HAMILTON, Bermuda, March 25 /PRNewswire/ -- Signet Jewelers Ltd (NYSE and LSE: SIG), the world's largest specialty retail jeweler, today announced its full year unaudited results for the 52 weeks ended January 31, 2009.
Results for the 52 weeks ended January 31, 2009 ('fiscal 2009')
- Group same store sales: down 8.2%
- Group total sales: $3,344.3 million, down 5.7% at constant exchange rates(1)
- Income before goodwill impairment, relisting costs and income taxes: $200.9 million(2)
- Goodwill impairment charge: $516.9 million
- Reported loss before income taxes: $326.5 million
- Basic loss per share: $4.62
- Adjusted basic earnings per share: $1.57(2)
(1) See note 11.
(2) Before charging $516.9 million impairment of goodwill and $10.5 million of relisting costs. These financial measures are supplemental non-GAAP measures which management believe useful to understanding the Group's performance. See note 11 for a reconciliation to reported financial measures.
Group Strategy
- Enhance position as strongest middle market specialty retail jeweler
- Reduce business risk
- Focus on profit & cash flow maximization to further strengthen balance sheet
Group Objectives for the 52 weeks ending January 30, 2010 ('fiscal 2010')
- $100 million US cost reduction program
- Significant working capital reduction
- Capital expenditure of about $55 million
- $175 million to $225 million cash inflow before financing activities
Terry Burman, Group Chief Executive, commented: 'Against a very challenging retail environment, we capitalized on the Group's competitive strengths to outperform our middle market competitors and to successfully execute our strategy of maximizing gross merchandise margin dollars.
As sector rationalization continues at an accelerated pace, proven management, a strong balance sheet and sustainable competitive advantages are important considerations in relationships with staff, suppliers and landlords. As we enter fiscal 2010, our prime objective is to strengthen further the Group's industry leading position so as to be able to benefit from the reduced capacity within the specialty jewelry sector and to be well positioned for the eventual consumer recovery. To reinforce our position, we also aim to reduce net debt by around $200 million in fiscal 2010.
Given the very challenging environment, the Group has made an encouraging start to fiscal 2010. In the US, same store sales for the first seven weeks were down by 2.7% against the comparable period in fiscal 2009, with Valentine's Day trading stronger than the remainder of the period. The change in timing of Easter had an adverse impact of about 1%. Gross merchandise margin was meaningfully up, reflecting the benefit of the price increases implemented in the first quarter of fiscal 2009 and favorable mix changes, which more than offset the increase in the cost of gold.
In the UK, same store sales for the first seven weeks were down 3.8%, with the timing of Easter having limited impact. Gross merchandise margin was up slightly, reflecting higher prices offsetting increased merchandise costs. However, pressure on UK gross merchandise margin is expected to build during the rest of the year due to higher gold costs and the weakness of the pound sterling against the US dollar.'
Enquiries: Terry Burman, Group Chief Executive +1 441 296 5872
Walker Boyd, Group Finance Director +1 441 296 5872
Michael Henson, Taylor Rafferty +1 212 889 4350
Jonathan Glass, Brunswick +44 (0) 20 7404 5959
Signet operated 1,959 specialty retail jewelry stores at January 31, 2009; these included 1,401 stores in the US, where the Group trades as 'Kay Jewelers', 'Jared The Galleria Of Jewelry', and under a number of regional names. At that date Signet operated 558 stores in the UK, where the Group trades as 'H.Samuel', 'Ernest Jones', and 'Leslie Davis'. Further information on Signet is available at www.signetjewelers.com. See also www.kay.com, www.jared.com, www.hsamuel.co.uk and www.ernestjones.co.uk.
Results conference call details
There will be a conference call today at 9.00 a.m. EDT (1.00 p.m. GMT and 6.00 a.m. Pacific Time) and a simultaneous audio webcast and slide presentation available at www.signetjewelers.com. The slides are available to be downloaded from the website ahead of the conference call. To help ensure the conference call begins in a timely manner, could all participants please dial in 5 to 10 minutes prior to the scheduled start time. The call details are:
US dial-in: +1 718 354 1171
US 48hr. replay: +1 718 354 1112 Pass code: 4086123#
European dial-in: +44 (0) 20 7138 0816
European 48hr. replay: +44 (0) 20 7806 1970 Pass code: 4086123#
GROUP FINANCIAL REVIEW
Income Statement
In fiscal 2009, the Group loss before income taxes was $326.5 million (fiscal 2008: income $336.2 million), including a goodwill impairment charge of $516.9 million and non-recurring relisting costs of $10.5 million, see below for further details. Before these items, the Group's income before income taxes was $200.9 million, see note 11. Same store sales were down 8.2%. Total sales were 8.8% lower at $3,344.3 million (fiscal 2008: $3,665.3 million), down 5.7% at constant exchange rates, see note 11. The average pound sterling to US dollar exchange rate for the period was 1/$1.75 pounds (fiscal 2008: 1/$2.00 pounds). The components of the change in sales are set out below:
Change in sales US UK Group
% % %
Same store sales (9.7) (3.3) (8.2)
Change in net new store space 3.4 (0.5) 2.5
Exchange translation - (12.0) (3.1)
Total sales growth as reported (6.3) (15.8) (8.8)
Net operating income excluding goodwill impairment and relisting costs was $230.1 million (fiscal 2008: $358.7 million), see note 11, and operating margin was 6.9% (fiscal 2008: 9.8%). On a reported basis there was a net operating loss of $297.3 million. The factors influencing the lower operating margin are set out below:
Change in operating margin US UK Group
% % %
Fiscal 2008 operating margin 9.8 11.4 9.8(1)
Gross merchandise margin movement 1.2 - 0.9
Expense deleverage (3.8) (2.6) (3.5)
Impact of new store space (0.4) - (0.3)
Fiscal 2009 operating margin before
Goodwill impairment and relisting costs 6.8 8.8 6.9(1)
(1) Includes unallocated costs, principally Group costs.
Goodwill impairment
In prior years, the Group prepared its accounts under International Financial Reporting Standards ('IFRS') and reflected on its balance sheet only $30.6 million of goodwill relating to an acquisition made in 2000. Following the move of listing to the New York Stock Exchange ('NYSE') and the adoption of US Generally Accepted Accounting Principles ('US GAAP'), goodwill of $486.3 million relating to acquisitions made by the Group in 1990 or earlier was also required to be reflected on the balance sheet.
Under US GAAP, the Group is required to undertake an annual goodwill impairment test at its year end or when there is a triggering event. In fiscal 2009, in addition to the annual impairment review there were a number of triggering events in the fourth quarter due to a significant decline in profitability reflecting the impact of the economic downturn on the Group's operations and an even greater decline in its share price resulting in a substantial discount of the market capitalization to tangible net asset value (that is shareholders' funds excluding intangible assets). An evaluation of the recorded goodwill was undertaken and it was determined that it was impaired. Accordingly, to reflect the impairment, the Group recorded a non-cash charge of $516.9 million, which eliminated the value of goodwill on its balance sheet. The goodwill write-off has no impact on the Group's borrowing agreements or the net tangible assets of the Group.
Relisting costs
On September 11, 2008 the primary listing of the Group moved to the NYSE and the parent company of the Group became Signet Jewelers Limited, a Bermuda domiciled company. The non-recurring costs associated with these changes amounted to $10.5 million.
Group central costs, financing items and taxation
Group central costs were $13.0 million in fiscal 2009 (fiscal 2008: $15.8 million), largely due to the movement in the pound sterling to US dollar exchange rate, as well as a foreign exchange gain more than offsetting an underlying increase in costs. Net financing costs rose to $29.2 million (fiscal 2008: $22.5 million), the increase being primarily due to higher levels of net debt. The income tax charge was $67.2 million (fiscal 2008: $116.4 million), an underlying effective tax rate before goodwill impairment and relisting costs of 33.5% (fiscal 2008: 34.6%). The decline of 1.1% in the underlying effective rate reflected a lower proportion of profits from the US division and a reduced level of expenditure disallowable for tax than in fiscal 2008. It is expected that, subject to the outcome of various uncertain tax positions, the Group's underlying effective tax rate in fiscal 2010 will be approximately 36%, primarily due to an anticipated higher proportion of expenditure disallowable for tax in relation to income before tax.
Net income, earnings per share and dividends
The net loss for fiscal 2009 was $393.7 million (fiscal 2008: $219.8 million net income). Excluding the impairment to goodwill and relisting costs, net income for fiscal 2009 was $133.7 million (fiscal 2008: $219.8 million), see note 11. On a reported basis, both basic and diluted loss per share was $4.62 (fiscal 2008 earnings per share: basic $2.58 and diluted $2.55). Basic and diluted earnings per share excluding the impairment to goodwill and relisting costs were both $1.57, see note 11. In the light of economic prospects and financial market conditions, as well a focus on debt reduction, the Board concluded that it is not currently appropriate to pay dividends. This policy is reflected in the amended borrowing agreements.
Cash flow and net debt
Set out below is a summary of the Group's cash flows for fiscal 2009 and fiscal 2008:
Fiscal Fiscal
2009 2008
---- ----
($million)
Net (loss) / income (393.7) 219.8
Adjustments to reconcile to cash flows
provided by operations 653.5 113.8
----- -----
Cash flows provided by operations 259.8 333.6
Changes in operating assets and liabilities (95.4) (192.8)
------ -------
Net cash from operating activities 164.4 140.8
Net cash flows used in investing activities (113.3) (139.4)
------- -------
Free cash flow 51.1 1.4
Dividends paid (123.8) (123.9)
Net change in common shares 0.1 (23.0)
--- ------
(72.6) (145.5)
Proceeds of debt during year 160.6 31.1
----- ----
Net increase / (decrease) in cash and cash
equivalents 88.0 (114.4)
---- -------
In fiscal 2009, net cash flow provided by operating activities increased to $164.4 million (fiscal 2008: $140.8 million), although there was a net loss of $393.7 million (fiscal 2008: $219.8 million net income). The adjustments for non-cash items were $653.5 million (fiscal 2008: $113.8 million) and included the impairment to goodwill of $516.9 million. The adjustment for depreciation and amortization in fiscal 2009 at $114.5 million was similar to fiscal 2008. Therefore cash flow provided by operations was $259.8 million (fiscal 2008: $333.6 million).
In fiscal 2009, there was a much smaller outflow from operating assets and liabilities of $95.4 million (fiscal 2008: outflow of $192.8 million). There was a decrease in inventories of $12.7 million compared to an increase of $96.8 million in fiscal 2008, given the much reduced space growth in the US division and tight control of inventory on both sides of the Atlantic. In addition, the level of accounts receivable reduced by $20.5 million, reflecting the decline in sales in the US division partly offset by a slower collection rate of outstanding receivables (fiscal 2008: $56.2 million increase). There was also a substantial increase in the adverse impact of exchange rate changes on currency swaps of $49.6 million (fiscal 2008: $1.9 million). The Group has historically swapped pound sterling deposits into US dollars on a short term basis to reduce the level of US dollar debt. The size of such cash deposits fluctuates during the year and also reflects an historic restriction on dividend payments by the UK division. In the fourth quarter of fiscal 2009, following a ruling by the High Court of Justice in England & Wales, the Group had a greatly increased ability to reduce the size of the pound sterling cash deposits on a permanent basis by paying dividends up through the corporate structure. Advantage was taken of this to significantly reduce the future exposure of the Group's liquidity position to changes in the pound sterling to US dollar exchange rate.
Net cash flow used in investing activities was $113.3 million (fiscal 2008: $139.4 million) as a result of reduced store investment in the US partly offset by an increased number of Ernest Jones refurbishments. Free cash inflow in fiscal 2009 was $51.1 million (fiscal 2008: $1.4 million).
Dividends of $123.8 million were paid (fiscal 2008: $123.9 million). The net change in common shares was minimal (fiscal 2008: outflow $23.0 million).
Net debt
Net debt at January 31, 2009 was $470.7 million (February 2, 2008: $374.6 million). Of the $96.1 million increase in net debt (fiscal 2008: $141.4 million increase), $23.5 million (fiscal 2008: $4.1 million decrease) was due to the effect of exchange rate changes. Group gearing (that is the ratio of net debt to shareholders' equity excluding goodwill) at January 31, 2009 was 29.2% (February 2, 2008: 21.2%). The peak level of net debt in fiscal 2009 was about $670 million (fiscal 2008: about $620 million).
Amended borrowing agreements
Discussions to make amendments to, and reduce the size of, the Group's borrowing facilities were initiated by Signet in November 2008, in light of a significant deterioration in the economic environment. The goal of the discussions was to provide the Group with additional financial flexibility in the medium term, while more appropriately structuring the borrowing facilities required by the significantly lower level of net debt now expected, based on the Group's revised operating and expansion strategy. A satisfactory outcome to these discussions was recently achieved and details of the amended agreements were announced on March 16, 2009. In accordance with that announcement, a prepayment of $100 million of the notes at par plus accrued interest was made on March 18, 2009. Signet was in compliance with the terms of the original agreements in respect of fiscal 2009.
FISCAL 2009 OPERATING REVIEW
US Division (circa 76% of Group sales)
In a very challenging retail environment, US same store sales were down 9.7% and total sales were $2,536.1 million (fiscal 2008: $2,705.7 million). Sales performance was primarily driven by the difficult economic conditions with same store sales falling by 6.0% in the first three quarters. Following the sharp deterioration in consumer sentiment in mid September, and a further decline in early December, same store sales in the fourth quarter were 16.1% lower than the comparable quarter in fiscal 2008. Spending by higher income consumers was particularly weak in the fourth quarter, and this was reflected in the performance of Jared.
Operating income before goodwill impairment was $171.6 million (fiscal 2008: $265.2 million), see note 11. The operating margin was 6.8% (fiscal 2008: 9.8%), see table above for an analysis of the movement. Gross merchandise margin rate was ahead of expectations and increased by 120 basis points compared to last year, with a particularly strong performance in the fourth quarter. This reflected price increases implemented during the first quarter of fiscal 2009 and favorable changes in mix resulting from management initiatives, including the planned expansion of exclusive merchandise, which more than offset commodity cost increases. There was a negative impact of 380 basis points caused by the deleverage of the underlying cost base due to the decline in same store sales, which included the adverse movement in performance of the receivables portfolio, and an unfavorable impact of 40 basis points from new store space.
During fiscal 2009, training focused on product knowledge and developing selling skills appropriate for the more challenging marketplace. Enhanced in-store technology reduced administrative burdens and improved the efficiency of store, district and regional management. Benefits were seen in compliance monitoring, store feedback and the ability to identify store and divisional level opportunities to enhance training. Further improvements to repair services, an important driver of footfall and customer confidence, were also implemented. Reflecting lower sales volumes, store staff hours were reduced, and divisional head office staffing levels were decreased through attrition.
The average unit selling price was flat in fiscal 2009 compared to fiscal 2008. During the first nine months of fiscal 2009, the increase was 7% (mall brands up by 7% and Jared up by 5%), reflecting the price increases implemented in the first quarter. However, in the fourth quarter the consumer was seen to be trading down and the average unit selling price decreased by 10% (mall brands down by 7% and Jared down by 4%). The Jared average unit price excludes the impact of the launch of a new charm bracelet range in some stores. While all major merchandise categories were down over the year on a same store basis, the bridal category, which accounts for between 45% and 50% of sales, performed better than average, as did the proprietary Leo diamond range. The US division also successfully launched new, exclusive ranges, such as a specially designed collection by Jane Seymour and merchandise from Le Vian.
