Signet Jewelers Limited (NYSE:SIG) Q3 2017 Earnings Conference Call Transcript

Nov 21, 2017 • 08:30 am ET

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Signet Jewelers Limited (NYSE:SIG) Q3 2017 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Signet Jewelers Limited Q3 Fiscal 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, November 21, 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, VP of IR. Please go ahead, James.

Executive
James Grant

Good morning and welcome to our third quarter earnings conference call. On our call today are Signet's CEO, Gina Drosos; and CFO, Michele Santana. The presentation deck that we will be referencing is available under the Investors section of our website, signetjewelers.com.

(Forward-Looking Cautionary Statements)

I will now turn the call over to Gina.

Executive
Gina Drosos

Thank you, James. Good morning, everyone, and thank you for joining today's call. Today, Michele and I will discuss Signet's third quarter results, provide an update on the progress we're making on our strategic initiatives, share insight into our plans for the holiday selling season, and provide a detailed update on our credit transition. Then we will open the line for your questions.

Beginning with the third quarter results we reported this morning. Signet had a challenging third quarter. We experienced a sequential decline in our comp sales, which was largely anticipated in what is our smallest quarter with an absence of gift-giving holidays. We also faced headwinds from weather-related incidents and disruptions in our systems and processes during our credit outsourcing transition. These events further pressured our results and impacted our comp sales by 60 basis points each. I'll discuss credit in more detail in a few minutes.

Lower sales on fixed costs and the inclusion of R2Net, which has a different business model and carries lower margins, resulted in a decline of 170 basis points in our gross margin. However, excluding R2Net, we delivered higher gross merchandise margins, despite a heavily promotional environment. We saw improved effectiveness from our streamlined promotional strategies and sharper customer targeting. We also continue to focus on cost control. We've reduced expenses and improved our SG&A rate by 10 basis points, despite the 70 basis point unfavorable impact of R2Net transaction costs.

In total, for the third quarter, we recorded a loss of $0.20 per share, including transaction costs of $0.25 and a $0.10 negative impact of the weather and credit-related events that I mentioned moments ago. As you can see, $0.35 of the loss was related to transactions, weather, and credit disruption. Importantly, I'm encouraged that we advanced our strategic initiatives during the quarter and they are beginning to deliver tangible results that I'll discuss in detail in a few minutes. But first, I'd like to take a moment to provide more insight into our credit outsourcing transition.

As you know, in October, we completed the first phase of strategic outsourcing of our credit portfolio to Alliance Data and