Signet Jewelers Limited 2027 Q2 Earnings Call

Thank you for joining us for today's earnings conference call. During today's discussion, we will make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially. We urge you to read the risk factors, cautionary language, and other disclosures in our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events. During the call, we will discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures, as well as the reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures, investors should review the news release we posted on our website at ir.signetjewelers.com.

With that, I'll turn the call over to J.K.

Thanks, Rob, and good morning, everyone. I'd like to start today by thanking our Signet team. Your commitment and execution of Grow Brand Love is inspiring. We're building something great, so thank you for being a part of it. There are three key takeaways I'd like to leave you with today. First, we delivered another solid quarter with positive comps, now five of the last six quarters, with positive comps each month of the quarter, and drove more than 35% adjusted EPS growth. Second, we are accelerating our key brand initiatives, including merchandise refreshes, enhancements to both the online and in-store customer experience, and a more modern, emotionally engaging marketing approach as we look to drive a positive comp over the holiday. Third, we have growing confidence in our ability to deliver this year, and we're raising guidance for the second time.

We had a solid quarter with comps up over 2%, reflecting high single-digit comp growth at price points over $2,000, including a strong Mother's Day. Timepieces continued to deliver strong category comp growth, up almost double digit to last year. We delivered low single-digit comp growth in bridal, led by a stronger sales performance. Fashion saw a 1% comp decline, reflecting decreases in comps at Banter and lower price points in general, largely metal pieces, with nice sales growth at middle to high price points. Beyond top line, we continue to navigate tariffs. This quarter reflects diligent and ongoing work from our team, led by Stacey Johnson-Williams, who continue to minimize the impact of ongoing tariffs and pursue any and all available refund of direct tariffs previously paid.

They are also actively working with our valued vendor partners to pursue recovery of any applicable indirect IEEPA tariffs and continue to build on further supply chain opportunities. The speed and agility of our team in their efforts here is a direct reflection of our improved operating model. Looking forward to the second half, we have several initiatives working to differentiate Signet's brands. This week, we're introducing an important evolution of Kay, one of the most recognized jewelry brands in the U.S. We're building on Kay's strong foundation with Love All In, a new campaign that brings a fresh expression of love to the Kay experience, from our imagery and language to how and where consumers engage with the brand.

The goal of Love All In is to move Kay from an idealized expression of love to something much more real and authentic, while also expanding the occasions and relationships we can celebrate with them. As we mentioned on the last call, we have redesigned the websites for Jared, Kay, and Zales. We have launched both Kay and Jared, and early results are promising. We expect Zales to launch later this month. I'd encourage you to visit the Jared and Kay sites now. You'll immediately notice better imagery and product presentation that includes more realistic on-model photography to help customers buy with confidence. A simpler navigation structure helps customers get to the right product faster, alongside curated experiences that work to connect inspiration directly to product. In short, it's a more modern, intuitive, and inspiring shopping experience.

This creates a foundation for digital growth by including deeper personalization, agentic discovery, and greater omni-channel connectivity. I'd like to take a moment to thank our digital and technology teams. You delivered ahead of schedule while serving customers without disruption, and you've positioned us well for an important Q4 ahead. Alongside those efforts, we continue to transform our marketing playbook while driving efficiency in spend. For example, we reduced marketing spend this quarter while driving positive comps and increased social media impressions, including unpaid impressions, with the strongest increase in efficiency at our three largest brands. We also saw those three brands, Kay, Zales, and Jared, increase their customer consideration in the second quarter.

Proof points like these give us confidence that stronger storytelling drives better brand engagement. We believe the combination of our marketing playbook and refreshed websites can continue expanding reach and engagement to drive conversion through digital experiences that reinforce brand distinction rather than relying solely on paid traffic. Importantly, ahead of holiday, we have invested in opportunities within our assortment and across price points. We know the consumer is always focused on value across income brackets, and we will leverage the full strength of our portfolio to drive differentiation and serve customers. This means both narrowing and deepening of top performers, as well as fortifying trends and fast-following successes. We believe we are well-positioned to deliver compelling value throughout the holiday season and have provided more flexibility within our strategic vendor base to react quickly to trends.

Turning to my final takeaway today, we have growing confidence in our ability to deliver this year as we raise guidance for the second time. We are driving consistent results with momentum and focus. We are taking deliberate actions to strengthen our brands, deepen customer engagement, and create long-term shareholder value. Before I hand things over to Joan, I would like to formally welcome our new Zales and Blue Nile presidents. Jamie Cygielman, our new president for Zales and Banter, was most recently with Mattel, serving as Global Head of Dolls, which included leading the American Girl and Barbie lines. Jamie brings 30 years of experience building and transforming longstanding, well-known brands. Pam Cloud, our new Blue Nile president, joins us with more than 30 years of luxury retail experience, including more than 25 years with Tiffany & Co.

A merchant at her core, Pam understands the power of signature and proprietary collections as key to driving brand affinity. With Jamie and Pam rounding out our brand leadership team, we believe we now have the right leaders aligned to the right strategy and the momentum to bring Grow Brand Love to life at scale. I am excited for what this team will accomplish as we continue shaping the future of Signet. Summarizing my key takeaways today, first, we delivered another solid quarter with positive comps, now five of the last six quarters. With positive comps each month of the quarter and drove more than 35% adjusted EPS growth. Second, we are accelerating our key brand initiatives, including merchandise refreshes, enhancements to both the online and in-store customer experience, and a more modern, emotionally engaging marketing approach as we look to drive a positive comp over the holiday.

Last, we have growing confidence in our ability to deliver this year, and we are raising guidance for the second time. With that, I would like to turn it over to Joan.

Thanks, J.K., and good morning, everyone. We are pleased to announce that we have proactively signed an early renewal with our primary consumer credit partner, Bread Financial. After a competitive bidding process fueled by the strength of the portfolio, the new agreement extends the partnership an additional seven years through December of 2035. The renewal includes a new profit-sharing agreement that we estimate will generate over $1 billion to Signet in incremental non-comp revenue and operating income over its life. This includes roughly $80 million of cash expected to be received in the third quarter in conjunction with the signing of our agreement, which will be recognized ratably over the term. We estimate an operating benefit over the next 36 months between $200 million and $250 million. Thereafter, the amount should increase through the term of the agreement.

We expect between $30 million to $40 million of non-comp revenue and gross margin benefit this year, partially offset by higher incentive compensation. Importantly, there is no loss sharing within the agreement. This is incremental to our current profitability and is still expected to provide significant benefit to Signet, even across recessionary scenarios. In addition to the direct financial benefits, the agreement will also bring a number of customer enhancements over the next 12 to 18 months. These will focus on continued tech investments, robust analytics to enable data-driven marketing, as well as an improved customer experience and credit capabilities to support customer needs, including cross-shopping amongst Signet brands. Additionally, we plan to offer credit from Bread Financial to Blue Nile customers for the first time ahead of this holiday season.