Dear Shareholders,
Signet delivered a fantastic Fiscal 2015 by almost every measure including record sales and earnings; and stock price appreciation of 52%. We completed the largest transaction in the history of the jewelry industry when we closed the purchase of Zale Corp on May 29, 2014. As the Zale integration progressed, we navigated important senior management changes without missing a beat. And so, it is our pleasure to write our first joint shareholder letter to update you on an incredibly eventful – and successful – year.
It’s All About Our Team
The short list of highlights noted above, which barely touches on our many accomplishments, is the result of the passion and dedication of our 30,000 team members worldwide. We want to thank them and express our deepest and most profound appreciation for what they achieved in a year of tremendous change.
Our people are central to our success, and collectively they are our most powerful competitive strength. Our team members are experienced, well-trained and highly motivated. They deliver best-in-class, comprehensive guest experiences.
Signet offers sector-leading, proprietary training to support our store teams and field management. This enables them to provide our guests with the product knowledge they desire and a feeling of satisfaction and personal engagement. By providing an unforgettable guest experience, our team members build long-term relationships as we help guests celebrate life and express love®.
Just as important, we offer our team members exciting career growth and leadership development opportunities. In this spirit, we saw and continue to see inspiring collaboration between our newly acquired Zale division and the rest of our company. We promoted and repositioned several key individuals across divisions. These changes have helped foster the Signet philosophy of respect, dignity, and teamwork that is now ingrained within our company.
The history of Signet Jewelers is one of organic growth as well as growth through acquisition. Our acquisitions and strategic initiatives enable Signet to become more vertically integrated within the supply chain. Therefore, beyond our stores and Field Support Centers in the United States, Canada and United Kingdom, we also employ team members in our diamond polishing factory and our procurement and design offices in global diamond centers like Botswana, India and New York City.
This expansion has made it all the more imperative that we communicate with our team members openly and constantly – to keep them engaged and to strengthen a passion for excellence that depends on a spirit of collaboration and sharing. We have even adjusted our short-term incentive plans so that now, many of our senior team members are rewarded more heavily on the performance result of Signet as an entire company rather than that of their specific division.
Our Omni-Channel Approach
Our research consistently tells us the main reason people buy jewelry where they do is not price… not merchandise selection… but trust. The human trust factor is unique to jewelry retailing given the infrequent, highly emotional, and relatively higher price-point purchase occasion that our teams and guests engage in every day.
All of our products are under lock and key, so our team members must engage with our guests if they are to make sales. Many of our guests – especially men – are unfamiliar with jewelry and perhaps even intimidated by the prospect of buying jewelry. Therefore, the efforts and expertise of our sector-leading team members are complemented by a very strong Signet online presence.
Creating and maintaining compelling, engaging websites, web content and social media platforms has proven to be critical to our company’s success. Given the importance of jewelry purchases, people tend to research merchandise online using a variety of devices. But they also require the human element more often than not when it comes to committing to a purchase. A growing percentage of our guests who buy online choose to pick up their items in our stores because they want to engage with our team members and ensure their total satisfaction with their purchase.
Team members and guests also engage in this omni-channel fashion inside our stores – using our tablets and related technologies – especially when shopping for personalized jewelry, custom jewelry, or for broader merchandise selections.
The Team’s Accomplishments
Because of the Signet team’s commitment and willingness to embrace positive change, the integration of the Zale division is off to a great start. Rarely in retail does #1 acquire #2 and still have such significant runway for opportunity. This is because of the highly fragmented nature of the jewelry marketplace. Because of the leadership of our integration team, we are well on our way to delivering synergies of $150 million to $175 million by the end of January 2018.
Some of these operational synergies include executing advertising media buys more efficiently; cross-selling branded merchandise between store brands and divisions; and centralizing our diamond buying program. Regarding this last example, last year Signet became a DeBeers sightholder which helps us secure long-term supplies of high-quality diamonds globally for all of our stores.
In Fiscal 2015, our UK division delivered outstanding results for the second consecutive year. Comparable store sales increased 5.3% and operating margin was up 80 basis points to 7.0%. After a few challenging years, followed by key management changes and strategic and process improvements, the Signet UK team is now well-positioned for sustained success. The UK division is a model for what happens when our team demonstrates generous collaboration between and among all of our divisions. This instills us with even more confidence around our Zale integration process because the Zale integration is at an earlier stage of maturity compared to the UK turnaround.
The primary engine of our success remains our Sterling division, anchored by our Kay and Jared store brands. Last year, the Sterling team delivered a 4.8% comparable sales increase and a record operating income of $624.3 million, or 16.6% of sales, up 90 basis points.
Sterling grew its proprietary and exclusive brand penetration by successfully testing and extending compelling merchandise collections. We also added nearly 5% more selling square footage, principally due to growth in outlet mall locations as well as Kay stores outside the traditional enclosed mall. Sterling launched a new outlet mall concept called Jared Vault with fantastic results. Jared Vault is an initiative that was implemented in response to a group of our acquired outlet stores that had been underperforming as a weaker, pre-acquisition brand name. The conversion to Jared Vault validated the power of the Jared brand and provides us with exciting new growth opportunities.
The Future
We believe that the successful execution of our strategic plan, “Vision 2020,” which you will read about in the following pages of this annual report, is already bringing significant value to all of Signet’s stakeholders.
Signet pursues goals and priorities organized around four Corporate Social Responsibility pillars where we believe we can have significant impact: People, Responsible Sourcing, Environmental Stewardship, and Corporate Giving. We strive to be a leader in making a positive difference in the communities where our team members live, work, and do business. We continue to leverage our leadership position in the jewelry industry to embed Corporate Social Responsibility initiatives in all our operations and to promote Corporate Social Responsibility across the value chain while being a valuable member of the local communities in which we operate, as well as society at large.
On behalf of the Board of Directors and our global team, we thank you for your commitment and loyalty to Signet Jewelers and we value the opportunity to be stewards of your investment. Together, we look forward to another successful year.
