In Fiscal 2016, Signet Jewelers delivered record sales and earnings. Since closing the biggest acquisition in the history of the jewelry industry less than two years ago, we have made significant accomplishments around integrating our Zale division and transforming Signet into one seamless global company. We are projecting synergies greater than 50% of our original plan, and we have been investing in our people and stores for the medium and long term. Let’s take a look at some of the key activities that drove success this past year as well as some initiatives that should drive success in the future.
Customer Segmentation
In Fiscal 2016, we finished work on a critical customer segmentation study which guided our actions during the year and will help us achieve our strategic vision (discussed later in this annual report). Retail jewelry is a vast business, so we focus on the mid-market which – in the United States – represents a little more than half of the roughly $75 billion industry. Focusing forces trade-offs and allows us to over-invest in our best opportunities where we have an ability to win big. Customer segmentation is a powerful way to focus. It identifies the most attractive customers, understands their needs, and helps design and deliver value to them because it is inefficient to try to be ‘all things to all people’. We are more likely to be successful by focusing on our core strengths. There are a variety of occassions for purchasing jewelry and we narrowed our focus within the mid-market to bridal and gift giving. Our segmentation study clarified that Signet’s customer segments are best defined by attitude or shopping behaviors. Those customer attitudes – discussed in the pages immediately following this letter – profoundly influenced our fourth quarter marketing which helped drive an oustanding holiday selling season. The new segmentation information is also valuable in the context of merchandising and real estate and will continue to favorably influence our decision making.
Transformation
At the same time we grow our business through customer segmentation, we are also making strides in transforming our business through a variety of workstreams as we integrate the Zale acquisition. The addition of Zale gave Signet greater scale, geographic expansion, and valuable brands. But the heavy lifting of turning that potential into reality is what our transformation leadership team is all about. We are making substantial progress in executing consistent best practice in jewelry repair, discount controls, product sourcing, custom jewelry, workforce management, inventory management, store events, media efficiency, and many other areas. The work of the team members involved in transformation has led to greater synergies (incremental operating profit) for Signet than first modeled. In fact, we recently increased our synergy expectations to $225 million - $250 million from a previous range of $150 million - $175 million by the end of January 2018.
One Signet
Guided by the transformation leadership team, we are improving processes and leveraging the know-how and efforts of Signet throughout our entire organization. This is one big way in which we are evolving to become One Signet – one singularly driven company in total collaboration without silos or barriers. In Fiscal 2016, we made significant strides in organizational redesign. That is, we began transforming Signet from a company composed of three divisions with redundant infrastructure into one company supported by leaders who manage each functional area (e.g. store operations, e-commerce) across the company. Reorganizing by functional area fosters advantages over three siloed divisions. We can deliver initiatives more consistently. We improve efficiency and expenses. We get our best thinking around a single table. And we direct our competitive spirit completely into the market place and not across our own divisions.
For instance, Signet established a jewelry design center in New York which evaluates global design trends, innovates, and helps all our merchant teams develop new jewelry collections that resonate with customers to drive results across Signet. An example of the design center’s work was the launch of the Ever Us collection.
We continue to evolve as One Signet and doing so should deliver more seemless operations and greater synergy, or financial results.
Corporate Social Responsibility
Signet pursues goals and priorities organized around Corporate Social Responsibility. We believe we can have a significant impact through 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 and work. 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.
The Future
We anticipate another year of solid earnings per share growth coupled with shareholder-friendly capital allocation. We will aggressively repurchase Signet stock in Fiscal 2017 on the heels of a $750 million share repurchase authorization approved in February. And for the fifth year in a row, we increased our dividend…this time by 18%.
We will continue our disciplined execution of our focused strategies that include our omni-channel approach to customer service; product innovation and fresh line extensions; and maximizing the effectiveness of marketing through the use of customer segmentation research. All of these efforts combined with an accelerated pace of store openings give us confidence in achieving another year of significant growth. We believe that the successful execution of our strategic plan, “Vision 2020,” is bringing and will continue to bring greater value to Signet’s stakeholders.
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 of helping our customers Celebrate Life and Express Love.