SIGNET JEWELERS LIMITED
FISCAL 20192022 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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REFERENCES
Unless the context otherwise requires, references to “Signet” or the “Company,” refer to Signet Jewelers Limited (and before September 11, 2008 to Signet Group plc) and its consolidated subsidiaries. References to the “Parent Company” are to Signet Jewelers Limited.
PRESENTATION OF FINANCIAL INFORMATION
All references to “dollars,” “US dollars” and “$” are to the lawful currency of the United States of America (“US”). Signet prepares its financial statements in US dollars. All references to “British pound(s),” “pounds,” and “£” are to the lawful currency of the United Kingdom (“UK”). All references to “Canadian dollar” or “C$” are to the lawful currency of Canada.
Percentages in tables have been rounded and accordingly may not add up to 100%. Certain financial data may have been rounded. As a result of such rounding, the totals of data presented in this document may vary slightly from the actual arithmetical totals of such data.
Throughout this Annual Report on Form 10-K, financial data has been prepared in accordance with accounting principles generally accepted in the United StatesUS (“GAAP”). However, Signet givesprovides certain additional non-GAAP measures in order to provide increased insight into the underlying or relative performance of the business. An explanation of each non-GAAP measure used can be found in Item 6.7.
Fiscal year, and fourth quarter and Holiday Season
Signet’s fiscal year ends on the Saturday nearest to January 31. As used herein, “Fiscal 2020,2023,” “Fiscal 2019,2022,” “Fiscal 2018,2021,” “Fiscal 2017,” “Fiscal 2016” and “Fiscal 2015”2020,” refer to the 52 week periods ending or ended January 28, 2023, January 29, 2022, January 30, 2021, and February 1, 2020 and February 2, 2019, the 53 week period ending February 3, 2018, and the 52 week periods ending January 28, 2017, January 30, 2016 and January 31, 2015, respectively.2020. Fourth quarter references relate to the 13 weeks ended February 2, 2019January 29, 2022 (“fourth quarter”) and the 14 weeks ended February 3, 2018January 30, 2021 (“prior year fourth quarter”).
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, based upon management’smanagement's beliefs and expectations as well as on assumptions made by and data currently available to management, appear in a number of places throughout this document and include statements regarding, among other things, Signet’s results of operation,operations, financial condition, liquidity, prospects, growth, strategies and the industry in which Signet operates. The use of the words “expects,” “intends,” “anticipates,” “estimates,” “predicts,” “believes,” “should,” “potential,” “may,” “forecast,” “objective,” “plan,”"expects," "intends," "anticipates," "estimates," "predicts," "believes," "should," "potential," "may," "preliminary," "forecast," "objective," "plan," or “target,”"target," and other similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties which could cause the actual results to not be realized, including, but not limited to: the negative impacts that the COVID-19 pandemic has had, and could have in the future, on Signet's business, financial condition, profitability and cash flows; the effect of steps we take in response to the pandemic; the severity, duration and potential resurgence of the pandemic (including through variants), including whether it is necessary to temporarily reclose our stores, distribution centers and corporate facilities or for our suppliers and vendors to temporarily reclose their facilities; the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein, including without limitation risks relating to disruptions in our supply chain, our ability to implementattract and retain labor especially if COVID-19 vaccine mandates are implemented, consumer behaviors such as willingness to congregate in shopping centers and shifts in spending away from the jewelry category and the impact on demand of our products, our level of indebtedness and covenant compliance, availability of adequate capital, our ability to execute our business plans, our lease obligations and relationships with our landlords, and asset impairments; general economic or market conditions, including impacts of inflation or other pricing environment factors on the Company's commodity costs (including diamonds) or other operating costs; financial market risks; our ability to optimize Signet's transformation initiative; the effect of US federal tax reform and adjustmentsstrategies; a decline in consumer spending or deterioration in consumer financial position, whether due to inflation or other factors; changes to regulations relating to such impact oncustomer credit; disruption in the completionavailability of credit for customers and customer inability to meet credit payment obligations; our quarterly and year-end financial statements; changes in interpretation or assumptions, and/or updated regulatory guidance regarding the US federal tax reform;ability to achieve the benefits andrelated to the outsourcing of the credit portfolio, sale including due to technology disruptions, future financial results and operating results;results and/or disruptions arising from changes to or termination of the relevant non-prime outsourcing agreement requiring transition to alternative arrangements through other providers or alternative payment options and our ability to successfully establish future arrangements for the forward-flow receivables; deterioration in the performance of individual businesses or of the company'sCompany's market value relative to its book value, resulting in impairments of fixedlong-lived assets or intangible assets or other adverse financial consequences, including tax consequences related thereto, especially in viewconsequences; the volatility of our stock price; the Company’s recent market valuation;impact of financial covenants, credit ratings or interest volatility on our ability to successfully integrate Zale Corporationborrow; our ability to maintain adequate levels of liquidity for our cash needs, including debt obligations, payment of dividends, planned share repurchases (including execution of accelerated share repurchases) and R2Net’s operationscapital expenditures as well as the ability of our customers, suppliers and lenders to realize synergies from the Zale and R2Net transactions; general economic conditions;access sources of liquidity to provide for their own cash needs; changes in our credit rating; potential regulatory changes, global economic conditions or other developments related to the United Kingdom’s announced intention to negotiate a formalKingdom's exit from the European Union; a decline in consumer spending or deterioration in consumer financial position;exchange rate fluctuations; the cost, availability of and demand for diamonds, gold and other precious metals; stakeholder reactions to disclosure regarding the source and use of certain minerals; seasonality of Signet's business; the merchandising, pricing and inventory policies followed by Signet; Signet’s Signet and failure to manage inventory levels; Signet's
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relationships with suppliers including the ability to continue to utilize extended payment terms and the ability to obtain merchandise that customers wish to purchase; the reputationfailure to adequately address the impact of Signetexisting tariffs and/or the imposition of additional duties, tariffs, taxes and its banners;other charges or other barriers to trade or impacts from trade relations; the level of competition and promotional activity in the jewelry sector; our ability to optimize Signet's multi-year strategy to gain market share, expand and improve existing services, innovate and achieve sustainable, long-term growth; the costmaintenance and availabilitycontinued innovation of diamonds, goldSignet's OmniChannel retailing and other precious metals;ability to increase digital sales, as well as management of its digital marketing costs; changes in consumer attitudes regarding jewelry and failure to anticipate and keep pace with changing fashion trends; changes in the supply and consumer acceptance of and demand for gem quality lab created diamonds; regulations relatingdiamonds and adequate identification of the use of substitute products in our jewelry; ability to customer credit; seasonalityexecute successful marketing programs and manage social media; the ability to optimize Signet's real estate footprint; the ability to satisfy the accounting requirements for "hedge accounting," or the default or insolvency of Signet’s business; the success of recent changes in Signet’s executive management team;a counterparty to a hedging contract; the performance of and ability to recruit, train, motivate and retain qualified sales associates; the impact of weather-related incidents on Signet’s business; financial market risks; exchange rate fluctuations; changesteam members - particularly in Signet’s credit rating; changes in consumer attitudes regarding jewelry;regions experiencing low unemployment rates; management of social, ethical and environmental risks; the developmentreputation of Signet and maintenance of Signet’s omni-channel retailing; the ability to optimize Signet’s real estate footprint; security breaches and other disruptions to Signet’s information technology infrastructure and databases,its banners; inadequacy in and disruptions to internal controls and systems; changes in assumptions used in making accounting estimates relating to items such as credit outsourcing fees, extended service plans and pensions; risks related to Signet being a Bermuda corporation; the impact of the acquisition of Zale Corporation on relationships,systems, including with employees, suppliers, customers and competitors; Signet’s ability to protect its intellectual property; changes in taxation benefits, rules or practices in the US and jurisdictions in which Signet’s subsidiaries are incorporated, including developments related to the tax treatment of companies engaged in Internet commerce;migration to new information technology systems which impact financial reporting; security breaches and other disruptions to Signet's information technology infrastructure and databases; an adverse development in legal or regulatory proceedings or tax matters, including any new claims or litigation brought by employees, suppliers, consumers or shareholders, regulatory initiatives or investigations, and ongoing compliance with regulations and any consent orders or other legal or regulatory decisions.decisions; failure to comply with labor regulations; collective bargaining activity; changes in corporate taxation rates, laws, rules or practices in the US and jurisdictions in which Signet's subsidiaries are incorporated, including developments related to the tax treatment of companies engaged in Internet commerce or deductions associated with payments to foreign related parties that are subject to a low effective tax rate; risks related to international laws and Signet being a Bermuda corporation; difficulty or delay in executing or integrating an acquisition, including Diamonds Direct, or executing other major business or strategic initiatives; risks relating to the outcome of pending litigation; our ability to protect our intellectual property or physical assets; changes in assumptions used in making accounting estimates relating to items such as extended service plans and pensions; or the impact of weather-related incidents, natural disasters, strikes, protests, riots or terrorism, acts of war or another public health crisis or disease outbreak, epidemic or pandemic on Signet's business.
For a discussion of these and other risks and uncertainties which could cause actual results to differ materially from those expressed in any forward-looking statement, see the “Risk Factors” section in Item 1A and elsewhere inof this Annual Report on Form 10-K. Signet undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.
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PART I
ITEM 1. BUSINESS
Signet Jewelers LimitedLimited’s (“Signet”, the “Company”, “we”, “us”, or “our”) purpose is “Inspiring Love” and its mission is to enable all people to “Celebrate Life and Express Love.” The Company’s vision is to be the “Company”world’s premier jeweler by engaging customers with superior shopping and ownership experiences, connecting with them seamlessly across channels, earning their trust, and providing superior expertise, value, products, and services to meet their lifetime jewelry needs and desires. Signet is the innovation and market share leader of the jewelry category with opportunity for additional growth as the Company leverages its core strengths and competitive advantages.
In Fiscal 2022, Signet successfully completed a three-year transformation plan —“Path to Brilliance”— which was designed to position the Company for reliable, sustainable long-term growth. Having achieved or exceeded its Path to Brilliance goals, the Company launched its next phase of growth — “Inspiring Brilliance” — in Fiscal 2022, focused on four where-to-play strategies: Win in Big Businesses; Expand Accessible Luxury and Value; Accelerate Services; and Lead Digital Commerce. The core objectives of “Inspiring Brilliance” are to grow operating margin and gain market share while driving annual revenues toward its longer-term goal of $9 billion.
Inspiring Brilliance
As described above, the foundations of “Inspiring Brilliance” are focused on four where-to-play strategies: Win in Big Businesses; Expand Accessible Luxury and Value; Accelerate Services; and Lead Digital Commerce. Below is the summary of the goals within these strategies, as well as the progress and accomplishments toward those goals during Fiscal 2022.
•Win in Big Businesses: Signet is investing in and keeping its largest businesses healthy and growing by differentiating and positioning Signet banners with the customers they serve best and by leading innovation that will help ensure they win. Signet’s banner value propositions are expanding the middle-market and attracting new and loyal customers across its entire portfolio. In this first year of Signet’s Inspiring Brilliance growth journey, the Company delivered revenue growth in each of its leading banners that is well ahead of the growth for the overall jewelry category. This early progress helped drive a 270 basis point gain to Signet’s market share, up from 6.6% in Fiscal 2021 to 9.3% in Fiscal 2022.
•Expand Accessible Luxury and Value: The Company is expanding the mid-market segment of the jewelry category by stretching the top of the mid-tier with greater focus on accessible luxury and the lower mid-tier with greater focus on value. At the top end of the market, Jared grew total revenue by 44% in Fiscal 2022, with its fastest growth reflected in products over $3,000. In addition, the Company acquired Diamonds Direct, an accessible luxury banner with a highly productive operating model. At the lower mid-tier, Signet’s goal of growing Banter by Piercing Pagoda (“Banter”) and outlets over time into billion-dollar businesses. Banter is on a growth trajectory with highly productive formats that delivered their seventh consecutive year of same store sales growth. Additionally, Banter opened a number of in-line formats, enabling banner access to shopping centers that do not allow Banter’s traditional kiosk format.
•Accelerate Services: Signet is positioned to create a $1 billion revenue stream through services, as well as expand its customer base and loyalty. Services carry higher margin profiles and Signet is focused on introducing consumer-driven services as well as enhancing its existing services. This past year, the Company strengthened its reputation as a preferred supplier of jewelry repair services with an enhanced and harmonized set of extended service agreements, increased repair customer satisfaction ratings, decreased repair times, and new services such as needle piercing and, through the acquisition of Rocksbox, jewelry rental. The Company also launched a loyalty program, Vault Rewards, that has already enrolled nearly 30,000 members since the pilot launched in November.
•Lead Digital Commerce: Digital innovation and capabilities are integral to the future of jewelry retail and is a cornerstone of Signet’s growth strategy. Signet now believes it has become the digital innovation leader in jewelry through focused investments and agile implementation. In Fiscal 2022, the Company implemented both customer-facing digital capabilities as well as operational technologies to strengthen its competitive advantages. Innovations included virtual try-on, asynchronous SMS texting between customers and jewelry consultants, and a range of flexible fulfillment options such as ship-from-store and same-day delivery. In the past year, roughly 25% of online orders utilized one of Signet’s flexible fulfillment capabilities, which contributed to more than a 50% improvement in inventory turn. In addition, the Company is leveraging artificial intelligence (“AI”) and machine learning in many operational parts of its business such as inventory distribution, labor planning and real estate fleet optimization. For example, since starting its transformation four years ago, Signet has reduced its store fleet by roughly 20%, using data-driven insights, in order to deliver nearly 500 basis points of annual gross margin
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expansion. Further, the Company is enabling its team members to be social ambassadors. More than 2,500 team members, including 700 virtual jewelry consultants, have been trained as micro-influencers.
How to Win: The Company is executing these growth strategies with three “How to Win” priorities: a Consumer-Inspired mindset, Connected Commerce presence, and a Culture of Innovation and Agility.
•Consumer Inspired: The Company is growing its customer base by drawing inspiration from inside and outside the jewelry category to drive innovation. Signet’s ability to develop unique customer insights with highly precise data analytics is emerging as a clear and sustainable competitive advantage. For example, in Fiscal 2022, Signet identified a trend in consumer spending as customers began spending more on gifts for those closest to them. Through careful assortment and price architecture planning, the Company took advantage of this emerging trend to drive higher average transaction values across all its banners. This data-powered foresight allowed the Company to be staffed and stocked in a year in which supply chain issues were significant obstacles for many retailers, leading Signet to deliver the strongest holiday selling season in its history.
•Connected Commerce: As part of its Path to Brilliance transformation, Signet moved from a bricks-and-mortar-centric business model to an OmniChannel strategy. Now, through Inspiring Brilliance, the Company is positioning itself to win with connected commerce capabilities that transcend OmniChannel, enabling its banners to engage customers whenever, wherever and however they want to shop. No other jewelry retailer offers a comparable mix of stores and digital platforms to serve customers. In Fiscal 2022, nearly 20% of sales were completed online and 65% of customers reported that they used a banner website prior to completing their purchase, which indicates that Signet customers now use both online and in-store experiences as part of their shopping journey. These seamless, friction-free experiences lead to higher transaction values and stronger conversion rates than a traditional OmniChannel strategy.
•Culture of Innovation and Agility: Signet has transformed its culture – achieving two consecutive years of being named a Great Place to Work-Certified™ Company. The Signet team is operating with high engagement scores and enhanced productivity levels. In fact, 90% of team members surveyed via the Great Place To Work® Trust Index© Employee Survey responded, “When I look at what we accomplish, I feel a sense of pride.” With the most experienced and dedicated team in its category, Signet is committed to be the innovation leader of every business in which it competes and to operate with the agility required to learn, grow and lead. The Company will continue to encourage leadership and fast-paced iterative learning at every level, to empower agile work teams, to inspire Design Thinking approaches to problem solving, and to nurture an environment in which innovation, diversity and transformational productivity are signature characteristics of the Signet culture. The strength of Signet’s culture has become a competitive advantage as it attracts top talent, enables high retention and low attrition rates, and inspires peak performance at every level of the organization, all of which are reflected in the Company’s strong business performance.
With its Path to Brilliance transformation now complete - and industry-leading growth in the first year of its Inspiring Brilliance growth journey - Signet is demonstrating that it has the strategies, strengths and talent to consistently outpace the market and deliver reliable, long-term sustainable growth.
2030 Corporate Sustainability Goals
As a company with a Citizenship & Sustainability Committee focused on its Environmental, Social and Governance (“ESG”) strategy, and a purpose-inspired business strategy in Inspiring Brilliance described above, Signet is committed to ongoing leadership in ESG initiatives as an important growth driver that is critical to the health of our business. To that end, the Company released its 2030 Corporate Sustainability Goals in Fiscal 2022, further strengthening Signet’s Corporate Citizenship and Sustainability leadership in the industry. Having already established its open-sourced Signet Responsible Sourcing Protocol which has become the industry standard for ethical and responsible sourcing, the Company now is committed to be the jewelry category leader in supply chain due diligence and reporting.
The Company’s Corporate Sustainability Goals are aligned with the UN Sustainable Development Goals in areas where Signet can have the most impact. Signet is a member of the UN Global Compact and adheres to its principles-based approach to responsible business. Leaders throughout the Company are engaged in every aspect of the Company’s Sustainability efforts. Banner leaders as well as functional leaders in Corporate Communications, Finance, Human Resources, Supply Chain, IT and Merchandising are responsible for achieving short-term and long-term goals. The Company has already achieved three of its Corporate Sustainability Goals while continuing to make steady progress towards its remaining goals.
The Company also launched the Signet Love Inspires Foundation (“Foundation”) to partner with and give grants to 501(c)(3) organizations that support underserved women and children, and social change advocacy, with the goal of creating a more equitable and sustainable world. With a focus on underserved woman and children the Foundation is able to support people during crisis with humanitarian aid.
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For more information about Signet’s Citizenship & Sustainability strategy and programs, please refer the Company’s corporate website at www.signetjewelers.com.
OVERVIEW
Signet is the world’s largest retailer of diamond jewelry. Signet is incorporated in Bermuda and its address and telephone number are shown on the cover of this document. During the first quarter of Fiscal 2019, theThe Company realigned its organizational structure. The new structure is designed to facilitate further integration of operational and product development processes and to support growth strategies. In accordance with this organizational change, the Company, with 3,334operated 2,854 stores and kiosks as of February 2, 2019, nowJanuary 29, 2022, which when combined with the Company’s digital capabilities under its Connected Commerce strategy, provides customers the opportunity to use both online and in-store experiences as part of their shopping journey. Signet manages its business by geography, a description of which follows:
•The North America segment operated 2,7292,506 locations in the US and 12894 locations in Canada as of February 2, 2019.January 29, 2022.
◦In the US, the segment primarily operated in malls and off-mall locations under the following banners: Kay (Kay Jewelers and Kay Outlet); Zales (Zales Jewelers and Zales Outlet); Jared (Jared The Galleria Of Jewelry and Jared Vault); Diamonds Direct; JamesAllen.com; and Rocksbox. Additionally, in the US, the segment operated mall-based kiosks under the Banter by Piercing Pagoda banner.
◦In Canada, the segment primarily operated under the Peoples banner (Peoples Jewellers).
•The International segment operated 477348 stores in the United Kingdom,UK, Republic of Ireland and Channel Islands as of February 2, 2019. The segment primarily operates in shopping malls and off-mall locationsJanuary 29, 2022, all under the H.SamuelH. Samuel and Ernest Jones banners. The International segment is entirely comprised of the UK Jewelry division reported under the Company’s previous reportable segment structure.
Certain companyCompany activities (e.g. diamond sourcing) are managed as a separate operating segment and are aggregated with unallocated corporate administrative functions in the “Other” segment “Other” for financial reporting purposes. Signet’spurposes, including the Company’s diamond sourcing function includes ourand its diamond polishing factory in Botswana. See Note 65 of Item 8 for additional information regarding the Company’s reportable segments.
Competition and Signet Competitive Strengths
Jewelry retailing is highly fragmented and competitive. We competeSignet competes against other specialty jewelers, as well as other retailers that sell jewelry, including department stores, mass merchandisers, discount stores, apparel and accessory fashion stores, brand retailers, online retail and auction sites, shopping clubs, home shopping television channels and direct home sellers. The jewelry category competes for customers’ share-of-wallet with other consumer sectors such as electronics, clothing and furniture, as well as travel and restaurants. This competition for consumers’ discretionary spending is particularly relevant to gift giving.
As a specialty jeweler, Signet’s business differs from many other retailers such that a purchase of merchandise from any of Signet’s stores is personal, intimate and typicallynot only viewed as an important experience.experience but is also personal and intimate. Due to this dynamic, customers often invest time on Signet websites, through conversational commerce and on social media to experience the merchandise assortments prior to visiting brick-and-mortar stores to execute a purchase transaction. Particularly related to high value transactions, customers will supplement their online experience with an in-store visit prior to finalizing a purchase.
Through Signet’s banner websites, we educatethe Company educates customers about the jewelry category, and provideprovides them with a source of information on products, brands, and brands, available merchandise, as well as the ability to buy online. OurTo effectively service the ever-evolving needs of its digitally connected customers, Signet’s websites are integrated with each segment’s stores,a customer’s local store, so that merchandise ordered online may be picked up at adelivered to their store or delivered to the customer.at home. Banner websites continue to make an important and growing contribution to the customer experience, as well as to each segment’sbanner’s marketing programs. As in Fiscal 2019, the CompanySignet’s Connected Commerce strategy will continue to focus on:
•Investments in technology, including eCommerce platforms, focusedtechnologies and digital capabilities to enhance the customer journey. These include developing AI driven conversational commerce, the ability to virtually try on improving the online journey. Customer journey enhancements include user generated content,products, visual search tools, configuration capability, jewelry related services enhanced personalization / behavioral targeting, creative execution and brand differentiation. In addition, we are focusedSignet will continue to focus on OmniChannel wishlist,customer-first delivery options (such as buy online, merchandising,pick up in store, “BOPIS”, same day delivery, curbside pickup, ship from store), creating a seamless customer experience between the websites, virtual and in-store appointment booking, bridal configurationselling, making it easier for customers whenever and much more.however they choose to shop with Signet.
•The expansion of marketing through prioritizing dollarsasynchronous messaging with intent recognition and the ability to digital spendroute to the appropriate expert based on that intent recognition whether that be a sales expert for engagement rings, watches or other gifts, or service to an existing order or purchase.
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•The creation of a robust Customer Data Platform and targeted marketing through traditional media.
•Adding new capabilities to Signet’s digital customer clientele program, which enables the Company’s jewelry consultants to build a direct relationship with their customers to create a more personalized customer experience. In Fiscal 2022, this program was further enhanced with a newly created Digital In-Store Integration practice established to lead the integration of Digital into brick & mortar stores across Signet banners. This team partners closely with IT and Operations to harmonize and enhance existing applications and systems and use next generation training techniques to provide the right level of training and support to the field team.
Signet’s supplier relationships allow itthe Company to display suppliers’ inventories on the banner websites for sale to customers without holding the items in its inventory until the products are ordered by customers, which are referred to as “virtual inventory.” Virtual inventory expands the choice of merchandise available to customers both online and in-store.
Customer experience
Signet undertakes hedgingis committed to delivering an inspiring, innovative, full service, seamlessly connected customer experience for a portionour clients regardless of their channel of choice. The Company considers this an essential element and competitive advantage in the success of its requirement for gold through the use of net zero premium cost collar arrangements, forward contractsbusiness. The ability to recruit, develop and participating forwards or swaps. Itretain qualified jewelry consultants is not possiblean important capability to hedge against fluctuationsdeliver customer satisfaction. Signet has comprehensive recruitment, training and incentive programs in place, including annual training conferences in the cost of diamonds. The cost of raw materials is only part of the costs involved in determining the retail selling price of jewelry, with labor costs also being a significant factor.spring and fall.
Signet continues to take stepsinvest in capabilities to advance its vertical integration, which includes rough diamond sourcingenhance the customer experience to make it more personalized and processing. Signet’s objective with this initiative is to secure additional, reliable and consistent supplies of diamonds for customers worldwide while achieving further efficiencies in the supply chain. Signet owns a diamond polishing factory in Gaborone, Botswana. The Company is a DeBeers sightholder, and receives contracted allocations of rough diamonds from Rio Tinto, DeBeers and Alrosa. Signet has also established a diamond liaison office in India and a diamond trading office in New York to further support its sourcing initiative.
| North America | International | Consolidated | ||||||
| Fiscal 2019 | ||||||||
| Bridal | 49 | % | 42 | % | 48 | % | ||
| Fashion | 44 | % | 21 | % | 42 | % | ||
| Watches | 5 | % | 35 | % | 8 | % | ||
| Other | 2 | % | 2 | % | 2 | % | ||
| 100 | % | 100 | % | 100 | % | |||
| Fiscal 2018 | ||||||||
| Bridal | 48 | % | 36 | % | 46 | % | ||
| Fashion | 44 | % | 28 | % | 43 | % | ||
| Watches | 5 | % | 34 | % | 8 | % | ||
| Other | 3 | % | 2 | % | 3 | % | ||
| 100 | % | 100 | % | 100 | % | |||
As noted above, the Company operates eight banners in North America and two banners in the Holiday Season, Valentine’s Day and Mother’s Day time periods and represented 42% of Signet’s total merchandise sales.
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||||||||||
| (in millions) | Gross advertising spending | as a % of segment sales | Gross advertising spending | as a % of segment sales | Gross advertising spending | as a % of segment sales | ||||||||||||
| North America | $ | 368.5 | 6.5 | % | $ | 340.4 | 6.1 | % | $ | 358.8 | 6.2 | % | ||||||
| International | 19.3 | 3.3 | % | 20.1 | 3.3 | % | 21.8 | 3.4 | % | |||||||||
| Signet | $ | 387.8 | 6.2 | % | $ | 360.5 | 5.8 | % | $ | 380.6 | 5.9 | % | ||||||
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The store activity was as follows for Fiscal 2022 and Fiscal 2021:
| January 29, 2022 | Opened and acquired (1) (3) | Closures (1) | January 30, 2021 | Openings(1) | Closures (1) | February 1, 2020 | ||||||||||||||||||||||||||||||||||||||
| North America segment: | ||||||||||||||||||||||||||||||||||||||||||||
Mall (2) | 1,602 | 59 | (59) | 1,602 | 20 | (266) | 1,848 | |||||||||||||||||||||||||||||||||||||
| Off-mall and outlet | 904 | 45 | (20) | 879 | 33 | (63) | 909 | |||||||||||||||||||||||||||||||||||||
| Total North America segment store activity | 2,506 | 104 | (79) | 2,481 | 53 | (329) | 2,757 | |||||||||||||||||||||||||||||||||||||
| International segment store activity | 348 | 3 | (7) | 352 | — | (99) | 451 | |||||||||||||||||||||||||||||||||||||
| Signet total | 2,854 | 107 | (86) | 2,833 | 53 | (428) | 3,208 | |||||||||||||||||||||||||||||||||||||
North America Total net selling square feet (thousands) (2) | 3,784 | 3,764 | 4,121 | |||||||||||||||||||||||||||||||||||||||||
| Increase (decrease) in net store selling space | 0.5 | % | (8.7) | % | (2.6) | % | ||||||||||||||||||||||||||||||||||||||
| International Total net selling square feet (thousands) | 405 | 408 | 478 | |||||||||||||||||||||||||||||||||||||||||
| Decrease in net store selling space | (0.7) | % | (14.6) | % | (4.2) | % | ||||||||||||||||||||||||||||||||||||||
(1) Includes 12 store repositions in the store portfolio is set out below:Fiscal 2022 and 33 repositions in Fiscal 2021.
| (in millions) | North America | International | Total Signet | ||||||||
| Fiscal 2019 | |||||||||||
| New store capital investment | $ | 15.3 | $ | 1.8 | $ | 17.1 | |||||
| Remodels and other store capital investment | 50.1 | 3.0 | 53.1 | ||||||||
| Total store capital investment | $ | 65.4 | $ | 4.8 | $ | 70.2 | |||||
| Fiscal 2018 | |||||||||||
| New store capital investment | $ | 47.1 | $ | 1.4 | $ | 48.5 | |||||
| Remodels and other store capital investment | 63.8 | 10.7 | 74.5 | ||||||||
| Total store capital investment | $ | 110.9 | $ | 12.1 | $ | 123.0 | |||||
| Fiscal 2017 | |||||||||||
| New store capital investment | $ | 65.1 | $ | 2.5 | $ | 67.6 | |||||
| Remodels and other store capital investment | 83.0 | 15.3 | $ | 98.3 | |||||||
| Total store capital investment | $ | 148.1 | $ | 17.8 | $ | 165.9 | |||||
(3) Includes 22 Diamonds Direct off-mall locations acquired as described in Note 4 of November and December. As a result of our transformation initiatives, we anticipate our operating profit will be almost entirely generated inItem 8.
Refer to Item 2 for additional information on the fourth quarter.Company’s real estate portfolio.
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||
Average number of employees:(1) | ||||||||
North America(2) | 19,689 | 21,440 | 25,944 | |||||
| International | 3,125 | 3,265 | 3,398 | |||||
Other(3) | 175 | 183 | 224 | |||||
| Total | 22,989 | 24,888 | 29,566 | |||||
The North America segmentoperates jewelry stores in malls, mall-based kiosks and off-mall locations throughout the US and Canada and online under national banners including Kay, Zales, Jared, andPeoples, Banter by Piercing Pagoda and Diamonds Direct. Additionally, the Company operates online through JamesAllen.com and Rocksbox, as well as a varietyeach of mall-based regional banners.
| February 2, 2019 | Openings | Closures | February 3, 2018 | Openings | Closures | January 28, 2017 | |||||||||||||||
| Mall | |||||||||||||||||||||
| Kay | 690 | — | (41 | ) | 731 | 4 | (24 | ) | 751 | ||||||||||||
| Zales | 510 | 2 | (37 | ) | 545 | 5 | (48 | ) | 588 | ||||||||||||
| Jared | 3 | — | (6 | ) | 9 | — | (1 | ) | 10 | ||||||||||||
Piercing Pagoda(1) | 574 | — | (24 | ) | 598 | 13 | (31 | ) | 616 | ||||||||||||
| Peoples | 123 | 2 | (8 | ) | 129 | 2 | (16 | ) | 143 | ||||||||||||
Regional banners(2) | 32 | 1 | (69 | ) | 100 | — | (97 | ) | 197 | ||||||||||||
| North America segment | 1,932 | 5 | (185 | ) | 2,112 | 24 | (217 | ) | 2,305 | ||||||||||||
| Off-mall and outlet | |||||||||||||||||||||
| Kay | 524 | 36 | (28 | ) | 516 | 80 | (5 | ) | 441 | ||||||||||||
| Zales | 148 | — | (11 | ) | 159 | 6 | (10 | ) | 163 | ||||||||||||
| Jared | 253 | 1 | (13 | ) | 265 | 3 | (3 | ) | 265 | ||||||||||||
| North America segment | 925 | 37 | (52 | ) | 940 | 89 | (18 | ) | 869 | ||||||||||||
| Total | |||||||||||||||||||||
| Kay | 1,214 | 36 | (69 | ) | 1,247 | 84 | (29 | ) | 1,192 | ||||||||||||
| Zales | 658 | 2 | (48 | ) | 704 | 11 | (58 | ) | 751 | ||||||||||||
| Jared | 256 | 1 | (19 | ) | 274 | 3 | (4 | ) | 275 | ||||||||||||
Piercing Pagoda(1) | 574 | — | (24 | ) | 598 | 13 | (31 | ) | 616 | ||||||||||||
| Peoples | 123 | 2 | (8 | ) | 129 | 2 | (16 | ) | 143 | ||||||||||||
Regional banners(2) | 32 | 1 | (69 | ) | 100 | — | (97 | ) | 197 | ||||||||||||
| North America segment | 2,857 | 42 | (237 | ) | 3,052 | 113 | (235 | ) | 3,174 | ||||||||||||
| February 2, 2019 | February 3, 2018 | January 28, 2017 | |||||||||||||||||||
| Kay | 1,864 | 1,931 | 1,826 | ||||||||||||||||||
| Zales | 916 | 977 | 1,039 | ||||||||||||||||||
| Jared | 1,139 | 1,181 | 1,177 | ||||||||||||||||||
| Piercing Pagoda | 108 | 112 | 115 | ||||||||||||||||||
| Peoples | 166 | 171 | 190 | ||||||||||||||||||
| Regional banners | 38 | 121 | 233 | ||||||||||||||||||
Total net selling square feet (thousands)(3) | 4,231 | 4,493 | 4,580 | ||||||||||||||||||
| Increase in net store selling space | (5.8 | )% | (1.9 | )% | 2.8 | % | |||||||||||||||
| Average sales per store (millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | |||||||||
| Kay | $ | 1.905 | $ | 1.908 | $ | 2.124 | ||||||
| Zales | $ | 1.519 | $ | 1.408 | $ | 1.327 | ||||||
Jared(1) | $ | 4.085 | $ | 4.110 | $ | 4.379 | ||||||
| Piercing Pagoda | $ | 0.479 | $ | 0.417 | $ | 0.506 | ||||||
| Peoples | $ | 1.467 | $ | 1.444 | $ | 1.267 | ||||||
| Regional banners | $ | 1.332 | $ | 1.182 | $ | 1.242 | ||||||
North America segment(2) | $ | 1.692 | $ | 1.673 | $ | 1.739 | ||||||
Kay Jewelers (“Kay”)
Kay is the largest specialty retail jewelry store brand in the US based on sales. Kay operates in shopping malls, and off-mall stores. Off-mall stores primarily are located incenters, outlet malls and power centers.online. Kay mall stores typically occupy about 1,600 square feetis positioned as the champion of modern love and have approximately 1,300 square feetgratitude, the #1 US jeweler for bridal and all occasion-based gifting offering a broad assortment of selling space, whereas Kay off-mall stores typically occupy about 2,200 square feetfine jewelry including bridal, diamond solitaire, fashion jewelry and have approximately 1,800 square feet of selling space.watches.
Kay accounted for 39%38% of Signet’s consolidated sales in Fiscal 20192022 (Fiscal 2018: 39%2021: 38%).
Zales Jewelers (“Zales”)
Zales Jewelersis the third largest specialty retail jewelry brand in the US, based on sales. Zales operates primarily in shopping malls, outlet malls, neighborhood power centers and offersonline. Zales “The Diamond Store” is positioned as the style and self-expression fine jewelry authority, an emphasis on fashion oriented bridal, gifting and self-purchase consumers offering a broad range of bridal, diamond solitaire, fashion jewelry and fashion jewelry. Zales Outlet operates in outlet malls and neighborhood power centers and capitalizes on Zales Jewelers’ national marketing and brand recognition. Zales Jewelers and Zales Outlet are collectively referred to as “Zales.”watches.
Zales accounted for 20%22%of Signet’s consolidated sales in Fiscal 20192022 (Fiscal 2018: 20%2021: 22%).
Jared The Galleria Of Jewelry (“Jared”)
Jared, which offers the broadest selection of merchandise, is the fourth largest US specialty retail jewelry brand by sales and is a leading off-mall destination specialty retail jewelry store chain. Jared is positioned with an “accessible luxury” assortment and additional services to appeal to a higher income customer and deliver higher average price points than Kay and Zales.Every Jared store has an on-site design and service centerDesign & Service Center where most repairs are completed within the same day.
Jared locations are normally free-standing sites with high visibility and traffic flow, positioned close to major roads within shopping developments. Jared stores usuallyprimarily operate in retail centers that contain strong retail co-tenants, including big box, destination stores and some smaller specialty units.
Jared accounted for 18%17%of Signet’s consolidated sales in Fiscal 20192022 (Fiscal 2018: 19%2021: 18%).
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Banter by Piercing Pagoda (“Banter”)
Banter, our curated jewelry and piercing services brand, empowers its customers to express themselves with affordably priced selections of basic and fashion gold, silver and diamond jewelry. The brand operates primarily online and through mall-based kiosks in high-traffic areas across the US. Piercing Pagodas are generally located in high traffic areasUS that are easily accessible and visible withinin regional shopping malls. During Fiscal 2022, Piercing Pagoda offerstested a selection of gold, silver and diamond jewelry in basic styles at moderate prices.
new name, Banter by Piercing Pagoda. Based on results, all stores were renamed to Banter by Piercing Pagoda by the end of Fiscal 2022. Banter opened 12 inline locations in Fiscal 2022 within shopping malls and outdoor lifestyle centers. The brand also offers virtual styling sessions, giving customers a new digital shopping experience. Banter has continued to expand its facial piercing offerings with the introduction of hollow needle piercing in select markets, seeing opportunity to leverage this growing trend.
Banter accounted for 5%7% of Signet’s consolidated sales in Fiscal 20192022 (Fiscal 2018: 5%2021: 6%).
JamesAllen.com (“James Allen”)
James Allen is anthe world’s premier online retailer that was acquired by the Company during Fiscal 2018 as part of the R2Net acquisition. Unlike the rest of our store banners, James Allen does not principally operate in physical retail stores.fine diamond and bridal jewelry. During Fiscal 2019, the first James Allen concept store and showroom was launched in Washington D.C. featuring advances in digital technology and a millennial-inspired shopping experience. This store is an opportunityenables the Company to test new concepts and incorporate innovation in new store design plans for all of ourthe Company’s banners.
James Allen accounted for 4%5% of Signet’s consolidated sales in Fiscal 20192022 (Fiscal 2018: 1%2021: 6%).
Peoples Jewellers (“Peoples”)
Peoples is Canada’s largest specialty jewelry retailer offering jewelry at affordable prices. Peoplesand is positioned as “Canada’s #1 Diamond Store” emphasizing its diamond business while also offering a wide selection of gold jewelry, gemstone jewelry and watches. Peoples stores typically occupy about 1,600 square feetoperates primarily in shopping malls and have approximately 1,300 square feet of selling space.online.
Peoples accounted for 3%of Signet’s consolidated sales in Fiscal 20192022 (Fiscal 2018:2021: 3%).
Diamonds Direct is an off-mall, destination jeweler in the US, with a highly productive, efficient operating model with demonstrated growth and Mappins Jewellers (“Mappins”),profitability. Diamonds Direct’s strong value proposition, extensive bridal offering and customer-centric, high-touch shopping experience is destination for younger, luxury-oriented bridal shoppers. Diamonds Direct furthers Signet’s accessible luxury positioning with a distinct focus on bridal, appealing to a higher income customer and delivers higher average price points compared to other banners. Diamonds Direct’s stores are typically located in Canada. Also included in the regional nameplates are Goodman Jewelers, LeRoy’s Jewelers, Osterman Jewelers, Rogers Jewelers, Shaw’s Jewelers and Weisfield Jewelers. The Company’s strategy isdesirable off-mall sites proximate to reduce regional brand locations through conversion to national store brands or through closure upon lease expiration.high-end, destination centers alongside strong performing upscale retailers.
Diamonds Direct accounted for 1%2% of Signet’s consolidated sales in Fiscal 2019 (Fiscal 2018:1%).2022.
The North AmericaInternational segment sells extended service plans covering lifetime repair service for jewelry and jewelry replacement plans. The lifetime repair service plans cover services such as ring sizing, refinishing and polishing, rhodium plating of white gold, earring repair, chain soldering and the resetting of diamonds and gemstones that arise due to the normal usage of the merchandise or a replacement option if the merchandise cannot be repaired. The extended service plans have a higher rate of profitability than merchandise sales and are a significant component of Signet’s operating income. Jewelry replacement plans require the issuance of new replacement merchandise if the original merchandise is determined to be defective or damaged within a defined period in accordance with the plan agreement. Any repair work is performed in-house. The North America segment also offers customers a two-year fine watch warranty. Additionally, Zale and Piercing Pagoda offer a one-year jewelry replacement program, which requires the issuance of new replacement merchandise if the original merchandise is determined to be defective or damaged in accordance with the plan agreement.
| Fiscal 2019 | Fiscal 2018 | ||||||
Total North America sales (excluding James Allen)(1) (millions) | $ | 5,418.0 | $ | 5,527.0 | |||
| Credit and lease purchase sales (millions) | $ | 2,799.5 | $ | 2,889.0 | |||
Credit and lease purchase sales as % of total North America sales(1) | 51.7 | % | 52.3 | % | |||
Ireland. The International segment transacts mainly in British pounds, as sales and the majority of operating expenses are incurred in that currency and its results are then translated into US dollars for external reporting purposes. In Fiscal 2019, approximately 31% of goods purchased were made in US dollars (Fiscal 2018: 27%). The following information for the International segment is given in British pounds as management believes that this presentation assists in understanding the performance of the International segment. Movements in the US dollar to British pound exchange rate therefore may have an impact on the results of Signet, particularly in periods of exchange rate volatility.currency.
| February 2, 2019 | Openings | Closures | February 3, 2018 | Openings | Closures | January 28, 2017 | ||||||||||||||||||
| H.Samuel | 288 | — | (13 | ) | 301 | 2 | (5 | ) | 304 | |||||||||||||||
| Ernest Jones | 189 | 3 | (17 | ) | 203 | 1 | (2 | ) | 204 | |||||||||||||||
| International segment | 477 | 3 | (30 | ) | 504 | 3 | (7 | ) | 508 | |||||||||||||||
| H.Samuel | 313 | 327 | 329 | |||||||||||||||||||||
| Ernest Jones | 186 | 197 | 197 | |||||||||||||||||||||
| Total net selling square feet (thousands) | 499 | 524 | 526 | |||||||||||||||||||||
| Increase in net store selling space | (4.8 | )% | (0.4 | )% | 1.0 | % | ||||||||||||||||||
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||||||||||||||||
| H.Samuel | £ | 0.651 | £ | 0.698 | £ | 0.748 | ||||||||||||||||||
| Ernest Jones | £ | 1.061 | £ | 1.066 | £ | 1.114 | ||||||||||||||||||
Average sales per store (millions)(1) | £ | 0.811 | £ | 0.847 | £ | 0.894 | ||||||||||||||||||
H.Samuel
H.Samuel accounted for 5%3% of Signet’s consolidated sales in Fiscal 20192022 (Fiscal 2018: 5%2021: 3%).
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Ernest Jones
Ernest Jones (including stores selling under the Leslie Davis nameplate) is the second largest specialty retail jewelry store banner in the UK by number of stores. It serves the upper middle market, with a target customer focused on high-quality, timeless jewelry. The typical store selling space is 900 square feet.
Ernest Jones (including stores selling under the Leslie Davis nameplate) accounted for 5%3% of Signet’s consolidated sales in Fiscal 20192022 (Fiscal 2018:2021: 4%).
Products and merchandising
Signet believes that a competitive strength is its industry-leading merchandising. Merchandise selection, innovation, availability and value are all critical success factors. The range of merchandise offered and the appropriate level of inventory availability are supported centrally by extensive and continuous research and testing. Signet’s jewelry merchant teams are constantly evaluating global design trends, innovating, and developing new jewelry collections, including through strategic partnerships, that resonate with customers.
Suppliers
In Fiscal 2022, the five largest suppliers collectively accounted for approximately 19.6% of total purchases, with the largest supplier comprising 5.1%. Signet transacts business with suppliers on a worldwide basis at various stages of the supply chain with third party diamond cutting and jewelry manufacturing being predominantly carried out in Asia.
Merchandise
Details of merchandise mix by major product category (excluding repairs, extended service plans and other miscellaneous sales) are shown below:
| North America | International | Consolidated | |||||||||||||||||||||
| Fiscal 2022 | |||||||||||||||||||||||
| Bridal | 47 | % | 47 | % | 47 | % | |||||||||||||||||
| Fashion | 48 | % | 20 | % | 46 | % | |||||||||||||||||
| Watches | 4 | % | 33 | % | 6 | % | |||||||||||||||||
| Other | 1 | % | — | % | 1 | % | |||||||||||||||||
| 100 | % | 100 | % | 100 | % | ||||||||||||||||||
| Fiscal 2021 | |||||||||||||||||||||||
| Bridal | 51 | % | 34 | % | 49 | % | |||||||||||||||||
| Fashion | 43 | % | 26 | % | 42 | % | |||||||||||||||||
| Watches | 4 | % | 37 | % | 7 | % | |||||||||||||||||
| Other | 2 | % | 3 | % | 2 | % | |||||||||||||||||
| 100 | % | 100 | % | 100 | % | ||||||||||||||||||
The bridal category, which includes engagement, wedding and anniversary purchases, is predominantly diamond jewelry. All of our product categories are to an extent dependent on the economic environment as customers can trade up or down price points depending on their available budget. Bridal represented 47% of Signet’s total merchandise sales and the fashion category represents 46% of Signet’s total merchandise sales during Fiscal 2022.
Merchandise is categorized as non-branded, third party branded, and branded differentiated and exclusive. Non-branded merchandise includes items and styles such as bracelets, gold necklaces, solitaire diamond rings, and diamond stud earrings. Branded differentiated and exclusive merchandise are items that are branded and exclusive to Signet within its marketplaces, or that are not widely available from other jewelry retailers (e.g. Vera Wang Love®, Neil Lane®, Disney Enchanted®).
Signet believes that the development of branded differentiated and exclusive merchandise raises the profile of its banners, helps to drive sales and provides its well-trained jewelry consultants with a powerful selling proposition. Digital marketing and national television advertisements include elements that drive brand awareness and purchase intent. Signet’s scale and proven record of success in developing branded differentiated and exclusive merchandise attracts offers of such programs from jewelry manufacturers, designers and others ahead of competing retailers, and enables it to leverage its supply chain strengths.
Merchandise held on consignment is used to enhance product selection and test new designs. This minimizes exposure to changes in fashion trends and provides the flexibility to return non-performing merchandise. Virtually all of Signet’s consignment inventory is held in the US.
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Raw materials
The Company’s costs, as with the jewelry industry as a whole, are generally affected by fluctuations in the price and supply of diamonds, gold and, to a much lesser extent, other precious and semi-precious metals and stones. The cost of raw materials is only part of the costs involved in determining the retail selling price of jewelry, with labor costs and assembly costs from third-party vendors also being significant factors.
Diamond sourcing
Signet procures its diamonds mostly as finished jewelry and, to a smaller extent, as loose polished diamonds and rough diamonds which are in turn polished, primarily in Signet’s Botswana factory.
Signet purchases finished product where management has identified compelling value based on product design, cost and availability, among other factors. Under certain types of arrangements, this method of purchasing also provides the Company with the opportunity to reserve inventory held by vendors and to make returns or exchanges with suppliers, which reduces the risk of over- or under-purchasing. Signet’s scale, balance sheet and robust procurement systems enable it to purchase merchandise at advantageous prices and on favorable terms.
Signet purchases loose polished diamonds in global markets (e.g. India, Israel) from a variety of sources (e.g. polishers, traders). Signet mounts stones in settings purchased from manufacturers using third-parties and in-house resources. By using these approaches, the cost of merchandise is reduced and the consistency of quality is maintained enabling Signet to provide better value to customers. Buying loose diamonds helps allow Signet’s buyers to gain a detailed understanding of the manufacturing cost structures and, in turn, leverage that knowledge to negotiating better prices for the supply of finished products.
Signet continues to take steps to advance its vertical integration, which includes rough diamond sourcing and processing. Signet’s objective with this initiative is to secure additional, reliable and consistent supplies of diamonds for customers worldwide while achieving further efficiencies in the supply chain. Signet owns a diamond polishing factory in Gaborone, Botswana. The Company is a DeBeers sightholder, and receives contracted allocations of rough diamonds. Signet has also established a diamond liaison office in India and a diamond trading office in New York to further support its sourcing initiative.
Rough diamonds are purchased directly from the miners and then the stones are marked, cut and polished in Signet’s own polishing facility. Any stones deemed unsuitable for Signet’s needs are sold to third-parties on the open market.
Marketing and advertising
Marketing is one of Signet’s most critical investments. It generates customer awareness and purchase considerations, and over time strengthens its banners and drives share growth. Effective and efficient marketing investment is a competitive advantage in the jewelry industry, which involves a discretionary purchase where most of the merchandise is not branded, and the purchase cycle can stretch to years.
Signet’s marketing investment is allocated between the various options available (broadcast television, online video, connected television, programmatic radio, direct mail, digital marketing, social media, and in store materials), and the spend distribution evolves over time to align to change in consumer behavior.
As marketing activities are undertaken throughout the year, digital and data capabilities provide real-time insights into customer journeys, enabling personalized communications. Signet will continue to evolve its marketing model by re-balancing the timing and mix of its media investments, leveraging a more personalized journey-based approach, and modernizing its content and messaging in order to improve effectiveness and better align to shifts in consumer media consumption. Additionally, while the Company will maintain its strong presence during traditional time-based holidays (Valentine’s Day, Mother’s Day, and the Holiday Season), Signet will also expand capabilities to grow its share of personal gifting occasions such as birthdays and anniversaries, and continue its emphasis in “always on” bridal messaging.
Signet will continue to optimize the effectiveness of its creative campaigns, building on banner differentiation strategies. The banners work with a portfolio of creative agencies and have built both internal and external data and media expertise.
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Details of gross advertising (i.e. advertising before vendor contributions) by segment is shown below:
| Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||||||||||||||||||||||||
| (in millions) | Gross advertising spending | as a % of segment sales | Gross advertising spending | as a % of segment sales | Gross advertising spending | as a % of segment sales | ||||||||||||||||||||||||||||||||
| North America | $ | 508.6 | 7.0 | % | $ | 329.5 | 6.8 | % | $ | 370.0 | 6.6 | % | ||||||||||||||||||||||||||
| International | 18.4 | 3.7 | % | 13.5 | 3.8 | % | 18.9 | 3.6 | % | |||||||||||||||||||||||||||||
| Signet | $ | 527.0 | 6.7 | % | $ | 343.0 | 6.6 | % | $ | 388.9 | 6.3 | % | ||||||||||||||||||||||||||
Other sales and services
The Company offers repair services to its customers that include both merchandise repairs and custom design services. These services represent less than 5%), of consolidated sales; however, represent an important opportunity to build customer loyalty. The custom design and repair business has its own field management and training structure, and operates in Design & Service Centers located in Jared stores. These Design & Service Centers are staffed with skilled artisans who support the repair and custom business generated across all US banners. Signet’s custom jewelry sales use a proprietary computer selling system and in-store design capabilities.
Customer finance
Several factors inherent in the US jewelry business support the circumstances through which Signet is positioned to generate profitable incremental business through its partner supported consumer payment programs. These factors include a high average transaction value and a significant population of customers seeking to finance merchandise, primarily in the bridal category. Signet’s financial service offerings are an integral part of its business and a major driver of customer loyalty. In North American markets, customers are offered revolving and promotional credit plans under Signet’s private label credit card programs, online payment options, a lease purchase option provided by Progressive Lease, and installment loan and split-payment options provided by Affirm, allowing Signet to offer payment options that meet each customer’s individual needs. In addition, the Company has partnerships with third-party providers who directly extend credit to its customers, and who also manage and service the customers’ accounts.
Below is a summary of the payment participation rate in North America which reflects activity for in-house and outsourced credit program customers in North America, for Kay, Jared, Zales and Banter customers, as well as lease purchase customers:
| (dollars in millions) | Fiscal 2022 | Fiscal 2021 | |||||||||
Total North America sales (1) | $ | 6,700.2 | $ | 4,539.4 | |||||||
| Credit, lease and Affirm purchase sales | $ | 2,739.9 | $ | 1,888.9 | |||||||
Credit, lease and Affirm purchase sales as % of total eligible North America sales (1) | 40.9 | % | 41.6 | % | |||||||
(1) Excludes Diamonds Direct, James Allen, and Rocksbox, as these banners do not participate in the Company’s financing programs discussed above.
Through Signet’s partnerships, the Company is able to offer a range of financing, leasing, and payment opportunities across its banners. The Company continues to find and develop new options to meet its customer’s needs across the various merchandise price points. These offerings and partnerships allow the Company to focus on its core business of being the premier jewelry partner for its customers.
Comenity Bank provides credit and services to the Kay, Jared, Zales and Banter banners. Genesis Financial Solutions (“Genesis”) provides a second look program for applicants declined by Comenity Bank. During Fiscal 2022, the Comenity and Genesis program agreements were amended and restated to terminate in December 2025. Additionally, in Fiscal 2022 Signet entered into amended and restated purchase agreements with Carval, Castlelake, and Genesis (“Investors”) regarding the purchase of add-on receivables on such Investors’ existing accounts, as well as the purchase of the Signet-owned credit card receivables portfolio for accounts that had been originated through Fiscal 2021. Servicing of these non-prime add-on receivables, including operational interfaces and customer
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servicing, is provided by Genesis. As a result of the amended and restated agreements entered into with Comenity, Genesis, and the Investors during Fiscal 2022, Signet no longer retains any customer in-house finance receivables. In addition, on March 7, 2022, the Company entered into amended and restated receivable purchase agreements with CarVal and Castlelake regarding the purchase of add-on receivables on such Investors’ existing accounts. Under the amended and restated agreements, The Bank of Missouri will be the issuer for the add-on receivables on these existing accounts and CarVal and Castlelake will purchase the receivables from The Bank of Missouri.
HUMAN CAPITAL MANAGEMENT
Signet’s People First approach
At Signet, our approach to Human Capital management starts with our core value of “People First” and creating a truly inclusive, innovative, and collaborative company culture. We believe that thriving and engaged team members are integral to Signet’s success. The execution of our Inspiring Brilliance business strategy is supported by our confidence in the Signet team and our commitment to their overall success and personal growth. As a retail company, sales and customer relationships are at the core of our business model. Our success depends on our ability to attract, develop, and retain highly engaged and motivated team members. Our emphasis on rewarding our retail team members with competitive wages and benefits provides a compelling package. We invested significantly in the wages and overall compensation of our existing team members in the fall of Fiscal 2022 by raising the minimum wage to $15/hour for our US operations. For eligible jewelry consultants in the US, our total average hourly wage is $20.55.
In Fiscal 2019, approximately 8%2022, Signet was again named a Great Place to Work-Certified™ Company for the second consecutive year which reflects the pride, engagement, and enthusiasm of our employees throughout our organization. We are proud and honored by this recognition and we attribute this accolade to our focus on transforming the Company’s culture, team member engagement and our overall human capital management strategy. In addition, Signet was named to the Bloomberg® Gender Equality Index for the fourth year in a row – the only specialty retail jeweler to do so. Signet was rated 85 out of 100 by the Human Rights Coalition Corporate Equality Index.
Vision for the Future
As noted in the Purpose and Strategy section, the Company released its 2030 Corporate Sustainability Goals in Fiscal 2022. The Company’s goals provide a roadmap for Signet’s commitment to sustainability. Under the heading “Love for Our Team,” The Chief People Officer is responsible for fifteen goals in the areas of Employer of Choice, Community of Inclusiveness, and Purpose and Appreciation. A full list of Signet’s goals is published on the Company’s corporate website and an annual progress report on the goals is included in the Company’s annual Corporate Citizenship and Sustainability report.
Employees and demographics
As of January 29, 2022, the number of global team members employed at Signet was 30,856 as compared to 26,749 at January 30, 2021. Approximately 88% of the segment’s salesCompany’s workforce was employed in North America.
| January 29, 2022 | January 30, 2021 | February 1, 2020 | ||||||||||||||||||
| North America | 27,162 | 23,700 | 28,835 | |||||||||||||||||
| UK | 3,239 | 2,885 | 4,086 | |||||||||||||||||
| Other international | 455 | 164 | 165 | |||||||||||||||||
| Total | 30,856 | 26,749 | 33,086 | |||||||||||||||||
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North America (1) | January 29, 2022 | January 30, 2021 | ||||||||||||
| Full-time | 15,395 | 14,800 | ||||||||||||
| Part-time | 11,174 | 8,900 | ||||||||||||
| Total | 26,569 | 23,700 | ||||||||||||
| By Gender | ||||||||||||||
| Women | 19,613 | 17,750 | ||||||||||||
| Men | 6,601 | 5,822 | ||||||||||||
| Nonbinary or chose not to identify | 355 | 128 | ||||||||||||
| By Race/Ethnicity | ||||||||||||||
| Number of Black or African American employees | 3,715 | 3,095 | ||||||||||||
| Number of American Indian and Alaska Native employees | 212 | 152 | ||||||||||||
| Number of Asian employees | 1,348 | 1,169 | ||||||||||||
| Number of Caucasian and White employees | 13,094 | 12,200 | ||||||||||||
| Number of Hispanic and Latino employees | 4,203 | 3,375 | ||||||||||||
| Number of Native Hawaiian and Other Pacific Islander employees | 114 | 104 | ||||||||||||
| Number of employees of two or more races | 976 | 822 | ||||||||||||
| Number of employees of unknown ethnicities | 2,907 | 2,783 | ||||||||||||
(1) Excludes Diamonds Direct
Diversity, equity, and inclusion
We value building a diverse workforce, embracing different perspectives, and fostering an inclusive, empowering work environment for our team members and customers. Our diversity, equity and inclusion efforts transcend all levels of our Company, from our retail store team members through our leadership team and Board of Directors (“Board”). Currently, 58 percent of our Board are gender or ethnically diverse, including five female Board members and two ethnically diverse Board members. Approximately 42 percent of Vice Presidents and above are women and approximately 13 percent of Vice Presidents and above are ethnically diverse.
In response to the Fiscal 2022 Great Place to Work®Trust Index© Employee Survey, Signet team members responded positively to statements regarding fair treatment in our Company. Of team members surveyed, 91 percent of Signet team members responded, "People here are treated fairly regardless of race” and 93 percent of Signet team members responded, “People here are treated fairly regardless of sexual orientation.” Furthermore, we recognize our customer base's diversity and strive to have a workforce that is representative of such customers. In Fiscal 2022, approximately 69 percent of Signet’s new hires in North America were made through a customer finance programdiverse candidates.
We are committed to advancing diversity, equity, and inclusion in the workplace. In Fiscal 2022, we provided throughteam members the opportunity to select a third party (Fiscal 2018: 9%nonbinary option in addition to male and female in our HRIS software. This innovation invited team members to bring their whole selves to work. We expanded our thriving Business Resource Groups (“BRGs”), which are team member led volunteer groups to improve attraction, retention, inclusion, and engagement of a diverse workforce by developing programming and initiatives. We added two additional BRGs and, currently, we have eight: Veterans, Pride (LGBTQ+), Women, Black Employee Network, Young Professionals, Transforming Diversity Equity and Equality (“TIDE”), Diamante (Hispanic and Latinx) and Asian Pacific Employee Network. In addition, during Fiscal 2022 we continued a series of “Signet Speaks Out” town halls providing a safe, open forum for team members to have honest and candid discussions about important topics such as racism, allyship and inclusion. In addition, as part of our commitment to continued enhancements in our diversity, equity, and inclusion efforts, we require team members to undergo annual training on unconscious bias and microaggressions.
Training
In Fiscal 2022, Signet launched Brilliant University, a new platform for investing in team member training, leadership development and education. The platform gives team members access to training modules from their very first day of employment. Investments in our people, such as training, allows us to recruit exceptional candidates from other retailers and industries and efficiently provide them with new skills and experiences regarding Signet values, leadership traits and jewelry knowledge.
Brilliant University empowers team members to invest in learning their job, building new skills and growing their career. The Signet team member training experience is defined by Signet’s seven leadership traits (1) Vision and purpose (2) Critical thinking (3)
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Customer obsession (4) Employee Experience (5) Diversity, Equity & Inclusion (6) Innovative Action and (7) Performance Excellence. Our leadership traits are foundational to the success of each leader at Signet no matter the job title. We believe in “leadership at every level” and Brilliant University provides education and training for team members to learn more about what each trait looks like at different levels in the organization.
Board oversight
Signet’s Human Capital Management and Compensation Committee plays an active role in overseeing our human capital management efforts. The full Board has worked closely with the executive management team, particularly the Chief People Officer, in helping shape the succession plans and leadership development agenda. Board oversight activities in this area include review of CEO and executive officer succession planning, review of diversity and other employee metrics, employee experience, and review of the Company's annual employee engagement survey results. In addition to its compensation governance responsibilities, the Committee provides oversight on behalf of the Board to overall management of human capital including culture, diversity and inclusion, executive compensation programs, benefits and well-being strategy, talent management (attraction, development, and retention), performance management, and succession planning. The scope of this Committee underscores our focus on the quality, performance, retention and development of our team. Signet’s Human Capital Management and Compensation Committee, in collaboration with the Corporate Citizenship and Sustainability Committee, oversees diversity, equity and inclusion, employee engagement and employee experience practices, and Signet’s Love for Our Team Corporate Sustainability Goals. The Board supported the introduction of our newly defined employee experience where team members are: invited to be their best selves; introduced to new ideas that grow their passion, not just their jobs; and are inspired to inspire more love in the world.
Compensation and benefits
One of our primary retention strategies is focused on providing competitive wages as part of the overall team member experience. This fundamental approach to human capital management is intended to attract and retain a talented and diverse workforce, who provide significant value to our customers, Company, and stakeholders. We fully implemented our $15/hour minimum wage for our existing US operations in the fall of Fiscal 2022 ahead of schedule and ahead of our holiday recruiting. In addition, we announced holiday bonuses for all retail team members ahead of the holiday recruiting season. This strategy allowed us to attract and hire seasonal team members and meet all of our holiday sales goals.
Competitive benefits are critical to our success in identifying, recruiting, retaining, and incentivizing our existing and prospective team members.
•We design our benefit packages to be competitive in the marketplace and they meet or exceed local laws. Full-time hourly team members are eligible for health insurance, parental leave, paid time off, and tuition assistance.
•We provide our team members with access to flexible and convenient medical benefits programs intended to meet their needs and the needs of their families. In addition to standard medical coverage, we offer eligible team members dental and vision coverage, health savings, flexible spending accounts, paid time off, employee assistance programs, voluntary short-term and long-term disability insurance, term life insurance and a 401(k) Savings Plan in the US.
•Signet provides health plan benefits for same-sex domestic partners/spouses and LGBTQ team members. Health insurance and parental leave benefits include same-sex partners, and health insurance benefits include fertility coverage and adoption benefits for LGBTQ families. All parents, regardless of gender, are eligible for parental leave benefits. Transgender benefits were announced in Fiscal 2021 and were fully implemented in Fiscal 2022.
•Signet has not raised employee premiums on medical benefits for two years in a row.
Communications and employee sentiment
Communication efforts are one of our key strategies to engage, educate and unite our team members. Signet launched its “Inspiring Love” corporate purpose in Fiscal 2021, followed by the launch of the Team Member Experience in Fiscal 2022.
In Fiscal 2022, the Company integrated Purpose-driven messaging into the employee experience and brought purpose to life through all of our actions. The Signet Team Member Experience provides timely, relevant and consistent messaging and engages our team in common growth objectives to support the success of the organization. The Team Member Experience unifies the Company as a whole, creates a unique value proposition, allows us to differentiate ourselves as a retailer and as an employer of choice. In the fourth quarter of Fiscal 2022, Signet launched a Voice of the Employee survey. The survey results reflected a renewed and clear sense of Purpose with nearly 90% of team members understanding how their work contributes to Signet's Purpose. Throughout the year employee engagement scores steadily increased resulting in an increase of Signet’s annual retention rate of seven percentage points from Fiscal 2021 to Fiscal 2022.
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Collective bargaining
We respect our employees' rights to organize and engage in bargaining in good faith to reach a collective agreement that meets team members’ needs. Our diamond polishing factory employees in Gaborone, Botswana are covered by a collective bargaining agreement (represents less than 1% of Signet’s total employees). None of our employees in the UK and North America are covered by collective bargaining agreements.
MARKETS
Signet operates in the US, Canada and UK markets.
US
Based on the average of the most recent market estimates published by Euromonitor in July 2021, Mintel in September 2021, and Statista in October 2021, the total US jewelry and watch market was approximately $69 billion in 2021. This implies a Signet jewelry and watch market share of 9.3%. Since 2010, the industry average annual growth rate is 2%. Around 90% of the market is represented by jewelry, with the balance being attributable to watches. According to the latest data from the US Labor Department, as of September 2021 there were approximately 19,100 jewelry stores in the country, down 1% from the prior year.
Canada
Prior to 2020, the jewelry and watch market in Canada, according to the latest data available to Signet from Euromonitor, grew steadily since 2014, rising to an estimated $6.8 billion USD in 2019. However, COVID-19 impacted growth in 2020 and the market is still recovering, reaching a Euromonitor estimated market size of $6.4 billion USD in 2021, an increase of 12% from the previous year. From 2022 through 2026, Euromonitor predicts jewelry will record a 7% current value compound annual growth rate (“CAGR”) (a 4% value CAGR at constant 2021 prices).
TRADEMARKS AND TRADE NAMES
Signet is not dependent on any material patents or licenses in any of its segments. Signet has several well-established trademarks and trade names which are significant in maintaining its reputation and competitive position in the jewelry retailing industry. Some of these trademarks and trade names include the following:
•Kay®; Kay Jewelers®; Kay Jewelers Outlet®; Jared®; Jared The Galleria Of Jewelry®; Jared Vault®; Jared Jewelry Boutique®; Every Kiss Begins with Kay®; Jared Eternity®; Celebrate Life Express Love®; Leo®; the LeoDiamond®; Hearts Desire®; Chosen®; Now and Forever®; Ever Us®; James Allen®; Long Live Love®; Dare to be Devoted®; Love + Be Loved®; Brilliant Moments®; Closer Together®; Luminous Cut™; Vibrant Shades™; Love’s Radiance®; Forever Connected™; Every Love™; Bold Reflections®; Diamonds Direct®; and Rocksbox®.
•Zales®; Zales Jewelers™; Zales the Diamond Store®; Zales Outlet®; Gordon’s Jewelers®; Peoples Jewellers®; Peoples the Diamond Store®; Peoples Outlet the Diamond Store®; Piercing Pagoda®; Banter™; Arctic Brilliance®; Arctic Brilliance Canadian Diamonds®; Brilliant Buy®; Brilliant Value®; Celebration Diamond®; Celebration Ideal™; From This Moment®; Let Love Shine®; The Celebration Diamond Collection®; Unstoppable Love®; Endless Brilliance®; Everything You Are®; Love’s Destiny®; Zales Private Collection™; and Elegant Reflections®.
•H.Samuel®; Ernest Jones®; Ernest Jones Outlet CollectionTM; Commitment®; Forever Diamonds®; The Kiss Collection®; Princessa Collection®; Radiance®; Secrets of the Sea®; Viva Colour®; It Feels Good To GiftTM; With You ForeverTM, The Eternal Diamond – Cut From The Stars® ; H Samuel Style to Make You Smile® ; and Celebrate Your Story®.
SEASONALITY
Signet’s business is seasonal, with the fourth quarter accounting for approximately 35-40% of annual sales, as well as accounts for a substantial portion of the annual operating profit. The “Holiday Season” consists of all non-reportable operating segments, including activities relatedresults for the months of November and December, with December being the highest volume month of the year.
REGULATION
As a company with both US and international operations, we are required to comply with numerous laws and regulations in the direct sourcingjurisdictions in which we operate, covering areas such as consumer protection, consumer privacy, data protection, consumer credit, consumer credit insurance, health and safety, waste disposal, supply chain integrity, truth in advertising and employment. Signet monitors changes in these laws to maintain compliance with applicable requirements.
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Signet recognizes that climate change poses a systemic risk to business operations.
Adverse effects of climate change, such as extreme weather events, particularly over a prolonged period of time, could negatively impact the Company’s business and results of operations if such conditions limit our consumers ability to access our stores, cause our consumers to limit discretionary spending, or disrupt our supply chains or distribution channels.
Adverse effects of climate change may increase the costs of diamond mining and diamond processing including cutting and polishing. Signet sources diamonds from around the world, and some locations may be more vulnerable to climate change. If the costs of natural diamonds increase, Signet may reallocate sourcing to lab-grown diamonds in line with customer preferences for cost and quality.
In Fiscal 2022, Signet took the first steps required to prepare the Company for disclosure in line with Task Force on Climate Related Disclosures (“TCFD”). Signet has put a governance structure in place to monitor climate-change risks and adjust business operations accordingly. Two Board level committees at Signet are responsible for monitoring climate change risks (1) the Audit Committee supervises risks across the Company, and (2) the Corporate Citizenship and Sustainability Committee supervises enterprise-wide policy regarding Signet’s 2030 Corporate Sustainability Goals, including Signet’s goal to achieve net-zero greenhouse gas emissions by 2050. At the Company level, Signet formed the Climate Action and Sustainability Committee (“CASC”) in June 2021. CASC is a major riskcross-functional committee with leaders across Signet’s business operations with the mandate of improving Signet’s data disclosures on climate and monitoring the progress of Signet’s climate-related Corporate Sustainability Goals. Signet’s greenhouse gas emission data is published in our annual Sustainability report, which is available on the Company’s website. Signet is also in the process of instituting the policies and procedures required to society and therefore continues to take steps to reduce Signet’s climatic impact. Management believes that climate change has a limited influence on Signet’s performance and that it is of limited significance to the business.disclose financial grade greenhouse gas emissions data.
AVAILABLE INFORMATION
Signet files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the US Securities and Exchange Commission (“SEC”). Such information, and amendments to reports previously filed or furnished, is available free of charge from ourthe Company’s corporate website, www.signetjewelers.com, as soon as reasonably practicable after such materials are filed with or furnished to the SEC. The SEC also maintains an internet site at www.sec.gov that contains the Company’s filings.
ITEM 1A. RISK FACTORS
Our business, financial condition, results of operations, cash flows, and the trading price of our common shares are subject to various risks and uncertainties, including those described below. Many of the risks listed below are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the economic environment. The following risk factors, among others, could cause our actual results to differ materially from historical results and from those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors and oral statements.
Risks Related to Global and Economic Conditions
The outbreak of COVID-19 has had a significant adverse impact on our business, and this outbreak, as well as other public health crises or disease outbreaks, epidemics or pandemics, has and could continue to adversely impact our business, financial condition, results of operations and cash flows and could continue to exacerbate other risk factors.
A declinepublic health crisis or disease outbreak, epidemic or pandemic, such as COVID-19, or the threat or fear of such an event, has adversely impacted and could continue to adversely impact our business. COVID-19 significantly impacted consumer traffic and our retail sales during Fiscal 2021, due to the public health risk and government-imposed quarantines and restrictions of public gatherings and commercial activity to contain spread of the virus. In March 2020 we temporarily closed all of our stores in North America, our diamond operations in New York, our support centers in the US, and effective March 24, 2020, temporarily closed all of our stores in the UK. During the fourth quarter of Fiscal 2021, both the UK and certain provinces of Canada re-established mandatory store closures. The shutdown of our New York diamond operations disrupted, to some extent, the growth of our eCommerce business. Our business may be further impacted if the economy deteriorates due to the ongoing COVID-19 pandemic, or if additional federal or state mandates order the shutdown of our stores, support centers or distribution centers. Further, due to COVID-19, we have recorded and may continue to record non-cash asset impairment charges, which may affect our operating results under US GAAP.
Additionally, there is significant uncertainty around our customers’ willingness to continue to visit retail stores, particularly if the community transmission rates or health implications of new COVID-19 variants, such as the Omicron variant, create heightened risks. Social distancing protocols, government mandated occupancy limitations and general consumer behaviors due to COVID-19 may negatively impact store traffic, which may negatively impact our sales. Such negative impacts may be exacerbated during peak traffic times such as the Holiday shopping season. Further, there is no guarantee that the safety protocols we have implemented will be effective or be perceived as effective, and any virus-related illnesses linked or alleged to be linked to our stores, whether accurate or not, may negatively affect our reputation, operating results and/or financial condition. The COVID-19 pandemic also has disrupted our
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global supply chain, and may cause additional disruptions to operations, including increased costs of production and distribution. In addition, there could be further adverse impacts if our employees become sick, continue to be quarantined, or are otherwise limited in their ability to work at Company locations or travel. We may experience increased operational challenges due to the implementation of work from home policies for both office employees and store employees whose stores are temporarily closed. Remote working arrangements may increase risks associated with our information systems such as the risk of cybersecurity incidents or system failures, which could have an adverse effect on our business.
The uncertainty around the duration of business disruptions; the possibility of additional periods of increases or spikes in the number of COVID-19 cases; the impact of vaccines across the globe; and the extent of the spread of the virus in the US and other areas of the world, could continue to adversely impact the national or global economy and negatively impact consumer spending, may unfavorablyparticularly discretionary spending, and our stock price. Additionally, any COVID-19 vaccine mandates by local or federal governments could negatively impact Signet’s futureour ability to attract and retain team members. If we are unable to continue to recruit and retain quality team members, including store and distribution center personnel, it could hinder our long-term strategies and success, and negatively impact our growth and profitability.
In the event of a prolonged economic downturn or acute recession, significant inflation, or increased supply chain shortages impacting our customers, suppliers, employees, products, stores or the economy as a whole, consumer spending habits could be adversely affected, and we could experience lower than expected sales and earnings.
To the extent that COVID-19 has affected and continues to adversely affect the US and global economy, our business, results of operations, cash flows, or financial condition, it has heightened, and cash flows. Additionally, asmay continue to heighten, other risks described within the “Risk Factors” section in our annual report on Form 10-K for the year ended January 30, 2021. See the COVID-19 Update within Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a resultdiscussion of the Company’s exposure to variable interest rate debt, volatility in benchmark interest rates could adverselypotential impact the Company’s financial results.of COVID-19 on our business operations.
Global economic conditions and regulatory changes following the United Kingdom’s announced intention toUK’s exit from the European Union could adversely impact Signet’s business and results of operations located in, or closely associated with, the United Kingdom.UK.
The UK formally exited the European Union on January 31, 2020 (often referred to as Brexit) in a national referendum. In March 2017,. The ongoing uncertainty within the United Kingdom invoked Article 50 of the Lisbon Treaty, which commenced a two-year negotiation period that culminated in an agreement upon the withdrawal terms, which was subject to approval by British Parliament. Parliament rejected the agreementUK’s government and the British Prime Minister requested to extend the March 29, 2019 effective date for Brexit to June 30, 2019. On March 21, 2019, the leaders of the other member countries of the European Union agreed to extend the deadline for Brexit until April 12, 2019. However, if British Parliament approves the previously rejected terms of the withdrawal, then the deadline would be further extended to May 22, 2019. Additionally, if the United Kingdom agrees to hold elections for European Parliament that are scheduled for May 23, 2019, the deadline could be further extended. The referendum and ongoing negotiations have created significant uncertainty aboutparliament on the future relationship between the United KingdomUK and the European Union.Union has had an adverse impact on the UK’s economy and likely will continue to do so until the practical application of the Trade and Cooperation Agreement struck between the UK and European Union to administer post-Brexit trade and future EU-UK relations is fully realized and understood. This is most notably the case as it relates to that part of the Trade and Cooperation Agreement applicable to Northern Ireland (which, whilst part of the UK, continues to follow some EU rules under the Trade and Cooperation Agreement – the “Northern Ireland Protocol”) in order to keep an open land border with the EU). Though the UK left the EU’s Single Market and Customs Union on January 1, 2021, expected border checks on imports from the EU remain to be implemented by the UK as it seeks to both re-negotiate parts of the Northern Ireland Protocol with the EU and defer the impact of elements of the changes triggered by Brexit. reach a definitive resolution on the outstanding trade and legal matters. This deferral and the associated bilateral discussions prolong includes uncertainty with respect to the impact of laws and regulations, including regulations applicable to Signet’s business, that will apply in the United Kingdom in the event of a withdrawal. The referendumUK going forward. Brexit has also given rise to calls for the governments of other European Union member states to consider a referendum on withdrawal from the European Union for their territory. These developments, or the perception that any of them could occur, could adversely impact global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity, which could adversely impact ourthe Company’s business, financial condition and results of operations especially those located in, or closely associated with, the United Kingdom.UK. Brexit could lead to long-term volatility in the currency markets and there could be long-term detrimentaladverse effects on the value of the British pound. Brexit could also impact other currencies. Signet uses foreign currency derivative instruments to hedge certain exposures to currency exchange rate risks. The results of the Brexit referendum could result in significant volatility in currency exchange rate fluctuations and increase Signet’s exposure to foreign currency rate exchange risks and reduce its ability to effectively use certain derivative instruments as a way to hedge risks.
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A decline in consumer spending may unfavorably impact Signet’s future sales and earnings, particularly if such decline occurs during the Holiday shopping season.
Our financial performance is highly dependent on US consumer confidence and the health of the US economy. The economic conditions in the US, the UK and Europe could impact our future sales and earnings. Conditions in the Eurozone have a significant impact on the UK economy even though the UK is not a member of the Eurozone, which together with uncertainty regarding the final terms of the withdrawal of the UK from the European Union, could adversely impact trading in the International segment, as well as adversely impact the US economy.
The success of our operations depends to a significant extent upon a number of factors relating to discretionary consumer spending. These include economic conditions, and perceptions of such conditions by consumers, consumer confidence, level of customer traffic in shopping malls and other retail centers, employment, the level of consumers’ disposable income, business conditions, interest rates, consumer debt and asset values, availability of credit and levels of taxation for the economy as a whole and in international, regional and local markets where we operate. As our sales are highly seasonal, a change in any one of these economic conditions during the Holiday shopping season could have an increased adverse impact on our sales.
Consumer spending may be affected by many factors outside of our control, including general economic conditions; consumer disposable income; consumer confidence; wage and unemployment levels; unexpected trends in merchandise demand; significant competitive and promotional activity by other retailers; the availability, cost and level of consumer debt; inflationary pressures; the increase in general price levels; domestic and global supply chain issues; the costs of basic necessities and other goods; effects of weather and natural disasters, whether caused by climate change or otherwise; epidemics, contagious disease outbreaks, pandemics and other public health concerns, including those related to COVID-19 (including variants such as the Omicron variant); or lockdowns of our stores, support centers or distribution centers due to governmental mandates or social unrest. Any prior increase in consumer discretionary spending during times of crisis may be temporary, such as those related to government stimulus programs or remote-work environments, and consumer spending may decrease again now that the government has terminated such stimulates programs and businesses terminate the ability to work remotely. Such decreases in consumer discretionary spending could result in a decrease in consumer traffic, same store sales, and average transaction values and could cause us to increase promotional activities, which would have a negative impact on our operating margins, all of which could negatively affect our business, results of operations, cash flows or stock price, particularly if consumer spending levels are depressed for a prolonged period of time. Furthermore, we believe government economic stimulus measures have a positive impact on our sales and as it is removed it is uncertain if or how long associated benefits may last.
Jewelry purchases are discretionary and are dependent on the above factors relating to discretionary consumer spending, particularly as jewelry is often perceived to be a luxury purchase. Adverse changes in the economy and periods when discretionary spending by consumers may be under pressure could unfavorably impact sales and earnings. We may respond by increasing discounts or initiating marketing promotions to reduce excess inventory, which could also have a material adverse effect on our margins and operating results.
Our business has historically been highly seasonal, with a significant proportion of our sales and operating profit generated during our fourth quarter, which includes the Holiday shopping season. We expect to continue experiencing a seasonal fluctuation in sales and earnings. Therefore, there is limited ability for us to compensate for shortfalls in fourth quarter sales or earnings by changes in our operations and strategies in other quarters, or to recover from any extensive disruption during the fourth quarter due to any of the factors noted elsewhere in this risk factor, particularly if lockdowns or weather events have an impact on a significant number of stores in the last few days immediately before Christmas Day or disruptions to warehousing, store replenishment systems or our ability to fulfill orders during the Holiday shopping season.
In addition, other retail categories and other forms of expenditure, such as electronics, entertainment and travel, also compete for consumers’ discretionary spending, particularly during the Holiday shopping season. Therefore, the price of jewelry relative to other products influences the proportion of consumers’ expenditures that are spent on jewelry. If the relative price of jewelry increases, if our competitive position deteriorates, or if pent up demand due to COVID-19 restrictions causes consumers to shift spending to more experience-oriented categories such as travel, concerts, and restaurants, our sales and operating profits would be adversely impacted.
An increase in general price levels (due to inflationary pressure, domestic and global supply chain issues or other macroeconomic factors) could also result in a shift in consumer demand away from jewelry and related services, which would adversely affect our sales and, at the same time, increase our operating costs including but not limited to materials, labor, fulfillment and advertising. We may not be able to adequately increase our prices over time at price points that consumers are willing to pay to offset such increased costs. An inability to increase retail prices to reflect higher commodity, labor, advertising and other operating costs, would result in lower profitability.
Particularly sharp increases in commodity costs may result in a time lag before increased commodity costs are fully reflected in retail prices or have an impact to our results of operations. As we use an average cost inventory methodology, volatility in our commodity costs may also result in a time lag before cost increases are reflected in retail prices. Further, even if price increases are implemented, there is no certainty that such increases will be sustainable or acceptable to consumers. These factors may cause decreases in gross and
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operating margins and earnings. In addition, any sustained increases in the cost of commodities could result in the need to fund a higher level of inventory or changes in the merchandise available to the customer, which could increase costs, disrupt our sales levels and negatively impact liquidity.
Any deterioration in consumers’ financial position, changes to the regulatory requirements regarding the granting of credit to customers or disruption in the availability of credit to customers could adversely impact the Company’s sales and earnings.
More than 40% of Signet’s sales in the US and Canada utilize third-party customer financing or payment programs, with the additional purchases being made in cash or using third-party bank cards. Any significant deterioration in general economic conditions or increase in consumer debt levels may inhibit consumers’ use of credit and decrease consumers’ ability to satisfy Signet’s requirements for access to customer finance, which could in turn have an adverse effect on the Company’s sales. There is also a risk that if credit is extended to consumers during times when economic conditions are strong, and then economic conditions subsequently deteriorate, consumers may not meet their current payment obligations, but these impacts would be substantially mitigated by the complete outsourcing of the payment programs, and the associated contractual obligations of Signet’s financing partners.
Additionally, the ability of Signet’s customers to obtain credit from our private label credit card providers and the terms of such credit depends on many factors, including continued arrangements with the parties providing the credit financing and compliance with applicable laws and regulations in the US and Canada, any of which may change from time to time. As discussed further in Note 13 to the consolidated financial statements, Signet has outsourced its third-party credit programs, however, if any of those third-party credit providers were to terminate, Signet may need to enter into other arrangements with other third-parties.If Signet is unable to find other potential providers to supply a similar third-party credit program and alternative payment options, Signet’s ability to extend credit to customers could be impaired, which could have an adverse effect on Signet’s business.
Any new regulatory initiatives or investigations by the Bureau of Consumer Financial Protection (“CFPB”) or other state authority, or ongoing compliance with the Consent Order entered into on January 16, 2019 with the CFPB and the Attorney General for the State of New York relating to the Company’s in-store credit practices, promotions, and payment protection products could impose additional costs and/or restrictions on credit practices of the North America segment, which could have an adverse effect on the conduct of its business.
Because of the highly seasonal nature of Signet’s sales, any one of these factors that occurs during the Holiday Season would have an increased adverse impact.
Fluctuations in foreign exchange rates could adversely impact the Company’s results of operations and financial condition.
Signet publishes its consolidated annual financial statements in US dollars. At February 2, 2019,January 29, 2022, Signet held approximately 90% of its total assets in entities whose functional currency is the US dollar and generated approximately 87%91% of its sales and substantially all of its operating income (loss) in US dollars for the fiscal year then ended. All the remaining assets and sales and operating income are primarily in British pounds and Canadian dollars. Therefore, the Company’s results of operations and balance sheet are subject to fluctuations in the exchange rates between the US dollar and both the British pound and Canadian dollar. Accordingly, any decrease in the weighted average value of the British pound or Canadian dollar against the US dollar, including due to Brexit as discussed above, would decrease reported sales and operating income.
The monthly average exchange rates are used to prepare the income statement and are calculated based on the daily exchange rates experienced by the International segment and the Canadian subsidiaries of the North America segment in the fiscal month.
In addition, the prices of certain materials and products bought on the international markets by Signet are denominated in foreign currencies. As a result, Signet and its subsidiaries have exposures to exchange rate fluctuations on its cost of goods sold, as well as volatility of input prices if foreign manufacturers and suppliers are impacted by exchange rate fluctuations.
Our future results of operations may be adversely affected by input cost inflation.
Many aspects of our business have been, and may continue to be, directly affected by volatile commodity costs and other inflationary pressures. Our input costs, particularly for diamonds, began to increase significantly beginning in the latter part of fiscal year 2021, and we expect input cost inflation to continue into fiscal year 2022. Commodities are subject to price volatility which can be caused by commodity market fluctuations, changes in currency exchange rates, imbalances between supply and demand, and government programs and policies among other factors. Volatile fuel costs translate into unpredictable costs for the products and services we
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receive from our third-party providers. While we seek to offset increased input costs with a combination of price increases to our customers, purchasing strategies, cost savings initiatives and operating efficiencies, we may be unable to fully offset our increased costs or unable to do so in a timely manner. If we are unable to fully offset such cost increases, our financial results could be materially adversely affected.
Signet’s business could be adversely affected by extreme weather conditions, natural disasters, or terrorism and acts of war.
Extreme weather conditions in the areas in which the Company’s stores are located could negatively affect the Company’s business and results of operations. For example, frequent or unusually heavy snowfall, ice storms, or other extreme weather conditions, whether as a result of climate change or otherwise, over a prolonged period could make it difficult for the Company’s salesforce or customers to travel to its stores and thereby reduce the Company’s sales and profitability, particularly if such events occur during the Company’s Holiday Season. In addition, natural disasters such as hurricanes, tornadoes, earthquakes, or wildfires, or a combination of these or other factors, could damage or destroy the Company’s facilities or make it difficult for the salesforce or customers to travel to its stores, thereby negatively affecting the Company’s business and results of operations.
Terrorism, armed conflict, and acts of war (or the expectation of such events), both in the US and abroad, could also have a significant impact on Signet’s business and the worldwide economy. At times throughout the past several years, volatile conditions have characterized financial markets. Significant market volatility, and government actions taken in response, may exacerbate some of the risks we face. Conflicts abroad could cause decreased demand for the Company’s products as consumers’ attention and interests are diverted from jewelry and become focused on issues relating to these events. For instance, the Russia-Ukraine conflict could adversely impact, among other things, certain of our local markets and suppliers, global and local macroeconomic conditions, foreign exchange rates and financial markets, raw material, energy and transportation costs, and cause further supply chain disruptions. These actions have a significant effect on macroeconomic conditions, give rise to regional instability and result in heightened economic sanctions from the US and the international community in a manner that adversely affects our business, and on an individual level, may impact the Company’s ability to manufacture and ship its merchandise for sale to customers. Given that Signet’s control over such issues, including both weather disasters and large-scale violence, is extremely limited, the Company in such situations would not have a great ability to mitigate the impacts on its business and operations.
Risks Related to Our Operations and Seasonality
Fluctuations in the availabilitypricing and pricingavailability of commodities, particularly polished diamonds and gold, which account for the majority of Signet’s merchandise costs, could adversely impact its earnings and cash availability.
The jewelry industry generally is affected by fluctuations in the price and supply of natural diamonds, gold and, to a lesser extent, other precious and semi-precious metals and stones. In particular, diamonds accounted for about 52%, and gold about 14%, of Signet’s merchandise costs in Fiscal 2019.
In Fiscal 2019,2022, prices for the assortment of polished diamonds utilized by Signet decreased slightly compared to prior year. Industry forecasts indicate that over the medium and longer term, the demand for diamonds will probably increase faster than the growth in supply, particularly as a result of growing demand in countries such as China and India. Therefore, the cost of diamonds is anticipated to rise over time, although fluctuations in price are likely to continue to occur.years. The mining, production and inventory policies followed by major producers of rough diamonds can have a significant impact on natural diamond prices and demand, as can the inventory and buying patterns of jewelry retailers and other parties in the supply chain.
The availability of diamonds is significantly influenced by the political situation in diamond producing countries and by the Kimberley Process, an inter-governmental agreement for the international trading of rough diamonds. Until acceptable alternative sources of diamonds can be developed, any sustained interruption in the supply of diamonds from significant producing countries, or to the trading in rough and polished diamonds which could occur as a result of disruption to the Kimberley Process, could adversely affect Signet, as well as the retail jewelry market as a whole. In addition, the current Kimberley Process decision makingdecision-making procedure is dependent on reaching a consensus among member governments, which can result in the protracted resolution of issues, and there is little expectation of significant reform over the long-term. The impact of this review process on the supply of diamonds, and consumers’ perception of the diamond supply chain, is unknown. In addition to the Kimberley Process, the supply of diamonds to the US is also impacted by certain governmental trade sanctions, such as those imposed on Zimbabwe.
The possibility of constraints in the supply of diamonds of a size and quality Signet requires to meet its merchandising requirements may result in changes in Signet’s supply chain practices, including for example its rough sourcing initiative. In addition, Signet may from time to time choose to hold more inventory, purchase raw materials at an earlier stage in the supply chain or enter into commercial agreements of a nature that it currently does not use. Such actions could require the investment of cash and/or additional management skills. Such actions may not resolve supply constraints or result in the expected returns and other projected benefits anticipated by management.
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Additionally, a material increase in the supply of gem quality lab createdlab-created diamonds, combined with increased consumer acceptance thereof, could impact the supply and pricing in the natural diamond supply chain, as well as retail pricing.
While jewelry manufacturing is the major final demand for gold, management believes that the cost of gold is predominantly impacted by investment transactions, which have resulted in significant volatility in the gold price in recent years. Signet’s cost of merchandise and potentially its earnings may be adversely impacted by investment market considerations that cause the price of gold to significantly escalate.
An inability to increase retail prices to reflect higher commodity costs would result in lower profitability. Historically, jewelry retailers have been able, over time, to increase prices to reflect changes in commodity costs. However, in general, particularlyParticularly sharp increases in commodity costs may result in a time lag before increased commodity costs are fully reflected in retail prices. As Signet uses an average cost inventory methodology, volatility in its commodity costs may also result in a time lag before cost increases are reflected in retail prices. ThereFurther, even if price increases are implemented, there is no certainty that such price increases will be sustainable, so downward pressure onsustainable. These factors may cause decreases in gross margins and earnings may occur.earnings. In addition, any sustained increases in the cost of commodities could result in the need to fund a higher level of inventory or changes in the merchandise available to the customer.customer, which could increase costs and disrupt Signet’s sales levels.
Alrosa supplies more than 30% of the world’s diamonds. Sanctions against them specifically or the Russian Oligarchs by the US government or other governments may severely limit the supply of diamonds in the world.
The world’s sources of rough diamonds are highly concentrated in a limited number of countries. Varying degrees of political and economic risk exist in these countries. As a consequence, the diamond business is subject to various sovereign risks beyond Signet’s control, such as changes in laws and policies affecting foreign trade and investment. In addition, Signet is subject to various political and economic risks, including the instability of foreign economies and governments, labor disputes, war and civil disturbances and other risks that could cause production difficulties or stoppages, restrict the movement of inventory or result in the deprivation or loss of contract rights or the taking of property by nationalization or expropriation without fair compensation. Signet’s direct purchases from Alrosa and its sourcing arrangement in Russia do not represent a significant part of its operations. However, any interruption in the total market supply of diamonds due to the ongoing Russia-Ukraine conflict or domestic or foreign government sanctions against Alrosa or Russian diamonds may impact the ability of Signet’s suppliers to provide Signet with responsibly sourced diamonds that were mined by other companies or in other countries. Any significant disruption of Signet’s sources of supply, or restriction of inventory movement could have a material adverse effect on Signet’s results of operations or cash flows.
Signet may voluntarily disclose, or pursuant to the Dodd Frank Act and SEC rules must file public disclosures regarding the country of origin of certain supplies and materials, which could damage Signet’s reputation or impact the Company’s ability to obtain merchandise if customers or other stakeholders react negatively to Signet’s disclosures.
In August 2012, the SEC, pursuant to the Dodd-Frank Act, issued final rules, which require annual disclosure and reporting on the source and use of certain minerals, including gold, from the Democratic Republic of Congo and adjoining countries. The gold supply chain is complex and, while management believes that the rules currently cover less than 1% of annual worldwide gold production (based upon recent estimates), the final rules require Signet and other affected companies that file with the SEC to make specified country of origin inquiries of ourSignet’s suppliers, and otherwise to exercise reasonable due diligence in determining the country of origin and certain other information relating to any of the statutorily designated minerals (gold, tin, tantalum and tungsten), that are used in products sold by Signet in the US and elsewhere. On May 25, 2018, Signet filed with the SEC its Form Specialized Disclosure (“SD”) and accompanying Conflict Minerals Report in accordance with the SEC’s rules, which together describe our country of origin inquiries and due diligence measures relating to the source and chain of custody of those designated minerals Signet deemed necessary to the functionality or production of our products, the results of those activities and our related determinations with respect to the calendar year ended December 31, 2017.
There may be reputational risks associated with the potential negative response of ourSignet’s customers and other stakeholders to future disclosures by Signet in the event that, due to the complexity of the global supply chain, Signet is unable to sufficiently verify the origin of the relevant metals.commodities. Also, if future responses to verification requests by suppliers of any of the covered mineralsmaterials used in ourSignet’s products are inadequate or adverse, Signet’s ability to obtain merchandise may be impaired and ourits compliance costs may increase. The final rules also cover tungsten and tin, which are contained in a small proportion of items that are sold by Signet. It is possible that other minerals, such as diamonds, could be subject to similar disclosure requirements or rules.
Signet’s sales, operating income, cash and inventory levels fluctuate on a seasonal basis.
Signet’s business is highly seasonal, with a significant proportion of its sales and operating profit generated during its fourth quarter, which includes the Holiday Season. Management expects Signet to continue to experience a seasonal fluctuation in its sales and earnings. Therefore, there is limited ability for Signet to compensate for shortfalls in fourth quarter sales or earnings by changes in its operations and strategies in other quarters, or to recover from any extensive disruption, for example, due to sudden adverse changes in consumer confidence, consumer spending ability, economic conditions, unexpected trends in merchandise demand, significant competitive and promotional activity by other retailers, inclement weather conditions having an impact on a significant number of stores in the last few days immediately before Christmas Day or disruption to warehousing and store replenishment systems.
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Additionally, in anticipation of increased sales activity in the Holiday Season, Signet incurs certain significant incremental expenses prior to and during peak selling seasons, including advertising and costs associated with hiring a substantial number of temporary employees to supplement the Company’s existing workforce. A significant shortfall in results for the fourth quarter of any fiscal year would therefore be expected to have a material adverse effect on the annual results of operations as well as cash and inventory levels. Disruption at lesser peaks in sales at Valentine’s Day and Mother’s Day would also be expected to adversely impact the results.
Failure to manage inventory levels or to obtain merchandise that customers wish to purchase on a timely basis could have a materially adverse impact on sales and earnings.
In order to operate its business successfully, Signet must maintain sufficient inventory levels. This requires forecasting, especially in the case of the Holiday Season, and a balance between meeting customer demand and avoiding accumulating excess inventory. If management misjudges expected customer demand, fails to identify changes in customer demand, or its supply chain does not respond in a timely manner, a shortage of merchandise or an accumulation of excess inventory could occur, which could adversely impact Signet’s results.
Other factors that could affect the Company’s inventory management and planning team’s ability to accurately forecast customer demand for its products include:
•a substantial increase or decrease in demand for products of Signet’s competitors;
•failure to accurately forecast trends and customer acceptance for new products;
•new product introductions, promotions or pricing strategies by competitors, particularly during holiday periods;
•changes in the Company’s product offerings including seasonal items and the Company’s ability to replenish these items in a timely manner;
•changes to the Company’s overall seasonal promotional cadence and the number and timing of promotional events and clearance sales;
•more limited historical store sales information for stores in newer markets;
•weakening of economic conditions or consumer confidence in the future, which could reduce demand for discretionary items, such as jewelry; and
•acts or threats of war or terrorism or epidemics, which could adversely affect consumer confidence and spending or interrupt production and distribution of Signet’s products and raw materials.
If the Company is unable to forecast demand accurately, it may encounter difficulties in filling customer orders or in liquidating excess inventory at discount prices and may experience significant write-offs and customers could opt to purchase jewelry from a competitor. These outcomes could have a material adverse effect on the Company’s brand image, sales, gross margins, cash flow, competitive advantage and profitability.
Any difficulty or delay in executing or integrating an acquisition, a business combination or a major business or strategic initiative may result in expected returns and other projected benefits from such an exercise not being realized.
Most recently Signet acquired Diamonds Direct during the fourth quarter of Fiscal 2022. There is always the potential for difficulty or delay in execution and integration of an acquisition, a business combination, a major business or strategic initiative including our direct diamond sourcing capabilities, or a strategic plan, such as our Inspiring Brilliance plan, that may prevent us from realizing expected returns and other projected benefits from such exercises during the anticipated timeframe or at all. The long-term growth of our business depends on the successful execution of our evolving business and strategic initiatives. Any number of factors could impact the success of these initiatives, many of which are out of our control, and there can be no assurance that they will be successful or deliver their anticipated benefits. Some initiatives may require us to devote significant management, financial and other resources and may expose us to new and unforeseen risks and challenges. We may also incur significant asset impairment and other charges in connection with any such initiative.
The acquisition of companies with operating margins lower than ours may cause an overall lower operating margin. Our current borrowing agreements place certain limited constraints on our ability to make an acquisition or enter into a business combination, and future borrowing agreements could place tighter constraints on such actions. Further, our ability to retain key employees of an acquired company, maintain pre-acquisition cultural dynamics and team morale, and foster the entrepreneurial spirit of an acquired company, particularly while implementing policies, procedures and compliance measures we require, may impact our ability to successfully integrate an acquisition. A significant transaction could also disrupt the operation of our current activities and divert
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significant management time and resources. If we are unable to execute or integrate an acquisition, business combination, a major business or strategic initiative or a transformation plan, this could have a significant adverse effect on our results of operations.
Long-term changes in consumer attitudes toward jewelry could be unfavorable and harm jewelry sales.
Consumer attitudes toward diamonds, gold and other precious metals and gemstones influence Signet’s sales. Attitudes could be affected by a variety of issues including concern over the source of raw materials; the impact of mining and refining of minerals on the environment; the local community and the political stability of the producing country; labor conditions in the supply chain; and the availability of and consumer attitudes about substitute products such as cubic zirconia, moissanite and lab-created diamonds. An inability to effectively address a rapid and significant increase in consumer acceptance of lab-created diamonds, as well as a negative change in consumer attitudes toward jewelry, could adversely impact Signet’s sales and earnings. In addition, transparency regarding substitute products such as lab-created diamonds is important to maintaining consumer confidence. If the Company does not appropriately and adequately identify the use of the substitute products in its jewelry, its reputation and results could be adversely impacted.
New tariffs, if imposed on goods that the Company imports, could have an adverse effect on the Company’s results of operations.
In March 2018, the US Government announced tariffs on certain steel and aluminum products imported into the US, which resulted in reciprocal tariffs from the European Union on goods imported from the US. In September 2018, the US Government placed additional tariffs of approximately $200 billion on goods imported from China. These tariffs, which took effect on September 25, 2018, were initially set at a level of 10% until the end of 2018, at which point the tariffs rose to 25%. On September 1, 2019, the US Government placed additional tariffs of approximately $300 billion on goods imported from China. Depending on the type of import, a new 15% tariff became effective on September 1, 2019, but upon the Phase One Economic and Trade Agreement signed in January 2020, which became effective in February 2020, between the US and China was reduced to 7.5%. The 7.5% tariff applies to jewelry that the Company imports from China. China has already imposed tariffs on a wide range of American products in retaliation, and additional tariffs could be imposed by China in further retaliation. There is also a concern that the imposition of additional tariffs by the US could result in the adoption of additional tariffs by other countries as well. The escalation of trade tensions could have a significant, adverse effect on world trade and the world economy. While the Company does not believe that the recently enacted tariffs will materially impact its business, the imposition of additional or increased tariffs on jewelry or other items imported by it from China or other countries, or the Company’s inability to successfully manage inventory from China, could require the Company to increase prices to its customers or, if unable to do so, result in lowering its gross margin on products sold.
Signet depends on manufacturers and suppliers to provide it with sufficient quantities of quality products timely.
Ultimate delivery of Signet’s merchandise is substantially dependent upon third-party manufacturers and suppliers. In Fiscal 2022, the five largest suppliers collectively accounted for 19.6% of total purchases, with the largest supplier comprising 5.1%. A manufacturer’s or supplier’s inability to manufacture or deliver a product on time and of appropriate quality would impair Signet’s ability to respond to consumer demand, which would put the Company at a competitive disadvantage and result in lost sales. Costs would also be increased if Signet were to attempt to engage replacement manufacturers to rush orders on items that the Company needed immediately. See the risk factor above titled “The outbreak of COVID-19 has had a significant adverse impact on our business, and this outbreak, as well as other public health crises or disease outbreaks, epidemics or pandemics, has and could continue to adversely impact our business, financial condition, results of operations and cash flows and could continue to exacerbate other risk factors.” regarding the potential adverse impact COVID-19 could have on the Company’s supply chain.
Signet has close commercial relationships with a number of suppliers and management holds regular reviews with major suppliers to sustain continuity of these relationships. However, government requirements regarding sources of commodities, such as those required by the Dodd-Frank Act or sanctions on Alrosa or its management, could result in Signet choosing to terminate relationships with suppliers in the future due to a change in a supplier’s sourcing practices or Signet’s compliance with laws and internal policies. Damage to, or loss of, any of these relationships could have an adverse effect on results.
In addition, luxury and prestige watch manufacturers and distributors normally grant agencies the right to sell their ranges on a store-by-store basis. An inability to obtain or retain watch agencies for a location could harm the performance of that particular store. The watch brands sold by Ernest Jones, and to a lesser extent Jared, help attract customers and build sales in all categories. In the case of Ernest Jones, the inability to gain additional prestige watch agencies is an important factor in, and may reduce the likelihood of, opening new stores, which could adversely impact sales growth.
The growth in importance of other branded merchandise within the jewelry market may adversely impact Signet’s sales and earnings if it is unable to obtain supplies of or further develop branded merchandise that the customer wishes to purchase. In addition, if Signet
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loses the distribution rights to an important branded jewelry range or is committed to continue to carry a brand that is no longer viewed as on trend, it could adversely impact sales and earnings.
Risks Related to Competition and Innovation
Signet’s pricing compared to competitors, the increased price transparency in the market and the highly fragmented competitive nature of the retail jewelry industry, may have an adverse impact on Signet’s performance.
Critical to maintaining an optimal customer experience is a multi-faceted value proposition that focusesfocused on customer service, attractive brand and category assortments, availability of financing, and deep customer service and relationship building with ourthe Company’s guest service professionals, as well as competitive pricing. Although not a singular differentiator to ourthe Company’s value proposition, if significant price increases are implemented by any segment or across a wide range of merchandise, the impact on earnings will depend on, among other factors, the pricing by competitors of similar products in the same geographic area and the response by customers to higher prices. Such price increases may result in lower sales and adversely impact earnings.
The retail jewelry industry is competitive. Signet’s competitors are specialty jewelry retailers, as well as other jewelry retailers, including department stores, mass merchandisers, discount stores, apparel and accessory fashion stores, brand retailers, shopping clubs, home shopping television channels, direct home sellers, online retailers and auction sites. In addition, other retail categories and other forms of expenditure, such as electronics and travel, also compete for consumers’ discretionary expenditure, particularly during the holiday gift giving season. Therefore, the price of jewelry relative to other products influences the proportion of consumers’ expenditure that is spent on jewelry. If the relative price of jewelry increases, or if Signet’s competitive position deteriorates. Signet’s sales and earnings may decline.
Aggressive discounting by competitors may adversely impact Signet’s performance in the short term. This is particularly the case for easily comparable pieces of jewelry, of similar quality, sold through stores that are situated near to those that Signet operates.
Signet faces significant competition from independent and regional specialty jewelry retailers that are able to adjust their competitive stance, for example on pricing, to local market conditions. This can put individual Signet stores at a competitive disadvantage as Signet segments have a national pricing strategy.
Consumers are increasingly shopping or starting their jewelry buying experience online, which makes it easier for them to compare prices and quality with other jewelry retailers. If Signet’s brands do not offer the same or similar item at the lowest price, or if competitors offer a better and more user-friendly website experience than Signet, or financing that is easier to access or provides better terms, consumers may purchase their jewelry from competitors, which would adversely impact the Company’s sales and results of operations.
An inability to satisfy the accounting requirementssuccessfully develop and maintain a relevant OmniChannel experience for “hedge accounting,” or the default or insolvency of a counterparty to a hedging contract, could adversely impact results.
Signet’s business has evolved from primarily an in-store experience to interaction with customers across numerous channels, including in-store, online, mobile and social media, among others. OmniChannel retailing is rapidly evolving and Signet must keep pace with changing customer expectations and new developments by its competitors. Signet’s customers are increasingly using computers, tablets, mobile phones and other devices to comparison shop, determine product availability and complete purchases online. Signet must compete and remain relevant by offering a consistent and convenient shopping experience for its customers regardless of the ultimate sales channel and by investing in, determining customer buying decisions inproviding and maintaining digital tools for customers that have the jewelry sector include customer confidence in the retailerright features and in the brands it sells, together withare reliable and easy to use.
The ability to differentiate Signet’s stores, services, online experience and merchandise from competitors by better designs, branding and category assortments and the level and quality of customer service. The ability to differentiate Signet’s storesservice and merchandise from competitors by its branding, marketing and advertising programs, is an important factor in attracting consumers. In today’s market, this differentiation requires, among other factors, keeping pace with trends in design, as well as setting new jewelry trends, effectively implementing an OmniChannel experience, and targeting effective media campaigns, including an expansion of social media use and new social media platforms, in order to build and maintain customer confidence in the Company and in the brands it sells. As a result, the Company needs to continuously innovate and develop its OmniChannel experience and social media strategies in order to maintain broad appeal with customers and brand relevance. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenues, increased employee engagement or brand recognition. In a distressed economic and retail environment, in which many of the Company’s competitors continue to engage in aggressive promotional activities, any failure on Signet’s part to react appropriately to changing consumer preferences and fashion trends, including the failure to plan in advance and invest in marketing and advertising campaigns, could have an adverse impact on sales.
In addition, adverse or inaccurate information concerning the Company or its brands may be posted on social media platforms at any time, and such information can quickly reach a wide audience. The harm may be immediate without affording the Company an
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opportunity for redress or correction, and it is challenging to monitor and anticipate developments on social media in order to respond in an effective and timely manner. The Company could also be exposed to these risks if it fails to use social media responsibly in its marketing efforts, including the improper disclosure of proprietary information, exposure of personally identifiable information, fraud, or out-of-date information. Regardless of its basis or validity, any unfavorable publicity could adversely affect public perception of Signet’s brands. These factors could have a material adverse effect on its business.
If these programsSignet fails to make, improve, develop or acquire relevant customer-facing technology in a timely manner, fails to keep pace with trendsetting, or if the Company’s marketing and social media advertising and efforts are poorly executed,not to scale or miss the level of support for them is reduced, ormark, the customer losescould lose confidence in any of Signet’s brands, for any reason, itwhich could unfavorably impact salesmaterially and earnings.
Risks Related to its stores. These include the availability of desirable property, the demographic characteristics of the area around the store, the designTechnology and maintenance of the stores, the availability of attractive locations within the markets/trade areas that also meet the operational and financial criteria of management, the terms of leases and Signet’s relationship with major landlords. If Signet is unable to maintain a real estate portfolio that satisfies its strategic, operationaland financial criteria, through cost-effective strategic store closings and targeted, limited store openings, or if there is a disruption in its relationship with its major landlords, sales could be adversely affected.Security
Inadequacies in and disruption to systems could result in lower sales and increased costs or adversely impact the reporting and control procedures.
Signet is dependent on the suitability, reliability and durability of its systems and procedures, including its accounting, information technology, data protection, warehousing and distribution systems, and those of ourits service providers. If support ceased for a critical externally supplied software package or system, management would have to implement an alternative software package or system or begin supporting the software internally. Disruption to parts of the business could result in lower sales and increased costs.
Signet is in the process of substantially modifying ourits enterprise resource planning systems and certain web platforms, which involves updating or replacing legacy systems with successor systems over the course of several years.and migrating some systems, data and functionality to cloud provider servers. These system changes and upgrades can require significant capital investments and dedication of resources. While Signet follows a disciplined methodology whenWhen evaluating and making such changes, there can be no assurances that the Company will successfully implement such changes, that significant additional investments will not be required beyond the project budget, that such changes will occur without disruptions to its operations or maintenance of its internal control compliance programs or that the new or upgraded systems will achieve the desired business objectives. Any damage, disruption or shutdown of the Company’s information systems, or the failure to successfully implement new or upgraded systems, could have a direct material adverse effect on Signet’s results of operations.
Security breaches and other disruptions to Signet’s information technology infrastructure and databases and failure of Signet’s customer-facing technology to function as intended or in accordance with applicable law could interfere with Signet’s operations, and could compromise Signet’s and its customers’ and suppliers’ information or cause other harm, exposing Signet to possible business interruptions and liability, which would causehave a material adverse effect on Signet’s business and reputation to suffer.reputation.
Signet is increasingly using mobile devices, social media and other online activities to connect with customers, staff and other stakeholders. Therefore, in the ordinary course of business, Signet relies upon information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including eCommerce sales, supply chain, merchandise distribution, customer invoicing and collection of payments.
Signet also uses information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, Signet collects and stores this financial and other sensitive data, including intellectual property, proprietary business information, the propriety business information of ourits customers and suppliers, as well as personally identifiable information of Signet’s customers and employees, in data centers and on information technology networks. Although we seek to prevent and detect attempts by unauthorized users to gain access to our IT systems, and incur significant costs to do so, our information technology network infrastructure has in the past been and may in the future be vulnerable to attacks by hackers, including state-sponsored organizations with significant financial and technological resources, breaches due to employee error, fraud or malice or other disruptions (including, but not limited to, computer viruses and other malware, denial of service, and ransomware), which may involve a privacy breach requiring us to notify regulators, customers or employees and enlist identity theft protection.
The secure operation of these networks, and the processing and maintenance of this information is critical to Signet’s business operations and strategy. Despite security measures and business continuity plans, weSignet may not timely anticipate evolving techniques used to effect security breaches that may result in damage, disruptions or shutdowns of Signet’s and ourits third-party vendors’ networks and infrastructure due to attacks by hackers, including phishing or other cyber-attacks, or breaches due to employee error or malfeasance, or other non-hostile disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters or other catastrophic events. The occurrence of any of these events could compromise Signet’s or the third-party’s networks and the information stored there, including personal,
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proprietary or confidential information about Signet, ourits customers or ourits third-party vendors, and personally identifiable information of Signet’s customers and employees could be accessed, manipulated, publicly disclosed, lost or stolen, exposing ourits customers to the risk of identity theft and exposing Signet or ourits third-party vendors to a risk of loss or misuse of this information.
Signet hasand its third-party vendors have experienced successful attacks and breaches from time to time, however to date, these attacks or breaches have not had a material impact on Signet’s business or operations; however, anyoperations. Any such malfunction, access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, significant breach-notification costs, lost sales and a disruption to operations (including ourthe Company’s ability to process consumer transactions and manage inventories), media attention, and damage to Signet’s reputation, which could adversely affect Signet’s business. In addition, it could harm Signet’s reputation and ability to execute its business through service and business interruptions, management distraction and/or damage to physical infrastructure, which could adversely impact sales, costs and earnings. If Signet is the target of a material cybersecurity attack resulting in unauthorized disclosure of ourits customer data, wethe Company may be required to undertake costly notification and credit monitoring procedures. Compliance with these laws will likely increase the costs of doing business.
In addition, if Signet’s online activities or other customer-facing technology systems do not function as designed or are deemed to not comply with applicable state and federal regulations concerning automated outbound contacts such as text messages and the sale, advertisement and promotion of the jewelry it sells, the Company may experience a loss of customer confidence, data security breaches, regulatory fines, lawsuits, lost sales or be exposed to fraudulent purchases.
The regulatory environment related to information security, data collection and privacy is becoming increasingly demanding, with new and changing requirements applicable to Signet’s business, including the General Data Protection Regulation and the California Consumer Privacy Act, and compliance with those requirements could result in additional costs, such as costs related to organizational changes, implementing additional protection technologies, training employees and engaging consultants. In addition, the Company could be subject to claims, fines, penalties or other liabilities for a failure to comply.
Failure to manage these risks could have a material adverse effect on Signet’s results of operations, financial condition and cash flow.
Risks Related to Asset Management
The Company’s inability to optimize its real estate footprint could adversely impact sales and earnings.
The success of Signet’s stores, as part of its OmniChannel strategy, is dependent upon a number of factors. These include the availability of desirable property, placement of stores in easily accessible locations with high visibility, the demographic characteristics of the area around the store, the design and maintenance of the stores, the availability of attractive locations within the markets/trade areas that also meet the operational and financial criteria of management, the terms of leases and Signet’s relationship with major landlords. If Signet is unable to maintain a real estate portfolio that satisfies its strategic, operational and financial criteria, through cost-effective strategic store closings and targeted, limited store openings, or if there is a disruption in its relationship with its major landlords, sales could be adversely affected.
Substantially all of Signet’s retail locations are leased, requiring significant cash flow to satisfy the lease obligations. Given the typical length of retail leases, Signet is dependent upon the continued popularity of particular retail locations. Following the initial terms of each lease, it is possible that Signet will not be able to negotiate contract terms favorable to the Company for future leases. This would cause occupancy costs to rise, which would either decrease profit margins at each specific store or force Signet to close certain retail locations.
Many Signet stores are located within shopping malls or shopping centers and benefit from heavy consumer traffic in such locations. Due to the increase in online shopping, there has been a substantial decline in shopping mall and shopping center traffic. If the Company does not focus its locations in attractive areas and/or increase its online sales, this trend away from shopping mall and shopping center purchases could adversely impact Signet’s operations and financial condition. As Signet tests and develops new types of store locations and designs, there is no certainty as to their success.
The rate of store footprint optimization is dependent on a number of factors including obtaining suitable real estate, the capital resources of Signet, the availability of appropriate staff and management, estimated sales transference rate and the level of the financial return on investment required by management.
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The Company’s ability to protect our physical assets or intellectual property could have a material adverse decisionimpact on our brands, reputation and operating results.
Signet’s jewelry products carry high value with resale potential and are therefore subject to loss by theft by customers, organized crime or other third-parties. In addition, products held by us for repair or service are also subject to risk of loss or theft. We have experienced theft in the past and loss by theft may continue or increase in the future. In addition, the security measures we take may not be effective in reducing losses. Higher rates of theft including theft by organized retail crime networks that orchestrate burglaries, “smash and grabs,” looting or shoplifting operations could adversely impact our reputation, operations and ultimately, our overall financial condition. Furthermore, other costs and expenses resulting from criminal activity such as increased security costs and measures to prevent such activity, increased repair costs and increased costs to retain, replace or recruit team members that may be concerned about future crime impacting our stores or the shopping centers they operate in may also adversely impact our reputation, operations and financial condition.
Signet’s trade names, trademarks, copyrights, patents and other intellectual property are important assets and an essential element of our strategy. The unauthorized reproduction, theft or misappropriation of our intellectual property could diminish the value of our brands or reputation and cause a decline in sales. Protection of our intellectual property and maintenance of distinct branding are particularly important as they distinguish our products and services from those of our competitors. The costs of defending intellectual property may adversely affect our operating results. In addition, any infringement or other intellectual property claim made against us, whether or not it has merit, could be time-consuming, result in costly litigation, cause product delays, or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our operating results.
If the Company’s goodwill, indefinite-lived intangible assets or long-lived assets become impaired, the Company may be required to record significant charges to earnings.
The Company has a substantial amount of goodwill, intangible assets and long-lived assets on its balance sheet. The Company reviews goodwill, indefinite-lived intangible assets and long-lived assets for impairment annually or whenever events or circumstances indicate impairment may have occurred. The impairment evaluation requires significant judgment and estimates by management, and unfavorable changes in these assumptions or other factors could result in future impairment charges and have a significant adverse impact on the Company’s reported earnings. Such factors include the operating performance and cash flows of the Company’s stores, lower than anticipated consumer traffic, changes in customer behavior post-pandemic, changes in discount rates, changes in the Company’s real estate strategy or other key business initiatives. Additionally, a general decline in the market valuation of the Company’s common shares, whether related to Signet’s business or overall market conditions, could adversely impact the assumptions used to perform the evaluation of its goodwill, indefinite-lived intangible assets and long-lived assets.
For further information on Signet’s evaluation of impairment for goodwill, indefinite-lived intangible assets and long-lived assets, see “Critical Accounting Estimates” under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Risks Related to Our Common Stock and Indebtedness
Signet’s share price may be volatile due to Signet’s results and financial condition or factors impacting the market overall, which could have a short or long-term adverse impact on an investment in Signet stock.
Signet’s share price has fluctuated and may fluctuate substantially as a result of variations in the actual or anticipated results and financial conditions of Signet and other companies in the retail industry. In addition, the stock market has experienced, and may continue to experience, price and volume fluctuations that have affected the market price of many retail and other stocks, including Signet’s, in a manner unrelated, or disproportionate, to the operating performance of these companies.
Signet provides public guidance on its expected operating and financial results for future periods. Such guidance is comprised of forward-looking statements subject to the risks and uncertainties described in this report and in Signet’s other public filings and public statements. Signet’s actual results may be below the provided guidance or the expectations of Signet’s investors and analysts, especially in times of economic uncertainty. In the past, when the Company has reduced its outlook related to certain measures in its previously provided guidance, the market price of its common stock has declined. If, in the future, Signet’s operating or financial results for a particular period do not meet guidance or the expectations of investors and analysts or if Signet reduces its outlook related to certain measures in its guidance for future periods, the market price of its common stock may decline. In addition, if the analysts that regularly follow the Company’s stock lower their rating or lower their projections for future growth and financial performance, the Company’s stock price could decline.
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The Company’s ability to borrow is important to its operations and financial covenants, credit ratings and interest rate volatility could all impact the availability of such debt and could adversely impact the Company’s financial results.
The Company has a significant amount of debt and redeemable preferred securities, and its ability to borrow is necessary to sustain its operations, particularly given the seasonal fluctuations in inventory and staffing requirements and the concentration of sales in the fourth quarter. This debt requires maintaining sufficient cash flow to make continuing payment obligations. Because a large portion of its financing is asset-based and secured, the Company’s ability to draw funds is dependent on maintaining a sufficient borrowing base and it is subject to the risk of loss of such assets to foreclosure or sale to satisfy its debt obligations.
Signet’s borrowing agreements include various financial and other covenants. A material deterioration in its financial performance could result in a breach of these covenants. In the event of a breach, the Company would have to renegotiate terms with its current lenders or find alternative sources of financing if current lenders required cancellation of facilities or early repayment. In addition, these covenants, in some cases, limit the Company’s flexibility to adapt its operations to changing conditions. The Company’s credit agreement terms also include exposure to variable interest rate debt and volatility in benchmark interest rates could adversely impact the Company’s financial results.
Additionally, credit rating agencies periodically review Signet’s capital structure and the quality and stability of the Company’s earnings, and should Signet need to obtain more financing, a credit rating downgrade would make it more difficult, expensive and restrictive to do so. Changes in general credit market conditions could also affect Signet’s ability to access capital at rates and on terms determined to be attractive.
If Signet’s ability to access capital becomes constrained, it may not be able to adequately fund its ongoing operations, dividends and share repurchases or planned initiatives and the Company’s interest costs will likely increase, which could have a material adverse effect on its results of operations, financial condition and cash flows.
Risks Related to Human Capital
The Company’s ability to recruit, train, motivate and retain suitably qualified sales associates could adversely impact sales and earnings.
Management regards the customer experience as an essential element in the success of its business. Competition for suitable sales associates or changes in labor and healthcare laws could require Signet to incur higher labor costs. A shortage of qualified individuals, higher labor costs and the execution of strategic initiatives, including those designed to improve the customer experience, could result in disruptions to the performance of sales associates and an inability to recruit, train, motivate and retain suitably qualified sales associates, which could adversely impact sales and earnings.
Signet’s success is dependent on the strength and effectiveness of its relationships with its various stakeholders whose behavior may be affected by its management of social, ethical and environmental risks.
Social, ethical and environmental matters influence Signet’s reputation, demand for merchandise by consumers, the ability to recruit staff, relations with suppliers and standing in the financial markets. Signet’s success is dependent on the strength and effectiveness of its relationships with its various stakeholders: customers, shareholders, employees and suppliers. In recent years, stakeholder expectations have increased, as these stakeholders expect businesses to consider social, ethical, and environmental impacts while making business decisions, and Signet’s success and reputation will depend on its ability to meet these higher expectations. Signet’s success also depends upon its reputation for integrity in sourcing its merchandise, which, if adversely affected could impact consumer sentiment and willingness to purchase Signet’s merchandise.
Collective bargaining activity could disrupt the Company’s operations, increase labor costs or interfere with the ability of management to focus on executing business strategies.
The employees of Signet’s diamond polishing factory in Gaborone, Botswana are covered by a collective bargaining agreement. If relationships with these employees become adverse, operations at the factory could experience labor disruptions such as strikes, lockouts, boycotts and public demonstrations, which could negatively impact the Company’s diamond supply, increase costs and cause negative publicity. Labor regulation and the negotiation of new or existing collective bargaining agreements could lead to higher wage and benefit costs, changes in work rules that raise operating expenses, legal costs and limitations on the Company’s ability to take cost-saving measures during economic downturns. Any of these cost increases and constraints on Signet’s operations could adversely impact its results of operations.
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Risks Related to Compliance
The Company’s exposure to legal proceedings, tax matters, and/or regulatory or other state investigations could reduce earnings and cash, as well as negatively impact debt covenants, leverage ratios and leverage ratios.its reputation and divert management attention.
Signet is involved in legal proceedings incidental to its business. Litigation is inherently unpredictable. Any actual or potential claims against us, whether meritorious or not, or regulatory or other state investigations, could be time consuming, result in costly litigation or litigation settlements, require significant amounts of management time, negatively impact Signet’s reputation and result in the diversion of significant operational resources. In addition, while Signet maintains insurance to cover various types of liabilities and loss, such coverage may not be sufficient to cover the full extent of any damages and expenses and the timing of any reimbursement may not correspond to the liabilities accrued or incurred.
At any point in time, various tax years are subject to, or are in the process of, audit by various taxing authorities. To the extent that management’s estimates of settlements change, or the final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax in the period in which such determinations are made.
The Company’s ability to satisfy the accounting requirements for “hedge accounting,” or the default or insolvency of a counterparty to a hedging contract, as well as changes in estimates, assumptions or applications in other or new tax treatmentaccounting policies, could adversely impact results.
Signet hedges a portion of companies engaged in Internet commerce hasits purchases of gold for both its North America and International segments and hedges the US dollar requirements of its International segment. The failure to satisfy the appropriate accounting requirements, or a default or insolvency of a counterparty to a contract, could increase the volatility of results and may continueimpact the timing of recognition of gains and losses in the statement of operations, which could have a negative impact on Signet’s results.Other accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to adversely affecta wide range of matters that are relevant to the commercial use of JamesAllen.com,Company’s business, including but not limited to, revenue recognition for extended service plans and lifetime warranty agreements and pension accounting, are highly complex and involve many subjective assumptions, estimates and judgments by the online retailer we acquired during Fiscal 2018. Specifically,Company. Changes in June 2018, the U.S. Supreme Court decided the South Dakota v. Wayfair, Inc. sales tax nexus case. As a result of the Supreme Court ruling, some states have adopted laws and other states now have the ability to adopt laws requiring taxpayers to collect and remit sales tax on a basis of economic nexus, eventhese rules or their interpretation or changes in states in which the taxpayer has no presence. New taxes required to be collected by JamesAllen.com also has created significant increases in internal costs necessary to capture data and collect and remit taxes. These events has had and will continue to have an adverse effect on JamesAllen.com.underlying assumptions, estimates or judgments could significantly change our reported or expected financial performance.
Failure to comply with labor regulations could adversely affect the Company’s business.
Various state, federal and global laws and regulations regarding employmentgovern Signet’s relationship with its employees. Some examples of these laws include requirements related to minimum wage, sick pay, overtime pay, paid time off, workers’ compensation rates, and healthcare reform. These laws and regulations change frequently, and the ultimate cost of compliance cannot be precisely estimated. Failure by Signet to comply with labor regulations could result in fines and legal actions. In addition, the ability to recruit and retain staff could be harmed.
The Company’s ability to comply with changes in laws and regulations and adapt to changes thereto could adversely affect ourits business.
Signet’s policies and procedures are designed to comply with all applicable laws and regulations. Changing legal and regulatory requirements in the US and other jurisdictions in which Signet operates have increased the complexity of the regulatory environment in which the business operates and the cost of compliance. Failure to comply with the various regulatory requirements may result in damage to Signet’s reputation, civil and criminal proceedings and liability, fines and penalties, and further increase the cost of regulatory compliance.
Changes in existing taxation benefits,laws, rules or practices may adversely affect the Company’s financial results.
The Company operates through various subsidiaries in numerous countries throughout the world. Consequently, Signet is subject to changes in tax laws, treaties or regulations or the interpretation or enforcement thereof in the United StatesUS or jurisdictions where any subsidiaries operate or are incorporated. Tax laws, treaties and regulations are highly complex and subject to interpretation. The Company’s income tax expense is based upon interpretation of the tax laws in effect in various countries at the time such expense was incurred. If these tax laws, treaties or regulations were to change or any tax authority were to successfully challenge ourSignet’s assessment of the effects of such laws, treaties and regulations in any country, this could result in a higher effective tax rate on the Company’s taxable earnings, which could have a material adverse effect on the Company’s results of operations.
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In addition, the Organization for Economic Co-Operation and Development (“OECD”) has published an action plan seeking multilateral cooperation to reform the taxation of multinational companies. Countries already have begun to implement some of these action items, and likely will continue to adopt more of them over the next several years. This may result in unilateral or uncoordinated local country application of the action items. Any such inconsistencies in the tax laws of countries where the Company operates or is incorporated may lead to increased uncertainty with respect to tax positions or otherwise increase the potential for double taxation. Proposals for US tax reform also potentially could have a significant adverse effect on us. In addition, the European Commission has conducted investigations in multiple countries focusing on whether local country tax legislation or rulings provide preferential tax treatment in violation of European Union state aid rules. Any impacts of these actions could increase the Company’s tax liabilities, which in turn could have a material adverse effect on the Company’s results of operations and financial condition.
The Parent Company (as defined in Item 5) is incorporated in Bermuda. The directors intend to conduct the Parent Company’s affairs such that, based on current law and practice of the relevant tax authorities, the Parent Company will not becomeresident for tax purposes in any other territory. At the present time, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by the Parent Company or by its shareholders in respect of its common shares. The Parent Company has obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until March 31, 2035, be applicable to it or to any of its operations or to its shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by it in respect of real property owned or leased by it in Bermuda. Given the limited duration of the Minister of Finance’s assurance, the Parent Company cannot be certain that it will not be subject to Bermuda tax after March 31, 2035. In the event the Parent Company were to become subject to any Bermuda tax after such date, it could have a material adverse effect on the Parent Company’s results of operations and financial condition.
International laws and regulations and foreign taxes could impact Signet’s non-US subsidiaries operateability to continue sourcing and manufacturing materials for its products on a global scale.
Signet is engaged in sourcing and manufacturing on a manner that they should notglobal scale, and as such, could be impacted by foreign governmental laws and regulations, foreign duties, taxes, and other charges on importing products, and international shipping delays or disruptions. Signet’s global operations are also subject to US income tax because none of them should be treated as engaged in a trade or businessthe Foreign Corrupt Practices Act and other such anti-corruption laws. Additionally, labor relations and general political conditions in the US If, despite this,countries where Signet sources and manufactures its materials could impact the IRS were to successfully contend that the Parent Company or anyultimate shipment and receipt of its non-US subsidiaries are engaged in a trade or business in the US, such entity could be subject to U.S. corporate incomesupplies and branch profits taxes on the portion of its earnings effectively connected to such US business, which could adversely affect the Company’s results of operations.products.
Stakeholders may face difficulties in enforcing proceedings against Signet Jewelers Limited as it is domiciled in Bermuda.
It is doubtful whether courts in Bermuda would enforce judgments obtained by investors in other jurisdictions, including the US, Canada and the UK, against the Parent Company or its directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against the Parent Company or its directors or officers under the securities laws of other jurisdictions.
ITEM 1B. UNRESOLVED STAFF COMMENTS
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ITEM 2. PROPERTIES
The following table provides the location, use and size of ourSignet’s corporate, distribution, corporate and other non-retail facilities required to support the Company’s global operations as of February 2, 2019:January 29, 2022:
| Location | Function | Approximate square footage | Lease or Own | Lease expiration | ||||||||||||||||||||||
| Akron, Ohio | Corporate and distribution | 460,000 | Lease | 2048 | ||||||||||||||||||||||
| Akron, Ohio | Credit (1) | 86,000 | Lease | 2048 | ||||||||||||||||||||||
| Akron, Ohio | Training facility | 11,000 | Lease | 2032 | ||||||||||||||||||||||
| Akron, Ohio | Repair facility | 38,000 | Own | N/A | ||||||||||||||||||||||
| Barberton, Ohio | Non-merchandise fulfillment | 135,000 | Lease | 2032 | ||||||||||||||||||||||
| Charlotte, North Carolina | Corporate and administrative | 8,900 | Lease | 2023 | ||||||||||||||||||||||
| Dallas, Texas | Repair facility (2) | 31,000 | Lease | 2029 | ||||||||||||||||||||||
| Dallas, Texas | Administrative | 190,000 | Lease | 2029 | ||||||||||||||||||||||
| Frederick, Maryland | Customer service | 7,716 | Lease | 2022 | ||||||||||||||||||||||
| New York City, New York | Administrative | 17,000 | Lease | 2023 | ||||||||||||||||||||||
| New York City, New York | Administrative | 8,000 | Lease | 2027 | ||||||||||||||||||||||
| New York City, New York | Distribution and fulfillment | 1,819 | Lease | 2024 | ||||||||||||||||||||||
| San Francisco, California | Administrative | 6,178 | Lease | 2024 | ||||||||||||||||||||||
| Markham, Ontario (Canada) | Distribution and fulfillment | 31,000 | Lease | 2026 | ||||||||||||||||||||||
| Birmingham, UK | Corporate, distribution and eCommerce fulfillment | 235,000 | Own | N/A | ||||||||||||||||||||||
| Watford, UK | Administrative | 20,500 | Lease | 2037 | ||||||||||||||||||||||
| Gaborone, Botswana | Diamond polishing | 34,200 | Own | N/A | ||||||||||||||||||||||
| Mumbai, India | Diamond liaison | 3,000 | Lease | 2026 | ||||||||||||||||||||||
| Ramat-Gan, Israel | Technology center | 1,000 | Lease | 2023 | ||||||||||||||||||||||
| Herzelia, Israel | Technology center | 12,700 | Lease | 2023 | ||||||||||||||||||||||
| Location | Function | Approximate square footage | Lease or Own | Lease expiration | |||||
| Akron, Ohio | Corporate and distribution | 460,000 | Lease | 2048 | |||||
| Akron, Ohio | Credit(1) | 86,000 | Lease | 2048 | |||||
| Akron, Ohio | Training | 11,000 | Lease | 2048 | |||||
| Akron, Ohio | Repair facility | 38,000 | Own | N/A | |||||
| Akron, Ohio | Corporate | 32,000 | Lease | 2022 | |||||
| Barberton, Ohio | Non-merchandise fulfillment | 135,000 | Lease | 2032 | |||||
| New York City, New York | Design | 4,600 | Lease | 2021 | |||||
| New York City, New York | Diamond trading | 1,000 | Lease | 2021 | |||||
| New York City, New York | Corporate | 10,000 | Lease | 2023 | |||||
| New York City, New York | Corporate | 8,000 | Lease | 2027 | |||||
| Dallas, Texas | Repair facility | 31,000 | Lease | 2029 | |||||
| Dallas, Texas | Corporate | 190,000 | Lease | 2029 | |||||
| Frederick, Maryland | Customer service | 7,716 | Lease | 2021 | |||||
| Toronto, Ontario (Canada) | Distribution and fulfillment | 26,000 | Lease | 2019 | |||||
| Birmingham, UK | Corporate, distribution and e-commerce fulfillment | 235,000 | Own | N/A | |||||
| Borehamwood, Hertfordshire (UK) | Corporate | 36,200 | Lease | 2021 | |||||
| Gaborone, Botswana | Diamond polishing | 34,200 | Own | N/A | |||||
| Mumbai, India | Diamond liaison | 3,000 | Lease | 2019 | |||||
| Mumbai, India | Diamond liaison | 2,936 | Lease | 2019 | |||||
| Ramat-Gan, Israel | Technology center | 1,000 | Lease | 2021 | |||||
| Herzelia, Israel | Technology center | 12,700 | Lease | 2023 | |||||
(2) The indicated property has a sublease option. |
Sufficient distribution exists in all geographies to meet the respective needs of the Company’s operations.
Global retail property
Signet attributes great importance to the location and appearance of its stores. Accordingly, in each of Signet’s divisions, investment decisions on selecting sites and refurbishing stores are made centrally, and strict real estate and investment criteria are applied. Below is a summary of property details by geography for ourSignet’s retail operations as of February 2, 2019:January 29, 2022:
| North America segment | International segment | Signet | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| US | 2,412 | — | 2,412 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Canada | 94 | — | 94 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| UK | — | 335 | 335 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Republic of Ireland | — | 10 | 10 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Channel Islands | — | 3 | 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 2,506 | 348 | 2,854 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| North America segment | International segment | Signet | ||||||||||||||||||||||||||||||
| Kay | Zales | Peoples | Jared | Piercing Pagoda | Regional banners(1) | Total | H.Samuel | Ernest Jones | Total | Total stores | ||||||||||||||||||||||
| US | 1,214 | 658 | — | 256 | 574 | 27 | 2,729 | — | — | — | 2,729 | |||||||||||||||||||||
| Canada | — | — | 123 | — | — | 5 | 128 | — | — | — | 128 | |||||||||||||||||||||
| United Kingdom | — | — | — | — | — | — | — | 278 | 186 | 464 | 464 | |||||||||||||||||||||
| Republic of Ireland | — | — | — | — | — | — | — | 8 | 2 | 10 | 10 | |||||||||||||||||||||
| Channel Islands | — | — | — | — | — | — | — | 2 | 1 | 3 | 3 | |||||||||||||||||||||
| Total | 1,214 | 658 | 123 | 256 | 574 | 32 | 2,857 | 288 | 189 | 477 | 3,334 | |||||||||||||||||||||
| North America segment | Signet | |||||||||||||||||||
| Kay | Zales | Peoples | Jared | Piercing Pagoda | Regional brands(1) | Total Stores | ||||||||||||||
| Alabama | 27 | 12 | — | 4 | 4 | — | 47 | |||||||||||||
| Alaska | 3 | 2 | — | — | — | — | 5 | |||||||||||||
| Arizona | 19 | 11 | — | 6 | 9 | — | 45 | |||||||||||||
| Arkansas | 10 | 9 | — | 1 | — | — | 20 | |||||||||||||
| California | 81 | 51 | — | 20 | 39 | — | 191 | |||||||||||||
| Colorado | 16 | 16 | — | 6 | 4 | — | 42 | |||||||||||||
| Connecticut | 14 | 10 | — | 1 | 15 | — | 40 | |||||||||||||
| Delaware | 5 | 4 | — | 2 | 6 | — | 17 | |||||||||||||
| Florida | 86 | 50 | — | 22 | 70 | 6 | 234 | |||||||||||||
| Georgia | 51 | 23 | — | 13 | 12 | — | 99 | |||||||||||||
| Hawaii | 8 | 6 | — | — | — | — | 14 | |||||||||||||
| Idaho | 5 | 1 | — | 1 | — | — | 7 | |||||||||||||
| Illinois | 45 | 20 | — | 11 | 19 | — | 95 | |||||||||||||
| Indiana | 30 | 13 | — | 6 | 12 | 2 | 63 | |||||||||||||
| Iowa | 21 | 4 | — | 2 | 4 | — | 31 | |||||||||||||
| Kansas | 9 | 7 | — | 2 | 5 | — | 23 | |||||||||||||
| Kentucky | 21 | 8 | — | 3 | 5 | 2 | 39 | |||||||||||||
| Louisiana | 21 | 14 | — | 3 | — | 1 | 39 | |||||||||||||
| Maine | 6 | 1 | — | 1 | 2 | — | 10 | |||||||||||||
| Maryland | 27 | 14 | — | 9 | 23 | — | 73 | |||||||||||||
| Massachusetts | 25 | 10 | — | 4 | 20 | — | 59 | |||||||||||||
| Michigan | 42 | 16 | — | 9 | 9 | 2 | 78 | |||||||||||||
| Minnesota | 16 | 7 | — | 4 | 7 | — | 34 | |||||||||||||
| Mississippi | 15 | 6 | — | — | — | — | 21 | |||||||||||||
| Missouri | 22 | 10 | — | 3 | 5 | — | 40 | |||||||||||||
| Montana | 3 | — | — | — | — | — | 3 | |||||||||||||
| Nebraska | 7 | 3 | — | — | 1 | — | 11 | |||||||||||||
| Nevada | 10 | 7 | — | 3 | 5 | — | 25 | |||||||||||||
| New Hampshire | 12 | 5 | — | 4 | 7 | 1 | 29 | |||||||||||||
| New Jersey | 28 | 17 | — | 7 | 32 | — | 84 | |||||||||||||
| New Mexico | 5 | 9 | — | 1 | 3 | — | 18 | |||||||||||||
| New York | 67 | 39 | — | 7 | 59 | — | 172 | |||||||||||||
| North Carolina | 51 | 19 | — | 11 | 19 | — | 100 | |||||||||||||
| North Dakota | 4 | 3 | — | — | 1 | — | 8 | |||||||||||||
| Ohio | 70 | 19 | — | 15 | 22 | 2 | 128 | |||||||||||||
| Oklahoma | 14 | 9 | — | 2 | 2 | 1 | 28 | |||||||||||||
| Oregon | 15 | 4 | — | 2 | 5 | — | 26 | |||||||||||||
| Pennsylvania | 61 | 30 | — | 9 | 54 | — | 154 | |||||||||||||
| Rhode Island | 4 | 2 | — | 1 | 3 | — | 10 | |||||||||||||
| South Carolina | 25 | 10 | — | 3 | 7 | — | 45 | |||||||||||||
| South Dakota | 3 | 3 | — | — | 1 | — | 7 | |||||||||||||
| Tennessee | 30 | 17 | — | 8 | 5 | — | 60 | |||||||||||||
| Texas | 79 | 91 | — | 31 | 19 | 6 | 226 | |||||||||||||
| Utah | 9 | — | — | 3 | 3 | — | 15 | |||||||||||||
| Vermont | 2 | 1 | — | — | 1 | — | 4 | |||||||||||||
| Virginia | 34 | 22 | — | 10 | 24 | — | 90 | |||||||||||||
| Washington | 19 | 11 | — | 3 | 13 | 1 | 47 | |||||||||||||
Washington D.C.(1) | — | — | — | — | — | 1 | 1 | |||||||||||||
| West Virginia | 10 | 4 | — | — | 6 | 2 | 22 | |||||||||||||
| Wisconsin | 25 | 7 | — | 3 | 12 | — | 47 | |||||||||||||
| Wyoming | 2 | 1 | — | — | — | — | 3 | |||||||||||||
| US | 1,214 | 658 | — | 256 | 574 | 27 | 2,729 | |||||||||||||
| Alberta | — | — | 19 | — | — | — | 19 | |||||||||||||
| British Columbia | — | — | 19 | — | — | 1 | 20 | |||||||||||||
| Manitoba | — | — | 5 | — | — | — | 5 | |||||||||||||
| New Brunswick | — | — | 2 | — | — | — | 2 | |||||||||||||
| Newfoundland | — | — | 1 | — | — | — | 1 | |||||||||||||
| Nova Scotia | — | — | 4 | — | — | — | 4 | |||||||||||||
| Ontario | — | — | 65 | — | — | 4 | 69 | |||||||||||||
| Saskatchewan | — | — | 8 | — | — | — | 8 | |||||||||||||
| Canada | — | — | 123 | — | — | 5 | 128 | |||||||||||||
| Total North America | 1,214 | 658 | 123 | 256 | 574 | 32 | 2,857 | |||||||||||||
North America retail property
Signet’s North America segment operates stores and kiosks in the US and Canada, with substantially all of the locations being leased. In addition to a minimum annual rent cost, the majority of mall stores are also liable to pay rent based on sales above a specified base level. In Fiscal 2019, most2022, the majority of the mall stores and kiosks only made base rental payments. Under the terms of a typical lease, the Company is required to conform and maintain its usage to agreed standards, including meeting required advertising expenditure as a percentage of sales, and areis responsible for its proportionate share of expenses associated with common area maintenance, utilities and taxes of the mall.
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The initial term of a mall and off-mall store lease isleases, excluding Jared and Diamonds Direct, are generally tenfive years for North America. Off-mallAmerica, with off-mall leases also including various options for extension or renewal. New Banter locations excluding Jareds, typicallygenerally have an initial term of ten yearsleases with a five year termination right and oneterms ranging from three to five years for Piercing Pagoda kiosks.years. Towards the end of a lease, managementSignet evaluates whether to renew a lease and refit the store, using similar operational and investment criteria as for a new store. Where managementthe Company is uncertain whether the location will meet management’sits required return on investment, but the store is profitable, the leases may be renewed for one to fivetwo years, during which time the store’s performance is further evaluated. There are typically 250 to 300The Company not only monitors the stores’ performance but also monitors other factors such as trade area and mall stores at any one time in the North America segment.grade. Jared and Diamonds Direct stores are normally opened on fifteenwith lease terms ranging from ten to twenty year leasesyears with options to extend the lease, and rents are not sales related. A refurbishment of a Jared store is normally undertaken every five to ten years.
At February 2, 2019,January 29, 2022, the average unexpired lease term of leased premises for the North America segment was approximately 4two years for Kay and Zales mall locations and 6four years for off-mall Kay and Zales locations. Jared locations.locations on average had five years remaining. Approximately 56%85% of leases for these banners had terms expiring within five years. Diamonds Direct had on average eight years remaining. Banter average lease term remaining is one year and all but two of these leases had terms expiring within five years.
The average unexpired lease term of leased premises for Zales and Piercing Pagoda locations were 3 and 2 years, respectively. Approximately 85% of these leases had terms expiring within five years. The cost of remodeling a Kay mall store is similar to the cost of a new Kay or Zales mall store which is typically between $0.1 million and $0.5 million, depending on the scope of the remodel project. The cost of remodeling a Zale Jewelry mall store is similar to the cost of a new mall store, which is typically between $0.3 million and $0.7$0.8 million. The cost of a new Piercing Pagoda kiosk approximates $0.1 million. Jared refurbishmentsstore is typically cost on average less than $0.1 million. New Jared stores typically cost between $2.1 million and $3.3 million. In Fiscal 2019,The cost of a totalnew Diamonds Direct store is approximately $1.5 million to $2.8 million. The cost of 105store locations were remodeled (Fiscal 2018: 78 locations). In Fiscal 2019, storea new Banter kiosk is approximately $0.1 million, and the cost of a Banter Inline location is approximately $0.4 million. The cost of remodels were completed at9 Piercing Pagoda kiosks (Fiscal 2018: 53 locations).and refurbishments can vary greatly by location and age of store.
In the US, the North America segment collectively leases approximately 15%17% of store and kiosk locations from a single lessor. In Canada, it leases approximately 50% of its store locations from four lessors, with no individual lessor relationship exceeding 15% of its store locations. The segment had no other relationship with any lessor relating to 10% or more of its locations.
During the past five fiscal years, the Company generally has been successful in renewing its store leases as they expire and has not experienced difficulty in securing suitable locations for its stores. No store lease is individually material to Signet’s North America operations.
International retail property
The International segment’s stores are generally leased under full repairing and insuring leases (equivalent to triple net leases in the US). Wherever possible, Signet is shortening the length of new leases that it enters into or including break clauses in order to improve the flexibility of its lease commitments. At February 2, 2019,January 29, 2022, the average unexpired lease term of International premises was 6six years, and a majority of leases had either break clauses or terms expiring within five years. Rents are usually subject to upward review every five years if market conditions so warrant. An increasing proportion of rents also have an element related to the sales of a store, subject to a minimum annual value.
At the end of the lease period, subject to certain limited exceptions, International leaseholders in the UK generally have statutory rights to enter into a new lease of the premises on negotiated terms. As current leases expire, Signet believes that it will be able to renew leases, if desired, for present store locations or to obtain leases in equivalent or improved locations in the same general area. Signet has not experienced difficulty in securing leases for suitable locations for its International stores. No store lease is individually material to Signet’s International operations.
A typical International segment store undergoes a major remodel every ten years and a less costlyor refurbishment every five5-10 years. It is intended that these investments will be financed by cash from operating activities. The cost of remodeling a regular store is typically between $0.2$0.4 million and $0.8 million for both H.SamuelH. Samuel and Ernest Jones, while remodels in prestigious locations typically doubles those costs.could exceed these amounts.
The International segment has no relationship with any lessor relating to 10% or more of its store locations.
ITEM 3. LEGAL PROCEEDINGS
See discussion of legal proceedings in Note 2628 of Item 8.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market and dividend information
The Company’s common shares (symbol: SIG) are traded on the New York Stock Exchange.Exchange (“NYSE”).
Future payments of quarterly dividends will be based on Signet’s ability to satisfy all applicable statutory and regulatory requirements and its continued financial strength. Any future payment of cash dividends will depend upon such factors as Signet’s earnings, capital requirements, financial condition, restrictions under Signet’s credit facility, legal restrictions and other risk factors deemed relevant by the Board.Board of Directors (“Board”). See Item 1A Risk Factors.
Number of common shareholders
As of March 28, 2019,11, 2022, there were approximately 7,0286,734 shareholders of record.record of the Company’s common shares.
Repurchases of equity securities
The following table contains the Company’s repurchases of common shares in the fourth quarter of Fiscal 2019:2022:
| Period | Total number of shares purchased(1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs(2) | Approximate dollar value of shares that may yet be purchased under the plans or programs | |||||||||||||||||||
| October 31, 2021 to November 27, 2021 | — | $ | — | — | $183,922,862 | ||||||||||||||||||
| November 28, 2021 to December 25, 2021 | — | $ | — | — | $183,922,862 | ||||||||||||||||||
| December 26, 2021 to January 29, 2022 | 2,758,878 | $ | 79.99 | 2,758,644 | $463,263,330 | ||||||||||||||||||
| Total | 2,758,878 | $ | 79.99 | 2,758,644 | $463,263,330 | ||||||||||||||||||
(1) Includes 234 shares delivered to Signet by employees to satisfy minimum tax withholding obligations due upon the vesting or payment of stock awards under share-based compensation programs. These are not repurchased in connection with any publicly announced share repurchase programs.
(2) In June 2017, the Board authorized the repurchase of up to $600.0 million of Signet’s common shares (the “2017 Program”). The 2017 Program may be suspended or discontinued at any time without notice. In August 2021, the Board authorized the increase the remaining share repurchase under the 2017 Program of up to $225.0 million, and in January 2022, the Board further authorized an additional $500.0 million. On January 21, 2022, the Company entered into an accelerated share repurchase agreement (“ASR”) with a large financial institution to repurchase $250 million of the Company’s common shares. In January 2022, the Company made a payment of $250 million and took delivery of 2.5 million shares based on a price of $80 per share, which is 80% of the total repurchase amount. The ASR provides for an additional delivery at the final settlement of the ASR such that the Company receives a total number of shares equal to $250 million divided by the per share purchase price determined under the ASR’s valuation provisions. The amount repurchased in Fiscal 2022 excludes $50 million related to the forward purchase contract of the ASR. In March 2022, the Company received an additional 0.8 million shares for the final settlement of the ASR.
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| Period | Total number of shares purchased(1) | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs(2) | Approximate dollar value of shares that may yet be purchased under the plans or programs | |||||||
| November 4, 2018 to December 1, 2018 | 415 | $ | 52.06 | — | $165,586,651 | ||||||
| December 2, 2018 to December 29, 2018 | — | $ | — | — | $165,586,651 | ||||||
| December 30, 2018 to February 2, 2019 | — | $ | — | — | $165,586,651 | ||||||
| Total | 415 | $ | 52.06 | — | $165,586,651 | ||||||
Performance graph
The following performance graph and related information shall not be deemed “soliciting material” or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that Signet specifically incorporates it by reference into such filing.
Historical share price performance should not be relied upon as an indication of future share price performance. The following graph compares the cumulative total return to holders of Signet’s common shares against the cumulative total return of the S&P 500 Index and the S&P 500 Specialty Retail Index for the five year period ended February 2, 2019.January 29, 2022. The comparison of the cumulative total returns for each investment assumes that $100 was invested in Signet’s common shares and the respective indices on February 1, 2014January 28, 2017 through February 2, 2019.January 29, 2022.
Related Shareholder Matters
The owners of common shares who are non-residents of Bermuda are not subject to any restrictions on their rights to hold or vote their shares. Because the Parent Company is classified as a non-resident of Bermuda for exchange control purposes, there are no restrictions on its ability to transfer funds into and out of Bermuda or to pay dividends, other than in respect of local Bermuda currency.
There is no reciprocal tax treaty between Bermuda and the United StatesUS regarding withholding taxes. Under existing Bermuda law, there is no Bermuda income or withholding tax on dividends paid by the Parent Company to its shareholders. Furthermore, under existing Bermuda law, no Bermuda tax is levied on the sale or transfer of Signet common shares.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
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| FINANCIAL DATA: | Fiscal 2019 | Fiscal 2018(1) | Fiscal 2017 | Fiscal 2016 | Fiscal 2015(2) | ||||||||||||||
| Income statement: | (in millions) | ||||||||||||||||||
| Sales | $ | 6,247.1 | $ | 6,253.0 | $ | 6,408.4 | $ | 6,550.2 | $ | 5,736.3 | |||||||||
| Gross margin | $ | 2,160.8 | $ | 2,190.0 | $ | 2,360.8 | $ | 2,440.4 | $ | 2,074.2 | |||||||||
| Selling, general and administrative expenses | $ | (1,985.1 | ) | $ | (1,872.2 | ) | $ | (1,880.2 | ) | $ | (1,987.6 | ) | $ | (1,712.9 | ) | ||||
| Operating income (loss) | $ | (764.6 | ) | (4) | $ | 579.9 | $ | 763.2 | $ | 703.7 | $ | 576.6 | |||||||
| Net income (loss) attributable to common shareholders | $ | (690.3 | ) | $ | 486.4 | $ | 531.3 | $ | 467.9 | $ | 381.3 | ||||||||
Adjusted EBITDA(3) | $ | 393.5 | $ | 770.3 | $ | 955.0 | $ | 891.5 | $ | 762.9 | |||||||||
| Same store sales percentage increase (decrease) | (0.1 | )% | (5.3 | )% | (1.9 | )% | 4.1 | % | 4.1 | % | |||||||||
| (Income statement as a % of sales) | |||||||||||||||||||
| Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
| Gross margin | 34.6 | % | 35.0 | % | 36.8 | % | 37.3 | % | 36.2 | % | |||||||||
| Selling, general and administrative expenses | (31.8 | )% | (29.9 | )% | (29.3 | )% | (30.4 | )% | (29.9 | )% | |||||||||
| Operating income (loss) | (12.2 | )% | 9.3 | % | 11.9 | % | 10.7 | % | 10.0 | % | |||||||||
| Net income (loss) attributable to common shareholders | (11.0 | )% | 7.8 | % | 8.3 | % | 7.1 | % | 6.6 | % | |||||||||
Adjusted EBITDA(3) | 6.3 | % | 12.3 | % | 14.9 | % | 13.6 | % | 13.3 | % | |||||||||
| Per share data: | |||||||||||||||||||
| Earnings (loss) per common share: | |||||||||||||||||||
| Basic | $ | (12.62 | ) | $ | 7.72 | $ | 7.13 | $ | 5.89 | $ | 4.77 | ||||||||
| Diluted | $ | (12.62 | ) | $ | 7.44 | $ | 7.08 | $ | 5.87 | $ | 4.75 | ||||||||
| Dividends declared per common share | $ | 1.48 | $ | 1.24 | $ | 1.04 | $ | 0.88 | $ | 0.72 | |||||||||
| Weighted average common shares outstanding: | (in millions) | ||||||||||||||||||
| Basic | 54.7 | 63.0 | 74.5 | 79.5 | 79.9 | ||||||||||||||
| Diluted | 54.7 | 69.8 | 76.7 | 79.7 | 80.2 | ||||||||||||||
| Balance sheet: | (in millions) | ||||||||||||||||||
| Total assets | $ | 4,420.1 | $ | 5,839.6 | $ | 6,597.8 | $ | 6,464.9 | $ | 6,203.0 | |||||||||
| Total liabilities | $ | 2,603.2 | $ | 2,726.2 | $ | 3,495.7 | $ | 3,404.2 | $ | 3,392.6 | |||||||||
| Series A redeemable convertible preferred shares | $ | 615.3 | $ | 613.6 | $611.9 | n/a | n/a | ||||||||||||
Net (debt) cash(3) | $ | (533.0 | ) | $ | (507.1 | ) | $ | (1,310.3 | ) | $ | (1,241.0 | ) | $ | (1,256.4 | ) | ||||
| Working capital | $ | 1,822.8 | $ | 2,408.9 | $ | 3,438.9 | $ | 3,437.0 | $ | 3,210.3 | |||||||||
| Common shares outstanding | 51.9 | 60.5 | 68.3 | 79.4 | 80.3 | ||||||||||||||
| Fiscal 2019 | Fiscal 2018(1) | Fiscal 2017 | Fiscal 2016 | Fiscal 2015(2) | |||||||||||||||
| Other financial data: | |||||||||||||||||||
Free cash flow (in millions)(3) | $ | 564.2 | $ | 1,703.1 | $ | 400.3 | $ | 62.8 | $ | 82.8 | |||||||||
| Effective tax rate | 18.1 | % | 1.5 | % | (4) | 23.9 | % | 28.9 | % | 29.5 | % | ||||||||
ROCE(3) | 6.7 | % | (5) | 19.1 | % | 21.4 | % | 21.0 | % | 19.5 | % | ||||||||
Adjusted leverage ratio(3) | 4.3x | 3.1x | 3.6x | 3.3x | 3.5x | ||||||||||||||
| Store and employee data: | |||||||||||||||||||
| Store locations (at end of period) | 3,334 | 3,556 | 3,682 | 3,625 | 3,579 | ||||||||||||||
Number of employees (full-time equivalents)(6) | 22,989 | 24,888 | 29,566 | 29,057 | 28,949 | ||||||||||||||
| (in millions) | February 2, 2019 | February 3, 2018 | January 28, 2017 | ||||||||
| Cash and cash equivalents | $ | 195.4 | $ | 225.1 | $ | 98.7 | |||||
| Loans and overdrafts | (78.8 | ) | (44.0 | ) | (91.1 | ) | |||||
| Long-term debt | (649.6 | ) | (688.2 | ) | (1,317.9 | ) | |||||
| Net debt | $ | (533.0 | ) | $ | (507.1 | ) | $ | (1,310.3 | ) | ||
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | Fiscal 2016 | Fiscal 2015 | ||||||||||
| ROCE | 6.7 | % | (1) | 19.1 | % | 21.4 | % | 21.0 | % | 19.5 | % | |||
| (in millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||
| Net cash provided by operating activities | $ | 697.7 | $ | 1,940.5 | $ | 678.3 | |||||
| Purchase of property, plant and equipment | (133.5 | ) | (237.4 | ) | (278.0 | ) | |||||
| Free cash flow | $ | 564.2 | $ | 1,703.1 | $ | 400.3 | |||||
| (in millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | Fiscal 2016 | Fiscal 2015 | ||||||||||||||
| Adjusted debt: | |||||||||||||||||||
| Long-term debt | $ | 649.6 | $ | 688.2 | $ | 1,317.9 | $ | 1,321.0 | $ | 1,354.3 | |||||||||
| Loans and overdrafts | 78.8 | 44.0 | 91.1 | 57.7 | 95.7 | ||||||||||||||
Series A redeemable convertible preferred shares(1) | 615.3 | 613.6 | 611.9 | n/a | n/a | ||||||||||||||
| Adjustments: | |||||||||||||||||||
5x Rent expense(3) | 2,551.5 | 2,640.5 | |||||||||||||||||
8x Rent expense(3) | n/a | n/a | 4,195.2 | 4,205.6 | 3,703.2 | ||||||||||||||
| 70% of in-house credit program financing receivables | n/a | n/a | (1,269.3 | ) | (1,208.2 | ) | (1,087.0 | ) | |||||||||||
| Adjusted debt | $ | 3,895.2 | $ | 3,986.3 | $ | 4,946.8 | $ | 4,376.1 | $ | 4,066.2 | |||||||||
| Adjusted EBITDAR: | |||||||||||||||||||
| Net income (loss) | $ | (657.4 | ) | $ | 519.3 | $ | 543.2 | $ | 467.9 | $ | 381.3 | ||||||||
| Income taxes | (145.2 | ) | 7.9 | 170.6 | 189.9 | 159.3 | |||||||||||||
| Interest expense, net | 39.7 | 52.7 | 49.4 | 45.9 | 36.0 | ||||||||||||||
Depreciation and amortization on property, plant and equipment(2) | 179.6 | 194.1 | 175.0 | 161.4 | 140.4 | ||||||||||||||
Amortization of definite-lived intangibles(2) | 4.0 | 9.3 | 13.8 | 13.9 | 9.3 | ||||||||||||||
| Amortization of unfavorable leases and contracts | (7.9 | ) | (13.0 | ) | (19.7 | ) | (28.7 | ) | (23.7 | ) | |||||||||
Other non-cash accounting adjustments(3) | 980.7 | — | 22.7 | 41.2 | 60.3 | ||||||||||||||
| Adjusted EBITDA | $ | 393.5 | $ | 770.3 | $ | 955.0 | $ | 891.5 | $ | 762.9 | |||||||||
| Rent expense | 510.3 | 528.1 | 524.4 | 525.7 | 462.9 | ||||||||||||||
Share-based compensation expense(4) | n/a | n/a | 8.0 | 16.4 | 12.1 | ||||||||||||||
| Finance income from in-house credit program | n/a | n/a | (277.6 | ) | (252.5 | ) | (217.9 | ) | |||||||||||
| Late charge income | n/a | n/a | (36.0 | ) | (33.9 | ) | (31.3 | ) | |||||||||||
| Net bad debt expense | n/a | n/a | 212.1 | 190.5 | 160.0 | ||||||||||||||
| Adjusted EBITDAR | $ | 903.8 | $ | 1,298.4 | $ | 1,385.9 | $ | 1,337.7 | $ | 1,148.7 | |||||||||
Adjusted Leverage ratio(5) | 4.3x | 3.1x | 3.6x | 3.3x | 3.5x | ||||||||||||||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Impacts of COVID-19
In December 2019, a novel coronavirus (“COVID-19”) was identified in Wuhan, China. During Fiscal 2021, the Company experienced significant disruption to its business, specifically in its retail store operations through temporary closures during the first half of Fiscal 2021. By the end of the third quarter of Fiscal 2021, the Company had re-opened substantially all of its stores. However, during the fourth quarter of Fiscal 2021, both the UK and certain Canadian provinces re-established mandated temporary closure of non-essential businesses. The UK stores began to reopen in April 2021 and Canadian stores began reopening in the second quarter of Fiscal 2022. To date, the Company’s operations have not been significantly impacted by managementthe resurgence of COVID-19 or any variants that began emerging in the second quarter of Fiscal 2022. The Company continues to analyzeactively monitor and manage the performancesituation related to its store and support center operations focusing on the health and safety of its employees, customers, suppliers and shareholders, and considering all guidelines from state and federal government and health organizations.
COVID-19 significantly altered the retail climate and the Company has been navigating that change by accelerating its application of the business. Seekey strategic initiatives developed over the past few years including the Company’s focus on becoming an OmniChannel leader, focusing on the needs of its customers, removing non-customer facing costs, and optimizing its real estate footprint. The Company continues to maintain its cost diligence efforts as the Company executes on its Inspiring Brilliance strategy, as further described below and in the Purpose and Strategy section within Item 6 for1 this Annual Report.
During the required disclosures relatedpast two years, the Company also took numerous actions to these measures. Signet provides such non-GAAP information in reportingmaximize its financial resultsflexibility, bolster its liquidity and strengthen its balance sheet, both strategically and as temporary measures as a result of COVID-19. Refer to give investors additional datathe Liquidity and Capital
Resources section below for further information.
Outlook and strategy
Signet’s sales grew 28.6% during the fourth quarter of Fiscal 2022 compared to evaluate its operations.the same quarter of Fiscal 2021, as the Company’s organic growth this quarter was bolstered by the addition of Diamonds Direct USA Inc. (“Diamonds Direct”) to Signet’s portfolio on November 17, 2021. This growth also reflects sustainable enhancements to Signet’s connected commerce capabilities, digital marketing effectiveness, the strength of Signet’s banner differentiation and inventory management. The Company’s managementfocus on its connected commerce shopping experience, both online and in-store, helped maintain strong conversion rates and improve average transaction values during the fourth quarter of Fiscal 2022. During Fiscal 2023, the Company will continue to execute the initiatives under its Inspiring Brilliance strategy, which is focused on the achievement of sustainable, industry leading growth. As described in the Purpose and Strategy section within Item 1 this Annual Report, through its Inspiring Brilliance strategy, the Company will focus on leveraging its core strengths that it developed over the past few years with the goal of creating a broader mid-market for jewelry and increasing Signet’s share of that larger market as the industry leader.
Although the Company has not experienced a significant impact to Fiscal 2022 results, Signet continues to expect some shift of consumer discretionary spending away from the jewelry category reflecting decelerating levels of consumer confidence and pent-up demand for experience-oriented categories in Fiscal 2023; however, the timing and magnitude of any shift is difficult to predict. Following a year of heightened growth, jewelry industry revenues are expected to flat to down slightly in the coming year. However, the Company believes that its banner value propositions, including the Diamonds Direct addition to Signet‘s portfolio, the strength of the Company’s product assortment and its investments in digital and flexible fulfillment methods are expected to continue fueling a strong response from customers across merchandise categories and banners in Fiscal 2023. Furthermore, the Company will continue its diligent and effective efforts to drive structural cost savings and mitigate supply chain disruption.
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The full extent of the COVID-19 pandemic impacts on the Company’s business in Fiscal 2023 or longer term, and whether the strong results in Fiscal 2022 will continue, remains unclear. Continued uncertainties exist that could impact the Company’s results of operations or cash flows, such as potential resurgence of COVID-19 in key trade areas, the ability to recruit and retain qualified team members, organized retail crime, extended duration of heightened unemployment in certain areas, pricing and inflationary environment changes impacting the Company (including, but not limited to, materials, labor, fulfillment and advertising costs) or the consumers’ ability to spend. In addition, although the Company believes economic stimulus measures have had a positive impact on current year results, it is uncertain how long this impact will continue.
Diamonds Direct acquisition
On November 17, 2021, the Company finalized its acquisition of Diamonds Direct for initial cash consideration of $501.2 million, net of cash acquired, and subject to customary post-closing adjustments per the Transaction Agreement (“Transaction Agreement”). Diamonds Direct is an off-mall, destination jeweler in the US operating in 22 retail locations with a highly productive, efficient operating model with demonstrated growth and profitability. Diamonds Direct was immediately accretive to Signet following the acquisition date. Diamonds Direct's strong value proposition, extensive bridal offering and customer centric, high-touch shopping experience is a destination for younger, luxury-oriented bridal shoppers. Diamonds Direct strategically expands Signet’s market in accessible luxury and bridal, provides access to a new customer base and furthers Signet’s opportunity to build lifetime customer relationships. Signet plans to grow Diamonds Direct while driving operating margin expansion over time through operating synergies in purchasing, targeted marketing and connected commerce.
Market and operating conditions
The Company faces a highly competitive and dynamic retail landscape throughout the geographies where it does not, nor does it suggest investors should, consider such non-GAAP measuresbusiness, as well as a challenging macro-economic and political environment in isolation from, or in substitutionthe UK market. Refer to Item 1 for financialfurther information prepared in accordance with GAAP.on the Company’s business, markets and strategy.
Exchange Translation Impacttranslation impact
Fiscal 20192022 Overview
Similar to many other retailers, Signet follows the retail 4-4-5 reporting calendar, which included an extra week in the fourth quarter ofcalendar. Both Fiscal 2018 (the “53rd week”). The 53rd week added $84.3 million in net sales and increased diluted earnings per share by approximately $0.12 for both the quarter2022 and Fiscal 2018.2021 were 52 week reporting periods.
retail industry. Same store sales growth is calculated by comparison of sales in stores that were open in both the current and the prior fiscal year. Sales from stores that have been open for less than 12 months are excluded from the comparison until their 12-month anniversary. Sales from stores that were acquired during the period and have not been included in the Company’s results for both the current and prior period presented are also excluded from same store sales. Sales after the 12-month anniversary are compared against the equivalent prior period sales within the comparable store sales comparison. Stores closed in the current financial period are included up to the date of closure and the comparative period is correspondingly adjusted. Stores that have been relocated or expanded, but remain within the same local geographic area, are included within the comparison with no adjustment to either the current or comparative period. Stores that have been refurbished are also included within the comparison except for the period when the refurbishment was taking place, when those stores are excluded from the comparison both for the current year and for the comparative period. Sales to employeesSame store sales are also excluded.impacted by certain accounting adjustments to sales, primarily related to the deferral of revenue from the Company’s extended service plans.
As discussed in the Overview section above, because of COVID-19, the Company temporarily closed all of its stores in the first quarter of Fiscal 2021, as well as certain stores in the UK and Canada during the fourth quarter. Same store sales as presented in the results of operations below for Fiscal 2021 have not been adjusted to remove the impact of these temporary store closures.
eCommerce sales include all sales with customers that originate online, including direct to customer, ship to store, and buy online, pick-up in store ("BOPIS"). eCommerce sales are included in the calculation of same store sales for the period and the comparative figures from the anniversary of the launch of the relevant website. Brick and mortar same store sales are calculated by removing the eCommerce sales from the same store sales calculation described above. Comparisons at the divisional level are made in local
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currency and consolidated comparisons are made at constant exchange rates and exclude the effect of exchange rate movements by recalculating the prior period results as if they had been generated at the weighted average exchange rate for the current period. eCommerce sales are included in the calculation of same store sales for the period and the comparative figures from the anniversary of the launch of the relevant website. Same store sales exclude the 53rd53rd week in the fiscal year in which it occurs. Management considers same store sales useful as it is a major benchmark used by investors to judge performance within the retail industry.
| North America | International | Total Signet | |||||||
| Fiscal 2019 | |||||||||
| Openings | 42 | 3 | 45 | ||||||
| Closures | (237 | ) | (30 | ) | (267 | ) | |||
| Net change in store selling space | (5.8 | )% | (4.8 | )% | (5.7 | )% | |||
| Fiscal 2018 | |||||||||
| Openings | 113 | 3 | 116 | ||||||
| Closures | (235 | ) | (7 | ) | (242 | ) | |||
| Net change in store selling space | (1.9 | )% | (0.4 | )% | (1.7 | )% | |||
| Fiscal 2017 | |||||||||
| Openings | 153 | 9 | 162 | ||||||
| Closures | (101 | ) | (4 | ) | (105 | ) | |||
| Net change in store selling space | 2.8 | % | 1.0 | % | 2.6 | % | |||
Cost of Salessales and Gross Margingross margin
Cost of sales is mostly composed of merchandise costs (net of discounts and allowances). Cost of sales also contains:
•Occupancy costs such as rent, common area maintenance, depreciation and real estate tax.taxes.
•Store operating expenses such as utilities, displays and third-party merchant credit costs.
•Distribution and warehousing costs including freight, processing, inventory shrinkage and related payroll.
As the classification of cost of sales or selling, general and administrative expenses varies from retailer to retailer, Signet’s gross margin percentage may not be directly comparable to other retailers.
Factors that influence gross margin include pricing, promotional environment, changes in merchandise costs, (principally diamonds), changes in non-merchandise components of cost of sales (as described above), changes in sales mix, foreign exchange, gold and currency hedges and the economics of services such as repairs and extended service plans. The price of diamonds varies depending on their size, cut, color and clarity. At times, Signet uses gold and currency hedges to reduce its exposure to market volatility in the cost of gold and the British pound sterling to the US dollar exchange rate, but it is not able to do so for diamonds. For gold and currencies, the hedging period can extend up to 24 months, although the majority of hedge contracts will normally be for a maximum of 12 months.
| North America | International | Total Signet | |||||||
| Fiscal 2019 | |||||||||
| Diamond | 55 | % | 19 | % | 52 | % | |||
| Gold | 14 | % | 12 | % | 14 | % | |||
All Other(1) | 31 | % | 69 | % | 34 | % | |||
| Fiscal 2018 | |||||||||
| Diamond | 48 | % | 16 | % | 45 | % | |||
| Gold | 14 | % | 15 | % | 14 | % | |||
| All Other | 38 | % | 69 | % | 41 | % | |||
Signet uses an average cost inventory methodology and, as jewelry inventory turns slowly, the impact of movements in the cost of diamonds and gold takes time to be fully reflected in the gross margin. Signet’s inventory turns faster in the fourth quarter than in the other three quarters, therefore, changes in the cost of merchandise is more impactful on the gross margin in that quarter. Furthermore, Signet’s hedging activities result in movements in the purchase cost of merchandise taking some time before being reflected in the gross margin. An increase in inventory turn would accelerate the rate at which commodity costs impact gross margin.
Selling, Generalgeneral and Administrative Expenseadministrative expense (“SGA”SG&A”)
The primary drivers of staffing costs are the number of full timefull-time equivalent employees and the level of compensation, taxes and other benefits paid. Management varies, on a store by store basis, the hours worked based on the expected level of selling activity, subject to minimum staffing levels required to operate the store. Non-store staffing levels are less variable. A significant element of compensation is performance basedperformance-based and is primarily dependent on sales and operating profit.
The level of advertising expenditureexpenditures can vary. The largest element of advertising expenditureexpenditures has historically been national television advertising; however, Signet has continued to invest more on digital and social marketing in recent years as part of its transformational initiatives, in order to evolve its marketing allocations based on consumer habits, business needs, and maximize return on investment (“ROI”) on its advertising and is determined by management’s judgment of the appropriate level of advertising impressions and the cost of purchasing media.
investments.
Other Operating Income
Other operating income (loss) primarily consists of miscellaneous operating income and expense items such as interest income arising from in-house customer finance provided to the customers of the North America segment. In the third quarter of Fiscal 2018, the Company completed the sale of the prime portion of the in-house finance receivables.In the second quarter of Fiscal 2019, the Company completed the sale of the non-prime in-house accounts receivable. Subsequent to these transactions, the Company experienced a material reduction in the amount of interest income it recognized.receivables, litigation settlements, foreign currency gains and losses, and gains and losses from de-designated or undesignated derivative contracts. See Note 412 in Item 8 for further detail on the Company’s credit transactions.
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||||||||||||
| (in millions) | $ | % of sales | $ | % of sales | $ | % of sales | ||||||||||||||
| Sales | $ | 6,247.1 | 100.0 | % | $ | 6,253.0 | 100.0 | % | $ | 6,408.4 | 100.0 | % | ||||||||
| Cost of sales | (4,024.1 | ) | (64.4 | ) | (4,063 | ) | (65.0 | ) | (4,047.6 | ) | (63.2 | ) | ||||||||
| Restructuring charges - cost of sales | (62.2 | ) | (1.0 | ) | — | — | — | — | ||||||||||||
| Gross margin | 2,160.8 | 34.6 | 2,190.0 | 35.0 | 2,360.8 | 36.8 | ||||||||||||||
| Selling, general and administrative expenses | (1,985.1 | ) | (31.8 | ) | (1,872.2 | ) | (29.9 | ) | (1,880.2 | ) | (29.3 | ) | ||||||||
| Credit transaction, net | (167.4 | ) | (2.7 | ) | 1.3 | — | — | — | ||||||||||||
| Restructuring charges | (63.7 | ) | (1.0 | ) | — | — | — | — | ||||||||||||
| Goodwill and intangible impairments | (735.4 | ) | (11.8 | ) | — | — | — | — | ||||||||||||
| Other operating income, net | 26.2 | 0.4 | 260.8 | 4.2 | 282.6 | 4.4 | ||||||||||||||
| Operating income (loss) | (764.6 | ) | (12.2 | ) | 579.9 | 9.3 | 763.2 | 11.9 | ||||||||||||
| Interest expense, net | (39.7 | ) | (0.6 | ) | (52.7 | ) | (0.9 | ) | (49.4 | ) | (0.8 | ) | ||||||||
| Other non-operating income | 1.7 | — | — | — | — | — | ||||||||||||||
| Income (loss) before income taxes | (802.6 | ) | (12.8 | ) | 527.2 | 8.4 | 713.8 | 11.1 | ||||||||||||
| Income tax benefit (expense) | 145.2 | 2.3 | (7.9 | ) | (0.1 | ) | (170.6 | ) | (2.6 | ) | ||||||||||
| Net income (loss) | $ | (657.4 | ) | (10.5 | )% | $ | 519.3 | 8.3 | % | $ | 543.2 | 8.5 | % | |||||||
COMPARISON OF FISCAL 20192022 TO FISCAL 20182021
•Total sales: up 49.7%.
•Same store sales: down 0.1%up 48.5%.
•Diluted earnings (loss) per share: $(12.62)$12.22 compared to $7.44$(0.94) in Fiscal 2018.2021.
39
| Fiscal 2022 | Fiscal 2021 | ||||||||||||||||||||||||||||||||||
| (in millions) | $ | % of sales | $ | % of sales | |||||||||||||||||||||||||||||||
| Sales | $ | 7,826.0 | 100.0 | % | $ | 5,226.9 | 100.0 | % | |||||||||||||||||||||||||||
| Cost of sales | (4,702.0) | (60.1) | (3,493) | (66.8) | |||||||||||||||||||||||||||||||
| Restructuring charges - cost of sales | — | — | (1.4) | — | |||||||||||||||||||||||||||||||
| Gross margin | 3,124.0 | 39.9 | 1,732.5 | 33.1 | |||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | (2,230.9) | (28.5) | (1,587.4) | (30.4) | |||||||||||||||||||||||||||||||
| Restructuring charges | 3.3 | — | (46.2) | (0.9) | |||||||||||||||||||||||||||||||
| Goodwill and intangible impairments | (1.5) | — | (159.0) | (3.0) | |||||||||||||||||||||||||||||||
| Other operating income | 8.5 | 0.1 | 2.4 | — | |||||||||||||||||||||||||||||||
| Operating income (loss) | 903.4 | 11.5 | (57.7) | (1.1) | |||||||||||||||||||||||||||||||
| Interest expense, net | (16.9) | (0.2) | (32.0) | (0.6) | |||||||||||||||||||||||||||||||
| Other non-operating loss, net | (2.1) | — | — | — | |||||||||||||||||||||||||||||||
| Income (loss) before income taxes | 884.4 | 11.3 | (89.7) | (1.7) | |||||||||||||||||||||||||||||||
| Income tax (expense) benefit | (114.5) | (1.5) | 74.5 | 1.4 | |||||||||||||||||||||||||||||||
| Net income (loss) | $ | 769.9 | 9.8 | % | $ | (15.2) | (0.3) | % | |||||||||||||||||||||||||||
Year to date sales
In Fiscal 2019,2022, Signet’s sales were $7.8 billion, up $2.6 billion or 49.7%, compared to $5.2 billion in Fiscal 2021. Total same store sales decreasedincreased by 0.1%48.5%, compared to a decrease of 5.3%10.8% in Fiscal 2018, which excluded2021. This growth reflects continued strong business momentum driven by the impactstrength of Signet’s connected commerce capabilities and holiday shopping, as well as the traction from strategic initiatives such as new product launches. Furthermore, the Company’s “always-on” marketing strategy, combined with consumer inspired promotional events as well as the strength of the 53rd weekCompany’s product assortment drove a strong response from its calculation. Total sales were $6.25 billion, down $5.9 million or 0.1%, compared to $6.25 billion in Fiscal 2018. The total sales decline was positively impacted by $111.2 million attributable tocustomers across merchandise categories and banners during the new US GAAP revenue recognition accounting standard and $135.6 million from the addition of James Allen (acquired in September 2017). These factors were offset by net store closures of $160.4 million and the negative impact of comparison against a 53rd week in the prior year of $84.3 million. fourth quarter.
eCommerce sales were $682.4 million$1.5 billion and 10.9%19.3% of total sales compared to $497.7 million$1.2 billion and 8.0%22.7% of total sales in Fiscal 2018.2021. The increase in eCommerce sales reflects the enhanced eCommerce capabilities, digital first focus and connected commerce strategies that are resonating with customers. The Company’s focus on its connected commerce shopping experience, both online and in-store, helped maintain improved conversion rates and average transaction values during Fiscal 2022.
The breakdown of Signet’s sales performance during Fiscal 2022 is set out in the table below:
| Change from previous year | |||||||||||||||||||||||||||||||||||||||||
| Fiscal 2022 | Same store sales | Non-same store sales, net (2) | Total sales at constant exchange rate | Exchange translation impact | Total sales as reported | Total sales (in millions) | |||||||||||||||||||||||||||||||||||
| North America segment | 49.5 | % | 0.4 | % | 49.9 | % | 0.2 | % | 50.1 | % | $ | 7,264.8 | |||||||||||||||||||||||||||||
| International segment | 34.7 | % | (3.0) | % | 31.7 | % | 6.7 | % | 38.4 | % | $ | 492.4 | |||||||||||||||||||||||||||||
Other segment (1) | nm | nm | nm | nm | nm | $ | 68.8 | ||||||||||||||||||||||||||||||||||
| Signet | 48.5 | % | 0.5 | % | 49.0 | % | 0.7 | % | 49.7 | % | $ | 7,826.0 | |||||||||||||||||||||||||||||
(1) Includes sales from Signet’s diamond sourcing initiative.
(2) Includes sales from acquired businesses from the date of acquisition through the end of the period.
nm Not meaningful.
40
| Change from previous year | |||||||||||||||||||||
| Fiscal 2019 | Same store sales(1) | Non-same store sales, net | Impact of 53rd week on total sales | Total sales at constant exchange rate | Exchange translation impact | Total sales as reported | Total sales (in millions) | ||||||||||||||
| Kay | (1.4 | )% | 2.2 | % | (1.2 | )% | (0.4 | )% | na | (0.4 | )% | $ | 2,417.8 | ||||||||
| Zales | 4.8 | % | (1.9 | )% | (1.6 | )% | 1.3 | % | na | 1.3 | % | $ | 1,260.7 | ||||||||
| Jared | (4.6 | )% | 1.8 | % | (1.5 | )% | (4.3 | )% | na | (4.3 | )% | $ | 1,141.4 | ||||||||
| Piercing Pagoda | 13.1 | % | (3.0 | )% | (1.4 | )% | 8.7 | % | na | 8.7 | % | $ | 302.5 | ||||||||
James Allen(2) | 14.6 | % | $ | 223.7 | |||||||||||||||||
| Peoples | 1.8 | % | (1.9 | )% | (1.6 | )% | (1.7 | )% | (1.5 | )% | (3.2 | )% | $ | 208.5 | |||||||
| Regional banners | (12.7 | )% | (34.7 | )% | (0.9 | )% | (48.3 | )% | (0.1 | )% | (48.4 | )% | $ | 87.1 | |||||||
| North America segment | 0.5 | % | 1.3 | % | (1.3 | )% | 0.5 | % | — | % | 0.5 | % | $ | 5,641.7 | |||||||
| H.Samuel | (4.8 | )% | (1.5 | )% | (1.6 | )% | (7.9 | )% | 0.5 | % | (7.4 | )% | $ | 284.0 | |||||||
| Ernest Jones | (5.6 | )% | 0.9 | % | (1.7 | )% | (6.4 | )% | 0.8 | % | (5.6 | )% | $ | 292.5 | |||||||
| International segment | (5.2 | )% | (0.3 | )% | (1.7 | )% | (7.2 | )% | 0.7 | % | (6.5 | )% | $ | 576.5 | |||||||
Other(3) | 37.0 | % | $ | 28.9 | |||||||||||||||||
| Signet | (0.1 | )% | 1.4 | % | (1.4 | )% | (0.1 | )% | — | % | (0.1 | )% | $ | 6,247.1 | |||||||
Average merchandise transaction value (“ATV”) is defined as net merchandise sales on a same store basis divided by the total number of customer transactions. As such, changes from the prior year do not recompute within the table below.
Average Merchandise Transaction Value (1)(2) | Merchandise Transactions | ||||||||||||||||||||||||||||||||||
| Average Value | Change from previous year | Change from previous year | |||||||||||||||||||||||||||||||||
| Fiscal Year | Fiscal 2022 | Fiscal 2021 | Fiscal 2022 | Fiscal 2021 | Fiscal 2022 | Fiscal 2021 | |||||||||||||||||||||||||||||
| North America segment | $ | 448 | $ | 392 | 14.3 | % | — | % | 29.2 | % | (7.6) | % | |||||||||||||||||||||||
International segment (3) | £ | 129 | £ | 153 | (17.3) | % | 8.5 | % | 30.7 | % | (30.4) | % | |||||||||||||||||||||||
Average Merchandise Transaction Value(1)(2) | Merchandise Transactions | ||||||||||||||||||
| Average Value | Change from previous year | Change from previous year | |||||||||||||||||
| Fiscal Year | Fiscal 2019 | Fiscal 2018 | Fiscal 2019 | Fiscal 2018 | Fiscal 2019 | Fiscal 2018 | |||||||||||||
| Kay | $ | 506 | $ | 466 | 8.6 | % | 1.5 | % | (8.6 | )% | (10.2 | )% | |||||||
| Zales | $ | 480 | $ | 470 | 1.9 | % | 2.0 | % | 3.5 | % | (4.3 | )% | |||||||
| Jared | $ | 659 | $ | 594 | 10.2 | % | 6.1 | % | (13.0 | )% | (11.0 | )% | |||||||
| Piercing Pagoda | $ | 69 | $ | 63 | 9.5 | % | 8.6 | % | 3.2 | % | (5.0 | )% | |||||||
James Allen(3) | $ | 3,738 | $ | 4,079 | (11.0 | )% | (1.6 | )% | 28.8 | % | 34.4 | % | |||||||
Peoples(4) | C$ | 429 | C$ | 429 | (0.9 | )% | 5.4 | % | 2.8 | % | (3.7 | )% | |||||||
| Regional banners | $ | 477 | $ | 447 | 5.1 | % | 3.5 | % | (16.0 | )% | (20.3 | )% | |||||||
| North America segment | $ | 386 | $ | 364 | 4.3 | % | 2.5 | % | (3.0 | )% | (7.8 | )% | |||||||
H.Samuel(5) | £ | 83 | £ | 84 | (4.6 | )% | 9.1 | % | (0.3 | )% | (14.4 | )% | |||||||
Ernest Jones(5) | £ | 359 | £ | 349 | (2.2 | )% | 12.2 | % | (3.4 | )% | (15.8 | )% | |||||||
International segment(5) | £ | 137 | £ | 136 | (4.2 | )% | 9.7 | % | (0.9 | )% | (14.7 | )% | |||||||
(1) Net merchandise sales within the North America segment include all merchandise product sales, net of discounts and returns. In addition, excluded from net merchandise sales are sales tax in the US, repair, extended service plan, insurance, employee and other miscellaneous sales. As a result, the sum of the changes will not agree to change in same store sales. (2) Net merchandise sales within the International segment include all merchandise product sales, including value added tax (“VAT”), net of discounts and returns. In addition, excluded from net merchandise sales are repairs, warranty, insurance, employee and other miscellaneous sales. As a result, the sum of the changes will not agree to change in same store sales. (3) Amounts for the International segment are denominated in British pounds. |
North America sales
The North America segment’s total sales were $5.64$7.3 billion compared to $5.62$4.8 billion in the prior year, up 0.5%50.1%. Same store sales increased 0.5%49.5% compared to a decrease of 5.2%9.5% in the prior year. North America’s ATV increased 4.3%, while14.3% and the number of transactions decreased 3.0%increased 29.2%.
In Fiscal 2022, the International segment’s total sales were $492.4 million, up 38.4%, compared to $355.9 million in Fiscal 2021. Same store sales increased by 34.7% compared to a decrease of 25.0% in Fiscal 2021. ATV decreased 17.3% and the number of transactions increased 30.7%. eCommerce sales from new merchandisedecreased 2.0% and brick and mortar sales increased during the year, but this performance was broadly offset by declines in legacy collections. Bridal and fashion sales each increased51.9% on a same store sales basis. Within bridal, The Enchanted Disney Fine Jewelry® collection, Vera Wang Love® collection, Neil Lane® collection, and solitaires performed well, while the Ever Us® collection declined. In fashion, gold fashion jewelry performed well, offset by declines in LeVian® and other legacy collections. The Other product category declined driven by a strategic reduction of owned brand beads, as well as declines in Pandora®.
Fourth Quarter Salesquarter sales
In the fourth quarter, Signet’s total sales were $2.15$2.8 billion, down $138.4up $624.8 million or 6.0%28.6%, compared to an increase of 1.0%1.5% in the prior year fourth quarter. Same store sales were down 2.0%up 23.8% compared to a decreasean increase of 5.2%7.0% in the prior year fourth quarter. The total sales decrease was positively impacted by $35.2 million attributable to the new US GAAP revenue recognition accounting standard offsetThis growth reflects continued strong business momentum driven by the comparison againststrength of Signet’s connected commerce capabilities and the level of early holiday shopping as well as the traction from strategic initiatives such as new product launches. Furthermore, the Company’s “always-on” marketing strategy, combined with consumer inspired promotional events as well as the strength of the Company’s product assortment drove a 14th week in Fiscal 2018 which contributed $84.3 million in sales in Fiscal 2018, $60.9 millionstrong response from net store closurescustomers across merchandise categories and $16.5 million of unfavorable foreign exchange translation. banners during the year.
eCommerce sales in the fourth quarter of Fiscal 2022 were $260.6$556.0 million or 12.1%19.8% of total sales, compared to $253.8$511.4 million or 11.2%23.4% of total sales in the prior year fourth quarter. The breakdown of the sales performance is set out in the table below.
| Change from previous year | |||||||||||||||||||||||||||||||||||||||||
| Fourth Quarter of Fiscal 2022 | Same store sales (1) | Non-same store sales, net | Total sales at constant exchange rate | Exchange translation impact | Total sales as reported | Total sales (in millions) | |||||||||||||||||||||||||||||||||||
| North America segment | 22.2 | % | 4.6 | % | 26.8 | % | 0.1 | % | 26.9 | % | $ | 2,606.9 | |||||||||||||||||||||||||||||
| International segment | 50.2 | % | (0.7) | % | 49.5 | % | (0.5) | % | 49.0 | % | $ | 183.4 | |||||||||||||||||||||||||||||
Other segment (1) | nm | nm | nm | nm | nm | $ | 21.0 | ||||||||||||||||||||||||||||||||||
| Signet | 23.8 | % | 4.7 | % | 28.5 | % | 0.1 | % | 28.6 | % | $ | 2,811.3 | |||||||||||||||||||||||||||||
(1) Includes sales from Signet’s diamond sourcing initiative.
nm Not meaningful.
Average Merchandise Transaction Value (1)(2) | Merchandise Transactions | ||||||||||||||||||||||||||||||||||
| Average Value | Change from previous year | Change from previous year | |||||||||||||||||||||||||||||||||
| Fourth Quarter | Fiscal 2022 | Fiscal 2021 | Fiscal 2022 | Fiscal 2021 | Fiscal 2022 | Fiscal 2021 | |||||||||||||||||||||||||||||
| North America segment | $ | 444 | $ | 380 | 16.8 | % | 1.1 | % | 3.6 | % | 9.9 | % | |||||||||||||||||||||||
International segment (3) | £ | 141 | £ | 136 | 2.2 | % | 6.3 | % | 37.6 | % | (29.7) | % | |||||||||||||||||||||||
41
| Change from previous year | |||||||||||||||||||||
| Fourth Quarter of Fiscal 2019 | Same store sales(1) | Non-same store sales, net | Impact of 14th week on total sales | Total sales at constant exchange rate | Exchange translation impact | Total sales as reported | Total sales (in millions) | ||||||||||||||
| Kay | (1.6 | )% | 2.1 | % | (3.4 | )% | (2.9 | )% | na | (2.9 | )% | $ | 837.4 | ||||||||
| Zales | 2.0 | % | (2.3 | )% | (4.2 | )% | (4.5 | )% | na | (4.5 | )% | $ | 461.4 | ||||||||
| Jared | (8.4 | )% | 2.8 | % | (4.4 | )% | (10.0 | )% | na | (10.0 | )% | $ | 382.2 | ||||||||
| Piercing Pagoda | 17.1 | % | (3.7 | )% | (4.5 | )% | 8.9 | % | na | 8.9 | % | $ | 99.1 | ||||||||
| James Allen | (1.4 | )% | — | % | — | % | (1.4 | )% | na | (1.4 | )% | $ | 63.5 | ||||||||
| Peoples | 2.1 | % | (0.9 | )% | (4.6 | )% | (3.4 | )% | (4.8 | )% | (8.2 | )% | $ | 74.3 | |||||||
| Regional banners | (15.4 | )% | (31.4 | )% | (3.1 | )% | (49.9 | )% | (0.3 | )% | (50.2 | )% | $ | 25.0 | |||||||
| North America segment | (1.4 | )% | (0.2 | )% | (3.7 | )% | (5.3 | )% | (0.2 | )% | (5.5 | )% | $ | 1,942.9 | |||||||
| H.Samuel | (5.8 | )% | (1.1 | )% | (4.5 | )% | (11.4 | )% | (4.5 | )% | (15.9 | )% | $ | 102.8 | |||||||
| Ernest Jones | (8.9 | )% | 1.3 | % | (5.2 | )% | (12.8 | )% | (4.6 | )% | (17.4 | )% | $ | 92.2 | |||||||
| International segment | (7.3 | )% | 0.1 | % | (4.8 | )% | (12.0 | )% | (4.6 | )% | (16.6 | )% | $ | 195.0 | |||||||
Other(2) | 479.3 | % | $ | 16.8 | |||||||||||||||||
| Signet | (2.0 | )% | 0.4 | % | (3.8 | )% | (5.4 | )% | (0.6 | )% | (6.0 | )% | $ | 2,154.7 | |||||||
(1) Net merchandise sales within the North America segment include all merchandise product sales, net of discounts and returns. In addition, excluded from net merchandise sales are sales tax in the US, repair, extended service plan, insurance, employee and other miscellaneous sales. As a result, the sum of the changes will not agree to change in same store sales.
Average Merchandise Transaction Value(1)(2) | Merchandise Transactions | ||||||||||||||||||
| Average Value | Change from previous year | Change from previous year | |||||||||||||||||
| Fiscal Year | Fiscal 2019 | Fiscal 2018 | Fiscal 2019 | Fiscal 2018 | Fiscal 2019 | Fiscal 2018 | |||||||||||||
| Kay | $ | 473 | $ | 438 | 8.2 | % | 1.2 | % | (9.3 | )% | (13.8 | )% | |||||||
| Zales | $ | 435 | $ | 436 | (0.5 | )% | 3.6 | % | 2.3 | % | 2.4 | % | |||||||
| Jared | $ | 607 | $ | 546 | 11.8 | % | 1.9 | % | (18.4 | )% | (8.4 | )% | |||||||
| Piercing Pagoda | $ | 74 | $ | 67 | 10.4 | % | 8.1 | % | 5.3 | % | (2.6 | )% | |||||||
| James Allen | $ | 3,674 | $ | 4,034 | (13.2 | )% | (1.3 | )% | 13.6 | % | 37.2 | % | |||||||
Peoples(3) | C$ | 384 | C$ | 395 | (3.3 | )% | 5.9 | % | 6.0 | % | (1.7 | )% | |||||||
| Regional banners | $ | 430 | $ | 418 | 1.2 | % | 0.7 | % | (17.0 | )% | (23.1 | )% | |||||||
| North America segment | $ | 374 | $ | 369 | 2.2 | % | 1.9 | % | (4.0 | )% | (7.1 | )% | |||||||
H.Samuel(4) | £ | 80 | £ | 84 | (4.8 | )% | 7.7 | % | (0.8 | )% | (15.6 | )% | |||||||
Ernest Jones(4) | £ | 314 | £ | 315 | (1.6 | )% | 4.7 | % | (8.5 | )% | (13.5 | )% | |||||||
International segment(4) | £ | 123 | £ | 129 | (5.4 | )% | 6.6 | % | (2.3 | )% | (15.2 | )% | |||||||
(3) Amounts for the International segment are denominated in British pounds. |
North America sales
The North America segment’s total sales were $1.94$2.6 billion compared to $2.06$2.1 billion in the prior year, down 5.5%up 26.9%. Same store sales decreased 1.4%increased 22.2% compared to a decreasean increase of 4.7%10.4% in the prior year. The North America segment’s ATV increased 2.2%16.8%, whileand the number of transactions decreased 4.0%increased 3.6%.
International sales
The International segment’s total sales decreased 16.6%increased 49.0% to $195.0$183.4 million compared to $233.9$123.1 million in the prior year and decreased 12.0%increased 49.5% at constant exchange rates. Same store sales decreased 7.3%increased 50.2% compared to a decrease of 9.2%28.3% in the prior year.The same store sales decline was driven by lower sales in bridal jewelry, fashion jewelry and fashion watches, partially offset by higher sales in prestige watches. In the International segment’s ATV decreased 5.4%, whileincreased 2.2% and the number of transactions decreased 2.3%increased 37.6%. eCommerce sales declined 6.9%decreased 30.8% and brick and mortar sales declined 7.3%increased 128.8% on a same store sales basis. The number of transactions increasing reflects the reopening of all UK stores in April 2021. In the prior year, all UK stores temporarily closed on March 24, 2020 and began reopening in the second quarter of Fiscal 2021.
In Fiscal 2019,2022, gross margin was $2.16$3.1 billion or 34.6%39.9% of sales compared to $2.19$1.7 billion or 35.0%33.1% of sales in Fiscal 2018. Gross margin was negatively impacted by $62.2 million, or 100 bps, in restructuring charges related to net inventory write-downs taken during the year.The write-downs relate to brands and collections that the Company is discontinuing as part of its transformation plan to increase newness across merchandise categories. Transformation cost savings related to direct sourcing and distribution were offset by sales deleverage and higher mix of clearance inventory sales and impact of promotional environment. In addition, lower store occupancy due to store closures also favorably impacted gross margin. Additional factors impacting gross margin rate include: 1) a positive 220 basis point impact related to discontinuing the recognition of bad debt expense and late charge income; 2) a negative 40 basis point impact related to James Allen, which carries a lower gross margin rate; and 3) a negative 40 basis point impact from the discontinuation of credit insurance.
2021. In the fourth quarter, the consolidated gross margin was $877.8 million$1.2 billion or 40.7%41.0% of sales compared to $919.8$869.5 million or 40.1%39.8% of sales in the prior year fourth quarter. Factors impacting grossThe increases were primarily driven by a strong business momentum boosting sales as well as providing leverage on fixed costs, such as occupancy, further enhanced by merchandise and inventory strategies. Overall margins also benefited from merchandise margin rate include: 1) a positive 250 bps impact related to no longer recognizing bad debt expenseexpansion through reduced clearance and late charge income; 2) a negative 40 bps impact related to an inventory write-down; 3) a negative 30 bps impact related to adopting the new US GAAP revenue recognition accounting standard, including higher revenue share payments associated with the prime credit outsourcing arrangement;favorable merchandise and 4) a negative 10 bps impact related to a timing shift of revenue recognized on service plans. The residual factors impacting gross margin rate include deleverage from lower sales and the impact of promotional and incremental clearance sales partially offset by transformation cost savings. See Note 7 of Item 8 for additional information regarding the Company’s restructuring activities.services mix.
Selling, general and administrative expenses for Fiscal 20192022 were $1.99$2.2 billion or 31.8%28.5% of sales compared to $1.87$1.6 billion or 29.9%30.4% of sales in Fiscal 2018, up $112.9 million. SGA increased primarily due to: 1) a $100 million increase in credit costs related to the transition to an outsourced credit model; 2) a $30 million increase in advertising expense; 3) a $20 million increase in incentive compensation expense, which included $6 million of one-time cash awards to non-managerial hourly team members; and an $11 million charge related to the resolution of a previously disclosed regulatory matter. Increases in SGA were partially offset by a $15 million decrease in store staff costs and transformation cost savings, net of investments. Prior year SGA included $30.5 million in expense related to the 53rd week.
2021. In the fourth quarter SGAof Fiscal 2022, SG&A expense was $647.2$745.8 million or 30.0%26.5% of sales compared to $634.5$573.8 million or 27.7%26.2% of sales in the prior year fourth quarter. Factors impacting SGA include: 1) a $42 million, or 200 bps, increase in credit costs related to the transition to an outsourced credit model; 2) an $11 million, or 50 bps, charge related to the resolution of a previously disclosed regulatory matter; and 3) a $3 million, or 10 bps, decrease in incentive compensation. Increases in SGAThe increases were partially offset by transformation net cost savings and lower store staff costs primarily due to closed stores. Prior year SGA included $30.5 millionadvertising, payroll and investments in expense related to the 14th week.
sales.
Restructuring charges
During the first quarter of Fiscal 2019, Signet launched a three-year comprehensive transformation plan, the “Signet“Signet’s Path to Brilliance” plan (the “Plan”), to among other objectives, reposition the Company to be a share gaining, OmniChannel jewelry category leader. The Plan was substantially completed as of the end of Fiscal 2021. During Fiscal 2019,2022, credits to restructuring expense of $3.3 million were recognized, related primarily to the adjustment of previously recognized Plan liabilities. In Fiscal 2021, restructuring charges of $63.7$46.2 million were recognized, $22.7$14.7 million of which were non-cash charges, primarily related to store closures, severance costs, and professional fees for legal and consulting services severance and impairment of information technology assets related to the Plan. Additionally, during Fiscal 2019, the Company recorded charges of $62.2 million in non-cash restructuring charges related to inventory write-offs within cost of sales.
During Fiscal 2021, the Company recorded non-cash, pre-tax asset impairments related to the impairment of goodwill, intangible assets and long-lived assets of $10.7 million, $83.3 million and $65.0 million respectively. During the fourth quarter of Fiscal 2021, the Company recorded non-cash, pre-tax asset impairment charges of $0.9 million, all of which related to long-lived assets.
See Note 17 and Note 19 of Item 8 for additional information on the asset impairments.
42
Other operating income (loss)
In Fiscal 2022, other operating income was $(764.6)$8.5 million compared to other operating income of $2.4 million in Fiscal 2021. Fiscal 2022 primarily included interest income from the Company’s non-prime credit card portfolio and the receipt of UK government subsidies granted for restrictions imposed on non-essential businesses, partially offset by foreign exchange losses and charges related to previously disclosed litigation matters. Fiscal 2021 included a gain recognized as a result of the Company de-designating and liquidating derivative financial instruments primarily related to forecasted commodity purchases that were deemed no longer effective in light of the economic circumstances altered by COVID-19. That gain was offset by a charge, net of insurance recoveries, related to the settlement of previously disclosed shareholder litigation matters.
In the fourth quarter, other operating loss was $4.7 million compared to $1.9 million in the prior year fourth quarter. The fourth quarter of Fiscal 2022 was primarily driven by foreign exchange losses and charges related to previously disclosed shareholder litigation matters. Fourth quarter of Fiscal 2021 was primarily driven by miscellaneous asset write-offs offset by interest income from the in-house credit program.
See Note 12, Note 21 and Note 28 of Item 8 for additional information on these matters.
Operating income (loss)
In Fiscal 2022, operating income was $903.4 million or (12.2)%11.5% of sales compared to $579.9an operating loss of $57.7 million or 9.3%(1.1)% of sales in Fiscal 2018. The2021. This increase reflects a significant sales volume increase from the prior year operating income includes aas described above, as well as the favorable impact from the 53rd week of $9.3 million. Excluding the 53rd week impact, the declinestructural cost savings. This favorability was driven by the following: 1) the $735.4 million goodwill and intangible impairment charge; 2) $125.9 million in restructuring charges related to inventory write-downs, severance, professional fees and impairment of certain IT assets related to the three year transformation plan; 3) $167.4 million loss related to marking the non-prime receivables to fair value that were sold in the second quarter; 4) $11.0 million charge related to the resolution of a previously disclosed regulatory matter; 6) the discontinuation of credit insurance; 7) $167.0 million net unfavorable impact related to the outsourcing of credit; and 8) impact of higher promotions and incremental clearance sales on gross margin and lastly higher SGA due primarily to advertising and higher incentive compensation. These declines were partially offset by transformation net cost savings of $85.0 million.higher advertising, payroll and investments in digital/IT, as well as higher variable costs such as store staffing costs and private label credit costs on the higher volume.
| Fiscal 2019 | Fiscal 2018 | ||||||||||||
| (in millions) | $ | % of sales | $ | % of sales | |||||||||
North America segment(1) | $ | (621.1 | ) | (11.0 | )% | $ | 656.1 | 11.7 | % | ||||
International segment(2) | 12.9 | 2.2 | % | 33.1 | 5.4 | % | |||||||
Other(3) | (156.4 | ) | nm | (109.3 | ) | nm | |||||||
| Operating income (loss) | $ | (764.6 | ) | (12.2 | )% | $ | 579.9 | 9.3 | % | ||||
In the fourth quarter, operating income (loss) was $(83.5)$402.4 million or (3.9)%14.3% of sales compared to $323.5$291.9 million or 14.1%13.4% of sales in prior year fourth quarter. The prior year operating income includesincrease reflected a favorable impact fromcombination of factors including the 14th week of $9.3 million. Excluding the 14th week impact, the decline was driven by the following: 1) $286.7 million goodwillincrease in sales, both online and intangible impairment charge; 2) $27.1 million in restructuring charges related to store closures costs, severance and professional fees related to the three year transformation plan; 3) $11 million charge related to the resolution of a previously disclosed regulatory matter; 4) $13 million net unfavorable impact related to the outsourcing of credit; and 5) an $8.8 million inventory write-down. The residual factors impacting operating income include the impact of lower sales and higher promotions and clearance sales partially offset by transformation net cost savings.
| Fourth Quarter Fiscal 2019 | Fourth Quarter Fiscal 2018 | ||||||||||||
| (in millions) | $ | % of sales | $ | % of sales | |||||||||
North America segment(1) | $ | (60.1 | ) | (3.1 | )% | 305.9 | 14.9 | % | |||||
| International segment | 31.0 | 15.9 | % | 35.0 | 15.0 | % | |||||||
Other(2) | (54.4 | ) | nm | (17.4 | ) | nm | |||||||
| Operating income (loss) | $ | (83.5 | ) | (3.9 | )% | $ | 323.5 | 14.1 | % | ||||
| Change from previous year | |||||||||||||||||||||
| Fiscal 2018 | Same store sales(1) | Non-same store sales, net | Impact of 53rd week on total sales | Total sales at constant exchange rate | Exchange translation impact | Total sales as reported | Total sales (in millions) | ||||||||||||||
| Kay | (8.0 | )% | 2.5 | % | 1.1 | % | (4.4 | )% | na | (4.4 | )% | $ | 2,428.1 | ||||||||
| Zales | (2.0 | )% | (0.6 | )% | 1.6 | % | (1.0 | )% | na | (1.0 | )% | $ | 1,244.3 | ||||||||
| Jared | (5.5 | )% | 1.1 | % | 1.5 | % | (2.9 | )% | na | (2.9 | )% | $ | 1,192.1 | ||||||||
| Piercing Pagoda | 3.0 | % | 1.4 | % | 1.5 | % | 5.9 | % | na | 5.9 | % | $ | 278.5 | ||||||||
| James Allen | 29.9 | % | $ | 88.1 | |||||||||||||||||
| Peoples | 2.6 | % | (1.7 | )% | 1.7 | % | 2.6 | % | 2.5 | % | 5.1 | % | $ | 215.4 | |||||||
| Regional banners | (18.1 | )% | (15.5 | )% | 0.7 | % | (32.9 | )% | 0.2 | % | (32.7 | )% | $ | 168.7 | |||||||
| North America segment | (5.2 | )% | 1.6 | % | 1.3 | % | (2.3 | )% | 0.1 | % | (2.2 | )% | $ | 5,615.2 | |||||||
| H.Samuel | (6.5 | )% | 0.6 | % | 1.6 | % | (4.3 | )% | (0.9 | )% | (5.2 | )% | $ | 306.7 | |||||||
| Ernest Jones | (5.6 | )% | 1.1 | % | 1.6 | % | (2.9 | )% | (1.3 | )% | (4.2 | )% | $ | 310.0 | |||||||
| International segment | (6.0 | )% | 0.8 | % | 1.6 | % | (3.6 | )% | (1.1 | )% | (4.7 | )% | $ | 616.7 | |||||||
Other(2) | 16.6 | % | $ | 21.1 | |||||||||||||||||
| Signet | (5.3 | )% | 1.6 | % | 1.3 | % | (2.4 | )% | — | % | (2.4 | )% | $ | 6,253.0 | |||||||
Average Merchandise Transaction Value(1)(2) | Merchandise Transactions | ||||||||||||||||||
| Average Value | Change from previous year | Change from previous year | |||||||||||||||||
| Fiscal Year | Fiscal 2018 | Fiscal 2017 | Fiscal 2018 | Fiscal 2017 | Fiscal 2018 | Fiscal 2017 | |||||||||||||
| Kay | $ | 466 | $ | 458 | 1.5 | % | 6.5 | % | (10.2 | )% | (8.4 | )% | |||||||
| Zales | $ | 470 | $ | 460 | 2.0 | % | 2.0 | % | (4.3 | )% | (3.2 | )% | |||||||
| Jared | $ | 594 | $ | 556 | 6.1 | % | (0.4 | )% | (11.0 | )% | (5.1 | )% | |||||||
| Piercing Pagoda | $ | 63 | $ | 58 | 8.6 | % | 13.7 | % | (5.0 | )% | (6.2 | )% | |||||||
Peoples(3) | C$ | 429 | C$ | 401 | 5.4 | % | 6.6 | % | (3.7 | )% | (10.9 | )% | |||||||
| Regional banners | $ | 447 | $ | 414 | 3.5 | % | 4.3 | % | (20.3 | )% | (14.0 | )% | |||||||
| North America segment | $ | 364 | $ | 347 | 2.5 | % | 4.2 | % | (7.8 | )% | (6.8 | )% | |||||||
H.Samuel(4) | £ | 84 | £ | 77 | 9.1 | % | 2.7 | % | (14.4 | )% | (4.9 | )% | |||||||
Ernest Jones(4) | £ | 349 | £ | 309 | 12.2 | % | 14.0 | % | (15.8 | )% | (11.3 | )% | |||||||
International segment(4) | £ | 136 | £ | 124 | 9.7 | % | 6.0 | % | (14.7 | )% | (6.3 | )% | |||||||
| Fiscal 2022 | Fiscal 2021 | ||||||||||||||||||||||
| (in millions) | $ | % of sales | $ | % of sales | |||||||||||||||||||
North America segment (1) | $ | 981.4 | 13.5 | % | $ | 57.9 | 1.2 | % | |||||||||||||||
International segment (2) | 14.4 | 2.9 | % | (43.3) | (12.2) | % | |||||||||||||||||
Other segment (3) | (0.2) | nm | (0.3) | nm | |||||||||||||||||||
Corporate and unallocated expenses (4) | (92.2) | nm | (72.0) | nm | |||||||||||||||||||
| Operating income (loss) | $ | 903.4 | 11.5 | % | $ | (57.7) | (1.1) | % | |||||||||||||||
(1) Fiscal 2022 includes: 1) $5.4 million of R2Net which contributed $64.4 million incost of sales in the quarter, offset by the year-over-year decline in base same store sales. eCommerce sales in the fourth quarter were $253.8 million or 11.1% of total sales, compared to $161.8 million or 7.1% of total sales in the prior year fourth quarter. The breakdown of the sales performance is set out in the table below.
| Change from previous year | |||||||||||||||||||||
| Fourth quarter of Fiscal 2018 | Same store sales(1) | Non-same store sales, net | Impact of 14th week on total sales | Total sales at constant exchange rate | Exchange translation impact | Total sales as reported | Total sales (in millions) | ||||||||||||||
| Kay | (11.0 | )% | 2.1 | % | 3.1 | % | (5.8 | )% | na | (5.8 | )% | $ | 862.0 | ||||||||
| Zales | 5.1 | % | (2.8 | )% | 4.5 | % | 6.8 | % | na | 6.8 | % | $ | 483.2 | ||||||||
| Jared | (6.4 | )% | 0.8 | % | 4.2 | % | (1.4 | )% | na | (1.4 | )% | $ | 424.5 | ||||||||
| Piercing Pagoda | 4.6 | % | (0.6 | )% | 4.8 | % | 8.8 | % | na | 8.8 | % | $ | 91.1 | ||||||||
James Allen(2) | 35.0 | % | $ | 64.4 | |||||||||||||||||
| Peoples | 3.8 | % | (3.5 | )% | 4.6 | % | 4.9 | % | 5.6 | % | 10.5 | % | $ | 80.9 | |||||||
| Regional banners | (22.8 | )% | (18.6 | )% | 2.5 | % | (38.9 | )% | (0.3 | )% | (39.2 | )% | $ | 50.2 | |||||||
| North America segment | (4.7 | )% | 1.8 | % | 3.6 | % | 0.7 | % | 0.3 | % | 1.0 | % | $ | 2,056.3 | |||||||
| H.Samuel | (9.2 | )% | (0.3 | )% | 3.9 | % | (5.6 | )% | 7.8 | % | 2.2 | % | $ | 122.3 | |||||||
| Ernest Jones | (9.3 | )% | 0.2 | % | 4.5 | % | (4.6 | )% | 8.0 | % | 3.4 | % | $ | 111.6 | |||||||
| International segment | (9.2 | )% | (0.2 | )% | 4.2 | % | (5.2 | )% | 8.0 | % | 2.8 | % | $ | 233.9 | |||||||
Other(3) | (48.2 | )% | $ | 2.9 | |||||||||||||||||
| Signet | (5.2 | )% | 1.5 | % | 3.7 | % | — | % | 1.0 | % | 1.0 | % | $ | 2,293.1 | |||||||
Average Merchandise Transaction Value(1)(2) | Merchandise Transactions | ||||||||||||||||||
| Average Value | Change from previous year | Change from previous year | |||||||||||||||||
| Fiscal Year | Fiscal 2018 | Fiscal 2017 | Fiscal 2018 | Fiscal 2017 | Fiscal 2018 | Fiscal 2017 | |||||||||||||
| Kay | $ | 438 | $ | 429 | 1.2 | % | 6.5 | % | (13.8 | )% | (10.8 | )% | |||||||
| Zales | $ | 436 | $ | 421 | 3.6 | % | 0.7 | % | 2.4 | % | (5.1 | )% | |||||||
| Jared | $ | 546 | $ | 530 | 1.9 | % | 7.7 | % | (8.4 | )% | (10.8 | )% | |||||||
| Piercing Pagoda | $ | 67 | $ | 62 | 8.1 | % | 12.7 | % | (2.6 | )% | (5.6 | )% | |||||||
Peoples(3) | C$ | 395 | C$ | 367 | 5.9 | % | 6.1 | % | (1.7 | )% | (13.4 | )% | |||||||
| Regional banners | $ | 418 | $ | 388 | 0.7 | % | 7.5 | % | (23.1 | )% | (19.6 | )% | |||||||
| North America segment | $ | 369 | $ | 346 | 1.9 | % | 4.8 | % | (7.1 | )% | (9.1 | )% | |||||||
H.Samuel(4) | £ | 84 | £ | 78 | 7.7 | % | 4.0 | % | (15.6 | )% | (10.3 | )% | |||||||
Ernest Jones(4) | £ | 315 | £ | 299 | 4.7 | % | 18.2 | % | (13.5 | )% | (17.5 | )% | |||||||
International segment(4) | £ | 129 | £ | 121 | 6.6 | % | 8.0 | % | (15.2 | )% | (11.8 | )% | |||||||
Fiscal 2021 includes: 1) $1.6 million related to CEO separation andinventory charges recorded in conjunction with the R2Net acquisition.
Fiscal 2021 includes 1) $9.7 million or 4.2% of sales compared to $282.6 million or 4.4% of sales in Fiscal 2017. In the fourth quarter, other operating income, net was $39.5 million or 1.7% of sales compared to $69.0 million or 3.0% of sales in the prior year fourth quarter. The year-over-year decrease was primarily attributable to the 53rd week which added $1.3 million of other income offset by $28.0 million in other expense related to severance and store closure costs recorded in conjunction with the saleCompany’s restructuring activities; and 2) asset impairment charges of the prime-only credit quality portion$22.3 million.
See Note 6 and Note 17for additional information.
(3) Fiscal 2021 includes $0.2 million benefit recognized due to a change in inventory reserves previously recognized as part of the Company’s in-house finance receivable portfolio during the third quarterrestructuring activities.
See Note 6 for additional information.
(4) Fiscal 2022 includes: 1) charges of Fiscal 2018.
| Fiscal 2018 | Fiscal 2017 | ||||||||||||
| (in millions) | $ | % of sales | $ | % of sales | |||||||||
| North America segment | $ | 656.1 | 11.7 | % | $ | 789.2 | 13.7 | % | |||||
| International segment | 33.1 | 5.4 | % | 45.6 | 7.0 | % | |||||||
Other(1) | (109.3 | ) | nm | (71.6 | ) | nm | |||||||
| Operating income | $ | 579.9 | 9.3 | % | $ | 763.2 | 11.9 | % | |||||
| Fourth Quarter Fiscal 2018 | Fourth Quarter Fiscal 2017 | ||||||||||||
| (in millions) | $ | % of sales | $ | % of sales | |||||||||
| North America segment | $ | 305.9 | 14.9 | % | $ | 369.7 | 18.2 | % | |||||
| International segment | 35.0 | 15.0 | % | 42.6 | 18.7 | % | |||||||
| Other | (17.4 | ) | nm | (13.1 | ) | nm | |||||||
| Operating income | $ | 323.5 | 14.1 | % | $ | 399.2 | 17.6 | % | |||||
Fiscal 2021 includes: 1) charges of Fiscal 2018. See Item 8 for additional information$7.5 million related to the loanssettlement of previously disclosed shareholder litigation matters, net of expected insurance proceeds; and long-term debt (Note 22).2) $0.5 million related to charges recorded in conjunction with the Company’s restructuring activities.
nm Not meaningful.
43
| Fourth Quarter Fiscal 2022 | Fourth Quarter Fiscal 2021 | ||||||||||||||||||||||
| (in millions) | $ | % of sales | $ | % of sales | |||||||||||||||||||
North America segment (1) | $ | 408.3 | 15.7 | % | 296.2 | 14.4 | % | ||||||||||||||||
International segment (2) | 18.4 | 10.0 | % | 9.3 | 7.6 | % | |||||||||||||||||
| Other segment | 1.2 | nm | (1.1) | nm | |||||||||||||||||||
Corporate and unallocated expenses (3) | (25.5) | nm | (12.5) | nm | |||||||||||||||||||
| Operating income (loss) | $ | 402.4 | 14.3 | % | $ | 291.9 | 13.4 | % | |||||||||||||||
(1) Fiscal 2021 includes: 1) $1.3 million benefit recognized due to changes in severance and store closure liabilities recorded in conjunction with the Company’s restructuring activities; and 2) $0.2 million net gains on terminations or modifications of leases resulting from previously recorded impairments of the right of use assets in Fiscal 2021.
See Note 6, Note 19 and Note 17for additional information.
(2) Fiscal 2021 includes 1) $2.1 million primarily related to severance and store closure costs recorded in conjunction with the Company’s restructuring activities; and 2) asset impairment charges of $1.1 million.
See Note 6 and Note 17for additional information.
(3) Fiscal 2021 includes: 1) charges of $7.5 million related to the settlement of previously disclosed shareholder litigation matters, net of expected insurance proceeds; and 2) $0.5 million related to charges recorded in conjunction with the Company’s restructuring activities.
See Note 13, Note 28 and Note 6 for additional information.
nm Not meaningful.
Interest expense, net
In Fiscal 2022, interest expense, net was $16.9 million compared to $32.0 million in Fiscal 2021. In the fourth quarter, net interest expense, net was $10.0$4.5 million compared to $13.0$6.4 million in the prior year fourth quarter. The weighted average interest rate for the Company’s debt outstanding was 3.6% compared to 2.9% in the prior year fourth quarter. The decrease in expense relatesFiscal 2022 is primarily due to lower average borrowings compared to prior year. The only debt outstanding during Fiscal 2022 was the Company’s 4.7% Senior Unsecured Notes (“Senior Notes”), whereas the prior year included borrowings on the ABL Credit Facility. See Note 24 of Item 8 for additional information on the Company’s debt.
Other non-operating income, net
In Fiscal 2022, other non-operating income, net was $2.1 million compared to a reductionnet $0.0 million in interestFiscal 2021. Fiscal 2022 includes primarily amortization of unrecognized actuarial losses related to the settlementUK pension plan. Fiscal 2021 included amortization of unrecognized net prior service costs, offset by loss on debt extinguishment.
See Note 24 of Item 8 for additional information on the Company’s refinancing activities and Note 23 of Item 8 for additional information on the Company’s retirement plans.
Income taxes
Income tax expense for Fiscal 2022 was $114.5 million compared to a benefit of $74.5 million in Fiscal 2021, with an effective tax rate of 12.9% for Fiscal 2022 compared to 83.1% in Fiscal 2021. In Fiscal 2022, the Company’s effective tax rate was lower than the US federal income tax rate primarily due to the reversal of the Company’s asset-backed securitization facility, whichvaluation allowance recorded against certain state deferred tax assets, as well as additional benefits realized from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the benefits from global reinsurance arrangements. During Fiscal 2022, the Company evaluated evidence to consider the reversal of the valuation allowance on its state net deferred tax assets and determined that there was terminatedsufficient positive evidence to conclude that it is more likely than not its state deferred tax assets are realizable. In determining the likelihood of future realization of the state deferred tax assets, the Company considered both positive and negative evidence. As a result, the Company believed that the weight of the positive evidence, including the cumulative income position in the third quarterthree most recent years and forecasts for a sustained level of future taxable income, was sufficient to overcome the weight of the negative evidence, and thus recorded a $49.8 million tax benefit to release the valuation allowance against the Company's state deferred tax assets during Fiscal 2018.2022.
In Fiscal 2018,2021, Signet’s effective tax rate was higher than the US federal income before income taxes decreased $186.6 milliontax rate primarily due to $527.2 million or 8.4%the benefit from the CARES Act enacted on March 27, 2020, and the impact of sales compared to $713.8 million or 11.1%Signet’s global reinsurance arrangement partially offset by the unfavorable impact of sales in Fiscal 2017.a valuation allowance recorded against certain state deferred tax assets and the impairment of goodwill which was nondeductible for tax purposes.
In the fourth quarter, income before income taxes decreased $72.7 million to $313.5 million or 13.7% of sales compared to $386.2 million or 17.0% of sales in the prior year fourth quarter.
44
Refer to Note 11 of Item 8 for additional information.
NON-GAAP MEASURES
The discussion and analysis of Signet’s results of operations, financial condition and liquidity contained in this Annual Report on Form 10-K are based upon the consolidated financial statements of Signet which are prepared in accordance with GAAP and should be read in conjunction with Signet’s consolidated financial statements and the base broadening changes.related notes included in Item 8. A number of non-GAAP measures are used by management to analyze and manage the performance of the business, and the required disclosures for these non-GAAP measures are shown below.
Signet provides such non-GAAP information in reporting its financial results to give investors additional data to evaluate its operations. Management does not, nor does it suggest investors should, consider such non-GAAP measures in isolation from, or in substitution for, financial information prepared in accordance with GAAP.
1. Net cash (debt)
Net cash (debt) is a non-GAAP measure defined as the total of cash and cash equivalents less loans, overdrafts and long-term debt. Management considers this metric to be helpful in understanding the total indebtedness of the Company after consideration of liquidity available from cash and cash equivalents held by the Company.
| (in millions) | January 29, 2022 | January 30, 2021 | February 1, 2020 | ||||||||||||||
| Cash and cash equivalents | $ | 1,418.3 | $ | 1,172.5 | $ | 374.5 | |||||||||||
| Less: Loans and overdrafts | — | — | (95.6) | ||||||||||||||
| Less: Long-term debt | (147.1) | (146.7) | (515.9) | ||||||||||||||
| Net cash (debt) | $ | 1,271.2 | $ | 1,025.8 | $ | (237.0) | |||||||||||
2. Free Cash Flow and Adjusted Free Cash Flow
Free cash flow is a non-GAAP measure defined as the net cash provided by operating activities less purchases of property, plant and equipment. Management considers this to be helpful in understanding how the business is generating cash from its operating and investing activities that can be used to meet the financing needs of the business. Free cash flow is an indicator used by management frequently in evaluating its overall liquidity and determining appropriate capital allocation strategies. Free cash flow does not represent the residual cash flow available for discretionary purposes. In Fiscal 2022, net cash provided by operating activities included $81.3 million in proceeds received in connection with the sale of the Company’s non-prime credit card receivable portfolio. See Note 1213 of Item 8 for additional information regarding the sale of the in-house credit card receivable portfolio.
| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Net cash provided by operating activities | $ | 1,257.3 | $ | 1,372.3 | $ | 555.7 | |||||||||||
| Purchase of property, plant and equipment | (129.6) | (83.0) | (136.3) | ||||||||||||||
| Free cash flow | 1,127.7 | 1,289.3 | 419.4 | ||||||||||||||
| Proceeds from sale of in-house finance receivables | (81.3) | — | — | ||||||||||||||
| Adjusted free cash flow | $ | 1,046.4 | $ | 1,289.3 | $ | 419.4 | |||||||||||
3. Non-GAAP operating income (loss)
Non-GAAP operating income (loss) is a non-GAAP measure defined as operating income (loss) excluding the impact of significant and unusual items which management believes are not necessarily reflective of operational performance during a period. Management finds the information useful when analyzing financial results in order to appropriately evaluate the performance of the business without the impact of significant and unusual items. In particular, management believes the consideration of measures that exclude such expenses can assist in the comparison of operational performance in different periods which may or may not include such expenses.
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| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Operating income (loss) | $ | 903.4 | $ | (57.7) | $ | 158.3 | |||||||||||
| Credits (charges) related to transformation plan | (3.3) | 47.6 | 79.1 | ||||||||||||||
Asset impairments, net (1) | (0.9) | 159.0 | 47.7 | ||||||||||||||
| Charges related to shareholder settlements | 1.7 | 7.5 | 33.2 | ||||||||||||||
Acquisition-related costs (2) | 8.6 | — | — | ||||||||||||||
| Gain on sale of in-house finance receivables | (1.4) | — | — | ||||||||||||||
| Non-GAAP operating income (loss) | $ | 908.1 | $ | 156.4 | $ | 318.3 | |||||||||||
(1) Includes ROU asset impairment gains, net recorded due to various impacts of COVID-19 to the Company’s income taxesbusiness and related gains on terminations or modifications of leases, resulting from previously recorded impairments of the right of use assets in Fiscal 2021.
(2) Acquisition related costs include professional fees for direct transaction-related costs incurred for the acquisitions of Rocksbox and Diamonds Direct in Fiscal 2022, as well as includes the impact of the TCJ Act.fair value step up for inventory from Diamonds Direct.
The leverage ratio is a non-GAAP measure calculated by dividing Signet’s adjusted debt by adjusted EBITDAR. Adjusted debt is a non-GAAP measure defined as debt recorded in the consolidated balance sheet, plus Series A redeemable convertible preferred shares, plus an adjustment for operating leases (5x annual rent expense). Adjusted EBITDAR, as revised by the Company in Fiscal 2021, is a non-GAAP measure, defined as earnings before interest and income taxes, depreciation and amortization, share-based compensation expense, non-operating income (expense) and certain non-GAAP accounting adjustments (“Adjusted EBITDA”) and further excludes minimum fixed rent expense for properties occupied under operating leases. Adjusted EBITDA and Adjusted EBITDAR are considered important indicators of operating performance as they exclude the effects of financing and investing activities by eliminating the effects of interest, depreciation and amortization costs and certain accounting adjustments. Management believes these financial measures are helpful to enhancing investors’ ability to analyze trends in Signet’s business and evaluate Signet’s performance.
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| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Adjusted debt: | |||||||||||||||||
| Long-term debt | $ | 147.1 | $ | 146.7 | $ | 515.9 | |||||||||||
| Loans and overdrafts | — | — | 95.6 | ||||||||||||||
| Series A redeemable convertible preferred shares | 652.1 | 642.3 | 617.0 | ||||||||||||||
| Adjustments: | |||||||||||||||||
| 5x Rent expense | 2,216.5 | 2,263.0 | 2,398.5 | ||||||||||||||
| Adjusted debt | $ | 3,015.7 | $ | 3,052.0 | $ | 3,627.0 | |||||||||||
| Adjusted EBITDAR: | |||||||||||||||||
| Net income (loss) | $ | 769.9 | $ | (15.2) | $ | 105.5 | |||||||||||
| Income taxes | 114.5 | (74.5) | 24.2 | ||||||||||||||
| Interest expense, net | 16.9 | 32.0 | 35.6 | ||||||||||||||
Depreciation and amortization on property, plant and equipment (1) | 162.4 | 175.1 | 177.1 | ||||||||||||||
Amortization of definite-lived intangibles (1) | 1.1 | 0.9 | 0.9 | ||||||||||||||
| Amortization of unfavorable contracts | (3.3) | (5.4) | (5.5) | ||||||||||||||
| Share-based compensation | 45.8 | 14.5 | 16.9 | ||||||||||||||
| Other non-operating expense, net | 2.1 | — | — | ||||||||||||||
Other accounting adjustments (2) | 4.7 | 214.5 | 153.8 | ||||||||||||||
| Adjusted EBITDA | $ | 1,114.1 | $ | 341.9 | $ | 508.5 | |||||||||||
| Rent expense | 443.3 | 452.6 | 479.7 | ||||||||||||||
| Adjusted EBITDAR | $ | 1,557.4 | $ | 794.5 | $ | 988.2 | |||||||||||
| Adjusted leverage ratio | 1.9x | 3.8x | 3.7x | ||||||||||||||
(1) Total amount of depreciation and amortization reflected on the consolidated statement of cash flows for Fiscal 2018 was down 4.4% to $519.32022, Fiscal 2021 and Fiscal 2020 equals $163.5 million, or 8.3% of sales compared to $543.2$176 million or 8.5% of sales in Fiscal 2017.
(2) Fiscal 2022 includes: 1) $0.9 million of net asset impairments gain related to long-lived assets; 2) $3.3 million credit to restructuring expense, primarily related to adjustments to previously recognized restructuring liabilities in connection with the TCJ Act. The weighted average diluted number of common shares outstanding was 69.8Company’s transformation plan; 3) $1.7 million compared to 76.7 million in Fiscal 2017. Signet repurchased 8.1 million shares in Fiscal 2018 compared to 11.2 million shares in Fiscal 2017.
Fiscal 2021 includes: 1) $159.0 million in the prior year fourth quarter.
Fiscal 2020 includes: 1) $47.7 million related to an immaterial out of period goodwill impairment adjustment; 2) $79.1 million related to charges in connection with the Company also adjusts the numerator used in the basic EPS computation, subject to anti-dilution requirements, to add back the dividends (declared or cumulative undeclared) applicable to the preferred shares. For the fourth quarter and year to date periods, the preferred shares were more dilutive if conversion was assumed. See Item 8 for additional informationCompany’s transformation plan; 3) charges of $33.2 million related to the preferred shares (Note 8) or the calculationsettlement of earnings per share (Note 10).previously disclosed shareholder litigation matters, net of expected insurance proceeds; and 4) a $6.2 million gain on extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of liquidity are cash on hand, cash provided by operations and availability under its ABL Revolving Facility (defined below). As of January 29, 2022, the Company had $1.4 billion of cash and cash equivalents and $147.7 million of outstanding debt. The Company believes that cash on hand, cash flows from operations and available borrowings under the ABL Revolving Facility will be sufficient to meet its ongoing business requirements for at least the 12 months following table provides a summarythe date of this report, including funding working capital needs, projected investments in the business (including capital expenditures), debt service, and returns to shareholders through dividends or share repurchases.
The tenets of Signet’s capital strategy are: 1) investing in its business to drive growth in line with the Company’s overall business strategy; 2) ensuring adequate liquidity through a strong cash flow activity forposition and financial flexibility under its debt arrangements; and 3) returning excess cash to shareholders. Over time, Signet’s strategy is to sustain an adjusted leverage ratio below 3.0x. Refer to discussion of the adjusted leverage ratio in the Non-GAAP measures section above.
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Investing in growth
Since the Company’s transformation strategies began in Fiscal 2019, the Company delivered substantially against its strategic priorities to establish the Company as the OmniChannel jewelry category leader and position its business for sustainable long-term growth. The investments and new capabilities built during the past three years laid the foundation for stronger than expected results during Fiscal 20182022, including prioritizing digital investments in both technology and talent, enhancing its new and modernized eCommerce platform and optimizing a connected commerce shopping journey for its customers. The Company’s cash discipline has also led to more efficient working capital, through both the extension of payment days with the Company’s vendor base, as well through continued inventory reduction efforts. In addition, structural cost reductions since the Company’s transformation strategy began in Fiscal 2017:2019 have generated annual structural costs savings of over $400 million.
As the Company continues to implement and execute on the next phase of its strategy, Inspiring Brilliance, it will continue to focus on working capital efficiency, optimizing its real estate footprint, and prioritizing transformational productivity to drive future cost savings opportunities, all of which are expected to be used to fuel strategic investments, grow the business, and enhance liquidity. In addition, the Company invested over $190 million for capital investments in Fiscal 2022, which included approximately $130 million for capital expenditures and approximately $60 million related to investments in digital and cloud IT.
| (in millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||
| Net cash provided by operating activities | $ | 697.7 | $ | 1,940.5 | �� | $ | 678.3 | ||||
| Net cash used in investing activities | (119.0 | ) | (569.4 | ) | (278.4 | ) | |||||
| Net cash used in financing activities | (602.7 | ) | (1,253.6 | ) | (438.2 | ) | |||||
| Increase (decrease) in cash and cash equivalents | (24.0 | ) | 117.5 | (38.3 | ) | ||||||
| Cash and cash equivalents at beginning of period | 225.1 | 98.7 | 137.7 | ||||||||
| Increase (decrease) in cash and cash equivalents | (24.0 | ) | 117.5 | (38.3 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (5.7 | ) | 8.9 | (0.7 | ) | ||||||
| Cash and cash equivalents at end of period | $ | 195.4 | $ | 225.1 | $ | 98.7 | |||||
Free cash flow(1) | $ | 564.2 | $ | 1,703.1 | $ | 400.3 | |||||
Liquidity and financial flexibility
During Fiscal 2022, the Company made significant progress in line with its Inspiring Brilliance growth strategy through two key financial milestones. First, the Company renegotiated its $1.5 billion ABL Facility, as further described in Note 24 of Item 8, to extend the maturity until 2026 and allow overall greater financial flexibility to grow the business and provide an additional option to address the 2024 maturities for its 4.70% senior unsecured notes (“Senior Notes”) and Preferred Shares, if necessary.
Second, as described in Note 13 of Item 8, the Company entered into amended and restated receivable purchase agreements with CarVal and Castlelake regarding the purchase of add-on receivables on such Investors’ existing accounts, as well as the purchase of the Company-owned credit card receivables portfolio for accounts that had been originated through Fiscal 2021. These agreements provide Signet with improved terms for the next two years, as well as remove consumer credit risk from the balance sheet. During the second quarter of Fiscal 2022, Signet received cash proceeds of $57.8 million for the sale of these customer in-house finance receivables to the Investors. Additionally, during the second quarter of Fiscal 2022, the Company received $23.5 million from the Investors for the payment obligation of the remaining 5% of the receivables previously purchased in June 2018.
Returning excess cash to shareholders
During Fiscal 2022 the Company remained committed to its goal to return excess cash to shareholders. The Company has declared the Fiscal 2022 preferred share dividends payable in cash, and beginning in the second quarter of Fiscal 2022, elected to reinstate the dividend program on its common shares. On August 23, 2021, the Board authorized a reinstatement of repurchases under the 2017 Program, as well as an increase in the remaining amount of shares authorized for repurchase under the 2017 Program from $165.6 million to $225 million. In January 2022, the Board increased its authorized share repurchase program by $500 million, bringing the total authorization for the 2017 Program to $1.2 billion. On January 21, 2022, the Company entered into an accelerated share repurchase agreement (“ASR”) with HSBC to repurchase the Company’s common shares for an aggregate amount of $250 million. As of January 29, 2022, the Company had received 2.5 million shares based on a price of $80 per share, which is 80% of the total prepayment amount. On March 14, 2022, the Company received an additional 0.8 million shares, representing the remaining 20% of the total prepayment and final settlement of the ASR. Altogether, the Company invested $311.8 million during Fiscal 2022 for share repurchases. See Note 8 of Item 8 for more details.
Primary sources and uses of operating cash flows
Operating activities provide the primary source of cash for the Company and are influenced by a number of factors, the most significant of which are operating income and changes in working capital items, such as:
•changes in the level of inventory as a result of sales and newother strategic initiatives (i.e. store growth;count);
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•changes toand timing of accounts payable and accrued expenses, including variable compensation; and
•changes in deferred revenue, reflective of the revenue from performance of extended service plan sales.plans.
Signet derives most of its operating cash from net incomeflows through the sale of jewelrymerchandise and extended service plans. As a retail business, Signet receives cash when it makes a sale to a customer or when the payment has been processed by Signet or the relevant bank if the payment is made by third-party credit or debit card. Partially offsettingAs discussed further in Note 13 of Item 8, the Company has outsourced its entire credit card portfolio, and it receives cash from its outsourced financing partners (net of applicable fees) generally within two days of the customer sale. Offsetting these receipts, via sales are payments of operating expenses. Signet’sthe Company’s largest operating expenses are costthe purchase of inventory, store occupancy costs (including rent), and payroll and payroll-related benefits.
| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Net cash provided by operating activities | $ | 1,257.3 | $ | 1,372.3 | $ | 555.7 | |||||||||||
| Net cash used in investing activities | (642.7) | (77.8) | (140.8) | ||||||||||||||
| Net cash used in financing activities | (366.6) | (498.6) | (237.0) | ||||||||||||||
| Increase in cash and cash equivalents | 248.0 | 795.9 | 177.9 | ||||||||||||||
| Cash and cash equivalents at beginning of period | 1,172.5 | 374.5 | 195.4 | ||||||||||||||
| Increase in cash and cash equivalents | 248.0 | 795.9 | 177.9 | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (2.2) | 2.1 | 1.2 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 1,418.3 | $ | 1,172.5 | $ | 374.5 | |||||||||||
Operating activities
Net cash provided by the legacy Sterling Jewelers division, the cashoperating activities was received over time based on terms of the agreement. In October 2017, Signet, through its subsidiary Sterling Jewelers Inc., completed the sale of the prime-only credit quality portion of Sterling’s in-house finance receivable portfolio to Comenity. In addition, during June 2018, the Company completed the sale of all eligible non-prime in-house accounts receivable to Carval and the appointed minority party, Castlelake.
•Net income was $769.9 million compared to a net loss of $15.2 million in the prior year period, an increase of $785.1 million.
•Net income included non-cash share-based compensation costs of $45.8 million compared to $14.5 million in the prior year period. The higher share-based compensation expense in the current year was driven primarily by a continued trend of lower credit applications. Theimproved Company completed its transition to an outsourced credit structure during the second quarter of Fiscal 2019.operating results. See Note 427 of Item 8 for more information.
•Deferred taxes were a source of $0.1 million compared to a source of $141.8 million in the prior year period offset by current income taxes of a use of $6.7 million compared to a use of $45.5 million in the prior year. The prior year amount was primarily the result of the net operating loss carryback filed in accordance with the provisions of the CARES Act, offset by an increase in the valuation allowance related to certain deferred tax assets in the US. During Fiscal 2021, the Company collected $183.4 million related to the loss carryback and other credits filed in Fiscal 2021 under the provisions of the CARES Act, whereas in Fiscal 2022, the Company paid cash for income taxes of $120.7 million. Refer to Note 11 of Item 8 for additional information.
•Non-cash asset impairment charges were $1.5 million compared to $159.0 million in the prior year period. See Note 17 of Item 8 for additional information regarding the credit transactions.impairments recognized in each period.
Fiscal 2019(3) | Fiscal 2018(2) | Fiscal 2017 | |||||||||
Total North America sales (excluding James Allen)(1) (millions) | $ | 5,418.0 | $ | 5,527.1 | $ | 5,743.2 | |||||
| Credit and lease purchase sales (millions) | $ | 2,799.5 | $ | 2,889.0 | $ | 3,142.0 | |||||
Credit and lease purchase sales as % of total North America sales(1) | 51.7 | % | 52.3 | % | 54.7 | % | |||||
•Cash used for inventory and inventory-related items was $194.3provided by accounts receivable totaled $12.4 million compared to a use of $50.1 million in the prior year comparable period. The prior year cash usage was driven by the portion of the non-prime in-house credit card portfolio that was retained by the Company beginning in the second quarter of Fiscal 2021. See Note 14 of Item 8 for additional information.
•During the second quarter of Fiscal 2022, the Company sold its existing customer in-house finance receivables, as well as collected the payment obligation of the remaining 5% of the receivables previously sold in June 2018. This resulted in cash proceeds of $81.3 million. See Note 13 of Item 8 for further information.
•Cash provided of $210.9by inventory was $198.3 million compared to $308.0 million in Fiscal 2018.2021. The changeinventory reductions in both periods were driven by the Company’s continued inventory cash flows is attributedmanagement initiatives.
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•Cash provided by accounts payable was $35.7 million compared to the change in total inventory on-hand to $2.39 billion$577.8 million in Fiscal 2019 compared2021. The prior year result was driven by the Company’s aggressive working capital management initiatives throughout Fiscal 2021, which included the extension of time to $2.28 billionpay with numerous vendors. The Company has been successful in maintaining these terms throughout Fiscal 2018, reflecting our strategy to exit low-priced owned branded beads2022 with its strong vendor relationships.
•Cash provided by other assets and increase investmentsother receivables was $181.9 million in bridalthe prior year period and certain fashion collections. In addition, other factors impacting inventory include non-cash inventory chargeswas driven primarily by the collection of insurance proceeds related to the Plan and foreign exchange.
•Cash used by changes in operating leases was $55.9$64.1 million, compared to an increasea source of $3.9$31.2 million in the prior year period, driven by the Company’s deferral of rent payments due beginning in April 2020, a substantial portion of which was repaid in Fiscal 20182022. See Note 18 of Item 8 for more information.
•Cash provided by deferred revenue was $100.5 million compared to $73.1 million in the prior year period, primarily due to increased payroll-related accrued expenses including incentive compensation and advertising.warranty plan sales associated with higher overall sales volume. See Note 3 of Item 8 for further information.
Net cash used in investing activities primarily reflects the purchases of property, plant and equipment related to the:
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | |||||||||
| (in millions) | |||||||||||
| Capital additions in North America segment | $ | 123.9 | $ | 219.7 | $ | 252.2 | |||||
| Capital additions in International segment | 9.6 | 17.6 | 25.7 | ||||||||
| Capital additions in Other | — | 0.1 | 0.1 | ||||||||
| Total purchases of property, plant and equipment | $ | 133.5 | $ | 237.4 | $ | 278.0 | |||||
| Ratio of capital additions to depreciation and amortization in North America segment | 74.7 | % | 119.7 | % | 151.6 | % | |||||
| Ratio of capital additions to depreciation and amortization in International segment | 54.9 | % | 92.1 | % | 119.0 | % | |||||
| Ratio of capital additions to depreciation and amortization for Signet | 72.7 | % | 116.7 | % | 147.2 | % | |||||
Stores opened and $400.3 millionclosed in Fiscal 20182022:
| Store count by segment | January 30, 2021 | Opened and acquired (2) (3) | Closed (2) | January 29, 2022 | ||||||||||||||||||||||
North America segment (1) | 2,481 | 104 | (79) | 2,506 | ||||||||||||||||||||||
International segment (1) | 352 | 3 | (7) | 348 | ||||||||||||||||||||||
| Signet | 2,833 | 107 | (86) | 2,854 | ||||||||||||||||||||||
(1) The net change in selling square footage for Fiscal 2022 for the North America and Fiscal 2017,International segments was 0.5% and (0.7)%, respectively. Free cash flow
(2)Includes 12 store repositions in Fiscal 2018 included $952.5 million2022.
(3)Includes 22 Diamonds Direct locations acquired as described in proceeds received from the sale of prime receivables. In Fiscal 2019, $445.5 million in proceeds were received from the sale of non-prime receivables. Excluding these proceeds, the decrease in free cash flow over Fiscal 2018 was primarily due to lower net income and higher inventory levels due primarily to investment in new merchandise (see Note 4 of item 8 and ‘Working Capital’ section above).Item 8.
Net Cash Used in Financing Activities
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | |||||||||||||||||||||
| (in millions, except per share amounts) | Cash dividend per share | Total dividends | Cash dividend per share | Total dividends | Cash dividend per share | Total dividends | |||||||||||||||||
| First quarter | $ | 0.37 | $ | 21.8 | $ | 0.31 | $ | 21.3 | $ | 0.26 | $ | 20.4 | |||||||||||
| Second quarter | 0.37 | 19.2 | 0.31 | 18.7 | 0.26 | 19.7 | |||||||||||||||||
| Third quarter | 0.37 | 19.2 | 0.31 | 18.7 | 0.26 | 18.1 | |||||||||||||||||
| Fourth quarter | 0.37 | 19.2 | (1) | 0.31 | 18.8 | (1) | 0.26 | 17.7 | |||||||||||||||
| Total | $ | 1.48 | $ | 79.4 | $ | 1.24 | $ | 77.5 | $ | 1.04 | $ | 75.9 | |||||||||||
| Fiscal 2019 | Fiscal 2018 | ||||||
| (in millions) | Total cash dividends | Total cash dividends | |||||
| First quarter | $ | 7.8 | $ | 7.8 | |||
| Second quarter | 7.8 | 7.8 | |||||
| Third quarter | 7.8 | 7.8 | |||||
Fourth quarter(1) | 7.8 | 7.8 | |||||
| Total | $ | 31.2 | $ | 31.2 | |||
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||||||||||||||||||||||||||||
| (in millions, expect per share amounts) | Amount authorized | Shares repurchased | Amount repurchased | Average repurchase price per share | Shares repurchased | Amount repurchased | Average repurchase price per share | Shares repurchased | Amount repurchased | Average repurchase price per share | ||||||||||||||||||||||||||
2017 Program(1) | $ | 600.0 | 7.5 | $ | 434.4 | $ | 57.64 | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||||
2016 Program(2) | $ | 1,375.0 | 1.3 | $ | 50.6 | $ | 39.76 | 8.1 | 460.0 | $ | 56.91 | 10.0 | $ | 864.4 | $ | 86.40 | ||||||||||||||||||||
2013 Program(3) | $ | 350.0 | n/a | n/a | n/a | n/a | n/a | n/a | 1.2 | $ | 135.6 | $ | 111.26 | |||||||||||||||||||||||
| Total | 8.8 | $ | 485.0 | $ | 55.06 | 8.1 | $ | 460.0 | $ | 56.91 | 11.2 | $ | 1,000.0 | $ | 89.10 | |||||||||||||||||||||
Movement in Cash and Indebtedness
Cash and cash equivalents at February 2, 2019January 29, 2022 were $195.4 million$1.4 billion compared to $225.1 million$1.2 billion as of February 3, 2018.January 30, 2021. Signet has significant amounts of cash and cash equivalents invested in various ‘AAA’ rated liquidity funds and at a number of financial institutions. The amount invested in each liquidity fund or at each financial institution takes into account the credit rating and size of the liquidity fund or financial institution and is invested for short-term durations.
During Fiscal 2020, the Company entered into (i) a revolving credit facility in an aggregate committed amount of $1.5 billion (“ABL Revolving Facility”) and (ii) a first-in last-out term loan facility in an aggregate principal amount of $100.0 million (the “FILO Term Loan Facility” and, together with the ABL Revolving Facility, the “ABL Facility”). Refer to Note 24 of Item 8 for further information.
At February 2, 2019,January 29, 2022 and January 30, 2021, Signet had $734.0$147.7 million and $147.6 million, respectively, of outstanding debt, comprisedconsisting entirely of $399.0 millionthe Senior Notes.
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During Fiscal 2021, the Company borrowed $900 million and paid down $1.2 billion, on the ABL Revolving Facility. Borrowings were made to make scheduled quarterly principal payments overfund short-term cash needs and as a prudent measure in response to COVID-19 to increase the five-year term. During Fiscal 2019, $31.3 million in principal payments were made.
The Company had stand-by letters of credit on the revolving credit facilityABL Revolving Facility of $14.6 million and $15.7$20.1 million as of February 2, 2019 and February 3, 2018, respectively,January 29, 2022 that reducereduced remaining availabilityborrowing availability. Available borrowings under the revolving credit facility.ABL Revolving Facility were $1.2 billion as of January 29, 2022.
Net debt (non-GAAP measure, see Item 6)cash was $533.0 million$1.3 billion as of February 2, 2019January 29, 2022 compared to net debtcash of $507.1 million$1.0 billion as of February 3, 2018.January 30, 2021. Refer to Non-GAAP Measures above.
As of January 29, 2022 and January 30, 2021, the Company was in compliance with all debt covenants.
Capital availability
Signet’s level of borrowings and cash balances fluctuates during the year reflecting the seasonality of its cash flow requirements and business performance. Management believes that cash balances and the committed borrowing facilities (including the CreditABL Facility described more fully in Note 2224 of Item 8) currently available to the business are sufficient for both its present and near termnear-term requirements. The following table provides a summary of these items as of January 29, 2022, January 30, 2021 and February 2, 2019, February 3, 20181, 2020:
| (in millions) | January 29, 2022 | January 30, 2021 | February 1, 2020 | ||||||||||||||
Working capital (1) | $ | 1,659.7 | $ | 1,583.3 | $ | 1,502.2 | |||||||||||
| Capitalization: | |||||||||||||||||
| Long-term debt | 147.1 | 146.7 | 515.9 | ||||||||||||||
| Series A redeemable convertible preferred shares | 652.1 | 642.3 | 617.0 | ||||||||||||||
| Shareholders’ equity | 1,564.0 | 1,190.3 | 1,222.6 | ||||||||||||||
| Total capitalization | 2,363.2 | 1,979.3 | 2,355.5 | ||||||||||||||
| Additional amounts available under credit agreements | $ | 1,245.9 | $ | 1,320.8 | $ | 1,158.1 | |||||||||||
(1) Includes cash and cash equivalents
If the excess availability under the ABL Revolving Facility falls below the threshold specified in the ABL Facility agreement, the Company will be required to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00. As of January 28, 2017:
| (in millions) | February 2, 2019 | February 3, 2018 | January 28, 2017 | ||||||||
| Working capital | $ | 1,822.8 | $ | 2,408.9 | $ | 3,438.9 | |||||
| Capitalization: | |||||||||||
| Long-term debt | 649.6 | 688.2 | 1,317.9 | ||||||||
| Series A redeemable convertible preferred shares | 615.3 | 613.6 | 611.9 | ||||||||
| Shareholder’s equity | 1,201.6 | 2,499.8 | 2,490.2 | ||||||||
| Total capitalization | $ | 2,466.5 | $ | 3,801.6 | $ | 4,420.0 | |||||
| Additional amounts available under credit agreements | $ | 685.4 | $ | 684.3 | $ | 628.7 | |||||
Credit Ratingratings
The following table provides Signet’s credit ratings as of February 2, 2019:
January 29, 2022:
| Rating Agency | Corporate | Senior Unsecured Notes | ||||||
| Standard & Poor’s | ||||||||
| Moody’s | ||||||||
| Fitch | ||||||||
OFF-BALANCE SHEET ARRANGEMENTS
Merchandise held on consignment
Signet held $726.8$533.2 million of consignment inventory which is not recorded on the balance sheet at February 2, 2019,January 29, 2022, as compared to $606.4$387.4 million at February 3, 2018.January 30, 2021. The principal terms of the consignment agreements, which can generally be terminated by either party, are such that Signet can return any, or all of, the inventory to the relevant supplier without financial or commercial penalty.
Contingent property liabilities
At February 2, 2019, approximately 18January 29, 2022, 11 property leases had been assigned by Signet to third partiesthird-parties (and remained unexpired and occupied by assignees at that date) and approximately 5six additional properties were sub-let at that date. Should the assignees or sub-tenants fail to fulfill any obligations in respect of those leases or any other leases which have at any other time been assigned or sub-let, Signet or one of its UK
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subsidiaries may be liable for those defaults. The number of such claims arising to date has been small, and the liability, which is charged to the income statementconsolidated statements of operations as it arises, has not been material.
| (in millions) | Less than one year | Between one and three years | Between three and five years | More than five years | Total | ||||||||||||||
Long-term debt obligations - Principal(1) | $ | 40.2 | $ | 254.7 | $ | — | $ | 400.0 | $ | 694.9 | |||||||||
Long-term debt obligations - Interest(2) | 30.9 | 51.7 | 37.6 | 7.0 | 127.2 | ||||||||||||||
Operating lease obligations(3) | 450.4 | 769.5 | 559.4 | 755.2 | 2,534.5 | ||||||||||||||
| Capital commitments | 52.5 | — | — | — | 52.5 | ||||||||||||||
| Pensions | 5.4 | 8.8 | 2.1 | — | 16.3 | ||||||||||||||
| Commitment fee payments | 2.0 | 3.0 | — | — | 5.0 | ||||||||||||||
| Deferred compensation plan | 0.9 | 8.7 | 6.9 | 17.9 | 34.4 | ||||||||||||||
| Current income tax | 27.7 | — | — | — | 27.7 | ||||||||||||||
Other long-term liabilities(4) | — | — | — | 4.7 | 4.7 | ||||||||||||||
| Total | $ | 610.0 | $ | 1,096.4 | $ | 606.0 | $ | 1,184.8 | $ | 3,497.2 | |||||||||
IMPACT OF INFLATION
The costs of commodities such as diamonds, gemstones and precious metals in merchandise Signet purchases from its suppliers generally increase over time, and Signet has historically been able to increase retail prices to offset such cost increases. Diamond and gold costs began to increase more than usual in January 2022 but did not have a meaningful impact on Signet’s merchandise costs duein the fourth quarter of Fiscal 2022. Diamond and gold costs continued to rise into February and March at a rate that Signet believes was similar to consumer price indexes over the currency translation ofsame time periods. Signet intends to leverage its supply chain and flexible fulfillment capabilities, as well as its product and assortment capabilities in order to minimize Fiscal 2023 retail prices increases that may otherwise be necessary to offset such cost increases. Refer to Item 1A, Risk Factors, for further information on the British pound against the US dollar.potential impacts and risk associated with inflation.
CRITICAL ACCOUNTING POLICIESESTIMATES
Critical accounting policies covering areas of greater complexity that are subject to the exercise of judgment due to the reliance on key estimates are listed below. A comprehensive listing of Signet’s significant accounting policies is set forth in Note 1 of the consolidated financial statements in Item 8.
Revenue recognition for extended service plans and lifetime warranty agreements (“ESP”)
The Company recognizes revenue related to ESP sales in proportion to when the expected costs will be incurred over the life of the warranty agreement.
The North America segment sells ESP, subject to certain conditions, to perform repair work over the life of the product. Customers generally pay for ESP at the store or online at the time of merchandise sale. Revenue from the sale of the lifetime ESP is recognized consistent with the estimated patterns of claim costs expected to be incurred within 17by the Company in connection with performing under the ESP obligations. Lifetime ESP revenue is deferred and recognized over a maximum of 14 years ofafter the sale of the warranty contract. Although claims experience varies between ourthe Company’s national banners, thereby resulting in different recognition rates, approximately 55% to 60% of revenue is recognized within the first two years on a weighted average basis.
As noted above, the Company utilizes historical claims data to estimate the expected future patterns of claims cost and the related revenue recognition rates utilized. These claims patterns are subject to change based primarily on revisions to the Company’s ESP product offerings and changes in customer behavior over time. The Company periodically refreshes its analysis of the claims pattern on at least an annual basis, (February 3, 2018: 58%)or more often if circumstances dictate such a review is required (such as occurred as a result of the disruption from COVID-19). A significant change in either the overall claims pattern or the life over which the Company is expected to fulfil its obligation under the warranty, could result in material change to revenues.
Goodwill and intangibles
In a business combination, the Company estimates and records the fair value of all assets acquired and liabilities assumed, including identifiable intangible assets and liabilities. The North America segment sells a Jewelry Replacement Plan (“JRP”).fair value of these intangible assets and liabilities is estimated based on management’s assessment, including selection of appropriate valuation techniques, inputs and assumptions in the determination of fair value. Significant estimates in valuing intangible assets and liabilities acquired include, but are not limited to, future expected cash flows associated with the acquired asset or liability, expected life and discount rates. The JRP is designed to protect customers from damage or defects of purchased merchandise for a period of three years. If the purchased merchandise is defective or becomes damaged under normal use in that time period, the item will be replaced. JRP revenue is deferred and recognized on a straight-line basisexcess purchase price over the periodestimated fair values of expected claims costs.
Goodwill and intangibles
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The impairment test is performed to identify a potentialfor goodwill impairment and measure the amount of impairment to be recognized, if any. The impairment test involves estimating the fair value of all assets and liabilities of the reporting unit including the implied fair value of goodwill, through either estimated discounted future cash flows or market-based methodologies.
The fair value to their respective carrying amounts. The fair values were estimated using an income-based approach based on management's estimates of forecasted cash flows, with those cash flows discounted to present value using rates commensurate withmethodologies used by the risks associated with those cash flows. The valuationsCompany in testing goodwill and indefinite-lived intangible assets include assumptions related to sales trends, discount rates, royalty rates and other assumptions that are judgmental in nature. If future economic conditions are different than those projected by management futurein its most recent impairment charges may be required.
Long-lived assets with indefinite lives totaled $261.8 million
Long-lived assets of the Company consist primarily of property and equipment, definite-lived intangible assets and operating lease right-of-use ("ROU") assets. Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Potentially impaired assets or asset groups are identified by reviewing the undiscounted cash flows of individual stores. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the store asset group, based on the Company’s internal business plans. If the undiscounted cash flow for the store asset group is less than its carrying amount, the long-lived assets are measured for potential impairment by estimating the fair value of the asset group, and recording an impairment loss for the amount that the carrying value exceeds the estimated fair value. The Company primarily utilizes the replacement cost method to estimate the fair value of its property and equipment, and the income capitalization method to estimate the fair value of its ROU assets, which incorporates historical store level sales, internal business plans, real estate market capitalization and rental rates, and discount rates.
The uncertainty of the COVID-19 impact to the Company’s business could continue to further negatively affect the operating performance and cash flows of the Company’s stores, including the magnitude and potential resurgence of COVID-19 (including variants), occupancy restrictions in the Company’s stores, the inability to achieve or maintain cost savings initiatives included in the business plans, changes in real estate strategy or macroeconomic factors which influence consumer behavior. In addition, key assumptions used to estimate fair value, such as sales trends, capitalization and market rental rates, and discount rates could impact the fair value estimates of February 2, 2019 and $478.4 million as of February 3, 2018.
the store-level assets in future periods.
Income taxes
Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are recognized by applying statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when it is more likely than not that someall or a portion or all of the deferred tax assets will not be realized, based on management’s evaluation of all available evidence, both positive and negative, including reversals of deferred tax liabilities, projected future taxable income and results of recent operations. The Company recordedhas a valuation allowance of $38.9$27.9 million and $37.0$83.9 million, as of February 2, 2019January 29, 2022 and February 3, 2018,January 30, 2021, respectively, due to uncertainties related to the Company’s ability to utilize somecertain of theits deferred tax assets, primarily consisting of net operating losses, foreign tax credits and capital losses carried forward.
The annual effective tax rate is based on annual income, statutory tax rates and tax planning strategies available in the various jurisdictions in which the Company operates. The Company does not recognize tax benefits related to positions taken on certain tax matters unless the position is more likely than not to be sustained upon examination by tax authorities. At any point in time, various tax years are subject to or are in the process of being audited by various taxing authorities. The Company records a reserve for uncertain tax positions, including interest and penalties. To the extent that management’s estimates of settlements change, or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. See Note 1211 in Item 8 for additional information regarding deferred tax assets and unrecognized tax benefits.
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Leases
Signet occupies certain properties and holds machinery and vehicles under operating leases. Signet determines if an arrangement is a lease at the agreement’s inception. Certain operating leases include predetermined rent increases, which are charged to store occupancy costs within cost of sales on a straight-line basis over the lease term, including any construction period or other rental holiday. Other variable amounts paid under operating leases, such as taxes and common area maintenance, are charged to selling, general and administrative expenses as incurred. Premiums paid to acquire short-term leasehold properties and inducements to enter into a lease are recognized on a straight-line basis over the lease term. In addition, certain leases provide for contingent rent based on a percentage of sales in excess of a predetermined level. Further, certain leases provide for variable rent increases based on indexes specified within the lease agreement. The variable increases based on an index are initially measured as part of the operating lease liability using the index at the commencement date. Contingent rent and subsequent changes to variable increases based on indexes will be recognized in the variable lease cost and recent accounting standardsincluded in the determination of total lease cost when it is probable that the expense has been incurred and the amount is reasonably estimable. Operating leases are included in operating lease ROU assets and current and non-current operating lease liabilities in the Company’s consolidated balance sheets.
Payments arising from operating lease activity, as well as variable and short-term lease payments not included within the operating lease liability, are included as operating activities on ourthe Company’s consolidated financialstatement of cash flows. Operating lease payments representing costs to ready an asset for its intended use (i.e. leasehold improvements) are represented within investing activities within the Company’s consolidated statements see Note 2 in Item 8 of cash flows.
SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The Company and certain of its subsidiaries, which are listed on Exhibit 22.1 to this Annual Report on Form 10-K.10-K, have guaranteed obligations under the 4.70% senior unsecured notes due in 2024 (the “Senior Notes”).
The Senior Notes were issued by Signet UK Finance plc (the “Issuer”). The Senior Notes rank senior to the Preferred Shares (as defined in Note 7 of Item 8) and Common Shares. The Senior Notes are effectively subordinated to our existing and future secured indebtedness to the extent of the assets securing that indebtedness. The Senior Notes are fully and unconditionally guaranteed on a joint and several basis by the Company, as the parent entity ( the “Parent”) of the Issuer, and certain of its subsidiary guarantors (each, a “Guarantor” and collectively, the “Guarantors”).
The Senior Notes are structurally subordinated to all existing and future debt and other liabilities, including trade payables, of our subsidiaries that do not guarantee the Senior Notes (the “Non-Guarantors”). The Non-Guarantors will have no obligation, contingent or otherwise, to pay amounts due under the Senior Notes or to make funds available to pay those amounts. Certain Non-Guarantors may be limited in their ability to remit funds to us by means of dividends, advances or loans due to required foreign government and/or currency exchange board approvals or limitations in credit agreements or other debt instruments of those subsidiaries.
The Guarantors jointly and severally, irrevocably and unconditionally guarantee on a senior unsecured basis the performance and full and punctual payment when due of all obligations of Issuer, as defined in the Indenture, in accordance with the Senior Notes and the related Indentures, as supplemented, whether for payment of principal of or interest on the Senior Notes when due and any and all costs and expenses incurred by the trustee or any holder of the Senior Notes in enforcing any rights under the guarantees (collectively, the “Guarantees”). The Guarantees and Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions.
Although the Guarantees provide the holders of Senior Notes with a direct unsecured claim against the assets of the Guarantors, under US federal bankruptcy law and comparable provisions of US state fraudulent transfer laws, in certain circumstances a court could cancel a Guarantee and order the return of any payments made thereunder to the Guarantor or to a fund for the benefit of its creditors.
A court might take these actions if it found, among other things, that when the Guarantors incurred the debt evidenced by their Guarantee (i) they received less than reasonably equivalent value or fair consideration for the incurrence of the debt and (ii) any one of the following conditions was satisfied:
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•the Guarantor entity was insolvent or rendered insolvent by reason of the incurrence;
•the Guarantor entity was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or
•the Guarantor entity intended to incur or believed (or reasonably should have believed) that it would incur, debts beyond its ability to pay as those debts matured.
In applying the above factors, a court would likely find that a Guarantor did not receive fair consideration or reasonably equivalent value for its Guarantee, except to the extent that it benefited directly or indirectly from the issuance of the Senior Notes. The determination of whether a Guarantor was or was not rendered insolvent when it entered into its Guarantee will vary depending on the law of the jurisdiction being applied. Generally, an entity would be considered insolvent if the sum of its debts (including contingent or unliquidated debts) is greater than all of its assets at a fair valuation or if the present fair salable value of its assets is less than the amount that will be required to pay its probable liability on its existing debts, including contingent or unliquidated debts, as they mature.
If a court canceled a Guarantee, the holders of the Senior Notes would no longer have a claim against that Guarantor or its assets.
Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Guarantor without rendering the Guarantee, as it relates to that Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.
Each Guarantor is a consolidated subsidiary of Parent at the date of each balance sheet presented. The following tables present summarized financial information for Parent, Issuer, and the Guarantors on a combined basis after elimination of (i) intercompany transactions and balances among Parent, Issuer, and the Guarantors and (ii) equity in earnings from and investments in any Non-Guarantor.
| Summarized Balance Sheets | ||||||||||||||
| (in millions) | January 29, 2022 | January 30, 2021 | ||||||||||||
| Total current assets | $ | 3,507.0 | $ | 3,799.6 | ||||||||||
| Total non-current assets | 2,245.3 | 2,475.9 | ||||||||||||
| Total current liabilities | 2,309.3 | 2,357.1 | ||||||||||||
| Total non-current liabilities | 3,407.0 | 3,578.7 | ||||||||||||
| Redeemable preferred shares | 652.1 | 642.3 | ||||||||||||
Total due from Non-Guarantors (1) | 311.4 | 395.9 | ||||||||||||
Total due to Non-Guarantors (1) | 1,666.9 | 1,695.0 | ||||||||||||
(1) Amounts included in asset and liability subtotals above.
| Summarized Statements of Operations | ||||||||||||||
| (in millions) | Fiscal 2022 | Fiscal 2021 | ||||||||||||
| Sales | $ | 7,188.9 | $ | 4,894.8 | ||||||||||
| Gross margin | 3,014.9 | 1,681.7 | ||||||||||||
Income before income taxes (2) | 939.7 | 161.1 | ||||||||||||
Net income (2) | 827.9 | 240.1 | ||||||||||||
(2) Includes income from intercompany transactions with Non-Guarantors of $49.8 million for Fiscal 2022, and income of $231.2 million for Fiscal 2021. Intercompany transactions primarily include intercompany dividends and interest.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Signet is exposed to market risk arising from fluctuations in foreign currency exchange rates, interest rates and precious metal prices, which could affect its consolidated financial position, earnings and cash flows. Signet monitors and manages these market exposures as a fundamental part of its overall risk management program, which recognizes the volatility of financial markets and seeks to reduce the potentially adverse effects of this volatility on Signet’s operating results. Signet manages its exposure to market risk through its regular operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. Signet uses derivative financial instruments as risk management tools and not for trading purposes.
As certain of the International segment’s purchases are denominated in US dollars and its net cash flows are in British pounds, Signet’s policy is to enter into forward foreign currency exchange contracts and foreign currency swaps to manage the exposure to the US dollar. Signet also hedgesmay enter into derivative transactions to hedge a significant portion of forecasted merchandise purchases using
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commodity forward purchase contracts, options, and net zero premium collar arrangements.arrangements, or some combination thereof. Additionally, the North America segment occasionally enters into forward foreign currency exchange contracts to manage the currency fluctuations associated with purchases for ourthe Company’s Canadian operations. These contracts are entered into with large, reputable financial institutions, thereby minimizing the credit exposure from ourthe Company’s counterparties.
Signet has significant amounts of cash and cash equivalents invested at several financial institutions. The amount invested at each financial institution takes into account the long-term credit rating and size of the financial institution. The interest rates earned on cash and cash equivalents will fluctuate in line with short-term interest rates.
MARKET RISK MANAGEMENT POLICY
A committee of the Board is responsible for the implementation of market risk management policies within the treasury policies and guidelines framework, which are deemed to be appropriate by the Board for the management of market risk.
Signet’s exposure to market risk is managed by Signet’s Treasury Committee. Where deemed necessary to achieve the objective of reducing market risk volatility on Signet’s operating results, certain derivative instruments are entered into after review and approval by the Treasury Committee. Signet uses derivative financial instruments for risk management purposes only.
A description of Signet’s accounting policies for derivative instruments is included in Note 1 of Item 8. Signet’s current portfolio of derivative financial instruments consists entirely of an interest rate swap, forward foreign currency exchange contracts and commodity forward purchase contracts, options and net zero premium collar arrangements.contracts. An analysis quantifying the fair value change in derivative financial instruments held by Signet to manage its exposure to interest rates, foreign exchange rates and commodity prices is detailed in Note 1921 of Item 8.
Foreign Currency Exchange Rate Risk
Approximately 90% of Signet’s total assets were held in entities whose functional currency is the US dollar at February 2, 2019January 29, 2022 and generated approximately 87%91% of its sales and 94% of its operating income in US dollars in Fiscal 2019.2022. All remaining assets sales and operating incomesales are in British pounds and Canadian dollars.
In translating the results of the International segment and the Canadian subsidiary of the North America segment, Signet’s results are subject to fluctuations in the exchange rates between the US dollar and both the British pound and Canadian dollar. Any depreciation in the weighted average value of the US dollar against the British pound or Canadian dollar could increase reported revenues and operating profit and any appreciation in the weighted average value of the US dollar against the British pound or Canadian dollar could decrease reported revenues and operating profit.
The International segment buys certain products and materials on international markets that are priced in US dollars, and therefore has an exposure to exchange rates on the cost of goods sold. Signet uses certain derivative financial instruments to hedge a portion of this exposure within treasury guidelines approved by the Board. In Fiscal 2022, approximately 35% of the International segment’s goods purchased were transacted in US dollars (Fiscal 2021: 35%).
Signet holds a fluctuating amount of British pounds reflecting the cash generating characteristics of the International segment. Signet’s objective is to minimize net foreign exchange exposure to the income statementconsolidated statements of operations on British pound denominated items through managing this level of cash, British pound denominated intercompany balances and US dollar to British pound swaps. In order to manage the foreign exchange exposure and minimize the level of British pound cash held by Signet, the British pound denominated subsidiaries periodically pay dividends regularlyas needed to their immediate holding companies and excess British pounds are sold in exchange for US dollars.
Commodity Price Risk
Signet’s results are subject to fluctuations in the cost of diamonds, gold and certain other precious metals which are key raw material components of the products sold by Signet.
Interest Rate Risk
Signet’s interest income orand expense is exposed to volatility in interest rates. This exposure is driven by both the currency denomination of the cash or debt, the mix of fixed and floating rate debt used, the type of cash investments and the total amount of cash and debt outstanding. As of February 2, 2019,January 29, 2022, a hypothetical 100 basis point increase in interest rates would result in no additional annual interest expense of approximately $0.7 million, including the effectsince all of the interestCompany’s variable rate swap designated as a cash flow hedge.debt has been repaid.
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Sensitivity Analysis
Management has used a sensitivity analysis technique that measures the change in the fair value of Signet’s financial instruments from hypothetical changes in market rates as shown in the table below.
Fair value changesgains (losses) arising from:
| (in millions) | Fair Value February 2, 2019 | 10 basis point decrease in interest rates | 10% depreciation of $ against £ | 10% depreciation of $ against C$ | 10% depreciation of gold prices | Fair Value February 3, 2018 | (in millions) | Fair Value January 29, 2022 | 10% depreciation of $ against £ | 10% depreciation of $ against C$ | 10% depreciation of gold prices | Fair Value January 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | 0.7 | $ | — | $ | (3.2 | ) | $ | (5.7 | ) | $ | — | $ | (2.3 | ) | Foreign exchange contracts | $ | (1.0) | $ | 7.3 | $ | 0.9 | $ | — | $ | (0.2) | ||||||||||||||||||||||||||||||||
| Commodity contracts | 5.7 | — | — | — | (11.8 | ) | (0.1 | ) | Commodity contracts | — | — | — | — | (0.1) | ||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swap | 0.6 | (0.2 | ) | — | — | — | 2.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||
The amounts generated from the sensitivity analysis quantify the impact of market risk assuming that certain adverse market conditions, specified in the table above, occur. They are not forward-looking estimates of market risk. Actual results in the future are likely to differ materially from those projected due to changes in the portfolio of financial instruments held and actual developments in the global financial markets.
Any changes in the portfolio of financial instruments held and developments in the global financial markets may cause fluctuations in interest rates, exchange rates and precious metal prices to exceed the hypothetical amounts disclosed in the table above. The sensitivity scenarios are intended to allow an expected risk measure to be applied to the scenarios, as opposed to the scenarios themselves being an indicator of the maximum expected risk.
The fair value of derivative financial instruments is determined based on market value equivalents at period end, taking into account the current interest rate environment, current foreign currency forward rates or current commodity forward rates.
The estimated changes in the fair value for foreign exchange rates are based on a 10% depreciation of the US dollar against British pound and Canadian dollar from the levels applicable at February 2, 2019January 29, 2022 with all other variables remaining constant.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Signet Jewelers LimitedLimited:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Signet Jewelers Limited and subsidiaries (the “Company”)Company) as of February 2, 2019January 29, 2022 and February 3, 2018,January 30, 2021, the related consolidated income statements, statements of operations, comprehensive income statements of(loss), cash flows, and statements of shareholders’ equity for each of the 52 week period ended February 2, 2019, the 53 week period ended February 3, 2018, and the 52 week periodperiods ended January 28, 2017,29, 2022 (fiscal year 2022), January 30, 2021, and February 1, 2020, and the related notes (collectively, the “consolidatedconsolidated financial statements”)statements). We also have audited the Company’s internal control over financial reporting as of February 2, 2019,January 29, 2022, based on criteria established in Internal Control -– Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 2, 2019January 29, 2022 and February 3, 2018,January 30, 2021, and the results of its operations and its cash flows for each of the 52 week period ended February 2, 2019, the 53 week period ended February 3, 2018, and the 52 week periodperiods ended January 28, 2017,29, 2022, January 30, 2021, and February 1, 2020 in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2019January 29, 2022 based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company acquired Rocksbox Inc. and Diamonds Direct USA Inc. during fiscal year 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of January 29, 2022, Rocksbox Inc.’s and Diamonds Direct USA Inc.’s internal control over financial reporting associated with 10% of total assets and 2% of total sales included in Accounting Principle
Basis for OpinionOpinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Item 9A.the accompanying Management’s annual report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
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company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition related to extended service plans
As discussed in Note 3 to the consolidated financial statements, the Company recognized revenue related to the extended service plans (ESP) of $441.3 million. ESP revenue is recognized in proportion to when the expected costs will be incurred. To determine the amount of revenue to recognize, the Company estimates the deferral periods and patterns of future claims costs.
We identified the evaluation of revenue recognition related to ESP as a critical audit matter. Subjective auditor judgment was required to evaluate the estimated deferral periods and patterns of future claims costs used to recognize ESP revenue, which included assessing the historical claims trends by year of contract sale and estimates of future claims, because a change in these estimates could materially impact revenues. In addition, valuation professionals with specialized skills and knowledge were required to evaluate the Company’s models used to estimate the deferral periods and patterns of future claims costs.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s revenue recognition process, including controls related to the development of assumptions used to estimate the deferral periods and patterns of future claims costs. We evaluated the historical claims trends used by the Company in estimating the future claims costs on a sample basis by selecting claims and tracing them back to the original proof of sale. We assessed the calculations used by the Company to determine ESP revenue recognized for consistency with the estimated deferral periods and patterns of future claim costs. We involved valuation professionals with specialized skills and knowledge, who assisted by evaluating the Company’s models used to develop the deferral periods and patterns of future claims costs by (1) developing parallel models to estimate the deferral periods and patterns of future claims costs, and (2) comparing the results to the Company’s estimated deferral periods and patterns of future claims costs.
/s/ KPMG LLP
We have served as the Company’s auditor since 2011.
Cleveland, Ohio
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SIGNET JEWELERS LIMITED
CONSOLIDATED INCOME STATEMENTS OF OPERATIONS
| (in millions, except per share amounts) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | Notes | (in millions, except per share amounts) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | Notes | |||||||||||||||||||||||||||
| Sales | $ | 6,247.1 | $ | 6,253.0 | $ | 6,408.4 | 6 | Sales | $ | 7,826.0 | $ | 5,226.9 | $ | 6,137.1 | 3 | |||||||||||||||||||||
| Cost of sales | (4,024.1 | ) | (4,063.0 | ) | (4,047.6 | ) | Cost of sales | (4,702.0) | (3,493.0) | (3,904.2) | ||||||||||||||||||||||||||
| Restructuring charges - cost of sales | (62.2 | ) | — | — | 7 | Restructuring charges - cost of sales | — | (1.4) | (9.2) | 6 | ||||||||||||||||||||||||||
| Gross margin | 2,160.8 | 2,190.0 | 2,360.8 | Gross margin | 3,124.0 | 1,732.5 | 2,223.7 | |||||||||||||||||||||||||||||
| Selling, general and administrative expenses | (1,985.1 | ) | (1,872.2 | ) | (1,880.2 | ) | Selling, general and administrative expenses | (2,230.9) | (1,587.4) | (1,918.2) | ||||||||||||||||||||||||||
| Credit transaction, net | (167.4 | ) | 1.3 | — | 4 | |||||||||||||||||||||||||||||||
| Restructuring charges | (63.7 | ) | — | — | 7 | Restructuring charges | 3.3 | (46.2) | (69.9) | 6 | ||||||||||||||||||||||||||
| Goodwill and intangible impairments | (735.4 | ) | — | — | 17 | |||||||||||||||||||||||||||||||
| Other operating income, net | 26.2 | 260.8 | 282.6 | 13 | ||||||||||||||||||||||||||||||||
| Asset impairments, net | Asset impairments, net | (1.5) | (159.0) | (47.7) | 17 | |||||||||||||||||||||||||||||||
| Other operating income (loss) | Other operating income (loss) | 8.5 | 2.4 | (29.6) | 12 | |||||||||||||||||||||||||||||||
| Operating income (loss) | (764.6 | ) | 579.9 | 763.2 | 6 | Operating income (loss) | 903.4 | (57.7) | 158.3 | 5 | ||||||||||||||||||||||||||
| Interest expense, net | (39.7 | ) | (52.7 | ) | (49.4 | ) | Interest expense, net | (16.9) | (32.0) | (35.6) | ||||||||||||||||||||||||||
| Other non-operating income | 1.7 | — | — | |||||||||||||||||||||||||||||||||
| Other non-operating (loss) income | Other non-operating (loss) income | (2.1) | — | 7.0 | ||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | (802.6 | ) | 527.2 | 713.8 | Income (loss) before income taxes | 884.4 | (89.7) | 129.7 | ||||||||||||||||||||||||||||
| Income taxes | 145.2 | (7.9 | ) | (170.6 | ) | 12 | Income taxes | (114.5) | 74.5 | (24.2) | 11 | |||||||||||||||||||||||||
| Net income (loss) | (657.4 | ) | 519.3 | 543.2 | Net income (loss) | 769.9 | (15.2) | 105.5 | ||||||||||||||||||||||||||||
| Dividends on redeemable convertible preferred shares | (32.9 | ) | (32.9 | ) | (11.9 | ) | 9 | Dividends on redeemable convertible preferred shares | (34.5) | (33.5) | (32.9) | 8 | ||||||||||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | (690.3 | ) | $ | 486.4 | $ | 531.3 | Net income (loss) attributable to common shareholders | $ | 735.4 | $ | (48.7) | $ | 72.6 | ||||||||||||||||||||||
| Earnings (loss) per common share: | Earnings (loss) per common share: | |||||||||||||||||||||||||||||||||||
| Basic | $ | (12.62 | ) | $ | 7.72 | $ | 7.13 | 10 | Basic | $ | 14.01 | $ | (0.94) | $ | 1.40 | 9 | ||||||||||||||||||||
| Diluted | $ | (12.62 | ) | $ | 7.44 | $ | 7.08 | 10 | Diluted | $ | 12.22 | $ | (0.94) | $ | 1.40 | 9 | ||||||||||||||||||||
| Weighted average common shares outstanding: | Weighted average common shares outstanding: | |||||||||||||||||||||||||||||||||||
| Basic | 54.7 | 63.0 | 74.5 | 10 | Basic | 52.5 | 52.0 | 51.7 | 9 | |||||||||||||||||||||||||||
| Diluted | 54.7 | 69.8 | 76.7 | 10 | Diluted | 63.0 | 52.0 | 51.8 | 9 | |||||||||||||||||||||||||||
| Dividends declared per common share | $ | 1.48 | $ | 1.24 | $ | 1.04 | 9 | |||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
60
SIGNET JEWELERS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Pre-tax amount | Tax (expense) benefit | After-tax amount | Pre-tax amount | Tax (expense) benefit | After-tax amount | Pre-tax amount | Tax (expense) benefit | After-tax amount | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 769.9 | $ | (15.2) | $ | 105.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | $ | (5.4) | $ | — | $ | (5.4) | $ | 11.2 | $ | — | $ | 11.2 | $ | (1.7) | $ | — | $ | (1.7) | ||||||||||||||||||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized (loss) gain | (0.3) | — | (0.3) | 0.2 | — | 0.2 | (0.2) | — | (0.2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustment for losses to earnings | — | — | — | — | — | — | 1.0 | — | 1.0 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash flow hedges: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain (loss) | 0.6 | — | 0.6 | (1.0) | 0.2 | (0.8) | 14.8 | (3.6) | 11.2 | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustment for losses (gains) to earnings | 1.0 | (0.3) | 0.7 | (16.8) | 4.2 | (12.6) | (3.4) | 0.7 | (2.7) | |||||||||||||||||||||||||||||||||||||||||||||||
| Pension plan: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Actuarial (loss) gain | (71.4) | 13.5 | (57.9) | 5.4 | (1.0) | 4.4 | 0.5 | (0.1) | 0.4 | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustment for amortization of actuarial losses to earnings | 2.1 | (0.3) | 1.8 | 1.0 | (0.2) | 0.8 | 1.2 | (0.2) | 1.0 | |||||||||||||||||||||||||||||||||||||||||||||||
| Reclassification adjustment for amortization of net prior service costs to earnings | 0.1 | — | 0.1 | 0.1 | — | 0.1 | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Total other comprehensive (loss) income | $ | (73.3) | $ | 12.9 | $ | (60.4) | $ | 0.1 | $ | 3.2 | $ | 3.3 | $ | 12.2 | $ | (3.2) | $ | 9.0 | ||||||||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) | $ | 709.5 | $ | (11.9) | $ | 114.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||||||||||||||||||||||||||||
| (in millions) | Pre-tax amount | Tax (expense) benefit | After-tax amount | Pre-tax amount | Tax (expense) benefit | After-tax amount | Pre-tax amount | Tax (expense) benefit | After-tax amount | |||||||||||||||||||||||||||
| Net income (loss) | $ | (657.4 | ) | $ | 519.3 | $ | 543.2 | |||||||||||||||||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (35.9 | ) | — | (35.9 | ) | 50.9 | — | 50.9 | (25.6 | ) | — | (25.6 | ) | |||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||||||||||||
Unrealized gain (loss) (1) | 0.6 | (0.2 | ) | 0.4 | 0.5 | (0.2 | ) | 0.3 | — | — | — | |||||||||||||||||||||||||
Impact from adoption of new accounting pronouncements (2) | (1.1 | ) | 0.3 | (0.8 | ) | — | — | — | — | — | — | |||||||||||||||||||||||||
| Cash flow hedges: | ||||||||||||||||||||||||||||||||||||
| Unrealized gain (loss) | 6.2 | (1.4 | ) | 4.8 | 3.4 | (1.6 | ) | 1.8 | 8.8 | (1.9 | ) | 6.9 | ||||||||||||||||||||||||
| Reclassification adjustment for losses to net income | (2.1 | ) | 0.6 | (1.5 | ) | (4.6 | ) | 1.1 | (3.5 | ) | (0.7 | ) | 0.1 | (0.6 | ) | |||||||||||||||||||||
| Pension plan: | ||||||||||||||||||||||||||||||||||||
| Actuarial gain (loss) | (4.1 | ) | 0.7 | (3.4 | ) | — | — | — | (16.9 | ) | 3.3 | (13.6 | ) | |||||||||||||||||||||||
| Reclassification adjustment to net income for amortization of actuarial losses | 0.9 | (0.2 | ) | 0.7 | 2.8 | (0.6 | ) | 2.2 | 1.5 | (0.3 | ) | 1.2 | ||||||||||||||||||||||||
| Prior service costs | (8.1 | ) | 1.6 | (6.5 | ) | (0.6 | ) | 0.1 | (0.5 | ) | (0.5 | ) | 0.1 | (0.4 | ) | |||||||||||||||||||||
| Reclassification adjustment to net income for amortization of net prior service credits | — | — | — | (1.4 | ) | 0.3 | (1.1 | ) | (1.9 | ) | 0.4 | (1.5 | ) | |||||||||||||||||||||||
| Net curtailment gain and settlement loss | — | — | — | (3.7 | ) | 0.7 | (3.0 | ) | — | — | — | |||||||||||||||||||||||||
| Total other comprehensive (loss) income | $ | (43.6 | ) | $ | 1.4 | $ | (42.2 | ) | $ | 47.3 | $ | (0.2 | ) | $ | 47.1 | $ | (35.3 | ) | $ | 1.7 | $ | (33.6 | ) | |||||||||||||
| Total comprehensive income | $ | (699.6 | ) | $ | 566.4 | $ | 509.6 | |||||||||||||||||||||||||||||
| (in millions, except par value per share amount) | February 2, 2019 | February 3, 2018 | Notes | |||||||
| Assets | 2 | |||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 195.4 | $ | 225.1 | 1 | |||||
| Accounts receivable, held for sale | 4.2 | — | ||||||||
| Accounts receivable, net | 19.5 | 692.5 | 14 | |||||||
| Other receivables | 72.5 | 87.2 | ||||||||
| Other current assets | 171.5 | 158.2 | ||||||||
| Income taxes | 5.8 | 2.6 | ||||||||
| Inventories | 2,386.9 | 2,280.5 | 15 | |||||||
| Total current assets | 2,855.8 | 3,446.1 | ||||||||
| Non-current assets: | ||||||||||
| Property, plant and equipment, net | 800.5 | 877.9 | 16 | |||||||
| Goodwill | 296.6 | 821.7 | 17 | |||||||
| Intangible assets, net | 265.0 | 481.5 | 17 | |||||||
| Other assets | 150.6 | 171.2 | ||||||||
| Deferred tax assets | 21.0 | 1.4 | 12 | |||||||
| Retirement benefit asset | 30.6 | 39.8 | 21 | |||||||
| Total assets | $ | 4,420.1 | $ | 5,839.6 | ||||||
| Liabilities and Shareholders’ equity | ||||||||||
| Current liabilities: | ||||||||||
| Loans and overdrafts | $ | 78.8 | $ | 44.0 | 22 | |||||
| Accounts payable | 153.7 | 237.0 | ||||||||
| Accrued expenses and other current liabilities | 502.8 | 448.0 | 23 | |||||||
| Deferred revenue | 270.0 | 288.6 | 3 | |||||||
| Income taxes | 27.7 | 19.6 | ||||||||
| Total current liabilities | 1,033.0 | 1,037.2 | ||||||||
| Non-current liabilities: | ||||||||||
| Long-term debt | 649.6 | 688.2 | 22 | |||||||
| Other liabilities | 224.1 | 239.6 | 24 | |||||||
| Deferred revenue | 696.5 | 668.9 | 3 | |||||||
| Deferred tax liabilities | — | 92.3 | 12 | |||||||
| Total liabilities | 2,603.2 | 2,726.2 | ||||||||
| Commitments and contingencies | 26 | |||||||||
| Series A redeemable convertible preferred shares of $0.01 par value: 500 shares authorized, 0.625 shares outstanding | 615.3 | 613.6 | 8 | |||||||
| Shareholders’ equity: | ||||||||||
| Common shares of $0.18 par value: authorized 500 shares, 51.9 shares outstanding (2018: 60.5 outstanding) | 12.6 | 15.7 | 9 | |||||||
| Additional paid-in capital | 236.5 | 290.2 | ||||||||
| Other reserves | 0.4 | 0.4 | ||||||||
| Treasury shares at cost: 18.1 shares (2018: 26.7 shares) | (1,027.3 | ) | (1,942.1 | ) | 9 | |||||
| Retained earnings | 2,282.2 | 4,396.2 | 9 | |||||||
| Accumulated other comprehensive loss | (302.8 | ) | (260.6 | ) | 11 | |||||
| Total shareholders’ equity | 1,201.6 | 2,499.8 | ||||||||
| Total liabilities, redeemable convertible preferred shares and shareholders’ equity | $ | 4,420.1 | $ | 5,839.6 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
61
SIGNET JEWELERS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWSBALANCE SHEETS
| (in millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | (657.4 | ) | $ | 519.3 | $ | 543.2 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 183.6 | 203.4 | 188.8 | ||||||||
| Amortization of unfavorable leases and contracts | (7.9 | ) | (13.0 | ) | (19.7 | ) | |||||
| Pension benefit | (0.8 | ) | (3.5 | ) | (1.6 | ) | |||||
| Share-based compensation | 16.5 | 16.1 | 8.0 | ||||||||
| Deferred taxation | (105.6 | ) | (33.4 | ) | 27.7 | ||||||
| Excess tax benefit from exercise of share awards | — | — | (2.4 | ) | |||||||
| Amortization of debt discount and issuance costs | 2.0 | 3.7 | 2.8 | ||||||||
| Credit transaction, net | 160.4 | (30.9 | ) | — | |||||||
| Goodwill and intangible impairments | 735.4 | — | — | ||||||||
| Restructuring charges | 84.9 | — | — | ||||||||
| Other non-cash movements | (4.6 | ) | 2.4 | 0.4 | |||||||
| Changes in operating assets and liabilities: | |||||||||||
| Decrease (increase) in accounts receivable | 18.1 | 242.1 | (102.7 | ) | |||||||
| Decrease in accounts receivable held for sale | 27.6 | — | — | ||||||||
| Proceeds from sale of in-house finance receivables | 445.5 | 952.5 | — | ||||||||
| Decrease (increase) in other assets and other receivables | 0.7 | (6.0 | ) | (6.9 | ) | ||||||
| Decrease (increase) in inventories | (194.3 | ) | 210.9 | (9.7 | ) | ||||||
| Decrease in accounts payable | (78.5 | ) | (51.4 | ) | (7.0 | ) | |||||
| Increase (decrease) in accrued expenses and other liabilities | 55.9 | 3.9 | (21.8 | ) | |||||||
| Increase in deferred revenue | 9.7 | 10.0 | 43.6 | ||||||||
| Increase (decrease) in income taxes payable | 10.9 | (82.4 | ) | 38.9 | |||||||
| Pension plan contributions | (4.4 | ) | (3.2 | ) | (3.3 | ) | |||||
| Net cash provided by operating activities | 697.7 | 1,940.5 | 678.3 | ||||||||
| Investing activities | |||||||||||
| Purchase of property, plant and equipment | (133.5 | ) | (237.4 | ) | (278.0 | ) | |||||
| Proceeds from sale of assets | 5.5 | — | — | ||||||||
| Purchase of available-for-sale securities | (0.6 | ) | (2.4 | ) | (10.4 | ) | |||||
| Proceeds from sale of available-for-sale securities | 9.6 | 2.2 | 10.0 | ||||||||
| Acquisition of R2Net Inc., net of cash acquired | — | (331.8 | ) | — | |||||||
| Net cash used in investing activities | (119.0 | ) | (569.4 | ) | (278.4 | ) | |||||
| Financing activities | |||||||||||
| Dividends paid on common shares | (79.0 | ) | (76.5 | ) | (75.6 | ) | |||||
| Dividends paid on redeemable convertible preferred shares | (31.2 | ) | (34.7 | ) | — | ||||||
| Repurchase of common shares | (485.0 | ) | (460.0 | ) | (1,000.0 | ) | |||||
| Proceeds from issuance of redeemable convertible preferred shares, net of issuance costs | — | — | 611.3 | ||||||||
| Proceeds from term and bridge loans | — | 350.0 | — | ||||||||
| Repayments of term and bridge loans | (31.3 | ) | (372.3 | ) | (16.4 | ) | |||||
| Proceeds from securitization facility | — | 1,745.9 | 2,404.1 | ||||||||
| Repayments of securitization facility | — | (2,345.9 | ) | (2,404.1 | ) | ||||||
| Proceeds from revolving credit facility | 787.0 | 814.0 | 1,270.0 | ||||||||
| Repayments of revolving credit facility | (787.0 | ) | (870.0 | ) | (1,214.0 | ) | |||||
| Repayments of bank overdrafts | 25.9 | (0.1 | ) | (10.2 | ) | ||||||
| Other financing activities | (2.1 | ) | (4.0 | ) | (3.3 | ) | |||||
| Net cash used in financing activities | (602.7 | ) | (1,253.6 | ) | (438.2 | ) | |||||
| Cash and cash equivalents at beginning of period | 225.1 | 98.7 | 137.7 | ||||||||
| Increase (decrease) in cash and cash equivalents | (24.0 | ) | 117.5 | (38.3 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (5.7 | ) | 8.9 | (0.7 | ) | ||||||
| Cash and cash equivalents at end of period | $ | 195.4 | $ | 225.1 | $ | 98.7 | |||||
| Non-cash investing activities: | |||||||||||
| Capital expenditures in accounts payable | $ | 5.6 | $ | 7.0 | $ | 9.2 | |||||
| Supplemental cash flow information: | |||||||||||
| Interest paid | $ | 39.1 | $ | 50.2 | $ | 47.1 | |||||
| Income taxes paid | $ | 44.8 | $ | 122.3 | $ | 104.0 | |||||
| (in millions, except par value per share amount) | January 29, 2022 | January 30, 2021 | Notes | ||||||||||||||
| Assets | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 1,418.3 | $ | 1,172.5 | 1 | ||||||||||||
| Accounts receivable, net | 19.9 | 88.7 | 14 | ||||||||||||||
| Other current assets | 208.6 | 236.6 | |||||||||||||||
| Income taxes | 23.2 | 51.7 | |||||||||||||||
| Inventories | 2,060.4 | 2,032.5 | 15 | ||||||||||||||
| Total current assets | 3,730.4 | 3,582.0 | |||||||||||||||
| Non-current assets: | |||||||||||||||||
| Property, plant and equipment, net | 575.9 | 605.5 | 16 | ||||||||||||||
| Operating lease right-of-use assets | 1,206.6 | 1,362.2 | 18 | ||||||||||||||
| Goodwill | 484.6 | 238.0 | 19 | ||||||||||||||
| Intangible assets, net | 314.2 | 179.0 | 19 | ||||||||||||||
| Other assets | 226.1 | 195.8 | |||||||||||||||
| Deferred tax assets | 37.3 | 16.4 | 11 | ||||||||||||||
| Total assets | $ | 6,575.1 | $ | 6,178.9 | |||||||||||||
| Liabilities, Redeemable convertible preferred shares, and Shareholders’ equity | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Accounts payable | $ | 899.8 | $ | 812.6 | |||||||||||||
| Accrued expenses and other current liabilities | 501.6 | 494.1 | 25 | ||||||||||||||
| Deferred revenue | 341.3 | 288.7 | 3 | ||||||||||||||
| Operating lease liabilities | 300.0 | 377.3 | 18 | ||||||||||||||
| Income taxes | 28.0 | 26.0 | |||||||||||||||
| Total current liabilities | 2,070.7 | 1,998.7 | |||||||||||||||
| Non-current liabilities: | |||||||||||||||||
| Long-term debt | 147.1 | 146.7 | 24 | ||||||||||||||
| Operating lease liabilities | 1,005.1 | 1,147.3 | 18 | ||||||||||||||
| Other liabilities | 117.6 | 111.1 | 26 | ||||||||||||||
| Deferred revenue | 857.6 | 783.3 | 3 | ||||||||||||||
| Deferred tax liabilities | 160.9 | 159.2 | 11 | ||||||||||||||
| Total liabilities | 4,359.0 | 4,346.3 | |||||||||||||||
| Commitments and contingencies | 0 | 0 | 28 | ||||||||||||||
| Series A redeemable convertible preferred shares of $0.01 par value: 500 shares authorized, 0.625 shares outstanding | 652.1 | 642.3 | 7 | ||||||||||||||
| Shareholders’ equity: | |||||||||||||||||
Common shares of $0.18 par value: authorized 500 shares, 49.9 shares outstanding (2021: 52.3 shares outstanding) | 12.6 | 12.6 | 8 | ||||||||||||||
| Additional paid-in capital | 231.2 | 258.8 | |||||||||||||||
| Other reserves | 0.4 | 0.4 | |||||||||||||||
| Treasury shares at cost: 20.1 shares (2021: 17.7 shares) | (1,206.7) | (980.2) | 8 | ||||||||||||||
| Retained earnings | 2,877.4 | 2,189.2 | |||||||||||||||
| Accumulated other comprehensive loss | (350.9) | (290.5) | 10 | ||||||||||||||
| Total shareholders’ equity | 1,564.0 | 1,190.3 | |||||||||||||||
| Total liabilities, redeemable convertible preferred shares and shareholders’ equity | $ | 6,575.1 | $ | 6,178.9 | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
62
SIGNET JEWELERS LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYCASH FLOWS
| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income (loss) | $ | 769.9 | $ | (15.2) | $ | 105.5 | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 163.5 | 176.0 | 178.0 | ||||||||||||||
| Amortization of unfavorable contracts | (3.3) | (5.4) | (5.5) | ||||||||||||||
| Share-based compensation | 45.8 | 14.5 | 16.9 | ||||||||||||||
| Deferred taxation | 0.1 | 141.8 | 21.5 | ||||||||||||||
| Asset impairments | 1.5 | 159.0 | 47.7 | ||||||||||||||
| Restructuring charges | — | 14.7 | 25.9 | ||||||||||||||
| Net loss (gain) on extinguishment of debt | — | 0.4 | (6.2) | ||||||||||||||
| Other non-cash movements | 4.8 | 0.3 | (4.3) | ||||||||||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||||||||
| Decrease (increase) in accounts receivable | 12.4 | (50.1) | (15.2) | ||||||||||||||
| Proceeds from sale of in-house finance receivables | 81.3 | — | — | ||||||||||||||
| (Increase) decrease in other assets and other receivables | (39.9) | 181.9 | (184.2) | ||||||||||||||
| Decrease in inventories | 198.3 | 308.0 | 48.8 | ||||||||||||||
| Increase in accounts payable | 35.7 | 577.8 | 77.2 | ||||||||||||||
| (Decrease) increase in accrued expenses and other liabilities | (30.1) | (185.8) | 232.9 | ||||||||||||||
| Change in operating lease assets and liabilities | (64.1) | 31.2 | (9.4) | ||||||||||||||
| Increase in deferred revenue | 100.5 | 73.1 | 30.8 | ||||||||||||||
| Changes in income tax receivable and payable | (6.7) | (45.5) | 0.6 | ||||||||||||||
| Pension plan contributions | (12.4) | (4.4) | (5.3) | ||||||||||||||
| Net cash provided by operating activities | 1,257.3 | 1,372.3 | 555.7 | ||||||||||||||
| Investing activities | |||||||||||||||||
| Purchase of property, plant and equipment | (129.6) | (83.0) | (136.3) | ||||||||||||||
| Proceeds from sale of assets | — | — | 0.5 | ||||||||||||||
| Purchase of available-for-sale securities | (1.0) | — | (13.3) | ||||||||||||||
| Proceeds from sale of available-for-sale securities | 3.7 | 5.2 | 8.3 | ||||||||||||||
| Acquisitions, net of cash acquired | (515.8) | — | — | ||||||||||||||
| Net cash used in investing activities | (642.7) | (77.8) | (140.8) | ||||||||||||||
| Financing activities | |||||||||||||||||
| Dividends paid on common shares | (19.0) | (19.4) | (77.4) | ||||||||||||||
| Dividends paid on redeemable convertible preferred shares | (24.6) | (7.8) | (31.2) | ||||||||||||||
| Repurchase of common shares | (311.8) | — | — | ||||||||||||||
| Proceeds from term loans | — | — | 100.0 | ||||||||||||||
| Repayments of term loans | — | (100.0) | (294.9) | ||||||||||||||
| Settlement of Senior Notes, including third party fees | — | — | (241.5) | ||||||||||||||
| Proceeds from revolving credit facilities | — | 900.0 | 858.3 | ||||||||||||||
| Repayments of revolving credit facilities | — | (1,170.0) | (588.3) | ||||||||||||||
| Payment of debt issuance costs | (3.9) | — | (9.3) | ||||||||||||||
| Increase (decrease) of bank overdrafts | — | (87.4) | 47.5 | ||||||||||||||
| Other financing activities | (7.3) | (14.0) | (0.2) | ||||||||||||||
| Net cash used in financing activities | (366.6) | (498.6) | (237.0) | ||||||||||||||
| Cash and cash equivalents at beginning of period | 1,172.5 | 374.5 | 195.4 | ||||||||||||||
| Increase in cash and cash equivalents | 248.0 | 795.9 | 177.9 | ||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (2.2) | 2.1 | 1.2 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 1,418.3 | $ | 1,172.5 | $ | 374.5 | |||||||||||
| (in millions) | Common shares at par value | Additional paid-in capital | Other reserves | Treasury shares | Retained earnings | Accumulated other comprehensive (loss) income | Total shareholders’ equity | ||||||||||||||||||||
| Balance at January 30, 2016 | $ | 15.7 | $ | 279.9 | $ | 0.4 | $ | (495.8 | ) | $ | 3,534.6 | $ | (274.1 | ) | $ | 3,060.7 | |||||||||||
| Net income (loss) | — | — | — | — | 543.2 | — | 543.2 | ||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (33.6 | ) | (33.6 | ) | ||||||||||||||||||
| Dividends on common shares | — | — | — | — | (75.9 | ) | — | (75.9 | ) | ||||||||||||||||||
| Dividends on redeemable convertible preferred shares | — | — | — | — | (11.9 | ) | — | (11.9 | ) | ||||||||||||||||||
| Repurchase of common shares | — | — | — | (1,000.0 | ) | — | — | (1,000.0 | ) | ||||||||||||||||||
| Net settlement of equity based awards | — | (7.2 | ) | — | (1.1 | ) | 5.9 | — | (2.4 | ) | |||||||||||||||||
| Share options exercised | — | — | — | 2.1 | — | — | 2.1 | ||||||||||||||||||||
| Share-based compensation expense | — | 8.0 | — | — | — | — | 8.0 | ||||||||||||||||||||
| Balance at January 28, 2017 | 15.7 | 280.7 | 0.4 | (1,494.8 | ) | 3,995.9 | (307.7 | ) | 2,490.2 | ||||||||||||||||||
| Net income (loss) | — | — | — | — | 519.3 | — | 519.3 | ||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 47.1 | 47.1 | ||||||||||||||||||||
| Dividends on common shares | — | — | — | — | (77.5 | ) | — | (77.5 | ) | ||||||||||||||||||
| Dividends on redeemable convertible preferred shares | — | — | — | — | (32.9 | ) | — | (32.9 | ) | ||||||||||||||||||
| Repurchase of common shares | — | — | — | (460.0 | ) | — | — | (460.0 | ) | ||||||||||||||||||
| Net settlement of equity based awards | — | (6.5 | ) | — | 12.3 | (8.6 | ) | — | (2.8 | ) | |||||||||||||||||
| Share options exercised | — | (0.1 | ) | — | 0.4 | — | — | 0.3 | |||||||||||||||||||
| Share-based compensation expense | — | 16.1 | — | — | — | — | 16.1 | ||||||||||||||||||||
| Balance at February 3, 2018 | 15.7 | 290.2 | 0.4 | (1,942.1 | ) | 4,396.2 | (260.6 | ) | 2,499.8 | ||||||||||||||||||
Impact from adoption of new accounting pronouncements (1) | — | — | — | — | (15.7 | ) | (0.8 | ) | (16.5 | ) | |||||||||||||||||
| Net income (loss) | — | — | — | — | (657.4 | ) | — | (657.4 | ) | ||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (41.4 | ) | (41.4 | ) | ||||||||||||||||||
| Dividends on common shares | — | — | — | — | (79.4 | ) | — | (79.4 | ) | ||||||||||||||||||
| Dividends on redeemable convertible preferred shares | — | — | — | — | (32.9 | ) | — | (32.9 | ) | ||||||||||||||||||
| Repurchase of common shares | — | — | — | (485.0 | ) | — | — | (485.0 | ) | ||||||||||||||||||
| Treasury share retirements | (3.1 | ) | (58.4 | ) | — | 1,391.0 | (1,329.5 | ) | — | — | |||||||||||||||||
| Net settlement of equity based awards | — | (11.8 | ) | — | 8.8 | 0.9 | — | (2.1 | ) | ||||||||||||||||||
| Share-based compensation expense | — | 16.5 | — | — | — | — | 16.5 | ||||||||||||||||||||
| Balance at February 2, 2019 | $ | 12.6 | $ | 236.5 | $ | 0.4 | $ | (1,027.3 | ) | $ | 2,282.2 | $ | (302.8 | ) | $ | 1,201.6 | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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SIGNET JEWELERS LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| (in millions) | Common shares at par value | Additional paid-in capital | Other reserves | Treasury shares | Retained earnings | Accumulated other comprehensive income (loss) | Total shareholders’ equity | ||||||||||||||||||||||||||||||||||
| Balance at February 2, 2019 | $12.6 | $236.5 | $ | 0.4 | $ | (1,027.3) | $2,282.2 | $ | (302.8) | $ | 1,201.6 | ||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 105.5 | — | 105.5 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 9.0 | 9.0 | ||||||||||||||||||||||||||||||||||
| Dividends on common shares | — | — | — | — | (77.4) | — | (77.4) | ||||||||||||||||||||||||||||||||||
| Dividends on redeemable convertible preferred shares | — | — | — | — | (32.9) | — | (32.9) | ||||||||||||||||||||||||||||||||||
| Net settlement of equity based awards | — | (8.0) | — | 42.4 | (34.5) | — | (0.1) | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | 16.9 | — | — | — | — | 16.9 | ||||||||||||||||||||||||||||||||||
| Balance at February 1, 2020 | $12.6 | $245.4 | $ | 0.4 | $ | (984.9) | $2,242.9 | $ | (293.8) | $ | 1,222.6 | ||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (15.2) | — | (15.2) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 3.3 | 3.3 | ||||||||||||||||||||||||||||||||||
| Dividends on redeemable convertible preferred shares | — | — | — | — | (33.5) | — | (33.5) | ||||||||||||||||||||||||||||||||||
| Net settlement of equity based awards | — | (1.1) | — | 4.7 | (5.0) | — | (1.4) | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | 14.5 | — | — | — | — | 14.5 | ||||||||||||||||||||||||||||||||||
| Balance at January 30, 2021 | $12.6 | $258.8 | $ | 0.4 | $ | (980.2) | $2,189.2 | $ | (290.5) | $ | 1,190.3 | ||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 769.9 | — | 769.9 | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (60.4) | (60.4) | ||||||||||||||||||||||||||||||||||
| Dividends on common shares | — | — | — | — | (28.0) | — | (28.0) | ||||||||||||||||||||||||||||||||||
| Dividends on redeemable convertible preferred shares | — | — | — | — | (34.5) | — | (34.5) | ||||||||||||||||||||||||||||||||||
| Repurchase of common shares | — | (50.0) | — | (261.8) | — | — | (311.8) | ||||||||||||||||||||||||||||||||||
| Net settlement of equity based awards | — | (23.4) | — | 35.3 | (19.2) | — | (7.3) | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | 45.8 | — | — | — | — | 45.8 | ||||||||||||||||||||||||||||||||||
| Balance at January 29, 2022 | $12.6 | $231.2 | $ | 0.4 | $ | (1,206.7) | $2,877.4 | $ | (350.9) | $ | 1,564.0 | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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SIGNET JEWELERS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and summary of significant accounting policies
Signet Jewelers Limited (“Signet” or the “Company”), a holding company incorporated in Bermuda, is the world’s largest retailer of diamond jewelry. The Company operates through its 100% owned subsidiaries with sales primarily in the United States (“US”), United Kingdom (“UK”) and Canada. During the first quarter of Fiscal 2019, the Company realignedSignet manages its organizational structure. The new structure is expected to allow for further integration of operational and product development processes and support growth strategies. In accordance with this organizational change, beginning with quarterly reporting for the 13 weeks ended May 5, 2018, the Company identified threebusiness as 3 reportable segments as follows:segments: North America, which consists of the legacy Sterling Jewelers and Zale division; International, which consists of the legacy UK Jewelry division; and Other. The “Other” reportable segment consists of all non-reportable segments, including subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones and unallocated corporate administrative functions.stones. See Note 65 for additional discussion of the Company’s reportable segments.
Signet’s sales arebusiness is seasonal, with the fourth quarter accounting for approximately 35-40% of annual sales, with December being by far the highest volume monthas well as accounts for a substantial portion of the year.annual operating profit. The “Holiday Season” consists of results for the months of November and December. As a resultDecember, with December being the highest volume month of our transformation initiatives, we anticipate our operating profit will be almost entirely generated in the fourth quarter.year.
The Company has evaluated and determined that there were no additional events andor transactions subsequent to January 29, 2022 for potential recognition or disclosure through the date the consolidated financial statements were issued. There are no material related party transactions. The following accounting policies have been applied consistently in the preparation of the Company’s consolidated financial statements.
(a) Basis of preparation
The consolidated financial statements of Signet are prepared in accordance with US generally accepted accounting principles (“US GAAP” or “GAAP”) and include the results for the 52 week period ended week period ended February 2, 2019January 29, 2022 (“Fiscal 2019”2022”), as Signet’s fiscal year ends on the Saturday nearest to January 31. The comparative periods are for the 5352 week period ended week period ended February 3, 2018January 30, 2021 (“Fiscal 2018”2021”) and the 52 week period ended week period ended January 28, 2017February 1, 2020 (“Fiscal 2017”2020”). Intercompany transactions and balances have been eliminated in consolidation. Related to the adoption of new accounting pronouncements disclosed in Note 2 and the change in segments disclosed in Note 6, Signet has reclassified certain prior year amounts to conform to the current year presentation.
(b) Risks and uncertainties - COVID-19
In December 2019, a novel coronavirus (“COVID-19”) was identified in Wuhan, China. As a result, the Company experienced significant disruption to its business, specifically in its retail store operations through temporary closures during the first half of Fiscal 2021. By the end of the third quarter of Fiscal 2021, the Company had re-opened substantially all of its stores. However, during the fourth quarter of Fiscal 2021, both the UK and certain Canadian provinces re-established mandated temporary closure of non-essential businesses. The UK stores began to reopen in April 2021, while the Canadian stores began reopening in the second quarter of Fiscal 2022.
While there has been no significant impact to the Company’s consolidated financial statements during Fiscal 2022, the full extent and duration of the impact of COVID-19 on the Company’s operations and financial performance is currently unknown and depends on future developments that are uncertain and unpredictable, including the duration and possible resurgence of COVID-19 (including through variants), the success of the vaccine rollout globally, its impact on the Company’s global supply chain, and the uncertainty of customer behavior and potential shifts in discretionary spending. The Company will continue to evaluate the impact of COVID-19 on its business, results of operations and cash flows throughout Fiscal 2023, including the potential impacts on various estimates and assumptions inherent in the preparation of the consolidated financial statements.
(c) Use of estimates
The preparation of these consolidated financial statements, in conformity with US GAAP and US Securities and Exchange Commission (“SEC”) regulations, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Estimates and assumptions are primarily made in relation to the valuation of accounts receivable,receivables, inventories, deferred revenue, derivatives, employee benefits, income taxes, contingencies, right-of-use assets and lease liabilities, asset impairments for goodwill, indefinite-lived intangible and long-lived assets and the depreciation and amortization of long-lived assets as well as accounting for business combinations.assets.
The financial position and operating results of certain foreign operations, including the International segment and the Canadian operations of the North America segment, are consolidated using the local currency as the functional currency. Assets and liabilities are translated at the rates of exchange on the consolidated balance sheet date, and revenues and expenses are translated at the monthly average rates of exchange during the period. Resulting translation gains or losses are included in the accompanying consolidated statements of shareholders’ equity as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains or losses resulting from foreign currency transactions are included within other operating income (loss) in the consolidated income statements of operations, whereas translation adjustments and gains or losses related to intercompany loans of a long-term investment nature are recognized as a component of AOCI.
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See Note 1110 for additional discussion ofinformation regarding the Company’s foreign currency translation.
See Note 3 for additional discussion of the Company’s revenue recognition.
Cost of sales includes merchandise costs, net of discounts and allowances, freight, processingallowances; distribution and distribution costs of moving merchandise from suppliers to distribution centerswarehousing costs; and stores inclusive of payroll, inventory shrinkage, store operating and occupancy costs, net bad debts and charges for late payments prior to credit outsourcing.costs. Store operating and occupancy costs include utilities, rent, real estate taxes, common area maintenance charges and depreciation. Distribution and warehousing costs including freight, processing, inventory shrinkage and related compensation and benefits.
Selling, general and administrative expenses include store staff and store administrative costs; centralized administrative expenses, including information technology and cost of in-house credit prior to the Company’s outsourcing initiatives and subsequentlytechnology; third-party credit costs;costs and credit loss expense; advertising and promotional costs and other operating expenses not specifically categorized elsewhere in the consolidated income statements.statements of operations.
Compensation and benefits costs included within cost of sales and selling, general and administrative expenses were as follows:totaled $1,447.7 million in Fiscal 2022 (Fiscal 2021: $996.1 million; Fiscal 2020: $1,196.6 million).
| (in millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||
| Wages and salaries | $ | 1,127.2 | $ | 1,140.3 | $ | 1,183.2 | |||||
| Payroll taxes | 90.3 | 93.8 | 96.5 | ||||||||
| Employee benefit plans | 17.2 | 13.0 | 19.3 | ||||||||
| Share-based compensation | 16.5 | 16.1 | 8.0 | ||||||||
| Total compensation and benefits | $ | 1,251.2 | $ | 1,263.2 | $ | 1,307.0 | |||||
The opening costs of new locations are expensed as incurred.incurred and included within selling, general and administrative expenses.
Advertising and promotional costs are expensed within selling, general and administrative expenses. Production costs are expensed at the first communication of the advertisements, while communication expenses are recognized each time the advertisement is communicated. For catalogs and circulars, costs are all expensed at the first date they can be viewed by the customer. Point of sale promotional material is expensed when first displayed in the stores. Gross advertising costs totaled $387.8$527.0 million in Fiscal 20192022 (Fiscal 2018: $360.52021: $343.0 million; Fiscal 2017: $380.62020: $388.9 million).
(i) Income taxes
Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are recognized by applying statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when it is more likely than not that someall or a portion or all of the deferred tax assets will not be realized, based on management’s evaluation of all available evidence, both positive and negative, including reversals of deferred tax liabilities, projected future taxable income and results of recent operations.
The Company does not recognize tax benefits related to positions taken on certain tax matters unless the position is more likely than not to be sustained upon examination by tax authorities. At any point in time, various tax years are subject to or are in the process of being audited by various taxing authorities. The Company records a reserve for uncertain tax positions, including interest and penalties. To the extent that management’s estimates of settlements change, or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made.
See Note 1211 for additional discussion of the Company’s income taxes.
(j) Cash and cash equivalents
Cash and cash equivalents are comprisedconsist of cash on hand, money market deposits and amounts placed with external fund managers with an original maturity of three months or less. Cash and cash equivalents are carried at cost which approximates fair value. In addition, receivables from third-party credit card issuers typically converted to cash within 5five days of the original sales transaction are considered cash equivalents.
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The following table summarizes the details of the Company’s cash and cash equivalents:
| (in millions) | January 29, 2022 | January 30, 2021 | |||||||||
| Cash and cash equivalents held in money markets and other accounts | $ | 1,362.4 | $ | 1,122.2 | |||||||
| Cash equivalents from third-party credit card issuers | 54.4 | 48.8 | |||||||||
| Cash on hand | 1.5 | 1.5 | |||||||||
| Total cash and cash equivalents | $ | 1,418.3 | $ | 1,172.5 | |||||||
| (in millions) | February 2, 2019 | February 3, 2018 | |||||
| Cash and cash equivalents held in money markets and other accounts | $ | 164.5 | $ | 182.6 | |||
| Cash equivalents from third-party credit card issuers | 29.1 | 40.5 | |||||
| Cash on hand | 1.8 | 2.0 | |||||
| Total cash and cash equivalents | $ | 195.4 | $ | 225.1 | |||
The Company’s supplemental cash flow information was as follows:
| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Non-cash investing activities: | |||||||||||||||||
| Capital expenditures in accounts payable | $ | 6.2 | $ | 1.2 | $ | 0.1 | |||||||||||
| Supplemental cash flow information: | |||||||||||||||||
| Interest paid | $ | 14.8 | $ | 30.5 | $ | 34.7 | |||||||||||
Income tax paid (refunded), net (1) | $ | 120.7 | $ | (176.0) | $ | 5.7 | |||||||||||
(1) Includes $183.4 million refunded under the CARES Act in Fiscal 2021. See Note 11 for further details.
(k) Accounts receivable
See Note 14 for additional discussion of the Company’s accounts receivables.receivable and current expected credit losses subsequent to the adoption of Accounting Standards Codification (“ASC”) 326 (as further described in Note 14).
(l) Inventories
Inventories are primarily held for resale and are valued at the lower of cost or net realizable value. Cost is determined using weighted-average cost, on a first-in first-out basis, for all inventories except for inventories held in the Company’s diamond sourcing operations, where cost is determined using specific identification. Cost includes charges directly related to bringing inventory to its present location and condition. Such charges would include warehousing, security, distribution and certain buying costs. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventory reserves are recorded for obsolete, slow moving or defective items and shrinkage. Inventory reserves for obsolete, slow moving or defective items are calculated as the difference between the cost of inventory and its estimated marketnet realizable value based on targeted inventory turn rates, future demand, management strategy and market conditions. Due to the inventory being primarily comprisedconsisting of precious stones and metals including gold, the age of the inventory has a limited impact on the estimated marketnet realizable value. Inventory reserves for shrinkage are estimated and recorded based on historical physical inventory results, expectations of future inventory losses and current inventory levels. Physical inventories are taken at least once annually for all store locations and distribution centers.
See Note 15 for additional discussion of the Company’s inventories.
(m) Vendor contributions
Contributions are received from vendors through various programs and arrangements including cooperative advertising. Where vendor contributions related to identifiable promotional events are received, contributions are matched against the costs of promotions. Vendor contributions received as general contributions and not related to specific promotional events are recognized as a reduction of inventory costs.
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(n) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation, amortization and impairment charges. Maintenance and repair costs are expensed as incurred. Depreciation and amortization are recognized on the straight-line method over the estimated useful lives of the related assets as follows:
| Buildings | Ranging from 30 – 40 years | |||||||
| Leasehold improvements | Remaining term of lease, not to exceed 10 years | |||||||
| Furniture and fixtures | Ranging from 3 – 10 years | |||||||
| Equipment and software | Ranging from 3 – | |||||||
Computer software purchased or developed for internal use is stated at cost less accumulated amortization. Signet’s policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, Signet also capitalizes certain payroll and payroll-related costs for employees directly associated with internal use computer projects. Amortization is charged on a straight-line basis over periods from three to fiveseven years.
See Note 16 for additional discussion of the Company’s property, plant and equipment.equipment, and Note 17 for the Company’s policy for long-lived asset impairment.
(o) Goodwill and intangibles
In a business combination, the Company estimates and records the fair value of all assets acquired and liabilities assumed, including identifiable intangible assets and liabilities acquired.liabilities. The fair value of these intangible assets and liabilities is estimated based on management’s assessment, including determinationselection of appropriate valuation techniquetechniques, inputs and considerationassumptions in the determination of any third party appraisals, when necessary.fair value. Significant estimates in valuing intangible assets and liabilities acquired include, but are not limited to, future expected cash flows associated with the acquired asset or liability, expected life and discount rates. The excess purchase price over the estimated fair values of the assets acquired and liabilities assumed is recognized as goodwill. Goodwill is recorded by the Company’s reporting units based on the acquisitions made by each.
Goodwill isand other indefinite-lived intangible assets, such as indefinite-lived trade names, are evaluated for impairment annually and more frequentlyas of the beginning of the fourth reporting period. Additionally, if indicators of impairment arise. In evaluating goodwill for impairment,events or conditions were to indicate the Company first assesses qualitative factors to determine whether it is more likely than not that the faircarrying value of a reporting unit is lessor an indefinite-lived intangible asset may be greater than its carryingfair value, (including goodwill). If the Company concludeswould evaluate the asset for impairment at that it is not more likely than not thattime. Impairment testing compares the fair value of a reporting unit is less than its carrying value, then no further testing is required. However, if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a goodwill impairment test is performed to identify a potential goodwill impairment and measure the amount of impairment to be recognized, if any. The impairment test involves estimating the fair value of all assets and liabilities of the reporting unit includingor other intangible assets with its fair value. When the impliedcarrying amount of the reporting unit or other intangible assets exceeds its fair value, of goodwill, through either estimated discounted future cash flows or market-based methodologies.an impairment charge is recorded.
Intangible assets with definite lives are amortized and reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. If the estimated undiscounted future cash flows related to the asset are less than the carrying amount, the Company recognizes an impairment charge equal to the difference between the carrying value and the estimated fair value, usually determined by the estimated discounted future cash flows of the asset.
See Note 1719 for additional discussion of the Company’s goodwill and intangibles.
(p) Derivatives and hedge accounting
The Company enters into various types of derivative instruments to mitigate certain risk exposures related to changes in commodity costs and foreign exchange rates. Derivative instruments are recorded in the consolidated balance sheets at fair value, as either assets or liabilities, with an offset to net income or other comprehensive income (“OCI”), depending on whether the derivative qualifies as an effective hedge.
If a derivative instrument meets certain criteria, the Company designates it may be designated as a cash flow hedge onwithin the datefiscal quarter it is entered into. For effective cash flow hedge transactions, the effective portion of the changes in fair value of the derivative instrument is recognized directly in equity as a component of AOCI and is recognized in the consolidated income statements of operations in the same period(s) and on the same financial statement line in which the hedged item affects net income. Amounts excluded from the effectiveness calculation and any ineffective portions of the change in fair value of the derivatives are recognized immediately in other operating income, net in the consolidated income statements. In addition, gainsGains and losses on derivatives that do not qualify for hedge accounting are recognized immediately in other operating income net.(loss).
In the normal course of business, the Company may terminate cash flow hedges prior to the occurrence of the underlying forecasted transaction. For cash flow hedges terminated prior to the occurrence of the underlying forecasted transaction, management monitors the probability of the associated forecasted cash flow transactions to assess whether any gain or loss recorded in AOCI should be immediately recognized in net income. Cash flows from derivative contracts are included in net cash provided by operating activities.
See Note 1921 for additional discussion of the Company’s derivatives and hedge activities.
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(q) Employee Benefitsbenefits
Signet also operates a defined contribution plan in the UK, and a defined contribution retirement savings plan in the US, and an executive deferred compensation plan in the US. Contributions made by Signet to these pensionbenefit arrangements are charged primarily to selling, general and administrative expenses in the consolidated income statements of operations as incurred.
See Note 2123 for additional discussion of the Company’s employee benefits.
(r) BorrowingDebt issuance costs
Borrowings include primarily interest-bearing bank loans accounts receivable securitization program and bank overdrafts. BorrowingDirect debt issuance costs on borrowings are capitalized and amortized into interest expense over the contractual term of the related loan.
See Note 2224 for additional discussion of the Company’s borrowingdebt issuance costs.
(s) Share-based compensation
Signet measures share-based compensation cost for awards classified as equity at the grant date based on the estimated fair value of the award and recognizes the cost as an expense on a straight-line basis (net of estimated forfeitures) over the requisite service period of employees. Certain share awards under the Company’s plans include a condition whereby vesting is contingent on growthCompany performance exceeding a given target, and therefore awards granted with this condition are considered to be performance-based awards.
Signet estimates fair value using a Black-Scholes model for awards granted under the Omnibus Plan and the binomial valuation model for awards granted under the Share Saving Plans. Deferred tax assets for awards that result in deductions on the income tax returns of subsidiaries are recorded by Signet based on the amount of compensation cost recognized and the subsidiaries’ statutory tax rate in the jurisdiction in which it will receive a deduction.
Share-based compensation is primarily recorded in selling, general and administrative expenses in the consolidated income statements alongof operations, consistent with the relevant salary cost.
See Note 2527 for additional discussion of the Company’s share-based compensation plans.
(t) Contingent liabilities
Provisions for contingent liabilities are recorded for probable losses when management is able to reasonably estimate the loss or range of loss. When it is reasonably possible that a contingent liability may result in a loss or additional loss, the range of the potential loss is disclosed.
See Note 2628 for additional discussion of the Company’s contingencies.
(u) Leases
Dividends on common shares are reflected as a reduction of retained earnings in the period in which they are formally declared by the Board of Directors (the “Board”). In addition, the cumulative dividends on preferred shares whether or not declared, are reflected as a reduction of retained earnings.earnings in the period in which they are declared by the Board, as are the deemed dividends resulting from the accretion of issuance costs related to the preferred shares.
See Note 7 and Note 8 for additional information related to the Company’s equity, including the preferred shares.
2. New accounting pronouncements
The following section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
New accounting pronouncements recently adopted during the period
In May 2014,October 2021, the FASB issued ASU No. 2014-09, “Revenue2021-08, Business Combinations (“Topic 805”): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 606).” The core principle of the guidance is This ASU requires that an entity shouldacquirer recognize and measure customer contract assets and liabilities in a business combination in accordance with Topic 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts, rather than under Topic 805. Under prior guidance with Topic 805, a liability for deferred revenue to depict the transfer of promised goods or services to customerswas generally recognized at fair value in an amount that reflects the considerationacquirer’s financial statements as if it represented a legal obligation. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. The
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Company elected to which the entity expects to be entitled in exchange for those goods or services.early adopt this ASU effective October 31, 2021 on a retrospective basis. The FASB has issued several updates to the standard that i) defer the original effective date; ii) clarify the application of principal versus agent guidance; iii) clarify the guidance on inconsequential and perfunctory promises and licensing; and iv) clarify the guidance on the de-recognition of non-financial assets. Signet adopted ASU No. 2014‑09 and related updates effective February 4, 2018 using the modified retrospective approach applied only to contracts not completed as of the date of adoption with no restatement of prior periods and by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of equity.
New accounting pronouncements issued but not yet adopted
There are no new accounting pronouncements issued that are expected to have a material impact to the Company asin future periods.
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3. Revenue recognition
The Company is finalizingfollowing tables provide the evaluation of the the impacts that the adoption of ASU No. 2016-02 will have on the consolidated financial statementsCompany’s total sales, disaggregated by banner, for Fiscal 2022, Fiscal 2021 and currently expects approximately $1.8 billion - $2.2 billion of lease liabilities to be establishedFiscal 2020:
| Fiscal 2022 | ||||||||||||||||||||||||||
| (in millions) | North America | International | Other | Consolidated | ||||||||||||||||||||||
| Sales by banner: | ||||||||||||||||||||||||||
| Kay | $ | 2,985.8 | $ | — | $ | — | $ | 2,985.8 | ||||||||||||||||||
| Zales | 1,624.8 | — | — | 1,624.8 | ||||||||||||||||||||||
| Jared | 1,326.3 | — | — | 1,326.3 | ||||||||||||||||||||||
| Banter by Piercing Pagoda | 553.4 | — | — | 553.4 | ||||||||||||||||||||||
Diamonds Direct (2) | 132.5 | — | — | 132.5 | ||||||||||||||||||||||
| James Allen | 422.8 | — | — | 422.8 | ||||||||||||||||||||||
| Peoples | 206.2 | — | — | 206.2 | ||||||||||||||||||||||
| International segment banners | — | 492.4 | — | 492.4 | ||||||||||||||||||||||
Other (1) | 13.0 | — | 68.8 | 81.8 | ||||||||||||||||||||||
| Total sales | $ | 7,264.8 | $ | 492.4 | $ | 68.8 | $ | 7,826.0 | ||||||||||||||||||
| Fiscal 2021 | ||||||||||||||||||||||||||
| (in millions) | North America | International | Other | Consolidated | ||||||||||||||||||||||
| Sales by banner: | ||||||||||||||||||||||||||
| Kay | $ | 2,008.6 | $ | — | $ | — | $ | 2,008.6 | ||||||||||||||||||
| Zales | 1,121.6 | — | — | 1,121.6 | ||||||||||||||||||||||
| Jared | 920.9 | — | — | 920.9 | ||||||||||||||||||||||
| Banter by Piercing Pagoda | 337.5 | — | — | 337.5 | ||||||||||||||||||||||
| James Allen | 301.4 | — | — | 301.4 | ||||||||||||||||||||||
| Peoples | 150.9 | — | — | 150.9 | ||||||||||||||||||||||
| International segment banners | — | 355.9 | — | 355.9 | ||||||||||||||||||||||
Other (1) | — | — | 30.1 | 30.1 | ||||||||||||||||||||||
| Total sales | $ | 4,840.9 | $ | 355.9 | $ | 30.1 | $ | 5,226.9 | ||||||||||||||||||
| Fiscal 2020 | ||||||||||||||||||||||||||
| (in millions) | North America | International | Other | Consolidated | ||||||||||||||||||||||
| Sales by banner: | ||||||||||||||||||||||||||
| Kay | $ | 2,414.0 | $ | — | $ | — | $ | 2,414.0 | ||||||||||||||||||
| Zales | 1,276.8 | — | — | 1,276.8 | ||||||||||||||||||||||
| Jared | 1,088.1 | — | — | 1,088.1 | ||||||||||||||||||||||
| Banter by Piercing Pagoda | 331.7 | — | — | 331.7 | ||||||||||||||||||||||
| James Allen | 250.6 | — | — | 250.6 | ||||||||||||||||||||||
| Peoples | 204.6 | — | — | 204.6 | ||||||||||||||||||||||
| International segment banners | — | 518.0 | — | 518.0 | ||||||||||||||||||||||
Other (1) | — | — | 53.3 | 53.3 | ||||||||||||||||||||||
| Total sales | $ | 5,565.8 | $ | 518.0 | $ | 53.3 | $ | 6,137.1 | ||||||||||||||||||
(1) Includes sales from Signet’s diamond sourcing initiative and right-of-use assets approximating this to be recognized upon adoption, dependent upon the lease portfolio and discount rates used onRocksbox.
(2)Includes Diamonds Direct sales since the date of adoption. The discount rates used will reflect the interest rates that the Company estimates it would have to pay to borrowacquisition on a collateralized basis over a similar termNovember 17, 2021. See Note 4 for an amount equal to the lease payments. The Company continues to work on the following items related to the adoptionfurther details..
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The following tables provide the Company’s total sales, disaggregated by major product, for Fiscal 2022, Fiscal 2021 and Fiscal 2020:
| Fiscal 2022 | |||||||||||||||||||||||
| (in millions) | North America | International | Other | Consolidated | |||||||||||||||||||
| Sales by product: | |||||||||||||||||||||||
| Bridal | $ | 3,087.6 | $ | 222.8 | $ | — | $ | 3,310.4 | |||||||||||||||
| Fashion | 3,130.1 | 92.7 | — | 3,222.8 | |||||||||||||||||||
| Watches | 241.8 | 157.8 | — | 399.6 | |||||||||||||||||||
Other (1) | 805.3 | 19.1 | 68.8 | 893.2 | |||||||||||||||||||
| Total sales | $ | 7,264.8 | $ | 492.4 | $ | 68.8 | $ | 7,826.0 | |||||||||||||||
| Fiscal 2021 | |||||||||||||||||||||||
| (in millions) | North America | International | Other | Consolidated | |||||||||||||||||||
| Sales by product: | |||||||||||||||||||||||
| Bridal | $ | 2,140.5 | $ | 166.4 | $ | — | $ | 2,306.9 | |||||||||||||||
| Fashion | 1,987.9 | 69.2 | — | 2,057.1 | |||||||||||||||||||
| Watches | 145.6 | 108.5 | — | 254.1 | |||||||||||||||||||
Other (1) | 566.9 | 11.8 | 30.1 | 608.8 | |||||||||||||||||||
| Total sales | $ | 4,840.9 | $ | 355.9 | $ | 30.1 | $ | 5,226.9 | |||||||||||||||
| Fiscal 2020 | |||||||||||||||||||||||
| (in millions) | North America | International | Other | Consolidated | |||||||||||||||||||
| Sales by product: | |||||||||||||||||||||||
| Bridal | $ | 2,403.4 | $ | 214.3 | $ | — | $ | 2,617.7 | |||||||||||||||
| Fashion | 2,131.0 | 110.5 | — | 2,241.5 | |||||||||||||||||||
| Watches | 214.9 | 169.1 | — | 384.0 | |||||||||||||||||||
Other (1) | 816.5 | 24.1 | 53.3 | 893.9 | |||||||||||||||||||
| Total sales | $ | 5,565.8 | $ | 518.0 | $ | 53.3 | $ | 6,137.1 | |||||||||||||||
(1) Other revenue primarily includes gift and other miscellaneous jewelry sales, extended service plans, repairs, subscriptions, and other miscellaneous non-jewelry sales.
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The following tables provide the Company’s total sales, disaggregated by channel, for Fiscal 2019,2022, Fiscal 20182021 and Fiscal 2017:2020:
| Fiscal 2022 | |||||||||||||||||||||||
| (in millions) | North America | International | Other | Consolidated | |||||||||||||||||||
| Sales by channel: | |||||||||||||||||||||||
| Store | $ | 5,867.9 | $ | 377.7 | $ | — | $ | 6,245.6 | |||||||||||||||
| eCommerce | 1,396.9 | 114.7 | — | 1,511.6 | |||||||||||||||||||
Other (1) | — | — | 68.8 | 68.8 | |||||||||||||||||||
| Total sales | $ | 7,264.8 | $ | 492.4 | $ | 68.8 | $ | 7,826.0 | |||||||||||||||
| Fiscal 2021 | |||||||||||||||||||||||
| (in millions) | North America | International | Other | Consolidated | |||||||||||||||||||
| Sales by channel: | |||||||||||||||||||||||
| Store | $ | 3,772.9 | $ | 238.9 | $ | — | $ | 4,011.8 | |||||||||||||||
| eCommerce | 1,068.0 | 117.0 | — | 1,185.0 | |||||||||||||||||||
Other (1) | — | — | 30.1 | 30.1 | |||||||||||||||||||
| Total sales | $ | 4,840.9 | $ | 355.9 | $ | 30.1 | $ | 5,226.9 | |||||||||||||||
| Fiscal 2020 | |||||||||||||||||||||||
| (in millions) | North America | International | Other | Consolidated | |||||||||||||||||||
| Sales by channel: | |||||||||||||||||||||||
| Store | $ | 4,880.2 | $ | 453.2 | $ | — | $ | 5,333.4 | |||||||||||||||
| eCommerce | 685.6 | 64.8 | — | 750.4 | |||||||||||||||||||
Other (1) | — | — | 53.3 | 53.3 | |||||||||||||||||||
| Total sales | $ | 5,565.8 | $ | 518.0 | $ | 53.3 | $ | 6,137.1 | |||||||||||||||
(1) Includes sales from Signet’s diamond sourcing initiative and Rocksbox.
The Company recognizes revenues when control of the promised goods and services are transferred to customers, in an amount that reflects the consideration expected to be received in exchange for those goods. Transfer of control generally occurs at the time merchandise is taken from a store, or upon receipt of the merchandise by a customer for an eCommerce shipment. The Company excludes all taxes assessed by government authorities and collected from a customer from its reported sales. The Company’s revenue streams and their respective accounting treatments are further discussed below.
Merchandise sales and repairs
Store sales are recognized when the customer receives and pays for the merchandise at the store with cash, private label credit card programs, a third-party credit card or a lease purchase option. For online sales shipped to customers, sales are recognized at the estimated time the customer has received the merchandise. Amounts related to shipping and handling that are billed to customers are reflected in sales and the related costs are reflected in cost of sales. Revenues on the sale of merchandise are reported net of anticipated returns and sales tax collected. Returns are estimated based on previous return rates experienced. Any deposits received from a customer for merchandise are deferred and recognized as revenue when the customer receives the merchandise. Revenues derived from providing replacement merchandise on behalf of insurance organizations are recognized upon receipt of the merchandise by the customer. Revenues on repair of merchandise are recognized when the service is complete and the customer collects the merchandise at the store.
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| Fiscal 2019 | |||||||||||||||
| (in millions) | North America | International | Other | Consolidated | |||||||||||
| Sales by product: | |||||||||||||||
| Bridal | $ | 2,478.6 | $ | 234.0 | $ | — | $ | 2,712.6 | |||||||
| Fashion | 2,128.1 | 126.3 | — | 2,254.4 | |||||||||||
| Watches | 238.2 | 190.9 | — | 429.1 | |||||||||||
Other(1) | 796.8 | 25.3 | 28.9 | 851.0 | |||||||||||
| Total sales | $ | 5,641.7 | $ | 576.5 | $ | 28.9 | $ | 6,247.1 | |||||||
| Fiscal 2018 | |||||||||||||||
| (in millions) | North America | International | Other | Consolidated | |||||||||||
| Sales by product: | |||||||||||||||
| Bridal | $ | 2,407.3 | $ | 247.3 | $ | — | $ | 2,654.6 | |||||||
| Fashion | 2,168.2 | 137.0 | — | 2,305.2 | |||||||||||
| Watches | 243.6 | 195.5 | — | 439.1 | |||||||||||
Other(1) | 796.1 | 36.9 | 21.1 | 854.1 | |||||||||||
| Total sales | $ | 5,615.2 | $ | 616.7 | $ | 21.1 | $ | 6,253.0 | |||||||
| Fiscal 2017 | |||||||||||||||
| (in millions) | North America | International | Other | Consolidated | |||||||||||
| Sales by product: | |||||||||||||||
| Bridal | $ | 2,429.0 | $ | 266.6 | $ | — | $ | 2,695.6 | |||||||
| Fashion | 2,190.8 | 150.9 | — | 2,341.7 | |||||||||||
| Watches | 263.0 | 199.6 | — | 462.6 | |||||||||||
Other(1) | 860.4 | 30.0 | 18.1 | 908.5 | |||||||||||
| Total sales | $ | 5,743.2 | $ | 647.1 | $ | 18.1 | $ | 6,408.4 | |||||||
| Fiscal 2019 | |||||||||||||||
| (in millions) | North America | International | Other(2) | Consolidated | |||||||||||
| Sales by channel: | |||||||||||||||
| Store | $ | 5,022.4 | $ | 513.4 | $ | — | $ | 5,535.8 | |||||||
eCommerce(1) | 619.3 | 63.1 | — | 682.4 | |||||||||||
| Other | — | — | 28.9 | 28.9 | |||||||||||
| Total sales | $ | 5,641.7 | $ | 576.5 | $ | 28.9 | $ | 6,247.1 | |||||||
| Fiscal 2018 | |||||||||||||||
| (in millions) | North America | International | Other(2) | Consolidated | |||||||||||
| Sales by channel: | |||||||||||||||
| Store | $ | 5,176.7 | $ | 557.5 | $ | — | $ | 5,734.2 | |||||||
eCommerce(1) | 438.5 | 59.2 | — | 497.7 | |||||||||||
| Other | — | — | 21.1 | 21.1 | |||||||||||
| Total sales | $ | 5,615.2 | $ | 616.7 | $ | 21.1 | $ | 6,253.0 | |||||||
| Fiscal 2017 | |||||||||||||||
| (in millions) | North America | International | Other(2) | Consolidated | |||||||||||
| Sales by channel: | |||||||||||||||
| Store | $ | 5,432.0 | $ | 595.2 | $ | — | $ | 6,027.2 | |||||||
eCommerce(1) | 311.2 | 51.9 | — | 363.1 | |||||||||||
| Other | — | — | 18.1 | 18.1 | |||||||||||
| Total sales | $ | 5,743.2 | $ | 647.1 | $ | 18.1 | $ | 6,408.4 | |||||||
Extended service plans (“ESP”)
The Company recognizes revenue related to ESP sales in proportion to when the expected costs will be incurred. The deferral periods for ESP sales are determined from patterns of claims costs, including estimates of future claims costs expected to be incurred. Management reviews the trends in historical claims to assess whether changes are required to the revenue and cost recognition rates utilized. The Company periodically refreshes its analysis of the claims patterns on at least an annual basis, or more often if circumstances dictate such a review is required (such as occurred as a result of the disruption from COVID-19). A significant change in either the overall claims pattern or the life over which the Company is expected to fulfil its obligation under the warranty, could result in material change to revenues. These changes have not had a material impact on revenue during Fiscal 2022, Fiscal 2021 or Fiscal 2020.
The North America segment sells ESP, subject to certain conditions, to perform repair work over the life of the product. Customers generally pay for ESP at the store or online at the time of merchandise sale. Revenue from the sale of the lifetime ESP is recognized consistent with the estimated patterns of claim costs expected to be incurred by the Company in connection with performing under the ESP obligations. Lifetime ESP revenue is deferred and recognized over a maximum of 14 years after the sale of the warranty contract. Although claims experience varies between the Company’s national banners, thereby resulting in different recognition rates, approximately 55% to 60% of revenue is recognized within the first two years on a weighted average basis.
Signet also sells warranty agreements (“ESP”)in the capacity of an agent on behalf of a third-party. The commission that Signet receives from the third-party is recognized at the time of sale less an estimate of cancellations based on historical experience.
Deferred selling costs
All direct costs associated with the sale of the ESP plans are deferred and amortized in proportion to the revenue recognized and disclosed as either other current assets or other assets in the consolidated balance sheets. These direct costs primarily include sales commissions and credit card fees. Amortization of deferred ESP selling costs is included within selling, general and administrative expenses in the consolidated statements of operations. Amortization of deferred ESP selling costs was $41.7 million, $26.3 million and $29.5 million in Fiscal 2022, and Fiscal 2021 and Fiscal 2020, respectively.
Unamortized deferred selling costs as of Fiscal 20192022 and Fiscal 20182021 were as follows:
| (in millions) | January 29, 2022 | January 30, 2021 | |||||||||
| Deferred selling costs | |||||||||||
| Other current assets | $ | 28.4 | $ | 26.2 | |||||||
| Other assets | 87.8 | 85.1 | |||||||||
| Total deferred selling costs | $ | 116.2 | $ | 111.3 | |||||||
| (in millions) | February 2, 2019 | February 3, 2018 | |||||
| Deferred ESP selling costs | |||||||
| Other current assets | $ | 23.8 | $ | 30.9 | |||
| Other assets | 75.4 | 89.5 | |||||
| Total deferred ESP selling costs | $ | 99.2 | $ | 120.4 | |||
Sales of consignment inventory are accounted for on a gross sales basis as the Company maintains control of the merchandise through the point of sale as well as provides independent advice, guidance and after-sales service to customers. Supplier products are selected at the discretion of the Company, and the Company is responsible for determining the selling price and for physical security of the products. The products sold from consignment inventory are similar in nature to other products that are sold to customers and are sold on the same terms.
Deferred revenue
Deferred revenue is comprisedconsists primarily of ESP and voucher promotions and other deferred revenue as follows:
| (in millions) | January 29, 2022 | January 30, 2021 | |||||||||
| ESP deferred revenue | $ | 1,116.5 | $ | 1,028.9 | |||||||
Other deferred revenue (1) | 82.4 | 43.1 | |||||||||
| Total deferred revenue | $ | 1,198.9 | $ | 1,072.0 | |||||||
| Disclosed as: | |||||||||||
| Current liabilities | $ | 341.3 | $ | 288.7 | |||||||
| Non-current liabilities | 857.6 | 783.3 | |||||||||
| Total deferred revenue | $ | 1,198.9 | $ | 1,072.0 | |||||||
(1) Other deferred revenue includes primarily revenue collected from customers for custom orders and eCommerce orders, for which control has not yet transferred to the customer.
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| (in millions) | February 2, 2019 | February 3, 2018 | |||||
| ESP deferred revenue | $ | 927.6 | $ | 916.1 | |||
| Voucher promotions and other | 38.9 | 41.4 | |||||
| Total deferred revenue | $ | 966.5 | $ | 957.5 | |||
| Disclosed as: | |||||||
| Current liabilities | $ | 270.0 | $ | 288.6 | |||
| Non-current liabilities | 696.5 | 668.9 | |||||
| Total deferred revenue | $ | 966.5 | $ | 957.5 | |||
| (in millions) | Fiscal 2022 | Fiscal 2021 | |||||||||
| ESP deferred revenue, beginning of period | $ | 1,028.9 | $ | 960.0 | |||||||
Plans sold (1) | 528.9 | 337.4 | |||||||||
Revenue recognized (2) | (441.3) | (268.5) | |||||||||
| ESP deferred revenue, end of period | $ | 1,116.5 | $ | 1,028.9 | |||||||
(1) Includes impact of foreign currency translation.
| (in millions) | Fiscal 2019 | Fiscal 2018 | |||||
| ESP deferred revenue, beginning of period | $ | 916.1 | $ | 905.6 | |||
Plans sold(1) | 395.0 | 409.3 | |||||
| Revenue recognized | (383.5 | ) | (398.8 | ) | |||
| ESP deferred revenue, end of period | $ | 927.6 | $ | 916.1 | |||
(2) During Fiscal 2018, Signet announced a strategic initiative2022 andFiscal 2021, the Company recognized sales of approximately $244.1 million and $163.5 million, respectively, related to outsource its North America private label credit card programs and selldeferred revenue that existed at the existing in-house finance receivables. Below is a summarybeginning of the transactionsyear in respect to ESP. Additionally, no ESP revenue was recognized beginning on March 23, 2020 due to the Company has entered intotemporary closure of the Company’s stores and service centers as a result of this strategic initiative:
4. Acquisitions
Rocksbox
On March 29, 2021, the Company recognized a beneficial interest assetacquired all of $10.2 million representing the present value of the cash flows the Company expects to receive under the economic profit sharing agreement related to the receivables sold. The gain upon recognition of the beneficial interest asset was recorded in credit transaction, net in the consolidated income statement during the third quarter of Fiscal 2018.
The results of R2NetRocksbox subsequent to the acquisition date are reported as a component of the results of the North America segment. See Note 6 for segment information. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results was not material.
On November 17, 2021, the acquisition methodCompany acquired all of accounting, the identifiableoutstanding shares of Diamonds Direct USA Inc., a Delaware corporation (“Diamonds Direct”) for cash consideration of $501.2 million, net of cash acquired of $14.2 million. Diamonds Direct is an off-mall, destination jeweler in the US, operating in 22 retail locations with a highly productive, efficient operating model with demonstrated growth and profitability which is expected to immediately contribute to Signet’s “Inspiring Brilliance” strategy to accelerate growth and expand the Company’s market in accessible luxury and bridal. Diamonds Direct’s strong value proposition, extensive bridal offering and customer-centric, high-touch shopping experience is a destination for younger, luxury-oriented bridal shoppers.
The information included herein has been prepared based on the allocation of the purchase price using estimates of the fair value and useful lives of assets acquired and liabilities assumed are recorded at their estimated fair values onwhich were determined by management using a combination of income and cost approaches, including the acquisition date, with the remaining unallocated netrelief from royalty method and comparable market prices. The purchase price recorded as goodwill. allocation is subject to further adjustment until all pertinent information regarding the assets and liabilities acquired are fully evaluated by the Company.
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The following table summarizespresents the estimated fair values identified forvalue of the assets acquired and liabilities assumed from Diamonds Direct at the date of acquisition:
| (in millions) | |||||
| Inventories | $ | 229.1 | |||
| Property, plant and equipment | 32.3 | ||||
| Right-of-use assets | 56.9 | ||||
| Intangible assets | 126.0 | ||||
| Other assets | 6.7 | ||||
| Identifiable assets acquired | 451.0 | ||||
| Accounts payable | 46.8 | ||||
| Deferred revenue | 26.1 | ||||
| Operating lease liabilities | 57.6 | ||||
| Deferred taxes | 33.6 | ||||
| Other liabilities | 27.6 | ||||
| Liabilities assumed | 191.7 | ||||
| Identifiable net assets acquired | 259.3 | ||||
| Goodwill | 241.9 | ||||
| Net assets acquired | $ | 501.2 | |||
The Company recorded acquired intangible assets of $126.0 million, consisting entirely of an indefinite-lived trade name.
Goodwill is calculated as the excess of the purchase price over the estimated fair values of the assets acquired and the liabilities assumed in the R2Net acquisition, as of September 12, 2017:
| (in millions) | Fair values | ||
| Cash and cash equivalents | $ | 47.3 | |
| Inventories | 12.1 | ||
| Other current assets | 9.7 | ||
| Property, plant and equipment | 3.5 | ||
| Intangible assets: | |||
| Trade name | 70.6 | ||
| Technology-related | 4.2 | ||
| Current liabilities | (42.4 | ) | |
| Deferred tax liabilities | (25.1 | ) | |
| Fair value of net assets acquired | 79.9 | ||
| Goodwill | 299.1 | ||
| Total consideration transferred | $ | 379.0 | |
In connection with the acquisition, the Company incurred $5.0 million of acquisition-related costs during Fiscal 2022, which were recorded as selling, general and administrative expenses in the consolidated statements of operations.
The results of Diamonds Direct subsequent to goodwill and intangible assets.the acquisition date are reported as a component of the North America reportable segment. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results was not material.
5. Segment information
Financial information for each of Signet’s reportable segments is presented in the tables below. Signet’s chief operating decision maker utilizes segment sales and operating income, after the elimination of any inter-segment transactions, to determine resource allocations and performance assessment measures. During the first quarter of Fiscal 2019, the Company realignedSignet aggregates operating segments with similar economic and operating characteristics. Signet manages its organizational structure. The new structure will allow for further integration of operational and product development processes and support growth strategies. In accordance with this organizational change, beginning with quarterly reporting for the 13 weeks ended May 5, 2018, the Company reported threebusiness as 3 reportable segments as follows:segments: North America, which consists of the legacy Sterling Jewelers and Zale division; International, which consists of the legacy UK Jewelry division; and Other. Signet’s sales are derived from the retailing of jewelry, watches, other products and services as generated through the management of its reportable segments. The Company allocates certain support center costs between operating segments, and the remainder of the unallocated costs are included with the corporate and unallocated expenses presented.
The North America reportable segment operates across the US and Canada. Its US stores operate nationally in malls and off-mall locations principally as Kay (Kay Jewelers and Kay Jewelers Outlet), Zales (Zales Jewelers and Zales Outlet), Jared (Jared The Galleria Of Jewelry and Jared Vault), Zales (Zales Jewelers and Zales Outlet) andDiamonds Direct, James Allen, Banter by Piercing Pagoda, which primarily operates through mall-based kiosks.kiosks, and Rocksbox. Its Canadian stores operate as the Peoples Jewellers store banner. The segment also operates a variety of mall-based regional banners, including Gordon’s Jewelers in the US and Mappins in Canada, and James Allen, which was acquired in the R2Net acquisition.
The International reportable segment operates stores in the UK, Republic of Ireland and Channel Islands. Its stores operate in shopping malls and off-mall locations (i.e. high street) principally under theas H.Samuel and Ernest Jones banners.Jones.
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The Other reportable segment consists of all non-reportable segments that are below the quantifiable threshold for separate disclosure as a reportable segment, including subsidiaries involved in the purchasing and conversion of rough diamonds to polished stonesstones.
| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Sales: | |||||||||||||||||
North America segment (1) | $ | 7,264.8 | $ | 4,840.9 | $ | 5,565.8 | |||||||||||
| International segment | 492.4 | 355.9 | 518.0 | ||||||||||||||
| Other segment | 68.8 | 30.1 | 53.3 | ||||||||||||||
| Total sales | $ | 7,826.0 | $ | 5,226.9 | $ | 6,137.1 | |||||||||||
| Operating income (loss): | |||||||||||||||||
North America segment (2) | $ | 981.4 | $ | 57.9 | $ | 284.9 | |||||||||||
International segment (3) | 14.4 | (43.3) | 9.0 | ||||||||||||||
Other segment (4) | (0.2) | (0.3) | (15.9) | ||||||||||||||
Corporate and unallocated expenses (5) | (92.2) | (72.0) | (119.7) | ||||||||||||||
| Total operating income (loss) | 903.4 | (57.7) | 158.3 | ||||||||||||||
| Interest expense | (16.9) | (32.0) | (35.6) | ||||||||||||||
| Other non-operating (loss) income | (2.1) | — | 7.0 | ||||||||||||||
| Income (loss) before income taxes | $ | 884.4 | $ | (89.7) | $ | 129.7 | |||||||||||
| Depreciation and amortization: | |||||||||||||||||
| North America segment | $ | 149.2 | $ | 163.7 | $ | 159.9 | |||||||||||
| International segment | 14.0 | 12.0 | 17.8 | ||||||||||||||
| Other segment | 0.3 | 0.3 | 0.3 | ||||||||||||||
| Total depreciation and amortization | $ | 163.5 | $ | 176.0 | $ | 178.0 | |||||||||||
| Capital additions: | |||||||||||||||||
| North America segment | $ | 112.6 | $ | 79.0 | $ | 128.3 | |||||||||||
| International segment | 16.6 | 4.0 | 8.0 | ||||||||||||||
| Other segment | 0.4 | — | — | ||||||||||||||
| Total capital additions | $ | 129.6 | $ | 83.0 | $ | 136.3 | |||||||||||
(1) Sales include sales of $206.2 million, $150.9 million and unallocated corporate administrative functions.$204.6 million generated by Canadian operations in Fiscal 2022, Fiscal 2021 and Fiscal 2020, respectively.
(2) Fiscal 2022 includes: 1) $5.4 million of cost of sales associated with the fair value step-up of inventory acquired in the Diamonds Direct acquisition; 2) $6.4 million of acquisition-related expenses related to Diamonds Direct and Rocksbox; 3) net asset impairment charges of $2.0 million; 4) $1.4 million of gains associated with the sale of customer in-house finance receivables; and 5) $1.0 million credit to restructuring expense, primarily related to adjustments to previously recognized restructuring liabilities.
Fiscal 2021 includes: 1) $1.6 million related to inventory charges recorded in conjunction with the Company’s restructuring activities; 2) $36.0 million primarily related to severance, professional fees and store closure costs recorded in conjunction with the Company’s restructuring activities; and 3) asset impairment charges of $136.7 million.
Fiscal 2020 includes: 1) $6.0 million related to inventory charges recorded in conjunction with the Company’s restructuring activities; 2) $42.1 million primarily related to severance, professional fees and store closure costs recorded in conjunction with the Company’s restructuring activities; and 3) asset impairment charges of $47.7 million.
See Note 4, Note 6, Note 13, Note 17 and Note 19 for additional information.
(3) Fiscal 2022 includes net asset impairment gains of $0.5 million.
Fiscal 2021 includes 1) $9.7 million primarily related to severance and store closure costs recorded in conjunction with the Company’s restructuring activities; and 2) asset impairment charges of $22.3 million.
Fiscal 2020 includes $7.0 million primarily related to severance and store closure costs recorded in conjunction with the Company’s restructuring activities.
See Note 6 and Note 17for additional information.
(4) Fiscal 2021 includes $0.2 million benefit recognized due to a change in inventory reserves previously recognized as part of the Company’s restructuring activities.
Fiscal 2020 includes $3.2 million related to inventory charges recorded in conjunction with the Company’s restructuring activities.
See Note 6 for additional information.
(5) Fiscal 2022 includes: 1) charges of $1.7 million related to the settlement of previously disclosed shareholder litigation matters; and 2) $2.3 million credit to restructuring expense primarily related to adjustments to previously recognized restructuring liabilities.
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| (in millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||
| Sales: | |||||||||||
North America segment(1) | $ | 5,641.7 | $ | 5,615.2 | $ | 5,743.2 | |||||
| International segment | 576.5 | 616.7 | 647.1 | ||||||||
| Other | 28.9 | 21.1 | 18.1 | ||||||||
| Total sales | $ | 6,247.1 | $ | 6,253.0 | $ | 6,408.4 | |||||
| Operating income (loss): | |||||||||||
North America segment(2) | $ | (621.1 | ) | $ | 656.1 | $ | 789.2 | ||||
International segment(3) | 12.9 | 33.1 | 45.6 | ||||||||
Other(4) | (156.4 | ) | (109.3 | ) | (71.6 | ) | |||||
| Total operating income (loss) | $ | (764.6 | ) | $ | 579.9 | $ | 763.2 | ||||
| Depreciation and amortization: | |||||||||||
| North America segment | $ | 165.8 | $ | 183.5 | $ | 166.4 | |||||
| International segment | 17.5 | 19.1 | 21.6 | ||||||||
| Other | 0.3 | 0.8 | 0.8 | ||||||||
| Total depreciation and amortization | $ | 183.6 | $ | 203.4 | $ | 188.8 | |||||
| Capital additions: | |||||||||||
| North America segment | $ | 123.9 | $ | 219.7 | $ | 252.2 | |||||
| International segment | 9.6 | 17.6 | 25.7 | ||||||||
| Other | — | 0.1 | 0.1 | ||||||||
| Total capital additions | $ | 133.5 | $ | 237.4 | $ | 278.0 | |||||
Fiscal 2020 includes: 1) charges of $33.2 million related to the settlement of previously disclosed shareholder litigation matters, inclusive of expected insurance proceeds; and 2) $20.8 million related to charges recorded in conjunction with the Company’s restructuring activities.
See Note 6 and Note 28 for additional information.
| (in millions) | January 29, 2022 | January 30, 2021 | |||||||||
| Total assets: | |||||||||||
| North America segment | $ | 5,540.1 | $ | 5,101.9 | |||||||
| International segment | 438.2 | 514.2 | |||||||||
| Other segment | 81.2 | 44.9 | |||||||||
| Corporate and unallocated | 515.6 | 517.9 | |||||||||
| Total assets | $ | 6,575.1 | $ | 6,178.9 | |||||||
Total long-lived assets (1): | |||||||||||
| North America segment | $ | 1,328.4 | $ | 978.1 | |||||||
| International segment | 43.4 | 41.6 | |||||||||
| Other segment | 2.9 | 2.8 | |||||||||
| Total long-lived assets | $ | 1,374.7 | $ | 1,022.5 | |||||||
(1) Includes property, plant and equipment; goodwill; and other intangible assets.
| (in millions) | February 2, 2019 | February 3, 2018 | |||||
| Total assets: | |||||||
| North America segment | $ | 3,943.0 | $ | 5,309.0 | |||
| International segment | 367.4 | 420.3 | |||||
| Other | 109.7 | 110.3 | |||||
| Total assets | $ | 4,420.1 | $ | 5,839.6 | |||
| Total long-lived assets: | |||||||
| North America segment | $ | 1,294.2 | $ | 2,095.5 | |||
| International segment | 64.5 | 78.3 | |||||
| Other | 3.4 | 7.3 | |||||
| Total long-lived assets | $ | 1,362.1 | $ | 2,181.1 | |||
| Total liabilities: | |||||||
| North America segment | $ | 1,753.5 | $ | 1,951.1 | |||
| International segment | 76.9 | 98.9 | |||||
| Other | 772.8 | 676.2 | |||||
| Total liabilities | $ | 2,603.2 | $ | 2,726.2 | |||
Signet Path to Brilliance Plan
During the first quarter of Fiscal 2019, Signet launched a three-year comprehensive transformation plan, the “Signet Path to Brilliance” plan (the “Plan”) intended to reposition the Company to be the OmniChannel jewelry category leader. TheRestructuring activities related to the Plan is expected to resultwere substantially completed in pre-tax charges in the range of $200 million - $220 million over the duration of the three-year plan of which $105 million - $115 million are expected to be cash charges.
Fiscal 2021. During Fiscal 2019,2022, Signet recorded credits to restructuring chargesexpense of $125.9$3.3 million, were recognized, primarily related to inventoryadjustments to previously recognized Plan liabilities.
Restructuring charges associated with discontinued brands and collections, professional fees for legalother Plan-related costs are classified in the consolidated statements of operations as follows:
| (in millions) | Statement of operations location | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | |||||||||||||||||||
| Inventory charges | Restructuring charges - cost of sales | $ | — | $ | 1.4 | $ | 9.2 | ||||||||||||||||
| Other Plan related expenses | Restructuring charges | (3.3) | 46.2 | 69.9 | |||||||||||||||||||
| Total Signet Path to Brilliance Plan expenses | $ | (3.3) | $ | 47.6 | $ | 79.1 | |||||||||||||||||
The composition of restructuring charges the Company incurred during Fiscal 2022, Fiscal 2021 and consulting services, severance, early lease termination costs and impairment of information technology assets related toFiscal 2020, as well as the Plan. cumulative amount incurred through January 29, 2022, were as follows:
| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | Cumulative amount | ||||||||||||||||||||||
| Inventory charges | $ | — | $ | 1.4 | $ | 9.2 | $ | 72.8 | ||||||||||||||||||
| Termination benefits | (1.1) | 24.1 | 16.1 | 48.8 | ||||||||||||||||||||||
| Store closure and other costs | (2.2) | 22.1 | 53.8 | 127.7 | ||||||||||||||||||||||
| Total Signet Path to Brilliance Plan expenses | $ | (3.3) | $ | 47.6 | $ | 79.1 | $ | 249.3 | ||||||||||||||||||
Plan liabilities of $12.6$1.9 million were recorded within accrued expenses and other current liabilities and Plan liabilities of $2.1 million were recorded within other liabilities in the consolidated balance sheetssheet as of February 2, 2019.January 29, 2022. The remaining Plan liabilities primarily represent asset disposal liabilities associated with the early terminationstore closure liabilities.
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Contents
| (in millions) | Income statement location | Fiscal 2019 | |||
Inventory charges(1) | Restructuring charges - cost of sales | $ | 62.2 | ||
Other Plan related expenses(2) | Restructuring charges | 63.7 | |||
| Total Signet Path to Brilliance Plan expenses | $ | 125.9 | |||
The following table summarizes the activity related to the Plan liabilities for Fiscal 2019:between periods:
| (in millions) | Termination benefits | Store closure and other costs | Consolidated | |||||||||||||||||
| Balance at February 2, 2019 | $ | — | $ | 12.6 | $ | 12.6 | ||||||||||||||
| Payments and other adjustments | (14.1) | (65.2) | (79.3) | |||||||||||||||||
| Charged to expense | 16.1 | 63.0 | 79.1 | |||||||||||||||||
| Balance at February 1, 2020 | 2.0 | 10.4 | 12.4 | |||||||||||||||||
| Payments and other adjustments | (24.0) | (25.8) | (49.8) | |||||||||||||||||
| Charged to expense | 24.1 | 23.5 | 47.6 | |||||||||||||||||
| Balance at January 30, 2021 | 2.1 | 8.1 | 10.2 | |||||||||||||||||
| Payments and other adjustments | (1.0) | (1.9) | (2.9) | |||||||||||||||||
| Charged to expense | (1.1) | (2.2) | (3.3) | |||||||||||||||||
| Balance at January 29, 2022 | $ | — | $ | 4.0 | $ | 4.0 | ||||||||||||||
| (in millions) | Consolidated | |||
| Balance at February 3, 2018 | $ | — | ||
| Payments and other adjustments | (113.3 | ) | ||
| Charged to expense | 125.9 | |||
| Balance at February 2, 2019 | $ | 12.6 | ||
On October 5, 2016, the Company issued 625,000 preferred shares to Green Equity Investors VI, L.P., Green Equity Investors Side VI, L.P., LGP Associates VI-A LLC and LGP Associates VI-B LLC, all affiliates of Leonard Green & Partners, L.P., (together, the “Investors”) for an aggregate purchase price of $625.0 million, or $1,000 per share (the “Stated Value”) pursuant to the investment agreement dated August 24, 2016. The Company's preferred shares are classified as temporary equity within the consolidated balance sheet.sheets.
In connection with the issuance of the preferred shares, the Company incurred direct and incremental expenses of $13.7 million, including financial advisory fees, closing costs, legal expenses and other offering-related expenses. These direct and incremental expenses originally reduced the preferred shares carrying value, and are accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date, November 2024. Accumulated accretion relating to these fees of $4.0$9.0 million was recorded in the consolidated balance sheet as of February 2, 2019 (February 3, 2018: $2.3January 29, 2022 (January 30, 2021: $7.3 million).
Dividend rights: The preferred shares rank senior to the Company’s common shares, with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The liquidation preference for preferred shares is equal to the greater of (a) the Stated Value per share, plus all accrued but unpaid dividends and (b) the consideration holders would have received if preferred shares were converted into common shares immediately prior to the liquidation. Preferred shareholders are entitled to a cumulative dividend at the rate of 5% per annum, payable quarterly in arrears, commencing on February 15, 2017, either in cash or by increasing the Stated Value at the option of the Company. In addition, preferred shareholders were entitled to receive dividends or distributions declared or paid on common shares on an as-converted basis, other than the Company’s regularly declared quarterly cash dividends not in excess of 130% of the arithmetic average of the regular, quarterly cash dividends per common share, if any, declared by the Company during the preceding four calendar quarters.
On November 2, 2016, the Board of Directors approved certain changes to the rights of the preferred shareholders, including the following: (a) elimination of the right of preferred shareholders to receive dividends or other distributions declared on the Company’s common shares and inclusion of adjustments to the conversion rate in the event of any dividend, distribution, spin-off or certain other events or transactions in respect of the common shares; and (b) addition of a requirement for approval by the holders of the majority of the issued preferred shares for the declaration or payment by the Company of any dividends or other distributions on the common shares other than (i) regularly declared quarterly cash dividends paid on the issued common shares in any calendar quarter in an amount per share that is not more than 130% of the arithmetic average of the regular, quarterly cash dividends per common share, if any, declared by the Company during the preceding four calendar quarters for such quarter and (ii) any dividends or other distributions which are paid or distributed at the same time on the common shares and the preferred shares, provided that the amount paid or distributed to the preferred shares is based on the number of common shares into which such preferred shares could be converted on the applicable record date for such dividends or other distributions.
Conversion features:Preferred shares are convertible at the option of the holders at any time into common shares at the then applicable conversion rate. The conversion rate is subject to certain anti-dilution and other adjustments, including stock split / reverse stock split transactions, regular dividends declared on common shares, share repurchases (excluding amounts through open market transactions or accelerated share repurchases) and issuances of common shares or other securities convertible into common shares. The initial issuance did not include a beneficial conversion feature as the conversion price used to set the conversion ratio at the time of issuance was greater than the Company’s common stock price.
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At any time on or after October 5, 2018, all or a portion of outstanding preferred shares are convertible at the option of the Company if the closing price of common shares exceeds 175% of the then applicable conversion price for at least 20 consecutive trading days.
The following table presents certain conversion measures as of February 2, 2019January 29, 2022 and February 3, 2018:January 30, 2021:
| (in millions, except conversion rate and conversion price) | January 29, 2022 | January 30, 2021 | |||||||||
| Conversion rate | 12.2297 | 12.2297 | |||||||||
| Conversion price | $ | 81.7682 | $ | 81.7682 | |||||||
| Potential impact of preferred shares if-converted to common shares | 8.0 | 7.9 | |||||||||
| Liquidation preference | $ | 665.1 | $ | 656.8 | |||||||
| (in millions, except conversion rate and conversion price) | February 2, 2019 | February 3, 2018 | |||||
| Conversion rate | 11.3660 | 10.9409 | |||||
| Conversion price | $ | 87.9817 | $ | 91.4002 | |||
| Potential impact of preferred shares if-converted to common shares | 7.1 | 6.8 | |||||
| Liquidation preference | $ | 632.8 | $ | 632.8 | |||
Redemption rights: At any time after November 15, 2024, the Company will have the right to redeem any or all, and the holders of the preferred shares will have the right to require the Company to repurchase any or all, of the preferred shares for cash at a price equal to the Stated Value plus all accrued but unpaid dividends. Upon certain change of control or delisting events involving the Company, preferred shareholders can require the Company to repurchase, subject to certain exceptions, all or any portion of its preferred shares at (a) an amount in cash equal to 101% of the Stated Value plus all accrued but unpaid dividends or (b) the consideration the holders would have received if they had converted their preferred shares into common shares immediately prior to the change of control event.
Voting rights: Preferred shareholders are entitled to vote with the holders of common shares on an as-converted basis. Holders of preferred shares are entitled to a separate class vote with respect to certain designee(s) for election to the Company’s Board, of Directors, amendments to the Company’s organizational documents that have an adverse effect on the preferred shareholders and issuances by the Company of securities that are senior to, or equal in priority with, the preferred shares.
Registration rights: Preferred shareholders have certain customary registration rights with respect to the preferred shares and the shares of common shares into which they are converted, pursuant to the terms of a registration rights agreement.
Common shares
The par value of each Common Share is 18 cents. The consideration received forThere have been no issuance of common shares relating to options issued duringin Fiscal 2019 was $0.0 million (Fiscal 2018: $0.3 million;2022, Fiscal 2017: $2.1 million).2021, or Fiscal 2020.
Treasury shares
Signet may from time to time repurchase common shares under various share repurchase programs authorized by Signet’s Board. Repurchases may be made in the open market, through block trades, accelerated share repurchase agreements or otherwise. The timing, manner, price and amount of any repurchases will be determined by the Company at its discretion, and will be subject to economic and market conditions, stock prices, applicable legal requirements and other factors. The repurchase programs are funded through Signet’s existing cash reserves and liquidity sources. Repurchased shares may be held as treasury shares and used by Signet primarily for issuance of share based awards (refer to Note 27), or for general corporate purposes.
Treasury shares represent the cost of shares that the Company purchased in the market under the applicable authorized repurchase program, shares forfeited under the Omnibus Incentive Plan and those previously held by the Employee Stock Ownership Trust (“ESOT”) to satisfy options under the Company’s share option plans.
On October 5, 2016,January 21, 2022, the Company entered into an accelerated share repurchase agreement (“ASR”) with a large financial institution to repurchase $525.0 million of the Company’s common shares. At inception,shares for an aggregate amount of $250 million. As of January 29, 2022, the Company paid $525.0has made a prepayment of $250 million to the financial institution and took delivery of 4.72.5 million shares with an initial estimated costbased on a price of $367.5 million. In December 2016,$80 per share, which is 80% of the ASR was finalized andtotal prepayment amount. On March 14, 2022, the Company received an additional 1.3 million shares. Total shares repurchased under the ASR were 6.00.8 million shares, representing the remaining 20% of the total prepayment and final settlement of the ASR. The number of shares received at an average purchase price of $87.01per sharefinal settlement was based on the average of the daily volume-weighted average priceprices of the Company’s common shares tradedstock during the pricing period, less an agreed discount.term of the ASR.
and a forward purchase contract. The Company reflected shares delivered as treasury shares as of the date the shares were physically delivered in computing the weighted average common shares outstanding for both basic and diluted earnings per share. The ASR was accounted for as a treasury stock transaction and a forward stock purchase contract. The forward stock purchase contract was determined to be indexed to the Company’s own stock and met all of the applicable criteria for equity classification.classification and was reflected as additional paid in capital as of January 29, 2022.
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The share repurchase activity is outlined in the table below:
| Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, expect per share amounts) | Amount authorized | Shares repurchased | Amount repurchased (2) | Average repurchase price per share | Shares repurchased | Amount repurchased | Average repurchase price per share | Shares repurchased | Amount repurchased | Average repurchase price per share | |||||||||||||||||||||||||||||||||||||||||||||||||
2017 Program (1) | $ | 1,159.4 | 3.2 | $ | 261.8 | $ | 81.16 | — | — | $ | 0.00 | — | $ | — | $ | 0.00 | |||||||||||||||||||||||||||||||||||||||||||
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||||||||||||||||||||||||||||
| (in millions, expect per share amounts) | Amount authorized | Shares repurchased | Amount repurchased | Average repurchase price per share | Shares repurchased | Amount repurchased | Average repurchase price per share | Shares repurchased | Amount repurchased | Average repurchase price per share | ||||||||||||||||||||||||||
2017 Program(1) | $ | 600.0 | 7.5 | $ | 434.4 | $ | 57.64 | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||||||||
2016 Program(2) | $ | 1,375.0 | 1.3 | $ | 50.6 | $ | 39.76 | 8.1 | $ | 460.0 | $ | 56.91 | 10.0 | $ | 864.4 | $ | 86.40 | |||||||||||||||||||
2013 Program(3) | $ | 350.0 | n/a | n/a | n/a | n/a | n/a | n/a | 1.2 | $ | 135.6 | $ | 111.26 | |||||||||||||||||||||||
| Total | 8.8 | $ | 485.0 | $ | 55.06 | 8.1 | $ | 460.0 | $ | 56.91 | 11.2 | $ | 1,000.0 | $ | 89.10 | |||||||||||||||||||||
(2) The amount repurchased in Fiscal 2022 excludes $50 million related to the forward purchase contract in the ASR.
Shares were reissued in the amounts of 0.22.5 million, 0.0 million and 0.30.4 million, net of taxes and forfeitures, in Fiscal 20192022, Fiscal 2021 and Fiscal 2018,2020, respectively, to satisfy awards outstanding under existing share-based compensation plans. During Fiscal 2019, the Company formally retired 17.2 million2022, there were no retirements of common shares previously held as treasury shares in the consolidated balance sheets.
Dividends on common shares
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | |||||||||||||||||||||
| (in millions, except per share amounts) | Cash dividend per share | Total dividends | Cash dividend per share | Total dividends | Cash dividend per share | Total dividends | |||||||||||||||||
| First quarter | $ | 0.37 | $ | 21.8 | $ | 0.31 | $ | 21.3 | $ | 0.26 | $ | 20.4 | |||||||||||
| Second quarter | 0.37 | 19.2 | 0.31 | 18.7 | 0.26 | 19.7 | |||||||||||||||||
| Third quarter | 0.37 | 19.2 | 0.31 | 18.7 | 0.26 | 18.1 | |||||||||||||||||
Fourth quarter(1) | 0.37 | 19.2 | 0.31 | 18.8 | 0.26 | 17.7 | |||||||||||||||||
| Total | $ | 1.48 | $ | 79.4 | $ | 1.24 | $ | 77.5 | $ | 1.04 | $ | 75.9 | |||||||||||
| Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | |||||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | Cash dividend per share | Total dividends | Cash dividend per share | Total dividends | Cash dividend per share | Total dividends | |||||||||||||||||||||||||||||
| First quarter | $ | 0.00 | — | $ | 0.00 | $ | — | $ | 0.37 | $ | 19.3 | ||||||||||||||||||||||||
| Second quarter | 0.18 | 9.5 | 0.00 | — | 0.37 | 19.3 | |||||||||||||||||||||||||||||
| Third quarter | 0.18 | 9.5 | 0.00 | — | 0.37 | 19.4 | |||||||||||||||||||||||||||||
Fourth quarter (1) | 0.18 | 9.0 | 0.00 | — | 0.37 | 19.4 | |||||||||||||||||||||||||||||
| Total | $ | 0.54 | $ | 28.0 | $ | 0.00 | $ | — | $ | 1.48 | $ | 77.4 | |||||||||||||||||||||||
(1)Signet’s dividend policy results in the dividend payment date being a quarter in arrears from the declaration date. As of January 29, 2022 there was $9.0 million recorded in accrued expenses and other current liabilities in the consolidated balance sheets reflecting the cash dividends declared a quarterly dividendfor the fourth quarter of $0.37 per share on its common shares. This dividend will be payable on May 31, 2019 to shareholdersFiscal 2022. There were no dividends declared or accrued as of record on May 3, 2019, with an ex-dividend date of May 2, 2019.January 30, 2021.
.
Dividends on preferred shares
| Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | |||||||||||||||
| (in millions) | Total dividends | Total dividends | Total dividends | ||||||||||||||
| First quarter | $ | 8.2 | $ | 7.8 | $ | 7.8 | |||||||||||
| Second quarter | 8.2 | 7.9 | 7.8 | ||||||||||||||
| Third quarter | 8.3 | 8.0 | 7.8 | ||||||||||||||
Fourth quarter (1) | 8.2 | 8.1 | 7.8 | ||||||||||||||
| Total | $ | 32.9 | $ | 31.8 | $ | 31.2 | |||||||||||
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | |||||||||
| (in millions) | Total cash dividends | Total cash dividends | Total cash dividends | ||||||||
| First quarter | $ | 7.8 | $ | 7.8 | $ | — | |||||
| Second quarter | 7.8 | 7.8 | — | ||||||||
| Third quarter | 7.8 | 7.8 | — | ||||||||
Fourth quarter(1) | 7.8 | 7.8 | 11.3 | ||||||||
| Total | $ | 31.2 | $ | 31.2 | $ | 11.3 | |||||
There were no cumulative undeclared dividends on the preferred shares that reduced net income attributable to common shareholders during Fiscal 2019.2022. In addition, deemed dividends of $1.7 million related to accretion of issuance costs associated with the preferred shares were recognized in Fiscal 20192022, Fiscal 2021 and Fiscal 2018.2020.
9. Earnings (loss) per common share (“EPS”)
Basic EPS is computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding for the period. The computation of basic EPS is outlined in the table below:
| (in millions, except per share amounts) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Numerator: | |||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | 735.4 | $ | (48.7) | $ | 72.6 | |||||||||||
| Denominator: | |||||||||||||||||
| Weighted average common shares outstanding | 52.5 | 52.0 | 51.7 | ||||||||||||||
| EPS – basic | $ | 14.01 | $ | (0.94) | $ | 1.40 | |||||||||||
| (in millions, except per share amounts) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||
| Numerator: | |||||||||||
| Net income (loss) attributable to common shareholders | $ | (690.3 | ) | $ | 486.4 | $ | 531.3 | ||||
| Denominator: | |||||||||||
| Weighted average common shares outstanding | 54.7 | 63.0 | 74.5 | ||||||||
| EPS – basic | $ | (12.62 | ) | $ | 7.72 | $ | 7.13 | ||||
The dilutive effect of share awards represents the potential impact of outstanding awards issued under the Company’s share-based compensation plans, including restricted shares, restricted stock units, performance-based restricted stock units, and stock options issued under the Omnibus Plan and stock options issued under the Share Saving Plans. The dilutive effect of performance share units represents the number of contingently issuable shares that would be issuable if the end of the period was the end of the contingency period and is based on the actual achievement of performance metrics through the end of the current period. The dilutive effect of preferred shares represents the potential impact for common shares that would be issued upon conversion. Potential common share dilution related to share awards and preferred shares is determined using the treasury stock and if-converted methods, respectively. Under the if-converted method, the preferred shares are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted EPS calculation for the entire period being presented.presented, only in the periods in which such effect is dilutive. Additionally, in periods in which preferred shares are dilutive, cumulative dividends and accretion for issuance costs associated with the preferred shares are added back to net income (loss) attributable to common shareholders. See Note 87 for additional discussion of the Company’s preferred shares.
The computation of diluted EPS is outlined in the table below:
| (in millions, except per share amounts) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Numerator: | |||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | 735.4 | $ | (48.7) | $ | 72.6 | |||||||||||
| Add: Dividends on preferred shares | 34.5 | — | — | ||||||||||||||
| Numerator for diluted EPS | $ | 769.9 | $ | (48.7) | $ | 72.6 | |||||||||||
| Denominator: | |||||||||||||||||
| Weighted average common shares outstanding | 52.5 | 52.0 | 51.7 | ||||||||||||||
Plus: Dilutive effect of share awards(1) | 2.5 | — | 0.1 | ||||||||||||||
| Plus: Dilutive effect of preferred shares | 8.0 | — | — | ||||||||||||||
| Diluted weighted average common shares outstanding | 63.0 | 52.0 | 51.8 | ||||||||||||||
| EPS – diluted | $ | 12.22 | $ | (0.94) | $ | 1.40 | |||||||||||
| (in millions, except per share amounts) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||
| Numerator: | |||||||||||
| Net income (loss) attributable to common shareholders | $ | (690.3 | ) | $ | 486.4 | $ | 531.3 | ||||
| Add: Dividends on preferred shares | — | 32.9 | 11.9 | ||||||||
| Numerator for diluted EPS | $ | (690.3 | ) | $ | 519.3 | $ | 543.2 | ||||
| Denominator: | |||||||||||
| Weighted average common shares outstanding | 54.7 | 63.0 | 74.5 | ||||||||
| Plus: Dilutive effect of share awards | — | 0.1 | 0.1 | ||||||||
| Plus: Dilutive effect of preferred shares | — | 6.7 | 2.1 | ||||||||
| Diluted weighted average common shares outstanding | 54.7 | 69.8 | 76.7 | ||||||||
| �� | |||||||||||
| EPS – diluted | $ | (12.62 | ) | $ | 7.44 | $ | 7.08 | ||||
The calculation of diluted EPS excludes the following awards and preferred sharesitems for each respective period on the basis that their effect would be anti-dilutive.
| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Share awards | — | 1.8 | 0.9 | ||||||||||||||
| Potential impact of preferred shares | —�� | 7.8 | 7.6 | ||||||||||||||
| Potential impact of accelerated share repurchase | 0.6 | — | — | ||||||||||||||
| Total anti-dilutive shares | 0.6 | 9.6 | 8.5 | ||||||||||||||
82
| (in millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | |||||
| Share awards | 1.1 | 0.4 | 0.1 | |||||
| Potential impact of preferred shares | 7.1 | — | — | |||||
| Total anti-dilutive shares | 8.2 | 0.4 | 0.1 | |||||
The following tables present the changes in AOCI by component and the reclassifications out of AOCI, net of tax:
| Pension plan | |||||||||||||||||||||||||||||||||||
| (in millions) | Foreign currency translation | Gain (losses) on available-for-sale securities, net | Gains (losses) on cash flow hedges | Actuarial gains (losses) | Prior service credits (costs) | Accumulated other comprehensive income (loss) | |||||||||||||||||||||||||||||
| Balance at February 2, 2019 | $ | (248.4) | $ | (0.5) | $ | 4.0 | $ | (53.8) | $ | (4.1) | $ | (302.8) | |||||||||||||||||||||||
| OCI before reclassifications | (1.7) | (0.2) | 11.2 | 0.4 | — | 9.7 | |||||||||||||||||||||||||||||
| Amounts reclassified from AOCI to earnings | — | 1.0 | (2.7) | 1.0 | — | (0.7) | |||||||||||||||||||||||||||||
| Net current period OCI | (1.7) | 0.8 | 8.5 | 1.4 | — | 9.0 | |||||||||||||||||||||||||||||
| Balance at February 1, 2020 | $ | (250.1) | $ | 0.3 | $ | 12.5 | $ | (52.4) | $ | (4.1) | $ | (293.8) | |||||||||||||||||||||||
| OCI before reclassifications | 11.2 | 0.2 | (0.8) | 4.4 | — | 15.0 | |||||||||||||||||||||||||||||
| Amounts reclassified from AOCI to earnings | — | — | (12.6) | 0.8 | 0.1 | (11.7) | |||||||||||||||||||||||||||||
| Net current period OCI | 11.2 | 0.2 | (13.4) | 5.2 | 0.1 | 3.3 | |||||||||||||||||||||||||||||
| Balance at January 30, 2021 | $ | (238.9) | $ | 0.5 | $ | (0.9) | $ | (47.2) | $ | (4.0) | $ | (290.5) | |||||||||||||||||||||||
| OCI before reclassifications | (5.4) | (0.3) | 0.6 | (57.9) | — | (63.0) | |||||||||||||||||||||||||||||
| Amounts reclassified from AOCI to earnings | — | — | 0.7 | 1.8 | 0.1 | 2.6 | |||||||||||||||||||||||||||||
| Net current period OCI | (5.4) | (0.3) | 1.3 | (56.1) | 0.1 | (60.4) | |||||||||||||||||||||||||||||
| Balance at January 29, 2022 | $ | (244.3) | $ | 0.2 | $ | 0.4 | $ | (103.3) | $ | (3.9) | $ | (350.9) | |||||||||||||||||||||||
83
| Pension plan | |||||||||||||||||||||||
| (in millions) | Foreign currency translation | Losses on available-for-sale securities, net | Gains (losses) on cash flow hedges | Actuarial gains (losses) | Prior service credits (costs) | Accumulated other comprehensive (loss) income | |||||||||||||||||
| Balance at January 30, 2016 | $ | (237.8 | ) | $ | (0.4 | ) | $ | (3.9 | ) | $ | (43.1 | ) | $ | 11.1 | $ | (274.1 | ) | ||||||
| OCI before reclassifications | (25.6 | ) | — | 6.9 | (13.6 | ) | (0.4 | ) | (32.7 | ) | |||||||||||||
| Amounts reclassified from AOCI to net income | — | — | (0.6 | ) | 1.2 | (1.5 | ) | (0.9 | ) | ||||||||||||||
| Net current period OCI | (25.6 | ) | — | 6.3 | (12.4 | ) | (1.9 | ) | (33.6 | ) | |||||||||||||
| Balance at January 28, 2017 | $ | (263.4 | ) | $ | (0.4 | ) | $ | 2.4 | $ | (55.5 | ) | $ | 9.2 | $ | (307.7 | ) | |||||||
| OCI before reclassifications | 50.9 | 0.3 | 1.8 | — | (0.5 | ) | 52.5 | ||||||||||||||||
| Amounts reclassified from AOCI to net income | — | — | (3.5 | ) | 4.4 | (6.3 | ) | (5.4 | ) | ||||||||||||||
| Net current period OCI | 50.9 | 0.3 | (1.7 | ) | 4.4 | (6.8 | ) | 47.1 | |||||||||||||||
| Balance at February 3, 2018 | $ | (212.5 | ) | $ | (0.1 | ) | $ | 0.7 | $ | (51.1 | ) | $ | 2.4 | $ | (260.6 | ) | |||||||
| OCI before reclassifications | (35.9 | ) | 0.4 | 4.8 | (3.4 | ) | (6.5 | ) | (40.6 | ) | |||||||||||||
| Amounts reclassified from AOCI to net income | — | — | (1.5 | ) | 0.7 | — | (0.8 | ) | |||||||||||||||
Impacts from adoption of new accounting pronouncements(1) | — | (0.8 | ) | — | — | — | (0.8 | ) | |||||||||||||||
| Net current period OCI | (35.9 | ) | (0.4 | ) | 3.3 | (2.7 | ) | (6.5 | ) | (42.2 | ) | ||||||||||||
| Balance at February 2, 2019 | $ | (248.4 | ) | $ | (0.5 | ) | $ | 4.0 | $ | (53.8 | ) | $ | (4.1 | ) | $ | (302.8 | ) | ||||||
The amounts reclassified from AOCI were as follows:
| Amounts reclassified from AOCI | ||||||||||||||||||||||||||
| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | Statement of operations caption | ||||||||||||||||||||||
| Losses (gains) on cash flow hedges: | ||||||||||||||||||||||||||
| Foreign currency contracts | $ | 0.6 | $ | — | $ | (1.1) | Cost of sales (1) | |||||||||||||||||||
| De-designated foreign currency contracts | — | (0.6) | — | Other operating income (loss) (2) | ||||||||||||||||||||||
| Interest rate swaps | — | — | (0.6) | Interest expense, net (1) | ||||||||||||||||||||||
| Commodity contracts | 0.4 | (6.9) | (1.7) | Cost of sales (1) | ||||||||||||||||||||||
| De-designated commodity contracts | — | (9.3) | — | Other operating income (loss) (2) | ||||||||||||||||||||||
| Total before income tax | 1.0 | (16.8) | (3.4) | |||||||||||||||||||||||
| Income taxes | (0.3) | 4.2 | 0.7 | |||||||||||||||||||||||
| Net of tax | 0.7 | (12.6) | (2.7) | |||||||||||||||||||||||
| Defined benefit pension plan items: | ||||||||||||||||||||||||||
| Amortization of unrecognized actuarial losses | 2.1 | 1.0 | 1.2 | Other non-operating income, net (3) | ||||||||||||||||||||||
| Amortization of unrecognized net prior service credits | 0.1 | 0.1 | — | Other non-operating income, net (3) | ||||||||||||||||||||||
| Total before income tax | 2.2 | 1.1 | 1.2 | |||||||||||||||||||||||
| Income taxes | (0.3) | (0.2) | (0.2) | |||||||||||||||||||||||
| Net of tax | 1.9 | 0.9 | 1.0 | |||||||||||||||||||||||
| Available-for-sale securities: | ||||||||||||||||||||||||||
| Corporate equity securities, before income tax | — | — | 1.0 | Other operating income (loss) (4) | ||||||||||||||||||||||
| Income taxes | — | — | — | |||||||||||||||||||||||
| Net of tax | — | — | 1.0 | |||||||||||||||||||||||
| Total reclassifications, net of tax | $ | 2.6 | $ | (11.7) | $ | (0.7) | ||||||||||||||||||||
(1) See Note 21 for additional information.
(2) The Company’s cash flow hedges were de-designated during the first quarter of Fiscal 2021. See Note 21 for additional information.
(3) These items are included in the computation of net periodic pension benefit (cost). See Note 23 for additional information.
(4) See Note 20 for additional information.
| Amounts reclassified from AOCI | |||||||||||||||
| (in millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | Income statement caption | |||||||||||
| (Gains) losses on cash flow hedges: | |||||||||||||||
| Foreign currency contracts | $ | 0.7 | $ | (3.2 | ) | $ | (2.7 | ) | Cost of sales (see Note 19) | ||||||
| Interest rate swaps | (1.9 | ) | 0.3 | 2.2 | Interest expense, net (see Note 19) | ||||||||||
| Commodity contracts | (0.9 | ) | (1.7 | ) | (0.2 | ) | Cost of sales (see Note 19) | ||||||||
| Total before income tax | (2.1 | ) | (4.6 | ) | (0.7 | ) | |||||||||
| Income taxes | 0.6 | 1.1 | 0.1 | ||||||||||||
| Net of tax | (1.5 | ) | (3.5 | ) | (0.6 | ) | |||||||||
| Defined benefit pension plan items: | |||||||||||||||
| Amortization of unrecognized actuarial losses | 0.9 | 2.8 | 1.5 | Selling, general and administrative expenses(1) | |||||||||||
| Amortization of unrecognized net prior service credits | — | (1.4 | ) | (1.9 | ) | Selling, general and administrative expenses(1) | |||||||||
| Net curtailment gain and settlement loss | — | (3.7 | ) | — | Selling, general and administrative expenses(1) | ||||||||||
| Total before income tax | 0.9 | (2.3 | ) | (0.4 | ) | ||||||||||
| Income taxes | (0.2 | ) | 0.4 | 0.1 | |||||||||||
| Net of tax | 0.7 | (1.9 | ) | (0.3 | ) | ||||||||||
| Total reclassifications, net of tax | $ | (0.8 | ) | $ | (5.4 | ) | $ | (0.9 | ) | ||||||
| (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | ||||||||||||||
| Income (loss) before income taxes: | |||||||||||||||||
| – US | $ | 665.9 | $ | (173.4) | $ | 32.3 | |||||||||||
| – Foreign | 218.5 | 83.7 | 97.4 | ||||||||||||||
| Total income (loss) before income taxes | $ | 884.4 | $ | (89.7) | $ | 129.7 | |||||||||||
| Current taxation: | |||||||||||||||||
| – US | $ | 108.1 | $ | (222.2) | $ | 3.0 | |||||||||||
| – Foreign | 7.6 | 0.7 | 1.9 | ||||||||||||||
| Deferred taxation: | |||||||||||||||||
| – US | 8.4 | 158.4 | 17.0 | ||||||||||||||
| – Foreign | (9.6) | (11.4) | 2.3 | ||||||||||||||
| Total income tax expense (benefit) | $ | 114.5 | $ | (74.5) | $ | 24.2 | |||||||||||
84
| (in millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||||
| Income (loss) before income taxes: | |||||||||||
| – US | $ | (1,135.8 | ) | $ | 202.2 | $ | 424.0 | ||||
| – Foreign | 333.2 | 325.0 | 289.8 | ||||||||
| Total income (loss) before income taxes | $ | (802.6 | ) | $ | 527.2 | $ | 713.8 | ||||
| Current taxation: | |||||||||||
| – US | $ | (55.2 | ) | $ | 35.9 | $ | 137.6 | ||||
| – Foreign | 15.8 | 6.1 | 3.9 | ||||||||
| Deferred taxation: | |||||||||||
| – US | (85.8 | ) | (34.8 | ) | 28.1 | ||||||
| – Foreign | (20.0 | ) | 0.7 | 1.0 | |||||||
| Total income tax expense (benefit) | $ | (145.2 | ) | $ | 7.9 | $ | 170.6 | ||||
As the statutory rate of corporation tax in Bermuda is 0%, the differences between the US federal income tax rate and the effective tax rates for Signet have been presented below:
| Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | |||||||||||||||
| US federal income tax rates | 21.0 | % | 21.0 | % | 21.0 | % | |||||||||||
| US state income taxes | 3.3 | % | 4.1 | % | 3.1 | % | |||||||||||
| Differences between US federal and foreign statutory income tax rates | (0.1) | % | 0.1 | % | 1.3 | % | |||||||||||
| Expenditures permanently disallowable for tax purposes, net of permanent tax benefits | — | % | (4.7) | % | 3.3 | % | |||||||||||
| Impact of global reinsurance arrangements | (2.2) | % | 14.1 | % | (20.3) | % | |||||||||||
| Impact of global financing arrangements | (0.6) | % | — | % | — | % | |||||||||||
| Impairment of goodwill | — | % | (2.4) | % | 7.5 | % | |||||||||||
| CARES Act | (1.4) | % | 111.9 | % | — | % | |||||||||||
| Valuation allowance | (6.5) | % | (55.5) | % | — | % | |||||||||||
| Other items | (0.6) | % | (5.5) | % | 2.8 | % | |||||||||||
| Effective tax rate | 12.9 | % | 83.1 | % | 18.7 | % | |||||||||||
| Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | ||||||
| US federal income tax rates | 21.0 | % | 35.0 | % | 35.0 | % | ||
| US state income taxes | 2.3 | % | 1.9 | % | 1.9 | % | ||
| Differences between US federal and foreign statutory income tax rates | 0.3 | % | (1.0 | )% | (0.2 | )% | ||
| Expenditures permanently disallowable for tax purposes, net of permanent tax benefits | (0.8 | )% | 1.0 | % | 0.4 | % | ||
| Disallowable transaction costs | — | % | 0.4 | % | 0.1 | % | ||
| Impact of global reinsurance arrangements | 3.1 | % | (8.1 | )% | (5.4 | )% | ||
| Impact of global financing arrangements | 4.2 | % | (11.4 | )% | (8.2 | )% | ||
| Benefit in current year taxes - the TCJ Act | — | % | (4.1 | )% | — | % | ||
| Remeasurement of deferred taxes - the TCJ Act | — | % | (12.3 | )% | — | % | ||
| Impairment of goodwill | (13.4 | )% | — | % | — | % | ||
| Out of period adjustment | 1.4 | % | — | % | — | % | ||
| Other items | — | % | 0.1 | % | 0.3 | % | ||
| Effective tax rate | 18.1 | % | 1.5 | % | 23.9 | % | ||
In Fiscal 2019, Signet’s2022, the Company’s effective tax rate was lower than the US federal income tax rate primarily due to the reversal of the valuation allowance recorded against certain state deferred tax assets, as well as additional benefits realized from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the benefits from global reinsurance arrangements. During Fiscal 2022, the Company evaluated evidence to consider the reversal of the valuation allowance on its state net deferred tax assets and determined that there was sufficient positive evidence to conclude that it is more likely than not its state deferred tax assets are realizable. In determining the likelihood of future realization of the state deferred tax assets, the Company considered both positive and negative evidence. As a result, the Company believed that the weight of the positive evidence, including the cumulative income position in the three most recent years and forecasts for a sustained level of future taxable income, was sufficient to overcome the weight of the negative evidence, and thus recorded a $49.8 million tax benefit to release the valuation allowance against the Company's state deferred tax assets during Fiscal 2022.
In Fiscal 2021, Signet’s effective tax rate was higher than the US federal income tax rate primarily due to the benefit from the CARES Act enacted on March 27, 2020,and the impact of nondeductible goodwill impairment charges partially offset by (i) Signet’s global reinsurance arrangement (ii) Signet’s global financing arrangements utilized to fundpartially offset by the acquisitionunfavorable impact of Zale and (iii) an immaterial out of period adjustment resulting from an $11 million reduction to a valuation allowance recorded against certain state deferred tax liability associated withassets and the acquisitionimpairment of Zale in May 2014. Signet’s future effectivegoodwill which was nondeductible for tax rate is largely dependent on changes inpurposes.
The CARES Act provides a technical correction to the geographic mix of income.
| Fiscal 2018 | |||
| (in millions) | Income tax benefit (expense) | ||
| Net impact on remeasurement of US deferred tax assets and liabilities | $ | 64.7 | |
| Net impact of reduce US tax rate on income from October 29, 2017 through February 3, 2018 | 21.5 | ||
| Net benefit of the TCJ Act | $ | 86.2 | |
85
Deferred taxes
Deferred tax assets (liabilities) consisted of the following:
| February 2, 2019 | February 3, 2018 | January 29, 2022 | January 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | Assets | (Liabilities) | Total | Assets | (Liabilities) | Total | (in millions) | Assets | (Liabilities) | Total | Assets | (Liabilities) | Total | |||||||||||||||||||||||||||||||||||||||||||||
| Intangible assets | $ | — | $ | (63.8 | ) | $ | (63.8 | ) | $ | — | $ | (130.9 | ) | $ | (130.9 | ) | Intangible assets | $ | — | $ | (77.0) | $ | (77.0) | $ | — | $ | (41.7) | $ | (41.7) | |||||||||||||||||||||||||||||
| US property, plant and equipment | — | (68.2 | ) | (68.2 | ) | — | (65.2 | ) | (65.2 | ) | US property, plant and equipment | — | (60.2) | (60.2) | — | (55.3) | (55.3) | |||||||||||||||||||||||||||||||||||||||||
| Foreign property, plant and equipment | 6.5 | — | 6.5 | 6.2 | — | 6.2 | Foreign property, plant and equipment | 7.1 | — | 7.1 | 7.3 | — | 7.3 | |||||||||||||||||||||||||||||||||||||||||||||
| Inventory valuation | — | (179.1 | ) | (179.1 | ) | — | (193.7 | ) | (193.7 | ) | Inventory valuation | — | (237.8) | (237.8) | — | (230.4) | (230.4) | |||||||||||||||||||||||||||||||||||||||||
| Allowances for doubtful accounts | — | — | — | 34.4 | — | 34.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue deferral | 122.0 | — | 122.0 | 147.1 | — | 147.1 | Revenue deferral | 88.6 | — | 88.6 | 95.6 | — | 95.6 | |||||||||||||||||||||||||||||||||||||||||||||
| Derivative instruments | — | (1.3 | ) | (1.3 | ) | — | (0.3 | ) | (0.3 | ) | Derivative instruments | — | — | — | 0.3 | — | 0.3 | |||||||||||||||||||||||||||||||||||||||||
| Straight-line lease payments | 26.2 | — | 26.2 | 26.5 | — | 26.5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease assets | Lease assets | — | (261.9) | (261.9) | — | (295.1) | (295.1) | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Lease liabilities | Lease liabilities | 284.3 | — | 284.3 | 331.5 | — | 331.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred compensation | 7.5 | — | 7.5 | 9.2 | — | 9.2 | Deferred compensation | 7.7 | — | 7.7 | 6.7 | — | 6.7 | |||||||||||||||||||||||||||||||||||||||||||||
| Retirement benefit obligations | — | (5.8 | ) | (5.8 | ) | — | (7.6 | ) | (7.6 | ) | Retirement benefit obligations | 1.5 | — | 1.5 | — | (9.8) | (9.8) | |||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 3.5 | — | 3.5 | 4.4 | — | 4.4 | Share-based compensation | 8.4 | — | 8.4 | 4.4 | — | 4.4 | |||||||||||||||||||||||||||||||||||||||||||||
| Other temporary differences | 46.7 | — | 46.7 | 47.1 | — | 47.1 | Other temporary differences | 42.4 | — | 42.4 | 57.2 | — | 57.2 | |||||||||||||||||||||||||||||||||||||||||||||
| Net operating losses and foreign tax credits | 151.8 | — | 151.8 | 56.9 | — | 56.9 | Net operating losses and foreign tax credits | 84.3 | — | 84.3 | 56.5 | — | 56.5 | |||||||||||||||||||||||||||||||||||||||||||||
| Value of capital losses | 13.9 | — | 13.9 | 12.0 | — | 12.0 | Value of capital losses | 16.9 | — | 16.9 | 13.9 | — | 13.9 | |||||||||||||||||||||||||||||||||||||||||||||
| Total gross deferred tax assets (liabilities) | $ | 378.1 | $ | (318.2 | ) | $ | 59.9 | $ | 343.8 | $ | (397.7 | ) | $ | (53.9 | ) | Total gross deferred tax assets (liabilities) | $ | 541.2 | $ | (636.9) | $ | (95.7) | $ | 573.4 | $ | (632.3) | $ | (58.9) | ||||||||||||||||||||||||||||||
| Valuation allowance | (38.9 | ) | — | (38.9 | ) | (37.0 | ) | — | (37.0 | ) | Valuation allowance | (27.9) | — | (27.9) | (83.9) | — | (83.9) | |||||||||||||||||||||||||||||||||||||||||
| Deferred tax assets (liabilities) | $ | 339.2 | $ | (318.2 | ) | $ | 21.0 | $ | 306.8 | $ | (397.7 | ) | $ | (90.9 | ) | Deferred tax assets (liabilities) | $ | 513.3 | $ | (636.9) | $ | (123.6) | $ | 489.5 | $ | (632.3) | $ | (142.8) | ||||||||||||||||||||||||||||||
| Disclosed as: | Disclosed as: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-current assets | $ | 21.0 | $ | 1.4 | Non-current assets | $ | 37.3 | $ | 16.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Non-current liabilities | — | (92.3 | ) | Non-current liabilities | (160.9) | (159.2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred tax assets (liabilities) | $ | 21.0 | $ | (90.9 | ) | Deferred tax assets (liabilities) | $ | (123.6) | $ | (142.8) | ||||||||||||||||||||||||||||||||||||||||||||||||
As of February 2, 2019,January 29, 2022, Signet had deferred tax assets associated with net operating loss carry forwards of $124.7$17.9 million, of which $32.1$9.3 million are subject to ownership change limitations rules under Section 382 of the Internal Revenue Code (“IRC”) and various US state regulations and expire between 20192022 and 2037.2039. Deferred tax assets associated with foreign tax credits also subject to Section 382 of the IRC total $13.7$2.1 million as of February 2, 2019,January 29, 2022, which expire between 20192022 and 2024 and foreign net operating loss carryforwards of $13.4$23.9 million, which expire between 20192022 and 2038.2040. Additionally, Signet had an AMT Credit Carryforward of $40.5 million. Signet had foreign capital loss carry forwardcarryforward deferred tax assets of $11.6$14.2 million (Fiscal 2018: $12.02021: $11.2 million), which can be carried forward over an indefinite period and US capital loss carryforwards of $3.0$2.7 million which expire in 2022, both of which are only available to offset future capital gains.
The increasedecrease in the total valuation allowance in Fiscal 20192022 was $1.9$56.0 million. The valuation allowance as of January 29, 2022 primarily relates to foreign tax credits, capital and foreign operating loss carry forwards and foreign tax credits that, in the judgment of management, are not more likely than not to be realized. Refer to further discussion above.
Signet believes that it is more likely than not that deferred tax assets not subject to a valuation allowance as of February 2, 2019January 29, 2022 will be offset where permissible by deferred tax liabilities or realized on future tax returns, primarily from the generation of future taxable income.
86
Uncertain tax positions
The following table summarizes the activity related to the Company’s unrecognized tax benefits for US federal, US state and non-US tax jurisdictions:
| (in millions) | Fiscal 2019 | Fiscal 2018 | Fiscal 2017 | (in millions) | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | |||||||||||||||||||||
| Unrecognized tax benefits, beginning of period | $ | 12.0 | $ | 12.0 | $ | 11.4 | Unrecognized tax benefits, beginning of period | $ | 25.4 | $ | 23.5 | $ | 18.1 | |||||||||||||||
| Increases related to current year tax positions | 2.5 | 2.3 | 2.4 | Increases related to current year tax positions | 2.0 | 1.0 | 2.0 | |||||||||||||||||||||
| Increases related to prior year tax positions | 6.2 | — | — | Increases related to prior year tax positions | 0.4 | 3.4 | 6.0 | |||||||||||||||||||||
| Lapse of statute of limitations | (2.4 | ) | (2.4 | ) | (1.9 | ) | Lapse of statute of limitations | (2.9) | (2.6) | (2.6) | ||||||||||||||||||
| Difference on foreign currency translation | (0.2 | ) | 0.1 | 0.1 | Difference on foreign currency translation | — | 0.1 | — | ||||||||||||||||||||
| Unrecognized tax benefits, end of period | $ | 18.1 | $ | 12.0 | $ | 12.0 | Unrecognized tax benefits, end of period | $ | 24.9 | $ | 25.4 | $ | 23.5 | |||||||||||||||