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10-Q: SIGNET JEWELERS LTD

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis in this Item 2 is intended to provide the reader with information that will assist in understanding the significant factors affecting the Company's consolidated operating results, financial condition, liquidity and capital resources. This discussion should be read in conjunction with our condensed consolidated financial statements and notes to the condensed consolidated financial statements included in Item 1. This discussion contains forward-looking statements and information. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed in the "Forward-Looking Statements" below and elsewhere in this report, as well as in the "Risk Factors" section within Signet's Fiscal 2021 Annual Report on Form 10-K filed with the SEC on March 19, 2021. This management's discussion and analysis provides comparisons of material changes in the condensed consolidated financial statements for the 13 and 39 weeks ended October 30, 2021 and October 31, 2020. 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 operations, 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," "preliminary," "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 which could cause the actual results to not be realized, including, but not limited to: the negative impacts that the COVID-19 pandemic has had, and could have in the future, on Signet's business, financial condition, profitability and cash flows; the effect of steps we take in response to the pandemic; the severity, duration and potential resurgence of the pandemic (including through variants), including whether it is necessary to temporarily reclose our stores, distribution centers and corporate facilities or for our suppliers and vendors to temporarily reclose their facilities; the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein, including without limitation risks relating to disruptions in our supply chain, our ability to attract and retain labor especially if Federal COVID-19 vaccine mandates are implemented, consumer behaviors such as willingness to congregate in shopping centers and shifts in spending away from the jewelry category and the impact on demand of our products, our level of indebtedness and covenant compliance, availability of adequate capital, our ability to execute our business plans, our lease obligations and relationships with our landlords, and asset impairments; general economic or market conditions, including impacts of inflation or other pricing environment factors on the Company's costs; financial market risks; our ability to optimize Signet's transformation strategies; a decline in consumer spending or deterioration in consumer financial position, whether due to inflation or other factors; changes to regulations relating to customer credit; disruption in the availability of credit for customers and customer inability to meet credit payment obligations; our ability to achieve the benefits related to the outsourcing of the credit portfolio, including due to technology disruptions, future financial results and operating results and/or disruptions arising from changes to or termination of the relevant non-prime outsourcing agreement requiring transition to alternative arrangements through other providers or alternative payment options and our ability to successfully establish future arrangements for the forward-flow receivables; deterioration in the performance of individual businesses or of the Company's market value relative to its book value, resulting in impairments of long-lived assets or intangible assets or other adverse financial consequences; the volatility of our stock price; the impact of financial covenants, credit ratings or interest volatility on our ability to borrow; our ability to maintain adequate levels of liquidity for our cash needs, including debt obligations, payment of dividends, planned share repurchases and capital expenditures as well as the ability of our customers, suppliers and lenders to access sources of liquidity to provide for their own cash needs; changes in our credit rating; potential regulatory changes, global economic conditions or other developments related to the United Kingdom's exit from the European Union; exchange rate fluctuations; the cost, availability of and demand for diamonds, gold and other precious metals; stakeholder reactions to disclosure regarding the source and use of certain minerals; seasonality of Signet's business; the merchandising, pricing and inventory policies followed by Signet and failure to manage inventory levels; Signet's relationships with suppliers including the ability to continue to utilize extended payment terms and the ability to obtain merchandise that customers wish to purchase; the failure to adequately address the impact of existing tariffs and/or the imposition of additional duties, tariffs, taxes and other charges or other barriers to trade or impacts from trade relations; the level of competition and promotional activity in the jewelry sector; our ability to optimize Signet's multi-year strategy to gain market share, expand and improve existing services, innovate and achieve sustainable, long-term growth; the maintenance and continued innovation of Signet's OmniChannel retailing and ability to increase digital sales, as well as management of its digital marketing costs; changes in consumer attitudes regarding jewelry and failure to anticipate and keep pace with changing fashion trends; changes in the supply and consumer acceptance of and demand for gem quality lab created diamonds and adequate identification of the use of substitute products in our jewelry; ability to execute successful marketing programs and manage social media; the ability to optimize Signet's real estate footprint; the ability to satisfy the accounting requirements for "hedge accounting," or the default or insolvency of a counterparty to a hedging contract; the performance of and ability to recruit, train, motivate and retain qualified team members - particularly in regions Table of Contents experiencing low unemployment rates; management of social, ethical and environmental risks; the reputation of Signet and its banners; inadequacy in and disruptions to internal controls and systems, including related to the migration to new information technology systems which impact financial reporting; security breaches and other disruptions to Signet's information technology infrastructure and databases; an adverse development in legal or regulatory proceedings or tax matters, including any new claims or litigation brought by employees, suppliers, consumers or shareholders, regulatory initiatives or investigations, and ongoing compliance with regulations and any consent orders or other legal or regulatory decisions; failure to comply with labor regulations; collective bargaining activity; changes in corporate taxation rates, laws, rules or practices in the US and jurisdictions in which Signet's subsidiaries are incorporated, including developments related to the tax treatment of companies engaged in Internet commerce or deductions associated with payments to foreign related parties that are subject to a low effective tax rate; risks related to international laws and Signet being a Bermuda corporation; difficulty or delay in executing or integrating an acquisition, including Diamonds Direct, or executing other major business or strategic initiatives; risks relating to the outcome of pending litigation; our ability to protect our intellectual property or physical assets; changes in assumptions used in making accounting estimates relating to items such as extended service plans and pensions; or the impact of weather-related incidents, natural disasters, strikes, protests, riots or terrorism, acts of war or another public health crisis or disease outbreak, epidemic or pandemic on Signet's business. 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" and "Forward-Looking Statements" sections of Signet's Fiscal 2021 Annual Report on Form 10-K filed with the SEC on March 19, 2021 and quarterly reports on Form 10-Q and the "Safe Harbor Statements" in current reports on Form 8-K filed with the SEC. 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 Jewelers Limited ("Signet" or the "Company") is the world's largest retailer of diamond jewelry. Signet is incorporated in Bermuda. The Company, with 2,851 stores and kiosks as of October 30, 2021, manages its business by geography, a description of which follows: The North America segment has 2,408 locations in the US and 94 locations in Canada as of October 30, 2021. In the US, the segment primarily operates in malls and off-mall locations under the following banners: Kay (Kay Jewelers and Kay Outlet); Zales (Zales Jewelers and Zales Outlet); Jared (Jared The Galleria Of Jewelry and Jared Vault); JamesAllen.com; and Rocksbox. Additionally, in the US, the segment operates primarily mall-based kiosks under the Piercing Pagoda banner. In Canada, the segment primarily operates under the Peoples banner (Peoples Jewellers). The International segment has 349 stores in the UK, Republic of Ireland and Channel Islands as of October 30, 2021. Certain Company activities are managed in the "Other" segment for financial reporting purposes, including the Company's diamond sourcing function and its diamond polishing factory in Botswana. See Note 4 of Item 1 for additional information regarding the Company's reportable segments. Impacts of COVID-19 In December 2019, a novel coronavirus ("COVID-19") was identified in Wuhan, China. During Fiscal 2021, the Company experienced significant disruption to its business, specifically in its retail store operations through temporary closures during the first half of last year. By the end of the third quarter of Fiscal 2021, the Company had re-opened substantially all of its stores. However, during the fourth quarter of Fiscal 2021, both the UK and certain Canadian provinces re-established mandated temporary closure of non-essential businesses. The UK stores began to reopen in April 2021 and Canadian stores stores began reopening in the second quarter of Fiscal 2022. To date, the Company's operations have not been significantly impacted by the resurgence of the COVID-19 or any variants, including the most recent Omicron variant. The Company continues to actively monitor and manage the situation related to its store and support center operations focusing on the health and safety of its employees, customers, suppliers and shareholders, and considering all guidelines from state and federal government and health organizations. COVID-19 significantly altered the retail climate and the Company has been navigating that change by accelerating its application of the key strategic initiatives developed over the past three years including the Company's focus on becoming an OmniChannel leader, focusing on the needs of its customers, removing non-customer facing costs, and optimizing its real estate footprint. The Company continues to maintain its cost diligence efforts as the Company transitions to its new Inspiring Brilliance strategy, as further described below. During the past two years, the Company also took numerous actions to maximize its financial flexibility, bolster its liquidity and strengthen its balance sheet, both strategically and as temporary measures as a result of COVID-19. Refer to the Liquidity and Capital Resources section below for further information. Table of Contents Outlook Signet's same store sales grew 18.9% during the third quarter of Fiscal 2022 compared to the same quarter of Fiscal 2021, reflecting continued strong business momentum driven by the strength of Signet's connected commerce capabilities and the level of early holiday shopping as well as the traction from strategic initiatives such as new product launches. The Company's focus on its connected commerce shopping experience, both online and in-store, helped maintain strong conversion rates and improve average transaction values during the third quarter of Fiscal 2022. During the remainder of Fiscal 2022, the Company will continue implementing the initiatives under its Inspiring Brilliance strategy, which is focused on the achievement of sustainable, industry-leading growth. As described in the Purpose and Strategy section within Item 1 of Annual Report on Form 10-K for the year ended January 30, 2021 filed with the SEC on March 19, 2021, through its Inspiring Brilliance strategy, the Company will focus on leveraging its core strengths that it developed over the past three years with the goal of creating a broader mid-market and increasing Signet's share of that larger market as the industry leader. Signet continues to expect some shift of consumer discretionary spending away from the jewelry category toward experience-oriented categories in the fourth quarter; however, the Company has not experienced a significant impact to the current year results to date, and the timing and magnitude of any shift is difficult to predict. The Company believes that its "always-on" marketing strategy, combined with consumer inspired promotional events and the strength of the Company's product assortment, is expected to continue fueling a strong response from customers across merchandise categories and banners throughout the remainder of the year. Furthermore, the Company will continue its diligent and effective efforts to mitigate supply chain and retail labor pool disruption for the remainder of the year. The full extent of the COVID-19 pandemic impacts on the Company's business in the fourth quarter of Fiscal 2022 or longer term, and whether the strong results to date will continue, remains unclear. Continued uncertainties exist that could impact the Company's results of operations or cash flows, such as potential resurgence of COVID-19, including Omicron, in key trade areas, the ability to recruit and retain qualified team members, organized retail crime, extended duration of heightened unemployment in certain areas, pricing and inflationary environment changes impacting the Company (including, but not limited to, materials, labor, fulfillment and advertising costs) or the consumers' ability to spend. In addition, although the Company believes economic stimulus measures have had a positive impact on current year results, it is uncertain how long this impact will continue. Diamonds Direct acquisition On November 17, 2021, the Company finalized its acquisition of Diamonds Direct USA Inc. ("Diamonds Direct") for cash consideration of $504.6 million, net of cash acquired, and subject to customary post-closing adjustments per the Transaction Agreement ("Transaction Agreement"). Diamonds Direct is an off-mall, destination jeweler in the US operating in 22 retail locations with a highly productive, efficient operating model with demonstrated growth and profitability which is expected to be immediately accretive to Signet following the acquisition date. Diamonds Direct's strong value proposition, extensive bridal offering and customer-centric, high-touch shopping experience is a destination for younger, luxury-oriented bridal shoppers. Diamonds Direct strategically expands Signet's market in accessible luxury and bridal, provides access to a new customer base and furthers Signet's opportunity to build lifetime customer relationships. Signet plans to grow Diamonds Direct while driving operating margin expansion over time through operating synergies in purchasing, targeted marketing, connected commerce and jewelry services.

Table of Contents RESULTS OF OPERATIONS

Comparison of Third Quarter Fiscal 2022 Year to Date to Prior Year







                                                                        Third Quarter                                                                         Year to Date
                                                   Fiscal 2022                                Fiscal 2021                                Fiscal 2022                                Fiscal 2021
        (in millions)                        $                % of sales                $                % of sales                $                % of sales                $                % of sales
        Sales                          $  1,537.8                  100.0  %       $  1,300.3                  100.0  %       $  5,014.7                  100.0  %       $  3,040.4                  100.0  %
        Cost of sales                      (962.2)                 (62.6)             (863.8)                 (66.4)           (3,043.1)                 (60.7)           (2,176.0)                 (71.6)
        Restructuring charges - cost
        of sales                                -                      -                (2.0)                  (0.2)                  -                      -                (1.4)                     -
        Gross margin                        575.6                   37.4               434.5                   33.4             1,971.6                   39.3               863.0                   28.4
        Selling, general and
        administrative expenses            (470.5)                 (30.6)             (389.3)                 (29.9)           (1,485.1)                 (29.6)           (1,013.6)                 (33.3)
        Restructuring charges                 1.7                    0.1                (3.6)                  (0.3)                3.3                    0.1               (45.2)                  (1.5)
        Asset impairments, net               (0.7)                     -                (1.5)                  (0.1)               (2.0)                     -              (158.1)                  (5.2)
        Other operating income, net           0.8                    0.1                (0.4)                     -                13.2                    0.3                 4.3                    0.1
        Operating income (loss)             106.9                    7.0                39.7                    3.1               501.0                   10.0              (349.6)                 (11.5)
        Interest expense, net                (4.1)                  (0.3)               (9.1)                  (0.7)              (12.4)                  (0.2)              (25.6)                  (0.8)
        Other non-operating expense,
        net                                  (1.1)                  (0.1)                  -                      -                (0.9)                     -                 0.3                      -
        Income (loss) before income
        taxes                               101.7                    6.6                30.6                    2.4               487.7                    9.7              (374.9)                 (12.3)
        Income tax benefit (expense)         (9.1)                  (0.6)              (21.3)                  (1.6)              (32.1)                  (0.6)              105.4                    3.5
        Net income (loss)              $     92.6                    6.0  %       $      9.3                    0.7  %       $    455.6                    9.1  %       $   (269.5)                  (8.9) %
        Dividends on redeemable
        convertible preferred shares         (8.7)                       nm             (8.4)                       nm            (25.9)                       nm            (24.9)                       nm
        Net income (loss) attributable
        to common shareholders         $     83.9                    5.5  %       $      0.9                    0.1  %       $    429.7                    8.6  %       $   (294.4)                  (9.7) %
        nm  Not meaningful.
        Third quarter sales
        








                                                                                                       Change from previous year
                                                             Same                     Non-same                 Total sales                  Exchange                  Total                    Total
                                                             store                  store sales,           at constant exchange           translation                 sales                    sales
        Third Quarter of Fiscal 2022                         sales                       net                       rate                      impact                as reported             (in millions)
        North America segment                                      19.8  %                   (2.1) %                     17.7  %                   0.2  %                  17.9  %       $      1,394.2
        International segment                                       8.8  %                   (1.5) %                      7.3  %                   5.8  %                  13.1  %       $        120.9
        Other segment (1)                                               nm                        nm                          nm                       nm                       nm       $         22.7
        Signet                                                     18.9  %                   (1.3) %                     17.6  %                   0.7  %                  18.3  %       $      1,537.8
        


(1) Includes sales from Signet's diamond sourcing initiative. nm Not meaningful. Average merchandise transaction value ("ATV") is defined as net merchandise sales on a same store basis divided by the total number of customer transactions. As such, changes from the prior year do not recompute within the table below.







                                                                        Average Merchandise Transaction Value(1)(2)                                   Merchandise Transactions
                                                                Average Value                         Change from previous year                       Change from previous year
        Third Quarter                                 Fiscal 2022          Fiscal 2021          Fiscal 2022            Fiscal 2021              Fiscal 2022              Fiscal 2021
        North America segment                         $     492          $        427                 15.2  %                   0.5  %                   3.5  %                  14.3  %
        


International segment (3) � 166 � 176 (4.0) % 11.4 % 12.8 % (42.8) %

(1) Net merchandise sales within the North America segment include all merchandise product sales, net of discounts and returns. In addition, excluded from net merchandise sales are sales tax in the US, repair, extended service plan, insurance, employee and other miscellaneous sales. As a result, the sum of the changes will not agree to change in same store sales.

Dec 02, 2021

COMTEX_398161931/2041/2021-12-02T07:09:41

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