All right, good morning. Thank you, everyone, for joining us. I'm Rick Patel, Senior Research Analyst here at Raymond James. Happy to be hosting Signet Jewelers. Signet is the largest public jewelry company domestically. We're very thrilled to have with us CEO J.K. Symancyk, as well as SVP of IR and Capital Markets, Rob Ballew. So thank you both for being here very much. Maybe to kick things off, for investors that are new to the story, can you start with your Grow Brand Love strategy and the progress that you've made year to date?
Sure. Yeah, thanks, everybody, for being here. I'm really excited and maybe more importantly, proud of what the team's accomplished. It's been a busy year. We laid out a pretty ambitious set of objectives, really hinged on three things. One, how do we think about our business differently? And for those that have followed the story, we would refer to our various business units as banners. And really, that transition from banner to brand and focusing on how we think about the strength of the portfolio differently is critical. I mean, you said it, our company's a large one, but we also within it have these brands that have great legacy and connection, whether it's Kay, Zales, Jared, Diamonds Direct, Blue Nile. I could run through the list. There's more there. But really honoring each of those brands and starting to build a stronger customer story there was pillar one.
Pillar two was to really think about an expansion into fashion as a category, and fashion is the largest part of our industry. It is a place where we are underdeveloped. We have about a third of the share, give or take, when you look at bridal engagement, but we're mid-single digit in share in fashion, so that expansion into adjacent areas of fashion categories is a catalyst for growth and a potential for us, and then commensurate with that, we really have shifted a focus, an outsized focus, to our core brands, where we feel like that is an opportunity for us to gain leverage on the business, and then finally, the last part of the strategy is to really simplify the business and streamline it to enable us to compete better. We were overly complex, so we've embarked on all of that work.
One of the first things that we did was align leadership of the business and really address the structure to support that strategy. In doing so, we took about a third of the senior leadership layer out of the country and really also aligned leadership over those brands, as opposed to some of the centralized operational functional operations and functional pieces that were spread throughout the business. When it's all said and done, we ended up taking out cost commensurate with that or as part of that. But it really wasn't a cost exercise. It was more about effectiveness than efficiency, and to be able to make that transition, start to adjust our assortment strategy and our marketing story, and then reignite growth. We're now three consecutive quarters of growth within the business, obviously coming off of our strongest quarter of the year from a performance standpoint.
So pleased with where we are. I think we've got a lot of work and turning a brand around and building brand reputation is not a quick fix, but we're furthest along, I think, with Jared in terms of that brand perception, but I've really seen outsized performance across all three, Kay, Zales, and Jared, through the year.
And you touched on bridal showing robust growth this year. Can you talk about the drivers here? And how do we think about the sustainability of this growth? Just curious what you see as contribution of market growth as opposed to share gains?
Yeah, I think for us, bridal, I mean, it sounds a little bit counterintuitive. But one of the things that's helping drive bridal growth is improved relevance in fashion. If she will actually think about shopping for herself with you a little bit more so, then she's also more likely to send him there whenever, at least sticking with the traditional version of that engagement process. I think that improved relevance and the same things that are driving fashion around how we think about the clarification of our assortment, really leaning into both sides of the diamond equation. We are equal parts investing in how we leverage on the lower-end price points the growth of lab-grown diamonds to really help deliver greater emotional value for customers.
But also on the higher end, how are we investing in the allure and the uniqueness of natural diamonds in a way that helps safeguard that? And for us, I would say there's a pretty clear line of demarcation. Below $2,000 for that more budget-conscious customer, they're probably more likely to be shopping for lab-grown engagement. Above $5,000, they're far more likely to be a natural diamond customer and are thinking about not just the emotional value of it, but also the uniqueness and the lasting financial value. And so I think we've done a nice job of really leaning into both ends of that assortment and making sure that we're covering all of the key price points across the bridal business maybe better than we have in the past.
And can you talk about distribution? So I believe you have hundreds of doors that you expect to close between this year and going forward. How much sales recapture do you expect from these consolidations, particularly in overlapping trade areas? And then just the second part of that is, are you getting help from the closure of competitor doors as well?
Yeah, it's a great question. I think we've got a really healthy fleet, would be the headline overall. And so when you look at whatever metric, whether it's four-wall contribution or you're looking at it on just a cash flow productivity basis, by any of those metrics, our fleet looks great. Where we're more focused now would be on really a couple of things. In the cases where we're not in the right markets, what do we do to, or not in the right spot in the market, what do we do to relocate and be better positioned? That may be sort of, I mean, we have largely addressed sort of the C&D mall problem. This is more opportunistic, where we think there's upside. We've got 150 doors planned for closure that is disproportionately weighted towards Banter.
So on a square footage basis, it's really less than 1% or about 1% of our square footage that would be closed. So this is really more about pruning the fleet and then trying to be opportunistic around those markets where we feel like there's greater upside someplace else and/or we've got a little bit more density and overlap. So think of there are still malls where we may have a couple of Banter locations. And do we really need two kiosks in the same location, or can we operate with one? And I think overall, those represent great opportunities for us to capture any potential lost sales. We're much more focused, though, on. There are also markets. I think of Phoenix as an example, where we still have the opportunity to grow and are underdeveloped in terms of stores.
So we're balancing all those things with what we see as a big opportunity around remodel and retrofit of existing stores that are having great returns for us. And that's how we're thinking about real estate strategy.
Yeah. And on the competitive front, there's 17,000 independent jewelry stores in the United States. In 2010, that was about 23,000. The pace pre-pandemic was around 500 net closures a year. That has actually slowed considerably over the last five years to about 100 to 200. It has been starting to creep back up to a higher number, but is not quite yet hit its pre-pandemic rate of consolidation in the industry. And you touched earlier on fashion. It's relatively underpenetrated for Signet. What do you see as the right long-term fashion mix for the enterprise? And which investments do you need to make to unlock that growth?
Yeah. So I've said this a few times. Some of you have been in meetings where we say it. I kind of hate penetration numbers because I love growing both the numerator and the denominator. If you look at it in rough terms, our business is about 50% fashion and about 50% bridal and engagement, and included in that fashion would be timepieces, which is really only about 5% of our mix, but if you look at the industry overall, fashion is much larger, and so for us, every point of market share growth in fashion represents four to five points of market share growth in bridal, and the key for us to do that, one, I don't know how you can't boil that ocean. You really do have to think about a clearer set of identities around each of the brands.
And then as you do that, there are some natural adjacencies that start to make sense for us to really lean into and expand. So if you think about a brand like Kay, for example, that really is, always has been, and always will be centered on milestone gifting and engagement. I mean, it is the biggest in the market. Well, the person who's doing that shopping is disproportionately male. So leaning into fashion for milestone gifting and holiday time period is a great place to lean in. Men's fashion is a great place to lean into that. Jared, where your target customer is a little more affluent, a little more established, is not starting their jewelry box collection, but is really extending it over time. It is about moving into higher price point fashion piece, more natural diamond focus, more elevated timepieces for him.
But it is often an established couple that's shopping together. Zales leans a little bit more diverse, but also leans a little bit more female. And so self-purchase and really thinking about those core elements of how she may round out her wardrobe. And there's probably more degrees of freedom as it relates to fashion in a brand like Zales than maybe the other two because of the adjacencies that come. But it's also probably a little bit lower price point than where when she's viewing it a little more as part of her wardrobe and a way to upgrade, then it's a little less milestone and a little bit more approachable in price point.
Since we're on the topic of product, lab-grown diamonds, the penetration, I believe, doubled to 15% in fashion. Now it's about 40% of bridal. Can you talk about the opportunity going forward? And how do you think about the behavior of this consumer versus the natural diamond buyer?
Yeah, I mean, so we get asked a lot of questions about diamond. And it's often pitched as sort of lab versus natural. And I think that's probably the wrong way to think about it. They're both part of the assortment, sort of like, at least in the modern age, the same way gold and silver are. And there's a place for both. And nobody ever asked me that question, what about gold versus silver? But I think the narrative or the concern around deflation is probably misplaced. I mean, we've seen much more stability in both markets, candidly. And for us, at least on the bridal side, it's really clear. Price point tends to drive it. And so, like I said earlier, below $2,000, one of the greater ways to maximize that emotional value, and particularly if you're shopping for a center stone, is a lab-grown diamond.
And at that kind of price point, definitely there's some natural demand there and a tendency for people to actually trade up in retail versus what they might have walked in looking to spend because they're trying to maximize center stone value. As you move up the price point scale, disproportionately, the interest moves towards natural diamond because there is a uniqueness and a rarity. And I mean, it is more special. And I think we lean into that and are actually trying to pave the way in some of our brands around what do we do to safeguard the value and the allure of natural diamonds. And we're really excited. We are the first retailers to offer a fully traceable blockchain-supported traceability program for a natural diamond in Jared. And I mean, there are a lot of names associated with the diamond business, but none has done that.
Jared is the first to be able to do that. And so we believe both are vital, both are points of strength. And I think those natural lines of sort of role are pretty clear in engagement. On the fashion side, it's a little bit different story. There's definitely a natural diamond fashion story. But up until the advent of lab, it really was focused on two things. It was either focused on really special high-end pieces that most people could not afford. So there was an accessibility issue. Or at lower price point, it was effectively a way to utilize poorer quality diamonds or parts, right, in composite construction. So think about the offal, if you will, of cutting other stones.
If you were looking for a center stone dominant piece or you were looking for the brilliance that can come from a tennis bracelet or anything, it was just not accessible for most customers. What's great about lab-grown diamonds in fashion is it really is a category extender, and it makes some of these pieces way more accessible and much more of a staple. I think what we're doing a nice job of is really balancing those things that I don't want to call them commoditized, but those things that may be more foundational basic pieces and leveraging those at key price points. You could walk into a Zales today in a sterling silver, one-carat diamond tennis bracelets, $499, $499. To bring that kind of accessibility to a group of customers who never had it, we feel excited about.
And then on the other end, I was getting ready this morning here in the hotel and dreading the elevator. And the ad pops up. You could go into Jared and look at what we're doing. And natural diamond with a fashion assortment, Captivate, which is higher end, really focusing on higher quality stones, but really trying to elevate. I can't describe it adequately, but investing more in design around those pieces to support the differentiation that really does carve out a place for both in the assortment.
Your Jared banner is further along in its brand identity work and being able to reduce discounting. Can you talk about the ability to leverage those learnings and apply them to the other banners?
Yeah, I think what they're doing better than our other brands right now, and better being further along, is pulling together. I mean, there's a lot of quotes about a brand, but one of the ones I love is a brand is a story well told, and that ability to connect to people is coming to life better in Jared because you think about a great story. There's a very simple plot. People need to get it. But then there's lots of elements that you stack up to help make that story more interesting, and I think Jared is pulling together all of the marketing touchpoints more cleanly.
Also is doing a better job in store today of merchandising our cases in a way that helps sort of break the traditional paradigm of how customers shop, as opposed to navigating simply by body part or by engagement versus these random collections. If you walk in our stores today, our floor sets are doing a much better job of pulling together all of the parts of that fashion story in a way to help guide people towards looks and setting product capsules and just making it easier for customers to find inspiration, and so a lot of trial and error that goes into that.
But I think all of those elements, whether it's the creative in store or what you see in traditional marketing or how that story is coming together in social media, and then what's that mean for the selling experience within our jewelry consultants that are on the floor, they really are helping us learn how to move the needle. And the benefit of being part of portfolio is when you see that strength, you can go replicate the best parts of that as you roll out the other pieces.
So as we think about improving store execution, can you touch on the work that's being done to refresh your stores? I guess what kind of financial investment is needed here and what kind of returns are you seeing from the remodels and just the scalability of this initiative?
Yeah, that's a great question. So we're renovating about 200 stores this year, and we'll probably do a similar amount next year. The refreshes and renovations generally are about a $200,000-$800,000 investment. They're really focused on our three largest brands, Kay, Zales, and Jared. Of course, you're touching a lot of the basics, paint, carpet, and lighting, but you're also doing a lot of the creative in store, upgrading the merchandise in the case of Jared, as well as upfitting the cases and kind of modernizing the cases in the store. We see that investing organically in our big three is really the best opportunity we have to drive growth in the experience in the store.
So of our CapEx this year, which is around $150 million, over two-thirds of it's actually being invested in our stores this year and will probably be a similar proportion for the next few years. Previously, we're targeting three- to four-year returns on our investment for real estate. We've gotten a sharper pencil, and we're now focusing about two- to two-and-a-half-year with no longer than three on that. We've seen a mid-single-digit lift on our renovations we've done this year and really seen a strong IRR associated with that. Similarly, we're also repositioning stores as well. We have a lot of stores, mostly in B and C mall locations, that are high-performing stores, but they're in declining venues and otherwise good markets.
And so given our lease terms, only about two and a half years on average, we have a lot of flexibility on repositioning to other parts of the market that don't have the traffic concerns. And so we're also seeing really nice returns on those repositions, and we see a couple hundred of those opportunities over the next three years.
There's a lot of investor focus right now on the K-shaped economy. Our strategy team really focuses in on this as well. Can you expand on the trends that you're seeing across higher income versus lower income consumers?
Sure. I mean, this is where it's great to have the broadest portfolio of brands, right, because we cover the full gamut. And I think I'll speak a little more cleanly about fashion because engagement's a little bit different. I've already talked about sort of the breaks of price points, but engagement is a little more of a planned purchase. It's a little less exposed to sort of short-term gyrations in the macro environment because if you've been dating somebody and you're about to get married, you may postpone the wedding and that expense. But generally speaking, the engagement is something that you've planned for and is a little less disposable income dependent. What we are seeing is the opportunities around how people trade up on the higher end and then some of the choices they're making on the lower end to trade down. We're certainly seeing that play out.
What I do think is interesting is we're watching really closely the middle. The middle, people, Americans in particular, are an affluent society. What I mean by that is if we're thin, we want to be thinner. If we're wealthy, we want to be wealthier. If we're happy, we want to be happier. We always want something more. And I think that trade-up mentality, I mean, you see that. You see that in AUR expansion. You see that. And I mean, it's why lab-grown diamond fashion has a higher AUR than natural diamond because if people opt into it, they're opting into it for something that is bigger or has bigger presentation. And so we haven't seen, at least longitudinally, that change.
And I think what we are finding, though, is in particular on the lower end, as you start to see some of these pressures mounting, those of us who are better positioned to be able to deliver value, we're seeing people respond to it. And I think that set of trade-offs, and in particular in the lower and the middle, I'll trade down on this one thing, but I'm still going to trade up on the other. And particularly with Gen Z customers, we see that behavior, excuse me, and the ability for them to sort of climb that ladder up and down in terms of where they trade off and where they trade up is, I think, something that marks that generation a little bit differently. And that's part of where we're working and have been successful in resetting our assortment.
Great example is the diamond tennis bracelet I told you about. Maybe I don't need gold because white gold isn't what I'm looking for, and the approachability of $499 is great, but by the way, there's a three-carat diamond tennis bracelet in silver that's $999, and that ability to be able to help touch all of those price points as they look to trade up and trade down on what's most important to them, I think that's part of the way the consumer shops today, in part because this puts a lot of information at my hand, at my fingertips, and I can make those choices more cleanly than I did before.
And I'd love to dig in a little bit more into the margin opportunities for the company. So right now, I think there's a big focus on getting sharper with promotions and discounts. When you think about the enterprise, which inning would you characterize Signet as being in terms of driving this improvement?
That's a good question. Baseball games run faster now than they used to with the pitch clock, but I'd still say we're pretty early innings. I mean, I think we've instilled a lot of discipline around mostly promo optimization and pricing discipline. I think as you one of the things in retail that happens is as you fine-tune your assortment over time, you go back and you refresh that work, and in particular in our business, where I think we still probably have a broader assortment, at least in store, than what we should have and have the ability to clarify that further, I think there's more inroads there. Jared's deeper into the game than a brand like Kay is, and that's the other thing, so Jared has got a full year under its belt relative to that work. Kay, we move forward in the back half of the year.
As we get into this next year, there's a little bit of a sort of a half-year wrap on what that looks like. Then I think a lot of where we've moved the needle has been on number of days on promotion, the amount of depth. In some cases, it's shorter days, deeper intensity. In other cases, it's less intensity. You turn those dials as you see how customers respond. Then I think kind of the other big thing is we've really the simpler your message is. One, I think customers respond to it better. But two, when you're stacking promo on top of promo on top of promo, a lot of retailers do that because they count on breakage and they count on that to help safeguard margin. But there's a flip side of it.
It's harder to predict what the impact's going to be. And so it costs you money as well. And I think for all those reasons, simpler, more to the point messages are better. We've moved a number of brands, particularly Zales, further along into fashion, a little bit more everyday pricing. And so we'll continue to refine it. But I think in particular, if we can get a little bit of more normalized environment on tariffs, the opportunity for us to continue to drive margin expansion is improved.
Yeah. So speaking of tariffs, can you give us your latest thoughts on the impact that it's having on the business? And how is Signet mitigating some of these actions? And how do investors think about the wiggle room that might be baked into guidance?
Yeah. I mean, we've always been more conservative around Q4, in part because if you go back to the start of the year, at that point in time, the question was, "Hey, what's going to happen if there happens to be a recession or there's jobs or any of those?" I mean, nobody was talking about tariffs at that point in time. Nobody was talking about government shutdown or SNAP or any of those things. And the fact is we've added a lot more characters to the story that consumers are having to navigate through right now. I mean, even gold pricing is something that looks a little different today. And so tariffs in particular, our team's done a great job of navigating.
And I got to give credit not just to our team, but our partners, how we have leveraged our supply chain, utilized different design and assortment changes, how we've relocated country of origin to be able to mitigate the impact. I mean, all those things that I just said have come into the story. We have effectively not only maintained our guide for the full year despite some of those headwinds, but actually lowered the bottom side. And so I think that's a testament to the strength of this business and the fact that our team has managed that while managing a lot of other change and still driving growth, I think, is a real positive for our business. If we're to normalize, for those that don't know, India is probably the bigger leverage point for us. About 50% of our inventory comes out of India.
That really is not just for natural diamond, but also for lab-grown diamond and really for fine jewelry craftsmanship. There's not an easy replacement for that. So if we get to a little bit more normalized baseline for India or some level of exemptions on natural diamond, whatever that looks like moving forward, I think it gives us more degrees of freedom. The good thing is the agility, I think, we picked up around supply chain and really understanding our cost, the agility that we've helped build out within our supplier base. I mean, that's a set of muscles we carry forward with us that makes me optimistic around some of the ways we can leverage strength and scale to continue to drive margin improvement.
Last question. Holiday season is here. What are you most excited about, and what do you see being different than last year?
I mean, there's a lot of movement, and I mean, it depends on who you talk to. I mean, I think there's going to be winners and losers. I'm really excited about how we are positioned around key price points to maximize the last days leading up to the holiday. For us, a lot of people want to talk about Black Friday, Cyber Monday. The week to 10 days leading up to Christmas is higher volume for us than the whole month of November. So when you think about it, people ask me, "Well, why is that the case?" and I'm like, "Well, it's because unfortunately, there's a lot of males that shop, right?" And I mean, we may not be great planners. If you ever need proof of that, go to a store at like 5:30 P.M. on Valentine's Day and see.
But I think that, I mean, look, we sit in a category. One of the things I love about this business is you will all give somebody gifts. And the sad thing is a lot of the gifts you give somebody may end up being donated a year from now or two years from now. That isn't true with our gift, right? What you buy in one of our stores is something that people keep for the rest of their lives. And if they don't, it's because they either upcycle it into something else or they're passing it on to somebody else they love. And so when you get pressed in that last window, we are a great resource. And that's part of why people shop this category. And our reach enables us to do that.
Last year, we weren't as well positioned on some of those key price point items to be able to maximize and serve customers. We had traffic. We didn't convert as well. This year, depending on what you're looking at, we own five to eight times more. It's focused in the key price points. In particular, it's fashion price points under $500 and under $1,000 with greater depth on lab-grown diamond fashion there, which is on trend for customers, so I'm excited not only about what that may mean for our business, but I'm also excited about the fact that we're better positioned to make people happy at a really important time of year, and in the end, that's a good thing. It's a good thing for everybody, and I think it's a good thing for our business long term.
That's great. Thank you so much, JK and Rob, for your insights and thank you all for your interest today. Happy holidays.
Thanks, everyone.