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Good morning, and welcome to the Signet Jewelers Third Quarter Fiscal twenty twenty six Earnings Call. Please note this event is being recorded. Joining us on the call today are Rob Ballou, Senior Vice President of Investor Relations and Capital Markets JK Simancic, Chief Executive Officer Joan Hilson, Chief Operating and Financial Officer. At this time, I would like to turn the conference over to Rob. Please go ahead.
Good morning. Welcome to Signet Jewelers Third Quarter Fiscal twenty Earnings Conference Call. During today's discussion, we will make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially. We urge you to read the risk factors, cautionary language, and other disclosures in my annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events. During the call, we will discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as the reconciliation of the non-GAAP financial measure with the most directly comparable GAAP measures, investors should review the news release we posted on our website at ir.signetjewelers.com.
With that, I'll turn the call over to J.K. Thanks, Rob, and good morning, everyone. I'd like to start the call this morning by thanking our team. Your efforts to date are delivering meaningful progress in this first year of Grow Brand Love while driving near-term momentum in our performance. Thank you for your hard work and commitment to our customers as we enter our critical holiday season. There are three key takeaways I'd like to leave you with today. First, we delivered our third consecutive quarter of positive same-store sales and grew adjusted operating income double Q3 of last year. Second, our efforts to expand merchandise margin are delivering meaningful and sustainable results that have worked to drive operating margin expansion and offset pressure from tariffs and commodity pricing. Third, we believe we're well positioned for the holiday season with a focused assortment aligned to key categories and price points supported by a modernized marketing approach.
Turning to the quarter, we delivered 3% same-store sales growth compared to this time last year. Our three largest brands, Kay, Zales, and Jared, delivered a combined same-store sales performance of 6% compared to last year. That reflects our intentional focus on the core of our business, with growth in both bridal and fashion categories. The results we delivered this quarter are also a reflection of our brand equity work, assortment strategy, and a refined approach to pricing and promotion. Further, the reorganization under Grow Brand Love has empowered brand leaders to act swiftly on decisions that drive brand equity, fueled by a strengthened center of excellence that leverages our scale. Building on that, I'd like to highlight a few of the more significant aspects of our Q3 results. Within merchandise, we delivered growth across all categories: bridal, fashion, and watches. This performance underscores the strength of our assortment architecture and ability to respond to evolving consumer preferences.
In bridal, continued focus on differentiated offerings and strategic pricing resonated most with mid-tier consumers, with Kay, Zales, and Peoples all delivering high single-digit sales growth or better. This strong growth was led by long-standing brand collections like Neil Lane, Dara Wang, and Monique. In fashion, Jared delivered 10% comp sales growth reflecting strong performance in diamond, gold, and men's jewelry bolstered by strength of recent collections like Italia de Oro. Alongside that, we continue to see runway in the fashion category, particularly in lab-grown diamonds or LGDs, which expanded penetration to 15% of fashion sales this quarter, roughly double last year's rate. In marketing this quarter, we are making progress in modernizing our playbook. This includes a more robust full-funnel media strategy amplified by social media and digital-first led content, as well as brand ambassadors like Antonia Gentry and Chloe Fineman to drive buzzworthy campaigns.
We continue to see double-digit growth in impressions off a low to mid-single-digit increase in spend from this updated approach. At Jared, we're using story-led marketing to drive results. This quarter, Jared launched its storied diamond collection in partnership with De Beers. This collection uses blockchain technology to track a stone's journey from its origin in Botswana all the way to its final setting in Jared's collection. Alongside this, we premiered 'A Diamond is Born,' a documentary by Academy Award-winning Luc Jacquet. This documentary details the diamond's journey as well as the lives that it enhances along the way. We look forward to seeing the impact of this campaign over the holiday as early results are driving traffic. My second key takeaway today relates to our efforts to expand merchandise margin. Year to date, we have delivered 50 basis points of merchandise margin expansion with 80 basis points for Q3, despite a significant impact from tariffs and increases in gold costs.
We have been carefully rolling out a refined pricing and promotion strategy. While this has included select price increases, it's a much more comprehensive playbook. We are carefully turning the dials on how many days our brands are on promotion, what items are eligible, and the depth of discount, particularly in periods where there is no preexisting consumer expectation for value shopping. Promotion can be an effective traffic driver, but overreliance on it can impact brand equity and ultimately leave money on the table. Brand equity also helps drive margin expansion. Jared is the furthest along with its brand identity work and overall pricing and promo strategy, leading to 25% reduced discounting compared to Q3 last year. Lastly, our high-margin services business is also growing faster than merchandise and helping expand margins. It's the overall combination of these efforts driving year-to-date results despite pressure from tariffs and notable increases to gold costs.
With regard to the current tariff landscape, and specifically India, we believe that we have mitigated a majority of the higher rates through strategic sourcing and the merchandise margin actions I've detailed, and will be the same levers we look to as we set our sights on the year ahead. Turning to the holiday season, based on customer insight and preferences, as well as learnings from last holiday, we have taken a decisive inventory position in key gifting items at targeted price points. This strategy includes on-trend categories like LGD fashion, men's fashion, gold jewelry, and colored stones. For example, we've made a material investment in LGD fashion at price points below $1,000 compared to last holiday. We're also being strategic in our marketing spend this holiday. More than 70% of adults now stream as a primary way to watch video, so we continue to rebalance the channels we spend into in order to drive efficient reach.
This work will be even more important as we navigate a period of lower US consumer confidence. We've taken action to meet the pronounced value expectations of consumers this season with a well-balanced assortment and promotional cadence. Delivering on holiday is our highest near-term priority, and our Grow Brand Love strategy continues to set the stage for sustainable long-term growth. Summarizing my key takeaways today: first, we delivered our third consecutive quarter of positive same-store sales and grew adjusted operating income double Q3 of last year. Second, our efforts to expand merchandise margin are delivering meaningful and sustainable results that have worked to drive operating margin expansion and offset pressure from tariffs and commodity pricing. Third, we believe we're well positioned for the holiday season with a focused assortment aligned to key categories and price points, and supported by a modernized marketing approach. With that, I'd like to turn it over to Joan.
Thanks, JK, and good morning, everyone. Revenue for the quarter was approximately $1,400,000,000 with comp growth up 3% compared to last year. This reflects the expansion of average unit retail of 7%. Unit performance improved sequentially, while still down compared to last year, driven by a better performance at Banter and Zales. Fashion AUR grew 8% largely on assortment mix to LGD fashion, which carries a higher AUR, as well as higher gold prices. Bridal AUR grew 6% in the quarter, reflecting a growing mix of LGD wedding and anniversary bands, which also carries a higher AUR than other bands. Importantly, services grew high single digits in the quarter, with nearly five consecutive years of positive comps. We saw growth in extended service agreements or ESAs, which saw attachment rates up over 1.5 points in the quarter. This reflects higher attachment online for bridal and higher in-store attachment in fashion.
Moving on to gross margin. We delivered a rate expansion of 130 basis points compared to last year. This was led by merchandise margin expansion of 80 basis points, which JK detailed a moment ago. We also delivered 30 basis points of occupancy leverage reflecting the efficiency within our operating model to expand margins on a slightly positive comp. Lastly, we drove a 20 basis point improvement from distribution efficiencies, taking advantage of higher gold prices by accelerating scrap recovery as well as better shrink performance. The SG&A rate for the quarter was nearly flat despite a 70 basis point impact from higher incentive compensation. Excluding the incentive compensation, SG&A improvement reflects more efficient marketing spend and store labor planning, as well as favorability in transaction fee costs. Adjusted operating income was $32,000,000 for the quarter. This result is ahead of our guidance due to higher sales and operating efficiencies across gross margin and SG&A. The combination of our capital allocation strategy, further tariff mitigation efforts, improvements in our operating model, and the focus on the three largest brands led to a more than 2.5 times increase in adjusted EPS.
Turning to real estate. The work to refresh stores this year is already delivering mid-single-digit sales lift to stores recently renovated at Kay, Jared, and Zales. Additionally, early results from the repositioning of Kay Stores are also showing positive traction, pacing towards just over a two-year payback as we continue to relocate high-performing doors away from declining venues to better locations in otherwise strong markets. Now turning to the balance sheet. Inventory ended the quarter at $2,100,000,000, down 1% compared to last year despite nearly a 50% increase in gold costs and higher tariffs. Cash ended the quarter at $235,000,000 with total liquidity of approximately $1,400,000,000 with an undrawn ABL. Free cash flow improved by more than $100,000,000 for the quarter and by more than $150,000,000 year to date, from timing of receipts that will shift payment to the fourth quarter and inventory discipline.
We repurchased approximately $28,000,000 or about 300,000 shares in the quarter, bringing our year-to-date repurchases to nearly $180,000,000 or 2,800,000 shares, which represents more than 6% of our diluted shares outstanding. Our remaining repurchase authorization is approximately $545,000,000. Turning to guidance. We are modestly updating our expectations. This includes raising the low end of our full-year guide to reflect our beat in the third quarter, further tariff mitigation efforts, and a measured outlook for the fourth quarter. This measured outlook reflects external disruptions since late October and potential continued softness in consumer confidence. We believe it is prudent to have a cautious approach to guidance given we've seen softer traffic in the past five weeks, particularly among brands with more exposure to lower to middle income households. We are raising our full-year same-store sales low guide to down 0.2% and maintaining our high guide of plus 1.75% and introducing a fourth-quarter same-store sales range of plus 0.5% to down 5%.
With just over 70% of the quarter to go, we're well within that range. Our guidance assumes merchandise margin rate to be roughly flat to a slight increase in the quarter providing some flexibility for the current macro environment. We are raising our full-year adjusted operating income low guide by $20,000,000 to $465,000,000 and maintaining our high guide of $515,000,000. This translates to an increased adjusted EPS range of $8.43 to $9.59 per diluted share inclusive of share repurchases to date. Lastly, we're introducing a fourth-quarter range of $277,000,000 to $327,000,000 of adjusted operating income. We also continue to expect $145,000,000 to $160,000,000 in capital expenditures for the year inclusive of pulling forward real estate spend to take advantage of the strong returns we've seen today. Before we turn to Q&A, I would like to thank the team for your dedication, resilience, and focus this year. I wish a happy and healthy holiday season to you and your families. Operator, let's now go to questions. Thank you.
分析師問答
Ladies and gentlemen, we will now begin the question-and-answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.
Curious if you could talk about what you've seen quarter to date and specifically over the Thanksgiving weekend, how that might have informed your comp guidance for Q4? And if maybe you could just dig in a little bit more about the external disruptions since late October that you referenced. Just wanted to understand what you were referring to, if that was a traffic comment that you just made or if it was something else. Thanks.
Yeah, Paul. Thanks for the question. I think we've been pretty cautious as it relates to Q4, all year long. And our guide, we're maintaining a little bit of softness at November, which, you know, obviously, you've seen everything from confidence surveys to issues with government shutdown, snap. Our consumers are dealing with a lot. What we saw quarter to date is really seeing that play out a little bit, most notably in the brands that have a greater density of lower and middle-income customers. Outside of the US, consistent trends in those brands of ours that have exposure to high-income customers. We're still seeing spends be consistent. While we've watched moderation of that, we really believe that the holiday is going to happen per normal, and we've got confidence in our plan moving forward. We also didn't feel like that prudence around Q4 was wrong. We've been pretty consistent in that guide all year, and I think this is a reflection of that.
As far as the weekend, you know, I don't know. What I've learned is I've looked through our data and seen play out is, first of all, Black Friday to Cyber Monday is just not as big of an impact on our quarter. If you look at the month of November, it's 25% of our total quarter. So for us, December is a whole lot more important, and you know, good Black Friday, bad Black Friday in between really has little bearing on our results. Our overall performance is much more tied to those ten days leading into Christmas when you look at the volume. Those days are more important than the whole month that we just finished. I think we've seen fairly consistent results quarter to date, from all the way through Black Friday. So no big change there and no call for pessimism, but I think we're right to be guarded. I do think we've got a customer that is going to be more intently focused on value as they come through the holiday, and our guide and our actions are really focused on that.
Well, I was going to add that the guide that we've given and what we said in our prepared remarks is that we believe we're well within the top line guide for the fourth quarter, which is important. To JK's point, we have 70% of the quarter ahead of us. So at this position, we believe it's prudent to be conservatively positioned and provide for variability in consumer spending.
And then I guess just to follow-up on the ten days leading up to Christmas, obviously, I think you kind of had a miss there last year. So was it your expectation that once we get to that point that you would see an acceleration in sales as we move to that period in the quarter?
No. We think we're well positioned for it. I mean, I would say we, if you recall, the opportunity that we had last year was we really were under-inventoried relative to the sub-500 and sub-$1,000 price points, particularly in fashion. Depending on what bucket you're looking at and what brand you're looking at, we've got anywhere from five to eight times the inventory there, well positioned on trend. Same investment, particularly in LGD fashion at those lower price points that has been driving improvement all year, and we're really ready for business. I think we have the right promotional cadence set up to be able to support what's going to resonate with customers. So we're certainly building towards that, and I think we're positioned to be able to deliver value to customers during that time period, which also should represent an opportunity for us to drive performance, different from last year.
Got it. You. Good luck.
Good morning. So last quarter, you spoke to the low end of guidance. The India tariffs remained. What were the key mitigating factors that had the biggest impact to allow you to raise that low end today?
I appreciate the question, Lorraine, and maybe more importantly, appreciate the work our team has done to deliver that. We've never fully dimensionalized a number as it relates to tariffs, in part because it moved around a lot. One of our challenges has always been if I gave you a number on Tuesday, on Wednesday, it might look a little bit different just based off of the volatility there. Even though we haven't seen the India tariffs pull back, we, through a combination of a number of things, have made moves in relation to the country of origin to really partner with our supplier. When I talk about our teams, I'm not just talking about our merchants and supply chain folks who've worked hard, but upstream, our supplier partners have really been nimble. We have moved some production to the US, moved some production to other countries, and we've found ways to build efficiency in the supply chain. In this environment, given the commodities, there is a little bit of price that has moved through, and I think we've been able to mitigate that and mute it to try to protect value for our customers along the way. Given what our team has worked through particularly over the last couple of months, it not only positions us well for the holiday but ultimately these are the same levers that we will use to drive the businesses next year.
Can we just talk a little bit more about pricing? With gold prices and tariffs, it sounds like you are pulling the pricing lever a little bit. How do you tread carefully enough, given that you're seeing pressure at the low-income consumer? I guess, how do you balance the need to offset some of these cost pressures with the consumer struggles that you're seeing?
Yeah. Thank you. I think that's the art and science of running a retail business right now. For us, I'll break it into two parts. Gold as a straight commodity is, when you think about that, think about, you know, more gold forward pieces or things like gold chains, for example, that are all about gold. I think historically, we've seen that customers understand that it's a commodity market. They understand the value associated with it. As we pass along the fluctuations of price on those purely commodity-driven items, we generally see customer recognition of that value. We're obviously tethered to a market and look to leverage our scale and the strength of supply chain to make sure that we're offering the right value proposition relative to the rest of the market. In the case of tariffs or other changes, that's where it really becomes important for us to think about design and all the elements of a piece of jewelry and how to leverage design and our supply chain and supplier partner base to really drive sharp adherence to key price points.
I think that is more important this time of year than ever. If I look at a business like Kay, for example, sub-$500, we're significantly higher in inventory positioning than we were last year because we know that's going to be critically important to that customer. That customer will understand those key price points, whether it's that item that I buy for $1.99 or $2.99 or $500. We work hard to engineer product that delivers value proposition but can stay within the price point ranges that make sense for the holiday.
I guess, Joan, what would be helpful is to kind of hindsight fourth quarter last year and maybe give us a little bit more color on if not quantitatively, more qualitatively, how the quarter played out and kind of how you think about that as it pertains to the fourth quarter this year. I think you said that the days, fourteen days, whatever it was before Christmas last year were pretty difficult. Providing opportunity just be helpful to kind of get some perspective on how everything kind of played out last year to give people some perspective on how things should play out this year.
With respect to last year, it was clear that we had assortment gaps in key gift-giving price points, particularly under $1,000 and even more so under $500. We did not have the lab-grown penetration in fashion that, particularly in fashion somewhat in bridal, but we didn't have that last year. This year, lab diamonds are roughly 40% of our bridal business, and they're up to 15%, double last year, in our lab-grown fashion business. So we've closed that gap and really responded to what the customer was asking for last year that we didn't have. We've now bridged that gap. We feel strongly about the assortment architecture that we've been able to put forward. Importantly, Randy, the next step of that is we need to be in-depth position and key price points in key styles. The team has worked very diligently to ensure that as we progress through the holiday selling period and we approach the last ten days before Christmas, which we know is critically important, we're in stock in the key items that the customer is responding to.
One of the things that we're seeing that gives us confidence is that our conversion from quarter to quarter has been relatively consistent. So we believe as we get closer to the holiday selling period, we're seeing strength in our traffic and brick and mortar, and stronger traffic will bode well for us. On top of the conversion metric that has remained relatively consistent. That speaks to us of the strength of our assortment in closing that gap. We also have fortified post-holiday selling. As you recall, we lead up to Valentine's Day in January, which is not as big of a holiday for us, but it's an important holiday.
I think as far as the next thirty to sixty days, I mean, Joan touched on it. December is a critically important month, and, you know, particularly because that's when customers that shop our category really do come more into the mindset of making a purchase. We're a great last-minute option, whether that's because people save for it or because it's a simple solution at the end. I think it's incumbent on us to make sure that we make that as frictionless for customers as possible. This category can be a little bit intimidating to customers at a time period where I think there's a little bit more going on, a little bit more uncertainty, and our lives leading up to the holiday as consumers. The more we can simplify and focus our message for them, I think the better off we are. From an operational standpoint, it is about making sure we've got inventory in the right place that we maintain depth, and in particular, have product available for shipment online, particularly in the first half of the month.
But as we move towards the end of the month, it’s about having product available in store so that we can focus on the biggest opportunity we have, which is conversion. We're overseeing some modest improvements in conversion. That was really the opportunity last year. If we're really honest about our shortfall, particularly in those ten days, it was not a traffic opportunity for us. It was a conversion opportunity. There was a very clear message from customers that we were not as good at delivering the merchandise that they needed to solve the gift that they were looking for. We're much better positioned today to do that. You can see that playing out in our Q3 results when you look at strength across all categories. Now it is about making sure that we get that message in front of people simply, where we're executing tightly and have that inventory we’ve invested in available at the point of purchase.
When you think about the bridal category versus the fashion category, just as an industry, how do you feel about those two different sectors? And then when you think about architecting the business over the changes to it over the next twelve to twenty-four months, are you thinking about changing the balance between bridal and fashion at all? Any changes you're contemplating, any thoughts on the portfolio? You keep talking to a distortion of capital towards the mega brands of Kay, Zales, and Jared. Just kind of curious on how you're thinking about the next twelve to twenty-four months of kind of moving things around the chessboard.
It's a great question. I'll answer part of it and probably push part of it till after the holiday because the last I want to do is introduce a lot of hypotheticals to our team as we should be really focused on closing with customers and delivering the holiday. To your point, we love the balance of the two, honestly. Given the share we have in bridal, we want to maintain that dominance, but we recognize that it is harder to gain outsized growth there because of our position of dominance. We certainly don't want to see that. We love that balance within our business. We love being there for customers at that important point in their life, and we're going to continue to be dominant in bridal across the business, no question about that. We talk a lot about fashion just because it's underdeveloped relative to our business, and that's where the opportunity for outsized growth is. Mathematically, that may change the mix over time. It isn't about a pivot away from bridal. It's absolutely about a pivot into the opportunity that fashion presents for our business and the overall lift that can provide to the total portfolio. The work we're doing to further delineate and position our brands gives us degrees of freedom to lean a little more heavily in some brands into fashion and also stay a little more staunchly in the bridal-focused area for other brands.
Just a quick question about the Indian tariffs. Is there any chance you can give us a sense of the dollar amount if tariffs were to go back to, say, 25%, 20%, which is kind of what the other countries are getting? How much of an eventual, obviously, it won't be instant because of the way inventory turns. But how much of a get-back or how much dollars have you absorbed or could you get back?
That is a what should be a simple question, but is actually much harder. Only because in some cases, we've made decisions around relocating to different countries of origin or even potentially changing design and what we would buy to maintain not just assortment architecture, but margin architecture. Given that we haven't dimensionalized a headwind, I can't easily articulate what the giveback may be. I would say the plus of that pullback would be the range of product and the predictability of supply chain relative to really being able to drive top-line performance is greatly aided by a reduction in tariffs. One of the challenges many retailers, not just us, are facing as it relates to the timing of some tariff announcements is literally running out of runway relative to Q4 and having to make decisions on what do we pass on, what do we absorb, what do we not do that maybe we would have considered before.
That uncertainty and the short runway leading up to Q4 certainly hampers some of the degrees of freedom relative to assortment planning and would only benefit from stability, particularly if that stability comes with a more moderate tariff than what we've been dealing with. I know I didn't answer your question regarding dollar amounts, but I at least want to convey to you that we're thoughtful around what levers there are for us to pull that can be accretive to the business, ultimately, when we land at a little more normalized state. To close that on a qualitative basis, the only thing in the tariff landscape that changes next year is that Indian tariffs may go down, as the other tariffs seem to be a little more set at this point. So, you can kind of have an idea of the landscape, but if the Indian tariffs go down, all things being equal, that could be a positive for 2027 and beyond. Honestly, some of what we've had to develop in terms of nimbleness and responsiveness within the supply chain, that's going to carry a benefit for us moving forward.
The better we are at controlling our inventory and mastering all of the input costs of supply chain for a scale player like us gives us a competitive advantage. In the classic sense of that which does not kill you makes you stronger. We're finding the blessing in this and, you know, going to leverage that to our benefit moving forward.
There are no further questions at this time. I will now turn the call over to JK Simancic for closing remarks.
Thank you, everyone, for joining us today and for your interest in our business. We are fully focused on the critical holiday selling period, and we're confident in our strategy and our team's commitment to deliver results. However, I want to wish everyone, our employees, partners, shareholders, all of you, a holiday season full of joy, peace, and of course, love. I look forward to speaking with you next quarter. Goodbye.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.