Hello and welcome to the Signet Jewelers' Fourth Quarter Fiscal 2023 Earnings Call. My name is Alex and I'll be coordinating the call today. [Operator Instructions] I'll now hand over to your host, Vince Ciccolini, Senior Vice President Finance and Chief Accounting Officer, to begin. Please, go ahead.

Good morning, and welcome to our fourth quarter earnings conference call. On the call today are Signet's CEO, Gina Drosos; and Chief Financial, Strategy and Services 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'll discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as reconciliations of the non-GAAP financial measures to the most directly comparable GAAP measures, investors should review the news release we posted on our website at www.signetjewelers.com/investors. With that, I'll turn the call over to Gina.

Thanks to all of you for joining us today. Let me begin by thanking our entire Signet team for delivering on our commitment. Their dedication to our customers and their agility in the face of unrelenting challenges and change continues to be our most enduring competitive advantage. Through fiscal '23, our company has been recognized as a great place to work certified company for 3 years in a row. And for the fourth consecutive year, we've been honored as the only specialty retailer included in the Bloomberg Gender-Equality Index. I'm grateful to lead such a strong and diverse team. There's one clear message I want to convey today. Our Signet team delivered in fiscal year '23, and are poised to do it again in fiscal '24. There are 3 reasons for our confidence. First, Signet is uniquely positioned to grow market share because of our differentiated and broad banner portfolio, industry leading connected commerce presence, and ability to invest in our competitive advantages consistently and sustainably. Second, we are confident in our ability to deliver an annual double digit non-GAAP EBIT margin based on our transformed operating model and the flexibility it creates. And third, our healthy balance sheet and strong cash generation enables us to invest in our business, while also consistently returning meaningful cash to shareholders. At this time last year, we expected the U.S. jewelry and watch market to be down low to mid-single digits, with particular pressure at lower price points, coupled with the difficult year-over-year comps. Added to that was the volatility created by the war in Ukraine, inflationary shocks, economic turmoil in the UK, and a major winter storm occurring in the peak selling period before Christmas. As a result, the category declined to the lowest end of our range. These were serious headwinds.…

Thanks, Gina, and good morning, everyone. Our key message today is clear. In fiscal '23, we delivered on our stated commitment of a double-digit annual non-GAAP operating margin or 10.8% on a negative comp of 6.1%. We delivered a consistent inventory turn of 1.4x, and we maintained a 2x leverage ratio even with the acquisition of Blue Nile, and cash returned to shareholders. Our performance reflects our commitment to disciplined capital allocation. And inventory strategy that enables us to respond to market dynamics. And a data spending practice that maximizes returns on invested capital. We are confident in our ability to deliver our commitments again this year because our strategies and our operating models are working as designed, even when faced with the challenging headwinds that we expect in fiscal '24. For the fourth quarter, we delivered total sales of $2.66 billion, a decrease of 5.2% from last year, and a down comp of 9.1%. This includes a 2 to 3-point negative impact related to severe weather on Signet's largest shopping days of the year, along with labor strikes and volatility in the U.K. economy. Services posted 4% revenue growth based on the success of our warranty program and service bundles, which as you'll remember, we rolled out over the summer. In addition, Blue Nile delivered sales ahead of expectations, and was slightly accretive in the fourth quarter. As a reminder, we expect more significant synergies over the summer of fiscal '24 as the integration is fully completed. During the quarter, bridal declined on the expected engagement headwinds, while fashion had a sequential improvement throughout the quarter on strength at higher price points. Coming into the quarter, we expected that engagements would be down low double digits based on the consumer insights work that our teams have done. So we…

[Operator Instructions] Our first question for today comes from Lorraine Hutchinson from Bank of America.

I just wanted to understand the cadence of the guidance. It looks like a tougher first quarter and the Mother's Day shift commentary was helpful. But with a nice recovery as we move through the year in both sales and margins. So can you talk about some of the factors at play in the guidance that would get you there?

Yes. Thanks, Lorraine, for the question. As we mentioned, we saw in the -- for the Q1 guidance, we're assuming the trend in bridal for Q4 continues. As well as the wrap effect of stimulus, which we estimate to be 2 to 3 points in the quarter. And Mother's Day selling shift really meaning the build of Mother's Day selling moves more into the second quarter. And that's roughly a 3-point impact. And then just to pull -- wrapping all of that, last quarter -- last year for the first quarter, was at an 8.9% high mark for last year. That sums up the impact for Q1. If we look at the way that we think about the full year revenue guidance, we expect bridal headwinds to begin to moderate later in the year. Gina mentioned, a more towards holiday period, which is the peak period for bridal and engagement is when we begin to see recovery. So that's a critical point to consider as you're thinking about the year. Services as well is a key component for us, as we look throughout the balance of the year. As we wrap services impact for bundles as well as our warranty programs, which we've added additional designs to that program, which will serve as a non-comp opportunity for us. So as we look to the year, bridal, just to summarize, bridal base towards the fourth quarter. We expect to see -- we're anticipating -- we're anniversarying a high comp in the prior year in the first quarter and the shift of the Mother's Day. So second quarter should see an improvement and then continue to drive that throughout the year.

And then how much pressure will you face with the rebuild of incentive comp? And how should we think about SG&A as we move through the year?

Yes. What I said in my remarks is that there's -- we had pressure in the full year restoring incentive compensation throughout the year, not only for support center, but also for our field teams as against this performance that we're forecasting. So without -- we're just positioning it to return to normalized levels. Another thing to think about there is we have $100 million of cost savings that we've included in our guidance. And that's helping us to offset some of that incentive compensation, as well as the ramp of investments and the continued investments that I mentioned in my remarks throughout the year. So cost savings, as you've seen in our history, we've saved over $500 million of costs when you look back over time. And this is how we've been able to fund the investments and manage some of the ups and downs in the SG&A line. And then just as a reminder, the Blue Nile integration is expected to be completed by the third quarter. And when that's fully integrated, we expect to be able to get the benefit of the synergies that we signed in our acquisition model. So -- and we're optimistic about that.

Our next question for today comes from Ike Boruchow from Wells Fargo.

A couple of questions. Gina, just a clarification from you. I think you said earlier on the call, you expect the engagement trends, which you gave us a lot of color on to inflect in late 2024. Was that fiscal year '24, meaning later this year? Or are you talking about calendar '24 when you made those comments about the industry.

Yes, all fiscal year are related. So we expect this to be the trough of the year of engagements. They were down low double digits in our fiscal '23. So last year, calendar '22, we expect them to be down low double digits again in our fiscal '24 but begin to moderate toward the end of this year. And then we'll see an uptick in our fiscal '25 with a return to normal levels of engagements by FY '26. So this is really the -- is an important part of our strategy and why we're continuing to invest, so that we're ready to be able to take full advantage of those inflection points.

And should we assume that the organic comps in the business likely remain negative up until the point of that category inflecting back positively?

Yes. I mean, remember, bridal represents roughly 50% of our business. We love that. It's a great business to be in. And absent COVID it's a very steady business to be in. It's the point of market entry, creates relationships, lifetime value, the potential for services, all of that, but we're just seeing a temporary blip from COVID.

And then just one last one for Joan. Just on the accretion of Nile, I think you mentioned that it should inflect pretty meaningfully in the third quarter. Can you just give us maybe a little bit more detail? What exactly is driving that? What are the synergies that you're expecting? And if there's any way you could share what kind of revenue or EBIT or margin you're planning for Nile this year that might help us.

For the synergies, when you think about re-platforming the business, you're taking overhead out as we integrate it into the James Allen platform. So that's the biggest piece of the synergies that we see. That's been creating cost savings for us as well as we see the opportunity for continued margin expansion within gross margin as we refine the assortment and integrate into Signet's buying practices, would be the 2 key points that I would call out for you, Ike.

[Operator Instructions] Our next question comes from Jim Sanderson of Northcoast Research.

I just wanted to follow-up on Blue Nile a little bit. How do you look at the actual sales retention post-acquisition? I think at one point, the Blue Nile was generating about $560 million in revenue. I'm just looking at the difference in fourth quarter revenue growth and comp growth, and that differential suggests to me that you're capturing about 60% to 70% of that level. Is that the right way to look at that? And is there any reason why that asset lost sales over the past couple of years?

So we think of Blue Nile on the top line, we really are thinking about Blue Nile and James Allen as a combined entity of digitally native banners. And as we're working through, Jim, that integration and balancing lab-created diamonds, fine jewelry, fashion jewelry along with bridal jewelry. We are continuing to refine the assortment and continuing to understand the differences and the opportunities as we look at the 2 commercial banners. So we will continue to navigate that. We find it as we go through FY '24. And certainly, we are believing in the optimization of the 2 banners together are stronger than individually, as we optimize the back end of the operation as well.

And just a quick follow-up on margin contribution for Blue Nile. Combined, should we expect the segment EBIT margin to be contribute to a stronger EBIT margin in 2024? That's if you take into account the overhead synergies and gross profit margin, that might be a little bit weaker.

Yes. Well, what I said in the guidance, Jim, is that, yes, the first half will continue to feel the pressure, roughly 100 basis points related to the impact of the digitally native banners. And that will then begin to moderate as we move through the back half of the year triggered by the full integration.

I just wanted one last quick question on store count. I think that you had a slight decline in international. Is your square footage in 2024 relatively stable? Or how do we look at that on a year-over-year basis?

Well, we're opening and closing stores. So I would say, yes, relatively stable based on how we're seeing the business today.

We currently have no further questions. So I'll hand back to the speaker team for any further remarks.

Yes. Thank you, everyone. Our key message today is simple and clear. We delivered in fiscal '23, and we believe we'll do it again this year for all the reasons that we've outlined today. Signet is a transformed company with sustainable and growing competitive advantages. And our financial strength allows us to continue smartly investing to widen those advantages, to grow market share, while consistently returning meaningful value to our shareholders. We're eager to go deeper into the ways we've transformed our business and organization. So with that in mind, I'm pleased to invite you to join us at the New York Stock Exchange for our next Investor Day on April 18. I'll be joined by Joan, Jamie and several other Signet lead team members to take you through our strategies and capabilities. And many others will be on hand to meet and talk with you as well. As we continue through fiscal '24 and beyond, we remain focused on our priorities, growing share, delivering double-digit EBIT margin and maintaining our disciplined capital allocation to invest in our business, and deliver enhanced shareholder return. Thank you.

Thank you for joining today's call. You may now disconnect your lines.