Ladies and gentlemen, thank you for standing by. Welcome to the Signet Jewelers Limited Fourth Quarter and Fiscal Year 2018 Results 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, March 14, 2018 at 8:00 AM Eastern Time. I would now like to turn the meeting over to your host for today’s call, James Grant, VP of Investor Relations. Please go ahead, James.

Good morning and welcome to our fourth quarter earnings conference call. On our call today are Signet’s CEO, Gina Drosos; and CFO, Michele Santana. The presentation slide that 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. 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 our Annual Report on Form 10-K and quarterly reports on Form10-Q. And we also draw your attention to Slide number 2 in today’s presentation for additional information about forward-looking statements. And initially we ask that your limit your questions to two so that we are able to take as many questions as possible. With that I will turn it over to Gina.

Thank you, James. Good morning, everyone, and thank you for joining today’s call. Today, Michele and I will discuss Signet’s fourth quarter and full year results, including the issues that developed following our credit outsourcing transaction and related operational challenges. We will also discuss Signet’s comprehensive three year company-wide plan to reinvigorate Signet and transform the company to be share gaining, OmniChannel, jewelry category leader. We will then open the line for your questions. As a member of the Signet Board since 2012, I developed an appreciation for the fundamental strength of Signet’s business, outstanding team members and attractive market opportunities. Since becoming CEO seven months ago, I have taken a look at the business through a new lens diving deeply in to our operating plan details, demand creation capabilities and cost structure. As a result I obtained a much greater insight in to Signet’s operations and enhanced my understanding of the opportunities for Signet moving forward, and what needs to be done to position the company for improved performance. It is clear that Signet is working from a strong foundation. The company continues to be the market share leader in North America in a large growing and highly fragmented category, with the opportunity for additional share gains as we leverage our scale in innovation, marketing and procurement. We have a good balance between a steady bridal business, a fashion-gifting and self-purchasing business and a design, repair and maintenance business which continues to drive traffic to our stores after a purchase has been made. Additionally, our bridal and anniversary businesses involve big ticket items that are purchased infrequently and often after careful deliberation with the assistance of knowledgeable trusted sales professional. And overall our store footprint is highly strategically placed as we improve our e-commerce and especially our mobile capabilities;…

Thank you Gina and good morning everyone. I’ll start with a review of our fourth quarter results, after that I’ll first move to details round the announcement of Signet’s proposed sale of our non-prime accounts receivable. Then secondly, discuss some of the financial impact of our transformation strategy, and lastly conclude the review of our guidance in capital allocation for fiscal 2019. Our fourth quarter results came in as expected and reflected the trends we discussed on our holiday call in January, therefore my comments on the fourth quarter will be relatively brief. For the fourth quarter, total sales were $2.3 billion, up 1% year-over-year on a total basis and flat on a constant currency basis. This includes the benefit of a 14th week which added $84 million of sales. In addition, R2Net which we acquired in September of 2017 added $64 million to revenues in the quarter. On a comparable 13 week basis total sales in the fourth quarter were down 5.1%. Same store sales which excluded the impact of the 14th week decreased 5.2% including a 90 basis point benefit from R2Net. Signet e-commerce sales were up 56.8% on a 14 week basis or 52.8% on a 13 week basis and in total represented 11% of quarterly sales compared to 7% of sales in the prior quarter. Excluding R2Net, e-commerce sales were up 13% on a comparable 13 week basis. Sales trend by division remained broadly consistent with results that we shared on our holiday call with continued momentum in the Zales division being more than offset by weakness in our Kay, Jared and UK banners. The growth margin rate was 40.1% in the quarter, down a 160 basis points on a 14 week basis and 39.9% on a 13 week basis. The decline in rate was due…

Thanks, Michele. Fiscal year 2019 will be a transition year, as we invest in the business and continue to take actions to position Signet for sustainable, profitable growth. We must reinvigorate and rejuvenate this great company for our customers, suppliers, employees, and importantly, our shareholders. Before we turn to Q&A, I would like to thank James Grant for his six years of excellent service to Signet Jewelers. Randi Abada has recently joined our team as the Senior Vice President of Corporate Finance, Strategy, and Investor Relations. Randi has over a decade of buy side equity research experience and has also held senior corporate finance roles at consumer companies, and we are thrilled to have her on board. We are appreciative that James will stay on until the end of April to ensure a seamless transaction of the investor relations function. I’d now like to ask the Operator to please open the line for questions.

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

Gina, can you speak to the transaction growth at Zales versus the drop at Sterling? How do you view the industry landscape right now or why do you think Zales (inaudible) them all and Sterling missed I think even beyond credit and where you think those shoppers might going? So any color there would be helpful. And then Michele obviously increasing the dividend shows confidence in your cash flow. Can you just speak to what you expect cash generation to look like going forward with credit behind you?

As I’ve said previously we were able to get a number of our strategic initiatives in place faster at Zales than our other businesses. So for example, Zales has been operating in our new banner accountability organization model since August with a dedicated multi-functional team and has had faster, more banner focused decision making. What this really allowed them to do is to improve our product assortment at Zales more quickly. So, Disney, Vera Wang, and solitaires performed very well. This shift toward fashion, more fashion jewelry purchasing is something that we really captured at Zales in a way that drove our topline improvement. The third thing is that our e-commerce started to improve post our Hybris implementation, which had caused a temporary dip in search and conversion, especially on mobile. And then finally, as you also noted, Zales is not impacted by the credit transition having had their credit transitioned for a while now.

Simeon, and in terms of your question on the cash flow, and as I called out in my comments, that for sure was a point of strength for us in our fiscal 2018. And as we think about moving forward in the transaction between phase 1 and phase 2, the sale of the $1.8 billion of total receivables for sure reduces the total invested capital and will also help improve our return on invested capital profile as we move forward. And as I said on the call, will also provide meaningful working capital reductions, which will also help to drive free cash flow enhancements.

Any color on what that would look like embedded within the guidance for this year?

No, we’re not guiding the actual free cash flow number. I think we gave the pieces and parts on what we anticipate the sales proceeds to be. And then in addition, the other caller I’d point you to is we did provide the capital expenditures and you can see that range of $165 million to $185 million is lower from the prior period, as we continue to focus on IT and also will have reduction in new store investments, so that will also help to drive and enhance free cash flow.

Your next question comes from the line of Ike Boruchow with Wells Fargo. Your line is open.

Michele, just two questions for you; can you confirm that the phase 2 transaction is EPS accretive? It seems to be a little dilutive on my rough math, but I’ll admit the numbers are a little confusing on my end, so just any help there would be great.

Ike, in terms of the EPS accretion, as you would imagine there’s going to be a number of assumptions and there’s time to go when we close and get the actual proceeds. It’s going to be dependent in terms of level of receivables, and then when we think about those proceeds, obviously what the share price would be at the time we do our share repurchases. So, I think it’s premature for me to comment accretion or dilution.

Then just a follow-up, can you give us any more detail on, maybe explicitly, what discount rate is being used on the credit sales to your partner to get to the numbers you kind of laid out, the 118 to 133, there has to be something kind of embedded in there? I’m not sure if you can share that or give us color.

Well, you’re definitely right. There is a discount rate embedded in the numbers we provided. We’re not going to share what’s that MDR, we refer to it as the merchant discount rate, what that rate is just for competitive reasons and sensitivity of the information. But what we have provided in the release and which is why we also provided the view for FY ’20, so you can understand in a more normalized annualized basis what we anticipate the impact to SG&A expenses to be.

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

Regarding the consumer value equation, a lot of our research at Cowen does focus on deep value and value for price and pricing, what do you think needs to be done and how will that manifest in the brilliance plan in terms of how we model the comp on (inaudible) versus transaction and timing, because its reorienting toward value can be quite complex and some things may be easier versus longer. And our second question is just about banner differentiation. You’ve been on a journey regarding this in the past, so what’s different about what you’re seeing, and how should we interpret the new studies versus the former studies and where you want to go with banner differentiation?

So, let me start with the customer value equation first; obviously our value equation is comprised of a number of different things, the price of our product, the assortment, the service that we provide in store, the education, the seamless OmniChannel experience that we provide, because we know that fine jewelry shoppers are online, in-store and back again. So there are a lot of components of that, but a couple of things I mentioned in remarks that we’re doing uniquely now are first, we’re doing some pricing studies to carefully evaluate and benchmark versus key competition as well as evaluating our promotional spend. So, I also mentioned that we’ve become a bit too promotional, we believe at certain times of the year, and this is creating confusion for consumers and also creating an environment which damages brand equity instead of building it up. So we’re taking a look at both of those elements to see what the right kind of value equation is for us to have, and that may vary across our different banners. Given to the answer to your second question, which is banner segmentation. So you’re absolutely right, several years ago, we had (inaudible) come in and do a study about the market and who are the shoppers within the market. And then we kind of lined each of our brand banners up against one of those consumer groups. But having done a lot of branding work throughout my career and repositioning brands for growth, it’s more complicated than that. So we’ve brought some deep data analytics to bear in addition to that to show us which consumers are already buying in which banners, which are the consumer groups that are growing the most, and what are the significant benefit promises that those consumers really want to see. And then we’ve been doing work on what each of our brand banners can stand for and how we might target these consumer groups in a different and more personalized, more individualized way. So, that’s the work that’s been going on over the last six months since I came, and I’ve seen some work on it very recently. I think it’s coming along very well and we’re getting ready to get some of that into execution and testing, which we’ll be doing over the coming months, so that we can really better differentiate our customer groups and reduce the overlap. The great thing is that that carries over to other things as well. It carries over to new store concepts, new service concepts, our merchandise mix. As we’ve talked before we’ve gotten into a situation of sameness across our banners over the last couple of years where the merchandise looks very similar across our banners. And with the benefit of a fresh look at the segmentation, we can now pull that apart a little bit and differentiate the merchandise that particular customer groups want to see in banners better than we have before.

Okay, and Gina I know you’ve done some interesting work with millennials and [Genesis]. How does that manifest in terms of the store experience, and how you see that evolving and what the on-demand capital like customer service and mixed service model may mean for how you’re thinking your store experience should evolve, just to make sure you capture the share of new generations and acquire new customers and maintain existing?

Well, it’s a great question. So, thanks for asking that one. Obviously our customers are beyond millennials because people are buying birthday gifts, anniversary gifts, females are purchasing, all of that. But a large portion of our sales, especially on bridal, are focused with millennials. So, we’ve done particular research in that group. And I’ll give you three examples of things that we’re focusing on that we believe will delight millennial shoppers. One is OmniChannel, so the seamless integration of online and in-store experience. There are a couple of things that we’ve brought to life that I’m excited about, and these are small test and learn activities, but everything we’re testing we’re learning about, and I think we’re seeing strong growth results. And so we’ll see that impact our business more broadly as we roll it out. A few examples of that are bringing our R2Net technology and product visualization to our websites. Another one is allowing customers to check our inventory in any store from online, before they go to the store. Just in the fourth quarter we had 1.7 million customers check our website for online inventory. And that’s a new service that we just started offering. I’ve talked about adding appointment booking to our websites, and we had over 3,800 appointments booked online during the fourth quarter. So, immediately customers are responding to that. I talked a bit about personalized content. When someone has visited our website before, we should be able to make their second, third, and fourth experience much more customized and personalized. Last year for holiday, we were doing that about 3% of the time. In the fourth quarter this year, it was about 34% of the time, so a significant increase there. Another example on visualization is showing our product on models, which…

Your next question comes from the line of Rick Patel with Needham & Company. Your line is open.

Just a quick clarification, I wanted to be crystal clear that your non-GAAP EPS guidance excludes the $475 million in buybacks, and assuming that it does exclude it, how should we think about the timing of when those repurchases will happen? And then secondly, Michele, I was hoping to get more color on the comment you made about how this transaction would impact SG&A as Signet originates future receivables and sells them to CarVal, what exactly that SG&A impact would represent, and any thoughts on quantifying that.

So, first, let me help you with your non-GAAP question. For sure GAAP and non-GAAP embed the consideration of approximately $475 million worth of share repurchases. So apologies if that was somehow confusing, but that is in there and we would anticipate that probably aligns since we’ll be using the proceeds from the sale, we’ll align with the closing which we had said we expect to occur in the second quarter. In terms of giving color on the transaction and understanding the SG&A, I’ll give you two reference points, but then I’ll give you some color. If you go on to page 14 of the release we put out this morning, we give you the impact for FY ’19, and then we also give you the estimated impact for FY ‘20. And there are a couple paragraphs that speak to the SG&A, the moving parts. As you think about how we guided the impact for ‘19, $100 million to $115 million, and then if you look at the impact for FY ‘20 as it relates to phase 2, primarily what’s running through SG&A is what we refer to as the discount rate associated with the forward flow of these receivables. So really that discount rate as we said has two components, it’s the discount rate for CarVal, who’s going to be funding the receivables for us. But that also embeds the servicing cost for Genesis to service the receivables. So, I think if you go back and look at that as well as slide 11 that we had on the presentation, that will give you the estimated impact that you’re looking for.

Okay, that’s helpful. And my second question, as you close 200 doors this year, you noted that existing stores could potentially recapture 30% of those lost sales. Just trying to understand the assumption there and whether that’s something you’ve seen in the past with store closures or whether that’s an estimate and your level of confidence in being able to recapture those lost sales.

The 30% is our historical average from stores that we have closed previously, and that’s really without having a very robust sales retention program in place. So, what we’ve done is over the last several months, we’ve been testing and learning on several ideas, which can help us to improve sales retention further. So one of those, for example is announcing to our store staff and to our customers earlier that we’ll be closing a store and helping to redirect them to another Signet banner that’s nearby, and remember, about 75% of the time, it can even be across the hall. We’re also being much more robust in using our clientele to reach out to customers of a closing store and offer them a one-time incentive to shop at our new store, so really guiding them there. And then the third thing is that we’re actually transferring some of our sales associates from one store to the other, so they bring their customers with them or we’re creating a buddy system where they literally can walk their customers across the hall or down the mall to introduce them to a new sales associate in a nearby store who can help them. So, we’re moving from an era of just letting it happen, which was the 30% and what we’ve modeled to an era where we’re being very intentional about trying to retain those sales.

Your next question comes from the line of Brian Tunick with RBC. Your line is open.

Two quick ones for Michele, and then maybe one for Gina. Michele, on sort of other operating income line for 2019 now, can you maybe give us what you’re assuming in your guidance and same thing with interest expense. And then Michele, on the quarterly viewpoint clearly, the first half of the year last year had some nuances with shifts of Mother’s Day, and I think you reported a negative 12% comp for Q1. So just want to understand from a quarterly buildout, how we should be thinking about maybe the first half this year with those timing shifts and then maybe other income and interest expense views. And then Gina, curious on your market share competitive landscape study. Maybe talk about bridal versus non-bridal competition and what you see has changed maybe since you’ve been at the company.

So, let me start with your first few questions. I think the first one related to the finance charge income for fiscal year 2019, if we can provide any color on what that would look like. And as we say once we close the phase 2 transaction, we no longer will have finance charge income reported. But clearly, there will be some level within the first half year prior to closing. We’re not separately guiding on that line item. I would reference you back to the number that we provided in terms of the operating impact is inclusive of that change. Your second question on interest expense; we will anticipate some reduction from our interest expense that we saw in FY ’18, since we paid off the ABS facility of $600 million in the third quarter as part of the phase 1 transaction. So, you would anticipate some reduction, probably in the $35 million or $40 million or so of interest expense. And did you have one other question for me, Brian, or did I hit them all?

Yeah, I did. I did. It was really about the timing shift from last year, the Mother’s Day shift. Q1, I think, was down 12% last year. Obviously you’re still having, it sounds like credit issues, but should we be viewing the first quarter as an opportunity, the timing shift between Q1 and Q2, just anything like that on those issues.

Yeah. So, the first comment I’m going to say is we’re not going to guide quarterly comps. But when we think about calendar shifts, the way the comp calculation works because of the 53rd week, etcetera, it actually becomes normalized for the promotional or for the shift that we saw last year. So, I wouldn’t say that there’s probably any major callout for Q1 to be thinking of.

Just build on that to say, we are still fixing our credit transition issues in Kay and Jared and we’re just beginning to get some of these strategic initiatives in place. So, I would expect us to see gradual and incremental progress throughout the fiscal year. And then let me answer your question on market share and what’s changed since I’ve been here. In terms of market share, we have done a deep analysis on when we don’t get a sale, where does it go. We’re seeing that be different across bridal and fashion as you correctly pointed out. So, in bridal when we don’t get a sale, it’s typically moving online, which as you’ll remember, is something the company didn’t expect several years ago, but we think we have a competitive advantage to capture more of that over time with our R2Net visualization technology. Also, sometimes the independent jewelers who are offering a very personalized relationship with customers. Again, we think we have an opportunity to provide significantly more assortment to customers. I talked a bit about our Jared test, where we’re able now in a number of our stores to provide a choice of over 100,000 diamonds to customers, which is something that is truly a competitive advantage. And I think as we’re using clientele better and using the data analytics I talked about to track customer’s journey, this is another place where we have a competitive advantage in our ability to create individualized relationships with customers both online and in-store in a very integrated way that we believe independent competition can’t match. On the fashion side of the equation, if we lose the sale, it’s typically to department stores, which is part of why we’re doing the pricing analysis and also an assortment analysis that I mentioned…

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

One quick one and then two tougher ones; first, your original guidance, I think, for selling the phase 1 was that there would be a $50 million impact to operating profit and $21 million has been recognized. So, has that changed at all?

So, if we go back in terms of we had guided in a range $50 million, $55 million in terms of the phase 1 transaction on an annualized basis, which included the ADS taking on the prime receivables and also included a servicing element related to the non-prime receivables. So, how we’re guiding now is the totality of the transactions combined, which obviously still includes the ADS component and the servicing is still there, although it’s embedded in the discount rate that we’ll be paying to CarVal. So, that $50 million, how I’d characterize it is you should look at in totality of how we guided the $100 million to $150 million impact for FY 19.

And then Gina, could you give us an update on how your employees are dealing with the credit sale process? You don’t have to give us a comp for Valentine’s Day, but did they handle it better, did you get that transition from one to the progressive any better? And then Michele, how do you handle if let’s say the whole sub-prime market starts to get a little tighter. Do you have any flexibility to pay a little bit more to keep the sales going or is that totally in CarVal’s hands?.

So, in terms of the credit transition issues that we experienced pretty much as soon as we outsourced on phase 1, I will say we’re making good progress, but we’re not there yet. This is much more complex than I think we originally realized. But what we’ve done a great job of over the last number of months is really diagnosing what all the issues are and getting strong resources against fixing those. So, we’re moving as fast as we can. We’re beginning to see some good results on that, but this is something that I think is going to still impact us, not only in Q1, but for the rest of this fiscal year. So, the project team has put in place a multi-month implementation horizon of new system enhancements that will get us first back to where we were in terms of the level of information and ease of being able to use credit at the store level. And then secondly will take us beyond that to actually improve versus what we had before, and make credit a much easier process than it ever was in the past. So, one example of that is that our store personnel have been dealing with really three discreet systems, if you will, the ADS prime system, the Genesis non-prime system, and then progressive leasing, and it has not been as seamless a process of one financing offering as we want it to be or as we originally expected. We have some IT improvements coming online over the next couple of months, which link all of those together to make it a significantly more seamless process.

Yeah. In terms of your question on the sub-primes, as we announced this morning with the deal with CarVal, they’re obligated to purchase that forward flow. Signet will continue to originate those accounts and will pay the MDR to CarVal over that period of time. And that MDR rate is subject to change periodically. So, we’ll have latitude and flexibility to address whatever the market condition might be.

We have no further questions at this time. Thank you, ladies and gentlemen. That concludes today’s call. You may now disconnect.