SIGNET JEWELERS LTD (SIG) FY 2024 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis in this Item 7 are intended to provide the reader with information that will assist in understanding the significant factors affecting the Company’s consolidated operating results, financial condition, liquidity and capital resources. This discussion should be read in conjunction with our consolidated financial statements and notes to the consolidated financial statements included in Item 8. This discussion contains forward-looking statements and information. The Company's actual results could materially differ from those discussed in these forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those discussed below and elsewhere in this report, particularly in “Forward-Looking Statements” above as well as the “Risk Factors” section within Item 1A.

This management's discussion and analysis provides comparisons of material changes in the consolidated financial statements for Fiscal 2024 and Fiscal 2023. For a comparison of Fiscal 2023 and Fiscal 2022, refer to Item 7 included in our Annual Report on Form 10-K for the year ended January 28, 2023 filed with the SEC on March 16, 2023.

OVERVIEW

Overall performance

Signet’s sales decreased by 6.3% during the fourth quarter of Fiscal 2024 compared to the same period in Fiscal 2023. This overall decrease was partially offset by the impact of the 14th week in the fourth quarter of Fiscal 2024, which increased sales by $103.2 million. Sales were down compared to the same period in the prior year due to the deep COVID-induced engagement trough, the continued impact of heightened inflationary pressure on consumers’ discretionary spending, integration issues at our digital banners resulting in lower conversion rates, as well as the competitive pricing pressure that persisted throughout the year. Amidst these pressures, the Company launched new items which had a 700 basis point higher sell-through than the prior year while leveraging branding and value engineering to deliver an average merchandise transaction value (“ATV”) nearly flat to the prior year fourth quarter in North America. During the fourth quarter of Fiscal 2024, the Company’s ATV decreased by 0.6% in the North America reportable segment and decreased by 10.4% in the International reportable segment. The International ATV decline primarily reflects the underperformance of the Ernest Jones banner, overall lower-price sales stemming from macroeconomic factors as noted above, as well as the impact from the previously announced divestiture of the prestige watch business. In addition, the Services category continued to outperform merchandise, increasing 5% compared to the prior fourth quarter.

The Company intends to continue to execute the initiatives under its Inspiring Brilliance strategy, which is focused on the achievement of sustainable industry-leading growth toward its previously announced mid-term goals of growing revenue to $9 to $10 billion, with an annual double digit non-GAAP operating margin (See Non-GAAP Measures section for further information). The Inspiring Brilliance strategy focuses on sustainable enhancements to the differentiation of Signet’s banners, including the expansion of its accessible luxury portfolio, its connected commerce and digital capabilities and its initiatives to accelerate services and optimize its real estate footprint. As described in the Purpose and Strategy section within Item 1 of this Annual Report on Form 10-K, through its Inspiring Brilliance strategy, the Company is focused on leveraging the core strengths that it has developed since the beginning of the transformation six years ago. Signet aims to be the innovation and market share leader of the jewelry category with opportunity for additional market share expansion and profitable growth as the Company leverages its flexible operating model and core strengths while investing to widen its competitive advantages.

Refer to the “Results of Operations” section below for further information on performance during the fourth quarter and full year Fiscal 2024.

Outlook

Jewelry industry revenues continued to soften in Fiscal 2024, driven by the impact of macroeconomic factors, headwinds in engagements and shifts in consumer discretionary spending. However, beginning in Fiscal 2025, the Company expects same store sales between -4.5% and +0.5% with sequential improvement throughout the year, led by the expected engagement recovery acceleration in Fiscal 2025, winning new customers through the Company’s marketing scale and personalization, growing product newness, enhancing in-store and online customer experiences and the continued expansion of our Service offerings. The Company also expects the integration issues at our digital banners to persist into Fiscal 2025, but anticipates these issues to be resolved in the second half of the year. While overall inflation has moderated, the Company anticipates that discretionary spending in categories such as jewelry will continue to be adversely impacted by high prices on necessities such as gas and groceries, and could further impact sales of the Company’s product assortments at all price points. Consumer spending may also be impacted by customers’ ability to obtain credit, and we expect elevated discounting among independent jewelers to continue.

Despite the current headwinds, the Company expects to continue strategic investments that differentiate Signet from its competitors, in particular investments in its banner value propositions, its services business, personalization of marketing, and its digital and data analytics capabilities. The Company believes that these strategic investments have positioned Signet to drive market share gains and continue building its competitive advantages. Furthermore, the Company will maintain its diligent and effective efforts to drive cost savings and leverage its flexible operating model, scale and fleet optimization. As part of its efforts to focus on growth, the Company substantially completed the divestiture of the Company’s UK prestige watch business during the fourth quarter of Fiscal 2024. The Company believes the divestiture of this non-strategic business will enable the UK to accelerate key elements of its transformation.

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The sale of the remaining locations is expected to close in the first half of Fiscal 2025. In addition, the Company plans to right size the Ernest Jones banner in the UK, expecting to close up to 30 additional locations in Fiscal 2025, as well as further streamlining overhead in the UK support center and leveraging its digital presence to drive traffic. See Note 4 of Item 8 for additional information.

The Company continues to monitor the impacts of certain macroeconomic factors on its business, such as inflation and the Russia-Ukraine and Israel-Hamas conflicts. Signet operates quality control and technology centers in Israel, and to date, these operations have not been materially impacted by the geopolitical conflict in the Middle East. While the Company currently does not expect disruptions to its operations in Israel to have a material impact on the Company’s results of operations, the Company will continue to closely monitor this conflict and any impacts on its business, as well as its team members in Israel. Uncertainties exist that could impact the Company’s results of operations or cash flows in the future, such as further pricing and inflationary environment changes impacting the Company (including, but not limited to, materials, labor, fulfillment and advertising costs) or adverse shifts in consumer discretionary spending, deterioration of consumer credit, supply chain disruptions to the Company’s business, the Company’s ability to recruit and retain qualified team members, or organized retail crime and its impact to mall traffic. See “Forward-Looking Statements” above as well as the “Risk Factors” section within Item 1A.

Blue Nile acquisition

On August 19, 2022, the Company acquired all of the outstanding shares of Blue Nile, Inc. (“Blue Nile”), subject to the terms of a stock purchase agreement entered into on August 5, 2022. The total cash consideration was $389.9 million, net of cash acquired, including purchase price adjustments for working capital. Blue Nile is a leading online retailer of engagement rings and fine jewelry. The addition of Blue Nile brings Signet a younger, more affluent, and diverse customer to Signet’s banner portfolio that expands Signet’s accessible luxury tier. We believe the strategic acquisition of Blue Nile accelerates Signet's efforts to enhance its connected commerce capabilities and extend its digital leadership across the jewelry category – all to further achieve meaningful operating synergies for the consumers and create value for shareholders.

Market and operating conditions

The Company faces a highly competitive and dynamic retail landscape throughout the geographies where it does business, as well as a challenging global macro-economic environment as described above impacting the jewelry industry. Refer to Item 1 for further information on the Company’s business, markets and strategy.

Exchange translation impact

Monthly average exchange rates are used to prepare the Company’s consolidated statements of operations. In Fiscal 2025, it is anticipated a five percent movement in the British pound to US dollar exchange rate would impact the Company’s income before income taxes by approximately $0.4 million, while a five percent movement in the Canadian dollar to US dollar exchange rate would impact the Company’s income before income taxes by approximately $1.6 million.

RESULTS OF OPERATIONS

Fiscal 2024 Overview

Similar to many other retailers, Signet follows the retail 4-4-5 reporting calendar, which included an extra week in the fourth quarter and fiscal year periods of Fiscal 2024 (the “14th week” and “53rd week”, respectively). The extra week added $103.2 million in sales in the fourth quarter and full year Fiscal 2024. Fiscal 2023 was a 52 week reporting period.

Same store sales

Management considers same store sales useful as it is a major benchmark used by investors to judge performance within the retail industry. Same store sales growth is calculated by comparison of sales in stores that were open in both the current and the prior fiscal year. Sales from stores that have been open for less than 12 months are excluded from the comparison until their 12-month anniversary. Similarly, sales from acquired businesses made within the last 12 months are excluded from the comparison until their 12-month anniversary. Sales from stores that were acquired during the period and have not been included in the Company’s results for both the current and prior period presented are also excluded from same store sales. Sales after the 12-month anniversary are compared against the equivalent prior period sales within the comparable store sales comparison. Stores closed in the current financial period are included up to the date of closure and the comparative period is correspondingly adjusted. Stores that have been relocated or expanded, but remain within the same local geographic area, are included within the comparison with no adjustment to either the current or comparative period. Stores that have been refurbished are also included within the comparison except for the period when the refurbishment was taking place, when those stores are excluded from the comparison both for the current year and for the comparative period. Same store sales are also impacted by certain accounting adjustments to sales, primarily related to the deferral of revenue from the Company’s extended service plans.

eCommerce sales include all sales with customers that originate online, including direct to customer, ship to store, and BOPIS. eCommerce sales are included in the calculation of same store sales for the period and the comparative figures from the 12-month anniversary of the launch of the relevant website. Brick and mortar same store sales are calculated by removing the eCommerce sales from the same store sales calculation described above. Comparisons at the divisional level are made in local currency and consolidated

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comparisons are made at constant exchange rates and exclude the effect of exchange rate movements by recalculating the prior period results as if they had been generated at the weighted average exchange rate for the current period. Same store sales exclude the 53rd week in the fiscal year in which it occurs.

Cost of sales and gross margin

Cost of sales is mostly composed of merchandise costs (net of discounts and allowances). Cost of sales also contains:

•Occupancy costs such as rent, repairs and maintenance, depreciation and real estate taxes.

•Store operating expenses such as utilities, store supplies and third-party merchant credit costs.

•Distribution and warehousing costs including freight, processing, inventory shrinkage and related payroll.

As the classification of cost of sales or selling, general and administrative expenses varies from retailer to retailer, Signet’s gross margin percentage may not be directly comparable to other retailers.

Factors that influence gross margin include pricing, promotional environment, changes in merchandise costs, changes in non-merchandise components of cost of sales (as described above), changes in sales mix, foreign exchange, and the economics of services such as repairs and extended service plans. The price of diamonds varies depending on their size, cut, color and clarity.

Signet primarily uses an average cost inventory methodology and, as jewelry inventory turns slowly, the impact of movements in the cost of diamonds and gold takes time to be fully reflected in the gross margin. Signet’s inventory turns faster in the fourth quarter than in the other three quarters, therefore, changes in the cost of merchandise is more impactful on the gross margin in that quarter. An increase in inventory turnover would accelerate the rate at which commodity costs impact gross margin.

Selling, general and administrative expenses (“SG&A”)

SG&A primarily includes store staff and store administrative costs as well as advertising and promotional costs. It also includes field support center expenses such as information technology, finance, eCommerce and other operating expenses (such as private label credit costs) not specifically categorized elsewhere in the consolidated statements of operations.

The primary drivers of staffing costs are the number of full-time equivalent team members and the level of compensation, payroll taxes, benefits and incentives. Management varies, on a store by store basis, the hours worked based on the expected level of selling activity, subject to minimum staffing levels required to operate the store. Non-store staffing levels are less variable. A significant element of compensation is performance-based and is primarily dependent on sales and operating profit.

The level of advertising expenditures can vary. The largest element of advertising expenditures has historically been national television advertising; however, Signet has continued to invest more on digital and social marketing in recent years as part of its transformational initiatives, in order to evolve its marketing allocations based on consumer habits, business needs, and maximize return on investment on its advertising investments.

Other operating income (expense), net

Other operating income (expense), net primarily consists of miscellaneous operating income and expense items such as litigation settlements, restructuring charges, gains or losses on sales of assets (including divestitures), foreign currency gains and losses, and gains and losses from undesignated derivative contracts. See Note 11 in Item 8 for further detail on the Company’s other operating income (expense), net.

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Comparison of Fiscal 2024 to Prior Year

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Fiscal year sales

Signet’s total sales decreased 8.6% to $7.17 billion compared to $7.84 billion in the prior year. Signet’s same store sales decreased 11.6%, compared to a decrease of 6.1% in the prior year. These declines were driven by the impact of heightened inflationary pressure on consumers’ discretionary spending and the decline in the bridal category, driven by lower engagements. The total sales decrease was partially offset by the inclusion of the full year sales of Blue Nile, which was acquired in the third quarter of Fiscal 2023, and the impact of the 53rd week as noted above.

eCommerce sales year to date were $1.64 billion, up $41.0 million or 2.6% compared to $1.60 billion in the prior year. eCommerce sales accounted for 22.9% of year to date sales, up from 20.4% of total sales in the prior year. Brick and mortar same store sales decreased 11.3% from the prior period. The increase in eCommerce sales as of percentage of sales is primarily due to the addition of Blue Nile to Signet’s portfolio in Fiscal 2023.

The breakdown of the year to date sales performance by reportable segment is set out in the table below:

(1)    Includes sales from acquired businesses which were not included in the results for the full comparable periods presented. Blue Nile is included in same store sales beginning in the third quarter of Fiscal 2024.

(2)    The Company provides the period-over-period change in total sales excluding the impact of foreign currency fluctuations, which is a non-GAAP measure, to provide transparency to performance and enhance investors’ understanding of underlying business trends. The effect from foreign currency, calculated on a constant currency basis, is determined by applying current year average exchange rates to prior year sales in local currency.

(3)    Includes sales from Signet’s diamond sourcing operation.

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ATV is an operating metric defined as net merchandise sales divided by the total number of customer transactions. The ATV is measured each period based on the reported sales for the corresponding period presented. Beginning in the second quarter of Fiscal 2024, the Company changed its presentation of ATV to be calculated based on total reported net merchandise sales, compared to a same store sales base used in prior periods, as this metric is more representative of the comparison of reported sales period over period. The prior period amounts presented below, and throughout this discussion and analysis, have been restated to be presented comparatively.

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(1)    Net merchandise sales within the North America reportable segment include all merchandise product sales, net of discounts and returns. In addition, excluded from net merchandise sales are sales tax in the US, repairs, extended service plans, insurance, employee and other miscellaneous sales. As a result, the sum of the changes will not agree to change in reported sales.

(2)    Net merchandise sales within the International reportable segment include all merchandise product sales, including value added tax (“VAT”), net of discounts and returns. In addition, excluded from net merchandise sales are repairs, warranty, employee and other miscellaneous sales. As a result, the sum of the changes will not agree to change in reported sales.

(3)    International reportable segment amounts are denominated in British pounds.

North America sales

The North America reportable segment’s total sales were $6.70 billion compared to $7.29 billion in the prior year, down 8.0%. This decrease was primarily driven by the decline in the core banners due to the impact of heightened inflationary pressure on consumers’ discretionary spending and the decline in the bridal category, driven by lower engagements. This decrease was partially offset by the addition of Blue Nile to Signet’s North America portfolio and the impact of the 53rd week as noted above. Same store sales decreased 11.9% compared to a decrease of 7.0% in the prior year. North America’s ATV increased 2.4%, driven by Blue Nile, while the number of transactions decreased 11.5%.

International sales

The International reportable segment’s total sales decreased 8.4% to $430.7 million compared to $470.1 million in the prior year, primarily due to the underperformance of the Ernest Jones banner and the overall impact of heightened inflationary pressure on consumers’ discretionary spending. Total sales at constant exchange rates decreased 10.3%. The number of transactions decreased 10.6%, while ATV decreased 0.6% over prior year.

Fourth quarter sales

Signet’s total sales decreased 6.3% year over year to $2.5 billion in the fourth quarter, while total sales at constant exchange rates decreased 6.6%. Same store sales decreased 9.6%, compared to a decrease of 9.1% in the prior year quarter. These declines were driven by the impact of heightened inflationary pressure on consumers’ discretionary spending and the decline in the bridal category, driven by lower engagements. As mentioned above, this overall decrease was partially offset by the impact of the 14th week in the fourth quarter of Fiscal 2024.

eCommerce sales in the fourth quarter of Fiscal 2024 were $593.4 million, down $56.6 million or 8.7% compared to $650.0 million in the prior year fourth quarter, resulting primarily from the decline in the bridal category, driven by operational issues at the digital banners that resulted in lower conversion rates. eCommerce sales accounted for 23.8% of fourth quarter sales, down from 24.4% of total sales in the prior year fourth quarter. Brick and mortar same store sales decreased 9.0% from the prior year fourth quarter.

The breakdown of the fourth quarter sales performance by reportable segment is set out in the table below:

(1)    The Company provides the period-over-period change in total sales excluding the impact of foreign currency fluctuations, which is a non-GAAP measure, to provide transparency to performance and enhance investors’ understanding of underlying business trends. The effect from foreign currency, calculated on a constant currency basis, is determined by applying current year average exchange rates to prior year sales in local currency.

(2)    Includes sales from Signet’s diamond sourcing operation.

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(1)     Net merchandise sales within the North America reportable segment include all merchandise product sales, net of discounts and returns. In addition, excluded from net merchandise sales are sales tax in the US, repairs, extended service plans, insurance, employee and other miscellaneous sales. As a result, the sum of the changes will not agree to change in reported sales.

(2)    Net merchandise sales within the International reportable segment include all merchandise product sales, including VAT, net of discounts and returns. In addition, excluded from net merchandise sales are repairs, warranty, employee and other miscellaneous sales. As a result, the sum of the changes will not agree to change in reported sales.

(3)    International reportable segment amounts are denominated in British pounds.

North America sales

The North America reportable segment’s total sales were $2.4 billion compared to $2.5 billion in the prior year quarter, or a decrease of 6.1%. This decrease was primarily driven by the decline in same store sales due to the impact of heightened inflationary pressure on consumers’ discretionary spending and the decline in the bridal category, driven by lower engagements. Same store sales decreased 10.0% compared to a decrease of 9.3% in the prior year quarter, which is reflective of the factors discussed above and resulted from the number of transactions decreasing by 6.7% year over year. These declines were offset by the 14th week of sales in the fourth quarter noted above.

International sales

The International reportable segment’s total sales decreased 7.5% to $141.7 million compared to $153.2 million in the prior year quarter, due to the impact of heightened inflationary pressure on consumers’ discretionary spending and underperformance of the Ernest Jones banner, including the impact of the prestige watch divestiture in November 2023. This decrease was partially offset by a strengthening of the British Pound experienced during the quarter, offsetting 3.9% of this decline. Total sales at constant exchange rates decreased 11.4%. The number of transactions decreased 2.4%, while ATV decreased 10.4% year over year.

Gross margin

In Fiscal 2024, gross margin was $2.8 billion or 39.4% of sales compared to $3.1 billion or 38.9% of sales in Fiscal 2023. The slight increase in gross margin rate for Fiscal 2024 compared to Fiscal 2023 reflects higher merchandise margins, which is led by a higher mix of services and by the continued expansion from the Company’s merchandise strategy of branding and newness, as well as the favorable impacts of cost savings. This impact was partially offset by the deleveraging of fixed costs on the lower volume as described above, primarily in store occupancy costs.

In the fourth quarter of Fiscal 2024, gross margin was $1.08 billion or 43.3% of sales compared to $1.11 billion or 41.7% of sales in the prior year fourth quarter. The increase in gross margin rate for the fourth quarter of Fiscal 2024 compared to the fourth quarter of Fiscal 2023 reflects the continued growth of services and the strength of Company’s merchandise strategy of branding and newness driving overall higher merchandise margins.

Selling, general and administrative expenses

SG&A for Fiscal 2024 was $2.20 billion or 30.6% of sales compared to $2.21 billion or 28.2% of sales in Fiscal 2023. In the fourth quarter of Fiscal 2024 SG&A was $671.9 million or 26.9% of sales compared to $702.5 million or 26.3% of sales in the prior year fourth quarter. The increase in SG&A as a percentage of sales for both the Fiscal 2024 and fourth quarter comparative periods was primarily due to the deleveraging of fixed costs as a result of lower sales in the core banners, which were partially offset by overall cost savings initiatives.

Asset impairments, net

During Fiscal 2024, the Company recorded non-cash, pre-tax asset impairments related to the impairment of long-lived assets and intangible assets of $9.1 million. During the fourth quarter of Fiscal 2024, the Company recorded non-cash, pre-tax asset impairments of $3.4 million, primarily related to intangible assets.

During Fiscal 2023, the Company recorded non-cash, pre-tax asset impairments related to the impairment of long-lived assets of $22.7 million. During the fourth quarter of Fiscal 2023, the Company recorded non-cash, pre-tax asset impairments of $20.7 million, all of which related to long-lived assets and was driven by a partial impairment of the Company’s support center.

See Note 16 of Item 8 for additional information on the asset impairments.

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Other operating income (expense), net

In Fiscal 2024, other operating income was $2.9 million compared to an expense of $209.9 million in Fiscal 2023. Fiscal 2024 was primarily driven by the net gain on divestitures of $12.3 million partially offset by restructuring charges of $7.5 million and foreign exchange losses. Fiscal 2023 was primarily driven by the litigation charges of $203.8 million.

In the fourth quarter of Fiscal 2024, other operating income was $10.3 million compared to an expense of $18.4 million in the fourth quarter of Fiscal 2023. The fourth quarter of Fiscal 2024 was primarily driven by the net gain on divestitures of $13.6 million partially offset by restructuring charges of $1.9 million. The fourth quarter of Fiscal 2023 was primarily driven by charges related to a litigation matter of $15.9 million.

See Notes 11 and 28 of Item 8 for additional information.

Operating income

In the year to date period of Fiscal 2024, operating income was $621.5 million or 8.7% of sales compared to $604.9 million or 7.7% of sales in Fiscal 2023. The increase in the current year was primarily due to the lapping of charges related to litigation and asset impairment charges in Fiscal 2023 of approximately $220 million, which were substantially offset by the impact of the sales volume decline in the current year.

In the fourth quarter, operating income was $416.3 million or 16.7% of sales compared to $369.5 million or 13.9% of sales in prior year fourth quarter. The increase in operating income was primarily the result of the support center asset impairment and litigation charges incurred in the fourth quarter of Fiscal 2023 of approximately $30 million, as well as the net gain on divestitures of $13.6 million in the current year fourth quarter noted above.

Signet’s operating income (loss) by reportable segment for the year to date period is as follows:

(1)        Fiscal 2024 includes: 1) $22.0 million of acquisition and integration-related expenses, primarily severance and retention, exit and disposal costs and system decommissioning costs incurred for the integration of Blue Nile; 2) $6.3 million of restructuring charges; 3) $9.0 million of net asset impairment charges primarily related to restructuring and integration; and 4) a $3.0 million credit to income related to the adjustment of a prior litigation accrual.

Fiscal 2023 includes: 1) $13.4 million of cost of sales associated with the fair value step-up of inventory acquired in the Diamonds Direct and Blue Nile acquisitions; 2) $14.7 million of acquisition and integration-related expenses in connection with the Blue Nile acquisition, primarily related to professional fees and severance costs; 3) $203.8 million related to pre-tax litigation charges; and 4) net asset impairment charges of $20.0 million.

See Note 4, Note 16, Note 26, and Note 28 of Item 8 for additional information.

(2)    Fiscal 2024 includes a $12.3 million gain from the divestiture of the UK prestige watch business, net of transaction costs and $1.2 million of restructuring charges.

Fiscal 2023 includes net asset impairment charges of $2.7 million.

See Note 4, Note 16, and Note 26 of Item 8 for additional information.

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Signet’s operating income (loss) by reportable segment for the fourth quarter is as follows:

(1)    Fiscal 2024 includes: 1) $1.9 million of acquisition and integration-related expenses, primarily severance and retention, as well as exit and disposal costs costs incurred for the integration of Blue Nile; 2) $1.9 million of restructuring charges; and 3) $3.4 million of net asset impairment charges primarily related to restructuring and integration.

Fiscal 2023 includes: 1) $1.8 million credit to cost of sales associated with the fair value adjustment of inventory acquired in the Blue Nile acquisition; 2) $7.4 million of acquisition and integration-related expenses in connection with the Blue Nile acquisition, primarily related to professional fees and severance costs; 3) $13.8 million related to pre-tax litigation charges; and 4) net asset impairment charges of $18.1 million.

See Note 4, Note 16, Note 26, and Note 28 of Item 8 for additional information.

(2)    Fiscal 2024 includes a $13.6 million gain from the divestiture of the UK prestige watch business and a $0.2 million credit to restructuring charges.

Fiscal 2023 includes net asset impairment charges of $2.6 million.

See Note 4, Note 16 and Note 26 of Item 8 for additional information.

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Interest income (expense), net

In Fiscal 2024, net interest income was $18.7 million compared to net interest expense of $13.5 million in Fiscal 2023. In the fourth quarter, net interest income was $8.7 million compared to net interest expense $2.1 million in the prior year fourth quarter. The interest income recognized in both the full year and fourth quarter of Fiscal 2024 is the result of interest earned on excess cash balances and higher interest rates on these accounts compared to the prior year comparable periods.

Other non-operating expense, net

In Fiscal 2024, other non-operating expense was $0.4 million compared to other non-operating expense of $140.2 million in Fiscal 2023. In the fourth quarter of Fiscal 2024, other non-operating income was $2.0 million compared to other non-operating income of $0.6 million in the prior year fourth quarter. The other non-operating expenses in Fiscal 2023 primarily consisted of non-cash, pre-tax settlement charges of $133.7 million related to the partial buy-out of the Signet Group Pension Scheme. See Note 27 of Item 8 for additional information on the Company’s retirement plans.

Income taxes

Income tax benefit for Fiscal 2024 was $170.6 million, with an effective tax rate (“ETR”) of (26.7)%, compared to an income tax expense of $74.5 million, with an effective tax rate of 16.5% in Fiscal 2023. The ETR and tax benefit for Fiscal 2024 reflects the impact of a $263.3 million deferred tax asset recorded in the fourth quarter related to the enactment of the Corporate Income Tax Act of 2023 (“Act”) in Bermuda. The Act included an economic transition adjustment intended to be a fair and equitable transition into the new tax regime, and resulted in a deferred tax benefit for the Company. Other factors impacting the effective rate in Fiscal 2024 were the favorable impact of an uncertain tax position of $20.5 million settled in the fourth quarter, the foreign rate differences and benefits from global reinsurance and financing arrangements, and other discrete tax benefits recognized. The Fiscal 2024 discrete tax benefits relate to the reclassification of remaining taxes on the pension settlement out of AOCI of $4.1 million, the excess tax benefit for share-based compensation which vested during the year of $7.7 million and the $1.7 million reversal of valuation allowance related to capital losses in the UK. The ETR for Fiscal 2023 was lower than the US federal income tax rate primarily due to the favorable impacts from the Company’s global reinsurance and financing arrangements, partially offset by the unfavorable impact of an uncertain tax position related to a prior year of $20.5 million recorded in Fiscal 2023. Refer to Note 10 of Item 8 for additional information.

In the fourth quarter of Fiscal 2024, income tax benefit was $199.2 million, with an ETR of (46.7)%, compared to expense of $89.5 million, with an ETR of 24.4% in the fourth quarter of Fiscal 2023. The ETR and tax benefit for the fourth quarter of Fiscal 2024 were primarily driven by the $263.3 million deferred tax benefit resulting from the Bermuda economic transition adjustment discussed above and the favorable impact of an uncertain tax position of $20.5 million settled in the fourth quarter. The ETR for the fourth quarter of Fiscal 2023 was higher than the US federal income tax rate, primarily due to the unfavorable impact of an uncertain tax position related to a prior year of $20.5 million recorded in the fourth quarter of Fiscal 2023, partially offset by favorable impacts from the Company’s global reinsurance and financing arrangements.

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NON-GAAP MEASURES

The discussion and analysis of Signet’s results of operations, financial condition and liquidity contained in this Annual Report on Form 10-K are based upon the consolidated financial statements of Signet which are prepared in accordance with GAAP and should be read in conjunction with Signet’s consolidated financial statements and the related notes included in Item 8. Signet provides certain non-GAAP information in reporting its financial results to give investors additional data to evaluate its operations. The Company believes that non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating historical trends and current period performance and liquidity. For these reasons, internal management reporting also includes these non-GAAP measures.

These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for the GAAP financial measures presented in the Company’s consolidated financial statements and other publicly filed reports. In addition, our non-GAAP financial measures may not be the same as or comparable to similar non-GAAP measures presented by other companies.

1. Net cash

Net cash is a non-GAAP measure defined as the total of cash and cash equivalents less debt. Management considers this metric to be helpful in understanding the total indebtedness of the Company after consideration of cash balances on-hand.

2. Free cash flow and adjusted free cash flow

Free cash flow is a non-GAAP measure defined as the net cash provided by operating activities less purchases of property, plant and equipment. Management considers this metric to be helpful in understanding how the business is generating cash from its operating and investing activities that can be used to meet the financing needs of the business. Adjusted free cash flow, a non-GAAP measure, excludes the proceeds from the sale of in-house finance receivables. Free cash flow and adjusted free cash flow are indicators frequently used by management in evaluating its overall liquidity needs and determining appropriate capital allocation strategies. Free cash flow and adjusted free cash flow do not represent the residual cash flow available for discretionary purposes. See Note 12 of Item 8 for additional information regarding the sale of the in-house credit card receivable portfolio.

3. Non-GAAP operating income and non-GAAP operating margin

Non-GAAP operating income is a non-GAAP measure defined as operating income excluding the impact of certain items which management believes are not necessarily reflective of normal operational performance during a period. Management finds the information useful when analyzing operating results to appropriately evaluate the performance of the business without the impact of these certain items. Management believes the consideration of measures that exclude such items can assist in the comparison of operational performance in different periods which may or may not include such items. Management also utilizes non-GAAP operating margin, defined as non-GAAP operating income as a percentage of total sales, to further evaluate the effectiveness and efficiency of the Company’s flexible operating model.

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(1)    Fiscal 2024 includes a credit to income related to the adjustment of a prior litigation accrual recognized in the first quarter of Fiscal 2023. Refer to Note 28 of Item 8 for additional information.

(2)     Fiscal 2024 includes expenses related to the integration of Blue Nile, primarily severance and retention, exit and disposal costs and system decommissioning costs; Fiscal 2023 includes the impact of the fair value step-up for inventory acquired in the Diamonds Direct and Blue Nile acquisitions, as well as direct transaction-related and integration costs, primarily professional fees and severance, incurred for the acquisition of Blue Nile; Fiscal 2022 included direct transaction-related costs for the acquisition of Rocksbox and Diamonds Direct and impact of the fair value step-up for inventory from Diamonds Direct.

(3)    Fiscal 2024 restructuring and asset impairment charges were incurred primarily as a result of the Company’s rationalization of store footprint and reorganization of certain centralized functions; Fiscal 2023 includes asset impairment charges related to the Company’s headquarters; Fiscal 2022 includes ROU asset impairment gains, net recorded due to various impacts of COVID-19 to the Company’s business and related gains on terminations or modifications of leases, resulting from previously recorded impairments of the right of use assets in Fiscal 2021. Refer to Note 16 and Note 26 of Item 8 for additional information.

(4)    Includes gain on sale of the UK prestige watch business, net of transaction costs. Refer to Note 4 of Item 8 for additional information.

4. Non-GAAP diluted EPS

Non-GAAP diluted EPS is a non-GAAP measure defined as diluted EPS excluding the impact of certain items which management believes are not necessarily reflective of normal operational performance during a period. Management finds the information useful when analyzing financial results in order to appropriately evaluate the performance of the business without the impact of these certain items. In particular, management believes the consideration of measures that exclude such items can assist in the comparison of performance in different periods which may or may not include such items. The Company estimates the tax effect of all non-GAAP adjustments by applying a statutory tax rate to each item. The income tax items represent the discrete amount that affected the diluted EPS during the period.

(1)    Fiscal 2024 includes a credit to income related to the adjustment of a prior litigation accrual recognized in the first quarter of Fiscal 2023. Refer to Note 28 of Item 8 for additional information.

(2)     Includes pension wind-up charges in Fiscal 2024. Refer to Note 27 of Item 8 for additional information.

(3)    Fiscal 2024 includes expenses related to the integration of Blue Nile, primarily severance and retention, exit and disposal costs and system decommissioning costs; Fiscal 2023 includes the impact of the fair value step-up for inventory acquired in the Diamonds Direct and Blue Nile acquisitions, as well as direct transaction-related and integration costs, primarily professional fees and severance, incurred for the acquisition of Blue Nile; Fiscal 2022 included direct transaction-related costs for the acquisition of Rocksbox and Diamonds Direct and impact of the fair value step-up for inventory from Diamonds Direct.

(4)    Fiscal 2024 restructuring and asset impairment charges were incurred primarily as a result of the Company’s rationalization of store footprint and reorganization of certain centralized functions; Fiscal 2023 includes asset impairment charges related to the Company’s headquarters; Fiscal 2022 includes ROU asset impairment gains, net recorded due to various impacts of COVID-19 to the Company’s business and related gains on terminations or modifications of leases, resulting from previously recorded impairments of the right of use assets in Fiscal 2021. Refer to Note 16 and Note 26 of Item 8 for additional information.

(5)    Includes gain on sale of the UK prestige watch business, net of transaction costs. Refer to Note 4 of Item 8 for additional information.

(6)    Fiscal 2024 relates to the impact of the deferred income tax benefit from the Bermuda economic transition adjustment. Refer to Note 10 of Item 8 for additional information.

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5. Adjusted debt and adjusted net debt leverage ratios

The adjusted debt and adjusted net debt leverage ratios are non-GAAP measures calculated by dividing Signet’s adjusted debt or adjusted net debt by adjusted EBITDAR. Adjusted debt is a non-GAAP measure defined as debt recorded in the consolidated balance sheet, plus redeemable Series A Convertible Preference Shares (“Preferred Shares”), plus an adjustment for operating leases (5x annual rent expense). Adjusted net debt, a non-GAAP measure, is adjusted debt less the cash and cash equivalents on hand as of the balance sheet dates. Adjusted EBITDAR is a non-GAAP measure, defined as earnings before interest and income taxes, depreciation and amortization, share-based compensation expense, other non-operating expense, net and certain non-GAAP accounting adjustments (“Adjusted EBITDA”) and further excludes minimum fixed rent expense for properties occupied under operating leases. Adjusted EBITDA and Adjusted EBITDAR are considered important indicators of operating performance as they exclude the effects of financing and investing activities by eliminating the effects of interest, depreciation and amortization costs and certain accounting adjustments. Management believes these financial measures are helpful to investors and analysts to analyze trends in Signet’s business and evaluate Signet’s performance. The adjusted debt leverage ratio is a key priority of the Company’s capital allocation strategy used in measuring the Company’s optimized capital structure. The adjusted net debt leverage ratio is supplemental to the adjusted debt ratio as it is useful to both investors and management to consider cash on hand available to pay down or issue debt.

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(1)    Fiscal 2023 includes pension settlement charges of $133.7 million.

(2)    Fiscal 2024 includes: 1) $22.0 million of acquisition and integration-related expenses related to the integration of Blue Nile, primarily severance and retention, exit and disposal costs and system decommissioning costs; 2) $7.5 million and $7.1 million of restructuring and asset impairment charges, respectively, incurred as a result of the Company’s rationalization of store footprint and reorganization of certain centralized functions; 3) $12.3 million related to the gain on sale of the UK prestige watch business; and 4) a $3.0 million credit to income related to the adjustment of a prior litigation accrual recognized in the first quarter of Fiscal 2023.

Fiscal 2023 includes: 1) $203.8 million related to litigation charges; 2) $25.8 million of acquisition and integration-related costs including the impact of the fair value step-up for inventory from Diamonds Direct and Blue Nile, as well as direct transaction-related and integration costs, primarily professional fees and severance, incurred related to the acquisition of Blue Nile in Fiscal 2023; and 3) $15.9 million of asset impairments

Fiscal 2022 includes: 1) $0.9 million of net asset impairment gains related to long-lived assets; 2) $3.3 million credit to restructuring expense, primarily related to adjustments to previously recognized restructuring liabilities in connection with the Company’s transformation plan; 3) $1.7 million related to the settlement of previously disclosed shareholder litigation matters; 4) $8.6 million of charges related to professional fees for direct transaction-related costs incurred for the acquisitions of Rocksbox and Diamonds Direct in Fiscal 2022, as well as includes the impact of the fair value step up for inventory from Diamonds Direct; and 5) $1.4 million gain associated with the sale of customer in-house finance receivables.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The Company’s primary sources of liquidity are cash on hand, cash provided by operations and availability under its senior secured asset-based revolving credit facility (the “ABL Revolving Facility”). As of February 3, 2024, the Company had $1.4 billion of cash and cash equivalents, $147.8 million of outstanding debt related to the 4.70% senior unsecured notes due in June 2024 (the “Senior Notes”) and no outstanding borrowings on the ABL Revolving Facility. The available borrowing capacity on the ABL Revolving Facility was $1.1 billion as of February 3, 2024.

The Company has a disciplined approach to capital allocation, utilizing the following capital priorities: 1) invest in its business to drive growth through both organic investments and acquisitions; 2) optimize its capital structure and maintain an adjusted leverage ratio (a non-GAAP measure as defined in the Non-GAAP Measures section above) of less than 2.75x; and 3) return cash to shareholders through share repurchases and dividends.

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Investing in growth

Since the Company’s transformation strategies began in Fiscal 2019, the Company has delivered substantially against its strategic priorities to establish the Company as the OmniChannel jewelry category leader and position its business for sustainable long-term growth. The investments and new capabilities built during the past few years laid the foundation for the Company’s accelerated growth, including prioritizing investments in digital technology and data analytics, enhancing the Company’s new and modernized eCommerce platform and optimizing a connected commerce shopping journey for its customers. In addition, cost reductions and structural improvements since the Company’s transformation began have generated annual cost savings of more than $800 million, which has fueled the investments described above. The Company’s cash discipline has led to more efficient working capital, through both the extension of payment days with the Company’s vendor base, as well as through improvement in productivity and overall health of the Company’s inventory, utilizing a disciplined approach to drive continued reductions in sell down and clearance inventory.

As the Company continues to execute on its Inspiring Brilliance strategy, it intends to continue to focus on working capital efficiency, optimizing its real estate footprint, and prioritizing transformational productivity to drive further cost savings opportunities, all of which are expected to be used to fuel strategic investments, grow the business, and enhance liquidity. During Fiscal 2024, the Company invested $125.5 million for capital expenditures and $58.3 million related to investments in digital and cloud IT initiatives.

The Company has made various strategic acquisitions in line with its Inspiring Brilliance growth strategy over the past three years, investing nearly $900 million for the acquisitions of Diamonds Direct in Fiscal 2022, Blue Nile in Fiscal 2023 and SJR in Fiscal 2024. The acquisition of Diamonds Direct accelerated the Company’s growth in accessible luxury and bridal, and the Company is focused on doubling the pace of store openings, extending its reach into even more key markets. The addition of Blue Nile accelerated Signet's efforts to enhance its connected commerce capabilities and broaden its digital leadership across the jewelry category – all while further achieving meaningful operating synergies for the consumers and creating value for shareholders. The acquisition of certain assets of SJR in the second quarter of Fiscal 2024, as well as the transition of the former Blue Nile Seattle fulfillment center to a new enterprise-wide repair facility, is expected to expand the Company’s services capacity and capabilities.

In addition to the acquisitions, the Company divested the operations and certain assets related to the prestige watch business in the UK during the fourth quarter of Fiscal 2024 for approximately $54 million. The Company believes the divestiture of this non-strategic business will enable the UK to accelerate key elements of its transformation. The proceeds of the sale will be used for general corporate purposes. See Note 4 of Item 8 for further details.

Optimized capital structure

The Company has made significant progress over the past few years in line with its strategic priority to ensure a strong cash and overall liquidity position, including fully outsourcing credit, significantly reducing its outstanding debt, and eliminating the UK Pension Scheme. In addition, in Fiscal 2022, the Company renegotiated its $1.5 billion ABL Facility, as further described in Note 22 of Item 8, to extend the maturity until 2026 and allow overall greater financial flexibility to grow the business and provide an additional option to address the calendar year 2024 debt and Preferred Shares, if necessary. The Company maintained a 2.3x adjusted leverage ratio through the end of Fiscal 2024, well below the Company’s stated goal of less than 2.75x. As a result of the progress and the strength of the Company’s financial position, the Company is reducing its goal to be at or below 2.5x.

Returning cash to shareholders

The Company remains committed to its goal to return cash to shareholders. This includes our goal to be a dividend growth company. Beginning in the second quarter of Fiscal 2022, Signet elected to reinstate the dividend program on its common shares. The Company increased its common dividends from $0.18 per share in Fiscal 2022, to $0.20 per share in Fiscal 2023, to $0.23 per share in Fiscal 2024, and beginning in Fiscal 2025 increased it again to $0.29 per share. The Company also remains focused on share repurchases under its 2017 Share Repurchase Program (the “2017 Program”). During Fiscal 2022, Fiscal 2023 and Fiscal 2024 the Board authorized increases in the remaining amount of shares authorized for repurchase under the 2017 Program by $559 million, $500 million, and $263 million, respectively, bringing the total authorization to approximately $1.9 billion as of February 3, 2024. Since the reinstatement of share repurchases in Fiscal 2022, the Company has repurchased approximately 11.2 million shares for $827.2 million under the 2017 Program, including $139.3 million in Fiscal 2024. Subsequent to year-end, the Board approved a further increase to the multi-year authorization under the 2017 Program bringing the total remaining authorization to approximately $850 million (net of approximately $7.0 million of share repurchases made in the first quarter of Fiscal 2025 through March 19, 2024). See Note 7 of Item 8 for additional information related to share repurchases.

The Company believes that cash on hand, cash flows from operations and available borrowings under the ABL Revolving Facility will be sufficient to meet its ongoing business requirements for at least the 12 months following the date of this report, including funding working capital needs, projected investments in the business (including capital expenditures), debt service and maturities, including Preferred Shares, and returns to shareholders through dividends and share repurchases.

Primary sources and uses of operating cash flows

Operating activities provide the primary source of cash for the Company and are influenced by a number of factors, the most significant of which are operating income and changes in working capital items, such as:

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•changes in the level of inventory as a result of sales and other strategic initiatives;

•changes and timing of accounts payable and accrued expenses, including variable compensation; and

•changes in deferred revenue, reflective of the revenue from performance of extended service plans.

Signet derives most of its operating cash flows through the sale of merchandise and extended service plans. As a retail business, Signet receives cash when it makes a sale to a customer or when the payment has been processed by Signet or the relevant bank if the payment is made by third-party credit or debit card. As further discussed in Note 12 of Item 8, the Company has outsourced its entire credit card portfolio, and it receives cash from its outsourced financing partners (net of applicable fees) generally within two days of the customer sale. Offsetting these receipts, the Company’s largest operating expenses are the purchase of inventory, payroll and payroll-related benefits, store occupancy costs (including rent) and advertising.

Summary cash flow

The following table provides a summary of Signet’s cash flow activity for Fiscal 2024 and Fiscal 2023:

Operating activities

Net cash provided by operating activities in Fiscal 2024 was $546.9 million compared to net cash provided by operating activities of $797.9 million in the prior year comparable period. This overall decrease in operating cash flows was driven by the payment of litigation settlements as noted below, offset by higher cash inflows for working capital compared to the prior period and lower net tax payments. The significant movements in operating cash flows are further described below:

•Net income was $810.4 million compared to net income of $376.7 million in the prior year period, an increase of $433.7 million. This increase was primarily related to the change in deferred taxes noted below; non-cash, pre-tax pension settlement charges of $133.7 million and pre-tax accrued litigation charges of $203.8 million during Fiscal 2023; partially offset by lower overall sales volume in Fiscal 2024. See Note 11 of Item 8 for additional information.

•The change in current income taxes was a use of $3.0 million in the current period compared to a source of $98.5 million in the prior year. The year over year change was primarily the result of net income tax payments of $13.0 million in the current year and lower forecasted taxable income, compared to net cash payments of $74.6 million in the prior year period. Deferred taxes were a use of $180.3 million in the current period compared to a use of $99.3 million in the prior year, primarily as a result of the deferred tax asset related to the Bermuda economic transition adjustment. Refer to Note 10 of Item 8 for additional information.

•Cash provided by inventory was $182.5 million compared to a use of $16.5 million in the prior year period. The inventory reduction in the current year was driven by the Company’s inventory management initiatives in the current year, compared to prior year which was driven by the replenishment of inventories to healthier in-stock levels.

•Cash used by accounts payable was $134.5 million compared to a use of $101.6 million in the prior year period. Accounts payable decreased in the current year primarily as a result of lower inventory purchases and payment timing.

•Cash used by accrued expenses and other liabilities was $251.1 million compared to a source of $120.0 million in the prior year period. This difference was driven by accrued litigation charges which were accrued in the prior year period and paid during the first quarter of Fiscal 2024. See Note 28 of Item 8 for additional information.

Investing activities

Net cash used in investing activities in Fiscal 2024 was $75.8 million compared to a use of $545.4 million in the prior period. Cash used in Fiscal 2024 was primarily related to capital expenditures of $125.5 million, partially offset by cash received of $53.8 million for the sale of the Company’s UK prestige watch business. Capital expenditures are primarily associated with new stores, remodels of existing stores, and strategic capital investments in digital and IT. In Fiscal 2023, net cash used in investing activities was primarily

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related to the acquisition of Blue Nile for $389.9 million and capital expenditures of $138.9 million. See Note 4 of Item 8 for more information on the acquisition and divestiture.

Stores opened and closed in Fiscal 2024:

(1)    The net change in selling square footage for Fiscal 2024 for the North America and International segments was (1.4)% and (15.4)%, respectively.

(2)    Includes 13 store repositions in Fiscal 2024.

(3)    Includes 16 stores from the divestiture of the UK prestige watch business as described in Note 4 of Item 8.

Financing activities

Net cash used in financing activities in Fiscal 2024 was $259.7 million, consisting of the repurchase of $139.3 million of common shares, preferred and common share dividends paid of $72.8 million, and payments for taxes withheld related to the settlement of the Company’s share-based compensation awards of $47.6 million.

Net cash used in financing activities in Fiscal 2023 was $490.0 million, consisting of the repurchase of $376.1 million of common shares, preferred and common share dividends paid of $69.5 million, and payments for taxes withheld related to the settlement of the Company’s share-based compensation awards of $44.4 million.

Movement in cash and indebtedness

Cash and cash equivalents at February 3, 2024 were $1.4 billion compared to $1.2 billion as of January 28, 2023. The increase year over year was primarily driven by cash flow from operations partially offset by the payment of litigation charges and share repurchases, as described above. Signet has cash and cash equivalents invested in various ‘AAA’ rated government money market funds and at a number of large, highly-rated financial institutions. The amount invested in each liquidity fund or at each financial institution takes into account the credit rating and size of the liquidity fund or financial institution and is invested for short-term durations.

As further described in Note 22 of Item 8, the Company entered into an agreement to amend the ABL Revolving Facility on July 28, 2021. The amendment extended the maturity of the ABL Revolving Facility to July 28, 2026 and allows the Company to increase the size of the ABL Revolving Facility by up to $600 million.

There were no borrowings under the ABL Revolving Facility during Fiscal 2024 or Fiscal 2023. The Company had stand-by letters of credit on the ABL Revolving Facility of $18.2 million as of February 3, 2024 that reduced remaining borrowing availability. Available borrowing capacity under the ABL Revolving Facility was $1.1 billion as of February 3, 2024.

At February 3, 2024 and January 28, 2023, Signet had $147.8 million and $147.7 million, respectively, of outstanding debt, consisting entirely of the Senior Notes. The Senior Notes are due in June 2024 and the redemption is expected to be funded with cash on hand.

Net cash was $1.2 billion as of February 3, 2024 compared to net cash of $1.0 billion as of January 28, 2023. Refer to the Non-GAAP Measures section above for the definition of net cash and reconciliation to its most comparable financial measure presented in accordance with GAAP.

As of February 3, 2024 and January 28, 2023, the Company was in compliance with all debt covenants.

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Capital availability

Signet’s level of borrowings and cash balances fluctuates during the year reflecting the seasonality of its cash flow requirements and business performance. Management believes that cash balances and the committed borrowing facilities (including the ABL Facility described more fully in Note 22 of Item 8) currently available to the business are sufficient for both its present and near-term requirements. The following table provides a summary of these items as of February 3, 2024, January 28, 2023 and January 29, 2022:

(1) Includes cash and cash equivalents and current portion of long-term debt

If the excess availability under the ABL Revolving Facility falls below the threshold specified in the ABL Facility agreement, the Company will be required to maintain a fixed charge coverage ratio of not less than 1.00 to 1.00. As of February 3, 2024, the threshold related to the fixed coverage ratio was approximately $114 million. The ABL Facility places certain restrictions upon the Company’s ability to, among other things, incur additional indebtedness, pay dividends, grant liens and make certain loans, investments and divestitures. The ABL Facility contains customary events of default (including payment defaults, cross-defaults to certain of the Company’s other indebtedness, breach of representations and covenants and change of control). The occurrence of an event of default under the ABL Facility would permit the lenders to accelerate the indebtedness and terminate the ABL Facility.

Credit ratings

The following table provides Signet’s credit ratings as of February 3, 2024:

OFF-BALANCE SHEET ARRANGEMENTS

Merchandise held on consignment

The Company held $530.3 million of consignment inventory at February 3, 2024 compared to $623.0 million at January 28, 2023, which is not recorded on the consolidated balance sheets. The principal terms of the consignment agreements, which can generally be terminated by either party, are such that the Company can return any or all of the inventory to the relevant suppliers without financial or commercial penalties and the supplier can adjust the inventory costs prior to sale.

CRITICAL ACCOUNTING ESTIMATES

Critical accounting policies covering areas of greater complexity that are subject to the exercise of judgment due to the reliance on key estimates are listed below. A comprehensive listing of Signet’s significant accounting policies is set forth in Note 1 of the consolidated financial statements in Item 8.

Revenue recognition for extended service plans and lifetime warranty agreements (“ESP”)

The Company recognizes revenue related to ESP sales in proportion to when the expected costs will be incurred. The deferral periods for ESP sales are determined from patterns of claims costs, including estimates of future claims costs expected to be incurred. Management reviews the trends in historical claims to assess whether changes are required to the revenue and cost recognition rates utilized. All direct costs associated with the sale of the ESP plans are deferred and amortized in proportion to the revenue recognized and disclosed as either other current assets or other assets in the consolidated balance sheets. These direct costs primarily include sales commissions and credit card fees. Amortization of deferred ESP selling costs is included within SG&A in the consolidated statements of operations.

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The North America reportable segment sells ESP, subject to certain conditions, to perform repair work over the life of the product. Customers generally pay for ESP at the store or online at the time of merchandise sale. Revenue from the sale of the lifetime ESP is recognized consistent with the estimated patterns of claim costs expected to be incurred by the Company in connection with performing under the ESP obligations. Lifetime ESP revenue is deferred and recognized over a maximum of 13 years after the sale of the warranty contract. Although claims experience varies between the Company’s national banners, thereby resulting in different recognition rates, approximately 60% to 65% of revenue is recognized within the first two years on a weighted average basis. Management estimates that a 1% change in the recognition rates between years for ESP sales, based on the level of ESP plans sold in Fiscal 2024 and assuming no change in the life over which the Company is expected to fulfill its obligations under the warranty, would impact revenue recognized on current year ESA plan sales by approximately $5 million.

As noted above, the Company utilizes historical claims data to estimate the expected future patterns of claims cost and the related revenue recognition rates utilized. These claims patterns are subject to change based primarily on revisions to the Company’s ESP product offerings and changes in customer behavior over time. The Company refreshes its analysis of the claims pattern on at least an annual basis, or more often if circumstances dictate such a review is required (such as occurred as a result of the disruption from COVID-19). A significant change in either the overall claims pattern or the life over which the Company is expected to fulfill its obligation under the warranty could result in material change to revenues.

Goodwill and intangibles

In a business combination, the Company estimates and records the fair value of all assets acquired and liabilities assumed, including identifiable intangible assets and liabilities. The fair value of these intangible assets and liabilities is estimated based on management’s assessment, including selection of appropriate valuation techniques, inputs and assumptions in the determination of fair value. Significant estimates in valuing intangible assets and liabilities acquired include, but are not limited to, future expected cash flows associated with the acquired asset or liability, expected life and discount rates. The excess purchase price over the estimated fair values of the assets acquired and liabilities assumed is recognized as goodwill. Goodwill is recorded by the Company’s reporting units based on the acquisitions made by each.

Goodwill and other indefinite-lived intangible assets, such as indefinite-lived trade names, are evaluated for impairment annually as of the end of the fourth reporting period, with the exception of newly acquired reporting units which are completed no later than twelve months after the date of acquisition. Additionally, if events or conditions were to indicate the carrying value of a reporting unit or an indefinite-lived intangible asset may be greater than its fair value, the Company would evaluate the reporting unit or asset for impairment at that time. Impairment testing compares the carrying amount of the reporting unit or other indefinite-lived intangible assets with its fair value. When the carrying amount of the reporting unit or other intangible assets exceeds its fair value, an impairment charge is recorded.

The impairment test for goodwill involves estimating the fair value of the reporting unit through either estimated discounted future cash flows or market-based methodologies. The impairment test for other indefinite-lived intangible assets involves estimating the fair value of the asset, which is typically performed using the relief from royalty method for indefinite-lived trade names.

Due to various impacts of the current market conditions on key inputs and assumptions, such as rising interest rates and the sustained inflationary pressure on consumers’ discretionary spending, the Company determined that quantitative impairment assessments were required for the Diamonds Direct and Digital Banners reporting units as well as the indefinite-lived intangible assets assigned to those reporting units as of the annual impairment testing date during the second quarter of Fiscal 2024. As part of the assessments, it was determined that an increase in the discount rates was required to reflect the rising interest rates due to current market conditions. This higher discount rate, in conjunction with revised cash flow projections associated with the impact of the decline in consumer trends relative to engagement related purchases expected in Fiscal 2024, resulted in lower than previously projected discounted future cash flows for the reporting units and indefinite-lived intangible assets which negatively affected the valuation compared to previous valuations.

Based on the results of the quantitative impairment assessments, the Company determined that no impairment was required as the estimated fair value of the Digital Banners reporting unit as well as the James Allen trade name substantially exceeded their respective carrying values. Due to the recent acquisition of the Blue Nile trade name, the carrying value of $96 million approximated its estimated fair value as of the annual impairment testing date and no impairment was required. For the Diamonds Direct reporting unit, as well as its related trade name, the estimated fair values exceeded their carrying values by approximately 13% and 6%, respectively.

Due to a lower than expected sales during the fourth quarter of Fiscal 2024, combined with softening of sales expected in Fiscal 2025, the Company determined that an interim quantitative impairment assessment was required for the Blue Nile indefinite-lived intangible trade name asset as of the end of Fiscal 2024. As a result of this interim quantitative impairment assessment of the Blue Nile trade name, the carrying value of $96 million continues to approximate its estimated fair value and thus no impairment was required.

The Company noted that an increase in the discount rate and/or a further softening of sales and operating income trends for the Diamonds Direct reporting unit and related trade name as well as the Blue Nile trade name, could result in a decline in the estimated fair values of the indefinite-lived intangible assets, including goodwill, which could result in future material impairment charges. For

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instance, an increase in the discount rate of 0.5%, assuming no other changes to assumptions, would result in an impairment charge of approximately $5 million on the Blue Nile trade name.

The Company will continue to monitor events or circumstances that could trigger the need for an interim impairment test in Fiscal 2025. The Company believes that the estimates and assumptions related to sales and operating income trends, discount rates, royalty rates and other assumptions are reasonable, but they are subject to change from period to period. Future economic conditions or operating performance, such as declines in sales or increases in discount rates, could differ from those projected by management in its most recent impairment tests for indefinite-lived intangible assets, including goodwill. This could impact our estimates of fair values and may result in future material impairment charges. See Note 18 of Item 8 for further details.

Long-lived assets

Long-lived assets of the Company consist primarily of property and equipment, definite-lived intangible assets and operating lease right-of-use ("ROU") assets. Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Potentially impaired assets or asset groups are identified by reviewing the undiscounted cash flows of individual stores. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the store asset group, based on the Company’s internal business plans. If the undiscounted cash flow for the store asset group is less than its carrying amount, the long-lived assets are measured for potential impairment by estimating the fair value of the asset group, and recording an impairment loss for the amount that the carrying value exceeds the estimated fair value. The Company primarily utilizes the replacement cost method to estimate the fair value of its property and equipment, and the income capitalization method to estimate the fair value of its ROU assets, which incorporates historical store level sales, internal business plans, real estate market capitalization and rental rates, and discount rates.

The uncertainty of the current macroeconomic environment on the Company’s business could continue to further negatively affect the operating performance and cash flows of the previously impaired stores or additional stores, including the impacts of inflation, continued changes in consumer behavior and shifts in discretionary spending, the inability to achieve or maintain cost savings initiatives included in the business plans, changes in real estate strategy or other macroeconomic factors which influence consumer behavior. In addition, key assumptions used to estimate fair value, such as sales trends, capitalization and market rental rates, and discount rates could impact the fair value estimates of the store-level assets in future periods.

Income taxes

Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are recognized by applying statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when it is more likely than not that all or a portion of the deferred tax assets will not be realized, based on management’s evaluation of all available evidence, both positive and negative, including reversals of deferred tax liabilities, projected future taxable income and results of recent operations. The Company has a valuation allowance of $18.3 million and $19.0 million, as of February 3, 2024 and January 28, 2023, respectively, due to uncertainties related to the Company’s ability to utilize certain of its deferred tax assets, primarily consisting of net operating losses and capital losses carried forward.

The annual effective tax rate is based on annual income, statutory tax rates and tax planning strategies available in the various jurisdictions in which the Company operates. The Company does not recognize tax benefits related to positions taken on certain tax matters unless the position is more likely than not to be sustained upon examination by tax authorities. At any point in time, various tax years are subject to or are in the process of being audited by various taxing authorities. The Company records a reserve for uncertain tax positions, including interest and penalties. To the extent that management’s estimates of settlements change, or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. See Note 10 of Item 8 for additional information regarding deferred tax assets and unrecognized tax benefits.

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

The Company and certain of its subsidiaries, which are listed on Exhibit 22.1 to this Annual Report on Form 10-K, have guaranteed obligations under the Senior Notes.

The Senior Notes were issued by Signet UK Finance plc (the “Issuer”). The Senior Notes rank senior to the Preferred Shares and common shares. The Senior Notes are effectively subordinated to our existing and future secured indebtedness to the extent of the assets securing that indebtedness. The Senior Notes are fully and unconditionally guaranteed on a joint and several basis by the Company, as the parent entity (the “Parent”) of the Issuer, and certain of its subsidiary guarantors (each, a “Guarantor” and collectively, the “Guarantors”).

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The Senior Notes are structurally subordinated to all existing and future debt and other liabilities, including trade payables, of our subsidiaries that do not guarantee the Senior Notes (the “Non-Guarantors”). The Non-Guarantors will have no obligation, contingent or otherwise, to pay amounts due under the Senior Notes or to make funds available to pay those amounts. Certain Non-Guarantors may be limited in their ability to remit funds to us by means of dividends, advances or loans due to required foreign government and/or currency exchange board approvals or limitations in credit agreements or other debt instruments of those subsidiaries.

The Guarantors jointly and severally, irrevocably and unconditionally guarantee on a senior unsecured basis the performance and full and punctual payment when due of all obligations of Issuer, as defined in the Indenture, in accordance with the Senior Notes and the related Indentures, as supplemented, whether for payment of principal of or interest on the Senior Notes when due and any and all costs and expenses incurred by the trustee or any holder of the Senior Notes in enforcing any rights under the guarantees (collectively, the “Guarantees”). The Guarantees and Guarantors are subject to release in limited circumstances only upon the occurrence of certain customary conditions.

Although the Guarantees provide the holders of Senior Notes with a direct unsecured claim against the assets of the Guarantors, under US federal bankruptcy law and comparable provisions of US state fraudulent transfer laws, in certain circumstances a court could cancel a Guarantee and order the return of any payments made thereunder to the Guarantors or to a fund for the benefit of its creditors.

A court might take these actions if it found, among other things, that when the Guarantors incurred the debt evidenced by their Guarantee (i) they received less than reasonably equivalent value or fair consideration for the incurrence of the debt and (ii) any one of the following conditions was satisfied:

•the Guarantor entity was insolvent or rendered insolvent by reason of the incurrence;

•the Guarantor entity was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or

•the Guarantor entity intended to incur or believed (or reasonably should have believed) that it would incur, debts beyond its ability to pay as those debts matured.

In applying the above factors, a court would likely find that a Guarantor did not receive fair consideration or reasonably equivalent value for its Guarantee, except to the extent that it benefited directly or indirectly from the issuance of the Senior Notes. The determination of whether a Guarantor was or was not rendered insolvent when it entered into its Guarantee will vary depending on the law of the jurisdiction being applied. Generally, an entity would be considered insolvent if the sum of its debts (including contingent or unliquidated debts) is greater than all of its assets at a fair valuation or if the present fair salable value of its assets is less than the amount that will be required to pay its probable liability on its existing debts, including contingent or unliquidated debts, as they mature.

If a court canceled a Guarantee, the holders of the Senior Notes would no longer have a claim against that Guarantor or its assets.

Each Guarantee is limited, by its terms, to an amount not to exceed the maximum amount that can be guaranteed by the applicable Guarantor without rendering the Guarantee, as it relates to that Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.

Each Guarantor is a consolidated subsidiary of Parent at the date of each balance sheet presented. The following tables present summarized financial information for Parent, Issuer, and the Guarantors on a combined basis after elimination of (i) intercompany transactions and balances among Parent, Issuer, and the Guarantors and (ii) equity in earnings from and investments in any Non-Guarantor.

(1)    Amounts included in asset and liability subtotals above.

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(2)    Includes net income from intercompany transactions with Non-Guarantors of $311.6 million for Fiscal 2024, and net income of $128.3 million for Fiscal 2023. Intercompany transactions primarily include intercompany dividends and interest.