Ladies and gentlemen, thank you for standing by. Welcome to Signet Jewelers Limited Q1 Fiscal Earnings and Credit Outsourcing Conference Call. 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, May 25, 2017 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 and welcome to our first quarter earnings and credit outsourcing announcement conference call. On our call today are Signet's CEO Mark Light; and CFO, Michele Santana. The presentation deck we will be referencing is available under the Investors section of our website, signetjewelers.com. During today's presentation, we will in places make certain forward-looking statements meaning that are not historical facts or 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 our annual report on Form 10-K. We also draw your attention to slide number two in today’s presentation for additional information about forward-looking statements and non-GAAP measures. I will now turn the call over to

Thank you, James. Good morning and thank you for joining today's call. Today we announced our first quarter 2018 earnings results and the strategic outsourcing of our credit business. I'll begin the call by discussing our first quarter results as well as our performance over the Mother's Day shopping period. Then I'll provide an update on the progress we are making in our omni-channel strategy and growth initiatives. I will then turn over to Michele to detail some of the quarter's financial highlights. After we conclude the discussion of the first quarter we will discuss the structure of the credit transaction we announced just a short while ago. Afterwards we'll be happy to take your questions. So let's get started. Turning to the first quarter results that's on Slide number 4, as anticipated we had a very slow start to the year as continued headwinds in the overall retail environment were exacerbated by a slowdown in jewelry spending and company specific challenges. We generated net sales of $1.4 billion a 10.1% decline on a constant currency basis and our same-store sales decreased by 11.5%. Although 330 basis points of the decline was due to the later Mother's Day holiday, typically Mother's Day is split between the first and second quarters, but in fiscal 2018 it fell entirely in the second quarter which caused an unfavorable impact to the first quarter but will benefit in Q2. In Q1, against difficult comparison to prior year we saw declines across merchandise categories and collections with the exception of e-commerce and Piercing Pagoda both of which had higher sales. The number of transactions also remained under pressure across divisions, largely due to the ongoing declines in brick-and-mortar store traffic, deep jewelry promotional activity across the sector and increased competition for share of wallet. While…

Thank you, Mark. So, we are going to start on Slide 8. For the first quarter, Signet’s comps decreased 11.5%, against an increase of 2.4% in the prior year first quarter and that compares to a two-year comp hurdle rate of 6%. Of our comps sales decline about 330 basis points was attributed to the later timing of Mother’s Day. In general, average transaction value was higher while the number of transactions was lower for the reasons that Mark had just reviewed. So, I’ll move on to the income statement. On Slide 9, you can see our gross margin was $491.2 million or 35% of sales, down 300 basis points. The lower rate was due principally to lower sales leading to de-leverage on fixed cost partially offset by higher gross merchandise margins in Sterling and Zale divisions. First quarter merchandise margin was favorably impacted by mix benefits, targeted re-pricing, some commodity favorability and better discount control. As we have said before, we aim to balance our competitiveness in the market with our promotional levels to protect margins in light of the heavy ongoing promotional activity seen across the sector. SG&A expense was $452.8 million and the rate was 32.3% of sales. We continued our prudent SG&A expense management in the first quarter. As we have discussed before, we are taking steps to streamline our organizational structure to deliver operational efficiencies with a greater OmniChannel focus. As a result SG&A dollars decreased 2.1% in the first quarter versus the prior year. Though I will point out we did experience about 300 basis points of de-leverage due to lower sales and fixed expenses. This includes store payroll, long-term IT investments and legal fees. Now, this was partially offset by the favorable impact of lower variable compensation, lower corporate payroll and advertising timing.…

Thank you, Michele. We will now discuss the strategic outsourcing of our credit portfolio. Please turn to Slide 14. Today, we are very excited to announce the first phase of the strategic outsourcing of our credit business with the transactions structured to substantially meet all of the strategic priorities we set at the beginning of this process. As we reminded, those priorities include eliminating material credit risk from our balance sheet, substantially maintaining our net sales, enhancing our credit and customer experience in the most efficient way, minimizing any disruption to our business that will impact our customers, our team members and our store operations, while optimizing our business model, and deliver transaction that creates value for our shareholders including EPS accretion. On Slide 15, we have provided an overview of the first phase of our outsourcing structure, which is designed to allow us to maintain our full spectrum of credit offering and competitive advantage, while substantially de-risking our balance sheet. The structures of the first phase which Michele will cover in detail a bit later includes the sale of roughly 55% of our existing accounts receivables as well as long-term partnerships that ensure our customers will have access to our credit offerings. Let me take a moment to explain what we are accomplishing in this first phase. We are pleased to announce that we have [sold] our prime quality receivables with a $1 billion growth book value to Alliance Data at par value. Following the close of the transaction, Alliance Data will service these receivables also. In addition to the sale I just described to fully outsource the servicing of our entire receivables book we have also put in place a seven-year agreement to which Alliance Data and Progressive Leasing will become funding providers and servicers for our new…

Thank you, Mark. I'd like to start by reiterating Mark's comments that we believe the outsourcing structure we announced today provide compelling economic benefit to Signet and Signet shareholders. On Slide 18, we provide a breakdown of how our current credit sales will be supported in the first phase of our outsourced structure. As you can see on the slide, the outsourced structure is designed to maintain the full spectrum of our credit offering for our customers and as a result, we will protect our net sales while we de-risk our balance sheet and drive EPS accretion. On the left side of the slide, we've outlined the various credit years that we currently served through our in-house programs. The portion Alliance Data will be acquiring and servicing which consists of prime credit quality customers represented 65% of our credit sales in fiscal 2017. The middle near and non-prime tier which we will retain on our balance sheet during the first phase made up 28% of our credit sales in fiscal 2017. We will outsource the servicing of this tier to Genesis which is a leading player in this arena. We will also move to the contractual aging methodology in conjunction with the transition to Genesis which is expected to occur in October of 2017. The Lower Tier which represented 7% of sales in fiscal 2017 includes customers who will no longer be covered through any of Signet’s current credit programs as well as those customers that previously did not have a payment option to access Signet’s merchandise. So, turning to Alliance Data primary program on Slide 19, Alliance Data is a leading provider of branded private label credit programs and marketing services based in Columbus, Ohio. They have been providing credit services to Zale brand's prime customers since 2013. Under…

Thanks Michele. Before we take your questions, let me close by saying that we are extremely pleased with the first phase of our outsourcing of our credit programs that we announced today. While we initially sought to achieve the full outsourcing as part of a single structure, with this phased approach we have been able to substantially de-risk our balance sheet with the sale of 55% of our accounts receivable, not only maintain net sales, but also outsource servicing for our full credit receivables to our partners. And we've achieved all this in a way that delivers value to our shoulders in the form of EPS accretion. Because we are executing from a position of strength, we were able to take the time to find the right partners for the second phase, partners that understand the importance of protecting our business, partners that understand the importance of understanding our customer’s economics and delivering on our commitment to create value for our shareholders. In summary, with the new credit structure in place Signet will have an enhanced focus on our strategic 2020 vision, which is focusing on delivering a customer first omnichannel experience. With that, we will now take your questions.

[Operator Instructions] And your first question comes from the line of Ike Boruchow with Wells Fargo. Your line is now open.

Hey, good morning, everyone. This is actually Tom Nikic on for Ike. I kind of had a couple of questions around the credit transaction on the primary portion. Can you give any - I think you mentioned that there's a profit sharing agreement with ADS, is there any sort of details or quantification you can give us around that? And I think you also said that ADS is taking about 250 of your employees and Genesis is taking some of them as well. Are there some other employees that are still going to be part of your business and would you anticipate seeing those employees be part of a Phase 2 transaction?

Sure. So let me start with the employees, I will reverse it in back order of your questions. In terms of the employees, yes 250 of our employees will be transitioned to Alliance Data Systems and then 650 of our employees will be transitioned to Genesis. There is a remaining population of employees that will stay with Signet for our customer care operation. So we think it is a great outcome and really what helped to facilitate a smooth transition upon the close of the transaction. In terms of the profit sharing agreement, my remarks for that this would be net additive in terms of EBIT, it will reduce our SG&A expense but outside of that, I cannot quantify that for you.

Okay, got it. I was also just hoping to understand the deal with Progressive a little bit more as well. You know, I think you said that they would capture 7% of your current credit business. Is this also an opportunity to maybe facilitate sell to customers who would have otherwise been turned away until maybe there is an incremental sales benefit? And given that they're kind of a rent to own business, is that sort of a similar function like the customer is basically going to be renting the jewelry from you and returning it, if they can't make their payments any more, and any help there would be great?

Sure. So and I’m glad you really picked up on that, but this truly does represent potentially an incremental revenue opportunity for Signet, because not only for those customers that now under our current structure at that Lower Tier of 7% will have that option for Progressive, but customers who previously did not qualify for our current credit offerings have that ability. So, we do expect the program to generate incremental revenue for Signet. It is difficult to size the opportunity, but we're extremely pleased to add this additional option. And just to go back and give you a little bit more flavor in terms of how the lease purchase works, I mentioned it's a seven-year agreement, Progressive Leasing will offer the lease purchase payment options to our customers that then don't qualify for our future credit program or potentially they just don't wish to pursue a credit option to begin with. So that as I mentioned includes the customers that no longer would be covered through Signet’s current credit programs. What happens is, Signet will receive the payment from Progressive, so Progressive actually makes the purchase from Signet. We get the payment for the full value of that merchandise and then Progressive will enter into the lease contract with the customer.

All right so, basically once Progressive buys the merchandise from you guys it is sort of out of your hands?

Yes, I mean subject to there's always the return policies we stand behind, but it’s a relationship with Progressive and the customer.

Got it. All right. Thanks very much. I’ll get back to the end of the queue. Thanks.

Thank you.

Thank you.

Your next question comes from the line of Simeon Siegel with Nomura/Instinet. Your line is now open.

Thanks. Hey guys, good morning. So I guess just first off with the reiterated full year guide can you just share anything maybe quantify quarter to date trends, speak to the confidence for the full year? And then maybe any color on the February comp versus the ending comp run rate? And then just Michele on the so, the loans you plan to still fund in phase one can you give any color there whether by FICO scores, bad debt to charge offs, any context you want to give for what you guys are still going to be funding and any timeline you want to share broadly for Phase two? And then that piece that you were just referring to, the 7% that Progressive is taking, I think it was 7% of credits of last year, what has that looked like over the past several years in terms of that 7%? Thanks.

Hi, I’ll take the first question and I’ll turn it over to Michele. Good morning Simeon. As it relates to the business, as we said in the prepared comments Simeon, we had a very, very tough start of the year and it was not a great Valentine's Day. But the good news for us and why we're so - feel strongly about reaffirming our guidance is that if you normalize Mother's Day calendar sequentially after Valentine’s Day into March into April and leading into Mother's Day we continue to get sequentially better and better. And we saw an enhanced performances not only across our categories of products and across our brands of stores, but just as importantly we saw enhanced sequential enhancements to our online exposure and customer experience. We continue to get better at increasing our traffic. We continue to get better at increasing our conversions and we continue to get better increasing our online sales. And the one thing that we know more now than ever is that online experience for our customer is a critical and it will affect the in-store experience. So, the better we get online, the better the in-store experience and in-store sales will be. So, that's why we continue to have confidence in our reaffirmation of our guidance because we have seen the sequential improvement of our business straight from the end of Valentine’s Day, all the way through and into Mother's Day.

Yes, and Simeon I'll just add one comment before I move on to the next set of the questions that you had. If you go back and you think about at the time when we issued our annual guidance on March 9th we were well beyond Valentine’s Day which is the largest contributor to the first quarter. In fact we do what the first month the largest month again of the quarter to be. So, we really had insight as to how our first quarter was shaping out and that was all factored into our guidance and then as Mark mentioned the continued sequential improvement that we've seen. So, we feel confident in reaffirming our guidance based on that. In terms of your next question which I believe went into the non-prime component of it, let me see if I can give you a little bit more color. The expected gross value of the remaining portion of that portfolio is estimated approximately about $708 million to $100 million at the time of closing October 2017. So, this includes the non-prime accounts receivable that are related to our Sterling U.S. brand and it also does include a smaller portion related to the Zale brand. And then I’d also just direct you back into the slide presentation from a sales perspective representing about 28% of our credit sales in fiscal year 2017. I believe your last question related to the Progressive Leasing of the 7% in that Lower Tier and maybe how these metrics looked historically, I don't have any information with me, but I probably have no reason to believe that it would have looked significantly that different.

Thanks. And then maybe lastly, so you guys mentioned the challenging promotional environment a few times and we saw the sales, but you did point out the stronger March margins. So which is obviously a nice thing to see, so can you guys speak and Mark I wish speak to the way you're viewing sales versus margins and it looks like the resolve, maybe willingness to hold the short term sales for long term health, so just any thoughts on how you're viewing those two pieces?

Yes, Simeon it's always a balance obviously and we in the first quarter were able to preserve our gross margin and we just didn't feel during that time frame with the data we had there were able to make. We didn't have enough data to make the definitive decisions to go out and think that we can capture market share because there was some really deep discounting going on in some of our competitive set. And so we felt to the first quarter that we needed, we didn't have the data that we needed to stay firm and increase our gross margin dollars on that front. That being said, as I said in my prepared comments with more data that we've got and from our data group and the information that we learnt about some of our marketing modeling that we were able for Mother's Day to be more promotional, but more targeted, have less stories on our promotions. So, we felt there was time during Mother’s Day to do as we have opportunity to capture some market share while increasing our gross margin dollars to be a little bit more aggressive and more targeted.

Yes and I would just add Simeon to that. I mean, it goes back at the time we issued our guidance where we talked about an amplified promotional environment and we knew that and built into our guidance was a level of incremental promotional activity this year based on what we've seen, so I'd say that's all been factored into the guidance as well.

Great, thanks a lot of guys. Best of luck to both of you.

Thank you, Simeon

Thank you, Simeon

Your next question comes from the line of Bill Armstrong with C.L King & Associates. Your line is now open.

Good morning everyone. A couple of questions. Michele, on the SG&A savings of 2% to 3% is that 2% to 3% based on the approximately $1.8 billion of adjusted SG&A kind of full year run rate that you had last year, is that how we should think about that?

That’s correct Bill.

Okay, great and then I’m not sure how much you can comment on this, but Phase two what sort of timing are we looking at on getting Phase two done? I assume that's going to be some time next year or how should we think about that?

Yes, so in terms of the timing we plan on engaging in discussions very soon with capital providers to look to transfer our existing receivables as well to originate and fund the future receivables so those discussions will start very soon. We are committed to finalizing the full outsourcing of the credit portfolio in a timely manner, but at this time Bill we can't predict the timing or the ultimate composition of that.

You, look this, if you go out of this per year and you need to question what would happen for the full year you were involved in it. But our portfolio is a unique and complex portfolio as compared to other major retailers who sold their portfolios. In this Phase two function as I stated in my words, in my comments, we need to be focused and find the right partner who's going to service our customers the way we would be expected to be serviced and is going to partner with us. And we believe those partners are out there, but we weren’t able to focus on it singularly on that partnership we're trying to get one kind of package out right now and now we're going to take the time. We hope to get it done as soon as possible, but having Genesis as a servicer as a big leg up and having them work with our team members. And really we will - we are excited about the Genesis partnership because we believe they can even help us be better at lending dollars to those near prime and non-prime customers.

Yes, so ultimately I’d say we are executing the phased approach really from more of a strategic approach to outsourcing from a position and then working on from the position of strength and because of that we will and are able to take the necessary time to find the right partners and take care of our customers which is alternately our number one priority.

And it is important to remember Bill that we will be switching over to contractual aging when that deals close with Genesis that we're projecting to be in October.

Got it. Is it possible that Phase two would be implemented this year or actually before October and sort of maybe leapfrog that or not really?

No, we don't see that as a possibility to close out Phase two this year.

Okay, great. All right, thank you very much.

Thank you, Bill.

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

Hi good morning. On the outsourcing program I have some concerns about how the selling experience will evolve like in-store in terms of the training and development and the heritage you have with the sales force really understanding your prior programs versus this one, so could you speak to that and if that’s a risk factor that is reasonable to think about? Also just broadly speaking, what do you think it will take for the comps to get less negative and then positive? Are you, there is factors outside your control which you mentioned in terms of competition as well, I'm just trying to understand the prioritization of factors as we ideally journey back to positive comps? Thanks.

Thank you, Oliver. As far as the outsourcing, we actually are not concerned. If you remember what the critical component of this whole transaction was that we're able to maintain sales and continue to prove and underwrite – continue to improve and underwrite our programs and the credit offerings that they have in the past. So we have all the confidence. We've worked with Alliance Data with our Zale stores, the secondary program which will be underwritten by Signet and with Genesis basically there is not a lot is going to change on that front. But we will take time and train our team members, our team is actually excited about it because what is going to happen because of Alliance Data and because of Genesis is that they will ask our customers for less information, there will be more seamless experience and they won’t be selling credit quite frankly which makes a whole selling transition a lot more seamless and they are very excited about the opportunities. And some of our competitors already do this offering Progressive Leasing options to our customers which we believe there could be some incremental opportunities. So as far as the primary credit offering we believe that is going to be more seamless and easier for our team members to actually interact with our customers and asking for more less information and not trying to sell credit insurance. And that Progressive is a very simple program that our team members are very excited about getting involved with and again as I stated, some of our jewelry competitors are already offering that program is something that we could have and we believe there could be incremental sales opportunities. On the comp question Oliver, I said in my comments there is things that we could control,…

Okay. And it does feel like you have intensified that perspective on the omnichannel story and you had some good leadership there in the beginning as well. Do you - how would you view your model as on Amazon able and what does that mean to you in terms of being very competitive versus Amazon because we have also seen some pure-plays look for physical retail, so I’m just curious about that and like was there intensification of investment happening here given the trends you’re seeing?

There is definite intensification, not only of investments in the omnichannel experience, but in investments in the talent that we have in our business, investments in the technology, investments in team members and partners that can help us make sure that we are the best, because we believe that in a lot of ways the jewelry experience is different online and still the vast majority of jewelry is bought in person, but the vast majority of customers go online first to educate themselves. So, we have to have and our plans and our expectations by Christmas time that as good a jewelry online experience as anybody in the industry. And so yes, however it is critical that online which ties into our omnichannel experience is as good as it gets enjoy and we will be focused on using our resources to get us there as fast as possible.

Okay, thank you. Best regards.

Thank you, same to you.

Your next question comes from the line of Brian Tunick with Royal Bank of Canada. Your line is now open.

Thanks, good morning guys. I guess first question for Michele, I think you commented that you expect no impact to revenues on the sale. I'm just curious, people have been saying where Zale, I guess credit participation rates are trending now under Alliance Data systems, can you maybe talk about that the Zale credit penetration and how you think that won't happen in the Sterling division? And then second question I guess, on the market share closing of independence seems to be continuing at a very high pace. What do you think is happening to that customer or market share as the independents close and does that give you more flexibility on rent negotiations as you come to these lease terms? Thanks very much.

All right Brian. I'll start with your first question and then Mark and I can take your second question. So in terms of, I guess credit penetration, and you're trying to compare and contrast Zale and Sterling, do you tender and just put this out for you that, due to the tender shift that we would expect to see from credit to non-credit tender, we do anticipate that there would be a single digit decrease in our credit penetration rate. So simply if you go back to the slide that we talked about fully covering our current spectrum of credit sales, Progressive at that 7% is not considered to be a credit sale, so that's what I'm referring to in terms of the tender shift. So although we'll be covering the full spectrum of our sales, part of it would no longer be considered credit. I’d also referenced that the progressive leasing will sit across all of our brands including Zale that currently doesn’t sit there today, so that also becomes incremental opportunity for us. So, Mark do you want to take that?

Yes, as it relates to Brain, your question about independence closing is a good point. There has been a dramatic increase of closings of independent jewellers. The biggest increase since the recession and in the short term that's a challenge for us because a lot of independent jewellers a lot of their net worth is in their inventory. So, the way they're getting their money back out is having massive liquidation sales at or below cost to get their cash out of their business and we're obviously not going to go complete to those levels. That being said, in the longer term, the independents closing is an opportunity for us because the independents don't have the capabilities, the scale, the expertise that we have whether be in the supply chain or be in marketing, whether it be linear marketing or digital marketing or the investments of the dollars that we're going to put into the omnichannel experience. So we think there is greater opportunities in the near short term, but not the very short term to gain market share because those independents are closing and the ones that are left really can't do a lot of things that our scale allows us to do, is in relation to your point about rent negotiations that you can never make a statement across the board about rent negotiation. It always depends on the center or the mall or what the participation in the mall is and what kind of year it is. There are opportunities in some places to get rent relief for certain, but some of the top malls and the top centers in the country you just can't, you're not going to get there, you are also getting the best location, the best mall. We are looking to optimize our footprint completely. We think we have a very diversified portfolio. Right now less than 6% of our sales is done outside the mall. If you look five years from now, over 50% of our sales will be done outside the mall and we think that as all just tie into the benefits of the omnichannel experience which will make our stores more efficient and more productive.

Super. Thanks and good luck.

Thank you.

Thanks, Brian.

And your next question comes from the line of Paul Lejuez with Citi. Your line is now open.

Thanks guys. Still a big picture question, you know mall traffic I think has been pressure points for you guys for some time, but you were able to buck the trend for many years. I'm curious to know just in your opinion what changed over the past several quarters, call it over the past four quarters that has caused the falloff in end comps? And if you could maybe just give a little bit more color on mall versus off mall performance and the differences that you're seeing in A, B and C locations? Thanks.

Sure, I’m going to start the latter, as it relates to mall versus off mall performance in the fourth quarter and it continued into the first quarter and sequentially continued to Mother's Day and the off mall stores have performed better than our mall stores and continue to do so. As far as what's changed, I mean big changes this whole omnichannel experience. I mean traffic Brian, has dropped even more substantially than it has mall traffic, specifically has dropped more substantially than it has over the last couple of years. A lot of that we believe again is that because people instead of shopping in the mall they're shopping online and going to online first so that they have to make less trips to the malls. We still believe that our products, I mean as long as we have the products that our customers are looking for, specifically obviously engagement ring is somewhat Amazon proof that people still want to engage with a sales associate, they still want to engage and be educated on diamonds and understand about the product they’re buying, but we have to do a much better job online in making sure that that experience online is more critical. So the big change Paul, is that two or three years ago the online experience wasn't as critical as it is today because that mall traffic that were getting the benefit from in the past is now being taken up by the online traffic and we are doing everything in our power to make sure they have fabulous experiences online, so that we can have the opportunity when we have lesser customers walking in our malls, in our stores to close them in a higher ratio.

Maybe if I could just pile on when you think about you know that our footprint and our diversification between mall and off mall, what we do know with that our Kay off mall is our highest ROI and that really has been where our focus has been in terms of our investment opportunity to grow that off mall locations on the Kay side and further diversifying between the mall and off mall locations.

Got it and you made a comment that in five years you expect 50% percent of your business to be off mall, is that correct and I guess I'm just wondering what percentage of that is actually physical locations off mall versus ecom?

I’m referring to, I’m referring to the actual physical locations mall versus off mall.

Got you. Okay, great. Thanks guys. Good luck.

Thank you.

Thank you.

And your next question comes from the line of Lindsay Drucker-Mann with Goldman Sachs. Your line is now open.

Thanks. Good morning everyone. Thanks for taking my question. I wanted to ask one on synergies as far as what you were able to achieve in the quarter and how you’re thinking about for the full year?

Sure, Lindsay. So our synergies part of our guidance that we had issued was $70 million was our expectation to achieve for this year which is built into the guidance that we have reaffirmed today. We feel confident in terms of achieving those synergies and we're definitely where we need to be.

Okay, great and then as far as the extended service plan revenues and how we think about modeling that for the full year, that's been growing a bit ahead of sales historically. Is that the right trend line to use going forward or should we think about, that growing more inline or even slower than sales?

I probably, I don't know if I would do it slower than sales, I think inline maybe slightly above would directionally be the right way to model.

Okay, great thank you.

Thank you.

And your next question comes from the line of Scott Krasik with Buckingham Research. Your line is now open.

Hi, thanks. Just a question on guidance and then the question on credit. So I know you don't want to give quarterly guidance, but you did just miss consensus in 1Q by about $0.50 or $0.60 and $100 million on sales. So as we look at 2Q, can you give us some ideas, consensus, reasonable where it is right now and I know you didn’t want to give a quarter or day comp, but relative to the low to mid single digits for the full year, do you expect that to be at the high end, above the high end, at the low end, any color there would be great?

Yes, sure. So probably I'm not going to provide you much color. As we said when we initiated our annual guidance we were no longer providing quarterly guidance and really can't comment in terms of the consensus that's out there. We're confident for the reasons that we cited on the call in terms of reaffirming our annual guidance and that was based on the fact where we stood at the time we issued that knowing how the Q1 was shaping out. And then the reaffirmation comes with the comments that Mark had said in terms of the sequential improvement that we've seen in our comps combined with the initiatives and the actions we've taken to drive savings as well.

And then I guess from a credit standpoint, you're going to see an increase in the delinquencies when you switch to contractual. As we look back in times when they're tough, I mean we're still in a full employment situation, I mean how should we think about sort of modeling the credit business on a go forward basis when the environment is a little bit more challenging?

Yes, so I guess, two comments to that, keep in mind what we've said is this is the first phase and then there is a second phase where we would look to fully remove those receivables from our balance sheet. I know we did not provide any timing, but we will look at those discussions soon. In terms of your question on the contractual aging, mentioned comments on the call that we will move to the contractual aging method in conjunction with the transition to Genesis and we would expect that to happen in October of 2017. I also provided comments that we don't expect any material impact to financial statements as a result of the move to contractual aging. And really from a customer perspective, it's likely that there's going to be a lower card monthly payment to really harmonize those terms with Alliance Data. So the only – so that would be a change. Billing statements they already receive on a contractual basis, so really from a customer perspective, I would say no call out to that. And then the other part of your question can you go back to?

Just trying to understand things are still pretty good from a credit standpoint, just trying to model now the sensitivity going forward?

Yes, so in terms of a modeling standpoint, let me try and just give you some of the color and a lot of it I will guide you back to originally what my prepared remarks were. So as we went through the slide material, I did go through on how to really model the impact of Phase 1 on EBIT on an annualized basis. If you think about that we said the transaction is expected to close in October of 2017, if you apply the normal seasonality that should really help you think about the impact of these 2018 and then of course as we move forward, we will give you additional updates at the appropriate time.

Okay, thanks very much.

Thank you.

And your next question comes from the line of Jeff Stein with Northcoast. Your line is now open.

Hey Michele, I have got a modeling question and I’m not sure I got it right, did you indicate that on an annualized basis Phase 1 is EBIT positive or EBIT negative, again annualized once Phase 1 is completed?

Right, so let me go back and give you that information. It is a slight decline to EBIT. So if we go back through, I guess the component of that roughly 23% to 27% of our net bad debt expense and late charge income will be eliminated, that's associated with the prime and that also includes will be eliminated associated with the prime. If you go down to SG&A, our total SG&A reduction is estimated to be 2% to 3% annualized and that's really three components that are in there. First of all we're going to have savings associated with the elimination of our in-house credit operations. The second piece that's in there is we will have the economic sharing with Alliance Data, so that is a positive and then we will have the cost of outsourcing the credit servicing function to Genesis. But when you put those three things in a blender, it drives in overall reduction to SG&A and then you have the elimination of roughly across 50% or so of our finance charge income. So when you take those three things that leads to a slight decline in the EBIT on an annualized basis.

Got it. Okay, that makes sense. On the trends for Mother's Day, obviously you guys did increase your promotional activity, so I know you're not talking about forward-looking, but when you report second quarter should we expect to see a change in the direction of merchandise margins?

I’m sorry, I totally missed your last question.

With the increased promotion of Mother’s Day change in merchandize amount for Q2?

Yes, so let me give you a little bit of color on that Jeff. I mentioned before that we had anticipated as part of our annual guidance that we would be in a more promotional environment this year. So that is factored into the guidance. As we've mentioned before we will continue to look to kind of balance that margin depending on how promotional environment gets. So that would be the additional color I'd provide.

Okay with the 30% off promotion at Kay and 30% to 50% off at Zale was that a planned or unplanned promotion because your Mother’s Day circulars did not include that 30% off?

As I said Jeff from my comments, we had some real time data that we got later than when the Mother’s Day catalogues were printed and so it was planned, but it was planned after the print of those catalogues.

Got it, okay. That makes sense. And one final question, in your release you did reference the fact that you had a mix of lower rate plans which affected your credit income, could you – Michele, could you elaborate a little bit on that, what plans are you referring to?

Yes, absolutely Jeff. So we had talked over the past year about we did the testing and then we did the full roll out of our 36 month bridal plans which under that plan, it's based on there's a dollar amount you have to purchase to qualify and then it's at a reduced interest rate. So that is having the effect and that is what I was referencing, it’s a lower rate which ultimately would have an impact on that finance charge line.

Okay, thank you very much.

You’re welcome.

And your final question comes from the line of Rick Patel with Needham and Company. Your line is now open.

Thank you, good morning everyone. Thanks for taking the question. Just a few ones on e-commerce. First, can you help us think about what's driving your e-commerce sales in terms of categories or branded lines and whether there have been changes to that over the past few quarters? And second, as you make investments in omnichannel, do you expect an acceleration in online sales or will the uptick show up in stores as people still look to buy product in stores perhaps after talking to an associate or seeing the product in person?

Thanks Rick. There's a lot going on in our online business and I'll just talk to you about several of them and just going on. One is that we're trying to enhance the customer experience. I mentioned this earlier, our page download speed has improved dramatically. If you go from Christmas of last year it has improved to Valentine’s Day and it sequentially has improved all the way through Mother's Day where we had just dramatic improvement of cut in half of page download speed. Our check out efficiency is better. The way our customers have to apply promotions or rewards is more seamless for them. Our personalized jewelry is better. Our website personalization is better. Our search engine optimization has been improved and our search engine marketing has been improved. And that’s just on the customer experience side. We're also thinking, there's ways that we are going to grow the business to your question and we're dedicating more human resources to our online channel. We’re adding additional investments in our e-commerce platforms and capabilities and we are reallocating materially more marketing dollars to digital. So that being said, we are expecting both to improve Rick. We believe that because of the online experience which is all omnichannel critical that our online sales should improve which they have been sequentially and we believe that will enhance our in-store business also going forward. So yes, because we believe because of our instruments and our improvements to our online business, we will improve our online business going further into the year and our in-store business and again that is one of the reasons why we’re reaffirming our guidance today.

And can you touch on the margin profile of your online segment versus your brick-and-mortar stores perhaps some context on where is that right now and what is the go forward assumption as some of your investments ramp up?

Yes, so our margin on our e-commerce business is actually a little bit higher than our brick-and-mortar. So as we continue to ramp up investments, really don't anticipate say a material change in what that margin looks like. The biggest difference that we see is the rent expense associated with the brick-and-mortar and although you've got the distribution costs flowing through the e-commerce channel, it still drives the higher margin overall from the brick-and-mortar.

Great, thank you very much.

Thank you.

And thank you all for taking part in this call. Our next scheduled call is to report the second quarter of fiscal 2018 on August 24. Thank you all again and goodbye.

Thank you, ladies and gentlemen. This concludes today's call. You may now disconnect.