Hello everyone, and welcome to the Signet Jewelers Fiscal 2023 Third Quarter Earnings Call. [Operator Instructions] I’d like to turn the conference over to Vinnie Sinisi, Senior Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to our third quarter earnings conference call. On the call today are Signet’s CEO, Gina Drosos; and Chief Financial and Strategy Officer, Joan Hilson. During today’s presentation, we will 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 disclosure in our annual report on Form 10-K, quarterly reports on Form 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 will discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as reconciliations of the non-GAAP measures to the most directly comparable GAAP measures, investors should review the news release we posted on our website at www.signetjewelers.com/investors. And with that, I’ll turn the call over to Gina.

Thank you, Vinny, and thanks to all of you for joining us today. I want to begin by thanking the entire Signet team for a standout quarter in a challenging retail environment. Their passion for rising to every challenge and opportunity is inspiring. I’m particularly pleased that our Signet team was recognized this quarter by Fortune as one of the top 20 best workplaces in retail. This is a great reflection of the purpose, pride, and excellence, our team members bring to our customers every day. I’m proud to lead this exceptional team. There’s one core message that I want you to take away from today’s call. Signet is uniquely positioned to deliver consistent market share growth and value creation. Given our number one and growing leadership position in jewelry, an industry that tends to grow steadily from year to year and is more resilient to economic cycles than other parts of retail. We’ve established our strong position in this attractive industry over the past five years by making significant strategic pivots that are now creating a virtuous flywheel effect with compounding advantages that are accelerating positive momentum and grow. First, we’ve created a differentiated portfolio of banners that appeals to a broad, diverse and growing mix of customers. Second, we’ve established a connected commerce presence that is resetting customer expectations for the experience they want to have when shopping for buying and owning fine jewelry. Third, we’ve built a flexible operating model that gives us multiple levers to pull so we can deliver our commitments even when faced with challenging economic or market conditions. And fourth, we are executing a disciplined capital allocation strategy that is delivering meaningful value creation. It’s focused first on expanding market share growing the top line and consistently delivering double-digit annual operating margin. Since…

Thanks, Gina, and good morning, everyone. Our key message is that Signet is uniquely positioned among retailers to deliver consistent returns. We’re doing this by growing market share, expanding margins and optimizing our balance sheet, all of which lead to long-term value creation. We are committed to delivering double-digit annual operating margin, which we’re able to do with our flexible operating structure even when the top line environment is challenging. Beyond, we are continuing to take advantage of our balance sheet strength to consistently invest in our growth while returning cash to shareholders. Before turning to the quarter, I’d like to share some additional perspective on our recent acquisition of Blue Nile. This acquisition is a great example of our ability to be agile as market share growth opportunities emerge. Our balance sheet strength and our ability to generate cash enables us to step in at the right time for the right assets at the right price. We’ve now been working with the Blue Nile team for just over 90 days. We see significant opportunities to maximize value by bringing together Blue Nile and James Allen, our 2 digitally native banners. This combination is driving prior synergies that we anticipated at the time of acquisition. We also see top line and margin opportunity by leveraging assortment, price architecture, data analytics and the integration of our merchandising capability. Importantly, Blue Nile enables us to grow our share in bridal with a slightly higher price mix and a demographic that is different and additive to the top of our customer funnel. With all of this in mind, we are reaffirming our full year non-GAAP operating margin of 10.8%. Even with the dilutive impact of Blue Nile, which is offset by a greater line of sight into the efficiencies we see in our…

[Operator Instructions] Our first question today comes from the line of Mauricio Serna with UBS.

I guess I wanted to ask if you provide a little bit more context on how do you get to the fourth quarter sales guidance. Maybe you could break it down, like what does that imply for same-store sales growth and then like roughly the contribution from Blue Nile and Diamonds Direct. And also maybe on the fourth quarter gross margin, I recall last year, there was an impact on an inventory adjustment on the 4Q ‘21. So I just was wondering if you could provide like what was that impact that we should keep in mind for – as we model the 4Q gross margin?

Mauricio, let me give just some big-picture context and then Joan will jump in on some of the more specific details that you just asked about. I think first, let’s start with the Q3 beat. It was broad-based. On the top line, we beat both on the core and on our pure-play banner, inclusive of James Allen and Blue Nile. And what I think is important is that this punctuates that Signet is not a COVID story. We’re successfully executing on a multiyear turnaround of this company, which also led to outperformance on the bottom line in the sense that our core outperformed sufficiently to more than cover the anticipated Blue Nile losses. On the guidance, we’re – I think, appropriately encouraged by the trends that we saw Black Friday weekend. Our omni traffic was up strong double digits. We saw strong AOV margin in line with expectations, but probably the most encouraging sign with Cyber Monday where we had record visits to our sites, low double digits. And purchases in the strong single digits. So I think customers are beginning to shop. We think this holiday will come in later than usual customers that every income tier are looking for value. And so they’re waiting a bit later to shop, but it’s encouraging to see so much online traffic because we know that we see that first before we see purchases happening online and in-store because people in the jewelry category tend to browse first before they buy. So I think that’s the positive side. Obviously, we’re still very mindful of the macroeconomic environment that we’re in, customers, especially in the value tier are the most challenged. And so our expectations are that we continue to drive purchase at higher price points in the accessible luxury tier more so than value.

And then to respond to the guidance question, Mauricio, our top line guidance for sales implies a 1 to 2 points change in the comp for our core businesses, and that largely relates to the impact of foreign currency exchange and to Gina’s point, the impact on the lower price point performance in our business. And then basically, as we think about the gross margin for Q4, remember, we had some inventory charges. So there’s a few puts and takes. We had inventory charges related to onetime accounting adjustments that were not anniversary-ing this year as well as the positive impact of our services business as well as other benefits that we’re seeing come through are related to our inventory and the cleanliness of our inventory in terms of scrap and other inventory-related charges. So really a good margin story. On top of that, I would say, our merchandise margin mix itself is improving, and it’s really structured around the higher price point assortment, value engineering our products to support our lower value price point customers and really just the overall health of the inventory. The impact of clearance sales is far less negative than it had been in the past. And to Gina’s point, over the Black Friday weekend, even while promotions were occurring within our business, we had a margin performance that met our expectations. So we’re very pleased with the overall view.

Our next question comes from Lorraine Hutchinson with Bank of America.

Can you provide some further details on Blue Nile, maybe what you're projecting for sales over the next several years. And then also, is it loss-making in the fourth quarter? Was that folded into the 4Q operating income guidance?

So with respect to Blue Nile and the guidance, we folded our view of Blue Nile -- we incurred a loss in the third quarter. We folded in its view for our view of that for the fourth quarter, which, in fact, is a slight loss and as well as when we think about Blue Nile, we think of it in a combination of the range. So it's a combination of our digitally native banners. And as we are addressing synergies, we're seeing greater synergies than we had at the funded acquisition. We see opportunity at the top line as we reset assortments, integrating our merchandise capabilities. We see opportunity in margin expansion, merch margin expansion as well as the back off of synergies through SG&A. So all of that thinking is included within our guidance for the year. And as we progress through this year, we'll come back to you on our view for -- in the later years. But we see it all as positive.

And then just 1 follow-up, Joan, would you be able to quantify the inventory reserve that you'll be going up against in the fourth quarter this year?

We haven't quantified that, Lorraine. It was a reasonably large reserve that we don't need to [anniversary] (ph) this year, all about -- given the health of our business. And I'd just remind you that we're also -- the implied guidance is a negative comp on the top line when you're thinking about this cost leverage.

Our next question comes from Jim Sanderson with Northcoast Research.

Question and congratulations on a great quarter. I wanted to dig into the commentary you provided about your long-term outlook, talking about engagement in bridal. If Bridal is about 40% of your sales mix, you're expecting some softness post COVID, should we start to look at maybe mid- to high single-digit sales declines related to that segment in 2023 calendar year? Is that the right way to kind of look at that category?

Yes. I think what I was trying to provide was some perspective on on the stability actually of bridal over time, it's a very consistent part of the jewelry business. I mean, year in, year out, you have engagements, weddings, anniversaries. And if you look back pre-COVID, it was very, very steady. So about 2% growth of engagements and lettings year in, year out. COVID has caused a bit of a blip in the sense that last year, we saw an uptick in engagements. This current year that we're in, we've seen a downtick in engagement, but it's the peak ever or peak in the last 4 years anyway of weddings. So we shifted, we saw that coming, and we've shifted and we've really been working to own the wedding. So 2 wedding band purchases, bearings for the bridesmaid, wash for the groom, gifts for the mother of the bride, [indiscernible] thing as an offset to slight downtick that we see in engagement. Next year, we expect to see a slight downtick again in engagement, but then it normalizes all actually grows to get back to normal the year after, and we think normalizes ongoing after that. So it's really the first meaningful, I would call it a temporary blip that we've seen in how engagement and weddings have been working. But the great news is that with our consumer insight work, we predicted that and came around that so that we're really working on lifetime value. Our loyalty program and I gave a lot of stats in the call, has been a fantastic addition in that context because we're seeing most people come into the loyalty business through engagement, we're contacting previous engagement customers to bring them into the loyalty program, and then we're working lifetime value with them. So I think the fact is that there will be less engagement next year, Signet would expect to grow share the engagement category and we expect also to grow our fashion and gifting business as we surround the wedding.

Okay. So a little bit of offset to maybe some slight tick down in the segment related to just the timing of the impact of COVID. Is that the message I want to take away?

Yes. It's really just a demographic fact. But what we do is leverage all the different aspects of our business to understand those and then offset that as we put together our business plans for the year ahead.

The next question today comes from Will Gaertner with Wells Fargo.

Look, I understand you're not going to be guiding here, but maybe can you just give us some color on the puts and takes of gross margin, operating margin into next year, how to think about Blue Nile and Diamond Direct, how their impact on the business from a gross margin and an operating margin perspective. .

So Blue Nile carries a profile similar to Diamonds Direct and James Allen because it's largely -- it's predominantly in the bridal business, which carries a relatively lower margin well. So as you think about Blue Nile and it's merchandise content, that will affect its merchandise margin rate. When we think about integrating that with James Allen, we believe that we can continue to expand the operating margin as we influence the assortment architecture of Blue Nile. So the other point that I really make is that as we continue to grow our services business, which can attach to all of our businesses, all of our banners, that also carries a higher gross margin profile. I mentioned in my prepared remarks that it's 20% higher than other merchandise margin categories. So that's a positive. The other -- we have sourcing opportunities that we continue to explore. And while we give us room to be positioned to be flexible with our promotional strategy into Q4 and as well as into next year. So that's really the gross margin story. As we think about Blue Nile go forward, we've said in the past that it would be accretive as early as Q3 of next year. And as we look at it, we're really viewing the combined banner with James Allen. So if you look in our 10-Q, you'll see digitally native banners. What we're really presenting to you is that this is a combined entity that really drives 2 commercial banners that play off of each other, attracting different customers with Blue Nile being slightly higher and slightly younger and more affluent, which really opens up the top of the funnel, but brings with a different margin profile. So overall, really positive about Blue Nile, its impact on our business, our ability to manage its performance within the guidance that we've provided for this year. And as I said earlier, we will come back to you on our fourth quarter call with respect to looking into next year.

[Operator Instructions] Our next question comes from Paul Lejuez with Citi.

Two questions. One, I think you mentioned encouraging results of a Black Friday weekend met expectations. But you also said that you were seeing signs that the consumer was waiting for later in the season to complete their shopping. So just kind of curious how to square those 2 things. And then curious if you could talk a little bit more about transactions versus ticket and in which categories you're seeing higher AURs versus where you might be seeing some pressure.

Sure. So I'll take the Black Friday and later in the season. So both of those things are true. We saw encouraging results over Black Friday. As I mentioned, we saw omni traffic up double digits. So a lot of people in stores, but a lot of people online and we saw our online revenue up mid-single digits. So that was great that we see people buying at the time, but a lot of people we see browsing. And they'll be waiting, we think, until later in the season, making sure they get the very best value that they can. We're well positioned for that. We're positioned with, I think, very strong merchandise offers, great newness, non-comps in digital experience, marketing, all of those things to drive closure of those customers. But at the beginning of our holiday season, especially with our highest ever Cyber Monday was encouraging.

And as we think about the sales equation, Paul, our conversions were relatively flattish. We mentioned we have a higher average transaction value but at a lower traffic, our transactions were down.

Those are all the questions we have time for today. So I'll now turn the call back to management for any concluding remarks.

Well, thanks, everyone. The point that I want to ensure that Joan and I have made this morning is that Signet is uniquely positioned to deliver consistent market share growth and value creation given our strong and growing leadership in jewelry, an attractive industry that tends to grow steadily from year-to-year and is more resilient to economic cycles than other retail industries. We've established our leadership position by strategically creating a virtual flywheel effect that is building positive momentum and growth that no other company in our industry is achieving. We're raising the year integrating Blue Nile ahead of plan, continuing to deliver annual double-digit operating margin and maintaining the flexibility that comes with a strong, healthy balance sheet. We are ready for holiday and confident we can deliver the long-term growth to which we're committed. Thank you, very much, and happy holidays.

Thank you everyone for joining us today. This concludes our call, and you may now disconnect your lines.