Signet Jewelers Ltd (SIG) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Signet Jewelers fiscal 2016 first-quarter financial results call and webcast.

(Operator Instructions)

Please note that this call is being recorded today may 28, 2015 at 830 a.m.

Eastern time.

I would now like to turn the meeting over to your host for today's call James Grant, Vice President of Investor Relations.

Please go ahead, James.

Good morning.

Welcome to our first-quarter fiscal 2016 earnings call.

On our call today are Mark Light, CEO, and Michele Santana, CFO.

The presentation deck we will be referencing is available under the investor section of our website SignetJewelers.com.

During today's presentation we will in places discuss Signet's business outlook and 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 just to read the Risk Factors, cautionary language and other disclosures in the annual report on Form 10-K that was filed March 26 with the SEC.

We also draw your attention to slide number 2 in today's presentation for additional information about forward-looking statements and non-GAAP measures.

And now I will turn the call of Mark.

Thanks, James, and going everyone.

In the first quarter we delivered very strong top-line and bottom-line results.

Signet comps increased by 3.6% and earnings per share metrics showed impressive increases over last year.

Most notably adjusted EPS was $1.62 which was 25.6% increase over the prior year.

When measured on an apples-to-apples basis versus last year by excluding Zale our EPS was up $0.06 or 4.7%.

Each of our divisions had same-store sales increases led by our UK division with an increase of 6.2% while our newest division Zale had a 5.6% increase.

The Sterling division had a 2.3% comp store increase which was the division's 22nd consecutive quarterly comp increase.

In terms of merchandise Signet's bridal and fashion diamond collection performed well across the organization.

By selling channel our broad-based strength was evident with outlets and e-commerce delivering strong results.

Now let's focus on the performance by our division starting with our Sterling division.

Sterling delivered a 2.3% comp sales growth led by Kay with an increase of 3.6%, Kay's 25th consecutive quarterly increase.

Kay saw strength in diamond jewelry across its merchandise portfolio in bridal and fashion, branded and non-branded in a variety of products.

Examples include Neil Lane Bridal and Tolkowsky, Diamonds in Rhythm fashion pendants and solitaire earrings and rings and watches were strong also.

We launched Pinterest and Instagram for Kay in time for Mother's Day.

These are brand-new marketing platforms for our customers.

And nearly every field operation's key performance indicator improved year over year.

Importantly our customer service index scores are the highest they've ever been.

Our Jared store had comp sales increase of 2/10 of a percent while our total sales were up 4.4%.

Jared had success around fashion collection such as Neil Lane designs, Diamonds in Rhythm, Lois Hill, Earthly Treasures by Smithsonian and Le Vian.

And in watches Movado and Citizen were very strong and our Vera Wang test continues to perform well in our Jared stores.

We recently launched a test of incremental radio advertising in several markets, markets that help strengthen our bridal position.

In addition we also launched Jared's first ever brand book used for direct mail marketing and in-store use.

We continue to drive our critical traffic building repair and design center business.

We recently launched a new managers training system for our design and service centers in our Jared stores to enhance our artisans ability to deliver high-quality product in even faster time frames.

Given the investment and our initiatives in our Jared business we feel we are well-positioned to capture profitable marketshare.

Now moving on to our Zale division, Zale delivered a strong first quarter of 6.1% comps due to a variety of planned investments in initiatives around merchandising, marketing and field operations.

Beginning with merchandising, our branded bridal and fashion diamond collections performed very well led by the Vera Wang Love collection, the Celebration Diamond and Unstoppable Love.

As we continue to focus on expanding depth versus breadth in our merchandise assortments our current brands continue to drive sales growth.

The Zale store teams are scoring well on key customer service and selling skills performance indicators.

They are highly engaged and executing better than ever.

In the first quarter there were a variety of other successes beyond our sales store performances.

Our Peoples stores in Canada and our Piercing Pagoda store throughout the United States all delivered comps in excess of 6%.

And e-commerce performed very well also.

Driving results is a continued phenomenal collaboration between all of our division team members to Signetize our business.

And speaking of Signetizing, several areas are actively engaged in collaboration such as field operations, marketing and merchandising and we are also seeing benefits from consolidated real estate and diamond buying teams as well as alignment around our human resources departments.

And we are in the process of finalizing our technology roadmap for the next several years which will include a single IT function for the enterprise, a roadmap of common technology platforms for us to expand and grow our business and digital experiences that enable us to know our customers intimately while seamlessly servicing them.

In the UK the main drivers include initiatives around diamonds, success in fashion merchandise and watches and a continued focus on sales rather than test.

The UK continues to drive diamond sales with their improved sales training and marketing initiatives geared towards bridal customers.

Perfect Fit, the Forever Diamond, Neil Lane, Leo and Tolkowsky all were strong in the first quarter as well as Le Vian diamonds.

And our Vera Wang test performed well also.

Outside of the diamond category watches and beads also did very well.

Our UK division experience strength across all selling channels.

E-commerce sales increases were higher than total Signet e-commerce sales increases and our new outlet stores performed well.

Our UK division continues to embrace a culture of collaboration and is focused on continuously enhancing their diamond selling skills journey.

Signet continues to gain profitable marketshares in both Sterling and in our Zale division as well as for Signet overall.

We have a highly collaborative, team-oriented mindset as we integrate our businesses.

We continue to see progress against all of our strategic pillars and specifically investment bridal and our omnichannel approach is clearly thriving as we see strength across all of our selling channels.

So to sum up we are seeing terrific contributions and collaborations from all of our divisions.

Zales continues to gain synergy and operational momentum.

The UK is showing unprecedented comp growth as a result of our collaborative culture and Sterling is consistently showing strength with positive comps and operating results.

I feel as good as ever about our future for the near, the medium and long term.

And with that I will now to the call over to Michele for a run through on our financials.

Thank you, Mark and good morning everyone.

So starting with our sales performance I will point out a few highlights which Mark just provided an overview of the numbers.

In our Sterling division total sales increased 4.5% to $944.2 million which included a same-store sales increase of 2.3%.

The average transaction price at Sterling increased by 4.7% and the number of transactions decreased by 3%.

This is driven by our merchandise mix including bridal and higher price point fashion collections.

Our Zale division total sales were $437.1 million for the quarter which included a same-store sales increase of 5.6%.

Total sales also included an $8.6 million unfavorable revenue impact due to purchase accounting adjustments related to deferred revenue.

As Mark indicated sales were particularly strong in our Zale division in branded bridal and branded diamond fashion.

In our UK division total sales decreased 3.4% but increased 6.6% on a constant exchange basis.

Sales were $146.5 million with a comp sales increase of 6.2%.

The average transaction price increase by 3.6% and the number of transactions increased by 2.6% due to merchandise mix with strong performance in branded bridal, fashion diamond jewelry and fashion watches.

Moving on to sales I'll walk through Signet's consolidated Q1 performance and then we will turn and analyze Signet's adjusted results.

So on slide 8 the table provides a reconciliation of Signet's adjusted results to our consolidated results.

The difference between adjusted Signet and Signet are the columns reflecting purchase accounting and transaction cost with transaction cost including our integration-related expenses.

On a GAAP basis EPS was $1.48 per share and at the high-end of our guidance.

Purchase accounting adjustments which included reduction to deferred revenue, amortization related to inventory fair value step-up and amortization of unfavorable contracts were dilutive to EPS by $0.09.

Transaction costs were responsible for $0.05 of dilution.

Transaction costs related to our integration were a couple of pennies per share higher than first anticipated and that's primarily due to timing associated with various consulting expenses.

Let's move on and we will look at operating income by division.

Operating income of $176.2 million, or 11.5% of sales consisted of the following components.

Sterling Jewelers was $178.2 million or 18.9% of division sales and that's up 50 basis points from last year and a record Q1 high.

Zale operating income was $15.5 million or 3.5% of division sales inclusive of purchase accounting adjustments.

Zale's performance consisted of $10.4 million of profit from the Zales jewelry operating segment and $5.1 million for the Piercing Pagoda operating segment.

When excluding cost of $11.4 million related to purchase accounting, which we just previously discussed, the Zale division operating profit was $26.9 million or 6% of adjusted division sales.

Our UK operating profit was $0.5 million, or 3/10 of a percent of division sales versus no profit last year.

Other which primarily consists of our corporate and administrative expenses at Signet's diamond sourcing subsidiaries includes $6.4 million of transaction costs related to integration activities.

We're continuing to show the detail of adjusted Signet in the Zale operations to give further visibility into our results which we will expect that we will do this until we fully comp in Q3.

After that point we will provide Zale details consistent with our divisional disclosures.

The presentation on slide 10 takes adjusted Signet which is shown on the far right and then breaks it into two parts.

One part is Zale operations shown in the middle columns and the second part in the left-hand columns is adjusted Signet excluding Zale.

Adjusted Signet excluding Zale is the rest of Signet inclusive of finance interest and taxes.

From sales to operating income this gives you comparability to prior-year results.

In addition the information is provided to give you visibility as to how the Zale operations performed in the first quarter.

So continuing on let's review Signet's adjusted P&L results below the sales line.

Adjusted gross margin was $581.4 million, or 37.8% of adjusted sales and that was down 80 basis points versus last year.

The decrease in rate was driven by the addition of Zale which impacted the gross margin rate by 90 basis points as Zale currently operates with a lower gross margin structure than that of the Sterling division.

Excluding the Zale division the adjusted Signet gross margin rate would have been 38.7% and that would be up 10 basis points primarily due to favorable commodity cost.

Adjusted SG&A was $450.9 million or 29.3% of adjusted sales and that was up 70 basis points versus last year's rate of 28.6%.

Excluding Zale, the adjusted SG&A rate was also 29.3% and that's due to higher planned advertising expense in our Sterling division and higher central cost due primarily to legal- and payroll-related cost.

The increase in advertising expense as Mark had previously mentioned is due principally to the launch of new Jared radio and print advertising among a variety of other marketing initiatives and investments that impacted the rate by 40 basis points.

This higher SG&A ratio is a function of investing for future growth and we expect our SG&A run rate to improve this year.

Other operating income was $63.5 million.

This increase of $9.5 million was due principally to higher interest income earned from higher outstanding receivable balances.

Adjusted operating income in the first quarter was 12.6% of adjusted sales.

Excluding the Zale division the adjusted Signet operating margin would have been 15.3% leveraging up 20 basis points.

Adjusted EPS was $1.62 compared to $1.29 in the first quarter of fiscal 2015.

On a comparable basis, that is when excluding this year's impact from Zale and capital structure and financing, EPS was $1.35 representing a 4.7% growth over last year.

Our strong operating results afford us the opportunity to repurchase $21.9 million of Signet stock in the first quarter in line with our capital allocation plan.

At the end of the first quarter there was $243.7 million remaining under Signet's 2013 share repurchase authorization program.

Now we will move on to the balance sheet and we will start with a look at our inventory.

Net inventories ended the quarter at approximately $2.5 billion, an increase of nearly $1 billion or 63% over last year and that's driven in part by sales growth of 45%.

The inventory level increase was driven primarily by the acquisition of Zale.

To a lesser extent inventory levels were also impacted by new store growth of $40 million and higher diamond inventory of $56 million associated with our bridal business and our diamond sourcing initiative.

This higher level of diamond inventory reflects our continued initiatives around our best in bridal strategic pillars.

Now I will turn your attention to our in-house credit metrics and statistics.

In-house credit remains an important component of Sterling division's business and a competitive advantage.

Net accounts receivable increased $1.5 billion and that compares to $1.3 billion last year, up 14.7% driven by higher sales and an increase in the credit penetration rate.

Our credit participation was 60.7% compared to 58.1% last year.

The increase in credit participation was attributed primarily to credit decision engine improvements made in April of last year, higher outlet credit participation and strong guest acceptance of our credit offerings.

The average monthly collection rate was 12.6% compared to 13.2% due primarily to three reasons.

First, our customers continue to opt more for our regular credit terms which require lower monthly payments compared to the 12-month interest-free program.

Second, our mix of bridal increases due to our best in bridal strategy and this creates a higher receivable average receivable balance.

Our required scheduled payments do not increase proportionally with the higher merchandise mix shift.

And finally third, like other consumer loans more principle is paid off later, so as our portfolio has grown more in the last year proportionately more of it will be paid later.

So let's move on to a few other credit statistics around our in-house finance program.

Net bad debt expense for the quarter was $28.1 million compared to $22.3 million last year, an increase of $5.8 million.

And that was driven primarily by the growth in receivables balance from increased penetration and change in the credit program mix.

Other operating income was $63.5 million compared to $54 million last your.

This was an increase of $9.5 million and is due primarily to more interest income on the higher outstanding receivables as well as the shift away from interest-free programs.

So the net impact of these two items was income of $35.4 million compared to $31.7 million in the prior year or an increase of $3.7 million.

Our portfolio continues to perform well as evidenced by the net impact of bad debt and other operating income as well as the allowance as a percentage of accounts receivable being fairly consistent.

So now we will move on to our financial guidance.

Our financial guidance for the second-quarter Signet comparable-store sales are expected to increase 2% to 3%.

Second-quarter adjusted EPS is expected to be $1.11 to $1.16.

As a reminder adjusted EPS is EPS less the two set of adjustments that are shown on slide 15 being purchase accounting and our transaction cost related to integration.

Our Q2 comp sales projection reflects continued sales growth and a strong hurdle rate achieved by Signet last year driven by Sterling with a 6.7% comp increase.

Our comp guidance also reflects our current sales run rate.

And our guidance also reflects our proven ability to protect our bottom line and to drive financial results through EPS growth.

From an effective tax rate standpoint Signet's fiscal 2016 annual rate is anticipated to be 28% to 29%.

And the difference versus fiscal 2015 is principally the full-year effect of owning Zale and having our capital structure in place.

Capital expenditure guidance for the full-year is $275 million to $325 million.

And our net selling square footage is projected to grow approximately 2% to 3%.

And I would reference you to our news release for further detail by division.

Lastly I'd like to reiterate our confidence in delivering our operating profit synergy goal of $150 million to $175 million which if using our current weighted average shares outstanding equates to about $1.90 to $2.20 of earnings per share within the three-year period ending January 2018.

As we previously guided 20% of the synergies will be achieved by the end of fiscal year-end and will be back-end loaded to the second half of this year.

As a result synergies are not a material component of our Q2 EPS guidance.

That concludes my remarks on the financials.

And with that I'd like to turn the call back over to Mark.

Thank you Michele.

In conclusion we're seeing terrific contributions and collaboration from every division and I want to congratulate and thank all of the Signet team members for a great first quarter.

Their dedication and passion delivered significant value for Signet's shareholders and positions us for growth into the future.

And now we will take some time for your questions.

(Operator Instructions) Dorothy Lakner, Topeka.

Thanks and good morning everyone.

Congratulations on a nice start to the year.

Just looking over the comp results, Sterling obviously has had many, many quarters of growth here but Kay seems to be performing a bit better versus Jared, is that just the comparison?

I know last quarter you talked about some softness in particular areas of Jared's business, so I just wondered if you could put a little color around that?

And then also from Michele maybe a little bit more color on how you see the synergies playing out in the back half of the year.

Thanks.

I will take the first one Dorothy.

As far as Jared goes I want to start off and say that we believe that Jared is definitely gaining profitable marketshare against our competitive set and as you said, Dorothy, Jared has had positive comps for a while now.

Jared itself has had 21 out of 22 quarters of positive comps and so we feel relative to the Jared business we are definitely capturing profitable marketshare.

That being said we're always focused on enhancing and improving our business and as I said in my prepared remarks we are testing incremental radio to see how we can drive the business.

We're testing new direct mail marketing.

We have a lot of new exciting programs in place that we're testing for the fall season, so we're very confident that we can continue to capture profitable marketshare for Jared going forward.

On your synergy question, we have a clear line of sight in terms of our achievement of the synergies in the back half of the year.

Previously and as part of my prepared remarks had mentioned we've guided to 20% realization of synergies for fiscal 2016 and broadly those synergies would follow that curve we talked about with 30% between revenue cross-selling, 20% from SG&A and 50% gross margin.

So I think it roughly will follow that.

And other than that we're not going to really break down that synergy guidance, that 20% between what we expect to fall in Q3 and what we expect to fall in Q4.

But we would expect to start seeing the synergy realization in the back half of the year.

Versus really not any in the second quarter?

Yes, that's right.

We said previously our expectation was we'd really be immaterial in terms of synergies realized in Q1 as well as Q2 and that this was really a back half of the year story with synergies.

Great, thank you so much for the clarification.

Joan Payson, Barclays.

Good morning congratulations.

So in terms of Zale having the kind of strong growth that it had in this quarter, is this the type of growth we can expect to see from that concept going forward?

Or do you expect even further acceleration as more new initiatives are introduced?

I will start off and then I think Mark could add a little bit of color.

One of the expectations I would say is Zales given it's relatively low on the maturity curve in terms of growing that top line you would expect that they are going to see acceleration of their sales at a much faster rate than what we would see with our other divisions.

And Mark, do you want to add some comment in terms of the pace or continued trend?

I don't know if you want to login the 6/1 for all your modeling but we do feel good about where the Zales business is going.

And as Michele mentioned as it relates to the maturity curve a lot of the business opportunities and the initiatives that we're sharing with the Zale division come from initiatives that we've learned were successful in our Sterling division for years.

So as we said in our release we do expect the Zale's to have stronger increases going forward than the Sterling division.

Whether or not they are at this rate we certainly hope so.

But we will do everything in our power to make sure that we can do as much as possible.

Okay, great.

Then in terms of the second-quarter guidance on the comp line, the 2% to 3%, it's a little bit slower than what we've seen for a while now.

What do you expect is driving the deceleration?

Is it based on the tougher Sterling comparisons or something you've seen so far in the season?

First of all I think Michele mentioned in her comments we are going up against strong hurdle rates and we definitely have to take that into consideration when we look at our guidance.

So starts with hurdle rates and then it goes into we're making investments for our business and a lot of those investments are back-ended.

But we still think that our guidance is going to be healthy there's a nice increase for the business in the second quarter.

Yes, I would just pile on to Mark, it is a comp growth of 2% to 3%.

We've talked about the hurdle rates and the continued consecutive comp quarterly comp growth that we're expecting to achieve.

And current run rates have been factored into that and then our proven when you look at our EPS guidance I think it all comes down to our proven ability to execute and drive EPS growth.

Great, thank you.

Simeon Siegel, Nomura.

Thanks, good morning guys.

So Sterling saw gross margin improvement which you called out, could you talk about the impact you'd expect to see going forward from the promotional environment and then the commodity costs?

And then just, Mark, to your point about the initiatives all going on at Jared, so can you talk about the drivers that could spur the re-acceleration, your marketshare commentary?

And then maybe any thoughts when you would expect to see sales impact from that increased advertising?

Thanks.

So why don't I kick it off with the gross margin.

And what I would say and we don't give full-year guidance in terms of our gross margin nor do we give a quarterly guidance on what those gross margin levels are expected to be.

But to give you some flavor in terms of directionally we would expect that we're still going to see some benefit coming through from our lower commodity costs associated with our gold pricing.

From a promotional standpoint again I would say that we're no more promotional that we have in the past.

So I don't think promotions really have an effect or play into what we see on the gross margin line item.

And I guess, Mark, do you want to talk through some of the Jared marketing initiatives?

First of all as I said we had tested incremental radio advertising in certain markets.

We actually built the Jared division, we started with a Jared before we could afford national TV, we built the Jared division on continuity radio and having radio is a wonderful way to develop our business and describe the Jared is all about.

So we're getting back into testing the radio to see that we can get the lifts in certain markets, specifically for our bridal best in bridal program for the Jared business.

So advertising is something that you don't see automatic sales lifts, it's something that is a building effect.

And we always test programs in the spring season to get a good understanding of the elasticity and what we can do some type of relations as it relates to what type of growth we could expect in the fall.

So a lot of this is very common for us to test different types of programs in the spring to hopefully roll it through the fall.

So you got incremental advertising as it relates to radio which was in the test mode.

As we stated we have our first ever branded book in our Jared stores, so both customers, current customers, can get direct mail and our stores can sell off of that.

And that's something we hope and as we analyze the results something we can carry through the fall.

And there are certain product launches that are in test right now which I'm not going to share yet for competitive reasons that we're very excited about that could be very strong launches or extended tests for the fall season.

And one which I mentioned was Vera Wang.

We're finding early results.

Vera is, her product is actually definitely doing very well with the Jared customers.

Perfect.

Thanks a lot guys and good luck for the rest of the year.

Ike Boruchow, Sterne Agee.

Hi, good morning everyone and ask for taking my question.

Congrats on great quarter.

I guess I wanted to focus little more on the Zale business.

I guess first can you give some color on their, sorry if I missed this, on their gross margin performance in the quarter year over year since we don't have the like-for-like compares to really look at?

And then also when we start to think about the synergies, Michele, that you mentioned flowing into the P&L in the back half, how should that process involved?

Should we begin by saying procurement benefits that would benefit the gross margin line or would we start by seeing cost saves on the SG&A or is it both simultaneously?

And then the very last question would be the ADS agreement at Zale, should that start to add a few million dollars in EBIT to the segment every quarter beginning in Q4 this year or how should we think about that?

So in terms of the gross margin with Zale and really there is not a good comparison for you, unfortunately not.

We didn't have them at Q1 and if you look at what their reported gross margins would have been it's really apples and oranges because they were on a LIFO basis.

So I really can't talk directionally to the gross margin other than we know it is lower than our Sterling division and it is an area of focus as it relates to our synergies.

We anticipate 50% of our synergies are going to come through gross margin with between our merchandising and sourcing initiatives.

Which really leads than into your second question on how to think about those synergies and is it SG&A versus gross margin.

I think you're going to start seeing them coming through a little bit both at the same time.

When we talk about our gross margin synergies we'll start seeing some from the procurement process.

The other one we talked about from a gross margin standpoint is our discount controls.

So that is something we've been currently working on getting more of a systematic, more visibility into the discount control process at Zale.

So I think that's one we could start seeing it at the tail end of this year as well as we'll start getting some of that SG&A savings coming in on the back half.

So we think it will be a little bit of a blend between those two.

Then your final question in terms of ADS you're correct in that our ADS contract goes into effect in October so we will have at the tail end of the year ADS in place and we would expect to see some benefit for that last quarter of the year.

And just remind you on that front we did from a synergy standpoint we did exclude our ADS savings which you've quantified that full-year effect at $22 million that was excluded from our synergy number but I think we'll see some benefit at the tail end of our fourth quarter.

Is the ADS benefit in gross margin or SG&A?

It would be in SG&A.

Great, thank you.

Scott Krasik, Buckingham Research.

Hi everyone.

Just pick that up and having some problems with the phone.

Hi, can you hear me?

Sorry about that.

Okay, good quarter.

Just qualitatively or quantitatively having Mother's Day is probably the signature event in Q2, can you talk about how people responded to your events there?

And then there's a lot of talk around fashion watches starting to slow.

You called out some pretty good results in watches.

How would that affect your business?

Did people buy more fashion jewelry, would they buy better watches, thoughts there as well?

Thanks.

As it relates to Mother's Day performance, Mother's Day is 10% -- 10 days of our second quarter.

So we feel we've obviously took Mother's Day into consideration and we feel good about the guidance that we gave you also.

That's as much as I'm going to say about the Mother's Day performance.

As it relates to fashion watches, and fashion jewelry, fashion watches specifically the Movado brand is doing very well with us.

Our Citizen brand which has a lot of fashion style within their brand are doing well and to continues to gain momentum in doing well.

And in our UK our timepiece business is doing very well also.

So as a whole I'm not sure I understand the question completely but how is fashion watches having an effect on fashion jewelry we don't see a lot of trade-offs there.

It is pretty much a different customer set, it isn't the fashion world but there is parts, components of it.

What we see more commonly is within fashion jewelry you may have a trade-offs of a diamond necklace versus a bracelet or something of that nature.

Hopefully that answers your question, Scott.

It does.

And then just more specifically to the beading part of your, the charm part of your fashion jewelry business.

Yes, in the UK our bead business is very strong.

In our US business whether it be Sterling or Zales we continue to see an improved run rate from the numbers that we shared with market in the fourth quarter.

So there's definitely an improved run rate going on.

And the bead business is an important business with us for us.

And we continue to partner with all of our bead partners to continue to enhance our assortment and enhance our promotions and enhance our marketing.

Awesome.

Thanks guys.

Jeff Stein, Northcoast Research.

Good morning guys.

I'm wondering as we look at your comp guidance for the second quarter can you talk to us a little bit about what the assumptions are for the various divisions, in other words what is the assumption in US, UK and Zales?

Thank you.

Good morning Jeff, thanks for the question.

Unfortunately we don't break down the guidance between the expectations whether it's store brand or even geography.

All I would add to that is directionally our UK they really have some strong momentum going.

We're really pleased and proud of the performance that they have but beyond adding that a little bit of color we don't break it down by geography.

Okay.

And I noticed that in the first quarter you closed 11 stores in the Zales division and I think if I recall back in Q4 you indicated that we were looking for about flat for the year.

So are you going to be adding locations or has anything changed with regard to plans for openings and closings in that division?

Yes, in the Zale division we expect to open up to 35 stores, about 25 Zales and 10 Piercing Pagoda store locations, and we are kind of netting out basically flat growth.

We say you've got 11 so far and there's a chance it could be another 20, 25 closed.

But literally we watch it every month, every quarter because a lot of these stores that used to be poor performing stores now that are getting some of the synergies and the benefits of the collaboration from Signet they slowly turn to profitable stores as we have seen over the years both in our UK division and our Sterling division.

But for now we plan opening up to 35 stores, 25 Zales, 10 Piercing Pagoda some probably closing about the same amount to be flat as far as square footage growth for the Zale division.

Great, thank you.

And one quick one for Michele.

The other operating income line you showed a real healthy increase there.

Would that be kind of a run rate we should look to continue for the balance of the year?

Or was there something in Q1 that would cause it to be higher than Q2 through Q4?

I would say Jeff there was nothing unusual in Q1 that would have caused that to be higher.

But again as you know we won't give guidance for the full-year on a financial line item or even on a quarterly basis.

I think you can just look at our run rate and make some assumptions.

Got it.

Okay, thank you very much.

Oliver Chen, Cowen and Company.

Thanks a lot and solid results guys.

Thank you.

I know you've been doing studies, strategic studies on the brand architecture as it relates to the opportunities and cross-sellings and the synergies on that side.

Could you just elaborate on what might be possible in terms of making sure you segment your brands optimally across your banners?

And then on holiday it would be nice if you could just give us a little refresher on what you're most excited about in terms of year-over-year innovation as you look forward to the holiday selling season.

Okay, as far as the brand segmentation studies, thank you for bringing it up, Oliver, because you give me a golden opportunity to do a commercial here.

On June 24 we are hosting the Investor Conference and at that time will be sharing with the market our brand segmentation and how we plan on taking our brands into the future, our store brands.

But I will give you a very quick overview, I won't give any adjustments, but the bottom line is the core of our customers in the US Zales, Kay and Jared are within the mid-market they actually have different customers, different base customers within that mid-market.

And it is very clear to us that there is different segmentation within the mid-market.

And we will define those segmentations to the market and to all of you at the investor conference.

You can understand from our research and understanding our core customers how we can take our core customers for each brand.

It was one of the nicest things that we found during the analysis of the Zale acquisition is that the Zales customer within the mid-market is actually different than that of Kay's and Jared.

And so we're going to take steps have strategies and initiatives how we can penetrate those segmented customers even further.

So I need a lot more time to get into it's a please come to the conference and we will be able to discuss it in more detail.

As it relates to what we're most excited about the holiday I'm not going to share too much with you because we have a lot of competitors out there but I will tell you that between our merchandising and marketing teams there's a lot of exciting new tests in place as much if not more than I've seen in our Company over the last several years that we are excited about launching during this fall season.

And again I'm not been a share with you but I will just give you that I've been here a long time and we've got as this particular upcoming holiday season we've got more in tests that we're excited about than I remember for the last couple of years.

So I'll leave you with that and hopefully the customers react in the same way as I am excited to.

Okay, that's helpful.

And as we look across retail wearable technology does seem to be occupying the minds of consumers.

And I know that you have an awesome bridal business as well as a unique proprietary brand portfolio.

But is that something you're seeing or thinking about as you plan product and demand creation on the marketing side?

First of all it's something we're definitely thinking about.

Anybody who is selling any type of product to be worn on their body, their wrist, their neck, is a competitor of ours.

And wearable technology is something we're all over and we're obviously talking to all of our current partners and we're looking at the opportunities of what we can do to be in their facility and something we're all over.

As it relates to our current watch -- it is not affecting our watch business.

Our business as you've heard and seen is our watch is doing well in the UK and the US but we are all over wearable technology.

We will stay very close to it and I'm sure in the near future you will start seeing some opportunities for the Signet business probably in the next year time frame.

But we are definitely all over it.

The last thing is on Jared you've talked about it on the call, thank you for the details, but what's the story for the nature of the opportunity and the product assortment?

Are you thinking that the gifting side of the business in terms of I'm just curious with respect to the price points of the portfolio where you felt like maybe you could install more products or brand newness?

I think on both fronts of the business we see opportunities.

On the gifting side we definitely have some tests in place, we have some exciting things that hopefully will run through the Christmas season if the tests continue to do well.

And on the bridal site as I stated Vera Wang is testing very well in the bridal side and the bridal business is of critical importance.

And if we're going to be best in bridal our Jared business needs to continue to invest in the bridal business.

So on both sides of the business we are testing and looking into enhancing both our gifting and our bridal business in the Jared business as well as our entire business.

But obviously Jared has got a little bit more focus on it.

Okay, thanks guys.

Best regards for the spring and summer and holiday.

Janet Kloppenburg, JJK Research

Good morning everyone.

Thanks for all the detail for us this morning.

Mark just one more question on Jared.

I'm wondering if you think that your initiatives can drive traffic improvement in the second quarter or if you're second-quarter guidance on comps sort of assumes that there will be an end change trend but perhaps that it should improve as we move through the rest of the year?

And then with respect to Zale I wondered about the training program and to upgrade the associates and how far along we were in the process?

Because I think it's helping a lot.

Thank you, Janet.

As far as Jared goes built into our guidance, within that overall guidance Jared is a business that is built into that and we're not going to get much more detailed into that.

But I will say as I said earlier is that of what we do during the second and third quarter, excuse me the first and second quarter, there's a lot of testing going on for the fourth quarter.

So a lot of the testing that we're doing will help benefit the third and primarily the fourth quarter.

As far as Zale's training programs go I said this over and over but diamond selling training is a journey, there's no destiny.

And the Zale teams are doing tremendous on first and foremost understanding the basics of how to share with customers the features and benefits of selling a diamond, specifically selling Vera Wang and branded diamond programs.

And we'll continue to enhance that journey and taking further and further steps in enhancing the Zale training team, so we have basic training going on now and we will advance to the next level of training.

We are right now getting their teams ready for career development training for next year.

So this training is a true journey and quite frankly we have a very good template in our Sterling division that we're sharing with the Zale team and again going back to the maturity curve it will help the Zale business continue to grow but it's not something that happens overnight.

Thank you, Mark.

Rick Patel, Stephens.

Good morning everyone.

Nice quarter.

It's been about a year since you closed the Zale deal so can you take a step back and reflect on how the integration is played out so far?

Perhaps what surprised you to the upside and worked out better than you initially expected and then on the flipside what has been more challenging than you maybe initially planned for?

Sure.

I would say what -- I won't say surprises, what pleasantly pleases us is the way the Zale team members are engaging with not only our team but also collaborating with us and really embracing our strategies.

The Zale team members both in the stores and in the home office really are embracing the Signet culture and the Signet values and the Signet strategies very well and.

And I've been through a lot of acquisitions and one this big for the team members to engage and embrace our strategies so well is something that we're just so very pleased about at this pace.

We shared it before and it's something we expected that with Zales having some of the financial problems they had of the year that they didn't invest in their technology in the business and we expected there to be a lack of investment and we expected to be behind the Sterling divisions and technology.

When you get involved in the business and you get really understand the business we were surprised at how far behind they were in investment technology and how much we have to get involved and invest more through technology.

That being said we have plans for it.

We have a great new Chief Information Officer named Dan Schule who we have a whole roadmap of the technology strategy in place.

But the technology was something that was a little worse than we expected it to be.

Can you talk about pricing?

Do you feel comfortable with where you are with the adjustments that you have made this year or should we expect some more refinements as we go through the year?

And then as a follow-up can you talk about the market prices for diamonds right now and how you expect they will impact input costs in the future quarters?

As far as pricing and Michele you can talk about it in more detail, there was no major pricing [adjustments], there were some subtle price adjustments done in all of our divisions, it wasn't major.

And in the marketplace it's a challenging retail marketplace out there so I wouldn't plan on more increase pricing right now.

Right now we want to capture a profitable marketshare but I wouldn't plan on more price increases.

And what was the second?

So in terms of diamond pricing what we said at the onset of the year and what we're seeing is really kind of the low- to mid-inflationary increase in the diamonds.

And again it always depends on cut, quality, size, etc.

But low- to mid- is kind of where our head is that and what we're seeing on the diamond inflation side and then earlier we talked about on the gold front that we are continuing to see the lower commodity cost.

So that's how you should be thinking about it.

Thanks.

Good luck for the rest of the year.

Thanks Rick.

We will take one more question operator.

Bill Armstrong, CL King & associates.

Good morning Mark and Michele.

Just one more on Jared.

So it sounds like overall transaction count was down.

Were there specific product categories or areas that were weak and that you think offer some opportunity as we move through the back half of the year?

Of course there are some categories that are weak and the ones that were strong I shared with you earlier.

I don't want to get into the product categories because our job as retail merchants is to constantly refine and enhance our business.

And that's what I keep on sharing with you, Bill, is that our merchants right now are diligently looking at what's doing well, what's not.

They are testing other opportunities and gift-giving programs we continue to enhance our traffic.

But it's important to understand that the average sale going up is definitely part of the best in bridal strategy so we expect the average sale to go up.

We want those units, we want to continue to increase transaction.

Of course we've got programs in place.

But as a whole the Jared market, the Jared business is different than the mall business.

And it is just something we believe firmly that we're capturing profitable marketshare because a lot of our competitors outside the mall are having challenges in the retail jewelry marketplace.

We believe Jared is capturing comparable marketshare and then for the fourth quarter we will have a lot of new programs in place to continue to do so.

Are you concerned with any possible slowdown in spending by the maybe the higher end consumer on jewelry or other fashion categories or discretionary categories?

No, we're not real concerned.

Actually we've done a lot of research on a lot of surveys and the most important thing that we know is that our products, jewelry is definitely in favor with the customers.

In favor and it hasn't changed, so customers still very much appreciate and like to use jewelry to express their emotions.

So we're not concerned.

If I have to say I'm concerned with anything is other than us we would like for more of our industry to advertise more.

We need our industry, we are the only big national advertiser out there and to compete with the other products for that discretionary income is we need our industry to advertise more.

We are going to but our product is in favor and customers definitely like to express emotion through our products.

So no, we are not concerned about that.

Okay great.

Thank you very much.

And as there are no further questions at this time I will turn the call back over to Mr. Light.

Thank you.

Thank you for taking part in this call.

Our next scheduled call is on August 27 when we review our second-quarter results.

Also on June 24 we will host a conference in New York for the investment community.

We will have several insightful presentations including content on our customer segmentation efforts and how we plan to differentiate our store brands to maximize our share of the mid-market of the jewelry industry.

Thank you all again and goodbye.

Thank you.

Ladies and gentlemen, this concludes today's call.

You may now disconnect.