SIGNET JEWELERS LIMITED FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains statements which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, based upon management's beliefs and expectations as well as on assumptions made by and data currently available to management, appear in a number of places throughout this document and include statements regarding, among other things, Signet's results of operation, financial condition, liquidity, prospects, growth, strategies and the industry in which Signet operates. The use of the words "expects," "intends," "anticipates," "estimates," "predicts," "believes," "should," "potential," "may," "forecast," "objective," "plan," or "target," and other similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties which could cause the actual results to not be realized, including, but not limited to: the negative impacts that the COVID-19 pandemic has had, and will continue to have, on Signet's business, financial condition, profitability and cash flows; the effect of steps we take in response to the pandemic; the severity and duration of the pandemic, including whether there is a "second wave" and whether it is necessary to temporarily reclose our stores, distribution centers and corporate facilities or for our suppliers and vendors to temporarily reclose their facilities; the pace of recovery when the pandemic subsides and the heightened impact it has on many of the risks described herein, including without limitation risks relating to disruptions in our supply chain, consumer behaviors such as spending and willingness to congregate in shopping centers and the impact on demand of our products, our level of indebtedness and covenant compliance, availability of adequate capital, our ability to execute our business plans, our lease obligations and relationships with our landlords, and asset impairments; general economic or market conditions; financial market risks; our ability to optimize Signet's transformation initiative; a decline in consumer spending or deterioration in consumer financial position; changes to regulations relating to customer credit; disruption in the availability of credit for customers and customer inability to meet credit payment obligations; our ability to achieve the benefits related to the outsourcing of the credit portfolio sale due to technology disruptions, future financial results and operating results and/or disruptions arising from changes to or termination of the non-prime outsourcing agreement requiring transition to alternative arrangements through other providers or alternative payment options; deterioration in the performance of individual businesses or of the Company's market value relative to its book value, resulting in impairments of long-lived assets or intangible assets or other adverse financial consequences; the volatility of our stock price; the impact of financial covenants, credit ratings or interest volatility on our ability to borrow; our ability to maintain adequate levels of liquidity for our cash needs, including debt obligations, payment of dividends, and capital expenditures as well as the ability of our customers, suppliers and lenders to access sources of liquidity to provide for their own cash needs; changes in our credit rating; potential regulatory changes, global economic conditions or other developments related to theUnited Kingdom's exit from theEuropean Union ; exchange rate fluctuations; the cost, availability of and demand for diamonds, gold and other precious metals; stakeholder reactions to disclosure regarding the source and use of certain minerals; seasonality of Signet's business; the merchandising, pricing and inventory policies followed by Signet and failure to manage inventory levels; Signet's relationships with suppliers and ability to obtain merchandise that customers wish to purchase; the failure to adequately address the impact of existing tariffs and/or the imposition of additional duties, tariffs, taxes and other charges or other barriers to trade or impacts from trade relations; the level of competition and promotional activity in the jewelry sector; the development and maintenance of Signet's OmniChannel retailing and ability to increase digital sales; changes in consumer attitudes regarding jewelry and failure to anticipate and keep pace with changing fashion trends; changes in the supply and consumer acceptance of and demand for gem quality lab created diamonds and adequate identification of the use of substitute products in our jewelry; ability to execute successful marketing programs and manage social media; the ability to optimize Signet's real estate footprint; the ability to satisfy the accounting requirements for "hedge accounting," or the default or insolvency of a counterparty to a hedging contract; the performance of and ability to recruit, train, motivate and retain qualified sales associates; management of social, ethical and environmental risks; the reputation of Signet and its banners; inadequacy in and disruptions to internal controls and systems, including related to the migration to a new financial reporting information technology system; security breaches and other disruptions to Signet's information technology infrastructure and databases; an adverse development in legal or regulatory proceedings or tax matters, including any new claims or litigation brought by employees, suppliers, consumers or shareholders, regulatory initiatives or investigations, and ongoing compliance with regulations and any consent orders or other legal or regulatory decisions; failure to comply with labor regulations; collective bargaining activity; changes in taxation laws, rules or practices in the US and jurisdictions in which Signet's subsidiaries are incorporated, including developments related to the tax treatment of companies engaged in Internet commerce; risks related to international laws and Signet being aBermuda corporation; difficulty or delay in executing or integrating an acquisition, business combination, major business or strategic initiative; risks relating to the outcome of pending litigation, including risks related to satisfaction of the conditions precedent for our pending securities class action settlement; our ability to protect our intellectual property or physical assets; changes in assumptions used in making accounting estimates relating to items such as extended service plans and pensions; the success of recent changes in Signet's executive management team; or the impact of weather-related incidents, natural disasters, strikes, protests, riots or terrorism, acts of war or another public health crisis or disease outbreak, epidemic or pandemic on Signet's business. 38 -------------------------------------------------------------------------------- Table of Contents For a discussion of these and other risks and uncertainties which could cause actual results to differ materially from those expressed in any forward looking statement, see the "Risk Factors" and "Forward-Looking Statements" sections of Signet's Fiscal 2020 Annual Report on Form 10-K filed with theSEC onMarch 26, 2020 and quarterly reports on Form 10-Q and the "Safe Harbor Statements" in current reports on Form 8-K filed with theSEC . Signet undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law. OVERVIEWSignet Jewelers Limited ("Signet" or the "Company") is the world's largest retailer of diamond jewelry. Signet is incorporated inBermuda and its address and telephone number are shown on the cover of this document. Its corporate website is www.signetjewelers.com, from where documents that the Company is required to file or furnish with theUS Securities and Exchange Commission ("SEC") may be viewed or downloaded free of charge. The Company, with 2,915 stores and kiosks as ofAugust 1, 2020 , manages its business by geography, a description of which follows: •The North America segment has 2,454 locations in the US and 107 locations inCanada as ofAugust 1, 2020 . •In the US, the segment primarily operates in malls and off-mall locations under the following banners: Kay (Kay Jewelers and Kay Outlet ); Zales (Zales Jewelers and Zales Outlet ); Jared (Jared The Galleria Of Jewelry andJared Vault );James Allen ; and a variety of mall-based regional banners. Additionally, in the US, the segment operates mall-based kiosks under the Piercing Pagoda banner. •In Canada, the segment primarily operates under the Peoples banner (Peoples Jewellers ), as well as the Mappins Jewellers regional banner. •The International segment has 354 stores in theUK ,Republic of Ireland andChannel Islands as ofAugust 1, 2020 . The segment primarily operates in shopping malls and off-mall locations under the H.Samuel andErnest Jones banners.Certain Company activities (e.g. diamond sourcing) are managed in the "Other" segment for financial reporting purposes. The Company's diamond sourcing function includes its diamond polishing factory inBotswana . See Note 4 of Item 1 for additional information regarding the Company's reportable segments. Impacts of COVID-19 to Signet's business InDecember 2019 , a novel coronavirus ("COVID-19") was identified inWuhan, China . InMarch 2020 , theWorld Health Organization declared COVID-19 a global pandemic as a result of the further spread of the virus into all regions of the world, including those regions where the Company's primary operations occur inNorth America and theUK . COVID-19 has significantly impacted consumer traffic and the Company's retail sales, based on the perceived public health risk and government-imposed quarantines and restrictions of public gatherings and commercial activity to contain spread of the virus. EffectiveMarch 23, 2020 , the Company temporarily closed all of its stores inNorth America , its diamond operations inNew York and its support centers inthe United States . Additionally, effectiveMarch 24, 2020 , the Company temporarily closed all of its stores in theUK . The COVID-19 pandemic has also disrupted the Company's global supply chain, including the temporary closure of the Company's diamond polishing operations inBotswana , and may cause additional disruptions to operations if employees of the Company become sick, are quarantined, or are otherwise limited in their ability to work at Company locations or travel for business. While the Company experienced a temporary disruption in its James Allen New York distribution center, the Company continued to fill substantially all of its eCommerce orders during the first half of the year. The COVID-19 pandemic has significantly altered the retail climate and the Company is navigating that change by accelerating its application of the key Path to Brilliance initiatives developed over the past two years including the Company's focus on becoming an OmniChannel leader, meeting the needs of its customers, removing non-customer facing costs, and accelerating the optimization of its real estate footprint. The Company continues to maintain its cost diligence efforts and net structural cost savings are on track to exceed$100 million in Fiscal 2021. Total three-year net cost savings through the end of Fiscal 2021 related to the Company's Path to Brilliance are expected to be at least$285 million compared to its original target of$225 million . During the first half of Fiscal 2021, the Company has closed 293 store locations under the acceleration of these real estate initiatives. The Company continues to actively monitor and manage the situation related to its store and support center operations at the local level focusing on the best interests of its employees, customers, suppliers and shareholders. Beginning in May, Signet initiated a staggered store re-opening plan based on health and safety standards, as well as regional customer demand. As of the date of this report, the Company has re-opened over 90% of its stores inNorth America and theUK . The Company expects business to return gradually throughout the remainder of Fiscal 2021 in bothNorth America and theUK , and remaining store re-openings will continue to be monitored closely, with a priority and focus on safety. It is not clear what the full extent of the COVID-19 impacts will have on the Company's business, its customers and vendors, or on its financial results in the near and long-term. 39 -------------------------------------------------------------------------------- Table of Contents In response to the risks associated with COVID-19, the Company has taken numerous actions to maximize its financial flexibility, bolster its cash position and reduce operating expenditures as a result of the uncertainty. Refer to Liquidity and Capital Resources section below. Non-GAAP Measures 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. For these reasons, internal management reporting also includes non-GAAP measures. Items may be excluded from GAAP financial measures when the company believes this provides greater clarity to management and investors. 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 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 debt Net debt is the total of cash and cash equivalents less loans, overdrafts and long-term debt. Management considers this metric to be helpful in understanding the total indebtedness of the Company after consideration of liquidity available from cash balances on-hand. (in millions) August 1, 2020 February 1, 2020 August 3, 2019 Cash and cash equivalents$ 1,204.0 $ 374.5 $
271.5
Less: Loans and overdrafts (4.6) (95.6) (54.2) Less: Long-term debt (1,336.1) (515.9) (628.2) Net debt$ (136.7) $ (237.0)$ (410.9) 2. 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 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. Free cash flow is an indicator frequently used by management in evaluating its overall liquidity and determining appropriate capital allocation strategies. Free cash flow does not represent the residual cash flow available for discretionary expenditures. 13 weeks ended 26 weeks ended August 1, August 3, August 1, August 3, (in millions) 2020 2019 2020 2019 Net cash provided by operating activities$ 163.7 $ 141.2 $ 156.1 $ 246.6 Purchase of property, plant and equipment (15.9) (27.6) (23.6) (52.2) Free cash flow$ 147.8 $ 113.6 $ 132.5 $ 194.4 40
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3. Earnings before interest, income taxes, depreciation and amortization
("EBITDA") and Adjusted EBITDA
EBITDA is a non-GAAP measure defined as earnings before interest and income
taxes (operating income), depreciation and amortization. EBITDA is an important
indicator of operating performance as it excludes the effects of financing and
investing activities by eliminating the effects of interest, depreciation and
amortization costs. Adjusted EBITDA is a non-GAAP measure which further excludes
the impact of significant and unusual items which management believes are not
necessarily reflective of operational performance during a period. Management
believes these financial measures enhance investors' ability to analyze trends
in the business and evaluate performance relative to other companies. Management
also utilizes these metrics to evaluate its current credit profile, which is a
view consistent with rating agency methodologies.
13 weeks ended 26 weeks ended
August 1, August 3, August 1, August 3,
(in millions) 2020 2019 2020 2019
Net income (loss) $ (81.7) $ (36.1) $ (278.8) $ (46.1)
Income tax benefit (17.2) 3.8 (126.7) 2.3
Other non-operating income, net (0.2) (0.2) (0.3) (0.5)
Interest expense, net 9.4 10.1 16.5 19.3
Depreciation and amortization 47.5 44.8 84.8 85.8
Amortization of unfavorable leases and contracts (1.3) (1.3) (2.7) (2.7)
EBITDA $ (43.5) $ 21.1 $ (307.2) $ 58.1
Restructuring charges - cost of sales (0.2) 4.4 (0.6) 4.4
Restructuring charges 28.9 23.4 41.6 50.2
Asset impairments 20.3 47.7 156.6 47.7
Shareholder settlement (1.0)
- 7.5 -
Adjusted EBITDA $ 4.5 $ 96.6 $ (102.1) $ 160.4
4. Non-GAAP operating income (loss)
Non-GAAP operating income (loss) is a non-GAAP measure defined as operating
income (loss) excluding the impact of significant and unusual items which
management believes are not necessarily reflective of 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 significant and unusual items. In particular,
management believes the consideration of measures that exclude such expenses can
assist in the comparison of operational performance in different periods which
may or may not include such expenses.
13 weeks ended 26 weeks ended
August 1, August 3, August 1, August 3,
(in millions) 2020 2019 2020 2019
Operating income (loss) $ (89.7) $ (22.4) $ (389.3) $ (25.0)
Restructuring charges - cost of sales (0.2) 4.4 (0.6) 4.4
Restructuring charges 28.9 23.4 41.6 50.2
Asset impairments 20.3 47.7 156.6 47.7
Shareholder settlement (1.0) - 7.5 -
Non-GAAP operating income (loss) $ (41.7) $ 53.1 $ (184.2) $ 77.3
41-------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS The following should be read in conjunction with the financial statements and related notes in Item 1 of this Quarterly Report on Form 10-Q, as well as the financial and other information included in Signet's Fiscal 2020 Annual Report on Form 10-K. Same store sales are based on sales from stores which have been open for at least 12 months. Same store sales as presented below have not been adjusted for the closure period resulting from COVID-19 as described above. Same store sales also include eCommerce sales for the period and comparative figures from the anniversary of the launch of the relevant website. Comparison of Second Quarter Fiscal 2021 to Prior Year •Same store sales: Down 31.3%. •Total sales:$0.89 billion , decreased 34.9%. •Operating income (loss):$(89.7) million compared to$(22.4) million . •Diluted loss per share:$(1.73) compared to$(0.86) in prior year. Comparison of Second Quarter Fiscal 2021 Year to Date to Prior Year •Same store sales: Down 35.2%. •Total sales:$1.74 billion , decreased 37.8%. •Operating income (loss): (389.3) compared to$(25.0) million . •Diluted loss per share:$(5.69) compared to$(1.21) in prior year. Second Quarter Year to Date Fiscal 2021 Fiscal 2020 Fiscal 2021 Fiscal 2020 (in millions) $ % of sales $ % of sales $ % of sales $ % of sales Sales$ 888.0 100.0 %$ 1,364.4 100.0 %$ 1,740.1 100.0 %$ 2,796.1 100.0 % Cost of sales (663.9) (74.8) (901.3) (66.1) (1,312.2) (75.4) (1,833.6) (65.6) Restructuring charges - cost of sales 0.2 - (4.4) (0.3) 0.6 - (4.4) (0.2) Gross margin 224.3 25.3 458.7 33.6 428.5 24.6 958.1 34.3 Selling, general and administrative expenses (265.9) (29.9) (411.4) (30.2) (624.3) (35.9) (886.6) (31.7) Restructuring charges (28.9) (3.3) (23.4) (1.7) (41.6) (2.4) (50.2) (1.8) Asset impairments (20.3) (2.3) (47.7) (3.5) (156.6) (9.0) (47.7) (1.7) Other operating income, net 1.1 0.1 1.4 0.1 4.7 0.3 1.4 0.1 Operating income (loss) (89.7) (10.1) (22.4) (1.6) (389.3) (22.4) (25.0) (0.9) Interest expense, net (9.4) (1.1) (10.1) (0.7) (16.5) (0.9) (19.3) (0.7) Other non-operating income, net 0.2 - 0.2 - 0.3 - 0.5 - Income (loss) before income taxes (98.9) (11.1) (32.3) (2.4) (405.5) (23.3) (43.8) (1.6) Income tax benefit (expense) 17.2 1.9 (3.8) (0.3) 126.7 7.3 (2.3) (0.1) Net income (loss)$ (81.7) (9.2) %$ (36.1) (2.6) %$ (278.8) (16.0) %$ (46.1) (1.6) % Dividends on redeemable convertible preferred shares (8.3) nm (8.2) nm (16.5) nm (16.4) nm Net income (loss) attributable to common shareholders$ (90.0) (10.1) %$ (44.3) (3.2) %$ (295.3) (17.0) %$ (62.5) (2.2) % nm Not meaningful. Second quarter sales Signet's total sales decreased 34.9% to$0.89 billion in the 13 weeks endedAugust 1, 2020 compared to the prior year quarter. Total sales at constant exchange rates decreased 34.8%. Signet's same store sales decreased 31.3%, compared to a decrease of 1.5% in the prior year quarter. The decline in sales reflects store closures of$69.3 million , as well as a reduction in service revenue recognition stemming from the continued COVID-19 business disruption experienced during the quarter (refer to Note 3 for further information). 42 -------------------------------------------------------------------------------- Table of Contents eCommerce sales in the second quarter were$270.1 million , up$113.2 million or 72.1%, compared to$156.9 million in the prior year quarter. eCommerce sales accounted for 30.4% of second quarter sales, up from 11.5% of total sales in the prior year second quarter. Brick and mortar same store sales decreased 46.0% from prior year second quarter. The increase in eCommerce sales reflects the accelerated enhancement of eCommerce capabilities and a digital first focus during the quarter. The brick and mortar sales decline was primarily the result of the continued business disruption during the second quarter of Fiscal 2021 due to COVID-19 and the resulting temporary closures of all stores across theNorth America and International segments beginning inMarch 2020 . The Company began reopening stores inMay 2020 and as of the end of the second quarter of Fiscal 2021, over 90% of the Company's brick and mortar stores have resumed full in-person operations. The breakdown of the sales performance by segment is set out in the table below: Change from previous year Same Non-same Total sales Exchange Total Total store store sales, at constant exchange translation sales sales Second Quarter of Fiscal 2021 sales net rate impact as reported (in millions) North America segment (30.6) % (3.0) % (33.6) % (0.1) % (33.7) %$ 823.0 International segment (38.8) % (7.3) % (46.1) % (0.3) % (46.4) % $ 61.0 Other segment (1) nm nm nm nm nm $ 4.0 Signet (31.3) % (3.5) % (34.8) % (0.1) % (34.9) %$ 888.0
(1) Includes sales from Signet's diamond sourcing initiative. Average merchandise transaction value ("ATV") is defined as net merchandise sales on a same store basis divided by the total number of customer transactions. As such, changes from the prior year do not recompute within the table below.
Average Merchandise Transaction Value(1)(2) Merchandise Transactions
Change from
Average Value Change from previous year previous year
Second Quarter of Fiscal 2021 Fiscal 2021 Fiscal 2020 Fiscal 2021 Fiscal 2020 Fiscal 2021 Fiscal 2020
North America segment $ 408 $ 395 2.0 % 0.5 % (28.1) % (1.6) %
International segment(3) £ 176 £ 152 11.4 % - % (42.8) % (6.8) %
(1) Net merchandise sales within the North America segment include all
merchandise product sales, net of discounts and returns. In addition, excluded
from net merchandise sales are sales tax in the US, repair, extended service
plan, insurance, employee and other miscellaneous sales.
(2) Net merchandise sales within the International 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, insurance, employee and other miscellaneous sales. As a result, the
sum of the changes will not agree to change in same store sales.
(3) Amounts for the International segment are denominated in British pounds.
North America sales
The North America segment's total sales were $0.82 billion compared to $1.24
billion in the prior year, or a decrease of 33.7%. Same store sales decreased
30.6% compared to a decrease of 1.0% in the prior year. North America's ATV
increased 2.0%, while the number of transactions decreased 28.1%. The declines
noted reflect the continued impact of the temporary closures of all North
America stores beginning on March 23, 2020 , as a result of COVID-19, which began
reopening in May 2020 as noted above.
eCommerce sales increased 72.7%, while brick and mortar same store sales
decreased 45.3%.
International sales
The International segment's total sales decreased 46.4% to $61.0 million
compared to $113.9 million in the prior year and decreased 46.1% at constant
exchange rates. Same store sales decreased 38.8% compared to a decrease of 7.0%
in the prior year. In the International segment, the ATV increased 11.4% year
over year, while the number of transactions decreased 42.8%. The declines noted
reflect the continued impact of the temporary closures of all UK stores
beginning on March 24, 2020 , as a result of COVID-19, which began reopening in
June 2020 .
Year to date sales
Signet's total sales decreased 37.8% to $1.74 billion compared to $2.80 billion
in the prior year. Total sales at constant exchange rates decreased 37.6%.
Signet's same store sales decreased 35.2%, compared to a decrease of 1.4% in the
prior year. The decline in sales reflects store closures of $129.7 million , as
well as a reduction in service revenue recognition stemming from the continued
COVID-19 business disruption experienced during the year (refer to Note 3 for
further information).
eCommerce sales year to date were $434.8 million , up $123.6 million or 39.7%,
compared to $311.2 million in the prior year. eCommerce sales accounted for
25.0% of year to date sales, up from 11.1% of total sales in the prior year.
Brick and mortar same store sales declined 45.3% from the prior period.
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The breakdown of the sales performance is set out in the table below:
Change from previous year
Same Non-same Total sales Exchange Total Total
store store sales, at constant exchange translation sales sales
Year to date Fiscal 2021 sales net rate impact as reported (in millions)
North America segment (35.0) % (1.8) % (36.8) % (0.1) % (36.9) % $ 1,604.1
International segment (38.1) % (4.8) % (42.9) % (1.2) % (44.1) % $ 125.9
Other segment (1) nm nm nm nm nm $ 10.1
Signet (35.2) % (2.4) % (37.6) % (0.2) % (37.8) % $ 1,740.1 (1) Includes sales from Signet's diamond sourcing initiative. Average merchandise transaction value ("ATV") is defined as net merchandise sales on a same store basis divided by the total number of customer transactions. As such, changes from the prior year do not recompute within the table below.
Average Merchandise Transaction Value(1)(2) Merchandise Transactions
Change from
Average Value Change from previous year previous yearYear to date Fiscal 2021 Fiscal 2021 Fiscal 2020 Fiscal 2021 Fiscal 2020 Fiscal 2021 Fiscal 2020 North America segment$ 384 $ 389 (2.5) % 1.0 % (31.6) % (1.5) % International segment (3) £ 162 £ 148 6.6 % - % (41.9) % (6.1) % (1) Net merchandise sales within theNorth America segment include all merchandise product sales, net of discounts and returns. In addition, excluded from net merchandise sales are sales tax in the US, repair, extended service plan, insurance, employee and other miscellaneous sales. (2) Net merchandise sales within the International segment include all merchandise product sales, including VAT, net of discounts and returns. In addition, excluded from net merchandise sales are repairs, warranty, insurance, employee and other miscellaneous sales. As a result, the sum of the changes will not agree to change in same store sales. (3) Amounts for the International segment are denominated in British pounds.North America sales TheNorth America segment's total sales were$1.60 billion compared to$2.54 billion in the prior year, down 36.9%. Same store sales decreased 35.0% compared to a decrease of 0.9% in the prior year.North America's ATV decreased (2.5)%, while the number of transactions decreased 31.6%. The declines noted reflect the impact of the temporary closures of allNorth America stores beginning onMarch 23, 2020 , as a result of COVID-19, which began reopening inMay 2020 as noted above. eCommerce sales increased 38.6%, while brick and mortar same store sales decreased 44.9%. International sales The International segment's total sales decreased 44.1% to$125.9 million compared to$225.4 million in the prior year and decreased 42.9% at constant exchange rates. Same store sales decreased 38.1% compared to a decrease of 6.1% in the prior year. The ATV increased 6.6% over prior year, while the number of transactions decreased 41.9%. The declines noted reflect the impact of the temporary closures of allUK stores beginning onMarch 24, 2020 , as a result of COVID-19, which began reopening inJune 2020 . Cost of sales and gross margin In the second quarter of Fiscal 2021, gross margin was$224.3 million or 25.3% of sales compared to$458.7 million or 33.6% of sales in the prior year comparable period. In the first half of Fiscal 2021, gross margin was$428.5 million or 24.6% of sales compared to$958.1 million or 34.3% of sales in the prior year comparable period. The decline in gross margin rate for both the 13 and 26 weeks endedAugust 1, 2020 , compared to prior year, was primarily driven by a reduction in service revenue recognition relating to warranties while stores were temporarily closed as well as lower sales resulting from the temporary store closures stemming from COVID-19, which led to a deleveraging on fixed store occupancy costs. The rate decline was partially offset through transformation cost savings, lower occupancy costs, inclusive of closed stores year over year, and lower inventory related costs. Selling, general and administrative expenses ("SG&A") In the second quarter of Fiscal 2021, SG&A was$265.9 million or 29.9% of sales compared to$411.4 million or 30.2% of sales in prior year quarter. In the first half of Fiscal 2021, SG&A was$624.3 million or 35.9% compared to$886.6 million or 31.7% of sales in the prior year comparable period. For both the 13 and 26 weeks endedAugust 1, 2020 , compared to prior year, SG&A decreased primarily due to lower staff costs inclusive of closed stores and the impact of furloughed store and support center employees as a result of the COVID-19 disruption to the business. SG&A also reflects lower advertising expenses and the benefits of transformation cost savings, offset by the provision for credit losses (see Note 11 for further information). 44 -------------------------------------------------------------------------------- Table of Contents Restructuring charges During the first quarter of Fiscal 2019, Signet launched a three-year comprehensive transformation plan, called "Signet Path to Brilliance" (the "Plan"), to, among other objectives, reposition the Company to be a share gaining, OmniChannel jewelry category leader. Restructuring charges of$28.9 million and$23.4 million were recognized in the 13 weeks endedAugust 1, 2020 andAugust 3, 2019 , respectively, primarily related to store closures, severance costs, and professional fees for legal and consulting services related to the Plan. Restructuring charges of$41.6 million and$50.2 million were recognized in the 26 weeks endedAugust 1, 2020 andAugust 3, 2019 , respectively, primarily related to store closures, severance costs, and professional fees for legal and consulting services related to the Plan. See Note 5 of Item 1 for additional information. Asset impairments During the second quarter of Fiscal 2021, the Company recorded non-cash, pre-tax asset impairment charges of$20.3 million , all of which related to long-lived assets. For the 26 weeks endedAugust 1, 2020 , the Company recorded charges related to the impairment of goodwill, intangible assets and long-lived assets of$10.7 million ,$83.3 million and$62.6 million , respectively. See Notes 13 and 15 of Item 1 for additional information on the asset impairments. In addition, during the 13 weeks endedAugust 3, 2019 , a non-cash immaterial out-of-period adjustment of$47.7 million , with$35.2 million related to Zales goodwill and$12.5 million related to R2Net goodwill, was recognized within asset impairments on the condensed consolidated statements of operations related to an error in the calculation of goodwill impairments during Fiscal 2019. Other operating income, net During the first half of Fiscal 2021, other operating income, net, was$4.7 million primarily driven by the gains recognized as a result of the Company liquidating derivative financial instruments primarily related to forecasted commodity purchases that were deemed no longer effective in light of the economic circumstances altered by COVID-19. These gains were offset by a charge related to the proposed settlement of previously disclosed shareholder litigation matters. See Note 16 and Note 21 of Item 1 for additional information on these matters. Operating income (loss) In the second quarter of Fiscal 2021, operating income (loss) was$(89.7) million or (10.1)% of sales, compared to$(22.4) million or (1.6)% of sales in the prior year second quarter. The decrease reflects the impact of the temporary closures of all stores as a result of COVID-19, inclusive of impacts of lower sales and asset impairment charges, offset by lower staff and advertising costs. Additionally, operating income (loss) was favorably impacted by transformation cost savings, inclusive of closed stores year over year. 45
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Signet's operating income (loss) by segment for the second quarter is as
follows:
Fiscal 2021 Fiscal 2020
% of segment % of segment
(in millions) $ sales $ sales
North America segment(1) $ (57.0) (6.9) % $ 11.8 1.0 %
International segment(2) (15.6) (25.6) % (1.6) (1.4) %
Other segment (3) (0.2) nm (9.1) nm
Corporate and unallocated expenses (4) (16.9) nm (23.5) nm
Operating income (loss) $ (89.7) (10.1) % $ (22.4) (1.6) %
(1) Operating income (loss) during the 13 weeks ended August 1, 2020 includes a
$0.2 million benefit, respectively, recognized due to a change in inventory
reserves previously recognized as part of the Company's restructuring
activities. Additionally, operating income (loss) during the 13 weeks ended
August 1, 2020 includes charges of $27.7 million primarily related to severance
and professional services recorded in conjunction with the Company's
restructuring activities. Additionally, operating income (loss) during the 13
weeks ended August 1, 2020 includes asset impairment charges of $17.5 million .
Operating income (loss) during the 13 weeks ended August 3, 2019 includes a
$47.7 million out-of-period goodwill adjustment. In addition, operating income
(loss) during the 13 weeks ended August 3, 2019 includes $1.7 million related to
inventory charges recorded in conjunction with the Company's restructuring
activities. Operating income (loss) during the 13 weeks ended August 3, 2019
includes charges of $12.4 million primarily related to severance and
professional services recorded in conjunction with the Company's restructuring
activities. See Note 5, Note 13, and Note 15 for additional information.
(2) Operating income (loss) during the 13 weeks ended August 1, 2020 includes
charges of $1.0 million primarily related to severance and professional services
recorded in conjunction with the Company's restructuring activities.
Additionally, operating income (loss) during the 13 weeks ended August 1, 2020
includes asset impairment charges of $2.8 million . Operating income (loss)
during the 13 weeks ended August 3, 2019 includes charges of $0.6 million
primarily related to severance and professional services recorded in conjunction
with the Company's restructuring activities. See Note 5, Note 13, and Note 15
for additional information.
(3) Operating income (loss) during the 13 weeks ended August 3, 2019 include
charges of $2.7 million related to charges recorded in conjunction with the
Company's restructuring activities including inventory charges. See Note 5 for
additional information.
(4) Operating income (loss) during the 13 weeks ended August 1, 2020 includes a
credit of $1.0 million related to an increase in expected insurance recoveries
related to the settlement of previously disclosed shareholder litigation
matters. Operating income (loss) during the 13 weeks ended August 1, 2020
includes charges of $0.2 million primarily related to severance and professional
services recorded in conjunction with the Company's restructuring activities.
Operating income (loss) during the 13 weeks ended August 3, 2019 include charges
of $10.4 million related to charges recorded in conjunction with the Company's
restructuring activities including inventory charges. See Note 5 and Note 21 for
additional information.
nm Not meaningful.
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In the year to date period of Fiscal 2021, operating income (loss) was $(389.3)
million or (22.4)% of sales, compared to $(25.0) million or (0.9)% of sales in
the prior year period. The decrease reflects the impact of the temporary
closures of all stores as a result of COVID-19, inclusive of impacts of lower
sales and asset impairment charges offset by lower staff costs and other
variable costs. Additionally, operating income (loss) was favorably impacted by
the transformation cost savings and lower advertising.
Signet's operating income (loss) by segment for the year to date period is as
follows:
Fiscal 2021 Fiscal 2020
% of segment % of segment
(in millions) $ sales $ sales
North America segment(1) $ (291.2) (18.2) % $ 40.1 1.6 %
International segment(2) (54.2) (43.1) % (10.6) (4.7) %
Other segment (3) (0.5) nm (12.9) nm
Corporate and unallocated expenses (4) (43.4) nm (41.6) nm
Operating income (loss) $ (389.3) (22.4) % $ (25.0) (0.9) %
(1) Operating income (loss) during the 26 weeks ended August 1, 2020 includes a
$0.6 million benefit, respectively, recognized due to a change in inventory
reserves previously recognized as part of the Company's restructuring
activities. Additionally, operating income (loss) during the 26 weeks ended
August 1, 2020 includes charges of $36.6 million primarily related to severance
and professional services recorded in conjunction with the Company's
restructuring activities. Additionally, operating income (loss) during the 26
weeks ended August 1, 2020 includes asset impairment charges of $135.4 million .
Operating income (loss) during the 26 weeks ended August 3, 2019 includes a
$47.7 million out-of-period goodwill adjustment. In addition, operating income
(loss) during the 26 weeks ended August 3, 2019 includes $1.2 million related to
inventory charges recorded in conjunction with the Company's restructuring
activities. Operating income (loss) during the 26 weeks ended August 3, 2019
includes charges of $32.2 million , respectively, primarily related to severance
and professional services recorded in conjunction with the Company's
restructuring activities. See Note 5, Note 13, and Note 15 for additional
information.
(2) Operating income (loss) during the 26 weeks ended August 1, 2020 includes
charges of $4.6 million primarily related to severance and professional services
recorded in conjunction with the Company's restructuring activities.
Additionally, operating income (loss) during the 26 weeks ended August 1, 2020
includes asset impairment charges of $21.2 million . Operating income (loss)
during the 26 weeks ended August 3, 2019 includes charges of $1.6 million ,
respectively, primarily related to severance and professional services recorded
in conjunction with the Company's restructuring activities. See Note 5, Note 13,
and Note 15 for additional information.
(3) Operating income (loss) during the 26 weeks ended August 3, 2019 include
charges of $3.2 million related to charges recorded in conjunction with the
Company's restructuring activities including inventory charges. See Note 5 for
additional information.
(4) Operating income (loss) during the 26 weeks ended August 1, 2020 includes a
charge of $7.5 million , net of expected insurance proceeds, related to the
settlement of previously disclosed shareholder litigation matters. Operating
income (loss) during the 26 weeks ended August 1, 2020 includes charges of
$0.4 million primarily related to severance and professional services recorded
in conjunction with the Company's restructuring activities. Operating income
(loss) during the 26 weeks ended August 3, 2019 include charges of $16.4 million
related to charges recorded in conjunction with the Company's restructuring
activities including inventory charges. See Note 5 and Note 21 for additional
information.
nm Not meaningful.
Interest expense, net
In the 13 and 26 weeks ended August 1, 2020 , net interest expense was $9.4
million and $16.5 million , respectively, compared to $10.1 million and $19.3
million in the 13 and 26 weeks ended August 3, 2019 , respectively. The reduction
is primarily due to the favorable impact of lower average interest rates due to
the debt refinancing during the third quarter of Fiscal 2020 partially offset by
higher average borrowings compared to prior year comparable periods.
Income taxes
In the second quarter of Fiscal 2021, the income tax benefit was $17.2 million ,
an effective tax rate ("ETR") of 17.4%, compared to income tax expense of $3.8
million , an ETR of (11.8)% in the prior year comparable period. The ETR for the
13 weeks ended August 1, 2020 , was unfavorably impacted by the anticipated
annual mix of pre-tax income by jurisdiction resulting in the projection of US
state and local income tax expense on income in jurisdictions which are not
offset by the consolidated loss. The Company's effective tax rate for the same
period during the prior year was unfavorably impacted by the non-tax deductible
goodwill impairment charge recognized in the prior year.
In the year to date period of Fiscal 2021, the income tax benefit was $126.7
million , an ETR of 31.2%, compared to income tax expense of $2.3 million , an ETR
of (5.3)% in the prior year comparable period. The increase in the ETR is
primarily due to the anticipated benefit of $106.5 million relating to the CARES
Act offset by the unfavorable impact of the valuation allowance recorded against
certain US and state deferred tax assets of $56.7 million and the impairment of
goodwill which was not deductible for tax purposes. The year to date ETR in the
prior year comparable period was also impacted by the anticipated annual mix of
pre-tax income by jurisdiction and the unfavorable impact of non-tax deductible
goodwill impairment recognized in the prior year. Refer to Note 10 for
additional information.
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LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company's primary sources of liquidity are cash on hand, cash provided by
operations and availability under its ABL Revolving Facility (defined below). As
of August 1, 2020 , the Company had $1,204.0 million of cash and cash equivalents
and $1,342.2 million of outstanding debt.
As a result of the business disruption created by COVID-19, including temporary
closures of all Company stores, the Company aggressively reduced overall capital
expenditures, prioritized digital investments to enhance its new and modernized
eCommerce platform and provided a frictionless shopping experience for
customers. This includes flexible fulfillment which unlocks store level
inventory and enables buy online pick up in store. Inventory management
continues to be a strategic focus for the Company. Transformational cost
reductions began in the first quarter of Fiscal 2021 and included the use of
data and analytics to drive marketing efficiencies, significant reductions to
discretionary spend, the implementation of temporary reduced work hours and
furloughs across store and support center teams, and reduced cash compensation
for executives and the Company's Board of Directors. The Company also
temporarily suspended its common dividend program and intends to pay its
preferred dividends through the third quarter of Fiscal 2021 "in-kind".
In addition, as a prudent measure to increase the Company's financial
flexibility and bolster its cash position, during the first quarter of Fiscal
2021, the Company elected to access an additional $900 million on the ABL
Revolving Facility. The Company paid down $100 million of the ABL Revolving
Facility in August 2020 .
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
August 1, 2020 , the threshold related to the fixed coverage ratio was
approximately $140 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 our 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.
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, including funding working capital needs,
projected investments (including capital expenditures) and debt service.
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:
•changes in the level of inventory as a result of sales and other strategic
initiatives (i.e. store count);
•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 11 of Item 1, the Company has outsourced its prime
credit portfolio and a substantial portion of its non-prime credit portfolio,
and it receives cash from its outsourced financing partners (net of applicable
fees) within two days of the customer sale. Offsetting these receipts, the
Company's largest operating expenses are the purchase of inventory, store
occupancy costs (including rent), and payroll and payroll-related benefits.
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Summary cash flow
The following table provides a summary of Signet's cash flow activity for Fiscal
2021 and Fiscal 2020:
26 weeks ended
August 3,
(in millions) August 1, 2020 2019
Net cash provided by operating activities $ 156.1 $ 246.6
Net cash used in investing activities (20.5) (63.4)
Net cash provided by (used in) financing activities 696.3 (101.7)
Increase in cash and cash equivalents $
831.9
Cash and cash equivalents at beginning of period $ 374.5$ 195.4 Increase in cash and cash equivalents 831.9 81.5 Effect of exchange rate changes on cash and cash equivalents (2.4) (5.4) Cash and cash equivalents at end of period $
1,204.0
Operating activities Net cash provided by operating activities was$156.1 million compared to net cash provided by operating activities of$246.6 million in the prior year comparable period, primarily due to the impacts of COVID-19 on the Company's operating results and working capital. •Net loss was$278.8 million compared to net loss of$46.1 million in the prior year period, an increase of$232.7 million . •Net loss for the period was significantly impacted by non-cash changes in deferred tax liabilities, which increased$115.0 million compared to a decrease of$0.4 million in the prior year period, and an increase in the income tax receivable of$243.0 million compared to cash used for income taxes of$1.1 million in the prior year. This was primarily the result of the net operating loss carried back and filed in the first quarter in accordance with the provisions of the CARES Act, offset by an increase in the valuation allowance related to certain deferred tax assets in the US. Refer to Note 10. •Non-cash impairment charges were$156.6 million compared to$47.7 million in the prior year period. See Note 13 for additional information regarding asset impairments. •Cash provided by other assets and other receivables was$244.0 million , compared to$19.3 million in the prior year period, and was driven primarily by the collection of insurance proceeds related to the shareholder litigation settlement described in Note 21. Offsetting these cash proceeds was the payment of the settlement amount during the second quarter, which resulted in cash used by accrued expenses and other liabilities of$241.1 million in Fiscal 2021 compared to$44.6 million in the prior year. •Cash provided by inventory was$135.3 million compared to cash used of$96.8 million in the prior year comparable period. •Cash provided by changes in operating leases was$64.2 million in Fiscal 2021, driven by the Company's deferral of rent payments due in the months of April throughJuly 2020 . Forward-Flow Receivables Outsourcing Agreement with Investors In conjunction with the sale of the majority of Signet's non-prime in-house accounts receivable to CarVal andCastlelake (collectively, the "Investors"), beginning inJune 2018 , the Investors began purchasing the majority of forward flow receivables of Signet's non-prime credit from Signet for a five-year term. In Fiscal 2020, those forward flow receivables represented approximately 7% of Signet's revenue. During Fiscal 2021, the 2018 agreements pertaining to the purchase of forward flow receivables were terminated and new agreements were executed with both Investors which will remain effective untilJune 2021 , unless terminated earlier by either party pursuant to the terms of respective agreements. The new agreements provide that the Investors will continue to purchase add-on receivables created on existing customer accounts at a discount rate determined in accordance with the new agreements. Signet will retain forward flow non-prime receivables created for new customers, which are expected to represent less than 2.5% of Signet's Fiscal 2021 revenue. The termination of the previous agreements has no effect on the receivables that were previously sold to the Investors prior to the termination, except that Signet agreed to extend the Investors' payment obligation for the remaining 5% of the receivables previously purchased inJune 2018 until the new agreements terminate. The Company's agreement with the credit servicerGenesis Financial Solutions remains in place. 49 -------------------------------------------------------------------------------- Table of Contents Investing activities Net cash used in investing activities in the 26 weeks endedAugust 1, 2020 was$20.5 million compared to net cash used in investing activities of$63.4 million in the prior period. Cash used in Fiscal 2021 was primarily related to strategic capital investments in IT, compared to Fiscal 2020 which related primarily to capital expenditures associated with new stores, remodels of existing stores, and capital investments in IT. The decreased cash usage in Fiscal 2021 is primarily attributable to the Company's expense reduction and cash management efforts in response to COVID-19 as discussed further above. Stores opened and closed in the 26 weeks endedAugust 1, 2020 : Store count by segment February 1, 2020 Openings Closures August 1, 2020 North America segment(1) 2,757 - (196) 2,561 International segment(1) 451 - (97) 354 Signet 3,208 - (293) 2,915 (1) The net change in selling square footage for Fiscal 2021 year to date for theNorth America and International segments was (5.8%) and (14.0%), respectively. Financing activities Net cash provided by financing activities in the 26 weeks endedAugust 1, 2020 was$696.3 million , comprised primarily of net borrowings of$733.2 million , partially offset by$27.1 million for dividend payments on common and preferred shares. The reduction in cash payments for dividends in the current year was the result of the Company's cash management efforts described above. See further information on debt movements below. Net cash used in financing activities in the 26 weeks endedAugust 3, 2019 was$101.7 million , comprised primarily of$47.0 million for the repayments of bank overdrafts and the term loan under the prior credit facility, and$54.1 million for dividend payments on common and preferred shares. Movement in cash and indebtedness Cash and cash equivalents atAugust 1, 2020 were$1,204.0 million compared to$271.5 million as ofAugust 3, 2019 . Signet has significant amounts of 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. AtAugust 1, 2020 , Signet had$1,342.2 million of outstanding debt, comprised of$147.6 million of senior unsecured notes,$1,090.0 million on the ABL Revolving Facility,$100.0 million on the FILO Term Loan Facility, and$4.6 million of other loans and bank overdrafts. OnMarch 19, 2020 , as a prudent measure in response to COVID-19 to increase the Company's financial flexibility and bolster its cash position, the Company elected to access$900 million on the$1.5 billion ABL Revolving Facility. AtAugust 3, 2019 , Signet had$687.2 million of outstanding debt, comprised of$399.1 million of Senior Notes,$277.1 million on a term loan facility and$11.0 million of bank overdrafts. During the 26 weeks endedAugust 3, 2019 ,$17.9 million in principal payments were made on the term loan. The Company had stand-by letters of credit outstanding of$14.9 million as ofAugust 1, 2020 that reduces borrowing capacity under the ABL Revolving Facility. Net debt was$136.7 million as ofAugust 1, 2020 compared to$410.9 million as ofAugust 3, 2019 . Refer to the non-GAAP measures discussed above for the definition of net debt and reconciliation to its most comparable financial measure presented in accordance with GAAP. CONTRACTUAL OBLIGATIONS Signet's contractual obligations and commitments as ofAugust 1, 2020 and the effects such obligations and commitments are expected to have on Signet's liquidity and cash flows in future periods have not changed materially outside the ordinary course from those disclosed in Signet's Annual Report on Form 10-K for the year endedFebruary 1, 2020 filed with theSEC onMarch 26, 2020 . SEASONALITY Signet's sales are seasonal, with the fourth quarter accounting for approximately 35-40% of annual sales, with December being the highest volume month of the year. The "Holiday Season" consists of results for the months of November and December. As a result of our strategic credit outsourcing and transformation initiatives, we anticipate our operating profit will be almost entirely generated in the fourth quarter. 50 -------------------------------------------------------------------------------- Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its accounting policies, estimates and judgments, including those related to the valuation of accounts receivables, inventories, deferred revenue, derivatives, employee benefits, income taxes, contingencies, asset impairments, leases, indefinite-lived intangible assets, depreciation and amortization of long-lived assets and accounting for business combinations. Management bases the estimates and judgments on historical experience and various other factors believed to be reasonable under the circumstances. Actual results may differ from these estimates. There have been no material changes to the critical accounting policies and estimates disclosed in Signet's Annual Report on Form 10-K for the fiscal year endedFebruary 1, 2020 filed with theSEC onMarch 26, 2020 , except as noted below: Long-lived assets Long-lived assets of the Company consist primarily of property, plant and equipment 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 assets in the group, and recording an impairment loss for the amount that the carrying value exceeds the estimated fair value. The Company utilizes primarily 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 valuation of the Company's long-lived assets could be negatively impacted by unfavorable operating performance and cash flows of the Company's stores, including a slower than anticipated re-opening of the stores, lower than anticipated consumer traffic, changes in the Company's real estate strategy or other key business initiatives. Key assumptions used to estimate fair value, such as sales trends, market capitalization and rental rates, and discount rates could impact the fair value estimates of the store assets in future periods. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION The Company and certain of its subsidiaries, which are listed on Exhibit 22.1 to this Quarterly Report on Form 10-Q, have guaranteed obligations under the 4.70% senior unsecured notes due in 2024 (the "Senior Notes"). The Senior Notes were issued bySignet UK Finance plc (the "Issuer"). The Senior Notes rank senior to the Preferred Shares (as defined in Note 6) 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"). 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, underU.S. federal bankruptcy law and comparable provisions ofU.S. state fraudulent transfer laws, in certain circumstances a court could cancel a Guarantee and order the return of any payments made thereunder to the Guarantor or to a fund for the benefit of its creditors. 51 -------------------------------------------------------------------------------- Table of Contents 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. Summarized Balance Sheets (in millions) August 1, 2020 February 1, 2020 Total current assets$ 3,976.5 $ 3,421.6 Total non-current assets 2,591.2 3,009.7 Total current liabilities 1,823.4 2,119.2 Total non-current liabilities 4,773.0 4,054.9 Redeemable preferred stock 625.6 617.0 Total due from Non-Guarantors (1) 290.1 573.2 Total due to Non-Guarantors (1) 1,651.6 1,825.8
(1) Amounts included in asset and liability subtotals above.
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