Signet Jewelers

Dear Shareholders,

Fiscal 2017 was a challenging year for most retailers and Signet Jewelers was no exception as we experienced declining sales for the first time since the recession of 2008-2009. Despite this decline in sales, we delivered solid EPS growth and operating margin expansion through a combination of disciplined operating expense management and share buybacks.

We also continued to generate strong cash flows and were able to return significant capital to you, our shareholders, by delivering superior products and services with a Customer First mindset. Additionally, we achieved our target annual synergies from the Zale acquisition which helped protect us against a notable slowdown in retail.

In addition to challenges on the retail and commercial fronts, Signet was the focus of comments from various quarters on its quality control, credit business, and workplace practices. While no one and no company is perfect, we believe these comments do not reflect the nature of our Company practices and culture. However, in the spirit of continuous improvement which is a hallmark of our culture, we have sought to learn and improve from these comments. We believe the results are manifest as described in the list of accomplishments below.

At Signet, we recognize that doing the right thing creates value for our employees and their families, our customers, the communities in which we do business and our shareholders. We have been acting consistently on that strategy for more than 100 years! Again, as you read the list of accomplishments on this front related to Fiscal Year 2017, we think you will agree that we are consistent and resilient in this aim.

About Last Year

That said, we acknowledge that in Fiscal 2017 our financial results did not meet our expectations due to a combination of macroeconomic, industry, and company-specific reasons:

• At a macro level, low energy prices had a lagging unfavorable impact on jewelry spending in energy dependent regional economies (e.g. Texas) during most of Fiscal 2017.
• The jewelry industry slowed as broader retail sales were pressured in part by declining mall traffic and heightened competition among all retailers for fewer customers. Additionally, the promotional environment was further intensified as independent jewelers were forced to close at levels unseen, since the recession and liquidate inventories at deep discounts.
• At the company level, our Jared store brand underperformed as we worked to update and improve upon its customer journey execution, marketing message, and merchandise distinctiveness. In addition, a combination of technical infrastructure limitations and search engine optimization issues negatively impacted Jared and Kay’s online performance during the holiday season.

Accomplishments

Diluted Earnings Per Share

While Fiscal 2017 certainly had its challenges, we remain confident in our future. Over the past 25 years, while still experiencing cyclical dips every six or seven years, the U.S. jewelry industry has grown at a compound annual growth rate of 4%. Over the last five years Signet experienced a compound annual growth rate in sales of 15% -- significantly above the category.

The progress we made against our strategic priorities in Fiscal Year 2017 combined with the resiliency of the jewelry industry and the solid foundation we have built at Signet, which has proven true throughout cycles, is a clear indication that our Customer First strategy is the right way forward.

During the year, Signet delivered some important accomplishments.

• Key merchandise brands and categories, such as Ever Us, Neil Lane, Vera Wang LOVE, Endless Brilliance, and Chosen, plus bracelets, necklaces, and earrings, performed very well. Additionally, Piercing Pagoda, our kiosk concept located in malls, had a 6.6% same store sales increase led by diamond jewelry and 14 karat gold. Our Kay stores off-mall performed relatively well too.
• Good expense management helped us deliver operating margin expansion of 120 basis points.
• We generated free cash flow of $400 million, representing a $184 million increase over last year. We delivered on our synergy targets from the Zale acquisition and improved our operational efficiency which helped protect us against a notable slowdown in retail.
• Ending inventory was flat due principally to prudent management including the realization of big improvements within Zale’s merchandise portfolio.
• We returned significant capital to our shareholders through dividends and share repurchases and, for the sixth year in a row, we increased our quarterly dividend. We ended the year with substantial liquidity and an attractive dividend yield.
• We received a $625 million strategic investment from the well-regarded investment firm Leonard Green & Partners. The transaction was a significant vote of confidence in the Signet operating model and our long-term prospects for growth.
• Following our comprehensive review of our credit portfolio, we determined the optimal path forward would be to outsource it. At the time of publication of this letter, we are deeply engaged in negotiations with potential partners and look forward to updating you on the process in the upcoming year.
• We released our Fiscal 2017 Corporate Social Responsibility (CSR) Report that benchmarks Signet’s industry-leading responsible sourcing and global CSR initiatives. This report underscores our achievements to this point and inspires our commitment to becoming better corporate citizens every day.
• Signet’s Responsible Sourcing Protocol for Diamonds was launched, requiring suppliers to be in full auditable compliance in 2017. The Protocol is another protection to ensure due diligence on the source of all diamonds delivered to Signet.
• Since the end of the fiscal year, we finalized the formation of a Special Committee of the Board focused on Respect in the Workplace, further demonstrating our focus and commitment to fair, equal opportunity, integrity and respect in the workplace.
• Signet reached an agreement with the Equal Employment Opportunity Commission to resolve all claims related to the pay and promotion of female retail sales employees at the company in EEOC v. Sterling Jewelers Inc. The consent decree states there were “no findings of liability or wrongdoing,” and does not require the company to pay a monetary award.

Extensive Customer First OmniChannel Focus

Sales

$6,408m

We remain resolutely focused on addressing our challenges and making improvements for the future building on the solid foundations of our Customer First strategy, our industry-leading talent and best-in-class customer experience. As customers shift towards online channels, Signet is responding to the change by enhancing our capabilities to succeed in this evolving retail landscape.

Going forward, we will continue to sharpen our focus on the mid-market jewelry customer and improving our growth trajectory through a broader and deeper OmniChannel emphasis. Our digital marketing and online presence is more pronounced than ever, and we are continuing to invest in and direct more resources to improve the key elements of the overall customer digital journey. We realigned our executive organizational structure around this imperative, creating a new role of President and Chief Customer Officer, and strengthened our board of directors to enhance our focus on delivering an outstanding multi-channel experience to customers.

Building on this momentum, in Fiscal 2018, we are focused on the following:

• Immediately improving the customer experience of our Sterling division websites. Technical enhancements are underway. For example, we expect page load speeds to be cut in half as compared to the holiday season – and in-line with retail norms – by Mother’s Day.
• We have a renewed and targeted focus to improve online traffic. For example, our site architecture enhancements will improve the search engine optimization ranking. And, we will enhance the content of our sites and increase user-generated content.
• In the summer, the new Zales eCommerce platform will launch. This has been part of our technology upgrade plan for some time and will provide a better user experience and a more efficient operating model for the company.
• This year, we are substantially increasing investment in digital marketing especially in search. We are investing in enhanced data analytics to achieve a comprehensive view of our current and future customers. We believe we have one of the largest jewelry customer file of emails, customer profiles, and more. We use this information, as well as valuable credit data, to be smart digital marketers.
• Additional technology investments will be tested this year to enhance the customer journey and experience such as online wish lists and bridal configurators.
• We will deliver on our commitment to create value through responsibility by becoming better corporate citizens every day.

Going forward, we will be increasingly focused on building a best-in-class digital ecosystem that is able to provide a premier customer experience at every digital touchpoint, exceeding the needs of our customers no matter how, when, and where they wish to engage with us.

Business Opportunities

Signet Store Count

3,682

In additional to our focus on the delivery to an OmniChannel customer, we have additional initiatives underway to drive growth in Fiscal 2018:

• From a merchandise perspective, innovation remains a top priority. We have fresh, new merchandise line extensions and redesigns of our best-selling collections. We are building upon successful trends by devoting more resources and store space to hot categories. At the same time, our pipeline of new ideas is full with strong candidates being tested today for possible holiday season rollout.
• Our clienteling (personalized selling system), which had a great launch in Kay and Jared late last year, should help us generate incremental sales this year and long term across store brands. The electronic tools enable our teams to interact with our customers more intelligently based on customers’ previous purchases and special life occasions.
• Continued investments in information technology modernization will provide the backbone for operational efficiencies. We expect to implement an enterprise wide finance system, human resource system, and the North American warehouse management system that will enable us to consolidate the Dallas distribution center with Akron.
• We will improve store operations execution by gathering more useful data about customers’ experiences that will drive action to improve our customer conversion.

Capital Spending and Capital Allocation

In Fiscal 2018, we will continue to prioritize investments in information technology to improve our digital customer experience and create a seamless online experience. We are also implementing key new technology platforms in finance and human resources to better integrate our global enterprise.

At the same time, our capital expenditure expectations are below the prior year. We will reduce our annual spending on new and remodeled stores and will continue to take a disciplined approach to optimize our store footprint to better align with dynamic consumer shopping behavior.

We will accelerate store closings especially within our regional banners to improve the overall profitability of our store base. New store openings will continue to focus on Kay off-mall centers where we have a higher internal rate of return. These actions should favorably mix our diversified real estate portfolio between mall and off-mall locations.

Signet maintains a balanced approach to investing in the growth of its business, as well as returning capital to our shareholders via a growing dividend and share repurchases.

In Closing

On behalf of the Board of Directors and our global team, we thank you for your loyalty and commitment to Signet Jewelers. We value the privilege to be stewards of your investment. Together, we look forward to a year of success helping our customers to Celebrate Life and Express Love.