My name is Mauricio Serna. I am a leading consumer analyst at UBS, and I'm very pleased to be joined today by Signet Jewelers' team. Signet, as you may know, is the largest jewelry retailer worldwide, with over 2,400 locations in North America and the U.K., and joining me from Signet's team is incoming CEO J.K. Symancyk and CFO and recently appointed COO Joan Hilson.
Thank you.
With that, I'll hand it over to Signet's team for some opening remarks.
Yeah, great. Thanks, Mauricio. And thanks, everybody, for being here and for the chance to spend some time together today. I thought it might be helpful for me to frame up a few comments as, you know, as you say, incoming CEO. I think I'm 60+ days on the job, so I've qualified for benefits. I don't know. I'm still learning a lot. But in light of stepping in during the holiday and the news we shared today, I thought it might be helpful for me to frame with some observations from my perspective. Obviously, holiday sales are below our expectations, but there's a couple of things in the underlying business that I think are noteworthy. First, if you look back to what we've discussed relative to Q3 and the things that we observed in the business, they still remain true. Engagement, services continue to perform within expectation.
Both are bright spots within our business. We saw AUR expansion, which is another sign of health within that core. And we saw margin expansion more broadly across the business. The challenge really boils down to those 10 days of prime gift-giving windows where, frankly, assortment gaps in our assortment in those key gifting price points for fashion and self-purchase really put us at a disadvantage to being able to serve that customer demand. And because of that, while we saw margins expand, we really didn't get the expansion that we wanted to find and had expected within the business. The reason I focus on those 10 days is those 10 days represent a sharp shift from the way the normal volume within our business flows.
And as much as I wish there might be a few different proof points for it, it really does reaffirm what I believed coming in, which is we have an opportunity to reshape our customer-facing strategies as it relates to merchandising, some assortment strategies, as well as how we market to customers. That said, I also think the results for the quarter really underscore the opportunity that I saw and what excited me about the chance to be a part of this team, which is, as strong as that core of engagement is, we do have the ability to build growth within our company by leveraging the strength of our brand portfolio and the financial foundation that we've had the chance to build by leaning into an accelerating growth in fashion, self-purchase, and gifting categories. And I think we see that loud and clear when we look at Q4 results.
I know there's a number of questions. I will say the good news is we come out of this clean from an inventory perspective and really well-positioned to go after that opportunity. Solving that gap doesn't require any sort of rethink in terms of how we think about capital allocation strategies or investments more broadly across the business. I'm sure that's probably some of the questions that we'll get. But the reality is the right focus and the right prioritization within the existing model really does position us to go capture that growth. And I'm excited about what that opportunity looks like for this next year.
Great. I think to start, maybe talking about your update, could you elaborate a little bit more about what were some of the highlights that you saw in terms of consumers' shopping behavior, in terms of how they were looking for deals, the channel of choice, anything that you think it's worth highlighting?
Sure. I mean, I'll start with that core business. And we saw engagement, services, those things that are strengths and really moats for our business, perform within expectation. I also love that when product's right and we strike the right balance, we saw AUR expand. And I think those are really healthy signs for our business. What we also saw is that there is customer demand. There always has been within this sub-$1,000 price point gift-giving, and in particular, sub-$500, but that the way the customer shops that category has changed. And within our assortment, there is an opportunity for us to amplify lab-created diamonds more in that space. Lab-created diamonds for us were up 30% in fashion coming out of the third quarter. That accelerated to north of 40%.
Unlike maybe the way that this dialogue happens in regards to engagement, that's a really good thing because it really does help push AUR up and expands margin because it's a chance for customers, actually, in that instance, to trade up relative to what they're buying. I think some of the headlines may get it wrong in terms of, yes, it was a competitive environment, and yes, there are some challenges that I think consumers are navigating in the macro. The truth is we didn't see people trade down. What we saw is desire for bolder fashion in those gifting price points. Some of those stories, be they gold or lab-created diamonds, we were underallocated relative to our assortment. That gap really represents an opportunity for us to grow.
All right. Understood, and then maybe you said that the performance and engagement was broadly within your expectations. Maybe could you talk about what kind of growth you saw in engagement units, and how does that compare to maybe what you've seen in previous quarters?
Sure. Engagement for the quarter was, on a unit basis in North America, up a point. Now, it was up four points in the third quarter. But the important point here is that our average unit retail that we saw in the fourth quarter was up, and up compared to the third quarter. And it actually drove a revenue increase in bridal for us. So that's a pivot from an acceleration from the third quarter, positive sign in terms of the selling. As we look at engagements go forward, it is slower than we had anticipated. We believe that the engagement business is a very critical business for us, but one that we can build upon as we also lean into the fashion side of our business, particularly in the lab-created diamonds.
As we look forward, we will address our thinking on the fourth quarter earnings call around what our view is of engagements or bridal in the coming years, but it's sort of to say that we did see some positive signs of engagement in the fourth quarter.
Got it. And then in terms now that you've revised your guidance for the fourth quarter, could you tell us what does that imply in terms of the growth that you're expecting in fashion versus bridal?
So in terms of the fourth quarter, we expect the balance of the quarter to be similar trends to what we've been seeing through the early part of January. So staying on path there, we believe that as we head into the important Valentine's gift-giving period, which is, J.K. might have said it here, but it's a 10-point lower gift-giving period than we saw at holiday. So we think that as we head into that holiday, we can position ourselves nicely with some chase strategies to fortify some of the lower price points that are the gifting price points that the customer migrated to. But certainly believe that the bridal trend that we're seeing in the fourth quarter is something that's important, an important indicator for us because Valentine's Day is also an important romantic holiday for us.
It is.
Great. And then you mentioned also something very important, AURs being up. Maybe could you talk a little bit more about the kind of AUR trends you saw, again, in the different businesses, fashion and bridal?
Yeah. It's a great question. I think over time, we're going to have to retrain both internally and externally how we talk about AUR because so much of that, I think, has been seen as a proxy for our engagement business, which is this really strong core that we operate from. We saw AUR expand across the board, so that's the good news. The bad news is part of that expansion is a function of mix where we missed some of the opportunity at lower in those lower-tier price points, sub-$1,000. We did not see people trading down, so we still saw in each of those elements AUR move up, and we actually feel like fashion expansion creates opportunity for us to continue to drive AUR because what customers are gravitating towards are bolder looks, particularly with lab-created diamonds that actually allow them to trade up.
That's the mechanism that we see taking place there. So long-term, healthy signs in AUR. I think we'll probably want to start bifurcating them and maybe segmenting out AUR and engagement versus AUR and fashion to get a better, more holistic view of the business, particularly as we look to grow fashion a little faster.
Yeah. It's important to separate the 10 days leading into the Christmas holiday, which is a key gift-giving period, from other periods of the year where we've seen AUR in the fashion business be up second quarter, third quarter. We've seen positive trends. So as we look forward, we would expect that to return outside of the gift-giving period.
Got it. And then maybe, again, as we look into the guide that you provided today, could you help us maybe reconcile a little bit the changes that you made in your EBIT dollar guide? What were the main drivers that you're putting in there?
Sure, so we had a one-point impact in merchandise margin. The change in the EBIT guide all related to a merch margin change. SG&A was right on track. The merch margin change related to the higher penetration of wow items, promotions that are constructed to drive traffic, promotional items constructed to drive traffic into the stores and potentially even trade up a customer with those items. We didn't see that happen. We saw the customer really migrate to those items which have a lower margin. We saw that happen in our largest banner. That had a significant impact as part of that one-point decline, and then also to the discussion around lab-grown diamond fashion because the mix of that business was lower than we had expected, that also had some negative impact on the margin rate. The balance of that was just lower volume.
Understood. And then maybe as we think about fiscal year 2026 and one of the things that you've mentioned, J.K., is kind of like the focus on driving core comp growth. What are some initiatives that the company's looking to implement to really drive that core comp growth?
I think we'll have the opportunity to build out the plan more robustly and share it as we get into March. But at a high level, it really is leaning into fashion as an opportunity to expand self-purchase, become more relevant with female customers, and really more relevant with a younger customer base. That looks a little bit different by banner or by brand. Kay is probably the closest to its core customer today, a little more male-focused. We've got more opportunity as it relates to Jared and Zales to probably push the envelope relative to what those categories of gifting and self-purchase can look like. We'll have the chance to dimensionalize that by brand to really show where we feel like those value pools are and what the cadence of growth should be.
On the backside of that, I think we have a tremendous opportunity to rethink marketing as a company. We invest a lot there. But I think we've also got some evidence that there's ways to maybe refocus that effort to meet customers where they are and speak a little more broadly to the portfolio and be a little bit more balanced relative to the shopping occasions that we see customers showing up as. I guess the last thing I'd want to say is by no means would I want anybody to read this focus on fashion as a shift away or a deprioritization as it relates to engagement. I mean, that is a core part of our business, and it's a strength. We want to leverage that and accelerate share gains and really hold on to that leadership position.
However, there's growth and momentum within fashion that we need to do a better job of tapping into. That is a lifeblood for us as it relates to new customers, younger customers. It actually can be part of feeding the funnel even as it relates to our engagement business. And as somebody who's got 30 years in customer merchandising and marketing space, that's where the answer lies. I mean, creating comp growth for us is really about taking the cues that we're getting from customers and leaning into those things that we have more control over, fashion being one of them. So we'll balance the two. And I think from an expectation standpoint, building that momentum through the year is part of what really helps us maximize even those 10 days of gifting leading right into Christmas.
Got it. Understood. And then one thing that I think investors ask and want to know is how do you guys see this ongoing shift between lab-grown versus natural? How do you see that share shift over the next couple of years? And how do you think about the impact on pricing because of that?
It's a great question. And I hate that the fashion element of what we're talking about is this on? Can you guys hear me?
Yep.
Okay. Good. I hate that the fashion element of what we're talking about has a lab-grown component to it because I think it may muddy the water relative to that decision. We tend to think about it in terms of asset. I would say in fashion in particular, lab-grown diamonds make diamonds more accessible to categories of fashion that they didn't exist in before. And that creates the phenomenon of allowing people to trade up. So it helps push average unit retail up. It actually helps in terms of being expansive for margins. And in the long run, one of the questions I got asked earlier today is, does that accelerate some of the pressure as it relates to deflation or the cost inputs? I actually believe it can have the opposite effect.
When you think about that lower, more accessible price point diamond fashion, it was a lot of pieces and parts. The construction is very, very different. And when you think about the yield inputs that go into when you don't have the same market for that and you now have a different yield calculation on the natural side, it may in fact help bolster prices. And so I think anything that sort of expands the category overall and creates more value-added avenues for consumption of lab-grown, that's good. And anything that will actually help sort of bolster one of the price inputs for natural may well be good too. Time will tell, but I think the opportunity as it relates to fashion isn't something that will compound that problem. If anything, it may actually help strike a little bit of balance.
Understood. And then you mentioned also earlier that you've seen generally a slower recovery of engagements. How are you thinking about that engagement cycle beginning to rebound in the next maybe two, three years as you reconsider things?
So I'll take this one. I think I still believe in the direction of the trend. And so I don't want to throw water on the fire as it relates to the data inputs that we have had there and the directional behaviors we see. We feel good about. Our engagement business actually got stronger as we went into the fourth quarter. So there is no negative cue that I or anyone should take from that. However, I also don't believe that trend plays out with the level of precision or predictability that I would love to be able to see. And so for us to drive growth, we're going to maximize that, and we're going to take share, and we're going to still lean into it. And we're positioned well to do that. But it isn't the only avenue of growth.
And I think the pivot, if you will, to a little more balance and a little more focus on fashion. Don't read that as any, I guess, lack of confidence or pullback from the engagement side of the business. Look at that as somebody who sees all of this customer appetite for more than we have been offering them, who sees natural avenues for growth and is leaning into something that we can exert our control over as opposed to being beholden to a trend that we don't have complete control over.
Yeah. Understood. And then just very last one, I see we're almost out of time. One of the things that you have been dealing with in the last couple of quarters were some issues on the digital banners. Maybe you could provide a little bit of an update on how did that transpired on the holiday season?
So the digital banners are trending nicely. They are on path to or in line with our expectations, actually slightly better. We've actually changed a little bit of the product offering in the digital banners. We have introduced finished jewelry within the Blue Nile banner, which is doing quite well. And we're seeing very strong sell-throughs. So we're continuing to replenish into the finished jewelry. So it's a little bit of a shift in the product strategy that's paying off for us. So really seeing the fixes are all in, and we're getting our algorithms tuned up. And we're seeing that as we go into next year, as you might recall, the prior year performance was not strong. It was a negative performance.
As we lap that, we have confidence in the team there and what they're bringing to the table with product as well as the capabilities in the digital space.
Great. Well, I think that's a very good place to stop. I want to thank you again for your time and everyone else also for coming into this meeting.
All right.
Thanks, everyone.
Thank you.