Ladies and gentlemen, thank you for standing by. Welcome to the Signet Jewelers' Fiscal 2015 Fourth Quarter and Full Year Financial Results Conference Call and Webcast. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. [Operator Instructions]. Please note that this call is being recorded, today, March 26, 2015 at 8.30 AM Eastern Time. I would now like to turn the meeting over to your host for today’s call, James Grant, Vice President of Investor Relations. Please go ahead, James.

Good morning. Welcome to our fourth quarter fiscal 2015 earnings call. On our call today are Mark Light, CEO; and Michele Santana, CFO. The presentation deck, we will be referencing, is available under the Investor section of our Web site, signetjewelers.com. During today’s presentation, we will in places discuss Signet’s business outlook and make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. We urge you to read the risk factors cautionary language and other disclosures in the annual report on Form 10-K that will be filed today with the SEC. We also draw your attention to Slide 2 in today’s presentation for additional information about forward-looking statements and non-GAAP measures. Now, I will turn the call over to Mark.

Thanks, James, and good morning everyone. In the fourth quarter, we delivered solid top line and bottom line results. Signet comp store sales increased by 4.2% with strong sales performance across all divisions and selling channels. On a divisional basis, Sterling delivered a same-store sales increase of 3.7% while delivering record operating profit. Zale also drove an impressive 3.7% comp sales increase. Our UK division delivered its highest fourth quarter same-store sales increase in 13 years at 7.5% and its best operating profit in three years. From a merchandize view, Signet’s bridal and fashion diamond performed very well across the organization and by selling channel, our broad based strength was evident with outlets and eCommerce delivering strong results in addition to our traditional store locations. Signet’s eCommerce sales in the fourth quarter were $149.6 million, which was an increase of 89.4%, which is due to the addition of Zale this year. But when you exclude the Zale division, our eCommerce sales were at $94.8 million, which was at a growth rate of 20%. Signet’s fourth quarter adjusted EPS was at $3.06, a penny higher than our top end of our guidance and up 40.4% from the prior year period due to strong execution of our fourth quarter strategies. I would also like to add that Zale favorably impacted EPS by $0.43. So when measured on an apples-to-apples basis versus last year by excluding Zale, Signet’s EPS was up $0.35 or 16.1%. Now let’s focus on our performance by division, starting with the Sterling division. We have a variety of drivers behind our fourth quarter Sterling results, most notably our sustainable competitive strengths that include our superior guest experience, our exciting merchandize offerings, our creative marketing and our multichannel approach. The customer experience is essential for our success and we are…

Thank you, Mark, and good morning, everyone. I apologize in advance, I’m battling a cold so if I interrupt my commentary with an occasional cough then I apologize. All right. So to start with, I just want to emphasize my comparison in commentary will be focused on our fourth quarter results. So let’s begin by reviewing sales, which Mark offered a brief overview of these numbers a few moments ago. In the Sterling division, total sales increased 5.5% to $1,358.3 million, which included a same-store sales increase of 3.7%. The average transaction price in Sterling increased by 4.5% and the number of transactions decreased by 1.2%. The increase in the average transaction price was driven primarily by bridal diamonds with the number of transactions impacted by a decline in sales associated with lower average selling price units. Zale’s division total sales was 636.7 million for the quarter, which included a same-store sales increase of 3.7%. Total sales also included a $12.8 million unfavorable revenue impact due to purchase accounting adjustments related to deferred revenue. As Mark indicated, sales were driven in part by initial synergy initiatives surrounding sales associate training, merchandize assortment and new marketing creative. Merchandize sales were particularly strong in branded bridal and branded diamond fashion. UK division total sales increased 2.1% or 7.7% on a constant exchange basis to 278 million with a comp sales increase of 7.5%. This increase was driven primarily by branded bridal, fashion diamond jewelry and fashion watches. The average transaction price increased by 7% and the number of transactions increased by 1.6% and that was attributed to strong performance across the entire merchandize portfolio. Moving on, over the next couple of slides, I will share with you Signet’s consolidated Q4 performance before we turn and analyze Signet’s adjusted results. On Slide 10,…

Thank you, Michele. In conclusion, I want to sincerely congratulate and thank all of our Signet team members for a fantastic fiscal year and fourth quarter. Their dedication, their passion and their collaboration to deliver significant value for Signet shareholders and positions us for growth into the future. Now, we’ll take some time for your questions.

[Operator Instructions]. Your first question comes from the line of Simeon Siegel from Nomura. Your line is open.

Thanks. Good morning guys and congrats on a strong finish to a great year.

Thank you, Simeon.

So comps accelerated through January. Was that just lap easier compares or can you talk about anything you may have done differently? Did you reemphasize any marketing for specific brands, et cetera? And then you guys ended Zale’s, the stores, I think above the initial guidance and you’re guiding flat for the year. Can you talk about what you’ve seen over the past few quarters that’s maybe shaping your ultimate Zale’s store count objectives? Where do those 30 or 35 Zale division openings fall within the concepts? And then just lastly, Michele, so the Zale EBIT margin contracted slightly this quarter but I think better than initially expected. What’s the implied EBIT assumed within that $0.17 to $0.18 for Q1? Thanks.

Thanks, Simeon. Thank you for your kind words. In reference to the January comps, we mentioned this if you recall during our holiday announcement in January that our January started off good and we also mentioned that our bridal business and our strategy, our best in bridal strategy continues to be doing very, very well and it carried through January and it continues to carry through to our business. So, we didn’t make any major changes other than as what we shared in the holiday conference call and that bridal becomes a bigger part of our business in January and carries on through the year and some of the items that we’re doing as well continues through the trend on the runways on some of the lower price items. That trend has returned to a positive or getting into a more positive momentum. In reference to the Zale openings, we’re actually very excited about the opportunity of the global Zale brand. If you look at our portfolio today, the Kay store brands have well over 1,000 stores. Zale’s in the 700 zone and we think there’s tremendous opportunity to continue to grow the Zale brand and this year is the first year in years where Zale is actually going to be flat as it relates to space growth. As we’ve said, we’re looking to open 30 to 35 stores and really it’s in the zone of 25 or so Zale stores and 10 or so Piercing Pagoda stores.

Yes. And then in your other question in terms of the EBITDA margin associated with Zale for the first quarter, you’re correct in terms of our adjusted EPS. That does include our expectation for the Zale operations to be accretive in Q1 by $0.17 to $0.18. But apart from that, we’re not breaking down that guidance in terms of what the EBITDA margin or margin rate would be.

Okay, great. Thanks guys and best of luck for the coming year.

Thank you.

Your next question comes from the line of Oliver Chen from Cowen & Company. Your line is open.

Thanks a lot. Congrats guys, congrats Mark and Michele, thanks for the awesome details on the Signetization is going to be very uncertain.

Thanks.

Thanks, Oliver.

Regarding the statement on brand cross selling and the three-year synergies, so Mark what have you learned so far. I know you were in some initial studies there in terms of what makes the most sense. And also a related question, so the non-bridal and diamond performance of the portfolio, are you happy with where it’s positioned now and what’s the innovation we might expect there? And then, Michele, I just wanted you to give us some general comments about how merch margin may trend throughout the year by brand? And then you mentioned the ABS additional capacity, if you could help us understand how to think about that, that would be appreciated. Thank you.

Thanks again, Oliver, for the kind words. As it relates to brand cross selling, I want to remind everybody again, we were able to rush into a test into our stores and literally rush into a test and get some Vera Wang products into our Kay stores, get some Neil Lane products into our Zale’s and People’s stores and so very early. So early upfront we feel good about some of the cross selling but we’ve got a lot more to do and extend and expand our testing through the first quarter. And at the June conference, investor conference, and I want to put a little commercial in for right now, you’ll hear a lot more about that how we are going to segment our brands, our store brands and how our product brand to support that segmentation and differentiation. But overall, there’s good opportunities for brand cross selling but it’s still early to really understand what the full opportunity is. As far as – I think you said, Oliver, the non-bridal or non-diamond categories of jewelry, how are we doing? We’re doing better. As you’ll recall and during that holiday announcement, some of our lower price point product did not do that well but right now we’re seeing a reverse of that trend and we have a lot of – our merchants are working on a lot of exciting new lower price point opportunities that you’ll hear more about into the fall season.

Oliver, in terms of our gross margin trends, you’re question around that and breaking that out by brand. We’re not forecasting or giving guidance for the year on our gross margin and we won’t break it down by brand. But just to try and give you maybe directionally some color around that. Going back for our synergies, which we’ve talked about, a component of our synergies does incorporate gross margin improvement and we’ve talked about 20% of them are synergies being achieved in fiscal 2016. So that is of itself would lend to an improved gross margin. Again, if gold kind of behaved where it’s been, you would anticipate that we can continue to see some benefits on the commodity cost side but gold can be erratic and you never know quite what to predict where it’s going to be or land. Your other comment in terms of how to think through the ABS additional capacity, so a few things there. We talked about our capital allocation strategy and where we end our leverage ratio at the end of fiscal 2015, and again I would just remind you that that includes only a partial year from Zale, we don’t see the immediate capacity in fiscal 2016 to utilize additional ABS, our asset-backed securitization. But as we move through FY '16 incorporating a full year to Zale operations as well as just the natural growth in our business, we’ll be well positioned when we end that year and moving into fiscal '17 to revisit our asset-backed securitization and take advantage of capacity. And I’ll just remind you, our current ABS facility, we have an advanced rate of 65% under that. We currently are at about 60% threshold. So we have an opportunity; one, not only to increase our level of capacity under that but also to even revisit and potentially increase that 65 to a higher number, so I’d just provide that color to your question.

Okay, that’s perfect. And just a final follow up. You did mention briefly some ideas or potential opportunities around M&A. Could you just give us color in terms of what strategic or financial filters you would use in evaluating the marketplace?

I think what Michele is saying is that we want to make sure we have flexibility for an opportunistic M&A that we would look at it. Right now we are focused on integrating Zale and continue to operate our business over the next 12 to 18 months, but we just want to continue to maintain that flexibility.

With that said, I would just add, Oliver, any strategic initiative or acquisition that we would consider first and foremost it has to fit with our vision 20/20 and our strategic plan.

Great. Thank you. Best regards.

Thank you.

Thanks, Oliver.

Your next question comes from the line of Janet Kloppenburg from JJK Research. Your line is open.

Good morning, everyone, and congratulations on a great quarter and a year.

Thank you.

Thank you.

Hi. I was just wondering if you could talk a little bit about when you look back on Q4, the rate of promotional activity year-over-year, I think maybe through the holiday season it was comparable. I’m wondering what happened in January and if you were able to improve the promotional stance year-over-year there? And also, Mark, I wondered if you could talk about the Valentine’s Day performance. I don’t know if you’ll give us any color on that but I thought the stores looked great and I thought your marketing was very strong particularly at Zale. And just lastly on the associate training and upgrades at Zale, how far along are you on that process and what should we be looking for in this year? Thank you.

Thank you, Janet, very much. First of all, as far as the fourth quarter weighting promotional activity, as we said in January we did not increase the amount of promoting that we did. It’s comparable. What we did is we tried to target some of our promotions and make sure we had them targeted towards the right customers and make sure they were targeted towards the right investment, right timing. But we did not accrete our promotional activity per se, as we’re not going to talk about the performance other than saying that as you saw in our guidance, we’re looking at 3% to 4% top increases and I think that’s just kind of reinforces what we think about our Valentine’s Day performance. We were able to, if you saw, we did have some new PD creative for certain and all of our divisions. We did have some improved weights in some of our divisions and we had some better targeted media placement in all of our divisions. So as a whole, thank you for your kind words about our store. We were very thrilled with what our stores accomplished in all of our divisions and some of the exciting new opportunities they offer to our customers. As it relates to the associate training in the Zale division, we started last year and there’s a lot of talented team members in the Zale division and they really are embracing our training philosophy. Last year we started really talking about features and benefits specifically in the bridal category in Vera Wang. And that type of training is a journey. You can’t train 10,000 people overnight. So we continue to focus on training of diamonds, training of features and benefits and focusing on the bridal sales and that will continue, Janet. Every year, as we said before, our Zale division and our UK division are all different maturity curves as it relates to the business. And the Zale will continue to have enhanced training year-in and year-out and sales training is a journey, it never ends. So thank you again for your kind words.

Thank you so much.

The next question comes from the line of Joan Payson from Barclays. Your line is open.

Hi. Good morning. This is Bridgette Taylor on for Joan Payson. Thanks for taking my question. Congrats on a great quarter. Just a question on Zale synergies. I think you said you’re not going to break out specific line items, but could you offer any color on how we should think about the quarterly cadence of synergies this year and which initiatives more generally are driving synergy benefits in the near-term and even in the first quarter? And then a quick follow up. Within your comp guide for the first quarter, how should we think about trends for the Zale business as these stores begin to see more rapid productivity gains? And then do you expect to see any change in momentum of the Sterling business compared to 2014? Thanks.

So let me start with your synergy question and Mark had talked in his prepared remarks in terms of the cadence of that 20% fiscal '16 and then 40% '17 and 18%. We do believe that that 20% achievement is more weighted to fiscal 2016. So at this point, we believe that the impact to Q1 from that synergy is really not going to be a material number. In terms of the cadence of how will synergies and where are we going to be able to achieve quicker than others, I would say some of the SG&A initiatives are probably more at the forefront of what we’ll be able to realize sooner than some of the other initiatives when you get into from the gross margin or when we talk about the repair, some of those could be further down the road just given that there is an underpinning system required to it. And then Mark, do you want to talk about – you had a question on the --

She was talking about what we should expect for comp growth for Zale versus Sterling division and we’re really not giving that kind of guidance per division. We feel very good about our guidance in the first quarter that we have given to you all.

Okay, great. Thank you so much and congrats again.

Thank you.

Your next question comes from the line of Jeff Stein from Northcoast Research. Your line is open.

Good morning guys and congrats. Just a couple of questions here. First of all, wondering if you could tell us what the private label and exclusive penetration was both at the Zale division and at the Sterling division at fiscal year end? And also can you tell us what credit penetration was at Zale and what you might expect to see as the Alliance Data contract begins to kick in, I guess that will be towards the end of the year. Thank you.

Good morning, Jeff. Sure, so let me give you our branded penetration rate and we’ll be filing the 10-K later on this morning and those rates will be within the information included in the 10-K. So in Sterling, our proprietary and differentiated branded rate was 32.3% and that’s up 120 basis points from the prior year. At Zale, and I’ll give you a metric but bear in mind that this is just for the stub [ph] period, it’s at 30.5%. So again, it’s not quite as high as our Sterling so that would suggest some opportunity and room for growth on that front. Your other question related to Zale and our out stores credit function, I’ll give you the metrics in terms of what our penetration on our private credit label was – sorry, I was just – we’re at about 31% all-in and that’s going to be inclusive of our U.S. and Canada stores on the sales line. And you’re correct in that ABS. That contract will become effective October of 2015 for us and we’re really excited about this. Again, we believe what ABS will bring to the store front is the CRM and more of that marketing effort, and our anticipation is that our credit penetration for our Zale stores will be able to increase over a period of time but I don’t think we’re going to immediately see an increase or a substantial change in that credit penetration rate in fiscal 2016. I think it’s more beyond.

Michele, you indicated the Zale private label and exclusive penetration was about 30.5% for the stub period. On an annualized basis for the prior year, I think it was more like 11% or 12%. Was it skewed higher because of the stub period or have you made such dramatic changes in the assortment that you were able to sharply improve the penetration this past year?

It really just is a combination of both. There were some branded products that previously had benefited from I think how Zale has calculated their 11% number and we have aligned the category reporting to be consistent with that of Sterling. So that is a component of it. Another component is that when we pulled out, partly we talked about the nonproductive inventory pull that we did on the Zale and that we’ve replenished and that was primarily focused in branded products, the Vera Wang, the Unstoppable Love. So those initiatives have also helped to increase what we saw in that branded penetration rate for the stub period.

Got it. And one more question real quickly. In the UK, you had begun a program to shift the real estate from high street to mall locations and I’m wondering has that process been complete and if not, how far into it are you?

We are in a process in the UK of making sure we can get the best real estate as a whole. And so we are in the process and we’ve opened some stores in the malls but we still have very productive stores and more of the UK business continues to enhance their business, you’re slowly seeing stores that used to be on high streets that weren’t profitable becoming profitable. So we’re looking at our real estate portfolio in the UK very closely every month and every year and we see opportunities of keeping some stores in the high streets open and we still see opportunities of opening stores and outlet centers in the United States along with any new mall opportunity there is. And one thing to Michele’s point, Jeff, it is – the combination of the Zale penetration as she said was – what she said is the calculation of how it was done, but we have done so very well we stated with the Vera Wang Love collection, the Celebration diamond collection, with Arctic Brilliance in Canada and the Unstoppable Love, we’re seeing tremendous increases on that just with working with the Zale team and trying to put some of our best practices in place.

Jeff, I just wanted to throw out and help you think through that credit penetration rate that we talked about on the Zale and we’re going to split it up for U.S. and Canada. So our U.S. sales, about 40% of that were financed through the private label customers and then about 21% in Canada. That might be helpful just to have a metric split between U.S. and Canada.

Thank you very much.

You’re welcome.

The next question comes from the line of Rick Patel from Stephens Inc. Your line is open.

My congrats on a strong finish to the year.

Thank you.

Can you update us on your Jared Vault stores and some of the new concepts you’re testing in the mall? How they performed during the holiday and Valentine’s Day periods and any updated thoughts on trying to scale those? And then secondly, Mark, can you just clarify the point that you made on lower price point items doing better right now? Are you speaking specifically to the bead part of the business or does Jane Seymour fall into that camp as well?

Okay. Thank you. I had a feeling that I wasn’t clear on that. Let’s start with the last question. Our lower price point categories, which did not perform that well as we hoped for in November and December, that run rate has improved since then and that’s inclusive of all the lower price point categories whether it be our bead business or be our Open Hearts by Jane Seymour business or our silver business, all of them have reversed and their run rate is going into a better direction now. And compounding that, our merchandizing teams in all of our divisions are always focused on lower price point, units and foot traffic in the store is very important and we have a lot of exciting new programs that we’re working on that will be announced later this year. As far as our new store concepts that we have been testing, our Jared Vault stores which I believe we have about 30 of them right now have been very successful and we continue to see opportunity to open additional Jared Vault in the United States. We had two other tests that have – we have one test that has been out in the marketplace going on for about a year or so, which is what we’re calling the Jared jewelry boutique. We opened with two stores last year. I think we opened another five or six stores this year and it’s really too soon to tell. There’s early signs that looks like there could be an opportunity but it’s way too soon to tell and we’ll be opening up more Jared jewelry boutiques so we could have more critical mass, so we can really do a thorough analysis to understand the productivity of this opportunity. You will see at the June investor conference that we also tested a new store concept coming this year, which is going to be called Le Vian by Jared. We’ll be opening our first store in Roosevelt Field later this year but we’re also very excited about that opportunity.

Thank you for that. And can you also comment on market prices for diamonds right now? Are they up or down versus last year and maybe some thoughts on pricing for this year? Have you made any changes year-to-date or does that remain an option on the table?

Yes, the diamond pricing is forecasted having to be up small, in the single digits this year. Small increases are expected this year. As far as the pricing, we have the ability in our industry to do price increases and we’ve been able to pass on certain targeted price increases onto our customers as well. And for the first quarter, we’re able to make some targeted laser like price changes and some of our product has been going well so far.

Thank you very much.

Thank you.

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

Thank you. Good morning. Now that you’ve been running the Zale business through a holiday season, have you found any reason why the sales per store at Zale couldn’t meet or exceed the Kay Jewelers levels?

We believe that the Zale brand is a wonderful brand with high recognition just like the Kay brand and that we also are learning again which we’ll certainly share at the June conference that the Zale brand actually within the market does have some different customer segmentation than that of the Kay business, and we don’t see any reason why the Zale brand shouldn’t be as high as an average store as the Kay brands.

Thank you. And then just touching on Piercing Pagoda for a minute, what’s your strategy going forward there? Is that considered a core part of the business? Will there be specific merchandising initiatives around there? And what should we expect from real estate?

Sure. The Piercing Pagoda business is a nice business for us. It is a new business for us and for the first part of last year when we took over Zale, we were really focused on the Zale’s and People’s business. That being said, we think there’s a very nice opportunity for Piercing Pagoda. We have a strong team running that business and they have been enhancing some of the merchandizing programs. They’ve been putting in more 14-karat gold jewelry and been testing some other brands that can engage customers. And we are going to have some new designed stores that we’re testing this year ago. So we’re right now in the early stages of understanding the Piercing Pagoda business. We’d like for margins to have very strong gross margins and we think there’s opportunity if we can get that revenue line moving at a faster pace, we think there’s some tremendous growth opportunities for the Piercing Pagoda. But we need a year or so to really get better understanding of the business.

Thank you.

Thank you.

Your next question comes from the line of Bill Armstrong from CL King & Associates. Your line is open.

Good morning, Mark and Michele; nice quarter. In terms of the leverage ratio getting down to that 3.5x, will you get there simply through growth in EBITDAR or will this also require some pay down or reduction of debt levels?

Hi, Bill. Good morning. Thank you. We will just have a natural progression to get down to our leverage ratio based on the incorporation of a full year of Zale and our business growth in our EBITDAR. So we’ll get there by the end of fiscal 2016 just based on that progression.

Got it, okay. And then on CapEx, 275 million to 325 million versus 220 million last year, is this simply more maintenance CapEx because you got a larger store base or are there some other projects or other things that you’ll be working on in terms of CapEx?

So keep in mind, part of the reason why that number has increased over last year is related to Zale and a full year effective Zale. If you look in the release, we did call out that the Zale division we estimate that’s going to be approximately 80 million to 90 million in terms of the CapEx that this past year we had guided, I want to say it was about 40 million or so of CapEx related to Zale. So that is a big chunk of the increase that you see. Other increasing CapEx going back to IT investment as well as there is new store growth in there and then some remodeling. But I would say here primarily faster is the full year Zale.

Zale, okay. Okay. Thank you very much.

You’re welcome, Bill.

Thank you.

Your last question comes from the line of Ike Boruchow from Sterne Agee. Your line is open.

Hi. It’s actually Tom Nikic on for Ike. Thanks for taking the call and congratulations on a great Q4. I just wanted to follow-up quickly on the capital allocation strategy. It kind of seems to me like the way it’s progressing is that by the end of this year, you should be pretty close to your target. And then in fiscal '17, calendar '16 as the business continues to grow and you really start to see a bunch of synergies flow in, you should really have a lot of firepower as far as dipping into the ABS facility. Am I thinking about that correctly?

You’ve said it perfectly.

Okay. And can you remind us what the interest rate is on the ABS? And is there any reason why it would change between now and then?

I believe all that information will be in the 10-K for you and I don’t have the exact number off the top of my head. It is a variable rate associated with our ABS. And overall what I’d tell you is our interest cost on our total debt portfolio is about 2.5%, so it is incredibly ridiculously low. On the ABS, it’s a weighted average interest rate of 1.5% at the end of fiscal 2015, so pretty low.

Okay, great. Thanks. And just a quick clarification about the Q1 guide. You said $0.17 to $0.18 from Zale but that’s not inclusive of financing stuff, right?

Yes, it’s correct. You’re absolutely right and that’s just taking a pure view of the Zale operation.

Okay, great. Thank you very much.

You’re welcome.

Thank you.

There are no further questions at this time. I would now like to turn the call back to Mr. Light.

Thank you. Thank you all for taking time part in this call. Our next scheduled call is on May 28 when we review our first quarter results. Then, on June 24, we’ll be hosting a conference in New York for the investment community. We’ll have several insight presentations that include content on our customer segmentation efforts and how we plan to differentiate our store brands even more to maximize our share of the midmarket of the jewelry industry. Thank you all again and good-bye.

Thank you. Ladies and gentlemen, that concludes today’s call. You may disconnect.