Signet Jewelers' CEO Hosts New York IR Day and Store Tour Conference (Transcript)

| About: Signet Jewelers (SIG)

Signet Jewelers Limited (NYSE:SIG)

New York IR Day and Store Tour Conference Transcript

October 1, 2012 9:45 AM ET


Mike Barnes - Chief Executive Officer

Todd Stitzer - Chairman

Mark Light - President and Chief Executive Officer, U.S. Division

Ed Hrabak - Chief Operating Officer, U.S. Division

George Murray - Senior Vice President, Marketing

Tryna Kochanek - Senior Vice President, Field Operations

Ron Ristau - Chief Financial Officer


Oliver Chen - Citibank

Jennifer Davis - Lazard

Andy Hughes - UBS

Bob Tac - Analyst

Ike Boruchow - JPMorgan

James Pan - CP&E Partners

Rick Patel - Bank of America

Mike Barnes

Okay. Good morning and welcome. I’m Mike Barnes, Chief Executive of Signet Jewelers. And on behalf of our Chairman, Todd Stitzer, who is with us today as well and all the representatives of our management team and of course, myself, it's a pleasure to have all of you here with us today, and we appreciate you coming in this morning.

While you'll hear a little bit later, just how enthusiastic we are about Signet, about state-of-the-art technology, for now, could I ask you to please ensure that your mobile devices are either turned off or placed on silent, as they may interfere with our audio visual equipment, I know its kind of ironic, but we do appreciate it and we thank you very much for that.

I would also like to welcome those of you joining us this morning via webcast through the Signet website.

During today's presentations we will from time to time discuss Signet's business outlook and make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially.

So we urge you to read the risk factors, cautionary language and other disclosures contained in the annual report on Form 10-K that was filed with the SEC on March 22, 2012. We also direct your attention to the slide in front of us today. Okay, now we got the best part out of the way there.

Before we began our first presentation by our divisional management team, I’d like to speak on how Signet has really developed into a true U.S. company over the course of the four years since our primary listing was moved to the New York Stock Exchange.

I'll also speak to our competitive strengths. Many of which will be demonstrated by our management team presenting here today. I’ll then update you on our international operations as Rob Anderson, our Chief Executive of our U.K. Division couldn’t be here with us today.

The U.K. remains a solid business and accounted for about 6% of our operating income last year. Following the U.K. update, I’ll turn the proceedings over to our outstanding U.S. management team. These are the people responsible for the outstanding execution of our business results over many years here in the U.S. market.

Mark Light, our President and Chief Executive for the U.S. Divisions speak first. He became the Chief Executive Officer in January of 2006 for the U.S. and his entire 34-year career has been spent with Signet in positions of increasing responsibility.

Ed Hrabak who was appointed Chief Operating Officer of the U.S. Division earlier this year will follow Mark. Prior to becoming CEO, Ed was our Senior Vice President of Merchandise. George Murray, Senior Vice President of Marketing; and Tryna Kochanek, Senior Vice President of Field Operations will speak in order following Ed.

All of our U.S. executive team members presenting today have like Mark spent over 20 years in our business. It's a seasoned, experienced, highly skilled team with a great track record, individually and most importantly together.

Finally, Ron Ristau will close by highlighting some financial milestones that we aim to achieve, driven by our growing competitive strengths. Of course, there will be time at the end of the presentations for you to ask any question that you might have.

We will then take a short lunch break then this afternoon we’ll travel to Paramus for store tours, which is going to be enlightening for all of us and provide you with even more insight into our operations.

For those of you interested in making a purchase, while we are in our Jared store. We are pleased to offer you a 25% courtesy discount on merchandise, excluding loose diamonds. Now I will say, if your heart is absolutely set on loose diamonds, we’ll be more than happy to accommodate that purchase as well. So you can still buy it, just no discount.

Before I began, I'm sure you're all wondering about trading results. We’re now about two-thirds of the way through the quarter and our performance is in line with the guidance of same-store sales in the low to mid single-digit range that we gave on our last earnings call, and we remained comfortable with achieving our objectives for the year.

So let's begin with a brief overview. Signet is the largest specialty retail jeweler in the United States, with significant competitive strengths and key retail discipline. We have an outstanding record of execution.

Our Kay and Jared store concepts are two of the most powerful retail brand names in the U.S. marketplace, while Signet is a U.S. company. I don’t believe it is widely recognized as it should be.

Let me be very clear on this. Our U.S. division drove 94% of our operating profit last year. We're very proud to run our company from our home office in Akron, Ohio, where we built a strong corporate team that works closely with and compliments our U.S. team members and is now located in the same corporate offices. We also continue to be very pleased with the market-leading efforts of our organization in the U.K., which I’ll speak to in more detail here in just little while.

Moving forward, our mission is to further enhance our position as the market leader in both the U.S. and the U.K. specialty retail jewelry markets, by offering unique and superior customer experience and by driving customer loyalty. Let’s examine the statement a little bit more closely.

What do we mean by superior customer experience? It means our goal is to be the best in everything we do and to work diligently towards continuous improvement. This is because we put the customer at the center of everything that we do, whether it’s in-store or increasingly online. Behind the scenes we remain laser focus on the vital support functions that provide a superior industry-leading customer experience.

Things such as credit, systems, training, supply chain, merchandising, marketing and the all important store operations. By providing a superior customer experience we drive customer loyalty and build brand equity in both our store concepts and our differentiated ranges of merchandise.

We are relentlessly increasing our differentiation from our competitors in order to further distance ourselves from them. This drives high store productivity and it drive sustainable increases in operating margins, which facilitates our ability to invest in future growth and drive value for our shareholders.

At Signet, we have a number of strategic imperatives specifically aimed at driving value. They include, developing and training our team members to consistently enhance the retail experience of our customers, growing new and existing brands and categories to delight our customers, continuing to drive competitive strengths and infrastructure to enable growth, optimizing our capital structure to manage risk while still making investments for the purpose of driving increase shareholder value over the long-term. All of these imperatives will lead to increase market share and drive Signet toward maximizing strong sustainable profit level.

Our biggest competitive strength, however, is our experienced, well-trained motivated team members. Our U.S. executives including Mark Light will tell you much more about that in just a few minutes.

For the moment, I just want to impress upon you that having an unparalleled team of people like we have at Signet does not happen by accident and we’ve develop sector leading training methodologies and systems to support our store teams and our field manager.

We do everything we can to help them succeed and when they succeed, Signet succeeds, because our customers come away with the product knowledge they desire, as well as a unique feeling of satisfaction and personal engagement. This converts them into long-term customers loyal to both our store and merchandise brand.

Speaking of brands, the strategy of branding in the mid-markets specialty jewelry category is still relatively new but that branding train has left the station and here at Signet, we are driving the train. Consumers want a reason to buy. They desire innovation, newness, something that makes a statement.

Brands work to satisfy that desire. Accordingly, the team here at Signet has successfully developed necessary skills and using our many synergistic competitive strengths have set about creating and developing powerful portfolio of merchandise brands to complement the established strengths of our Kay and Jared store brands. This is an important competitive strength that Mark and his team are diligently constructing.

While we do consider customers and store experience to be at the top of our list of strengths and the development of differentiated brands to be an exciting new opportunity. There were many other competitive strengths in play. They include strong customer awareness driven by our ability to be highly visible on national television; the quality advertising campaign; the quality and the superior locations of our stores; our leadership in supply chain management; our growing use of sales-enhancing technology; and within the United States market, our in-house customer financing capability.

You’ll be hearing a lot more about these dynamic competitive strengths from the team as the morning progresses. As I alluded to earlier, continuous improvement is engrained in our company’s culture. It’s in our DNA.

When I joined Signet, two years ago, a major opportunity that we quickly identified was the internet and the digital environment in general. We made the digital universe a priority for investment because we believe then as we do now that our company in ways no other could match has the unique opportunity to become best in class in the digital environment within our sector.

That confidence, that belief only continues to grow. We recruited appropriate management talent and set aggressive goals for the team to lead us in achieving this objective of being the industry’s electronic best-in-class.

As expected, Mark and his team are now well on the way to delivering and today you’ll hear a great deal more about this exciting initiative. What has been very exciting about this ecommerce project is that it’s building on the many long established strengths of the business.

For example, we have an exceptional central customer service operation that supports our stores and credit function and now they are supporting our digital medial initiative as well. This overarching digital initiative is part of our plan to invest and reinvest in our industry-leading business.

Now, let me further address future investments that we’re going to be making to drive shareholder value. We’re committing $155 million to $165 million towards capital expenditures this year.

With this investment, we will take steps to increase productivity within our existing store space. Build new stores as customer shopping patterns evolve and quality space and sought-after markets becomes available, and invest in sales enhancing digital technology and information technology infrastructure.

In addition, we’ll support new initiatives that drive our core business model and will continue to be open to new opportunities for growth wherever we may find. We are only interested in opportunities that meet our strict criteria for financial returns and the strength in our company for the future without distracting our management from our current successful initiatives.

Finally, we will utilize any remaining cash flow to enhance shareholder value through appropriate methods such as share repurchases or dividends as we've done already this year. At Signet, our investment in people and systems has led to a proven record of identifying trends early and responding rapidly.

We’re able to execute to the latest trend rather than a plan conceived in the past. Over the last four years, during a volatile economic environment we've demonstrated an ability to react quickly and effectively when necessary to manage both expenses and assets in order to thoughtfully reinvest in the business and to drive store sales increasing operating margins and enhance our competitive strengths.

Measure about to see in here in detail, we’ll continue to innovate and execute our strategies for the purpose of driving additional profitable market share gains in the future. To sum this up, with sustainable competitive strengths, Signet is the clear leader in the U.S. jewelry market, one that is very fragmented, which provides even greater opportunity to gain profitable market share.

Signet is also a leader in the U.K. market and although our international operations are small in the context of the business as a whole, we have a record of exceptional financial performance, a strong balance sheet, a history of disciplined investments to grow the business, and we've established the policy for driving shareholder value.

Before I hand the proceedings over to Mark and his team, I would also like to give a brief overview of the U.K. division, which also continues to make great progress in a tough economic climate. Signet is the clear market leader in the U.K. As such, we view our U.K. division as a valuable and strategic asset.

Of our two leading U.K. store brands, H. Samuel accounts for a little over half of the division sales and targets the mid-market consumer while Ernest Jones targets the upper mid-market consumer. The merchandise mix of U.K. division is culturally different than that in the U.S.

Watches actually leave the category mix followed closely by diamonds. The business is well positioned and has performed well in a challenging environment and had a 7.8% operating margin last year. That is a performance that many U.K. companies will love to have but frankly we believe we can perform even better in that market.

Therefore during our second quarter earnings call, we set our objective at achieving a 10% plus operating margin by fiscal 2015. This objective is based on an in-depth review and evaluation of the U.K. business and the market in which we operate. It builds on our market leadership and recognizes that the U.K. marketplace is likely to remain a challenging market.

In driving toward this multiyear goal, there were three major steps that we played out. First, we must continue to invest in developing innovative new merchandise programs, new product within our branded and non-branded merchandise continues to be a major factor on our road to success.

Second, we're optimizing our real estate to reflect the changing shopping patterns of our customers. For example, there's been a shift toward major regional mall and away from smaller town high streets, a similar shift took place in the U.S. a number of years ago.

As we work to optimize our real estate, we will also rationalize older, underperforming sites but in selected major centers that I’ve talked about we’re expanding our store space to enable us to provide a greater in-store experience.

For both H. Samuel and Ernest Jones, we’re also implementing new store designs which have been successfully tested over the last 18 months. We expect that by fiscal 2015, we will have a smaller but much more productive footprint of stores in our U.K. market.

Finally, the operating structure, primarily central costs are being aligned to the sales base, generating further cost savings in the U.K. This represents the third element in our program to reach our 10% plus operating margin goal.

Now, let’s take a closer look at the new store designs and improve brand differentiation. With H. Samuel, we created more contemporary fashion forward store environment. We think these new superstores look amazing and their overall performance has been outstanding.

The new environments offer sales enhancing in-store technology, including touchscreens that provide access to the H. Samuel website and tablets as a selling aide for the associates. You’re going to hear a lot more about that on the U.S. side as well in just a little while.

Other features include the use of products that counters allowing greater opportunity for side-by-side selling with our customers. There is also a much greater prominence for branded jewelry, such as Guess?, DKNY and a wonder window with a 55 inch video screen offering significant opportunity to display dynamic marketing messages.

In addition, there is an improved presentation of the diamond and bridal selections inside H Samuel, with a clearly defined area within the store, one that's more suitable for considered transaction, such as selecting an engagement ring. Our customers have responded very positively to this new feature as well as the others.

The store’s bridal selection is led by the Forever Diamond, which significantly improve the in-store presentation with new point-of-sale materials and packaging for this brand, which is exclusive to H. Samuel. Another major launch for this Christmas is that Together brand, these pieces bond the precious metals of gold and silver to create beautiful, affordable jewelry and like the Forever Diamond, Together is exclusive to H. Samuel and it has tested extremely well.

For Ernest Jones, the new store design is more luxurious. This approach reflects the merchandise selection with luxury brands prominently displayed in the windows and in-store. We’ve increased consultation areas and created in-store boutiques as well, leading to a more conducive environment for selling prestige watches and jewelry.

As you can see these shop-in-shop for TAG Heuer and Omega give the store a much stronger brand centric presence. For those customers looking for iconic fashion brands, we’re working with Gucci, as well as other fashion brands to create branded boutiques that can feature both watches and jewelry.

We are also increasing the prominence of Le Vian building on the successful introduction into the U.K. market, where it is exclusive to Ernest Jones. And in select locations, we’re partnering with prestige watch companies to create in-line boutiques dedicated to the brand.

The bridal assortment at Ernest Jones is led by the Leo and Tolkowsky diamonds. We’re also in the process of testing the Neil Lane bridal selection. Of course, these exceptional merchandise selections are all exclusive to Ernest Jones and we’re very excited about the opportunity to continue driving these important brands to maximize sale.

Both Leo and Tolkowsky have already been successful for us in the U.K. and based on the U.S. rollout, we believe that Neil Lane bridal will be a real winner in the market to. And finally, from our physical real estate, we turn to our virtual estate. Along with our brick-and-mortar stores, we also continue to upgrade and enhance our online capabilities in the U.K.

For example, the merchandise range on both H. Samuel and Ernest Jones website has been expanded and the design of the Ernest Jones website has been refreshed. These upgrades reflect the positioning of H. Samuel and Ernest Jones as the top two jewelry websites in the U.K.

In conclusion, the many competitive strengths, I’ve talked about today, terrific merchandise assortments, the evolution of our stores and our initiatives in the digital environment. These are all reasons why we believe that we’ll continue to build on our market-leading position.

At this time, I'd like to turn it over to Mark Light, our Chief Executive Officer of Signet U.S. division to take over.

Mark Light

Good morning. Thank you, Mike. I must say I’m very excited to share with all of you this Signet U.S. difference is the dimension of our business that at the end of each day truly sets us apart from our jewelry competitors.

This reality is none -- this reality is none of our initiatives, things about our people embracing them and bringing them to life for our customers. This reality, this difference is like each strategic decision we consider comes down to how we positively affect our people and enable them to better serve our customers.

And within that process, we’re continuously striving to better understand our customers. That way we can better train our team members and more completely empower them to execute. Our great merchandise programs are fantastic marketing, our wonderful stores, our carefully constructed customer finance programs and a significant investment technology are all with very little without our people.

We are driven by our customers and the most effective ways we could help our people give them an outstanding experience. Many retails do not operate this way. In fact, many retailers who make sudden or radical changes to the business plan often falter for one reason. They did not consider how those changes would affect the mindset and the performance of their people and the customers with whom they developed their relationships.

But Signet is a people company that sells jewelry. Our success is by design because that role to the success always is back to our people and our customers. First, we invest in fact key members and then in training to ensure their continuous improvement. From there, we invest in our stores and our customers with initiatives that touch every part of our business and then we voice that motivate our people to brilliantly execute those initiatives.

This way of doing things has continued to yield dramatic sales, profit and market share results. It’s why this year for the first time ever, Signet became the largest in retail jewelry sales in the entire United States is ranked by National Jeweler. It’s also how we’ve firmly grown and are the number one in the $29 billion specialty jewelry sector with a market share of 10.4%, which by the way is almost double that of the next largest mid-market operator.

And it is why we have the ability to build brand equity for our Kay and Jared stores to great new merchandise brands and to drive further gains and profitable market share through our marketing investment.

It is because of our team’s unparalleled excellence and execution that we have a record and a reputation of being a leading innovator within the jewelry sector. Examples of this innovation include the creation of the Jared concept, which is now the fourth largest specialty jewelry retail brand in America.

Our leading roll in creating merchandise brands within the mid-market jewelry sector like the Leo Diamond, Neil Lane Bridal, Open Hearts by Jane Seymour and the Tolkowsky Diamond, their investment in sales enhancing, digital technology both online and in-store, our team superior execution is why we are achieving record operating margin. It’s also why we are confident it will continue to improve those margins by driving same-store sales, increasing store productivity and further leveraging our expense base.

This foundational human commitment and passion for excellence is what makes Signet the leader in the U.S. marketplace, not just in terms of sales and financial performance but also in merchandise, marketing, customer finance, IT systems and operating procedures.

We combine all these elements. Signet has a business model that we believe is very difficult to replicate. It is also results in a strong balance sheet that gives us the power to invest and reinvest in our business and drive it forward like no other jewelry company can.

I’d like to now update you on some of those investments of our latest key operational initiatives. They are design to help take us to the next phase of continuous improvement and the next level of success.

First, our initiatives that directly support our greatest competitive advantage, our team members, we make it a point to take care of our people. We invest in our 17,000 team members on an ongoing basis. Those investments are in the form of training, career advancement and other areas.

Our unparalleled training programs form a major part of our career advancement efforts. We are continuously enhancing them from a proprietary selling system to our going through development schools, to the in-depth semesters at our annual managers meeting no one trade like Signet. This is our most important mission and Tryna Kochanek will expand on these individual programs in her presentation later this morning.

And central to our success as it relates to training and career advancement is our commitment to promotion from within. Just over the last 18 months more than 1600 team members received promotion. Those promotions range from Assistance Store Manager to Chief Operating Officer. Again, we make it a point to take care of our people.

Next, I'd like to highlight some of our latest merchandising initiatives, the products our people sale and bond with our customers over. We support our customer’s belief and the emotional importance of jewelry by continuously working to provide them with quality merchandise offerings and we do in ways that dramatically differentiate our company.

For example, Mike told you that Signet continues to build its branded, differentiated and exclusive merchandise assortments. Well, today total sales of our branded merchandise are steadily growing and we are not letting up. Along with expanding our existing brands we are testing and rolling out dynamic new brands, you’ll learn more about these programs from Ed Hrabak in a few minutes.

But for now, keep in mind, that our differentiated brands offers our customers recognize that our competitors do not and cannot. They also give our team members more opportunities to drive incremental sales and maximize the quality of each customer experience.

We are able to accomplish this because strong brand allow for the creation of stories and powerful emotions for our customers, stories and emotions that are related via the exceptional marketing programs.

This year we again have some superb new advertising. Its effectiveness is based on a thorough understanding of our customer. George will give you some fascinating details about it later in his presentation.

Additionally, giving our customers emotional reasons seek out our merchandise beginning to share we are also giving them greater access to it both physically and virtually.

First, the physical side, this year we are opening more new stores and remodeling more existing locations than we have since 2008. A real estate plans call for the opening of up to 48 new stores by the end of the year. Eight Kay mall, 23 Kay Off-Mall, 10 Kay Outlets and seven Jared locations, and we are planning to open between 60 and 70 more new stores in fiscal 2014.

With Signet’s strong balance sheet, there is potential to substantially increase our Kay and Jared base even more in the long-term. We see opportunities for total of approximately 880 Kay Mall stores, 400 Kay Off-Mall locations, 150 Kay Outlet locations and 300 Jared locations.

We believe it is very important for our stores reflect our position as a market leader and so our relocation, expansion as store remodel investments, the last which is primarily driven by our least renewals involves over 80 stores across the U.S. division.

Our revitalized real estate initiative gives our customers improve physical access to our merchandise assortments, but our strategic vision addresses giving customers better access from a virtual perspective also. Earlier Mike touched on our commitment to pursuing state-of-the-art technology across our entire organization. It's a commitment that helps our team to deliver even greater results.

For example and most obviously, the designs of our e-commerce webpages have been significantly improved and so is their underlying technology. Again, George will tell you more about this later, but it’s important to keep in mind that e-commerce not only drive online sales, it also continue to drive more traffic into our stores.

Our research shows that customers still value the store experience and the human connection, and so we marry the e-commerce experience with the store experience.

For example, we do this with our social media presence and messaging led by Jared and Kay on Twitter and on Facebook. Our Kay’s Facebook likes exploded following the pages January launch. They grew so fast that Facebook asked us to participate in the case study documenting our integrated promotional strategies and direct communication with consumer.

We are achieving very high levels of engagement in our social media activities and moving forward we are continuing to assess even more social media opportunities. Again, Georgia will cover this in our social media strategy in his presentation.

Another way we are marrying e-commerce in the store experience is with our new CASSi tablets. CASSi stands for Customer Assisted Selling System intelligence, which is rolling out to all of our Kay and Jared stores as we speak and to our regional brand stores next year.

CASSi offers our store teams and customers immediate access to our virtual inventory of merchandise, ability to easily create personalized jewelry items and the tools to enhance the customer experience, and within days all of our CASSi features will be augmented by our updated J, excuse me, Kay and Jared website rollout.

Technology has also improved our in-store repair and design centers as important drivers of traffic and enhance customer confidence. Having new streamlined repair processes within Signet is a groundbreaking advancement that further differentiates us from our competitors.

Specifically, we have introduced a new Repair Shop Quality Control System. We believe that this state-of-the-art tool is the first of its kind and it will redefine our repair quality is assessed for years to come. We also rolled out a custom-designed engraving capability to all of our Jared shops this past July.

Lastly, in the IT universe, we have introduced a program called Matrix Plus. With Metrix Plus each store manager now has a capability to better organize and control their daily labor utilization. As a result, they drive store productivity higher, improve efficiencies and increase sales.

Finally, let’s switch gears to another vital aspect of our business. Our company also continues to make major advancements in the area of supply chain management. In June, Signet became a Select Diamontaire with Rio Tinto, one of the world's leading diamond miners.

This exciting partnership now gives our company direct access to rough diamonds. This is a significant statement of strategic intent rather than a short-term initiative. Ed will talk a little bit more about this supply chain initiative in a few minutes.

Each of the initiatives that I’ve highlighted during the past several minutes illustrates how driven our company is to maintaining the best equipped, most intelligent, most engage and most enthusiastic team members in all of jewelry retailers.

At the core all of our initiatives should over -- one overarching goal, there are in place to help our team members succeed and delighting our customers with a superior experience, so that Signet can grow even stronger and become more profitable and build a foundation for our future success.

One measure of this success is customer satisfaction. We relentlessly measure customer satisfaction on a store by store basis and I’m existed to tell you that our customer satisfaction scores are currently at record high levels. This exceptional customer service drove our record-breaking sales, profit and market share performance.

We are all well-positioned to continue to break our own records well into the future with our proven strategy, our initiatives and within the absolute best jewelry team in the business, we believe actually in all of retail.

People our Signet jeweler's greatest asset and they are the Signet U.S. difference. The people presenting today are among the leaders of our company. Our people are the key dimension of Signet’s strategic vision and together we must and we will continue to increase to drive that can deliver continuous improvement within ourselves and within our teams to always be better than the best, to always look forward and upward to the next level of industry-leading excellence. Ladies and gentlemen, Signet is the unparalleled jewelry industry leader and I can tell you right now we are just getting started.

Thank you very much and we will take a brief coffee break and resume at 10:40. Thank you.


Ed Hrabak

Thank you. Welcome back. I’m Ed Hrabak, and I’m here to kick-off the reminder of this morning’s presentation. Earlier, both Mike and Mark highlighted the growing importance of branding merchandise in the jewelry sector and also that this branding efforts are in early stage of development, this also happen to be a very timely development.

Customers are placing a great deal of importance and value on the jewelry and their collection. For example, an Open Hearts by Jane Seymour, a Neil Lane Bridal ring or our Tolkowsky Diamond pieces that have a message, story or feature accompanying them.

It’s clear that brands make an easier for customers to share their experiences with others, particularly using social media, plus more and more frequently customers are researching their perspective purchases online.

Estimates indicate as many as eight out of 10 customers browse, inquire and question online before they come into our stores, they rely more heavily on their peers, they trust online rating and reviews to learn more about the quality of a product or brand, and lastly, these product brands help differentiate Kay and Jared, and position them as the preferred store brands.

For more than a decades Signet has built a powerful portfolio of merchandise brand with strong features and benefits delight our customers. Our goal is to build long-term brand equity. So it’s very important to continue developing our existing brands, keeping the track -- collection fresh and relevant, and in turn sustainable.

Further, we continuously seek to develop where appropriate new branded and differentiated products. Signet is a proven record of success in developing new exclusive collections, supported by our research and deep understanding of our consumer needs, our superior supply chain and supplier relationship, our test before reinvest philosophy, our marketing expertise and expenditures, our technology and system support, and our superior people and sales training program.

I'd now like to go through some of the initiatives we have underway that will forward us the ability to offer newness and differentiation to our customers this holiday season. Now our branding efforts actually began with -- at the turn of this century, the year 2000 with introduction of the Leo Diamond, which remains one of our strongest brands.

The initial rollout of Leo consist of approximately 12 SKUs focused on round and princess cut loose diamonds and solitaire engagement rings, that core assortment has been expanded in two weeks since initial rollout and of course, has been all Jared and mall stores for some time.

The most recent expansion to the singular line has been focused on a category of one and two piece fashion bridal ring. At present, we have an assortment ranging from five to 17 pieces and 800 stores ranging in price from $2,599 to over $9,000.

Here is another example, charms and beads continue to be solid performers in both our mall, store and Jared division. Our exclusive Charmed Memories program almost -- in almost stores have recently received 20 to 60 charms including family, sport, textured glitter and tattoo patterns, as well as new creations in Swarovski Crystal, Murano Glass and a very popular, HELLO KITTY.

All Jared stores received a total of 64 new Pandora charms this fall featuring the autumn, their theme autumn and winter collection, Autumn’s Tale, Starry Nights and Love Story, and of course, we will be supporting both Charmed Memories and Pandora brand with television advertising this holiday season.

Let’s turn now to the Open Hearts by Jane Seymour, which was first introduced in the fall of 2008, every year we introduce new styles and every year people come back to add to their collections, and this year is no different.

We are adding a new collection called Open Heart Family inspired by Jane’s book of the same name. We are featuring new Open Heart pendant and each one represents a special family connection, like this pendant representing mother and child. There are also these family pieces, where Open Heats are join together form a unique pattern that represent the special bond we have with the once we cherish.

Since 2001 we also had great success in partnering with Le Vian, most recently with programs such as Chocolate Diamonds, other Le Vian programs include Strawberry Gold, Raspberry Rhodolite, Honey Gold and Chocolate Quartz, all of them continue to be customer favorite.

We continue to grow Le Vian collection this holiday season offering great options for the loyal Le Vian collector. Our recent additions feature larger chocolate center diamonds, as well as an expansion of the Gladiator sales.

We also continue to expand our Tolkowsky Diamond range as well. Our Tolkowsky Ideal Cut Solitaire program is now in over 900 mall stores with remainder of our mall locations being added by spring of 2013.

We are also be launching a unique range of Tolkowsky Ideal Cut Loose Diamonds in both round and princess shapes to all Jared stores this fall. This holiday season in addition to expanding the Tolkowsky Solitaire and Loose Diamond programs, we will continue to expand the Tolkowsky Bridal set assortment. In October, Tolkowsky Bridal will be in 550 mall stores and we are continue to testing and expanding exciting new styles as well.

Here is something else that’s hot, colored diamond. We tested the Artistry Blue Diamond fashion collection earlier this year and expanded to additional stores in July. Following outstanding sales results the Blue Diamond collection has been rollout to all mall and Jared stores this fall. The new Artistry blue diamond collection includes fashion necklaces, earrings, rings and bracelets, all accented with blue and white diamonds.

Price points range from $149 to $749. Styling ranges from classic frame looks to beautiful blue diamonds fashion with its worth. Silver is more popular than ever as a fashion choice. It’s adaptable and affordable. Silver is a trend that is not going away and it really lends itself to very intricate jewelry design such as those being created by designer Lois Hill.

Lois travels the world looking for inspiration for her sterling silver jewelry and she discovers that whether she is observing ancient ruin, examining a 17th century bracelet in a museum or stopping to study woven basket in an open air market in Africa.

The Lois Hill collection is handmade by skilled artisans and features beautiful handcarved jewelry pattern, textile weave and ornate jewelry work. We tested Lois Hill collection of silver jewelry collection in Jared and sales exceeded our expectations.

Now, we have partnered with Lois Hill to make Jared, the exclusive specialty retailer jewelry chain for her design. As a result, the Lois Hill designer, her silver line is being expanded to all Jared stores this fall.

This beautiful line ranges in price from only $99 to $599. We are confident this well tested new promo will be very well received by our customers this holiday season. We’ve also been working with Rio Tinto, one of the largest diamond miners in the world along with selected jewelry manufacturers to create an exciting new and exclusive shades of wonder line, utilizing rare, natural colored diamonds originating in Australia.

We tested this program this past January in both mall and Jared stores and rolled out to more stores in July. Later this month, Shades of Wonder will be in 1100 stores. Every piece is literally one-of-a-kind as no two pieces may feature the exact same shade. From shades of dark champagne to deep rich brown complemented by beautiful white diamonds. This exclusive collection is right on trend and offers price points from $99 to $1700.

As you are aware, we begin our partnership with Neil Lane jewelry designer that starts back in spring of 2010 with the launch of bridal engagement ring collection. Since that time, the Neil Lane collection has rapidly become one of our strongest jewelry brand. Neil has demonstrated unique ability to design and appeal to the red carpet as well as the Kay and Jared customer.

Over the last two years, we have continued to expand this fabulous collection to all mall in Jared location while continuing to introduce fresh new design. Now, here are just two of the new Neil Lane bridal designs that we will be featuring this holiday season?

First a beautiful, 1 1/5 carat flourence by bridal set with an over center stone priced at $6300. Next, 1 1/8 carat bridal set with a princess-cut center stone priced at $4000. Both pieces showcase Neil’s intricate vintage inspiration and offer tremendous value to the consumer.

A major new initiative this year is the development of Neil Lane design, an exclusive collection of diamond fashion rings, necklaces and earrings to complement the bridal assortment. It’s inspired by Neil’s tour line that you’ve seen worn by Hollywood’s biggest celebrity.

We tested this collection in April and backed it with extensive consumer research that confirms just how strong this concept is. Consumers appreciate the value of the link between renowned designer like Neil Lane and a collection like Leo, Neil Lane designs.

This collection was rolled out to all Kay and Jared stores just two weeks ago and ranges in price from $520 to $2500. Examples of this new collection include this intricate 1/5 carat diamond heart necklace and is delicate pearl drop necklace with 1/5 carat of diamonds.

Additionally, we have this diamond floral band and is intricate after diamond band with a leaf and wine motives set in real gold. And finally the perfect complement to our Neil Lane bridal links are these bridal inspired pieces including this stunning half carat pear-shaped diamond drop necklace and a matching three-quarter carat total weight pear-shaped earring.

Now, let's move to the topic of technology and personalized jewelry. As you will hear from George Murray in a moment, we are about to launch new websites for both Kay and Jared, offering merchandise selection 10 times that of a typical mall store. This greatly expanded range is achieved by using virtual inventory that is held by vendors and not by us.

In other words, our vendors are acting as our [cloud]. Through our technology of investments, this greatly expanded range of merchandise will also be available to our customers whether they are shopping online or in our stores.

Now what happens, if we do not happen to have the items that a customer wants in the store, no problem. Our sales team member can immediately go online with them using the customer friendly, CASSi system, which Mark mentioned earlier and which we really demonstrated in-depth during our store visit.

With the new website and our in-store digital investment, this holiday we can provide our customers with an unbelievable merchandising selection in-store within second. One thing we’ve learned about our customers is that they place a great deal of importance and value on their jewelry. They have a personal connection with them. Personalized or customized jewelry can be as simple as engraving or as advanced as actually designing of customers very own unique piece.

Our customer Kay and customer Jared program gives our customers the benefit of starting with professional design and then they offer them quick and easy options with gemstone, metal type and color choices to add their own personal touch. You'll see a demonstration of this custom program later today during our store tour.

This program was initially launched last fall and has continued to grow rapidly. With the advent of our CASSi technology, this will be an even stronger tool in assisting customers who are looking for a truly personal for customized fees.

Let’s talk a little bit more diamonds. Mark spoke earlier about our strategic initiative to strengthen our supply chain by becoming a Rio Tinto Select Diamontaire. Signet is continuing to grow and so is the demand for diamond jewelry on a worldwide basis.

At the same time, the supply of rough diamonds remains constrained. With all of these changes taking place, we believe it is an imperative for us to continue to strengthen our supply chain. For those of you unfamiliar with the diamond supply chain, let me explain a little more of what is more fully is involved.

The major diamond mining companies partner with selected businesses to sell rough diamond. In return for our long-term commitment to buy rough diamonds, these entities gain preferential accent. Manufacturers then cut and polish the rough diamonds or trade them with other party.

Polished diamonds are then treated or used in the manufacture of jewelry. The jewelry is then sold to retailers either directly or through wholesalers. In the U.S. market, Signet typically buys 45% to 50% of its diamond requirements as loose polished diamonds and then has the stones set into the jewelry.

We believe we are the largest buyer of polished diamond on the planet. So it is important was us to be able to obtain the quantity and quality of the diamonds that we need on a consistent basis. We believe this purchasing power gives us a competitive strength and the ability to do so.

To enhance this competitive strength, we have started to source rough diamonds directly from Rio Tinto and others and in turn to cut and polish the stones on a subcontract basis. This is a strategic initiative and while not currently material, our ultimate objective is to secure additional, reliable, consistent supplies for our customers and achieve further efficiencies in our supply chain.

In conclusion, ladies and gentlemen, our experienced systems and scales that company enable us to execute in a superior manner. We continue to develop processes that are build on a competitive strengths in merchandising, supply chain and inventory management.

Our test before we invest philosophy in our ability to make well-informed decision based on research mean we’ll continue to lead the market in presenting customers with merchandise that will delight them, not just once but over and over again. We believe these advantages have enabled Signet to establish merchandising leadership within our marketplace and to achieve proper market share growth consistently over time.

Thank you very much for your attention this morning. I will now hand the presentation over to George Murray.

George Murray

Thank you, Ed and good morning everyone. I’m George Murray and it’s my pleasure to speak to you today about Signet’s marketing initiative. In fiscal 2012, we invested $188 million, or 6% of U.S. sales in marketing our store and merchandise brands.

Our test before we invest culture, we used to drive sustainable customer centric competitive strengths through our marketing but the fact is communicating with customers has never been more important as stewards of our brands we have to provide multiple touch points in our stores through websites, on social media and mobile devices, be a credit, repair, extended service plans, warranties, gift cards, catalogs, mailings, phone calls, email, to put it simply, today’s customers expects to be reached in the way that’s most convenient for them.

With this top of mind, we begin our marketing efforts with a deep understanding of our customer’s wants and needs. We gain these critical insights through primary research as well as gaining leverage from our superior data mining techniques on our proprietary customer databases and from on-trend insights.

We drive these customer insights across the entire company to create sustainable competitive advantages in all of our core competencies from training to advertising, e-commerce to social media to product brand positioning. In this way, we ensure that the voice of the customer is heard throughout every dimension of our business.

Our customer relations, marketing activities leverage a proprietary data base of over 25 million jewelry purchasers. This resource is utilized to create predictive behavioral models that allow us to develop highly targeted and effective offers creating customer loyalty and higher lifetime value.

For example, as Ed described earlier, we continue to expand our bridal offerings to appeal to a very diverse taste of our bridal customer. Our proprietary bridal research has helped to guide both our product offerings and in-store training around the emotional needs and barriers of the bridal customer.

In the United States, over 2 million weddings take place each year. In other words, it's clear the bridal category is not going away. We estimate that this market is worth over a $11 billion in annual sales. Therefore it represents a significant opportunity for further growth.

Our research has also given us insights in the customer’s emotional triggers during the engagement process. This serves as the basis for some of our bridal creative development.

Throughout the years of study, we have consistently seen a direct correlation between our advertising investment and our sales growth. We see that advertising is a key component of driving our increasing share market.

I'm sure you're all aware that every Kay Jewelers TV spot end through the tagline every kiss begins with Kay. And every Jared TV spot include multiple statements of he went to Jared. Utilizing these guidelines with research tells us have become part of the American vernacular, television remains the most influential media in building our brand awareness.

We know this because our Kay and Jared customers tell us in market research that they attribute the major source of awareness of our brands to television. These results speak directly to our ability to tell compelling and motivating stories to National TV Advertising.

This allows us to effectively build persuasive awareness for both of our national store brands, Kay and Jared. Our industry leading share of voice is up as well. The resulting increase in reach in frequency for our advertising has accelerated the building of our brands awareness.

For example, with Kay as the number one jewelry store in America. This awareness in turn drives customer traffic into our stores. Building on the success, we are increasing our television impressions again this fall for both Kay and Jared and what are those compelling and motivating stories, I spoke about a minute ago. Well, we have created a number of new commercials this year to engage our customers during the holiday season.

Let me share with you three examples of how we’re using TV advertising to drive our market leadership even farther in 2012. This past Mother's Day we added this Jared TV ad which uses humor and he went to Jared referential power, the spot is called inflate announcer. Please take a look.


For this holiday season, we are taking our very successful he went to Jared campaign and evolving it to explain exactly why he went to Jared. This new spot gives the Jared store a personality of its own. Our testing indicates that the commercial will help customers understand why our customer an ordinary guy named Mike went to Jared. Testing also shows that it does a very strong job of creating visual intent and purchase intent for our Jared stores.

Here is new spot which we call helping Mike.


The third TV commercial I want to share with you is a sneak peek at another new spot designed to build store brand preference this time for Kay. It’s clearly an ad that no other retailer could possibly pull off. This spot is called answers.


We’re very excited these spots along with several other commercials in our new campaign will be featured this holiday season on network television. We buy our advertising time in the upfronts, which gives us better ad placements and rates.

We’ve also developed competitive advantages with our strong network relationships. These relationships lead to proprietary sponsorships and product integration like those with the NFL network, the SEC Championship Kay Diamond moment on CBS, ABC’s Neil Lane Bachelor Vengeance and the lighting of the Christmas tree at Rockefeller Center on NBC.

The Christmas tree lighting also features a wedding proposal during which Kay plays a key role. There is a look at some of these programming and product integrations that are hoping Signet brands become part of the fabric of the jewelry buyer’s life.


The TV ads and product integrations you just saw are all designed to build brand equity for our store concepts. Our ability to make a major investment in TV advertising also enables us to be successful in creating and building merchandising brands.

In a way, no one else in the jewelry category camp. We know from our research that are customers respond to new and innovative merchandising and branding. Q2 television is the customer’s number one source for new product information. Let me be clear about what effective branding means, new products with clever names are not brands.

To be a brand, customers must first be aware of the product and there must be a compelling story or reason that resonates with the customer so that they ask for or desire this product. Signets, market leading share of voice on television enable us to achieve this all important step. It allows us to build this product brands under the success of every kiss begins with Kay and he went to Jared campaigns and thus drives sustainable long-term profitable growth.

In our advertising, we are continuously following our customer’s leads, which brings us to our efforts in the digital ecosystem. Last year, I described to you our initial step towards our goal to become Best-in-Class in all aspects of the digital eco-system. I’m happy to report that year-to-date through the second quarter, e-commerce sale were up 40%. While e-commerce sale are important, they are only one aspect of our investment.

For some time now, we’ve been in the process of penetrating our messages get into digital environment. For instance, we leverage our television, media device and production expenditures with online streaming video placing our TV spots within premier content sites. In fact, this holiday season we’re increasing online impressions by 50%.

Next, because our efforts on our website rankings had significantly improved over the last year. This increase was documented in the 2012 edition of Internet Retailer where we jumped from the ranking of number 10 in the jewelry category to number five. And we aim to drive this ranking even higher but its time we launch our updated websites.

As you’ve already learnt in the past few days, we will be launching the newest generation of our e-commerce websites for both These transformational side updates are driven by the voice of the customer and they will greatly increase volume capability and scalability. Our new websites also have much improved mobile capabilities and this includes the key function ability to complete online mobile transactions.

Let's examine our new slides more closely, they’re loaded with new features and make use of the very latest website best practices. In particular, I would like to focus on some very distinctive new capabilities, which benefit our customers.

Our advance design features includes simplified and optimized navigation. The new navigation presents jewelry to customers based on way they want to search, either visually or by product type or brand.

We also enhanced our search capability with a type ahead function that helps customers find what they’re looking for more quickly. There are two more major improvements. Now, a customer can view contextual credit availability that clearly indicates proposed monthly payments for each merchandise selection, he or she is considering. And we have dramatically increased the selection of available merchandise thousands of products have been added to our online assortment.

Let me put at in prospective. It’s like taking the average mall store and expanding its inventory 10 times and because our new websites are tied to our in-store tablets and screens to be a CASSi, it dramatically increase the merchandises assortment available to our in-store customer and sales associates within seconds. With our improved technology, we are better able to manage content on

This control enhances the effectiveness of the promotions we offer online, which in turn brings customers to our stores. And by using advanced analytics, we can measure the quality of the customer experience more completely?

We than take that more detail feedback and better identify opportunities to improve the customer shopping and educational experiences.

Picking a feedback, our customers ratings and reviews our linked between our website and social media platforms. Customers can read what other people have written about the jewelry they’re interested in, in our Facebook pages as well as on our websites.

And on our websites, we make it easier for them to share and discuss their favorite products with buttons that connect not only with Facebook and Twitter but also with a number of other social media platform such as Pinterest and Google Plus. It’s very important to number that our website are not just about browsing and buying merchandise.

They’re about building a long-term relationship with our customer and empowering them to interact with us in the way they want. While our websites are important, there are only one aspects of our investment in the digital ecosystem. That’s why a key digital milestone for Signet in 2012 was the launch of social media presences, for both Kay and Jared on Facebook and Twitter.

In social media, our strategy is all about engagement because we believe that’s with social media users want. Our vision is to develop relationships with consumers to build loyalty and foster brand advocates, with relevant forms for engagement. Social media is best used to engage with the community. In other words to allow communication on more personal one-to-one basis, this is very different from the one way communication generated by a TV ad, print ad, website or an article.

Social media engage is meaningful to way communication by encouraging and maintaining user generated content such as stories, photos and videos and by interacting with the customers if you question and answer and educational support. Ultimately, social media is all about talking with customers not at customers.

Throughout our research driven marketing initiatives, we have taken steps to wherever our customers wants us to be whether it’s on TV, on the internet, social media, in their mail box or at their favorite shopping mall.

And most importantly, in each one of these venues our customers can clearly see that we are offering them the jewelry, the shopping experience they desire to have. Of course, the proof is in the sales results and in the customer feedback.

Earlier Mark mentioned our record-breaking customer satisfaction index. We have had over 2 million jewelry purchasers talk to us about their guest experience, their likelihood to visit our stores again and their likelihood to recommend our stores to someone else who is important to them.

We are proud that in 2012 all of these scores are all-time highs. After all said and heard and seen this is the most effective marketing message Signet can have working to drive future sales.

Now please welcome Tryna Kochanek, our Senior Vice President of Field Operations.

Tryna Kochanek

Thanks George. Good morning, everyone. So why is Signet different? We’ve heard and seen a great deal of proof from our financial performance, evidence of our enthusiasm and passion compelling arguments about why our long-term success is by design.

But let’s finish this morning by actually asking and answering the question, why are we different? As Mark described, our people make the difference in creating the superior customer experience. But what that’s really mean? Why is the superior customer experience more than just being attentive or nice, or what need to think about it? Let’s about the jewelry store environment for a moment, fixture, a jeweler store, ionic in your mind every single piece of jewelry is in a display case, under locking key and requires personalized service. That means by design a Signet team member represents the final two pieces of supply chain with the customer. There is a lot that can transpire within that two pieces, even before their eye contact made or word even spoken.

For example, we know that many customers have trepidation when purchasing jewelry, especially if its engagement ring, that apprehension, that anxiety, it makes mission critical that we have knowledgeable sales associates that actively listen to the customers need, meaningfully engage with that customer and educate them on the features and benefits of each piece of jewelry. We have those team members.

Our people are trained to watch and listen for those emotional triggers and connect with each customer. Our team is there to assist the customer in selecting the perfect piece of jewelry that is exactly right for them.

Ultimately, our team is committed to delivering a superior customer experience, one that Signet is known for and one that is a vital, vital part of our store branding. Our people is there for our customers, in that moment in the follow-up and when they come back to experience that unbeatably connection again and again.

Here is another example of specialized training that differentiates Signet from our competitors. Each store has at least one certified diamontologist on premise. This special certification is obtained from a non-profit organization the Diamond Council of America. This specialization is an additional tool we use to service our customers like no one else can.

Why are we different? We are performance driven with superior execution. And what does that mean? It means that we recruit, motivate and retain the most qualified people to delight our customers. To deliver that experience that I just described.

Every single store manager is trained to recruit candidates who are performance driven fit within our culture and have a willingness to continuously learn, and they have to want to exceed our customer’s expectation.

At Signet we are building lifelong careers for people. To that end, the retention of our well-trained team members is extremely critical. I’m also pleased to tell you that we believe that our team members in that -- are -- have a higher retention is a market and we are market-leading in our retail sector.

Once onboard with our company, our team member quickly realizes that we nationally advertise exclusive brands that allow them to connect with their customers through stories and emotion, through these emotions their jewelry guess helps the customers say exactly what they want to say to their recipient or to themselves. Our people help maximize the effect of that very special moment.

Next, we have proprietary standards that we use to monitor individual performance on a daily basis. This allows us to determine where training and/or coaching is needed, along with some recognition of exceptional performance. All of our team members promotions, annual reviews and incentives are performance based with emphasis on customer service.

This approach is paramount to our success and is faster throughout the company. We also have and you heard the term already this morning, a promotion within philosophy for our entire field organization.

Each of our 126 District Managers and 18 Vice Presidents including myself at one time have operated a Signet store. This is an extremely unique competitive advantage and it illustrates the depth and breath of the talent and experience within our team.

So why does that kind of training matter, what is the long-term gain or on a purely fundamental level its culturally motivating, it serves as a foundation for building a career. Another more impressive gain that is all of our training exceeded deeply within the organization, that’s because everyone begins learning about our brands, our products and our policies day one. So when an individual promoted to a District Manager, he or she is not starting to learn the basic of the company. By that moment the knowledge and the experience is embedded in their DNA.

Now, I’d like to expand on our training and how its part of our culture and metrics for continues improvement. To give you a stronger more immediate sense of our commitment to training, in the registration area, you will find the table that displays all of our training material.

We invite you to stop by and see it for yourself. What you’ll first notice? We do not purchase off the shelf training, all of our training is our, we own it, it’s developed 100% internally, and it’s based on our customer consumer research, employee needs analysis and our corporate initiative.

This completely organic process operates from the position that we’re not just training team members, we are training business managers and customer experts. This give Signet an additional competitive advantage and in return our managers earn an annual bonus, based on the bottom line profit of their location.

So why Signet different? At the end of the day, it's because of our culture building, fulfilling passionate, lasting careers through exceptional training and proven performance metrics. To create engaged team members, who genuinely work as a team to continuously improve. This is the most dynamic element of our success and it drives our record sales performance level. It’s an element no Signet competitor can match or even come close to match it.

I'm excited for all of you to witness our competitive strengths as you visit our stores this afternoon and thank you all very, very much for coming this morning.

Now, I’d like to welcome Ron Ristau, Signet Chief Financial Officer.

Ron Ristau

Thanks Tryna. Good morning, everybody. Well, before I wrap up with the financial implications, well, for all these initiatives, I’d like to take you through three areas we haven’t yet addressed and that’s credit, managing commodity costs and inventory.

Our credit operation is an important underpinning to our business and plays an important role in enabling our customers to buy the jewelry they really desire. To the end of our second quarter 57.5% of our U.S. sales made use of our in-house credit.

This percentage has been increasing over the last three years as our Bridal business has grown and as customers have chosen our credit over that of bank cards. Remember virtually a 100% of sales use some form of credit.

We welcome the increase in the use of our credit programs as we have very definitive approval criteria and fully understand the credit risk and profitability of our decisions. For Bridal customers credit penetration can reach 70%. This is the natural intersection of our product quality, sales experience and financial strength. It is one of the many competitive strength the U.S. division possess.

For example, you know when you walk into one of our stores that you are going to interact with the best qualified and trained individuals in the industry. You’ll also know you will find exclusive merchandize offerings that our competitors cannot match and that our credit programs which are tailored to jewelry purchases in our stores offer a greater ability to complete the purchase than that alternative also sources of credit can offer.

By managing our credit in-house, the decisions we make are made in the context of our overall business and the relationship with our customer. We look at the total return we get from the customer relationship in particular the merchandise margin achieve from additional sales is considered in the context to credit risks. Our operating structure and policies are design to ensure that our credit risk is managed independently of the sales process, with many checks and balances in place.

We use highly specialized credit decision models that are based on lending the customers who specifically buy jewelry from us, no outside third-party can recreate this. They enable us to make informed decisions when judging whether to lend to a customer and so help create a superior customer experience.

For the purchase of jewelry we have a greater range of approval than credit suppliers and as we understand the jewelry purchase behavior better. We take great care in our decisions and our credit approval we make remains approximately 50%.

It is important to note that we are short-term vendors. Our programs are design for the rapid repayment of outstanding balances, as we seek to facilitate the purchase of jewelry rather than earn interest on our outstanding balances.

We collect 12% to 14% of our outstanding receivable book each month, meaning that on average we are repaid in less then a year. This is a key fact and our ability to self-finance the receivables.

Our credit performance recovered rapidly after the recession and net bad debt has now normalized at range of 2.4% to 3.8% of U.S. sales. This range reflects an increase in the account receivable balance outstanding as customers have made greater use of our credit. As a percentage of outstanding receivables our net bad debt experience continues to improve and the portfolio is strong.

The benefit of our credit program remeasured with the lifetime value of the credit customer being 3.5 times that of the non-credit customer and each credit purchase is typically of greater value than a non-credit transaction and of course, we save on third-party bank card charges. So that wraps up my decision on credit, an important tool in our total customer experience.

Next, investors also ask about commodity costs often, certainly a good question in this time. We have a long history of successfully navigating the impact of changes in commodity costs in our business, including an active imperial commodity hedging program. Our goal is at a minimum to maintain our merchandise margin rate overtime by reflecting changes in commodity costs in our pricing.

The customer understands that jewelry has a lasting value and that the underlying materials utilize cost more overtime, jewelry is an emotional, complex and infrequent purchase, which means that there are many factors in the customer's decision.

It is our responsibility to always provide a reflection of high-quality products at a range of key price points providing great value to meet customer's budget and merchandise requirement.

We have successfully introduced innovative designs and materials that have been readily accepted by the customer and have enabled us to meet customer’s expectations across the broad spectrum of prices.

Our merchants have time to carefully manage the merchandise selection, pricing and merchandise margin rate as our inventory turn for discussion purposes is approximately one time per year.

In addition, our use of the average cost inventory methodology gives them forward visibility regarding commodity costs, when planning our merchandizing collections and pricing strategies.

Lastly, I’ll point that we maintain the most sophisticated and effective management system in the industry to plan and control inventory. All products are tracked daily for turn and self-through efficiency by SKU and by store.

You heard us talk about our strong test before we invest culture, proving products before introduction. Unit turns and reality are approximately 1.3 times which we believe leads the industry.

Commodity inflation offset by efficiency has been the driver of change in inventory levels over recent years. However, our response in effectively managing unit inventory turn has been key to controlling these numbers. We are clearly best in our industry and I would just note on side that unlike apparel retailers there is virtually no markdown risk in our business.

So, in summary, I believe the U.S. management team gave you a better understanding of the competitive strengths of our business and I again like to thank them and all of our associates for their consistent market-leading performance.

Let’s now turn our attention to what this means for our financial performance. I’d like to reiterate Mike’s opening point that the U.S. represents 94% of our operating profit and is clearly the main driver of value. We believe this powerful business will continue to strengthen.

In addition, our U.K. business, we have solid plans to successfully operate our market-leading business and return to double-digit profit margins. I would also note that over 95% of the trading in our shares is now carried out in the U.S. since our move to the New York Stock Exchange in 2008 and we recently the completed the move of all of the corporate finance and IR functions to Akron, Ohio. So our corporate functions are now situated with four of our businesses in the heartland of the U.S.

We believe that in the markets in which we operate, we have established leadership positions and proven operating models that can deliver consistent profit and sustainable cash generation through a variety of economic backdrop.

Our operating income has consistently grown since the financial crisis, as demonstrated on this slide and in fiscal 2012 reported record operating income of $507.4 million, a 33% compound annual growth rate since fiscal 2009.

Our diluted earnings per share last year was $3.73, our compound annual growth of 36% since fiscal 2009. We reported further growth in 2013 year-to-date that is the end of our second quarter, operating profit and EPS were again record levels with operating profit of $240.3 million, an increase of $19.3 million or 8.7% and earnings per share of $1.81, an increase of $0.18 or 11% over the comparable period.

The quality of this growth has been particularly impressive. It's been driven primarily by sales productivity as the real estate opportunities have been limited. Now this situation is starting to improve as you heard from Mark.

We’ve improved our gross margin from 32% of sales in fiscal 2009 to 38.3% last year. This was attributable to gross merchandise margin enhancement, credit performance and leverage on the slow occupancy costs structure.

Our SG&A as a percentage of sales has consistently improved from 29.1% to 28.2% driven by expense control, but while making targeted investments to increase sales and drive competitive strength.

As I indicated, a key driver of the growth and operating profit has been increased productivity. In fiscal year 2009 the store productivity at Kay was $1.5 million per store and increased last year to $1.9, an increase of 25%. Kay continues set new records driven by the store experience, development of the merchandise selection and marketing.

For Jared the comparable figure was $4.5 million, increasing to $5.2 million last year, up 15%. As a reference point, the historic peak for Jared was $5.7 million and we continued to move towards this level. We strongly believe that we can further increase the productivity of both concepts as we continue to apply our competitive strength.

Our improved store productivity is reflected in our operating margin which increased from 6.5% fiscal 2009 to 13.5% last year, and in the year-to-date it increased further by 60 basis points over the comparable period.

We have an unrelenting focus on sales productivity as you heard this morning through our multichannel execution. This is driven by the great customer experience built on our outstanding sales teams and training program, innovative merchandising initiatives in particular exclusive brands, highly effective advertising, continual investment and productivity enhancing technology and credit, margin improvement will also be driven by increasing our distribution plans and sales leverage on central support functions.

We have a commitment to at minimum maintaining our merchandise margin and leveraging expenses as we increase sales. We will invest in sales enhancing initiatives that will drive strong profits in the future and continue to build this competitive strength.

We are committed to increasing operating margins in all our business and continue to set net records. We’re not specifying a timeframe, we believe our next key milestone is to achieve an operating profit a 50% or better.

We have a proven ability to generate cash over variety of business cycle. This year we expect to generate free cash flow of over $220 million after investing $155 million to $165 million in capital.

Our capital is being directed a projects that build sales, develop world class infrastructure capabilities and enhance our customers experience, and creating operating efficiencies, reinvesting in our business remains our first priority.

To further drive shareholder returns we introduce the $0.10 quarterly dividend fiscal 2012 and increased it early this year to $0.12 a quarter. We also opportunistically repurchase $300 million of our stock since early 2012, this represented 6.6 million shares or 7% -- 7.7% of the shares outstanding and the Board increased repurchase authority by $15 million in July. Please note, our repurchase program is managed to drive long-term shareholder value.

The Board also monitors the cash position of the business and we’ll take appropriate steps to maintain within target levels. The Board will also take account of tax policies set by the government when deciding its future policy. However, we believe both dividends and repurchase programs have [mirrored].

I’ll remind you that we have year end cash target of 7% to 9% of sales. As we believe a strong balance sheet is an important competitive strength. We believe that this level of cash provides us with the necessary operating and financial flexibility to manage effectively.

Now summary, I’d like to just reiterate the drivers of future earnings growth. We are the number one jeweler in an industry that has historically grown about 4% each year on average. Overtime, we have a record of gaining market share and are committed to gaining further increases in profitable market share via our people, products and marketing.

We have a proven ability to prudently and thoughtfully manage assets and expenses in all phases of the economic cycle and we believe earnings will grow as we focus on improving our productivity and generating leverage from increase physical points of distribution and growth in the digital environment.

The ability of our model to create free cash flow provides further opportunity to increase EPS through a variety of options. We believe that this is the powerful, compelling business model and we are confident that as our customers celebrate their lives our people, products and service will continue to make us their preferred jewelry shopping destination.

Thank you for your attention this morning. And I’ll now hand the program back to Mike for the question-and-answer session. Thank you.

Mike Barnes

Thank you, Ron. All right. Don’t worry. I’m not going to say, let’s take it from the top and start all over again, okay. Although, a message like that deserves to be repeated and certainly should be retained.

What I would like to do is thank the best management team in the entire retail jewelry industry for some great and excellent presentations, you guys tell the stories so well and it really means a lot. I believe that our outstanding performance, if not by chance, it’s based on sustainable, competitive strengths, many of which you heard today from the team.

Our business model is built on truly understanding our consumer continually involve -- evolving to better respond to their ever changing need. It's about recruiting, training and retaining great people, providing them with compelling product initiatives supported by outstanding advertising and then delivering a superior in-store customer experience.

With that in mind, we would now, I’d like to -- I ask the team back up and we would be happy to take questions. I would ask that you please wait for a microphone before stating your question as this is being webcast this morning and we would also like to limit questions to one per person to give everyone an opportunity that would like to ask questions to do so. Thank you.

Question-and-Answer Session

Oliver Chen - Citibank

Hi. Thanks. It’s Oliver Chen from Citibank. Regarding the operating margin opportunity up to 15%, how should we think about the split up between gross margin and SG&A? And also regarding gross margin, the diamond prices have been volatile as of yet, does that imply opportunity on the gem side?

Mike Barnes

You’ll take that, Ron.

Ron Ristau

Yeah. As we move towards 15%, I think, it will be, number one, driven by comp stores, it will be driven by increases in our real estate investment so that we can leverage both. I believe it will be also driven by leverage on the occupancy structures that happen. Okay.

Our credit portfolios I said, it seems to be focused in or around 3.4% to 3.8% of sales. I would say that there has to be some improvement in credit but I wouldn’t say credit would be a major driver of the margin efficiency. We’re driven by sales productivity, comp store sales and leverage due to new store growth.

In SG&A, what you saw on the slide was that it was slow and steady improvement. And I think that’s what our message would be continuous slow and steady improvement because what we do is we’ll take opportunities to invest in advertising with the great programs that George puts together and things that drive sales where we need people in social media supporting. So there are investments we have to make to further drive sales. But I would say slow and steady on SG&A as we go forward.

Mike Barnes

Your second part of your question was about the diamond so far?

Oliver Chen - Citibank

Turning the commodity cost in diamonds, year-to-date, they are down mid-single digits. How do you interpret that in terms of your pricing strategy? And on the rough diamond side, how many do -- what percentage of mix do you source currently versus your longer term opportunity to source directly?

Mark Light

Well, first I would say as it comes to the costing and what our goals are we have stated pretty openly that our goal is to broadly maintain our gross merchandise margin. And we will set our prices to do that. We have taken pricing and price increases on a year-to-year basis for a number of years as the prices of all commodities have continued to rise over time.

And you are right that the diamond prices have abated quite a bit and there is less pressure on that. But keep in mind that it takes a long-term sustained increase or decrease to really make a large difference with us because with our average costing methodology in our terms as Ron mentioned being around 1.3 times a year, it takes about a year for any kind of a cost movement need a direction to really flow through there. It all gets kind of smooth out on the commodity front.

Jennifer Davis - Lazard

Okay. Ron, I had a follow-up on Oliver’s question. It’s Jennifer Davis from Lazard. Regarding the new stores, I think you are opening 48 new stores this year and I think that you said 60 next year but I don’t know?

Ron Ristau

60 then we said to 60 to 70 next year, Mark indicated.

Jennifer Davis - Lazard


Ron Ristau

So we are seeing some improvement in the availability of space particularly in Kay Off-Mall and Outlet area.

Jennifer Davis - Lazard

Right. Right. Will that have a negative impact on buying an occupancy?

Ron Ristau

No. It’s still, it’s still -- I believe that it’s still too small as a percentage of out total fleet to have much of a drag if any at all on our operating margins. So I don’t believe that will be significant.

Jennifer Davis - Lazard

Good answer. But my question -- sorry -- my question is Mike, I guess, or anyone who wants to take this, I guess, could you talk about some of the learnings may be you have with them online in terms of, you know, now that you have more sales online in terms of either new merchandise or how promotions are doing, like what you can apply to stores or some of maybe the better selling items or weaker selling items and anything that you can take from learnings there and apply to in-store? Thanks.

Mike Barnes

Well, you guys get to listen to me all the time, it seems like. So I’m very happy to have the team with me. So I’ll throw it over to Ed to talk about merchandise a little bit. What do you see Ed in terms of how the merchandise is doing online and what really drives the sales. So I mean, pretty incredible increase in our online sales as we mentioned -- as was mentioned earlier and that is up 40% year-to-date through the first couple of quarters. So what’s happening with the merchandise layer?

Ed Hrabak

When you see the new website that are going up here on a few days and that’s when the additional SKUs will make their real appearance there. So that increase in SKUs plus the new CASSi tablets that we have in store, I thinks it’s going to give us a great one, two punch. To your point, no question having that many SKUs out there, the merchants will actually be able to put some other test programs out there and get a much quicker read.

So again, we’ve been really focused on getting quicker to market. This will only help us do that for sure.

Unidentified Analyst

Mike, you’ve been teasing us with the new merchandise for the past couple of calls and it’s good to see three new brands coming into the stores as well as Neil Lane designs. I’m just wondering, I know you test a lot but what happens as you start to get so many new brands in the store at one time. I mean, does that increase customer excitement in traffic or can it potentially confuse them like J.C. Penney is doing. I’m just wondering -- I assume your tests have included all of this new merchandise in the same units. I’m just kind of wondering how the customer reacts?

Mike Barnes

Thank you for the question. That’s a great question. And we’re not associated with that other company you mentioned in there, just to be clear. I don’t think that customers confused at all. I think that the team has done an exceptional job of planning these rollouts to really maximize the excitement for the customer and to get them to come back on repeat visits time and time again.

And that’s what it does. As you’ll see, some of these rollouts are line extensions. This Neil Lane design thing is absolutely unbelievable. It tested incredibly well in the stores and that’s what drove the rollout of that. The other brands that were rolling out are really fitting in to parts of our assortment that we needed to have.

Colored diamonds are a huge story of this year, all kinds of color. The artistry blue diamonds is incredible new brand that we are putting out there and every one of these tested extremely well. We would not be rolling. It probably is worth repeating the artistry blue diamonds are rolling to all mall in Jared stores.

Neil Lane design is going to Kay and Jared. The lowest sales is going into All Jared stores, the beautifully designed silver mine that we have. These are things that our customer wants. The customer is still willing to come in and to buy merchandise but they want innovations, newness in fashion and that’s what we are giving to them.

So I think it’s actually a perfect time for us to roll out new fall assortments, new brands and line extension and our customers are going to appreciate it and they are going to come in and shop of it.

Unidentified Analyst

Yeah. I’d like to follow-up on the online business. Can you talk about, one, what percentage of sales there are in credit, what has been the debt say with the credit sales online. How is the pricing online, any difference in stores that you don’t need to keep any inventories there?

Mike Barnes

George, do you want to take that?

George Murray

Yeah. In terms of -- first of all the pricing, and our overall strategy is to align the promotions and the pricing with our stores. So there is no difference in terms of the pricing between our stores and our online and part of that is the fact that we believe strongly we wanted to be agnostic about where the customer bought from us. We just want to make sure they buy from us.

So part of it is having the ability to ship the product that was bought online to the store to pick it up. So we see that as a key benefit. Also in terms of the promotions, we run promotions -- we run no promotions online that that are not running stores. So we make sure that we don’t disenfranchise our store associates and that’s particularly important now with the new CASSi system, the in-store tablets allowing the store to work with this 10-time inventory lift that we’ll have here in the next few days. So they have the ability to sell against the long tail of inventory.

So those are all pieces in parts how we leverage the ecommerce business to make sure it enhances the store and vice versa.

Andy Hughes - UBS

Yeah. Hi. It’s Andy Hughes from UBS. Election year, I can ask question about that. Just in the past, I think we’ve seen some changes in the pattern move timing on advertising and peak period sales. Can you just remind us what they are and what you did differently in a relation here than all here?

Mike Barnes

I wouldn’t say that the fact that it’s an election year is changing any of our timing. We’ve had several shifts in timing this year and we have more shifts and things that were going to come up against you. Ron, you want to kind of run through with those shifts have been and what they will be for this year?

Ron Ristau

We can talk about -- we have a first quarter shift. We have some promotions move from first quarter to second quarter because Mother’s Day move back away. In the third quarter, we’ll have a shift due to Rolex -- we had a big Rolex close up promotion going on last year and we will not be repeating that this year. So that will be affecting our third quarter.

And the fourth quarter, we have the all popular 53rd week, which no one understands but basically we’ll move one of our key valentine’s promotion from the fourth quarter into the first quarter of next year. So what will happen is when we report to 53rd week, we will report negative comps on the 53rd week and we will report a loss of about $2 million to $4 million, I believe we discussed in the fourth quarter for that week.

And we will break that all out for you so it’s all clear and everyone understands the difference between 52 and 53 and hopefully, four, five years, we don’t have to deal with this again but it will all be broken up separately but there will be a small shift that occurs in the fourth quarter.

Mike Barnes

The timing of advertising doesn’t really change and as George mentioned earlier, we have some extremely compelling advertising coming this year during the same holiday period that we had last year with some brand new ad, some of which you saw today but there is more than that coming as well.

We’re fortunate that the two big events that really took up advertising this year, the Olympics were over in August and fortunately the elections are going to be over in early November and not in the last six weeks of the year when we’re really out there driving the advertising. So we’re very fortunate that we’re able to actually increase as George mentioned our advertising impressions this year. I don’t think it’s going to be really exciting for us and a great holiday season.

Bob Tac - Analyst

[Bob Tac], you’ve all spoken about how important your people are. Can you go into some more detail about how you recruit and select people as they are coming in and then in an ongoing way how you incentivize in the stay and just also speak to your attrition rates overtime in the stores?

Mike Barnes

Sure. Tryna, you want to …

Tryna Kochanek

Sure. Everything, one of our store managers is a unique model. It doesn’t have a centralized model where every single recruit comes from the home office. The managers and the district managers are trained and it’s part of their core competency and part of their incentive to recruit and retain high quality people.

They are also trained in behavioral based interviews. So you can make sure getting the right type of person when I spoke about customer service, when I spoke about wanting to learn just all of that and then we have cycle metrics that they take a little test online. So that really confirms for us.

In terms of retaining approximately 25% of our annual compensation is based on incentive or bonuses. So if you’re good and you do well, you do well. So obviously there is a piece of that compensation. When I spoke specifically about promotion from within, that’s a unique, unique advantage that not a lot of people necessarily understands.

But even if I don’t get promoted to be the assistant manager or the manager, I know who I was competing against. And so I’m happy for them and there’s a clear understanding of why that person was promoted over me as oppose to talking some one out that really doesn’t know how to walk a mile in those markets and so to say.

So that’s a huge retention piece that when we bounce it up against retention, it effectively -- and it’s a huge motivator even when you are not doing, getting promoted. In terms of our turnover, it’s roughly mid-teen to low-teens, 10% to 15%, which in retail is pretty unheard of. So I gave them all. Excellent.

Unidentified Analyst

I’m curious in terms of the margin opportunities, if you could give us a sense of what level of comp you need to leverage SG&A and/or what you anticipate the dollar growth to look like going forward relative to your expectations for sales growth?

Mike Barnes


Ron Ristau

Well, we’ve leveraged -- essentially we leveraged most of our expense structure with very low comps. So we’re in the range of two to three comps, we’d start to leverage particularly in store occupancy expenses and items that are fixed. All of our other leverage depends upon decisions that we make and how rapidly we’re deciding to invest in advertising or build out some of the staff and things like that but in general terms, it’s about 2% to 3% comp. Okay.

We have not made any real predictions here as relative to the comp level going forward. All I did was point out that the industry has grown over a number of years, some amount of 4% rate and we believe that it doesn’t take -- it's not like a rocket launch to get to 15%. You don’t need tremendously high growth rates in order to get there.

We haven’t a specified a time for that. That’s our goal. I want to be clear about that. That the 15% is our next goal. As we ever get to 15%, we might set another goal. Okay. But today setting a 13F and people always ask us is can we expand the operating or we’re peak margin. Our answer clearly from the presentation today is no, we’re not. We’re about continuous improvement.

We continue to grow in productivity. We continue to gain market share. We continue to pour on the power of advertising on our people in order to drive sales in our stores. So we’re very confident that we’ll continue to expand our margins. So that’s what we try to lay out for you today.

Mike Barnes

I would also say that what we want to do is deliver long-term value to the shareholders through continued growth in both sales and profitability on a very sustainable basis. And so we will continue to make all the appropriate investments back into our business that you heard about today, a lot of the exciting initiatives to make that happen.

Ike Boruchow - JPMorgan

Ike Boruchow, JPMogan. Can you give us talk on from the high level on the just the competitive landscape of the specialty jewelry business in the U.S. today. There has been a lot of changes in last several years in rationalization. How do you guys think about it today? Is there a still ongoing closures from independence and are you seeing the same benefits and then can you also comment on some of your smaller players that are seem to be doing little bit better this year than against years passed?

Mike Barnes

Mark, you want to take that?

Mark Light

Competitive landscape. We cannot use this competitive landscape. They have two different competitive set. With Kay, which is a primary, obviously a module of chain. We’re dealing with our biggest competitors. It’s based in Dallas and there is some regional change out there and they seem to be getting some momentum. And we always take all of our competitors very, very seriously. We’re always focused on watching what they do and making sure we step ahead of them.

On the mall front, there are competitors, the regionals and secondly, they seem to be gaining this momentum and we’re watching them and we’re making sure we stay ahead of them.

On the Jared side, the difficult pair of set, we’re dealing with the major and all the markets, our biggest competitor is a strong independent as based in the market place, whether being Columbus, Ohio or New Jersey or Kentucky, there is always a strong independent competitor. And that said is they are having some challenges through the recession. They really as you said it, rationalizing and lot of closures have been happening.

What’s happening now is that competitor seems to be getting little stronger. You deal with the ones that kind of flushed out during the recession. The weak ones went out and the stronger ones are taking us very seriously and looking at Jared as a major competitor. So we are constantly focused on what we need to do at Jared’s to make sure that we can go up against some independent, make sure we have differentiated products, make sure we have strong sales associate in the store to compete with them.

So those competitors seem to be getting stronger. There is not as many of them but ones that are left seems to be getting stronger. We take them all very, very seriously.

Mike Barnes

And if you look at the levels of productivity that we have in our stores compared to those competitors where you can also see the productivity, it’s pretty compelling story about Signet and Kay and Jared stores. And we’re not done yet. We haven’t reached the ceiling. We believe that we can drive much more productivity through the existing stores as well as the new stores that we’re going to open.

So we’re not kind of resting on our laurels here. We’re as Mark put it, we are taking our competition extremely seriously and we’re not going to stop.

James Pan - CP&E Partners

James Pan, CP&E Partners. Just a question about your branded items, what percent of our sales in U.S. or corporate water branded versus five years ago. I’m trying to get a trend.

Ron Ristau

Well, let me give you some numbers going back about three years. Three years ago, it was about 19%, not just branded but either exclusive or differentiated ranges of brands for us in the U.S. marketplace. So 19% the next year, it went up 300 basis points to 22% and then last year, it went up another 400 basis points to 26%.

And basically that’s the number that we give on an annual type basis. So we’ll see where it ends up this year but I believe Mark or Ed mentioned in their presentation that we continue to see the exclusive and differentiated brands continuing to grow in our business.

Unidentified Analyst


Mike Barnes

The question is, was there a long-term objective in terms of mix or percentage of sales and the answer is no. We’re going to let it find its own level. We believe that it’s compelling and the people will continue to gravitate towards the brands.

I believe the brands will become more important in every aspect of business not less important because the world is a smaller place and there are many more avenues to communicate through as George pointed out in his presentation as well whether be on the website social media, through the mail, on TV.

So I believe that this gives us an opportunity to continue to take a competitive advantage over most of our competitors because this sets us apart. This great and unbelievable exclusive brands we have, you can’t get them anywhere else. You have to come to us. And that’s why he went to Jared because you can’t get these brands unless you got Jared or Kay that are exclusive or where we have a differentiated range of products within the brand.

Rick Patel - Bank of America

Hi. Good morning. Rick Patel, Bank of America. You mentioned before that for your U.K. remodel storage, you are seeing an improvement in the sales trends there. Is there any way to quantify the lift that you are seeing in productivity and perhaps also comment on the overall margins of those stores and also gives us some color on just the pace of remodels every year?

George Murray

Well, we remodel -- we tend to remodel on -- at the end of lease life. And we look for 25% return on investment on our remodel, which is exactly higher than we set for initial investment. Initially, when we open the store, we look for about 20% return on our investment.

On remodeling, we look for 25% because the store has reached maturity and therefore the payback will be faster on remodel store. So it gives us to lift all of our remodel stores a very successful. We track it expensively. We report on all of our remodel activity on an annual basis to the board. So it does give us a nice comp lift and it gives us nice operating profit but I couldn’t be more specific than that.

Mike Barnes

On the U.K. part of your question, as I mentioned earlier, last year, we had 7.8% operating income, which is pretty darn good and especially in an environment like that but we know, we can do better. We’ve been there before and we know how -- we have a road map of how to get back to 10% plus operating incomes in the U.K. And that’s an overall operating income for the market.

We don’t really break out the four wall performance specifically but the two main points out of that are that from a real estate perspective, we continue to rationalize underperforming stores and close those as is appropriate and at the same time, we continue to invest where we are seeing the unbelievable performance especially in these really big regional malls like the Westfield Malls in London, the Bullring Mall in Birmingham. There are so many traffic park in Manchester area. These malls are just driving incredible amounts of traffic.

And the performance there is fantastic. And I’m very pleased that we made the decision in these areas to do things like expand store size, put in brand new concept designs, utilize technology within these stores because in that market as well as in the U.S. market here. We continue to set ourselves apart from the competition. We are far and away the market leader with the number one and the number two, store brands in the jewelry sector in the U.K. market. I think we have time for about one more question.

Unidentified Analyst

I’m curious in terms of your supply chain and sourcing, where they help what your plans are as far as acquiring interest. I’m thinking in terms of a party which is up for sale. And I know Tiffany has gone into partnership with a number of local producers n Africa. I’m wondering what your thoughts are, long-term on that as aspect.

George Murray

While as Ed mentioned, earlier our goal is to solidify our supply chain and ensure that we can get a consistent supply of products especially Diamonds which is our largest raw material. For the years to come, to service our customers and allow them the selection that we need to allow them.

We’re taking a lot of different steps in there, becoming a select Diamontaire with Rio Tinco. One of the biggest mining companies in the world, it’s not a material move for us but it’s a very strategic move and it’s something that we believe is going to help us continue to solidify the supply chain.

Having said, we have a lot of unbelievable supply partners. And we’re doing every thing. Ed and his team are doing everything possible to build better and lasting partnerships with all of the suppliers.

We realize that we put the customer at the center of everything, we do. But we have to have incredible relationships, all the way through their supply chain. From the very beginning where we’re working with our suppliers, whether it be Rio Tinto as the minor, our manufacturing partners. We buy a lot of these materials ourselves as Ed put it and we manufacture it ourselves. So we’re dong everything from start to finish, all the way from upstream to downstream to really partner with our suppliers as well as our customers.

Mike Barnes

And with that ladies and gentlemen, again I’d like to thank you for joining us today, really appreciate it. I hope all of you are going to make it to the stores because we’re going to have some exciting things to see out there as well. Thank you so much.

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