UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

2 Church Street

Hamilton HM11

Bermuda

(441) 296 5872

(Address and telephone number including area code of principal executive offices)

 

 

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,” “$,” “cents”dollars” and “c”“$” are to the lawful currency of the United States of America.America (“US”). Signet prepares its financial statements in US dollars. All references to “British pound,pound(s),” “pounds,” “British pounds,” “£,” “pence” and “p”“£” are to the lawful currency of the United Kingdom.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 States (“GAAP”). However, Signet gives 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.

Fiscal year and fourth quarter

Signet’s fiscal year ends on the Saturday nearest to January 31. As used herein, “Fiscal 2020,” “Fiscal 2019,” “Fiscal 2018,” “Fiscal 2017,” “Fiscal 2016,” “Fiscal 2015,” “Fiscal 2014,”2016” and “Fiscal 2013”2015” refer to the 52 week periods ending 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, February 1, 2014, and the 53 week period ending February 2, 2013, respectively. Fourth quarter references the 13 weeks ended January 28, 2017February 2, 2019 (“fourth quarter”) and the 1314 weeks ended January 30, 2016February 3, 2018 (“prior year fourth quarter”).

FORWARD-LOOKING STATEMENTS

PART I

ITEM 1. BUSINESS

OVERVIEW

Signet Jewelers Limited (“Signet” or the “Company”) 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, the 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 3,6823,334 stores and kiosks at January 28, 2017,as of February 2, 2019, now manages its business by store brand grouping,geography, a description of which follows:

Signet’s mission is to help guestscustomers “Celebrate Life and Express Love.” Our Vision 2020vision is take the lead and beyond strategy is to be the world’s premier jeweler by relentlessly connecting with customers, earning their trust with every interaction everywhere. Our five

To achieve our Path to Brilliance goals, we believe we must relentlessly focus on the following three strategic pillars all center on a customer first omni-channel experience. These pillars included belowwhich define our key priorities and growthinvestment focus areas.areas:

Over the last few months we have performed a detailed review of our Fiscal 2019 performance and the foundational capabilities developed in bridalYear 1 of Path to Brilliance. Additionally, we have restructured parts of the organization and made leadership changes aimed to position us for success. We believe that Path to Brilliance is the right strategy, and that we must move faster and more aggressively to achieve our goals. The learnings from this last year have been incorporated into our forward plans to improve both execution and financial performance.

Jewelry retailing is highly fragmented and competitive. We compete 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.

We believe that Signet’s competitive strengths include: strong store brands,banner recognition, outstanding guestcustomer experience, branded differentiated and exclusive merchandise, sector-leading marketing and advertising, diversified real estate portfolio, supply chain leadership, customer finance programs, and financial strengtha full spectrum of services including financing and flexibility. Signet increases the attraction of its store brands to guests through the use of branded differentiated and exclusive merchandise, while offering a compelling value proposition in more basic ranges. Signet accomplishes this by utilizing its supply chain and merchandising expertise, scale and balance sheet strength. The Company intends to further develop and refine its national television advertising, digital medialease purchase options, extended service plans, repair and customer relationship marketing, which it believes are the most effectivedesign, and cost efficient forms of marketing available to grow its market share. Management follows the operating principles of excellence in execution, testing before investing, continuous improvement and disciplined investment in all aspects of the business.

BACKGROUND

The business is currently managed as fivethree reportable segments: the Sterling Jewelers division (61.3%North America segment (90.3% of sales and 93.8%81.2% of operating income)loss), the Zale division, which is comprised of the Zale JewelryInternational segment (24.2%(9.2% of sales and 8.1%(1.7)% of operating income)loss) and the Piercing PagodaOther segment. The Other reportable segment (4.1%consists of salesall non-reportable segments, including subsidiaries involved in the purchasing and 1.5%conversion of operating income)rough diamonds to polished stones and the UK Jewelry division (10.1% of sales and 6.0% of operating income).unallocated corporate administrative functions. All divisionssegments are managed by an executive committee, which is chaired by Signet’s Chief Executive Officer, who reports to the Board of Directors of Signet (the “Board”). The executive committee is responsible for operating decisions within parameters established by the Board. Additionally, as a result of the acquisition of a diamond polishing factory in Gaborone, Botswana in Fiscal 2014, management established a separate reportable segment (“Other”). Other 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. See Note 46 of Item 8 for additional information regarding the Company’s segments.segments as well as disclosure detailing and reconciling the components of operating income.

Signet is not dependent on any material patents or licenses in any of its divisions.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 registered trademarks and trade names include the following:

Signet operates retail jewelry stores in a variety of real estate formats including mall-based, free-standing, strip center and outlet store locations. As of January 28, 2017,February 2, 2019, Signet operated 3,0662,760 stores and 616574 kiosks across 5.14.7 million square feet of retail space in the US, UK Canada and Puerto Rico.Canada. This represented an increasea decrease of 1.6%6.2% and 2.6%a decrease of 5.7% in locations and retail space, respectively, from Fiscal 2016 due to new store growth as Signet opened 162 stores and closed 105 stores during Fiscal 2017.2018. Store locations by country and territory as of January 28, 2017February 2, 2019 are disclosed in Item 2.

Signet continues to invest in technology to enhance the guestcustomer shopping experience suchto make it more personalized and journey specific. In Fiscal 2019, Signet implemented a multi-phase Voice of Customer program as a clienteling system that we have initially implemented incomponent of our Sterling Jewelers division. ThisPath to Brilliance and customer first strategies. The first phase focused on setting up the technology, provides a single view of the guest with the capabilityestablishing stable measurements for key customer journeys (net promoter score) and discovering how to holistically capture guest information for the purpose of driving incremental sales to our guests. This allows jewelry consultants to improve and personalize their interactions with guests before, during and after store visits, to inform them of the latest merchandise offerings and fashion trends. Additionally, in Fiscal 2018, Signet will complete the roll out of digital gemscopes to every store location in North America. These gemscopes leverage proprietary software to provide an enhanced digital view of gem stones and include the ability to email the image to the guest and the Jared Design & Service Center when sent for repair.effectively operationalize customer feedback.

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 typically viewed as an important experience. Due to this dynamic, guestscustomers often invest time on Signet websites and 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, guestscustomers will supplement their online experience with an in-store visit prior to finalizing a purchase.

Through Signet’s websites, we educate guestscustomers and provide them with a source of information on products and brands, available merchandise, as well as the ability to buy online. Our websites are integrated with each division’ssegment’s stores, so that merchandise ordered online may be picked up at a store or delivered to the guest. Brandcustomer. Banner websites continue to make an important and growing contribution to the guestcustomer experience, as well as to each division’ssegment’s marketing programs. ForAs in Fiscal 2018,2019, the Company is focusedwill continue to focus on:

Signet’s supplier relationships allow it to display suppliers’ inventories on the brandbanner websites for sale to guestscustomers without holding the items in its inventory until the products are ordered by guests,customers, which are referred to as “virtual inventory.” Virtual inventory expands the choice of merchandise available to guestscustomers both online and in-store.

The jewelry industry generally is 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. Diamonds account for about 45%52%, and gold about 14%, of Signet’s cost of merchandise sold, respectively.

Signet undertakes hedging for a portion of its requirement for gold through the use of net zero-costzero premium cost collar arrangements, forward contracts and commodity purchasing.participating forwards or swaps. It is not possible to hedge against fluctuations 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.

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 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, strong 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 guests.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 with regard 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 guestscustomers worldwide while achieving further efficiencies in the supply chain. In Fiscal 2014, Signet acquiredowns 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.

Rough diamonds are purchased directly from the miners and then have the stones marked, cut and polished in Signet’s own polishing facility. Any stones deemed unsuitable for Signet’s needs are sold to third parties with the objective of recovering the original cost of the stones.

Management believes that a competitive strength is our industry-leading merchandising. Merchandise selection, innovation, availability and value are all critical success factors. The range of merchandise offered and the high level of inventory availability are supported centrally by extensive and continuous research and testing. Signet’s jewelry design center in New York evaluates global design trends, innovates, and helps our merchant teams develop new jewelry collections that resonate with guests.

Details of merchandise mix (excluding repairs, warranty and other miscellaneous sales) are shown below:

The bridal category, which includes engagement, wedding and anniversary purchases, is predominantly diamond jewelry. Like fashion jewelry and watches, bridal is to an extent dependent on the economic environment as guestscustomers can trade up or down price points depending on their available budget. In Fiscal 2017, bridal sales declined in-line with merchandise sales overall. Declines in the Sterling and Zale divisions were partially offset by growth in the UK. An important element in enabling Signet’s bridal business is customer financing. Bridal represented approximately 50% of Signet’s total merchandise sales. In Fiscal 2019 the Enchanted Disney Fine Jewelry® collection, Vera Wang Love® collection, Neil Lane® collection, and solitaires performed well while the Ever Us® collection declined.

The performance difference between branded and non-branded bridal was immaterial.

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. Third party branded merchandise includes mostly watches, but also includes ranges of charm bracelets. Branded differentiated and exclusive merchandise are items that are branded and exclusive to Signet within its marketplaces, or that are not widely available in other jewelry retailers (e.g Ever Us, Vera Wang Love, Neil Lane)Lane, Disney Enchanted).

Management believes that the development of branded differentiated and exclusive merchandise raises the profile of Signet’s brands,banners, helps to drive sales and provides its well-trained sales associates with a powerful selling proposition. NationalDigital marketing and national television advertisements include elements that drive brand awareness and purchase intent of these ranges. 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 obsolescence, and provides the flexibility to return non-performing merchandise. Virtually all of Signet’s consignment inventory is held in the US.

In Fiscal 2017,2019, the five largest suppliers collectively accounted for 20.4%19.7% of total purchases, with the largest supplier comprising 5.5%6.4%. 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.

Customers’ confidence in our retail brands, store brandbanner name recognition and advertising of branded differentiated and exclusive ranges are important factors in determining buying decisions in the jewelry industry where the majority of merchandise is unbranded. Therefore, Signet continues to strengthen and promote its store brandsbanners and merchandise brands by focusing on delivering superior customer service and building brand name

While marketingMarketing activities are undertaken throughout the year, digital capabilities provide insight into customer journeys enabling personalized journey-based communications at the level of activity is concentrated at periods when guests are expected to be most receptive to marketing messages, which is ahead of Christmas Day, Valentine’s Day and Mother’s Day. A majority of the expenditure is spent on national television advertising, which is used to promote the store brands. Within such advertisements, Signet also promotes certain merchandise ranges, in particular its branded differentiated and exclusive merchandise and other branded products. Statistical and technology-based systems are employed to support customer relationship marketing programs that use a proprietary database to build guest loyalty and strengthen the relationship with guestsappropriate moment through mail, email, social media and telephone communications. The programsdigital marketing. We plan to transform and modernize our marketing model in Fiscal 2020 by re-balancing the timing and mix of our media investments, leveraging a more personalized journey-based approach, and modernizing our content and messaging. In fact, Fiscal 2020 will be the first year that Signet spends more on digital and social marketing than on television advertising. Building on successful “Always On” bridal tests at Kay, we plan to grow our share of gifting occasions with a targeted focus on special occasion milestones like birthdays and anniversaries.

We will also aim to significantly improve the effectiveness of our creative campaigns, building on the banner differentiation work launched in Fiscal 2019. Within the past year, we’ve brought on new creative agencies for every North America banner as well as a new data savvy media agency. Together, we are evolving our campaigns with more sophisticated, journey specific content and using data science to more efficiently target current guests with special savings and merchandise offers during key sales periods. Our targeted marketing efforts are aligned with our customer segmentation approach which, as discussed previously, differentiates our brands by focusing on customer attitudes and behaviors, rather than demographic information. In addition, invitations to special in-store promotional events are extended throughout the year.spend.

Details of gross advertising, advertising before vendor contributions, by divisionsegment is shown below:

In our North American markets, Signet sells products for cash and for payment through major credit cards, online payment systems and third-party financing like PayPal.lease purchase options. 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.

For Kay and Jared banners, Signet originates non-prime receivables and sells them subject to a contractually agreed upon discount rate to funds managed by CarVal Investors (“CarVal”), the majority investor and Castlelake, L.P. (“Castlelake”), the minority investor. Servicing of the non-prime receivables prior to sale to the investors, including operational interfaces and customer financingservicing, is offered through proprietary credit programs that are provided either in-house or through outsourced relationships with select major lenders.

Management has specific operating and financial criteria that have tomust be satisfied before investing in new stores or renewing leases on existing stores. Substantially all the stores operated by Signet are leased. In Fiscal 2017, global netSignet continues to, over time, reposition its portfolio in a manner that it believes will drive greater store space increased 2.6% as a resultproductivity. These efforts include development and implementation of newinnovative store growth focused on off-mall locations. The greatest opportunity for newconcepts to improve the in-store shopping experience, execution of opportunistic store relocations and store closures aimed at exiting under-performing stores, is in locations outside traditional covered malls which further diversifies Signet’s real estate portfolio.reducing the Company’s mall-based exposure and exiting regional brands.

Recent investment in the store portfolio is set out below:

In Fiscal 2017,2019, the average number of full-time equivalent persons employed was 29,566.22,989. In addition, Signet usually employs a limited number of temporary employees during its fourth quarter. None of Signet’s employees in the UK and less than 1% of Signet’s employees in the US and Canada are covered by collective bargaining agreements. Signet considers its relationship with its employees to be excellent.

Signet is required to comply with numerous laws and regulations 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. Management monitors changes in these laws to endeavor to comply with applicable requirements.

Signet operates in the US, Canada and UK markets.

According to the US Bureau of Economic Analysis, and Census Bureau, the total jewelry and watch market was approximately $80$83 billion at the end of 2016,2018, up nearly 5%8% from the prior year. This implies a Signet jewelry market share of approximately 7%. Since 2000,2008, the industry average annual growth rate is 3.2%2.5%. Nearly 90%Around 83% of the market is represented by jewelry, with the balance being attributable to watches. According to the latest data from the US Labor Department, there were nearly 21,000close to 20,400 jewelry stores in the country, down approximately 1.6%0.9% from the prior year.

The jewelry market in Canada, according to Euromonitor, has grown steadily over the past five years, rising to an estimated C$7.28.2 billion in 2014, the latest data available to Signet.2018. This represents a compound annual growth ratean increase of 4.6%. Euromonitor estimates that 2014 was up 3% in dollars and 2% in units.2.9% from the prior year.

In the UK, the jewelry and watch market standswas estimated at about £4.1£5.7 billion in 2018, up 2.9% from the prior year, according to Mintel. That market saw a recovery in 2015 with growth of 1.2%.Growth was driven by continued demand for luxury and high-ticket items. Self-purchasing among young women and gifting among men represent the largest parts of the precious jewelry market.

Store activity by brandbanner

Kay Jewelers

Kay accounted for 39% of Signet’s sales in Fiscal 2019 (Fiscal 2018: 39%).

Zales Jewelers operates primarily in shopping malls and off-mall stores. Off-mall stores primarily are locatedoffers a broad range of bridal, diamond solitaire and fashion jewelry. Zales Outlet operates in outlet malls and neighborhood power centers. The Sterlingcenters and capitalizes on Zales Jewelers’ national marketing and brand recognition. Zales Jewelers store footprint will continueand Zales Outlet are collectively referred to diversifyas “Zales.”

With 275 stores in 40 states asJared, which offers the broadest selection of January 28, 2017 (January 30, 2016: 270 stores), Jared is a leading off-mall destination specialty retail jewelry store chain, based on sales. Jared accounted for 19% of Signet’s sales in Fiscal 2017 (Fiscal 2016: 19%). Jaredmerchandise, is the fourth largest US specialty retail jewelry brand by sales. Like the rest of oursales and is a leading off-mall destination specialty retail jewelry store banners, Jared targets a mid-market jewelry customer. But where Jared differs is that it particularly targets a customer, we identify as a “sentimentalist,” who enjoys shopping for jewelry and cares very much about the details of the product and shopping process.

The typical Jared store has about 4,800 square feet of selling space and approximately 6,000 square feet of total space. Jared locations are normally free-standing sites with high visibility and traffic flow, positioned close to major roads within shopping developments. Jared stores usually operate in retail centers that contain strong retail co-tenants, including big box, destination stores and some smaller specialty units.

Jared also operates Jared Jewelry Boutiques within malls. These mall stores have a smaller footprint than standard Jared locations and generally less than 2,000 square feet of selling space. A similar off-mall concept known as Jared 4.0, which utilizes approximately 3,600 square feet of selling space, allows for store openings in smaller markets, expands the Jared brand and increases the return on Jared advertising investment. Finally, Jared operates an outlet-mall concept known as Jared Vault which utilizes approximately 1,600 square feet of selling space. These stores are smaller than off-mall Jareds and offer a mix of identical products as Jared, as well as different, outlet-specific products at lower prices.

Piercing Pagoda operates through mall-based kiosks in the past three years:US. Piercing Pagodas are generally located in high traffic areas that are easily accessible and visible within regional shopping malls. Piercing Pagoda offers a selection of gold, silver and diamond jewelry in basic styles at moderate prices.

The Sterling Jewelers divisionNorth America segment also operates 32 mall stores under a variety of established regional nameplates. Regional brands in the Sterling Jewelers division accounted for 3% of Signet’s sales in Fiscal 2017 (Fiscal 2016: 3%) and as of January 28, 2017, include 121 regional brand stores in 29 states (January 30, 2016: 141 stores in 31 states). The leading brands include JB Robinson Jewelers, Marks & Morgan Jewelers, Belden Jewelers and Belden Jewelers.Gordon’s Jewelers, in the US, and Mappins Jewellers (“Mappins”), 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 is to reduce regional brand locations through conversion to national store brands or through closure upon lease expiration.

Custom design services represent less than 5% of sales but provide higher than average profitability. Our custom jewelry initiative has a proprietary computer selling system and in-store design capabilities. Design & Service Centers, located in Jared stores, are staffed with skilled artisans who support the custom business generated by other Sterling Jewelers divisionNorth America segment stores, as well as the Jared stores in which they are located. The custom design and repair function has its own field management and training structure.

Repair services represent less than 5% of sales, approximately 30%20% of transactions and are an important opportunity to build customer loyalty. The Jared Design & Service Centers, open the same hours as the store, also support other Sterling Jewelers and Zale divisionNorth America segment stores’ repair business.

The Sterling Jewelers divisionNorth America 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.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.

Several factors inherent in the US jewelry business support the circumstances through which we believe Signet is uniquely 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. Our consumer credit program isand lease programs are an integral part of our business and is a major driver of customer loyalty. GuestsCustomers are offered revolving and interest freepromotional credit plans under our private label credit card programs offeredand a lease purchase option provided by Progressive Lease allowing Signet to offer payment options that meet each customer’s individual needs.

Below is a summary of the payment participation rate in conjunction with Comenity BankNorth America which reflects activity for in-house and TD Bank Services in Canada, in conjunction with other alternative finance vehicles, including Signet’s in-house consumeroutsourced credit program beginningcustomers in late Fiscal 2016. These provide guestsNorth America, including legacy Sterling Jewelers, Zale Jewelry and Piercing Pagoda customers, as well as lease purchase customers:

The UK Jewelry divisionInternational 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 2017,2019, approximately 25%31% of goods purchased were made in US dollars (Fiscal 2016: 25%2018: 27%). The following information for the UK Jewelry divisionInternational segment is given in British pounds as management believes that this presentation assists in understanding the performance of the UK Jewelry division.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. See Item 6 for analysis of results at constant exchange rates; non-GAAP measures.

Ernest Jones and H.Samuel compete with a large number of independent jewelry retailers, as well as discount jewelry retailers, online retail and auction sites, apparel and accessory fashion stores, catalog showroom operators and supermarkets.

Store activity by brand

H.Samuel accounted for 5% of Signet’s sales in Fiscal 2017 (Fiscal 2016: 6%), and is the largest specialty retail jewelry store brand in the UK by number of stores. H.Samuel has 150 years of jewelry heritage, with a target customer focused on inexpensive fashion-trend oriented, everyday jewelry. The typical store selling space is 1,100 square feet.

H.Samuel accounted for 5% of H.Samuel’s performance over the last three years is shown below:

Ernest Jones (including stores selling under the Leslie Davis nameplate) accounted for 5% of Signet’s sales in Fiscal 2017 (Fiscal 2016: 6%), and is the second largest specialty retail jewelry store brandbanner 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. Details

Ernest Jones (including stores selling under the Leslie Davis nameplate) accounted for 5% of Ernest Jones’ performance over the last three years is shown below:Signet’s sales in Fiscal 2019 (Fiscal 2018: 5%),

In Fiscal 2017,2019, approximately 8% of the division’ssegment’s sales were made through a customer finance program provided through a third party (Fiscal 2016: 7%2018: 9%). Signet does not provide this service itself in the UK due to low demand for customer finance.

OTHER

Other consists of all non-reportable operating segments, including activities related to the direct sourcing of rough diamonds, and is aggregated with unallocated corporate administrative functions.

Signet recognizes that climate change is a major risk to society and therefore continues to take steps to reduce Signet’s climatic impact. Management believes that climate change has a largely indirectlimited influence on Signet’s performance and that it is of limited significance to the business.

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”). Prior to February 1, 2010, Signet filed annual reports on Form 20-F and furnished other reports on Form 6-K with the SEC. Such information, and amendments to reports previously filed or furnished, is available free of charge from our corporate website, www.signetjewelers.com, as soon as reasonably practicable after such materials are filed with or furnished to the SEC. The public also may read and copy any of these filings at the SEC’s Public Reference Room, 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-732-0330. The SEC also maintains a websitean internet site at www.sec.gov that contains the Company’s filings.

Jewelry purchases are discretionary and are dependent on consumers’ perceptions of general economic conditions, 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 have a material adverse effect on our margins and operating results.

The success of Signet’s 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 regional and local markets where we operate.

As 10% of Signet’s sales are accounted for by its UK Jewelry division,International segment, economic conditions in the eurozone have a significant impact on the UK economy even though the UK is not a member of the eurozone. Therefore, developments ineurozone, including uncertainty regarding the eurozonetiming and terms of the planned withdrawal of the UK from the European Union, could adversely impact trading in the UK Jewelry division,International segment, as well as adversely impact the US economy.

More thanApproximately half of Signet’s sales in the US and Canada utilize its in-house or third-party customer financing programs and an additional 35%36% of purchases are made 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 requirement for access to customer finance andwhich could in turn have an adverse effect on the Company’s sales. Furthermore, any downturn in general or local economic conditions, in particular an increase in unemployment in the markets in which the Signet operates, may adversely affect its collectionthe merchant discount rate paid by Signet related to the sale of outstanding accounts receivable, its net bad debt charge and hence earnings.the non-prime receivables, as well as the value of any assets contingent on the performance of the non-prime receivables.

Additionally, Signet’s ability to extend credit to customers and the terms on which it is achieved depends on many factors, including compliance with applicable laws and regulations in the US and Canada, any of which may change from time to time, and such changes could adversely affect sales and income. In addition, other restrictions arising from applicable law could cause limitations in credit terms currently offered or a reduction in the level of credit granted by the Company, or by third parties, and this could adversely impact sales, income or cash flow.

The US Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) was signed into law in July 2010. Among other things,Any new regulatory initiatives or investigations by the Dodd-Frank Act created a Bureau of Consumer Financial Protection (“CFPB”) or other state authority, or ongoing compliance with broad rule-makingthe Consent Order entered into on January 16, 2019 with the CFPB and supervisory authoritythe Attorney General for a wide rangethe State of consumer financial services, including Signet’s customer financing programs. The Bureau’s authority became effective in July 2011. Any new regulatory initiatives byNew York relating to the BureauCompany’s in-store credit practices, promotions, and payment protection products could impose additional costs and/or restrictions on credit practices of the Sterling Jewelers and Zale divisions,North America segment, which could adversely affect their ability to conduct its business.

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 price and volume fluctuations that have affected the market price of many retail and other stocks in a manner unrelated, or disproportionate, to the operating performance of these companies.

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, 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. 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.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 impact the results to a lesser extent.results. 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 our existing workforce. Increased competition and promotional activity during holiday periods has impacted and could in the future result in adverse impacts to Signet’s sales, profitability and market share.

While Signet has a strong balance sheet with adequate liquidity to meet its operating requirements, the creditCredit ratings agencies periodically review our capital structure and the quality and stability of our earnings. A deterioration in Signet’s capital structure or the quality and stability of earnings could result in a downgrade of Signet’s credit rating. Any negative ratings actions could also constrain the capital available to the Company, could limit the Company’s access to funding for its operations, funding dividends and share repurchases, and increase the Company’s financing costs. Changes in general credit market conditions could also affect Signet’s ability to access capital at rates and on terms we determine to be attractive. If our ability to access capital becomes constrained, our interest costs will likely increase, which could have a material adverse effect on our results of operations, financial condition and cash flows. Additionally, as a result of the Company’s exposure to variable interest rate debt, volatility in benchmark interest rates could adversely impact the Company’s financial results.

Signet’s borrowing agreements include various financial covenants and operating restrictions. A material deterioration in its financial performance could result in a covenant being breached. If Signet were to breach, or believed it was going to breach, a financial covenant it would have to renegotiate its terms with current lenders or find alternative sources of financing if current lenders required cancellation of facilities or early repayment.

Signet publishes its consolidated annual financial statements in US dollars. At January 28, 2017,February 2, 2019, Signet held approximately 91%90% of its total assets in entities whose functional currency is the US dollar and generated approximately 86%87% of its sales and 94%substantially all of its operating income (loss) in US dollars for the fiscal year then ended. All the remaining assets, sales and operating income are in UK 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 UK Jewelry divisionInternational segment and the Canadian subsidiaries of the Zale divisionNorth America segment in the fiscal month.

Where British pounds or Canadian dollars are held or used to fund the cash flow requirements of the business, any decrease in the weighted average value of the British pound or Canadian dollar against the US dollar would reduce the amount of cash and cash equivalents.

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.

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 45%52%, and gold about 14%, of Signet’s merchandise costs in Fiscal 2017.2019.

In Fiscal 2017,2019, 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. The mining, production and inventory policies followed by major producers of rough diamonds can have a significant impact on diamond prices, as can the inventory and buying patterns of jewelry retailers and other parties in the supply chain.

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.

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 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 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, 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 result in the expected returns and other projected benefits anticipated by management.

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, particularly 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. There is no certainty that such price increases will be sustainable, so downward pressure on gross margins and earnings may occur. 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.

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 our 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 27, 2016,25, 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, 2015.2017.

There may be reputational risks associated with the potential negative response of our 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. Also, if future responses to verification requests by suppliers of any of the covered minerals used in our products are inadequate or adverse, Signet’s ability to obtain merchandise may be impaired and our 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 rules.

IfCritical to maintaining an optimal customer experience is a multi-faceted value proposition that focuses on customer service, attractive brand and category assortments, availability of financing, and deep customer service and relationship building with our guest service professionals, as well as competitive pricing. Although not a singular differentiator to our value proposition, if significant price increases are implemented by any divisionsegment 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.