Signet Jewelers Limited — Form 10-K Summary
Reporting period: Fiscal 2020, the 52 weeks ended February 1, 2020; the fourth quarter was the 13 weeks ended that date. Fiscal 2019 also comprised 52 weeks. Signet is a global jewelry retailer operating 3,208 stores and kiosks across North America and the UK, with Kay, Zales, Jared, James Allen, H.Samuel and Ernest Jones among its banners.
Financial results
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Sales | $6.137 billion | $6.247 billion |
| Same-store sales | +0.6% | -0.1% |
| Gross margin | $2.224 billion; 36.2% | $2.161 billion; 34.6% |
| Operating income (loss) | $158.3 million; 2.6% of sales | $(764.6) million; (12.2)% |
| Net income (loss) | $105.5 million | $(657.4) million |
| Net income (loss) attributable to common shareholders | $72.6 million | $(690.3) million |
| Diluted EPS | $1.40 | $(12.62) |
| Operating cash flow | $555.7 million | $697.7 million |
| Capital expenditures | $136.3 million | $133.5 million |
| Free cash flow (non-GAAP) | $419.4 million | $564.2 million |
Fourth quarter: Sales were $2.153 billion, down 0.1%; same-store sales rose 2.3%. Gross margin was $897.9 million (41.7% of sales), operating income was $223.2 million (10.4%), and net income attributable to common shareholders was $178.8 million. Diluted EPS was $3.14, compared with a loss of $2.25 in the prior-year quarter. eCommerce sales reached $299.9 million, or 13.9% of quarterly sales, versus $260.6 million, or 12.1%, a year earlier.
For the full year, sales declined 1.8%, principally due to store closures; eCommerce grew to $750.4 million, or 12.2% of sales, from $682.4 million, or 10.9%. North America sales fell 1.3% and same-store sales rose 1.1%; International sales fell 10.1% and same-store sales declined 4.9%, reflecting a difficult UK environment. Management attributed improved gross margin to transformation savings, credit outsourcing and lower inventory charges. Fiscal 2020 included $79.1 million in Path to Brilliance restructuring charges and a $47.7 million goodwill impairment adjustment. Fiscal 2019 included $735.4 million of goodwill and intangible impairments and $167.4 million of credit-transaction charges, which make year-over-year earnings comparisons unusually affected by prior-period items.
Debt, liquidity and capital
- At February 1, 2020, cash and cash equivalents were $374.5 million; gross debt was $613.1 million and net debt was $237.0 million, versus net debt of $533.0 million a year earlier.
- Working capital was $1.502 billion, down from $1.823 billion. The company reported $1.2 billion of available borrowing under its $1.5 billion asset-based revolving facility at fiscal year-end, and was in compliance with debt covenants.
- Fiscal 2020 net cash used in financing was $237.0 million, including $108.6 million of dividends and $166.4 million of net debt repayments. Common dividends declared were $1.48 per share for the year.
- Adoption of lease accounting added $1.683 billion of operating lease right-of-use assets and $1.776 billion of lease liabilities to the balance sheet. Minimum future operating lease payments totaled $2.211 billion.
- After year-end, Signet drew an additional $900 million on its ABL facility on March 19, 2020. It reported more than $1.2 billion in cash and approximately $292 million of facility availability at the time of the draw.
Outlook, risks and unusual developments
- The filing gives no quantified Fiscal 2021 earnings or sales guidance. Management said COVID-19’s full effect was unknown and that the pandemic could reduce sales and liquidity, increase leverage, disrupt supply chains and delay or change Path to Brilliance initiatives.
- All North American stores, New York diamond operations and US support centers were temporarily closed effective March 23, 2020; UK stores closed effective March 24. Management said eCommerce had not yet been significantly affected, but fulfillment could also be disrupted.
- CarVal terminated its forward-flow non-prime receivables purchase agreement effective March 23, 2020. Castlelake had not then indicated an intent to terminate and signed a non-binding MOU to potentially take on all future funding obligations. The affected forward-flow receivables represented about 7% of Fiscal 2020 revenue. Signet said it believed CarVal’s termination would not materially affect financial condition or results, but replacement financing arrangements remained a key uncertainty.
- A proposed $240 million securities-litigation settlement was entered into in March 2020, subject to court approval. Signet recorded a $33.2 million net charge in Fiscal 2020 after expected insurance recoveries of $207.4 million and estimated its contribution at approximately $35 million.
- Signet reported $185 million in cumulative net cost savings over the first two years of Path to Brilliance. It could not estimate further savings given COVID-19 disruption. Other principal risks include seasonal dependence on holiday sales, consumer discretionary spending and financing availability, competition and promotions, commodity and foreign-exchange volatility, store-lease obligations, and impairment risks.
Most important facts for investors to verify
- How long closures and supply-chain disruption lasted, and the resulting sales, cash burn, borrowing and covenant position.
- Whether Castlelake or another provider replaced CarVal for non-prime receivables funding, and any effect on customer financing, sales and costs.
- Settlement court approval, timing and amount of Signet’s cash contribution, and collection of expected insurance recoveries.
- Underlying operating performance excluding the material prior-year impairments and credit-transaction charges, including North America versus International trends and eCommerce growth.
- Progress on store rationalization, cost savings and transformation spending, alongside future impairment exposure and the company’s substantial lease commitments.