Signet(US:SIG)2025-09-05 20:26Sales Performance - Signet's total sales increased by 3.0% in Q2 Fiscal 2026 compared to Q2 Fiscal 2025, with same-store sales growth of 2.0% driven by fashion and services [123]. - Total sales for the second quarter of Fiscal 2026 were $1,535.1 million, a 3.0% increase from $1,491.0 million in the prior year quarter [130]. - North America reportable segment's total sales were $1,426.7 million, a 2.1% increase from the prior year quarter [133]. - International reportable segment's total sales increased by 6.1% to $91.8 million, with same store sales up 0.8% [136]. - Year-to-date sales increased by 2.5% to $3,076.7 million compared to $3,001.8 million in the prior year [137]. - Same store sales increased by 2.0% in the second quarter, compared to a decrease of 3.4% in the prior year quarter [131]. Financial Metrics - Gross margin for the second quarter was $591.9 million, or 38.6% of sales, compared to $566.3 million, or 38.0% of sales in the prior year [142]. - Operating income for the second quarter was $2.8 million, compared to an operating loss of $100.9 million in the prior year quarter [146]. - SG&A expenses for the second quarter were $505.3 million, or 32.9% of sales, down from 33.4% in the prior year [143]. - Adjusted EBITDA for the 26 weeks ended August 2, 2025, was $242.5 million, compared to $218.3 million in the prior year, reflecting improved operational performance [165]. - Adjusted operating income for the 26 weeks ended August 2, 2025, was $155.7 million, with an adjusted operating margin of 5.1% [167]. - Income tax expense for the second quarter of Fiscal 2026 was $14.2 million, with an effective tax rate of 278.4%, significantly higher than the prior year’s $1.6 million and (1.7)% ETR [153]. Cash Flow and Investments - Free cash flow for the 26 weeks ended August 2, 2025, was $(149.6) million, a decline from $(165.7) million in the prior year, indicating cash flow challenges [163]. - The company reported net cash of $281.4 million as of August 2, 2025, down from $604.0 million as of February 1, 2025 [161]. - The company invested $153.0 million in capital expenditures in Fiscal 2025 and plans to invest up to $160 million in Fiscal 2026, focusing on new stores, renovations, and digital advancements [172]. - Net cash used in operating activities was $89.0 million for the 26 weeks ended August 2, 2025, an improvement from $114.4 million in the prior year, primarily due to higher gross profit [181]. - The company recorded net cash used in financing activities of $182.6 million for the 26 weeks ended August 2, 2025, significantly lower than $801.9 million in the prior year, reflecting the repurchase of common shares instead of preferred shares [184][185]. Strategic Initiatives - Signet's Grow Brand Love strategy focuses on sustainable growth, product innovation, and brand loyalty, with three strategic imperatives identified [122]. - The company aims to enhance its marketing and customer experiences to capitalize on consumer demand as it approaches the holiday season [126]. - The company incurred $1.7 million and $9.8 million in restructuring charges during the 13 and 26 weeks ended August 2, 2025, respectively, as part of its strategic initiatives [151]. - The company closed 27 stores during the 26 weeks ended August 2, 2025, resulting in a total of 2,623 stores, with a net change in selling square footage of -0.1% for North America and -1.5% for International segments [182]. Economic and Market Conditions - The company is closely monitoring changes in US economic policy, including potential impacts from new tariffs on merchandise and diamonds [127]. - The company continues to evaluate macroeconomic factors such as inflation and geopolitical conflicts, particularly in relation to its operations in Israel [128]. - Management continues to monitor macroeconomic uncertainties, including tariffs and inflation, which could negatively impact merchandise costs and consumer spending [195]. - Significant amounts of cash and cash equivalents are held at financial institutions, with interest rates fluctuating in line with short-term rates [199]. - The market risk profile as of August 2, 2025, has not materially changed since February 1, 2025 [200]. Impairments and Valuations - The company reported a 120 basis point drag on overall year-over-year sales improvement due to underperformance in the James Allen brand [123]. - The carrying values of the Digital brands goodwill and the James Allen and Diamonds Direct trade names were reduced to estimated fair values of $0, $2 million, and $109 million, resulting in impairment charges of approximately $54 million, $13 million, and $3 million, respectively [193]. - An increase in the discount rate of 0.5% could have resulted in additional impairment charges of approximately $4 million for the impaired trade names [195]. - The estimated fair values of the Sterling, Zale US, and Diamonds Direct reporting units exceeded their carrying values, with Diamonds Direct exceeding by approximately 17% [192]. Shareholder Returns - The company repurchased $149.7 million of common shares during the 26 weeks ended August 2, 2025, and increased its quarterly common dividend from $0.29 to $0.32 per share starting in Fiscal 2026 [176]. - The company maintained a conservative balance sheet with an adjusted leverage ratio of 1.1x at the end of Fiscal 2025, down from a previous goal of 2.5x or less [175].