Good morning, and welcome to the Signet Jewelers Fourth Quarter Fiscal 2024 Earnings Call. [Operator Instructions] Please note, this event is being recorded. Joining us on the call today are Rob Ballew, Senior Vice President of Investor Relations; Gina Drosos, Chief Executive Officer; and Joan Hilson, Chief Financial, Strategy and Services Officer. At this time, I would like to turn this conference over to Mr. Rob Ballew, Senior Vice President of Investor Relations. Please go ahead, sir.

Good morning. Welcome to Signet Jewelers Fourth Quarter and Fiscal 2024 Earnings Conference Call. During today's discussion, we will make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially. We urge you to read the risk factors, cautionary language and other disclosures 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 discussions 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 ir.signetjewelers.com. With that, I'll turn the call over to Gina.

Thank you, Rob, and thanks to all of you for joining us today. Before we discuss both our fiscal '24 results and fiscal '25 expectations, I'd like to thank our Signet team. They delivered on our expectations in a year that experienced a deep COVID-induced engagement trough and an overstocked industry that drove an elevated promotional environment for the jewelry category. You continue to inspire me. Thank you for all your hard work and dedication this year. I'd like to leave you with 3 key takeaways today. First, we delivered on our financial commitments this quarter with EPS above the high-end of our guidance range. Second, excluding nonrecurring legacy legal settlements for the fourth year in a row, we generated over $600 million in free cash flow. This is nearly 15% of our market cap. Third, we expect same-store sales to improve throughout fiscal year '25 as the engagement recovery gains velocity. I'll elaborate on each of these takeaways beginning with this quarter's results. We delivered sales of $2.5 billion this quarter, down roughly 6% to last year. As anticipated, we saw a late shopper this holiday as value-conscious consumers were holding out to get the best deals and have one extra weekend to shop for gifts. We leveraged branding, innovation and value engineering within our newness to provide customers a competitive value proposition, along with size trade-up options in categories like lab-created products, our strategy resonated with our customers, as we saw new items sell through at an impressive 700 basis point increase to a year ago. Our strategy, which worked all year was also effective in the fourth quarter as we held North American average transaction value nearly flat, and expanded our non-GAAP gross margin by 170 basis points to this time last year. Conversely, industry data suggests…

Thanks, Gina, and good morning, everyone. Revenue for the quarter was within our expectations at $2.5 billion, down 6% compared to the prior year. Same-store sales were down 9.6%, but improved to the third quarter. This reflects acceleration in Bridal and Fashion categories. While December was our best same-store sales performance of the quarter, January was somewhat below expectations, driven in part by integration issues in our digital banners. Our engagement performance improved several hundred basis points compared to the third quarter, and our overall incidence of engagements were in line with our expectations, excluding digital banners. This quarter included a 53rd week, which generated $103 million in sales and was largely the difference between total sales and same-store sales decline. Our North America ATV for the quarter declined 60 basis points to last year and transactions were down roughly 7%. The relatively flat performance in ATV is notable, compared to the more significant declines in AUR for independent jewelers due to their deep discounting. Our stable AUR during the quarter was driven by our assortment strategy, which provided our customers with several options to trade-up through innovation and value engineering. Services grew 5% to last year, driven by an attachment rate that increased by nearly 350 basis points, reflecting newly implemented offerings like post-repair ESAs as well as point-of-sale prompting for our jewelry consultants. We delivered gross margin of $1.1 billion this quarter or over 43% of sales, with non-GAAP gross margins up 170 basis points to the prior year. Merchandise margin also grew by 140 basis points on a non-GAAP basis, led by services and an increased mix in [ newness ] and LCD merchandise. Turning to SG&A. Our non-GAAP expense of $670 million reflects 26.8% of sales, 70 basis points higher than last year as we deleveraged…

[Operator Instructions] Your first question comes from the line of Paul Lejuez from Citigroup.

Brandon Cheatham on for Paul. I wanted to dig in on what you're seeing on the engagement side to update your forecast. Now, you're looking for 5% to 10% increase for the year versus what I think was a 10% increase previously. Just wondering, can you walk us through the progression as the year continues? And does that assume an acceleration in 4Q? Does 4Q end up higher than 10% to get there?

Brandon, thanks for your questions. So we're seeing engagements recover as we expected they would. We saw the trough happen in Q4, and we're expecting, as you'll recall, a gradual and incremental improvement in engagement trends over the next 3 years. So it takes a bit to recover. We've also continued to see progress on the 45 milestones that we track. We have statistically significant data that shows us that once a couple has experienced a certain number of the proprietary milestones that we've identified, and that number being 25, they're much more likely; statistically, significantly and likely, in fact, to get engaged, and that's up 500 basis points versus just a year ago. So we expect engagements to strengthen as fiscal year '25 progresses. We think it's 5% on the low side of our guide, 10% on the high side of our guide for the fiscal year, but that will naturally be back-weighted. And that has to do with both the gradual recovery as well as the seasonality of engagements. More couples tend to get engaged in the October to February time frame. So it will likely be more back-weighted.

Got it. And I was wondering, could you quantify the ticket and transactions that you saw, particularly in the first half of February, and where those metrics are now? And did you see pressure in any particular segment, Bridal or Fashion? And is there incremental pressure that you weren't expecting on the high end?

So I think if we go back to Q4 and we don't quantify all the tickets. But one of the things that we were proud of how our team executed in the fourth quarter was maintaining a stable average transaction value, despite significant discounting from independent jewelers, especially on lab-created, that was in Bridal and in Fashion. So that did put some pressure on average transaction value, but because we brought so much newness, which sold through so well and we value engineer that newness to provide an exceptional value, we were able to hold. Those trends of independent deep discounting have pretty much continued into the first quarter, I would say. And I think what we saw in the jewelry category in January and early-February was pretty similar to the rest of retail. It was a low traffic time and a challenged consumer.

Your next question comes from the line of Lorraine Hutchinson from Bank of America.

I just wanted to follow-up on the engagement discussion. You did talk about unit sales consistent with expectations for engagement in the fourth quarter. Was there some softness in pricing versus your expectations? And then, how has that competitive landscape been included in the guidance for this coming year?

So the reason -- Lorraine, the reason that we talk about units is because we're thinking about the number of couples getting engaged. And that, like I said, has been recovering very consistently to what we thought. Similar to my answer to Brandon, we have seen some pressure on average transaction value, both in Bridal and in Fashion, particularly driven by deep discounting among independent jewelers. You'll remember, they didn't predict the engagement trough as well as we did. And so, we're over-inventoried all year. They were working through that inventory still in the fourth quarter, and so a lot of pressure on moving that through. I think that, while we have seen their continued discounting into the first quarter, I would anticipate that the inventories are recovering somewhat, and so that could be a help. I also think that consumers are becoming more aware that lab-created diamond prices are falling. And so while they might be great for Fashion jewelry, there's something very, very rare and individual about a natural diamond. And so we think that, that is a potential tailwind for natural diamonds in the year ahead.

And then, can you talk -- give us some of your insights on the competitive landscape on the non-Bridal business? And what your expectations are for that this year?

Sure. So the part of the category overall that has been performing the best is low-priced Fashion jewelry. So Banter, our value banner competes in that space, H. Samuel and the U.K. competes in that space. But overall, we have reasonably low exposure to very low-priced Fashion jewelry. The place where we think we have an opportunity, in particular, is in gold, where we have some sourcing advantages and direct partnerships with factories to really value engineer jewelry, also bringing lab-created into Fashion proved to be a good strategy for us over the holidays. And our newness was well positioned to trade customers up into price points that we do uniquely carry over the holidays. We have a 700 basis point improvement in how our new items sold through over holiday by pursuing that strategy.

I would just add on to that, the idea of newness and the green shoots that we saw on holiday, particularly in Fashion and in our new Bridal offerings. Our intention and included within the guidance that we've given for FY '25 is a higher complement of newness, based on the run rate and testing that we saw in the holiday selling period, Lorraine.

Your next question comes from the line of Ike Boruchow from Wells Fargo.

A couple of questions, maybe for Joan, embedded -- well, first of all, on the gross margin line, I think you commented it to be slightly up in 1Q, on that kind of negative comp, that's pretty impressive. Can you kind of just walk us through the headwinds -- the moving pieces on gross in the first quarter? And how you're able to kind of sustain that?

Yes. Thanks for the question, Ike. So our first quarter continues with the sourcing savings and sourcing efficiencies that we've been able to work with our vendors and work with our sourcing team to provide. And what's really important in the margin equation is newness. And so, we are bringing in more newness as I just mentioned. And we expect throughout the year that the margin improvement will be more back-half weighted as part of our cost savings program because the newness coming in and the incremental newness will turn, and we'll see more of that happen throughout the year, largely related to the back-half. So sourcing is a big opportunity. I would also say our disciplined inventory management. Our teams have done an amazing job of being nimble and synchronizing our inventory position to demand and trends. And so we are not -- we are in a position where we are not over-inventoried, particularly in clearance or sell down. And so we're able to manage a leaner mark earlier before product goes to clearance. So I would say inventory management is another key component. And then while we face the promotional discounting that we're seeing in the industry, we've also been able to target pricing within specific areas within our product base. So we're not -- it's not a broad-based discounting or promotional posture that we have. So those are the levers that we're using to continue to drive gross margin as an opportunity for us in Q1 as well as fiscal '25.

And then, Joan, you had mentioned you expect margin improvement to be more 2H weighted. Is that just operating margin? Are you saying that gross margins could also improve year-over-year as you move into the back half?

Goes margin. Yes, gross margin will improve. The sourcing savings as we roll or turn our inventory, last year it was 1.4x and sourcing newness comes in and the sell-through largely will occur more back half on the new items.

Got it. And then just to stick with the gross margin. I think your total revenue plan is like down [ 2 to 7. ] Can you tell us just high level, like what is your services expectation? I assume you outgrow that number, but is there a number you can share with us for the year that you're planning?

Not specifically on services, but what I would tell you is we continue to implement new tools and opportunities within the services business. We mentioned a couple on the call that are wraparound opportunities. So POS prompts for our jewelry consultants is rolled out to all of our banners as well as post-repair ESA, which is something that we've been ramping up and we see traction. Our stores team has done a great job in training and really understanding the benefit to our customer for those services as a one-stop for all of their jewelry needs. So we continue to evolve that. Our attachment rates as another note on that to consider, Ike, is attachment rates to Bridal are much higher than Fashion, they're almost double. And as with the return to engagements and as we see that scale up and progress throughout the year, we would expect the services business to respond similarly as well. So a lot of great opportunity in services for us.

Okay. So it sounds like service will outperform, but we're not -- you're not going to quantify the exact amount that you're planning to that?

No. We don't quantify the exact, but we expect it to continue to grow. And it did outperform our merchandise by 1,000 bps in the fourth quarter.

Great point.

Understood. And sorry, last question. Just on the tax rate comment, Joan, you went through you talked about the step up like 3 or 4 points. Is that incorporated in this new 19 to 20 that you have this year? Or should we -- are you saying that we should be expecting like 23% to 24% going forward in the out years?

So thank you for the clarification, Ike. The impact for the new tax legislation for Bermuda will affect FY '26, not FY '25. There was no impact in FY '25. We recorded the deferred tax benefit at the end of the year, and it does affect -- it will affect tax rate a year from now. And associated with that is a cash tax benefit that will occur ratably over the next 10 years.

Got it. So '23, '24 as the go forward based on what you said earlier, right?

FY '26.

Correct.

It starts at '23, '24. Yes. Yes.

Your next question comes from the line of Mauricio Serna from UBS.

I guess just wanted to get a sense of what are you thinking about the total jewelry industry growth considering also like Fashion and the nonengagement part of Bridal. How are you thinking about the industry growth for the year? And then, just also maybe you could provide a little bit more details on the digital part of the business. Can you elaborate a little bit more like what are the issues happening in there? What -- if I recall, I think you were already expecting some benefits in Q4 of integration from both banners. And then lastly, just on the comment -- based on the commentary that you provided for Valentine's and how things have trended since then? Like is there a way to get a sense of like what are the quarter-to-date comps?

Mauricio, so I'll start on your questions, and then Joan can chime in on that. So in terms of what we're expecting from the category in this year ahead, we're expecting the jewelry category to be down mid-single digits. We'd expect to be able to grow share in that environment, particularly in Bridal. We're seeing consumers continue to be value-oriented. That's how they were at Q4 and Valentine's Day, a late shopper, highly focused on value. Our strategy that worked in Q4 was: first, to leverage our industry-leading banner portfolio to appeal to customers across all price points; second, to bring more newness and innovation in a tougher economy, customers still get excited by things they haven't seen before by innovative new items and we value engineer that newness to offer an especially good value without the level of heavy discounting that we saw in the category; and finally, we believe we are positioned to win as engagements return because of our tenured store teams, our well-known brands, trust is a more important factor in the engagement ring purchase, and we're using proprietary data. I mentioned in my remarks that we -- our customer data platform today includes 17 million people who are in dating relationships, we would expect only 2.5 million or so of those to get engaged in the next year or so. So we have more than enough people in our proprietary database to really be talking to those pre-engagement customers in advance. So that's kind of what we see coming in the market and why we think we're positioned to perform better than the industry in this environment. Your second question was about digital banners. And so, the first thing I want to start with is just emphasizing that the issues that we saw were not to do with our core e-commerce business. It was Blue Nile and James Allen as a result of the integration. Our core e-com business is performing well and the investments that we've put in place have led us to hit an all-time high in Net Promoter Score in digital. What we saw with James Allen and Blue Nile were some operational issues related to the replatforming of the business. Frankly, we thought we had it all wired and that the pipes were connected well, but they weren't. And we had, unfortunately, some problems integrating Blue Nile with its production partners, which caused us to see a dip in conversion with much longer fulfillment times. So, we've got the team very focused on getting this fixed. We believe that we are on a very good path to get these issues resolved. We expect the fixes in place later during the year, although our guidance does not reflect significant improvement in the digital banners. In fact, our fiscal year guidance assumes a 2-point comp drag in total coming from the digital banners.

Then Mauricio, with respect to your comp question, as we mentioned, early V Day or Valentine's Day was down mid-teens. Post Valentine's Day, we're seeing a down -- mid- to high single-digit comp, and if it helps to put the year in context for you. Our first half of FY '25 same-store sales range should be down high-single to mid-single digits, followed by a second half of down slightly to low single-digit growth. That's how to put the year in context.

Very helpful. And very lastly, a follow-up on the cost savings initiative. Any way you could break it down like into the 3 big buckets that you mentioned on the sourcing, the AI and others like the noncustomer-facing expenses?

Yes. So as we think about the $350 million, we expect or anticipate $150 million to $180 million this year in cost savings. It's through sourcing savings is roughly half of that is, I would say, for this year and would look for that to continue into the out years with that sort of balance. And then the AI and customer facing -- noncustomer-facing expenses would be the other half of that savings. And again, as I mentioned, the sourcing savings would be more back-half weighted.

Your next question comes from the line of Jim Sanderson from Northcoast Research.

I wanted to talk a little bit more about the 300 renovations you're planning this year. That's, I think, about 10% of your store fleet. Can you outline the benefits you would expect this year or if this is a later year benefit? And any feedback on what you think the improvement in store sales volumes would be from those remodels?

Yes. Thanks, Jim. We're excited about this program. We've been able to test within our Kay stores, which I mentioned were largely -- were roughly 200 stores and consistent with Hometown strategy for Kay, the renovations have delivered a mid-single-digit lift for us, and we call them renovation lights, which means from a capital perspective, it's very efficient. And what they include are new carpet, LED lighting, really supporting the sustainability and environment strategies that we have in goals. We'll take care of expanding services, which again, as we talked with Ike is a significant investment for us overall and drive top line growth. And then will affect the cases, the lighting in cases and really upgrade the presence of the shopping environment for our jewelry consultants as well as our customers. And then we'll include digital displays as well as basic loss prevention updates. So as you can see, it's capital light, but it's delivering top line growth for us. And there's a store in Texas that we've done this work on, and we're really pleased with the response from our store team as well as the customer. I would also note that Jared stores, I mentioned this, that we're up-tiering Jared -- the assortment, we've tested different layouts and different design within the Jared banner. We're investing in 50 stores, and we're very excited about that. That has an overall lift that's in excess of 10% on the top line. The IRR on it is 18% to 22%. And we feel that it better supports the tiering up of the assortment -- and then we're seeing a very nice sell-through on newness in that assortment, too. And it's a holistic upgrade for us because we're also increasing inventory towards the new assortment in the Jared banner. We're also testing different formats in other banners such as Banter, which Gina mentioned performed very well at holiday, and we're looking to improve services and increase the services level of business in the Banter portfolio. And we believe that those investments will -- the tests, we'll read, we'll play out, and we'll put investments against a strong test rate.

Is -- are the benefits primarily to be -- to take place next year. So this isn't really a fiscal 2025 story? Or is part of that baked into your expectations?

It's a back half story. We have to invest upfront here, it will take us probably through to the end of the third quarter to address all the stores that we have targeted. So yes, definitely later in the year.

Okay. And you mentioned a comment about some fixed costs slightly higher on a year-over-year basis. I'm just wondering what is your outlook on labor inflation? And not only just inflation, but perhaps investment in labor as you grow going forward?

Yes. We feel very strongly about investing in training, especially within our store teams, we have to -- we've provided for that in our guidance and in our investments for FY '25. So very cognizant of that, and we believe it's very important to do that outside the store, take our jewelry consultants and give them a right training environment that enables them to really gain full benefit and come back and train the balance of stores and so forth. So a very important investment for us. Inflation itself is included within our guidance for FY '25. We've done through our cost savings program. We have made every effort to offset inflation as we give our guidance throughout the -- for the year, and we're very keen on making sure that we reach out indirect procurement, noncustomer-facing costs that we protect marketing and our people and really drive out the cost that the customers don't -- that the customer doesn't see nor do they care about.

Okay. Okay. I have one last question, just talking more broadly about the shift to growth in the engagement category. Is there anything in your data set that helps us understand the opportunity for average transaction value to increase or if the engagement consumer is perhaps more value-oriented or frugal, hoping to invest in other parts of the wedding ceremony or engagement process. Just any feedback there based on what you're looking at?

So what we know about engagement customers is that they really think about this purchase as a long-term purchase. It's often the most expensive purchase that a couple has ever made together, and they really wanted to represent more than just a piece of jewelry. It's representing their declaration of love to each other for a lifetime. So they tend to think in terms of a budget, which tends to be based on income. And so what they can get for that budget is generally what we see them asking for. We have -- at this point in time, I would say, a group of customers who come in definitely wanting to spend that budget on a natural diamond, because they believe that it has more potential to retain its value over time. We see some customers coming and wanting a lab-created because they have realized that they can get a bigger carat size for their same budget. And then we have some customers, the biggest percentage who come in looking for the advice of our expert jewelry consultants to really help them make that choice. But it tends to be a more fixed budget kind of a situation as opposed to a value orientation, which is what we do see on Fashion. So Fashion tends to fluctuate a bit more with -- the macroeconomic environment.

You mentioned lab-grown diamonds. Is your assortment, do you expect to expand that assortment in Bridal for lab grown for the back half of the year?

We've been very intent on following the customer and being customer-inspired with our inventory. What I could tell you is that lab-created still remains in the teens percentage of jewelry sales overall. For us, it tends to be a little bit lower than the category, especially given that we're skewing more to Bridal and a little bit less to low-priced Fashion. So we offer it, and it's been a good opportunity for some more value-oriented customers to get more for their limited budget. But I think, we'll continue to be very consumer-inspired on that front and make sure that we have a great offering of any kind of engagement ring or fashion product that customers are looking for across our banner portfolio.

Your next question comes from the line of Dana Telsey from Telsey Advisory Group.

As you think about the Services business, what impact on the merch margin is that having? How you're planning the Services business this year compared to last year? And anything of how you're planning in the first quarter in light of the first quarter guidance. And then when you think about the store openings that you're doing, I think, 20 to 30. Malls, out of malls, where are they going to be? And then you had closed some stores overseas. Is there a further store closing program that you anticipate there?

So thanks, Dana. Services is a growth opportunity for us. We mentioned that it outperformed merchandise margin or merchandise sales by 1,000 basis points, and it's really -- it carries a 20-point higher margin for us compared to merchandise margins. So it's definitely a gross margin expander as well as a top line growth driver for us. So we expect it to continue to outpace merchandise sales within Q1 as well as for fiscal '25 -- for the full year. And our new -- the new programs that are -- the wraparound that I mentioned earlier, post-repair ESA, POS comps and so forth, are very engaging for the jewelry consultant to have an opportunity to basically ask the customer, the question, would you like to hear about the benefits of these packages for warranties as well as repairs. So I believe that, that's a continued driver. With respect to stores, the 20 to 30 store openings that we're looking forward to -- are largely off-mall. We believe that when we look at the performance that we've seen over the past year Dana, off-mall has outperformed our mall stores as well as outlet has outperformed our mall stores. So we're continuing to drive on the economics of an off-mall -- of off-mall opportunities for us. So we'll continue on that. We also -- for the U.K., we've closed -- we sold the Ernest Jones locations that we mentioned, and we also will be closing more of the Ernest Jones stores focusing on jewelry, largely in the H. Samuel. That's also H. Samuel banner. It's also a great story on real estate and refits renovations for the H. Samuel. We're seeing the new store format there, be very positive for the performance of the U.K. International segment. So we'll continue to keep our eye on that and invest somewhat in the H. Samuel, but continue to close on the Ernest Jones locations.

Thank you. And ladies and gentlemen, this concludes the Q&A portion of today's call. I would like to turn it back to Gina Drosos, Chief Executive Officer, for closing comments.

In closing, I'd like to take a moment to thank Todd Stitzer for his service as Chair to Signet's Board of Directors. Todd will complete his 12-year term in June and will roll off our Board in accordance with Signet's Board tenure requirements. I know, I speak for the entire Board when I say we are so grateful for Todd's leadership and vision. We have transformed Signet into a data-driven, digitally-focused and consumer-inspired company. And Todd's trusted guidance unwavering support and smart counsel have been an invaluable asset. Helen McCluskey will take over as Chair in the coming months. As part of the Board, Helen has already added great value to Signet, and we look forward to continuing to tap into her deep background in retail and understanding of the consumer. Thank you, everyone, for joining. We look forward to speaking to you all again in June.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.