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SIGNET JEWELERS REPORTS SECOND QUARTER FINANCIAL RESULTS
Strong same store sales drive solid financial results

Signet Jewelers Limited (“Signet”) (NYSE and LSE: SIG), the world's largest retailer of diamond jewelry, recently announced its results for the 13 weeks ended August 1, 2015 (“second quarter Fiscal 2016”).

Mark Light, Chief Executive Officer of Signet Jewelers, said, “Signet delivered a second quarter increase in same store sales of 4.2%, earnings per share of $0.78, and adjusted earnings per share of $1.28, a 19.6% increase. These results exceeded our same store sales and adjusted EPS guidance for the quarter. Results were driven by strong and consistent sales growth across all of our selling channels, as well as solid profitability and disciplined cost management across our organization.

"The integration of Zale continues to go well, and we have begun to see the benefit of net synergies positively impact our operating results. I am increasingly confident that we are on track in FY16 to realize 20% of our three year net synergy target of $150 million to $175 million. We remain committed to maintaining profitable growth while balancing investment back into the business with shareholder distribution.

“I want to congratulate and thank all Signet team members for their contributions to our quarterly results.”

Second Quarter Fiscal 2016 Diluted Earnings per Share (“EPS”) Analysis:

Consolidated results in prior year reflect the contribution of 26 fewer days year-over-year from the addition of Zale Corporation acquired on May 29, 2014 ("the acquisition"). In addition, consolidated results reflect purchase accounting and transaction costs related to that acquisition.

Second quarter EPS was $0.78. EPS was unfavorably impacted by transaction costs principally due to the $34.2 million legal settlement of the Zale acquisition appraisal rights matters.

Second quarter Adjusted EPS was $1.28 driven by stronger than expected business performance, a lower tax rate, and an operational change associated with extended service plans, which resulted in a change in revenue recognition. Adjusted EPS can be reconciled to EPS as follows:

Financial Guidance:

Capital expenditures will be driven primarily by new Kay and Jared stores, store remodels, and approximately $80 million to $90 million directed to the Zale division for information technology infrastructure and stores.

Net selling square footage growth is expected to be driven by the following projected store (and kiosk) changes:

Second quarter Fiscal 2016 Sales Highlights:

Total sales were $1,410.6 million, up $184.7 million or 15.1%, compared to $1,225.9 million in the second quarter Fiscal 2015. Same store sales increased 4.2% compared to an increase of 4.8% in the 13 weeks ended August 2, 2014 ("second quarter Fiscal 2015") driven by positive sales performance across all national store brands. In the second quarter, an operational change related to the Sterling division's extended service plans ("ESP") associated with ring sizing was made to further align Zale and Sterling ESP policies. This change triggered a change in the revenue and expense recognition rates which favorably impacted Signet same store sales by 60 basis points. eCommerce sales in the second quarter were $65.9 million, up $15.4 million or 30.5% compared to $50.5 million in the prior year second quarter.

Sterling Jewelers division sales increases were broad-based across store banners, product brands and non-brands, as well as multi-channels. Bridal and diamond jewelry was particularly strong. The average transaction price in Sterling increased by 4.2% and the number of transactions decreased by 2.5% due principally to merchandise mix. • Zale division sales increases were driven by higher sales among stores and kiosks. The prior year quarter had 26 fewer days due to the acquisition. Sales related drivers included sales associate training, branded bridal, branded diamond fashion merchandise and new marketing creative. • UK Jewelry division total sales decreases were driven entirely by foreign currency exchange rates. The increase in same store sales and total sales at constant exchange rates was driven primarily by strong results in diamond jewelry and watches. The average transaction price and number of transactions for the division increased by 4.3% and 1.8%, respectively, due principally to merchandise mix.

1.  Based on stores opened for at least 12 months.

2.  Includes all sales from stores not open for 12 months.

3.  Non-GAAP measure.

4.  Same store sales reflect three months of Fiscal 2016 compared to three months of Fiscal 2015. Total sales in prior year reflect the contribution of 26 fewer days year-over-year from the addition of Zale Corporation, acquired on May 29, 2014.

Second quarter Fiscal 2016 Financial Highlights:

Gross margin was $490.8 million or 34.8% of sales compared to $409.0 million or 33.4% of sales in the second quarter Fiscal 2015. In the second quarter Fiscal 2016, adjusted gross margin was $500.1 million or 35.3% of adjusted sales compared to the prior year adjusted gross margin rate of 34.3%. The increase in the adjusted gross margin rate of 100 basis points over the prior year was impacted by higher sales and favorable commodity costs. Excluding Zale, the adjusted gross margin rate was 35.7%, up 90 basis points.

• Gross margin dollars in the Sterling Jewelers division increased $25.1 million compared to the prior year second quarter. The gross margin rate, up 90 basis points, increased principally due to an improvement in the merchandise margin from favorable commodity costs partially offset by net bad debt due to higher credit sales.


• Gross margin dollars in the Zale division increased $52.3 million compared to the prior year second quarter, reflecting higher sales and an adjusted gross margin rate increase of 170 basis points. The gross margin rate expansion was driven principally by improved merchandise margin attributed to a number of factors, including merchandise synergy initiatives and favorable commodity costs, and leverage on store occupancy.


• Gross margin dollars in the UK Jewelry division increased $0.5 million compared to the prior year second quarter, and the gross margin rate increased 100 basis points. The gross margin rate expansion was driven principally by lower store occupancy expenses.

SGA was $452.8 million or 32.1% of sales compared to $379.2 million or 31.0% of sales in second quarter Fiscal 2015. The $73.6 million increase was primarily due to the addition of 26 days of Zale operations in this year's quarter, as well as transaction-related expenses of $43.6 million, including the appraisal rights legal settlement of $34.2 million, and favorable adjustments related to purchase accounting of $4.2 million. In the prior year, favorable adjustments related to purchase accounting were $3.0 million and transaction-related expenses were $30.8 million.

• Second quarter Fiscal 2016 adjusted SGA was $413.4 million or 29.2% of sales compared to 28.4% in the prior year. The 80 basis point increase was due to incremental investments in Zale principally around advertising, information technology support, and employee benefits.


• The second quarter Fiscal 2016 adjusted Signet SGA rate excluding Zale would have been 27.5%, a 10 basis point decrease versus the prior year second quarter primarily due to leverage on store payroll costs partially offset by higher central costs associated with legal fees related to the appraisal rights litigation.

Other operating income was $62.8 million compared to $53.7 million in the prior year second quarter, up $9.1 million or 16.9%. This increase was due to the Sterling division’s higher interest income earned from higher outstanding receivable balances.

Operating income was $100.8 million, or 7.2% of sales compared to $83.5 million or 6.8% of sales last year. Included in operating income were purchase accounting and transaction related adjustments which reduced operating income by $48.7 million in the second quarter compared to adjustments of $42.3 in the prior year second quarter. Adjusted operating income was $149.5 million, or 10.5% of sales compared to adjusted operating income of $125.8 million or 10.2% of sales last year. Signet's 30 basis point increase in adjusted operating margin was due principally to higher sales and gross margin.

• Operating income in the Sterling Jewelers division was $157.8 million or 18.4% of sales compared to $129.9 million or 16.0% in the prior year second quarter.
• Operating loss in the Zale division, inclusive of purchase accounting adjustments, was $2.1 million or 0.5% of sales compared to an operating loss of $9.8 million or 4.0% in the prior year second quarter. The prior year second quarter includes 26 fewer days of Zale operations.
• Operating income in the UK division was $3.2 million or 2.0% of sales compared to $1.1 million or 0.7% of sales in the prior year second quarter.
• Operating loss of the Other operating segment, which includes unallocated corporate administrative costs and the costs of Signet's diamond sourcing initiative, was $58.1 million compared to a loss of $37.7 million in the prior year second quarter. The increase was driven by the legal settlement. The prior year included transaction-related costs of $30.8 million.

Income tax expense was $27.5 million, an effective tax rate (“ETR”) of 30.7%, compared to $11.8 million, an ETR of 16.9%, in the prior year second quarter. The second quarter's higher ETR was driven in large part by the $34.2 million appraisal rights legal settlement which is not deductible for tax purposes. Signet continues to anticipate a Fiscal 2016 ETR of 28% to 29% on both an adjusted and GAAP basis.

Adjusted EPS was $1.28, up 19.6% compared to $1.07 in the prior year second quarter. Adjusted EPS included a favorable impact of $0.05 due to the change in revenue recognition from extended service plans.

Balance Sheet and Other Highlights at August 1, 2015:

Cash and cash equivalents were $159.8 million compared to $215.0 million as of August 2, 2014. The lower cash position was due to unfavorable changes to working capital, higher capital spending, higher dividends and share repurchases.

For the quarter, Signet repurchased $60.0 million of shares, or 0.5 million shares at an average cost of $128.03 per share. Year to date Signet repurchased $81.9 million of shares, or 0.6 million shares at an average cost of $130.27 per share. As of August 1, 2015, there was $183.7 million remaining under Signet’s 2013 share repurchase authorization program.

Net accounts receivable were $1,493.2 million, up 13.5% compared to $1,316.0 million as of August 2, 2014. In the Sterling Jewelers division the credit participation rate was 61.6% in the 26 weeks ended August 1, 2015 compared to 60.0% in the 26 weeks ended August 2, 2014.

Net inventories were $2,414.2 million, up 2.9% compared to $2,345.3 million as of the prior year period due primarily to more stores and rough diamond inventory.

Long term debt was $1,348.7 million compared to $1,379.1 million in the prior year period.

On August 1, 2015, Signet had 3,593 stores, consisting of the following:

Dividends:

Reflecting the Board's confidence in the strength of the business as well as Signet's ability to invest in growth initiatives and the Board's commitment to building long-term shareholder value, a quarterly cash dividend of $0.22 per Signet Common Share has been declared for the third quarter of Fiscal 2016 payable on November 27, 2015 to shareholders of record on October 30, 2015, with an ex-dividend date of October 29, 2015.