-sale securities - - - (1.2 ) - (1.2 )
Proceeds from available-for-sale securities - - - 1.0 - 1.0
Acquisition of Zale Corporation, net of cash acquired - - (1,431.1 ) 1.9 - (1,429.2 )
Net cash (used in) provided by investing activities - - (1,500.3 ) 1.6 7.4 (1,491.3 )
Financing activities
Dividends paid (14.4 ) - - - - (14.4 )
Intercompany dividends paid - - (850.2 ) 0.2 850.0 -
Proceeds from issuance of common shares 1.0 7.4 - 800.0 (807.4 ) 1.0
Excess tax benefit from exercise of share awards - - - - - -
Proceeds from long-term debt - 398.4 400.0 600.0 - 1,398.4
Payment of debt issuance costs - (5.7 ) (7.4 ) (2.3 ) - (15.4 )
Repurchase of common shares (11.0 ) - - - - (11.0 )
Net settlement of equity based awards 0.2 - - - - 0.2
Capital lease payments - - (0.2 ) - - (0.2 )
Repayment of short-term borrowings - - (11.7 ) - - (11.7 )
Intercompany activity, net (25.7 ) (403.9 ) 1,857.9 (1,428.3 ) - -
Net cash (used in) provided by financing activities (49.9 ) (3.8 ) 1,388.4 (30.4 ) 42.6 1,346.9
Cash and cash equivalents at beginning of period 1.7 - 226.7 20.7 - 249.1
(Decrease) increase in cash and cash equivalents (0.3 ) - (35.0 ) 1.3 - (34.0 )
Effect of exchange rate changes on cash and cash equivalents - - (0.6 ) 0.5 - (0.1 )
Cash and cash equivalents at end of period $ 1.4 $ - $ 191.1 $ 22.5 $ - $ 215.0
Cash and cash equivalents at end of period
$ 1.4
$ -
$ 191.1
$ 22.5
$ -
$ 215.0
Condensed Consolidated Statement of Cash Flows
For the 26 week period ended August 2, 2014
(Unaudited)
Cash flows from operating activities
Other cash provided by operating activities $ 49.1 $ 3.8 $ 139.3 $ 41.7 $ (50.0 ) $ 183.9
Net cash provided by operating activities 49.1 3.8 139.3 41.7 (50.0 ) 183.9
Investing activities
Purchase of property, plant and equipment - - (89.6 ) (0.4 ) - (90.0 )
Investment in subsidiaries - - (7.4 ) - 7.4 -
Purchase of available-for-sale securities - - - (1.2 ) - (1.2 )
Proceeds from available-for-sale securities - - - 1.0 - 1.0
Acquisition of Zale Corporation, net of cash acquired - - (1,431.1 ) 1.9 - (1,429.2 )
Net cash (used in) provided by investing activities - - (1,528.1 ) 1.3 7.4 (1,519.4 )
Financing activities
Dividends paid (26.4 ) - - - - (26.4 )
Intercompany dividends paid - - (849.1 ) (0.9 ) 850.0 -
Proceeds from issuance of common shares 2.0 7.4 - 800.0 (807.4 ) 2.0
Excess tax benefit from exercise of share awards - - 7.7 - - 7.7
Proceeds from long-term debt - 398.4 400.0 600.0 - 1,398.4
Payment of debt issuance costs - (5.7 ) (10.4 ) (2.3 ) - (18.4 )
Repurchase of common shares (22.4 ) - - - - (22.4 )
Net settlement of equity based awards (15.1 ) - - - - (15.1 )
Capital lease payments - - (0.2 ) - - (0.2 )
Repayment of short-term borrowings - - (22.2 ) - - (22.2 )
Intercompany activity, net 12.8 (403.9 ) 1,815.5 (1,424.4 ) - -
Net cash (used in) provided by financing activities (49.1 ) (3.8 ) 1,341.3 (27.6 ) 42.6 1,303.4
Cash and cash equivalents at beginning of period 1.4 - 237.0 9.2 - 247.6
(Decrease) increase in cash and cash equivalents - - (47.5 ) 15.4 - (32.1 )
Effect of exchange rate changes on cash and cash equivalents - - 1.6 (2.1 ) - (0.5 )
Cash and cash equivalents at end of period $ 1.4 $ - $ 191.1 $ 22.5 $ - $ 215.0
Cash and cash equivalents at end of period
$ 1.4
$ -
$ 191.1
$ 22.5
$ -
$ 215.0
Condensed Consolidated Statement of Cash Flows
For the 13 week period ended August 3, 2013
(Unaudited)
Cash flows from operating activities
Other cash provided by (used in) operating activities $ 49.4 $ - $ 14.1 $ (0.1 ) $ (50.0 ) $ 13.4
Net cash provided by (used in) operating activities 49.4 - 14.1 (0.1 ) (50.0 ) 13.4
Investing activities
Purchase of property, plant and equipment - - (30.2 ) (0.2 ) - (30.4 )
Investment in subsidiaries (0.3 ) - - - 0.3 -
Acquisition of Ultra Stores, Inc. - - 1.4 - - 1.4
Net cash used in investing activities (0.3 ) - (28.8 ) (0.2 ) 0.3 (29.0 )
Financing activities
Dividends paid (12.1 ) - - - - (12.1 )
Intercompany dividends paid - - (43.7 ) (6.3 ) 50.0 -
Proceeds from issuance of common shares 0.2 - 0.3 - (0.3 ) 0.2
Excess tax benefit from exercise of share awards - - 4.5 - - 4.5
Repurchase of common shares (25.0 ) - - - - (25.0 )
Net settlement of equity based awards 0.1 - - - - 0.1
Repayment of short-term borrowings - - (4.0 ) - - (4.0 )
Intercompany activity, net (20.8 ) - 36.1 (15.3 ) - -
Net cash used in financing activities (57.6 ) - (6.8 ) (21.6 ) 49.7 (36.3 )
Cash and cash equivalents at beginning of period 9.4 - 225.0 29.3 - 263.7
Decrease in cash and cash equivalents (8.5 ) - (21.5 ) (21.9 ) - (51.9 )
Effect of exchange rate changes on cash and cash equivalents - - (0.4 ) 1.5 - 1.1
Cash and cash equivalents at end of period $ 0.9 $ - $ 203.1 $ 8.9 $ - $ 212.9
Cash and cash equivalents at end of period
$ 0.9
$ -
$ 203.1
$ 8.9
$ -
$ 212.9
Condensed Consolidated Statement of Cash Flows
For the 26 week period ended August 3, 2013
(Unaudited)
Cash flows from operating activities
Other cash provided by operating activities $ 88.9 $ - $ 45.2 $ 14.4 $ (90.0 ) $ 58.5
Net cash provided by operating activities 88.9 - 45.2 14.4 (90.0 ) 58.5
Investing activities
Purchase of property, plant and equipment - - (53.4 ) (0.2 ) - (53.6 )
Investment in subsidiaries (0.3 ) - - - 0.3 -
Acquisition of Ultra Stores, Inc. - - 1.4 - - 1.4
Net cash used in investing activities (0.3 ) - (52.0 ) (0.2 ) 0.3 (52.2 )
Financing activities
Dividends paid (21.9 ) - - - - (21.9 )
Intercompany dividends paid - - (77.0 ) (13.0 ) 90.0 -
Proceeds from issuance of common shares 5.2 - 0.3 - (0.3 ) 5.2
Excess tax benefit from exercise of share awards - - 4.5 - - 4.5
Repurchase of common shares (75.1 ) - - - - (75.1 )
Net settlement of equity based awards (9.0 ) - - - - (9.0 )
Proceeds from short-term borrowings - - 1.7 - - 1.7
Intercompany activity, net (0.3 ) - 10.9 (10.6 ) - -
Net cash used in financing activities (101.1 ) - (59.6 ) (23.6 ) 89.7 (94.6 )
Cash and cash equivalents at beginning of period 13.4 - 271.3 16.3 - 301.0
Decrease in cash and cash equivalents (12.5 ) - (66.4 ) (9.4 ) - (88.3 )
Effect of exchange rate changes on cash and cash equivalents - - (1.8 ) 2.0 - 0.2
Cash and cash equivalents at end of period $ 0.9 $ - $ 203.1 $ 8.9 $ - $ 212.9
Cash and cash equivalents at end of period
$ 0.9
$ -
$ 203.1
$ 8.9
$ -
$ 212.9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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
document 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, risks relating to Signet being a Bermuda corporation, 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 customer credit, seasonality of Signet's business, financial market risks, deterioration in customers'
financial condition, exchange rate fluctuations, changes in consumer attitudes regarding jewelry, management of social,
ethical and environmental risks, security breaches and other disruptions to Signet's information technology infrastructure
and databases, 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, the impact of the acquisition of Zale
Corporation on relationships, including with employees, suppliers, customers and competitors, the impact of stockholder
litigation with respect to the acquisition of Zale Corporation, and our ability to successfully integrate Zale
Corporation's operations and to realize synergies from the transaction.
For a discussion of these and other risks and uncertainties which could cause actual results to differ materially from
those expressed in any forward-looking statement, see the "Risk Factors" section of Signet's Fiscal 2014 Annual Report on
Form 10-K filed with the SEC on March 27, 2014 and Part II, Item 1A of this Form 10-Q. Signet undertakes no obligation to
update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.
OVERVIEW
Signet is the largest specialty retail jeweler by sales in the US, Canada and UK. Signet manages its business as four
reportable segments, the Sterling Jewelers division, the UK Jewelry division and the Zale division, which consists of the
Zale Jewelry and the Piercing Pagoda segments. In addition, the Other operating segment consists of all non-reportable
segments, including subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones.
The Sterling Jewelers division operated 1,487 stores in all 50 states at August 2, 2014. Its stores trade nationally in
malls and off-mall locations as Kay Jewelers ("Kay"), and regionally under a number of well-established mall-based brands.
Destination superstores trade nationwide as Jared The Galleria Of Jewelry ("Jared").
The Zale division operated 998 fine jewelry ("Zale Jewelry") stores and 611 kiosks ("Piercing Pagoda") at August 2, 2014,
located primarily in shopping malls throughout the US, Canada and Puerto Rico. Zale Jewelry includes national brands Zales
Jewelers, Zales Outlet and Peoples Jewellers, along with regional brands Gordon's Jewelers and Mappins Jewellers. Piercing
Pagoda operates through mall-based kiosks.
The UK Jewelry division operated 493 stores at August 2, 2014, including 14 stores in the Republic of Ireland and three in
the Channel Islands. Its stores trade in major regional shopping malls and prime 'High Street' locations (main shopping
thoroughfares with high pedestrian traffic) as "H.Samuel," "Ernest Jones," and "Leslie Davis."
In addition, on November 4, 2013, Signet acquired a diamond polishing factory in Gaborone, Botswana. This acquisition
expanded Signet's long-term diamond sourcing capabilities and provides resources for Signet to cut and polish stones.
Transactions Affecting Comparability of Results of Operations and Liquidity and Capital Resources
The comparability of the Company's operating results for the 13 and 26 week periods ended August 2, 2014 and August 3, 2013
presented herein has been affected by certain transactions, including:
• The Zale Acquisition that closed on May 29, 2014, as described in Note 20 to the accompanying unaudited condensed
consolidated financial statements;
• Certain acquisition related costs;
• Zale Acquisition financing as described in Notes 19 and 20;
• Certain non-recurring purchase accounting costs.
Non-GAAP measures
Signet provides certain non-GAAP information in reporting its financial results to give investors additional data to
evaluate its operations. Management does not, nor does it suggest investors should, consider such non-GAAP measures in
isolation from, or in substitute for, financial information prepared in accordance with US GAAP.
The following discussion of results of operations highlights, as necessary, the significant changes in operating results
arising from these items and transactions. However, unusual items or transactions may occur in any period. Accordingly,
investors and other financial statement users individually should consider the types of events and transactions that have
affected operating trends.
Exchange translation impact
Signet has historically used constant exchange rates to compare period-to-period changes in certain financial data.
Management considers this a useful measure for analyzing and explaining changes and trends in Signet's results. The impact
of the re-calculation, including a reconciliation to Signet's US GAAP results, is analyzed below.
Sales by division:
Sterling Jewelers division $ 810.4 $ 741.1 9.4 $ - $ 741.1 9.4
UK Jewelry division 162.9 139.1 17.1 15.1 154.2 5.6
Zale division 247.5 - - - - -
Other 5.1 - - - - -
Total sales 1,225.9 880.2 39.3 15.1 895.3 36.9
Cost of sales (816.9 ) (570.5 ) (43.2 ) (11.1 ) (581.6 ) (40.5 )
Gross margin 409.0 309.7 32.1 4.0 313.7 30.4
Selling, general and administrative expenses (379.2 ) (250.5 ) (51.4 ) (4.0 ) (254.5 ) (49.0 )
Other operating income, net 53.7 46.3 16.0 - 46.3 16.0
Operating income (loss):
Sterling Jewelers division 129.9 111.9 16.1 - 111.9 16.1
UK Jewelry division 1.1 (0.8 ) 237.5 - (0.8 ) 237.5
Zale division (9.8 ) - - - - -
Other(2) (37.7 ) (5.6 ) (573.2 ) - (5.6 ) (573.2 )
Total operating income 83.5 105.5 (20.9 ) - 105.5 (20.9 )
Interest expense, net (13.7 ) (1.0 ) nm 0.1 (0.9 ) nm
Income before income taxes 69.8 104.5 (33.2 ) 0.1 104.6 (33.3 )
Income taxes (11.8 ) (37.1 ) 68.2 (0.3 ) (37.4 ) 68.4
Net income $ 58.0 $ 67.4 (13.9 ) $ (0.2 ) $ 67.2 (13.7 )
Earnings per share - basic $ 0.73 $ 0.84 (13.1 ) $ - $ 0.84 (13.1 )
Earnings per share - diluted $ 0.72 $ 0.84 (14.3 ) $ (0.01 ) $ 0.83 (13.3 )
Earnings per share - basic
$ 0.73
$ 0.84
(13.1 )
$ -
$ 0.84
(13.1 )
Earnings per share - diluted
$ 0.72
$ 0.84
(14.3 )
$ (0.01 )
$ 0.83
(13.3 )
(1) Includes the 65-day results of Zale's from acquisition date to end of second quarter.
(2) Other includes $30.8 million of one-time transaction and severance related costs.
nm Not meaningful.
Sales by division:
Sterling Jewelers division $ 1,713.9 $ 1,598.3 7.2 $ - $ 1,598.3 7.2
UK Jewelry division 314.6 274.1 14.8 27.1 301.2 4.4
Zale division 247.5 - - - - -
Other 6.0 1.4 328.6 - 1.4 328.6
Total sales 2,282.0 1,873.8 21.8 27.1 1,900.9 20.0
Cost of sales (1,465.8 ) (1,181.3 ) (24.1 ) (20.0 ) (1,201.3 ) (22.0 )
Gross margin 816.2 692.5 17.9 7.1 699.6 16.7
Selling, general and administrative expenses (689.7 ) (537.5 ) (28.3 ) (7.6 ) (545.1 ) (26.5 )
Other operating income, net 107.7 93.3 15.4 0.1 93.4 15.3
Operating income (loss):
Sterling Jewelers division 296.2 264.7 11.9 - 264.7 11.9
UK Jewelry division 1.1 (4.9 ) 122.4 (0.4 ) (5.3 ) 120.8
Zale division (9.8 ) - - - - -
Other(2) (53.3 ) (11.5 ) (363.5 ) - (11.5 ) (363.5 )
Total operating income 234.2 248.3 (5.7 ) (0.4 ) 247.9 (5.5 )
Interest expense, net (15.5 ) (1.9 ) (715.8 ) - (1.9 ) (715.8 )
Income before income taxes 218.7 246.4 (11.2 ) (0.4 ) 246.0 (11.1 )
Income taxes (64.1 ) (87.2 ) 26.5 - (87.2 ) 26.5
Net income $ 154.6 $ 159.2 (2.9 ) $ (0.4 ) $ 158.8 (2.6 )
Earnings per share - basic $ 1.93 $ 1.98 (2.5 ) $ (0.01 ) $ 1.97 (2.0 )
Earnings per share - diluted $ 1.93 $ 1.97 (2.0 ) $ (0.01 ) $ 1.96 (1.5 )
Earnings per share - basic
$ 1.93
$ 1.98
(2.5 )
$ (0.01 )
$ 1.97
(2.0 )
Earnings per share - diluted
$ 1.93
$ 1.97
(2.0 )
$ (0.01 )
$ 1.96
(1.5 )
(1) Includes the 65-day results of Zale's from acquisition date to end of second quarter.
(2) Other includes $39.2 million of one-time transaction and severance related costs.
Net (debt)/cash
Net (debt)/cash is the total of cash and cash equivalents less loans and overdrafts, and long-term debt, and is helpful in
providing a measure of the total indebtedness of the business.
Cash and cash equivalents $ 215.0 $ 247.6 $ 212.9
Loans and overdrafts (31.2 ) (19.3 ) (1.7 )
Long-term debt (1,379.1 ) - -
Net (debt)/cash $ (1,195.3 ) $ 228.3 $ 211.2
Net (debt)/cash
$ (1,195.3 )
$ 228.3
$ 211.2
Free cash flow
Free cash flow is a non-GAAP measure defined as the net cash provided by operating activities less purchases of property,
plant and equipment, net. Management considers that it is helpful in understanding how the business is generating cash from
its operating and investing activities that can be used to meet the financing needs of the business. Free cash flow does
not represent the residual cash flow available for discretionary expenditure.
Net cash provided by operating activities $ 110.4 $ 13.4 $ 183.9 $ 58.5
Purchase of property, plant and equipment, net (61.9 ) (30.4 ) (90.0 ) (53.6 )
Free cash flow $ 48.5 $ (17.0 ) $ 93.9 $ 4.9
Free cash flow
$ 48.5
$ (17.0 )
$ 93.9
$ 4.9
Earnings before interest, income taxes, depreciation and amortization ("EBITDA")
EBITDA is a non-GAAP measure defined as earnings before interest and income taxes (operating income), depreciation and
amortization, and non-cash acquisition related accounting adjustments. EBITDA is an important indicator of operating
performance as it excludes the effects of financing and investing activities by eliminating the effects of interest,
depreciation and amortization costs, and accounting adjustments. Management believes this financial measure is helpful to
enhance investors' ability to analyze trends in our business and evaluate our performance relative to other companies.
Operating income $ 83.5 $ 105.5 $ 234.2 $ 248.3
Depreciation and amortization on property, plant and equipment 34.3 (1) 25.5 62.3 (1) 51.1
Amortization of definite lived intangibles 2.2 (1)(2) - 2.2 (1)(2) -
Amortization of unfavorable leases and contracts (5.9 )(2) - (5.9 )(2) -
Other non-cash accounting adjustments 15.2 (2) - 15.2 (2) -
EBITDA $ 129.3 $ 131.0 $ 308.0 $ 299.4
EBITDA
$ 129.3
$ 131.0
$ 308.0
$ 299.4
(1) Total amount of depreciation and amortization reflected on the condensed consolidated statements of cash flows reflects
$36.5 million and $64.5 million for the 13 and 26 weeks ended August 2, 2014, respectively, which includes $2.2 million
related to the amortization of definite lived intangibles, primarily favorable leases and trade names.
(2) Total amount of operating loss relating to Acquisition accounting adjustments is $11.5 million for the 13 and 26 weeks
ended August 2, 2014, as reflected in the non-GAAP tables below.
Operating data reflecting the impact of acquisition related costs and organic results
The below table reflects the impact of the Zale operations, costs associated with the acquisition of Zale Corporation,
along with certain other accounting adjustments made. Management finds the information useful to analyze the results of the
business excluding these items in order to appropriately evaluate the performance of the business without the impact of
significant and unusual items.
Sales $ 978.4 $ 256.8 $ (9.3 ) $ - $ - $ - $ 1,225.9
Cost of sales (638.4 ) (173.3 ) (5.2 ) - - - (816.9 )
Gross margin 340.0 83.5 (14.5 ) - - - 409.0
Selling, general and administrative expenses (269.6 ) (81.8 ) 3.0 (13.7 ) (17.1 ) - (379.2 )
Other operating income, net 53.7 - - - - - 53.7
Operating income (loss) 124.1 1.7 (11.5 ) (13.7 ) (17.1 ) - 83.5
Interest expense, net (0.7 ) (0.2 ) (1.2 ) - - (11.6 ) (13.7 )
Income before income taxes 123.4 1.5 (12.7 ) (13.7 ) (17.1 ) (11.6 ) 69.8
Income taxes (43.5 ) (0.6 ) 4.8 5.2 5.9 16.4 (11.8 )
Net income (loss) 79.9 0.9 (7.9 ) (8.5 ) (11.2 ) 4.8 58.0
Earnings per share - diluted $ 1.00 $ 0.01 $ (0.10 ) $ (0.11 ) $ (0.14 ) $ 0.06 $ 0.72
Second quarter of Fiscal 2015(% of sales) Signet organic Zale Signet
results operations(1) consolidated,
as reported
Sales 100.0 % 100.0 % 100.0 %
Cost of sales (65.2 ) (67.5 ) (66.6 )
Gross margin 34.8 32.5 33.4
Selling, general and administrative expenses (27.6 ) (31.8 ) (31.0 )
Other operating income, net 5.5 0.0 4.4
Operating income 12.7 0.7 6.8
Interest expense, net (0.1 ) (0.1 ) (1.1 )
Income before income taxes 12.6 0.6 5.7
Income taxes (4.4 ) (0.2 ) (1.0 )
Net income 8.2 0.4 4.7
(1.0 )
Net income
8.2
0.4
4.7
(1) Includes the 65-day results of Zale's from acquisition date to the end of second quarter.
(2) Includes deferred revenue adjustments related to acquisition accounting which resulted in a reset of deferred revenue
associated with extended service plans previously sold by Zale Corporation. Similar to Signet's Sterling Jewelers division,
historically, Zale Corporation deferred the revenue generated by the sale of lifetime warranties and recognized revenue in
relation to the pattern of costs expected to be incurred, which included a profit margin on activities related to the
initial selling effort. In acquisition accounting, deferred revenue is only recognized when a legal performance obligation
is assumed by the acquirer. The fair value of deferred revenue is determined based on the future obligations associated
with the outstanding plans at the time of the Acquisition. The acquisition accounting adjustment results in a reduction to
the deferred revenue balance from $183.8 million to $93.0 million as of May 29, 2014 as the fair value was determined
through the estimation of costs remaining to be incurred, plus a reasonable profit margin on the estimated costs. Revenues
generated from the sale of extended services plans subsequent to the Acquisition are recognized in revenue in a manner
consistent with Signet's methodology. Additionally, accounting adjustments include the recognition of a portion of the
inventory fair value step-up of $31.3 million and amortization expense of intangibles.
(3) During the second quarter, Signet incurred $13.7 million of severance costs related to Zale and other management
changes. These costs are included within Signet's Other segment.
(4) Transaction costs include transaction-related and integration expenses associated with advisor fees for legal, tax,
accounting and consulting expenses. These costs are included within Signet's Other segment.
(5) Financing costs include those costs to support the new capital structure. Included within the second quarter expense is
a one-time write-off of $0.7 million associated with Signet's capitalized debt issuance costs associated with its prior
credit facility agreement. These financing costs were offset by savings associated with Signet's lower annual effective tax
rate of 29.3%. The reduction in Signet's forecasted annual effective tax rate primarily reflects the benefit of Signet's
amended capital structure and financing arrangements utilized to fund the acquisition of Zale Corporation.
Sales $ 2,034.5 $ 256.8 $ (9.3 ) $ - $ - $ - $ 2,282.0
Cost of sales (1,287.3 ) (173.3 ) (5.2 ) - - - (1,465.8 )
Gross margin 747.2 83.5 (14.5 ) - - - 816.2
Selling, general and administrative expenses (571.7 ) (81.8 ) 3.0 (13.7 ) (25.5 ) - (689.7 )
Other operating income, net 107.7 - - - - - 107.7
Operating income (loss) 283.2 1.7 (11.5 ) (13.7 ) (25.5 ) - 234.2
Interest expense, net (1.7 ) (0.2 ) (1.2 ) - - (12.4 ) (15.5 )
Income before income taxes 281.5 1.5 (12.7 ) (13.7 ) (25.5 ) (12.4 ) 218.7
Income taxes (97.7 ) (0.6 ) 4.8 5.2 7.5 16.7 (64.1 )
Net income (loss) 183.8 0.9 (7.9 ) (8.5 ) (18.0 ) 4.3 154.6
Earnings per share - diluted $ 2.29 $ 0.01 $ (0.10 ) $ (0.11 ) $ (0.22 ) $ 0.05 $ 1.93
Year to date Fiscal 2015(% of sales) Signet organic Zale Signet
results operations(1) consolidated,
as reported
Sales 100.0 % 100.0 % 100.0 %
Cost of sales (63.3 ) (67.5 ) (64.2 )
Gross margin 36.7 32.5 35.8
Selling, general and administrative expenses (28.1 ) (31.8 ) (30.2 )
Other operating income, net 5.3 0.0 4.7
Operating income 13.9 0.7 10.3
Interest expense, net (0.1 ) (0.1 ) (0.7 )
Income before income taxes 13.8 0.6 9.6
Income taxes (4.8 ) (0.2 ) (2.8 )
Net income 9.0 0.4 6.8
(2.8 )
Net income
9.0
0.4
6.8
(1) Includes the 65-day results of Zale's from acquisition date to the end of second quarter.
(2) Includes deferred revenue adjustments related to acquisition accounting which resulted in a reset of deferred revenue
associated with extended service plans previously sold by Zale Corporation. Similar to Signet's Sterling Jewelers division,
historically, Zale Corporation deferred the revenue generated by the sale of lifetime warranties and recognized revenue in
relation to the pattern of costs expected to be incurred, which included a profit margin on activities related to the
initial selling effort. In acquisition accounting, deferred revenue is only recognized when a legal performance obligation
is assumed by the acquirer. The fair value of deferred revenue is determined based on the future obligations associated
with the outstanding plans at the time of the Acquisition. The acquisition accounting adjustment results in a reduction to
the deferred revenue balance from $183.8 million to $93.0 million as of May 29, 2014 as the fair value was determined
through the estimation of costs remaining to be incurred, plus a reasonable profit margin on the estimated costs. Revenues
generated from the sale of extended services plans subsequent to the Acquisition are recognized in revenue in a manner
consistent with Signet's methodology. Additionally, accounting adjustments include the recognition of a portion of the
inventory fair value step-up of $31.3 million and amortization expense of intangibles.
(3) During the second quarter, Signet incurred $13.7 million of severance costs related to Zale and other management
changes. These costs are included within Signet's Other segment.
(4) Transaction costs include transaction-related and integration expenses associated with advisor fees for legal, tax,
accounting and consulting expenses. These costs are included within Signet's Other segment.
(5) Financing costs include those costs to support the new capital structure. Included within the second quarter expense is
a one-time write-off of $0.7 million associated with Signet's capitalized debt issuance costs associated with its prior
credit facility agreement. These financing costs were offset by savings associated with Signet's lower annual effective tax
rate of 29.3%. The reduction in Signet's forecasted annual effective tax rate primarily reflects the benefit of Signet's
amended capital structure and financing arrangements utilized to fund the acquisition of Zale Corporation.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial Statements and the related notes in Part I of
this Quarterly Report on Form 10-Q, as well as the financial and other information included in Signet's Fiscal 2014(1)
Annual Report on Form 10-K. The results for the second quarter include 65 days of performance of the Zale Corporation
acquisition that closed on May 29, 2014 and therefore affect the comparability of Signet's operating results for the 13 and
26 week periods ended August 2, 2014 and August 3, 2013. Signet's results are also affected by transaction related costs
including severance associated with management changes, purchase accounting adjustments, capital structure amendments and
financing costs associated with debt to fund the acquisition. For comparability purposes, organic results that exclude
transaction, severance, capital structure and financing costs incurred in connection with the acquisition of Zale
Corporation as well as the results of Zale and related accounting acquisition will be referred to within Management's
Discussion and Analysis as organic results. See Non-GAAP measures on pages 43-44.
Second Quarter Highlights ("second quarter" is the 13 weeks ended August 2, 2014)
• Same store sales: up 4.8%, Organic(2)same store sales: up 6.3%
• Operating income: $83.5 million, down $22.0 million, a decrease of 20.9%
Organic(2) operating income: $124.1 million, up $18.6 million, an increase of 17.6%
• Diluted earnings per share: $0.72, down by 14.3%
Organic(2) diluted earnings per share: $1.00, up by 19.0%
Year to Date Highlights
• Same store sales: up 4.1%, Organic(2)same store sales: up 4.7%
• Operating income: $234.2 million, down $14.1 million, a decrease of 5.7%
Organic(2) operating income: $283.2 million, up $34.9 million, an increase of 14.1%
• Diluted earnings per share: $1.93, down by 2.0%
Organic(2) diluted earnings per share: $2.29, up by 16.2%
(1) Fiscal 2015 is the 52 week year ending January 31, 2015 and Fiscal 2014 is the 52 week year ended February 1, 2014.
(2) Organic results exclude transaction, severance, and capital structure and financing items incurred as well as the
results of Zale operations and related purchase accounting adjustments. Non-GAAP measure, discussed herein.
Certain operating data as a percentage of sales were as follows:
Operating Data
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales (66.6 ) (64.8 ) (64.2 ) (63.0 )
Gross margin 33.4 35.2 35.8 37.0
Selling, general and administrative expenses (31.0 ) (28.5 ) (30.2 ) (28.7 )
Other operating income, net 4.4 5.3 4.7 5.0
Operating income 6.8 12.0 10.3 13.3
Interest expense, net (1.1 ) (0.1 ) (0.7 ) (0.1 )
Income before income taxes 5.7 11.9 9.6 13.2
Income taxes (1.0 ) (4.2 ) (2.8 ) (4.7 )
Net income 4.7 7.7 6.8 8.5
Net income
4.7
7.7
6.8
8.5
Second quarter sales
In the second quarter of Fiscal 2015, Signet's same store sales increased 4.8% compared to an increase of 3.6% in the 13
weeks ended August 3, 2013 ("second quarter of Fiscal 2014" or "prior year second quarter"). Total sales were $1,225.9
million compared to $880.2 million in the second quarter of Fiscal 2014, up $345.7 million or 39.3%. The increase was
primarily driven by the addition of the Zale division which added $247.5 million of sales, including purchase accounting
adjustments, to the second quarter. Organic same store sales increased 6.3% compared to an increase of 3.6% in the prior
year second quarter and organic total sales of $978.4 million increased $98.2 million or 11.2% compared to an increase of
3.1% in the prior year second quarter. eCommerce sales were $50.5 million, which included $11.5 million of Zale eCommerce
sales, compared to $31.2 million in the prior year second quarter. Organic eCommerce sales were $39.0 million a 25.0%
increase over prior year second quarter. The breakdown of the sales performance by operating division and segment is set
out in the table below.
Sterling Jewelers division 6.7 % 2.7 %(2) 9.4 % - % 9.4 % $ 810.4
UK Jewelry division 4.4 % 1.2 %(2) 5.6 % 11.5 % 17.1 % $ 162.9
Zale Jewelry (0.6 )% - % - % - % - % $ 215.0
Piercing Pagoda (2.8 )% - % - % - % - % $ 32.5
Zale division (0.9 )% - % - % - % - % $ 247.5
Other(5) - % nm nm - % nm $ 5.1
Signet 4.8 % 32.1 %(3) 36.9 % 2.4 % 39.3 % $ 1,225.9
Organic Signet 6.3 % 3.0 %(2) 9.3 % 1.9 % 11.2 % $ 978.4
39.3 %
$ 1,225.9
Organic Signet
6.3 %
3.0 %(2)
9.3 %
1.9 %
11.2 %
$ 978.4
(1) Based only on stores open for at least 12 months.
(2) Includes all sales from stores not open and owned for 12 months.
(3) Includes all sales from stores not open for 12 months, in addition to all sales from Zale acquired stores.
(4) Non-GAAP measure, discussed herein.
(5) Includes sales from Signet's diamond sourcing initiative.
nm Not meaningful
Sterling Jewelers sales
In the second quarter of Fiscal 2015, Sterling Jewelers division's total sales were $810.4 million compared to $741.1
million in the second quarter of Fiscal 2014, up $69.3 million or 9.4%. Same store sales increased 6.7% compared to an
increase of 4.9% in the second quarter of Fiscal 2014. Sterling Jewelers' sales increases in the second quarter were driven
by particular strength in bridal brands, fashion diamonds and watches. In the quarter, Kay and Jared experienced increases
in both transaction counts and average transaction value. In Kay, strong brand performance was the primary driver of the
increase in both transactions and average transaction value. Strong non-branded performance and beads drove transactional
increases in Jared with beads influencing the average transaction value. During the second quarter, the remaining 13 Ultra
stores were converted to Jared Vault stores in outlet centers. eCommerce sales were $29.5 million compared to $25.3 million
in the second quarter of Fiscal 2014, up $4.2 million or 16.6%. See the table below for further analysis of sales.
Kay 8.1 % 2.9 % 11.0 % $ 496.5
Jared(2) 4.9 % 6.2 % 11.1 % $ 264.7
Regional brands 1.9 % (13.6 )% (11.7 )% $ 49.2
Sterling Jewelers division 6.7 % 2.7 % 9.4 % $ 810.4
(11.7 )%
$ 49.2
Sterling Jewelers division
6.7 %
2.7 %
9.4 %
$ 810.4
(1) Includes all sales from stores not open for 12 months.
(2) Includes 33 stores that were converted from regional brands, which consist of 31 Jared Vaults, which operate in outlet
centers, and 2 Jared concept test stores. Reported sales in the prior year have been reclassified to align with current
year presentation.
Kay $ 422 $ 399 5.8 % 4.7 % 4.5 % 2.2 %
Jared $ 547 $ 545 0.3 % 3.0 % 14.0 % 1.4 %
Regional brands $ 423 $ 404 4.7 % 3.3 % (10.8 )% (15.3 )%
Sterling Jewelers division $ 457 $ 437 4.6 % 4.3 % 5.8 % 0.3 %
4.5 %
2.2 %
Jared
$ 547
$ 545
0.3 %
3.0 %
14.0 %
1.4 %
Regional brands
$ 423
$ 404
4.7 %
3.3 %
(10.8 )%
(15.3 )%
Sterling Jewelers division
$ 457
$ 437
4.6 %
4.3 %
5.8 %
0.3 %
(1) Average merchandise transaction value is defined as net merchandise sales divided by the total number of customer
transactions.
(2) Net merchandise sales include all merchandise product sales, net of discounts and returns. In addition, excluded from
net merchandise sales are sales tax in the US, repairs, warranty, insurance, employee and other miscellaneous sales.
UK Jewelry
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