Welcome to the Signet Jewelers Third Quarter Fiscal 2015 Results Conference Call. My name is Ellen, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I will now turn the call over to Mr. James Grant, Vice President of Investor Relations. Sir, you may begin.

Good morning. Yes, welcome to our third quarter fiscal 2015 call. On our call today is Mark Light, CEO and Michele Santana, CFO. The presentation deck, we will be referencing, is available under the Investor section of our website signetjewelers.com. During today’s presentation, we will in places discuss Signet’s business outlook and make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. We urge you to read the risk factors cautionary language and other disclosures in the annual report on Form 10-K that was filed with the SEC on March 27 of this year and in the quarterly report on Form 10-Q that was filed with the SEC on September 10 of this year. We also draw your attention to Slide Number 2 in today’s presentation. And now, I’ll turn it over to Mark.

Thank you, James, and good morning everyone. In the third quarter, we delivered solid topline results. Signet comps increased by 4.2% led by the Sterling and UK divisions. From a merchandize perspective, Signet's branded bridal, fashion diamonds, and watches, all performed well. Our strength by selling channel was broad based with outlets and eCommerce delivering strong results. Signet's third quarter profit as anticipated was diluted by the seasonally low sales volumes and high fixed cost of our Zales division as well as the UK to a lesser extent. Signet did not own sales in the third quarter of last year. As a result year-over-year profit metrics were lower, but importantly, adjusted EPS of $0.21 exceeded expectations and when measured on an apples-to-apples basis versus last year, our EPS was up $0.05 or 11.9%. Our acquisition integration activities are progressing well and we remain well prepared for the holiday season. I'll take you through some of our initiatives in a few minutes. Let's now take a closer look at Signet's third quarter sales performance by our divisions and SEC operating segments. Sterling's third quarter total sales were $692.8 million that was up 9.7%. Same store sales increased by 6.8%. Kay comps led the way with a strong 7.5% increase, while Jared increased by 6.5%. The Zale division delivered total sales of $331.4 million and a comp decline of nine tenths of a percent. This was due primarily to the late timing of new inventory replacing slow moving collections as well as some distractions from initiatives implemented in the third quarter to position us for the holiday period. Our U.K. division's third quarter total sales were at $151 million, up 8.4% or 4.7% on a constant currency basis. Same store sales increased by 3.7%, which was by the way the best in…

Thanks Mark and good morning everyone. So let’s start by reviewing the third quarter sales. Mark has just offered a similar overview of the numbers on Slide four, so I will point out just a few highlights. In the Sterling division, total sales increased 9.7% to $692.8 million, which included a same-store sales increase of 6.8%. Sales increases continue to be driven by a balance between both the number of transactions and the average transaction price, the number of transaction and the average transaction price. The number of transactions increased in Sterling by 3.7% and the average transaction price increased by 2.7% driven by fashion jewelry collections and branded bridal. Zale division total sales were $331.4 million for the quarter, which also includes an $11.5 million unfavorable revenue impact due to purchase accounting adjustments. Under purchase accounting rules, Zale's deferred revenue was reduced on its opening balance sheet earlier this year by $90.5 million resulting in a permanent reset of the associated revenue to be recognized. This adjustment will continue to have an unfavorable non-cash impact to Zale revenue over the next several years and will diminish thereafter. U.K. division total sales increased 8.4% or 4.7% on a constant exchange basis to $151 million and that was driven primarily by diamonds and watches. The average merchandise transaction value in the U.K. increased 6.3% primarily driven by sales mix. In terms of merchandised transaction, the U.K. division decreased 2.9% driven by H. Samuel and that related to volume reduction in watches, gold jewelry and guests. Moving on, over the next couple of slides we’ll look at Signet’s consolidated Q3 performance before we turn and analyze Signet’s adjusted results. On Slide 11, the table provides a reconciliation of Signet’s adjusted results to consolidated results. The difference between adjusted Signet and Signet are…

Thank you, Michele. In conclusion, I would like to thank all of our Signet team members for their hard work, their efforts, their focus on our business plans and for their contributions to a successful quarter. And now we’ll take time for some questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Simeon Siegel with Nomura. Please go ahead.

Thanks, good morning guys, nice quarter.

Good Morning, third quarter.

So, given the increase in Sterling gross margins despite everything about promotional environment, how do you view that gross margin line going forward into holiday and then beyond? How do you think about the commodity costs? What benefits do you see from a more rational pricing environment given that you no longer have a meaningful competitor? And then just regarding the replacement of the nonproductive inventory of Zale, when do you see the opportunity to get the new product fully ramped up? And maybe any thoughts you can share on the road to deposit comps, EBIT growth, etc. for Zales? Thanks.

Sure, so why don’t I start with on your gross margin question? In terms of the gross margin and how we see that going forward, again for the holiday season at this point we don’t anticipate it to be more promotional any more so than last year. We do see the benefits coming through of our lower gold cost which will continue to help the rate that's offset slightly by some of the lower trading recovery we get with the lower gold cost. Directionally what I was saying is that on our full year basis we would expect to I'd say broadly maintain maybe some slight increase and our gross margin rate driven by the combination of the lower commodity costs I just spoke about as well as sales mix associated with that. The other thing I would just add to that real quick, in terms of gross margin rate on our primarily more so on our UK Division is again we really remain focused on driving incremental gross margin dollars in that business and less so on the rate. So I would just add that, and I'll turn it over Mark if you want to address the second question on the unproductive inventory.

Sure. Hi Simeon. So as far as the inventory for the months of primarily September and October we pulled back over $100 million of slower turning inventory out of the Zale stores and the Zale Division. We have been obviously buyback the goods and we believe are fully up to speed now getting those goods back in the place and the goods we're investing back and as I mentioned in my comments are programs like Vera Wang, programs like Unstoppable Love, programs that we believe they were not backing the inventory as well as they could to maximize sales and that all is in place right now and pretty much has gotten in the stores by the first of November. So…

Yeah, I would just add that there was a little bit of the timing how we originally planned and how it actually occurred with a little bit slower back-ended in the third quarter, but as Mark indicated we're fully ramped up at that inventory in the fourth quarter.

Great, thanks a lot guys, and good luck for the holiday.

Thanks Simeon.

Thank you.

The next question is from Jeff Stein with Northcoast Research. Please go ahead. Q – Kushan Akhtil: Hi guys this is [indiscernible] for Jeff. I just had a question on any takeaways from the cross brand selling test? Are the test stores both in malls they will overlap and where there is a single store may have seen any cannibalization? Thank you.

Yeah, in reference to the cross-selling, first of all just to remind everybody, we put Sterling and we put Zale brands in fifty of our case stores and Kay stores and 30 of our Jared doors and we also put Neil Lane and we put Le Vian and Jane Seymour and 50 Zale stores and we have it at also 30 Peoples doors. And it is way too soon to take a read on it. We've got basically in our stores we've been in each of those divisions for the last two weeks or so, it is way too soon to read. At the end of the fourth we'll get a better sense of what's going on, on that front. So long answer to your question is it is too seen to get any read as of yet.

We'll take the next question please?

The next question is from Rick Patel with Stephens Incorporated. Please go ahead.

Hey, good morning everyone, congrats on the strong momentum into holiday.

Thank you.

Can you talk about your promotional cadence that you are planning for holiday? I know last year things were a little tricky with the winter storm during the key promotional time. So how do you expect to approach things this year? And then secondly, how do you feel about the health of your consumer in general just given we've heard so many discretionary retailers talk about difficult trends so far in the fall?

Okay thanks Rick. As far as our promotional cadence, we as Michele mentioned, I mentioned we don’t, we're not going to promote any more this year over last. We don’t see any reason to do so. We thought that you can tell by our results our customers are doing just fine and that we don’t see any reason to promote more. We are going to do for specific of the Zale divisions we are going to be, have a little more direct and targeted promotions to the customers that we know and how they react. So you'll see some different promotions from Zales than the previous years, but it won't be any more deeper discounts or any more promotion promoting going on. So the cadence will be the same as last year for our Sterling and UK Division. Zales, you'll see some differences we specifically have the new batches coming out in the middle of December which is what we called preferred customer weekend promotion which we believe gives our sales associates and our Zale Division an opportunity to trade off and add on through more of these promotions that they've had in the past. The second, that was…

If a customer, in terms of you know how our customer or our kind of customers are doing it, again we are seeing that customers are turning up at our stores.

Yeah, we believe because our customers are much more of a premeditated customer, meaning that they either know that they have to get a Christmas gift or a birthday gift, or an engagement ring, so it's a premeditated type of shopping experience and they are thinking about it. And due to our incremental advertising that worked well we have been doing and we will be doing and we believe that with our better creative and better placement of our ads that we’re able to get that premeditated customers thinking about giving, gift giving into our stores more so than our competitors sell due to our extra advertising, our great customer services, some of the new brands and extension of brands that we’re offering to our guests and customers.

Got it and then a question on the diamond supply contract, can you just touch upon how this is going to affect cost of goods over the next year or so? Given that the strategic initiative is it safe to assume that you'll incur some higher costs to insure diamond supply in the future?

I’m going to start off just kind of give a little bit of overview and let Michele talk about the effect and cost of goods. First of all, for us this is a very exciting event. We’ve been as a retail company been really working on getting a DeBeers site for years. And the benefit of partnering with a company like DeBeers who is still the leading diamond miner in the world is they really understand rough. And what they, they have the ability of assorting the rough literally in over 10,000 different qualities and when you can get rough assorted the way DeBeers assorts rough and makes it easier for us to have better quality type of criteria that works better for our customers and the type of diamonds that we sell. So it’s really a big thing for us to get into DeBeers site and get the wonderful assortments that DeBeers can offer and they can really cater that box as I called it or the site more so for our customers. So the big initiative and the strategic initiative is really first and foremost is about getting the control of the supply and understanding the rough supply market. Now obviously there will be some benefits in gross margin and COGS I'll let Michele talk to that as far as the future and the benefits of that.

Yeah, yeah, in terms of how we would expect to see that impact our cost of sales, we really don’t go and disclose the numbers and how it is kind of moving through in our expectations, but to Mark's point we are going to be able to buy diamonds more efficiently and more effectively. So there will be some benefit that shows through on our gross margin line items. It really is though, about securing our source and a consistent source of diamond supply. It is I would say first and foremost the primary benefit of our arrangement with DeBeers.

Thanks very much and good luck this holiday.

Thank you, have a good holiday.

Thank you.

The next question is from Lorraine Hutchinson with Bank of America. Please go ahead.

Thank you, good morning.

Good morning.

I noticed that the Zales standalone operating margin was flat this last year and I just hoping you can provide some context around that?

Yeah, Lorraine hi, it's Michele, good morning. In comparing to last year again, there is a few things that you have to take into consideration because it really isn’t an apple-to-apples comparison. There is a number of things flowing through their operating margin which no longer seems to be the case and one item I'd call out there is the LIFO they are on the LIFO system no longer that is a part, so you would have an impact in last year versus this year. Kind of pulling at us out I would say roughly when we look at the comparisons to last year it's kind of what we would have expected, you know given we are really just starting to get our arms around this business, putting on an initiative, gaining traction as we move forward. So we weren’t expecting to see a major, I guess bump or increase in operating margins at this point when you do even get a down to an apple-to-apples basis.

Great, thank you.

You’re welcome.

The next question is from Joan Payson with Barclays. Please go ahead.

Hi, good morning and congratulations on the strong quarter.

Thank you.

Thank you.

So it looks like the Zales dilution this quarter was a little bit better than anticipated. I was hoping you could talk a little bit about where the upside came from if there was any shifting of costs? And then also in terms of the outlets it looks like the remaining conversions are now finished between the Ultra Stores and the Jared, so if you could please talk a little bit about the outlet performance in the quarter and what that looked like?

Yeah, so why don’t I start in terms of Zale dilution, it was favorable as you indicated $0.02 to the guidance we had provided and that was primarily driven by they were higher margins than what we had planned and I think some of that we’re starting to see the early signs of even this reengineering thing, the merchandise assortment that the sales mix is bringing in higher margin. So we’re starting to see some of that already take shape in the Q3. The other part is on the expense side, and it wasn’t so much I would say a shift in cost from Q3 to Q4. But it was really lower expenses than what we had planned. One of it related to the leadership conference that expense actually did come in lower than what we had planned. We’ve also had some benefit coming in on our broken and damage inventory. So by pulling out the unproductive inventory from the stores, we’re actually seeing the benefit with lower cost associated with broken and damage inventory, so that would be the other expense that came in favorable for us. And with that then Mark if you want to address the second question.

Yes, in reference to the Ultra Stores we don’t report the Zales part separately. I will tell you that within our Sterling division we are very pleased with Ultra performance, they're doing very, very well. And as you stated we no longer have any Ultra Stores. The whole Ultra portfolio in our Sterling division are either Kay outlet stores or the Jared Vault stores and they are doing very well. We’ve learned a lot from the best practice over the two years of what is the best way of operating outlet stores or and how they are supposed be operated and then it's really working out very well for us. We’re also very excited that in our UK division we are going to open this year about half a dozen brand new Ernest Jones outlet collection stores first time for that division and that will be open here and we see opportunities opening more of those into the future. In our Zale division we’re looking for to working closer with the Zale outlook stores to try to share those best practices that we’ve learned over several years and looking for some upside opportunity for the Zale outlook going in the future.

Great, thank you.

Thank you.

The next question is from Dorothy Lakner from Topeka Capital Markets, please go ahead.

Thanks and good morning every one. Just wanted to talk about marketing, if you could just refresh us in terms of the increase in the dollars spend year-over-year? And then just in terms of the timetable going forward on Zale you know you’ve been to able to actually effect quite a bit of change very early on in this acquisition. So just wondered what we should be looking for as we move into 2015 and beyond? What kinds of things you want to accomplish and what’s the timetable there?

Thanks Dorothy. I’m just covering your last question and I’m going to kind of get you kind of actually a little differently. We were able to make some changes for Zales in the fourth quarter. Just to remind everybody we just took over Zales in June and a lot of plans were in place and the inventories are in place and there’s certain things that we are able to effect, such as the marketing buy, we’re able to buy the Zales TV along our Kay and Jared buys we're able to make them more efficient, more productive buyer we believe, where as we are also able to place the Zale ads which we believe were more targeted appropriately towards the Zale customer than they have done historically. So we’re able to change the advertising of it and we are going to increase impressions on Zales TV this year, year-over-year it will increased impression for Zales, so we got more efficient by better targeted advertising placements towards what we think is the appropriate customer segment. And we have new creative for Zales, but we were able to make some changes not loads of changes. We have to keep every ground in that, we’ve only owned the company for several months and a lot of things were in place. We are still confident and feel very good about the changes and the enhancement we can make over the next two and three years. But for the fourth quarter we were able to change some advertising as I stated, we’re able to invest in some more inventory at Vera Wang and some other faster-turning vehicles, and we’re able to start training the team members and some of our best in bridal training tactics and really that’s the a lot of stuff we’re able to do there’s a lot more to be done going into the future.

And Dorothy just to give you a little bit more color in terms of marketing spend, in the quarter our ratio on that percentage of sales on marketing was up about 50 basis points over the prior year and that's driven by a combination of increases in our Sterling division which we had increased over bridal in Q3 this and something focus on our UK division as well with our H. Samuel TV ads and then there was also an increase in terms of the Zales division and the investments that we made in the marketing side. So from a dollar prospective it is an increase of about $15 million and about 50 basis points increase and just in a quarter to date basis. Just to kind of give you a sense on our year-over-year basis, we’re up our ratio was actually as a percentage of sales is flat to last year, but we’re up about $33 million and again that’s kind of driven by increases across all businesses, but significant dollar increases by bringing in Zale this year.

Great, thanks so much and good luck for holiday.

Thank you.

Thank you.

The next question is from Ike Boruchow with Sterne Agee. Please go ahead.

Hi everybody. This is actually, Tom Nikic on for Ike. Thanks for taking my question. I was wondering about the SG&A expenses. I noticed that excluding Zales they were still up 13%. I was wondering if that's just marketing or if there was something else going on there? And then my second question was about merchandise margins by geography, I was wondering if there was a meaningful difference between the US and the UK if one was up big or anything like that? So thanks very much.

Sure, so let me start with on your question on SG&A and yes, our adjusted basis and when you pull out Zale, we did have an increase in SG&A in the Sterling and UK divisions and that was primarily driven by higher advertising cost. We talked about the investments we made in the Sterling division around Bridal in Q3. The other component was timing related to store operations expense, primarily the leadership conference and when those expenses hit this year as opposed to last year. And then the other element in there that impacted the adjusted Signet rate when you exclude Zale is our central cost which is higher than last year and that's driven by a couple of factors. One is associated with headcount increases and the other component is associated with bonuses and just overall performance hitting our higher bonus percentage. And then I think your second question related to merchandize margins and really we have steered away from and don’t disclose merchandize margins in total or really across divisions. I would just reference you back to overall our disclosures on the gross margin basis where we did see an increase of 50 basis points in gross margin on our Sterling division and then the offers on increase of 80 basis points in our UK division, again that was driven by leverage on our store occupancy costs as well as we did see benefit coming in on our lower commodity costs particularly the gold.

All right, thanks very much and good luck for holiday.

Thank you.

Thank you, I appreciate it.

The next question is from Oliver Chen with Cowen. Please go ahead.

Thanks a lot, congratulations and Mark congrats on your elevated role.

Thank you.

Regarding the longer term picture with the Zale Corp opportunity on increasing sales productivity, is the main category there opportunity bridal? And then I did have a question on the comp guidance, should we assume that the run rate may be similar between in the Zale Corp and negative single versus Sterling? And you guys had volatility last year on week-to-week basis, is there anything, do you anticipate the run rate being volatile off of those comparisons in terms of what you're seeing in the marketplace now?

So okay, so I think those are three questions. I'm going to start with the first one which the question was in reference to, if we believe the big opportunity for Zales in relation to merchandize assortments is in the bridal category, and I will say yes, we believe there is an opportunity in the Bridal category. There is no question that they are one of the top bridal brands in Vera Wang in the country as it relates to the bridal engagement rings and we believe there is opportunity to really take Vera to next level, invest in the inventory, invest in marketing, invest in in-store training in the whole bridal category. But we also believe there is great opportunities in the other parts of business. We think there is big opportunity to enhance their fashion assortment and enhance their fashion diamond business. We think that there is a scenario of the business they really haven’t done a really great job in and we think there is upside potential there. And there's a lot of other parts of the business that there is great potential that we believe there is great opportunity in enhancing the repair business which is a very important business in our industry as it relates to not only because of this nice margin that this has been more importantly, that when you fix a customer's heirloom piece they could be a customer for life in how you take care of their repair item is just that if not more important than new merchandize product. And there is a lot of areas of the business that we'll share with you going down the road over the next two to three years that there is a lot of opportunity outside of just the bridal assortment. So that's the answer to that question.

Yeah and Oliver maybe I can jump on your question in terms of the cost items we provided and what I would steer you to is really we're providing the cost guidance on a total basis with all of our business divisions we're really not breaking it down between say Sterling and the UK division. So with that maybe just add a little bit color and I think your thought process is kind of right on in line. But we do expect that we'll continue to maintain our strong sales momentum in our Sterling and UK division. The other thing that I would add too is bear in mind in the UK division we are up against a high hurdle rate of last year. Last year fourth quarter was 5.7% and that when we started to launch and that we focus on the selling of our diamonds in the bridal components that we do have a higher hurdle there on the UK side. And again I would just steer you back to Mark's earlier comments on the Zale that even that we do believe we put in initiatives or gaining traction for the holiday period, it really has been a short time period since owning Zale and we're only able to effect so much within this time period. So we're being cautious on Zale and particularly the sales line during this holiday selling season. And then I think Oliver, you had may be one more question on the run rate or the volatility week by week leading up into the holiday selling season.

Yes, I know last year you gave certain degree of flexibility for the store folks to give compelling values to customers. So as you anniversary that, just are your thoughts on volatility may be a factor in terms of how comps are manifesting?

No, I think as we sit today Oliver and I own the right to change their mind depending on what happens out in the next eight weeks or so or six weeks, right now no. We believe that we are positioned well and we won't have to use that tool like we did last year because if you remember last year, although a lot of it was because we had horrible, horrible winter storms and one of the biggest weekends -- and one of the biggest promotions we have in mid December. So we felt we lost a lot of that momentum because we lost all those customers in the East Coast. So we use some flexibility on making sure we closed some deals to customers that missed out on that event due to weather. So we gave our stores the opportunity to discount more. Unless there is a weather issue or something happens in the macroeconomic environment, we don't believe we're going to need to use those same tactics this year.

Okay. Just our final question is congrats on the strategic sourcing initiative. Is that across all grades of diamonds? Were there particular grades where you felt supply versus demand was particularly important to ensure that? And do you see yourself having more vertical integration going forward? What are the next steps as you look to the challenges that the long-term may face in matching supply and demand?

Yes just to remind you and everybody that this rough initiative of ours is in our best case scenario this year maybe 10% of our total diamond purchases or total lose diamond purchases and longer term, we will never get to any way near the majority of our purchase. We need to stay in the polished diamond market. It's an important part of the market, but we do plan on growing this initiative further and we've stated up to 20% of our -- up to 20% or more of our needs will come out of this initiative. As far as the grades, it's primarily that right now because we're getting from DeBeers in the open market are primary the nicer qualities called SI1 and better and so it's really going into heavier, into our Jared division. We'll stay in tune to the market place. We would like to get into more qualities, but right now it's more in the higher end type of goods that we're getting through this particular initiative.

Okay thanks. Best regards for the holiday season.

Thank you. Same to you.

Thanks Oliver.

We have no further questions at this time. I will now turn the call back to Mr. Light.

Thank you. Thank you to all of you for taking part in this call. Our next event for the investment community will be our holiday sales call on Thursday, January 8, when we will review our November, December sales announcement. I want to wish all of you a very happy and healthy holiday and Thanksgiving and thanks again. Good bye.