Signet Jewelers Ltd (SIG) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to today's Signet Group Q1 results conference call.

For your information, this conference is being recorded.

At this time, I'd like to hand the conference over to your host today, Mr. Terry Burman.

Please go ahead, sir.

Thank you, operator.

Welcome to the conference call on Signet's first-quarter results.

I am Terry Burman, Group Chief Executive, and I have with me Walker Boyd, Group Finance Director, and Tim Jackson, Investor Relations Director.

Walker will review the financial results, and then I will comment on the operations in the U.S. and the UK.

First, Tim will give the Safe Harbor statement.

This call includes certain statements which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are based upon management's beliefs, as well as on assumptions made by and data currently available to management and appear in a number of places throughout this call.

They include statements regarding among other things our results of operations, financial conditions, liquidity, prospects, growth, strategies, and the industry in which the Company operates.

These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties which are more fully described in the Company's earnings release dated 9th June 2006 and in the risk another factor section of the Company's 2005 '06 annual report on Form 20-F filed with the U.S.

Securities and Exchange Commission on the 4th of May, 2006 and other filings made by the Company with the commission.

Actual results may differ materially from those anticipated in such forward-looking statements even if experience or premature changes make it clear that any projected results expressed or implied therein may not be realized.

The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

Additionally, certain financial information used during this call are considered to be non-GAAP financial measures.

For a reconciliation of these to other directly comparable GAAP financial measures, please refer to the Company's earnings release dated 9th June 2006 available on the financial information section of the Company's website at www.SignetGroupPLC.com.

Thank you, Tim.

In the first quarter, group like-for-like sales increased by 2.8% and total sales by 13.7% to 419.6 million pounds.

Sales were adversely affected by a timing difference related to Mother's Day in the U.S. which reversed the start of the second quarter.

At constant exchange rates, total sales were up by 7.2%.

The exchange rate for the quarter was $1.75 per pound against $1.89 in the comparable period.

Gross margin for the group was done compared to the same quarter last year with a similar decline on both sides of the Atlantic.

Operating profit at 32.2 million pounds grew by 9.2%.

The operating margin was slightly lower at 7.7%.

The adverse impact on operating profit due to Mother's Day being a week later in the U.S. is estimated to have been over 1.5 million pounds.

This is now unwound and will benefit the second quarter.

Group expenses were up by 500,000 pounds, reflecting increasing costs required by the current corporate governance environment.

Net financing costs were little changed at 1.5 million pounds.

The impact of the private placement begins in the second quarter as the drawdown was completed two weeks ago.

Profit before tax at 30.7 million pounds showed a 10% increase on a reported basis and was 1.7% ahead at constant exchange rates.

The tax rate was 35.8%, in line with the anticipated full-year rate.

Net cash from operating activities in the quarter was 14.6 million, down from 18.1 million in the comparable period last year, reflecting an increase in tax payments of 5.7 million pounds.

Capital expenditure in the quarter was 14.9 million against 13.8 in the comparable quarter last year, and the group is on track for a full-year spend of about 80 million pounds sterling.

For the year as a whole, we continue to expect a cash outflow of between 10 and 30 million pounds.

Net debt at the end of the quarter was just over 93 million, up by 17.1 million from the level 12 months ago, primarily reflecting translation differences and small cash outflow in fiscal 2006.

I will now hand you over to Terry who will talk about developments in the business.

Looking first at the U.S., recorded sales showed a rise of 18.1% in the quarter, benefiting from the foreign exchange rate movement that adversely impacted by the timing of Mother's Day.

Adjusting for these factors, the underlying increase was over 12.5% with like-to-like sales up by over 7%, a good outcome.

We again increased our share of the $59 billion jewelry market with a particularly encouraging performance by Kay and continued strong results from Jared.

Television advertising once more helped to produce a good performance over Valentine's Day despite weather disruption over the weekend immediately prior to February 14th.

Average transaction values in both the mall stores and Jared increased by about 4%, reflecting the price adjustments made in the last 12 months to help offset the rising commodity costs.

As anticipated, the gross margin percentage was down versus the first quarter of fiscal 2006, reflecting commodity cost increases and mix exchanges which helped drive the sales performance.

As a result of the higher gold costs, we are currently implementing selective price increases.

We anticipate, however, a full-year adverse impact on gross margin in the range of tens of basis points subject to commodity cost movements and product mix.

U.S. operating profit was 35.8 million pounds, an increase of 14% and up 6% on a constant currency basis.

After adjusting for both the timing of Mother's Day and foreign exchange movements, the increase is estimated to be about 10%.

Operating margin was 10.9%, down 40 basis points on last year, again, reflecting the timing of Mother's Day.

The impact of new store space and the decreasing gross margin was largely offset by operational leverage from like-for-like sales growth and a lower bad debt charge to sales ratio than in the comparable period last year.

In summary, the first quarter was in line with fiscal '06 in terms of like-for-like sales growth and the consumer remains stable.

Against this background, we continue to implement our proven strategy.

We're making good progress and expect to grow new store space within the targeted range of 8 to 10%.

Turning to the UK, trading conditions in the general retail sector remain challenging.

However, our like-to-like sales performance in the first quarter was more in line with the high street as a whole than last year.

Like-to-like sales were down .7% with H.Samuel down by 2.4% and Ernest Jones up by 1.3%.

Total sales were unchanged.

A very tight control of cost was achieved, held by a realignment of the expense base at the end of fiscal 2006 to reflect the lower volume of transactions.

A somewhat lower gross margin reflected the increased targeted promotional activity, .

The strong performance by the insurance replacement business and the impact of commodity costs.

The operating loss was 1.6 million pounds.

In the first quarter, H.Samuel had a strong performance in the diamond category, while Ernest Jones did well in watches.

The focus of the business remains on raising store productivity by lifting the average transaction value predominantly through increasing diamond participation, which was up for the division as a whole in the first quarter.

The average selling price was also ahead.

We continue to add value to the UK business, and there are still many opportunities for further improvement and to drive sales.

For example, the consumer has responded to the more focused promotional program, merchandising initiatives are in place, and the introduction of staff commission is proving to be of benefit.

Also, the growth in the insurance replacement business has been encouraging, and the H.Samuel ecommerce site is making a useful contribution to sales.

As a result of higher gold costs, we are currently implementing selective price increases.

However, we anticipate a full-year adverse impact on gross margin again in the range of tens of basis points depending on the level of promotional activity, the cost of gold and the development of the insurance replacement business.

In summary, while we do not expect to see a sharp improvement in the UK retail environment, our sales have stabilized, and we continue to implement initiatives to drive the business forward.

We will now take any questions that you may have.

Operator?

(OPERATOR INSTRUCTIONS).

Allegra Piaggi, Lehman Brothers.

Good afternoon.

Just wanted to ask a question on current trading.

If you could give us any additional color how trading has evolved since the period in both the UK and the U.S.?

And then on from that, if you can elaborate a little bit on the trends within the U.S.?

Have you seen any change as far as which products are selling well and if you are still seeing a trend toward higher priced diamonds?

We don't comment mid-quarter about the current quarter, but we -- I would just point out to you that we did make -- we did set a market expectation that we would recover this 3% lost in the first quarter because of the timing of Mother's Day over the Mother's Day period, and we haven't commented on that, so you can draw your conclusions from that.

In terms of trends in U.S. products, there's a continued long-term shift or the long-term shift to diamonds has continued.

If you look over our business over the last five years, you see that shift to diamonds and to higher priced diamonds, and the customers are certainly reacting to our merchandising initiatives in these areas.

Thank you.

(OPERATOR INSTRUCTIONS).

Phil Clark, RCM Asset Management.

I just wanted to understand a little bit more how much of your cost of goods sold is actually related to gold, and what, if anything, you do to hedge or lock in prices relating to gold?

Yes, Walker Boyd here.

In terms of the components of our cost of goods sold, gold would represent approximately 17%, and that would apply to both the UK and the U.S. businesses.

In the U.S. obviously diamonds would be a bigger component part, representing about 43% of our cost of goods.

As far as hedging is concerned, we do take hedging positions from time to time where we have transaction exposure either in respect of gold as a commodity or, indeed, in currency for our UK business.

Our position on hedging is that we -- for the current year is that we did not take particular deep positions in hedging as the gold increased during the course of the early part of this year.

Clearly now, as we begin to make commitments on our purchases for the fourth quarter and gold has come off somewhat in both sterling and dollar terms, then we would look at taking hedging positions if we saw a particular upper volatility in the market going forward over the next several months.

That's great.

Thanks a lot.

(OPERATOR INSTRUCTIONS).

Rod Whitehead, Deutsche Bank.

I was wondering whether you could update on the progress on store openings?

Particularly I'm thinking of Jared about your program for the year ahead where you are planning a current record number of openings.

Right.

Rod, we are on track on our store opening program to be within our 8 to 10% space growth range.

We have kept the Jared number still even at this kind of late date is in the 18 to 23 range because there's a couple of markets that we're not -- still not sure.

We have got a couple of issues with planning departments in a couple of markets, so we're not sure if we will get into those or not.

So we are leaving the 18 to 23.

We will inform the market at the time of the interims as to that, but in terms of the total store openings through the rest of the business, the mall brands, they will meet our total store targets, although we are not having much success with finding Metropolitan locations.

But we are exceeding our expectations in a couple of the other formats, so we will wind up with about the same quantum of stores being opened.

I know there was one big West Coast market.

I can't remember you were -- was it San Francisco or L.A. you were planning to move into this year with Jared?

Is that one of the ones you are still not sure of?

Yes.

L.A. is one of the ones that we are not sure of, and that is a three store market.

So it gets to the point where the decision becomes maybe one store could get delayed, and we might delay the whole thing because the cost of advertising just two stores in the whole L.A. market could become more expensive than we would like.

But a lot of that has to do with advertising costs and what our real estate arrangements are with the other two landlords.

So it's -- when the third store would open, if it opens shortly after in the spring, we might get it.

There is a lot of decisions in this mix, and not to burden this call with all of the details, but those are the kind of things that we have to think through.

Thanks.

As there are no further questions at this time, I would now like to turn the conference back over to you, Mr. Burman, for any additional or closing remarks.

We would like to thank all of you for participating in this call.

Our next scheduled announcement is the second-quarter sales figures on August 3rd.

Our interim results are expected to be announced on August 30th when there will be the normal analyst presentation in London and a simultaneous conference call and webcast for all interested parties.

For now, good-bye, and again, thank you for participating.

Thank you.

That will conclude today's conference call.

Thank you for your participation, ladies and gentlemen, and have a nice day.