Good morning, everyone, and welcome to the Signet Jewelers Fourth Quarter fiscal 2021 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] At this time, I'd like to turn the conference call over to Vinnie Sinisi, SVP of Investor Relations and Treasury. Sir, please go ahead.

Thanks very much, Jamie, and good morning, everyone. Welcome to our Fourth Quarter Earnings Conference Call. On the call today are Signet CEO, Gina Drosos; and CFO, Joan Hilson. During today's presentation, we'll make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risk and uncertainties and actual results may differ materially, We urge you to read the risk factors cautionary language and other disclosures on our annual report on 10-K, quarterly reports on 10-Q and current reports on form 8-K. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events. During the call, we'll discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as reconciliations of non-GAAP to GAAP that's most directly comparable, investors should review the news release we posted on our website at www.signetjewelers.com/investors. Also, please note that we plan to hold a virtual investor event on April 12. Registration details will be announced soon. And with that, I'll turn the call over to Gina.

Thank you, Vinnie, and thank you all for joining us today. Let me begin by sharing our results for the fourth quarter and then core elements of our strategic path going forward. I want to say first and foremost, how incredibly proud I am of our Signet team, and to thank them not only for their achievements this past year, but also for the amazing dedication and agility they've demonstrated throughout our three-year Path to Brilliance journey. We've put our culture of agility and efficiency to the test time and again, and Signet people have demonstrated that we're continuing to transform this company and are well-positioned to deliver sustainable long-term growth. Q4 is a good illustration of the capabilities we're continuing to build. Same-store sales grew 7% with over 70% growth in ecommerce sales. We delivered non-GAAP operating income of more than $293 million, up nearly 9% versus year-ago. While COVID created significant headwinds in the first half, we regained momentum and delivered a strong second half with 9.9% same-store sales growth. Both our bridal and fashion businesses continue to be healthy and our strong ecommerce performance complemented the reopening of our stores. Our ability to pivot successfully through the pandemic and to deliver the back-half performance that our team delivered is rewarding, especially as I look back at what we've achieved in the past three years. In 2016 and 2017, the company was losing share to smaller specialty jewelry stores, to non-specialty retailers and to online and pure play digital retailers. The industry was changing fast and customer expectations for quality, service, value and personal engagement were constantly increasing, and especially big change with how quickly people were growing comfortable with ecommerce and digital technology in the jewelry category -- a trend that accelerated dramatically this past year. As…

Thank you, Gina. Hello, everyone. We delivered a strong quarter and end to our fiscal year by continuing to execute on two fronts. First, we drove the top-line using enhanced OmniChannel capabilities that allowed us to serve our customers on their terms, teamed with strengthened product assortment. Second, we continued to drive operational efficiency in the form of expense control and inventory management. These disciplines allowed us to end the year in a position of financial strength. With $1.2 billion in cash, we're prepared to fuel the next phase of our strategy for long-term sustainable growth. Fourth quarter total sales grew 1.5% over last year and same-store sales grew 7%. Ecommerce sales grew more than 70% last year. North America delivered 10.4% same-store sales growth, driven by continued strength in both bridal and fashion categories. North America ecommerce sales grew 66%. International state same-store sales declined 28.3%, which had a three percentage point negative impact to Signet same-store sales for the quarter. Our UK stores were closed for most of the quarter as a result of governmental lockdowns. That said, our international team delivered strong 150% ecommerce growth, reflecting our OmniChannel focus. Before we continue down the P&L, I'd like to provide a real estate update as continued optimization of our physical footprint remains a core priority and complementary to our digital footprint. We permanently closed 395 stores this year. We also repositioned 33 traditional malls into new off-mall location. Use of our greenfield analysis has provided our team with data-driven insights and a deeper knowledge of how to best optimize the physical and digital platforms in a given trade area. In addition to our store closures, we identified opportunities for new stores, leading to the opening of 20 Piercing Pagoda stores in fiscal 2021. Moving forward, we plan to…

[Operator Instructions] Our first question today comes from Paul Lejuez from Citigroup. Please go ahead with your question.

North America transactions up 10%, curious if we could talk a little bit about what that look like e-com versus stores. Also curious how big buy online pick up in store was for the quarter and year, whatever you might be able to share there. And then separately, we're just curious to hear more about the marketplace business that you spoke about. Where are you now with that initiative? And how do you see that evolving over the next year or so? Thanks.

I'll star Paul, on some of the metric questions that you had. Our e-commerce performance as we talked about traffic was up, our conversion was up, our ATV was strong as well online, when you look overall at the stores what we saw on the lower traffic, our conversion was also very strong. And we were able to drive transactions. So overall, we feel very good about the team's response to the quarter that we went through in terms of capacities constraints, the uncertainty, and the agility that the team really demonstrated with respect to flexible fulfillment, and you know, shift from store opportunities that really helped mitigate those capacity constraints.

And Paul, Hi, it's Gina. I'll jump in on your buy online pick up in store and marketplace questions. You know, we only got buy online pick up in store, really running in the fourth quarter. And so it's a nascent capability for us, but our team executed brilliantly. And we had very high customer satisfaction, very high online on time fulfillment. In fact, 86% of the orders were picked up in stores within three hours of receiving the order in the month of December. So our teams were really all over, you know, bringing that new capability to life. And one of the interesting customer dynamics is we typically see a customer who we call the late inspiration seeker, typically male who buys late in the holiday season. He was an over user of the buy online pick up in store technology, we had more than 6000 items to picked up in our store in the last couple of days before Christmas, primarily men. So it's you know, it's really proving out I think to be a strong technology for us. The other one on flexible fulfillment, I'll just mention a ship from store. So we had turned on capability to be able to ship directly to customers from our store in sales pre holiday, we're now turning that on across our other banners. And that's a real inventory opportunity for us, it unlocks stranded clearance inventory as an example across our store network, and also allows us to have a very broad ecommerce offering for our customers. So flexible fulfillment is benefiting us in a couple of ways. In terms of marketplace, you know, we have a very successful marketplace in our business already with jamesallen.com. We also have stood up a more of a wholesale kind of a marketplace to serve independent jewelers leveraging our scale in diamond buying. And that is very early, but proving to be a good new business for us. And then we believe that with our scale, we have the opportunity to bring some new capabilities to life, these are not yet ready to do more dreams than you know anything. But we're looking into customer's desire for rental jewelry for subscription jewelry, customers desire to access new designers that they might not be able to find anywhere else and for example on Zales, we've already begun a process of discovering these new designers who don't have the scale to be in store. But we can help them with our vendor relationships, to develop their product lines, and then they can start out in our websites because you know, perhaps in a more marketplace, you know, oriented environment. So we think there's some real upside for us over the next couple of years as we begin to flesh out those ideas and bring those capabilities to life.

Thank you. Good luck.

Your next question comes from Lorraine Hutchinson from Bank of America. Please go ahead with your question.

Thanks. Good morning. I'm going to ask a question about the long-term margin opportunities. It looks like the guidance pencils out to around 5% operating margin for this year. Is this a good level that we should use as a base upon which you'll invest to grow market share? Or do you see any other big levers you can pull to move that margin number higher?

Thanks for the question, Lorraine. As you know noted, our guidance range it pencils out at you knows 5% to 5.4%, which I'd note on the higher end is an improvement to fiscal '20. That said, long-term growth remains the focus. And our strategic decisions and continued investments always consider sustainable long-term sustainable growth and share gains. And assuming a way to think about this as assuming a near flat to slightly positive top line growth, we can gradually and over time expand our margins. Largely due to our continued optimization efforts, particularly with our fleet, as well as other cost efforts that we consider within our cost savings program.

Thank you. And then can you just give a few more comments on the fourth quarter gross margin decline and what your outlook is for the first half of the year on that line item?

Well, we've really don't give specific guidance on gross margin in terms of the outlook for this year. But I would just reference you again, back to the operating margin that we just spoke about Lorraine, but in the fourth quarter that we had strategic promotion, as I mentioned, and we had very strong sell down activities and lifecycle activities that were strategic supported our selling strategies and the inventory management that we believe has been a very large piece of our strong cash flow position. So we will continue to the efforts that what Gina just mentioned with respect to flexible fulfillment ship from store, you know, minimizing stranded inventory. We're rolling that out in the first quarter and the first quarter here for [indiscernible] that will also no really help with our margin, merchandise margin. So we remain diligent, very focus on turning our inventories faster, and leveraging the new tools that we've put in place.

Thank you.

And our next question comes from Ike Boruchow from Wells Fargo. Please go ahead with your question.

Good morning. This is Will [ph] on for Ike. Hey, can you just talk about, little bit about the payables, it looks like it was, pretty, it was a big deal. You know, it helps you free cash flow, your cash flow from operations this year. Can you just talk a little bit about what caused that spike?

Yes, thanks for the question Will. I would say that we have had a continued effort throughout the year to manage working capital much more efficiently. And we've worked very closely with our vendor partners, and have, you know, lengthened our terms. We also had from deferral of rent, which we work with our landlords on, of course, that will be paid here in FY '22. But it was a concerted effort for us to manage our working capital more efficiently.

And so do you expect that to normalize going forward?

We have a focus on cash flow generation, for fiscal '22, as I mentioned, and we'll continue to have a focus on inventory, payables and just overall cash management, because, as I said, we've positioned our plans conservatively, we expect negative sales in the back half of this year. And we keep that in mind as we manage our balance sheet.

Got you. That's helpful. And can you just remind us what the profitability profile e-com is versus brick and mortar?

Well, we haven't really given that guidance, per se, what we said is that it's not materially different. What I share well, is that when you think of the activities that Gina mentioned, through virtual selling, and ship from store, you're going to see a higher concentration, they continue to see a higher penetration of e-com sales. And as we move through more of the stranded inventory, you know, we would expect you know that to impact margins somewhat on e-com. And over time as that position normalizes, we can no expect it to return to what we're seeing today.

That's great. And just one more for me, can you talk about any plans for the convertible debt?

That remains out there in 2024. And, you know, we'll address that as you know, we progress as I mentioned, our capital priorities are initially number one, invest in the business. And number two is to pay down debt leverage. You'll recall as I mentioned in my prepared remarks that we fully paid down our revolver as well as our $100 million FILO [ph] loan. And what we have remaining is a convertible debt as well as the notes payable or senior notes out there for 2024.

Great, thank you. I'll pass it along.

And our next question today comes from Dana Telsey from Telsey Advisory Group. Please go ahead with your question.

Good morning, everyone. As you think about the wage hike, I think that was announced earlier this year, by spring 2022. I believe that you had been paying above minimum wage. Anyway, what impact does that have and are there any other puts and takes on the SG&A given the expense reductions that we should be noting going forward? And then can you talk about with the store portfolio, the opening 100 and closing 100? Is this what we should expect going forward? And how is the integration of the multi banner stores progressing? Thank you.

Hi, Dana. I'll start on that. So yes, we recently made a commitment to a $15 minimum wage across the US. This is an initiative that we had already begun. So we started it in fiscal '21 as a conscious way to improve our employee experience. And we've been addressing this not only in our stores, but also our distribution centers and our fulfillment centers. And you're right that many of our store staff already make above a $15 minimum wage, because their wages are the combination of a base wage, and a commission wage. So on average, we're above that $15. But it's tough for people who come in and are starting out and haven't yet built that base of, you know, of clients. And so we think this is an opportunity to not only continue to attract great talent, but to continue to elevate the employee experience across all of our customer care distribution center and store teams. The increase, as I said, started in fiscal '21. And it is reflected in that the fiscal '22 guidance that Gina gave.

Dana, with respect to the SG&A, as we look forward, you know, you'll recall in '21, we have store closures that labor in those stores will come out occupancy rate, occupancy will come down in terms of rent. And then permanent cost removal savings efforts as we look forward, we'll continue to drive operational efficiencies in our stores, we've managed our store operating hours, and we'll continue to lean into those, I did give guidance for the year of $50 million to $75 million in cost savings. But I also will indicate that we are investing, as Gina mentioned, in technology and digital tools that will continue to further our traction in our omni-channel journey to connective commerce. And then, again, I mentioned the marketing investment, which we think is very important, we're seeing traction, as we noted in our quarter-to-date, top line sales. And we think it's important for us to remain position to respond to what's going on in the market. And just to have that flexibility in our thinking. And that is also included in our guidance.

Yes, I'll just I mean, just to add one thought on the marketing, so we're, through March 14, up 16%, same store sales across Signet, that's over 20% in North America, we've really leaned into the momentum that we saw coming out of Valentine's Day, which was very successful for us. We know that only about a third of tax refunds are out there so far, we would potentially benefit from another round of stimulus. And so our plan is to use our very targeted marketing to try to attract some of that spending. And then we've also made sure we have a strong back half of marketing so that we can be proactive and trying to offset losses that we might see as customers potentially turn their spending toward travel and other experiences once the vaccine has achieved her immunity. And then with respect to real estate, Dana, we gave guidance that up to 100 stores, and over 100 stores closing up to 100 stores opening and what we really like about what we're seeing is in the pure things that go into highly efficient kiosk locations, we open 20 in fiscal '21. And we're looking to invest in up to 100 in fiscal '22 and based on the results that we're seeing in these new openings. With respect to our footprint, as we go forward, we intend to optimize the digital and virtual footprint. We'll continue to evaluate by trade area and continue to refer to our Greenfield analysis and update it as results progress.

Thank you. Ladies and gentlemen, we've reached the end of today's question-and-answer session. I'd like to turn the conference call back over to management for any closing remarks.

Well, thank you all for your participation on our call today. As we conclude, I just want to reiterate my profound appreciation for our Signet team for their passion, performance and commitment to our purpose and our customers. And I especially want to recognize my exceptional business partner and Signet CFO Joan Hilson, whose two year anniversary is today. Her leadership is an amazing catalyst within Signet. As we complete this phase of Signet's transformation, our entire team is focused on inspiring brilliance in everything we do, and we commit ourselves to delivering sustainable long-term growth. Thank you very much.

Ladies and gentlemen, with that we will conclude today's conference call. We do thank you for attending. You may now disconnect your lines.