SIGNET JEWELERS LTD, 10-Q filed on 7/1/2020
Quarterly Report
v3.20.2
Document and Entity Information - shares
3 Months Ended
May 02, 2020
Jun. 26, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date May 02, 2020  
Document Transition Report false  
Entity File Number 1-32349  
Entity Registrant Name SIGNET JEWELERS LIMITED  
Entity Incorporation, State or Country Code D0  
Entity Address, Address Line One Clarendon House  
Entity Address, Address Line Two 2 Church Street  
Entity Address, City or Town Hamilton  
Entity Address, Postal Zip Code HM11  
Entity Address, Country BM  
City Area Code 441  
Local Phone Number 296 5872  
Title of 12(b) Security Common Shares of $0.18 each  
Trading Symbol SIG  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   52,322,840
Amendment Flag false  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
Entity Central Index Key 0000832988  
Current Fiscal Year End Date --01-30  
v3.20.2
Condensed Consolidated Statements of Operations (Unaudited) - USD ($)
shares in Millions, $ in Millions
3 Months Ended
May 02, 2020
May 04, 2019
Income Statement [Abstract]    
Sales $ 852.1 $ 1,431.7
Cost of sales (648.3) (932.3)
Restructuring charges - cost of sales 0.4 0.0
Gross margin 204.2 499.4
Selling, general and administrative expenses (358.4) (475.2)
Restructuring charges (12.7) (26.8)
Asset impairments (136.3) 0.0
Other operating income, net 3.6 0.0
Operating income (loss) (299.6) (2.6)
Interest expense, net (7.1) (9.2)
Other non-operating income, net 0.1 0.3
Income (loss) before income taxes (306.6) (11.5)
Income taxes 109.5 1.5
Net income (loss) (197.1) (10.0)
Dividends on redeemable convertible preferred shares (8.2) (8.2)
Net income (loss) attributable to common shareholders $ (205.3) $ (18.2)
Earnings (loss) per common share:    
Earnings per common share: basic (usd per share) $ (3.96) $ (0.35)
Earnings per common share: diluted (usd per share) $ (3.96) $ (0.35)
Weighted average common shares outstanding:    
Weighted average common shares outstanding: basic (shares) 51.8 51.6
Weighted average common shares outstanding: diluted (shares) 51.8 51.6
v3.20.2
Condensed Consolidated Statements Of Comprehensive Income (Loss) (Unaudited) - USD ($)
$ in Millions
3 Months Ended
May 02, 2020
May 04, 2019
Pre-tax amount    
Foreign currency translation adjustments $ (26.7) $ (2.0)
Available-for-sale securities:    
Unrealized gain (loss) 0.3 0.3
Cash flow hedges:    
Unrealized gain (loss) 0.2 (4.3)
Reclassification adjustment for (gains) losses to net income (10.7) (0.5)
Pension plan:    
Reclassification adjustment to net income for amortization of actuarial losses 0.1 0.3
Reclassification adjustment to net income for amortization of actuarial (gains) losses 0.2 0.0
Total other comprehensive income (loss) (36.6) (6.2)
Tax (expense) benefit    
Foreign currency translation adjustments 0.0 0.0
Available-for-sale securities:    
Unrealized gain (loss) 0.0 0.0
Cash flow hedges:    
Unrealized gain (loss) 0.0 1.1
Reclassification adjustment for (gains) losses to net income 2.6 0.1
Pension plan:    
Reclassification adjustment to net income for amortization of actuarial (gains) losses 0.0 (0.1)
Reclassification adjustment to net income for amortization of net prior service credits 0.0 0.0
Total other comprehensive income (loss) 2.6 1.1
After-tax amount    
Net income (loss) (197.1) (10.0)
Foreign currency translation adjustments (26.7) (2.0)
Available-for-sale securities:    
Unrealized gain (loss) 0.3 0.3
Cash flow hedges:    
Unrealized gain (loss) 0.2 (3.2)
Reclassification adjustment for (gains) losses to net income (8.1) (0.4)
Pension plan:    
Reclassification adjustment to net income for amortization of actuarial (gains) losses 0.1 0.2
Reclassification adjustment to net income for amortization of net prior service credits 0.2 0.0
Total other comprehensive income (loss) (34.0) (5.1)
Total comprehensive income (loss) $ (231.1) $ (15.1)
v3.20.2
Condensed Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Millions
May 02, 2020
Feb. 01, 2020
May 04, 2019
Current assets:      
Cash and cash equivalents $ 1,066.6 $ 374.5 $ 195.1
Accounts receivable 29.8 38.8 23.1
Other current assets 327.7 403.5 205.5
Income taxes 199.2 6.3 4.8
Inventories, net 2,392.2 2,331.7 2,394.2
Total current assets 4,015.5 3,154.8 2,822.7
Non-current assets:      
Property, plant and equipment, net of accumulated depreciation of $1,092.6, $1,064.7 and $1,319.6, respectively 687.1 741.9 776.1
Operating lease right-of-use assets 1,541.4 1,683.3 1,822.8
Goodwill 238.0 248.8 296.4
Intangible assets, net 178.7 263.8 264.1
Other assets 204.9 201.8 189.2
Deferred tax assets 12.1 4.7 22.0
Total assets 6,877.7 6,299.1 6,193.3
Current liabilities:      
Loans and overdrafts 22.2 95.6 43.7
Accounts payable 329.1 227.9 238.3
Accrued expenses and other current liabilities 636.1 697.0 420.2
Deferred revenue 271.2 266.2 277.0
Operating lease liabilities 390.3 338.2 358.9
Income taxes 27.8 27.7 24.1
Total current liabilities 1,676.7 1,652.6 1,362.2
Non-current liabilities:      
Long-term debt 1,336.0 515.9 639.0
Operating lease liabilities 1,334.8 1,437.7 1,589.4
Other liabilities 113.3 116.6 126.0
Deferred revenue 719.8 731.5 699.6
Deferred tax liabilities 95.9 5.2 0.0
Total liabilities 5,276.5 4,459.5 4,416.2
Commitments and contingencies
Series A redeemable convertible preferred shares of $.01 par value: authorized 500 shares, 0.625 shares outstanding (February 1, 2020 and May 4, 2019: 0.625 shares outstanding) 617.4 617.0 615.7
Shareholders’ equity:      
Common shares of $0.18 par value: authorized 500 shares, 52.3 shares outstanding (February 1, 2020: 52.3 outstanding; May 4, 2019: 52.2 outstanding) 12.6 12.6 12.6
Additional paid-in capital 246.4 245.4 232.7
Other reserves 0.4 0.4 0.4
Treasury shares at cost: 17.7 shares (February 1, 2020: 17.7 shares; May 4, 2019: 17.8 shares) (985.2) (984.9) (999.8)
Retained earnings 2,037.4 2,242.9 2,223.4
Accumulated other comprehensive loss (327.8) (293.8) (307.9)
Total shareholders’ equity 983.8 1,222.6 1,161.4
Total liabilities, redeemable convertible preferred shares and shareholders’ equity $ 6,877.7 $ 6,299.1 $ 6,193.3
v3.20.2
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Millions
May 02, 2020
Feb. 01, 2020
May 04, 2019
Accumulated depreciation $ 1,092.6 $ 1,064.7 $ 1,319.6
Common shares, par value (usd per share) $ 0.18 $ 0.18 $ 0.18
Common shares, authorized (shares) 500,000,000 500,000,000 500,000,000
Common shares, outstanding (shares) 52,300,000 52,300,000 52,200,000
Treasury shares, shares (shares) 17,700,000 17,700,000 17,800,000
Series A Redeemable Convertible Preferred Stock      
Preferred shares, par value (usd per share) $ 0.01 $ 0.01 $ 0.01
Preferred shares, authorized (shares) 500,000,000 500,000,000 500,000,000
Preferred shares, outstanding (shares) 625,000 625,000 625,000
v3.20.2
Condensed Consolidated Statements Of Cash Flows (Unaudited) - USD ($)
$ in Millions
3 Months Ended
May 02, 2020
May 04, 2019
Cash flows from operating activities    
Net income (loss) $ (197.1) $ (10.0)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 37.3 41.0
Amortization of unfavorable leases and contracts (1.4) (1.4)
Share-based compensation 1.4 4.0
Deferred taxation 83.3 0.0
Asset impairments 136.3 0.0
Restructuring charges 6.7 5.4
Other non-cash movements 0.6 (4.9)
Changes in operating assets and liabilities:    
Decrease in accounts receivable 8.6 0.9
Decrease in other assets and other receivables 72.4 28.1
Increase in inventories (77.2) (7.8)
Increase in accounts payable 99.0 87.7
Decrease in accrued expenses and other liabilities (40.1) (39.9)
Change in operating lease assets and liabilities 61.4 (4.1)
(Decrease) increase in deferred revenue (5.0) 10.5
Changes in income tax receivable and payable (192.7) (2.7)
Pension plan contributions (1.1) (1.4)
Net cash (used in) provided by operating activities (7.6) 105.4
Investing activities    
Purchase of property, plant and equipment (7.7) (24.6)
Purchase of available-for-sale securities 0.0 (6.1)
Proceeds from sale of available-for-sale securities 1.3 0.3
Net cash used in investing activities (6.4) (30.4)
Financing activities    
Dividends paid on common shares (19.3) (19.2)
Dividends paid on redeemable convertible preferred shares (7.8) (7.8)
Repayments of term loans 0.0 (8.9)
Proceeds from revolving credit facilities 900.0 0.0
Repayments of revolving credit facilities (80.0) 0.0
Decrease of bank overdrafts (74.0) (37.3)
Other financing activities (4.9) (1.5)
Net cash provided by (used in) financing activities 714.0 (74.7)
Cash and cash equivalents at beginning of period 374.5 195.4
Increase in cash and cash equivalents 700.0 0.3
Effect of exchange rate changes on cash and cash equivalents (7.9) (0.6)
Cash and cash equivalents at end of period $ 1,066.6 $ 195.1
v3.20.2
Condensed Consolidated Statements Of Shareholders' Equity (Unaudited) - USD ($)
$ in Millions
Total
Common shares at par value
Additional paid-in capital
Other reserves
Treasury shares
Retained earnings
Accumulated other comprehensive loss
Beginning Balance at Feb. 02, 2019 $ 1,201.6 $ 12.6 $ 236.5 $ 0.4 $ (1,027.3) $ 2,282.2 $ (302.8)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net income (loss) (10.0)         (10.0)  
Other comprehensive income (loss) (5.1)           (5.1)
Dividends declared: Common shares (19.3)         (19.3)  
Dividends declared: Preferred shares (8.2)         (8.2)  
Net settlement of equity-based awards (1.6)   (7.8)   27.5 (21.3)  
Share-based compensation expense 4.0   4.0        
Ending Balance at May. 04, 2019 1,161.4 12.6 232.7 0.4 (999.8) 2,223.4 (307.9)
Beginning Balance at Feb. 01, 2020 1,222.6 12.6 245.4 0.4 (984.9) 2,242.9 (293.8)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net income (loss) (197.1)         (197.1)  
Other comprehensive income (loss) (34.0)           (34.0)
Dividends declared: Common shares (0.0)            
Dividends declared: Preferred shares (8.2)         (8.2)  
Net settlement of equity-based awards (0.9)   (0.4)   (0.3) (0.2)  
Share-based compensation expense 1.4   1.4        
Ending Balance at May. 02, 2020 $ 983.8 $ 12.6 $ 246.4 $ 0.4 $ (985.2) $ 2,037.4 $ (327.8)
v3.20.2
Condensed Consolidated Statements Of Shareholders' Equity (Unaudited) - Parenthetical - $ / shares
3 Months Ended
May 02, 2020
May 04, 2019
Statement of Stockholders' Equity [Abstract]    
Common stock, dividends (usd per share) $ 0.00 $ 0.37
Preferred stock, dividends (usd per share) $ 12.50 $ 12.50
v3.20.2
Organization and principal accounting policies
3 Months Ended
May 02, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and principal accounting policies Organization and principal accounting policies
Signet Jewelers Limited (“Signet” or the “Company”), a holding company incorporated in Bermuda, is the world’s largest retailer of diamond jewelry. The Company operates through its 100% owned subsidiaries with sales primarily in the United States (“US”), United Kingdom (“UK”) and Canada. Signet manages its business as three reportable segments: North America, International, and Other. The “Other” reportable segment consists of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones and unallocated corporate administrative functions. See Note 4 for additional discussion of the Company’s segments.
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.
The Company has evaluated and determined additional events or transactions subsequent to May 2, 2020 for potential recognition or disclosure through the date the condensed consolidated interim financial statements were issued. Based upon this evaluation, the Company identified and disclosed certain matters impacting the condensed consolidated interim financial statements for the quarter ended May 2, 2020, related to the extension of the Company’s sub-prime credit outsourcing agreements as described in Note 11, and the proposed settlement of previously disclosed claims related to the securities litigation as further disclosed in Note 21.
Risks and Uncertainties - COVID-19
In December 2019, a novel coronavirus (“COVID-19”) was identified in Wuhan, China. In March 2020, the World 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 in North America and the UK. 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.
Effective March 23, 2020, the Company temporarily closed all of its stores in North America, its diamond operations in New York and its support centers in the US. Additionally, effective March 24, 2020, the Company temporarily closed all of its stores in the UK. The COVID-19 pandemic has also disrupted the Company’s global supply chain, including the temporary closure of the Company’s diamond polishing operations in Botswana, 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. The Company has continued to fill e-commerce orders during the first quarter.
In addition, as a result of the uncertainty surrounding the impacts of COVID-19, beginning in March 2020, there was a significant decline in all major domestic and global financial market indicators. The Company’s share price and market capitalization have significantly declined during the first quarter of Fiscal 2021 and the expected rate of recovery is unpredictable in light of the current economic conditions.
The full extent and duration of the impact of COVID-19 on the Company’s operations and financial performance is currently unknown and depends on future developments that are uncertain and unpredictable, including the duration and possible resurgence of the pandemic, its impact on capital and financial markets on a macro-scale and the actions to contain the virus or mitigate its impact, among others. While the full extent of the impact of COVID-19 is currently unknown, it has had a significant impact on Signet’s results of operations and cash flows. However, management currently believes that it has adequate liquidity and business plans to continue to operate the business and mitigate the risks associated with COVID-19 for the 12 months following the date of this report.
As a result of the potential risks identified related to COVID-19 on its condensed consolidated financial statements, the Company considered and performed the following assessments during the first quarter of Fiscal 2021: impairment assessments for goodwill, indefinite-lived intangible assets and store level long-lived assets (including property and equipment and operating lease right-of-use assets); assessment of rent concessions, including deferrals or other lease modifications; assessment of the effectiveness of certain foreign currency and commodity derivative financial instruments; assessment of the realizability of the Company’s deferred tax assets; and assessment of the impacts of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020.
Basis of preparation
The condensed consolidated financial statements of Signet are prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with US generally accepted accounting principles (“US GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of the results for the interim periods. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in Signet’s Annual Report on Form 10-K for the fiscal year ended February 1, 2020 filed with the SEC on March 26, 2020.
Use of estimates
The preparation of these condensed consolidated financial statements, in conformity with US GAAP and SEC regulations for interim reporting, 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 condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and as a result of the above noted risks associated with COVID-19, it is reasonably possible that those estimates will change in the near term and the effect could be material. Estimates and assumptions are primarily made in relation to the valuation of accounts receivables, inventories, deferred revenue, derivatives, employee benefits, income taxes, contingencies, leases, asset impairments for goodwill, indefinite-lived intangible and long-lived assets, and the depreciation and amortization of long-lived assets, as well as accounting for business combinations.
Fiscal year
The Company’s fiscal year ends on the Saturday nearest to January 31st. Fiscal 2021 and Fiscal 2020 refer to the 52 week periods ending January 30, 2021 and February 1, 2020, respectively. Within these condensed consolidated financial statements, the first quarter of the relevant fiscal years 2021 and 2020 refer to the 13 weeks ended May 2, 2020 and May 4, 2019, respectively.
Foreign currency translation
The financial position and operating results of certain foreign operations, including certain subsidiaries operating in the UK as part of the International segment and Canada as part of the North America segment, are consolidated using the local currency as the functional currency. Assets and liabilities are translated at the rates of exchange on the balance sheet date, and revenues and expenses are translated at the monthly average rates of exchange during the period. Resulting translation gains or losses are included in the accompanying condensed consolidated statements of shareholders’ equity as a component of accumulated other comprehensive income (loss) (“AOCI”). Gains or losses resulting from foreign currency transactions are included in other operating income, net within the condensed consolidated statements of operations.
See Note 9 for additional information regarding the Company’s foreign currency translation.
v3.20.2
New accounting pronouncements
3 Months Ended
May 02, 2020
Accounting Policies [Abstract]  
New accounting pronouncements New accounting pronouncements
The following section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.
New accounting pronouncements recently adopted
The following ASU’s were adopted as of February 2, 2020. The impact on the Company's consolidated financial statements is described within the table below.
Standard
 
Description
ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, issued July 2018.

 
Aligns the requirements for capitalizing implementation costs in cloud computing arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The adoption of this ASU did not have a material impact on the Company’s financial position or results of operations.

ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, issued August 2018.
 
Modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans and clarifies the disclosure requirements regarding projected benefit obligations and accumulated benefit obligations. The ASU is effective for fiscal years ending after December 15, 2020, with early adoption permitted. The new guidance does not affect the existing recognition or measurement guidance, and therefore had no impact on the Company’s financial condition or results of operations.
ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, issued August 2018.

 
Modifies the disclosure requirements on fair value measurements in Topic 820 and eliminates ‘at a minimum’ from the phrase ‘an entity shall disclose at a minimum’ to promote the appropriate exercise of discretion by entities when considering fair value disclosures and to clarify that materiality is an appropriate consideration. The adoption of this ASU did not have a material impact on the Company’s financial position or results of operations.

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, issued June 2016.
 
Requires entities to measure and recognize expected credit losses for financial assets measured at amortized cost basis. The estimate of expected credit losses should consider historical information, current information, and reasonable and supportable forecasts of expected losses over the remaining contractual life that affect collectability. The adoption of this ASU did not have a material impact on the Company’s financial position or results of operations.

New accounting pronouncements issued but not yet adopted
There are no new accounting pronouncements issued that are expected to be applicable to the Company in future periods.
v3.20.2
Revenue recognition
3 Months Ended
May 02, 2020
Revenue from Contract with Customer [Abstract]  
Revenue recognition Revenue recognition
The following tables provide the Company’s revenue, disaggregated by banner, major product and channel, for the 13 weeks ended May 2, 2020 and May 4, 2019:
 
13 weeks ended May 2, 2020
 
13 weeks ended May 4, 2019
(in millions)
North America
 
International
 
Other
 
Consolidated
 
North America
 
International
 
Other
 
Consolidated
Sales by banner:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kay
$
333.5

 
$

 
$

 
$
333.5

 
$
579.3

 
$

 
$

 
$
579.3

Zales
182.3

 

 

 
182.3

 
288.8

 

 

 
288.8

Jared
145.4

 

 

 
145.4

 
255.0

 

 

 
255.0

Piercing Pagoda
51.4

 

 

 
51.4

 
82.6

 

 

 
82.6

James Allen
43.8

 

 

 
43.8

 
52.0

 

 

 
52.0

Peoples
24.7

 

 

 
24.7

 
42.6

 

 

 
42.6

International segment

 
64.9

 

 
64.9

 

 
111.5

 

 
111.5

Other(1)

 

 
6.1

 
6.1

 

 

 
19.9

 
19.9

Total sales
$
781.1

 
$
64.9

 
$
6.1

 
$
852.1

 
$
1,300.3

 
$
111.5

 
$
19.9

 
$
1,431.7

(1)  
Includes sales from Signet’s diamond sourcing initiative.

 
13 weeks ended May 2, 2020
 
13 weeks ended May 4, 2019
(in millions)
North America
 
International
 
Other
 
Consolidated
 
North America
 
International
 
Other
 
Consolidated
Sales by product:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bridal
$
314.1

 
$
28.1

 
$

 
$
342.2

 
$
594.7

 
$
48.6

 
$

 
$
643.3

Fashion
297.9

 
12.6

 

 
310.5

 
467.4

 
22.4

 

 
489.8

Watches
24.6

 
17.5

 

 
42.1

 
48.2

 
34.0

 

 
82.2

Other(1)
144.5

 
6.7

 
6.1

 
157.3

 
190.0

 
6.5

 
19.9

 
216.4

Total sales
$
781.1

 
$
64.9

 
$
6.1

 
$
852.1

 
$
1,300.3

 
$
111.5

 
$
19.9

 
$
1,431.7

(1)  
Other revenue primarily includes gift, beads and other miscellaneous jewelry sales, repairs, service plan and other miscellaneous non-jewelry sales.
 
13 weeks ended May 2, 2020
 
13 weeks ended May 4, 2019
(in millions)
North America
 
International
 
Other
 
Consolidated
 
North America
 
International
 
Other
 
Consolidated
Sales by channel:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Store
$
631.9

 
$
49.4

 
$

 
$
681.3

 
$
1,157.3

 
$
100.2

 
$

 
$
1,257.5

E-commerce
149.2

 
15.5

 

 
164.7

 
143.0

 
11.3

 

 
154.3

Other

 

 
6.1

 
6.1

 

 

 
19.9

 
19.9

Total sales
$
781.1

 
$
64.9

 
$
6.1

 
$
852.1

 
$
1,300.3

 
$
111.5

 
$
19.9

 
$
1,431.7

The Company recognizes revenues when control of the promised goods and services are transferred to customers, in an amount that reflects the consideration expected to be received in exchange for those goods. Transfer of control generally occurs at the time merchandise is taken from a store, or upon receipt of the merchandise by a customer for an e-commerce shipment. The Company excludes all taxes assessed by government authorities and collected from a customer from its reported sales. The Company’s revenue streams and their respective accounting treatments are further discussed below.
Merchandise sales and repairs
Store sales are recognized when the customer receives and pays for the merchandise at the store with cash, in-house customer finance, private label credit card programs, a third-party credit card or a lease purchase option. For online sales shipped to customers, sales are recognized at the estimated time the customer has received the merchandise. Amounts related to shipping and handling that are billed to customers are reflected in sales and the related costs are reflected in cost of sales. Revenues on the sale of merchandise are reported net of anticipated returns and sales tax collected. Returns are estimated based on previous return rates experienced. Any deposits received from a customer for merchandise are deferred and recognized as revenue when the customer receives the merchandise. Revenues derived from providing replacement merchandise on behalf of insurance organizations are recognized upon receipt of the merchandise by the customer. Revenues on repair of merchandise are recognized when the service is complete and the customer collects the merchandise at the store.
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 period for ESP sales is determined from patterns of claims costs, including estimates of future claims costs expected to be incurred. Management reviews the trends in claims to assess whether changes are required to the revenue and cost recognition rates utilized. A significant change in estimates related to the time period or pattern in which warranty-related costs are expected to be incurred could materially impact revenues. All direct costs associated with the sale of these plans are deferred and amortized in proportion to the revenue recognized and disclosed as either other current assets or other assets in the condensed consolidated balance sheets. These direct costs primarily include sales commissions and credit card fees. Amortization of deferred ESP selling costs is included within selling, general and administrative expenses in the consolidated statements of operations. Amortization of deferred ESP selling costs were $4.3 million and $7.5 million during the first quarter of Fiscal 2021 and Fiscal 2020, respectively.
Unamortized deferred selling costs as of May 2, 2020, February 1, 2020 and May 4, 2019 were as follows:
(in millions)
May 2, 2020
 
February 1, 2020
 
May 4, 2019
Deferred ESP selling costs
 
 
 
 
 
Other current assets
$
23.6

 
$
23.6

 
$
23.8

Other assets
79.5

 
80.0

 
76.4

Total deferred ESP selling costs
$
103.1

 
$
103.6

 
$
100.2


The North America 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 at the time of merchandise sale. Revenue from the sale of the lifetime ESP is recognized consistent with the estimated pattern 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 17 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 55% of revenue is recognized within the first two years on a weighted average basis.
The North America segment also sells a Jewelry Replacement Plan (“JRP”). The JRP is designed to protect customers from damage or defects of purchased merchandise for a period of three years. If the purchased merchandise is defective or becomes damaged under normal use in that time period, the item will be replaced. JRP revenue is deferred and recognized on a straight-line basis over the period of expected claims costs.
Signet also sells warranty agreements in the capacity of an agent on behalf of a third-party. The commission that Signet receives from the third-party is recognized at the time of sale less an estimate of cancellations based on historical experience.
Sale vouchers
Certain promotional offers award sale vouchers to customers who make purchases above a certain value, which grant a fixed discount on a future purchase within a stated time frame. The Company accounts for such vouchers by allocating the fair value of the voucher between the initial purchase and the future purchase using the relative-selling-price method. Sale vouchers are not sold on a stand-alone basis. The fair value of the voucher is determined based on the average sales transactions in which the vouchers were issued, when the vouchers are expected to be redeemed and the estimated voucher redemption rate. The fair value allocated to the future purchase is recorded as deferred revenue.
Consignment inventory sales
Sales of consignment inventory are accounted for on a gross sales basis as the Company maintains control of the merchandise through the point of sale as well as provides independent advice, guidance and after-sales service to customers. The products sold from consignment inventory are indistinguishable from other products that are sold to customers and are sold on the same terms. Supplier products are selected at the discretion of the Company. The Company is responsible for determining the selling price and physical security of the products.
Deferred revenue
Deferred revenue is comprised primarily of ESP and voucher promotions as follows:
(in millions)
May 2, 2020
 
February 1, 2020
 
May 4, 2019
ESP deferred revenue
$
961.0

 
$
960.0

 
$
931.3

Voucher promotions and other
30.0

 
37.7

 
45.3

Total deferred revenue
$
991.0

 
$
997.7

 
$
976.6

 
 
 
 
 
 
Disclosed as:
 
 
 
 
 
Current liabilities
$
271.2

 
$
266.2

 
$
277.0

Non-current liabilities
719.8

 
731.5

 
699.6

Total deferred revenue
$
991.0

 
$
997.7

 
$
976.6

 
13 weeks ended
(in millions)
May 2, 2020
 
May 4, 2019
ESP deferred revenue, beginning of period
$
960.0

 
$
927.6

Plans sold(1)
55.0

 
96.0

Revenue recognized(2)
(54.0
)
 
(92.3
)
ESP deferred revenue, end of period
$
961.0

 
$
931.3

(1) 
Includes impact of foreign exchange translation.
(2) 
During the first quarter of Fiscal 2021, the Company recognized sales of $44.5 related to deferred revenue that existed at February 1, 2020 in respect to ESP. Additionally, no ESP revenue was recognized beginning on March 23, 2020 and through the end of the quarter due to the temporary closure of the Company’s stores and service centers as a result of COVID-19.
v3.20.2
Segment information
3 Months Ended
May 02, 2020
Segment Reporting [Abstract]  
Segment information Segment information
Financial information for each of Signet’s reportable segments is presented in the tables below. Signet’s chief operating decision maker utilizes segment sales and operating income, after the elimination of any inter-segment transactions, to determine resource allocations and performance assessment measures. Signet manages its business as three reportable segments: North America, International, and Other. Signet’s sales are derived from the retailing of jewelry, watches, other products and services as generated through the management of its reportable segments.
The North America reportable segment operates across the US and Canada. Its US stores operate nationally in malls and off-mall locations principally as Kay (Kay Jewelers and Kay Jewelers Outlet), Zales (Zales Jewelers and Zales Outlet), Jared (Jared The Galleria Of Jewelry and Jared Vault), James Allen and Piercing Pagoda, which operates through mall-based kiosks. Its Canadian stores operate as the Peoples Jewellers store banner. The segment also operates a variety of mall-based regional banners.
The International reportable segment operates stores in the UK, Republic of Ireland and Channel Islands. Its stores operate in shopping malls and off-mall locations (i.e. high street) principally as H.Samuel and Ernest Jones.
The Other reportable segment consists of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones and unallocated corporate administrative functions.
 
13 weeks ended
(in millions)
May 2, 2020
 
May 4, 2019
Sales:
 
 
 
North America segment
$
781.1

 
$
1,300.3

International segment
64.9

 
111.5

Other
6.1

 
19.9

Total sales
$
852.1

 
$
1,431.7

 
 
 
 
Operating income (loss):
 
 
 
North America segment(1)
$
(234.2
)
 
$
48.1

International segment(2)
(38.6
)
 
(8.0
)
Other(3)
(26.8
)
 
(42.7
)
Total operating income (loss)
(299.6
)
 
(2.6
)
Interest expense
(7.1
)
 
(9.2
)
Other non-operating income, net
0.1

 
0.3

Income (loss) before income taxes
$
(306.6
)
 
$
(11.5
)
(1) 
Operating income (loss) during the 13 weeks ended May 2, 2020 and May 4, 2019 includes a $0.4 million and $0.5 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 May 2, 2020 includes charges of $8.9 million, primarily related to severance and professional services recorded in conjunction with the Company’s restructuring activities. See Note 5 for additional information. Additionally, operating income (loss) during the 13 weeks ended May 2, 2020 includes asset impairment charges of $117.9 million. See Note 13 and Note 15 for additional information.
(2) 
Operating income (loss) during the 13 weeks ended May 2, 2020 includes charges of $3.6 million, primarily related to severance and professional services recorded in conjunction with the Company’s restructuring activities. See Note 5 for additional information. Additionally, operating income (loss) during the 13 weeks ended May 2, 2020 includes asset impairment charges of $18.4 million. See Note 13 and Note 15 for additional information.
(3) 
Operating income (loss) during the 13 weeks ended May 2, 2020 includes a charge of $8.5 million related to a proposed settlement of previously disclosed shareholder litigation matters. See Note 21 for additional information. Additionally, operating income (loss) during the 13 weeks ended May 2, 2020 and May 4, 2019 includes charges of $0.2 million and $27.3 million, respectively, primarily related to severance and professional services recorded in conjunction with the Company’s restructuring activities. See Note 5 for additional information.
v3.20.2
Restructuring Plans
3 Months Ended
May 02, 2020
Restructuring and Related Activities [Abstract]  
Restructuring Plans Restructuring Plans
Signet Path to Brilliance Plan
During the first quarter of Fiscal 2019, Signet launched a three-year comprehensive transformation plan, the “Signet Path to Brilliance” plan (the “Plan”), to reposition the Company to be a share-gaining, OmniChannel jewelry category leader. The Plan was originally expected to result in pre-tax charges in the range of $200 million - $220 million over the duration of the plan of which $105 million - $115 million were expected to be cash charges. The Company is currently evaluating its initiatives under the Plan and is unable to estimate its future costs in light of COVID-19, as further described in Note 1.
Restructuring charges and other Plan related costs of $12.3 million were recognized in the 13 weeks ended May 2, 2020, primarily related to store closure costs (including non-cash accelerated depreciation on property and equipment), severance costs and professional fees for legal and consulting services.
Restructuring charges and other Plan related costs are classified in the condensed consolidated statements of operations as follows:
 
 
 
13 weeks ended
(in millions)
Statement of operations caption
 
May 2, 2020
 
May 4, 2019
Inventory charges
Restructuring charges - cost of sales
 
$
(0.4
)
 
$

Other Plan related expenses
Restructuring charges
 
12.7

 
26.8

Total Signet Path to Brilliance Plan expenses
 
 
$
12.3

 
$
26.8


The composition of the restructuring charges the Company incurred during the 13 weeks ended May 2, 2020, as well as the cumulative amount incurred under the Plan through May 2, 2020, were as follows:
 
 
13 weeks ended
 
Cumulative amount
(in millions)
 
May 2, 2020
 
May 2, 2020
Inventory charges
 
$
(0.4
)
 
$
71.0

Termination benefits
 
2.9

 
28.7

Store closure and other costs
 
9.8

 
117.6

Total Signet Path to Brilliance Plan expenses
 
$
12.3

 
$
217.3


The following table summarizes the activity related to the Plan liabilities for Fiscal 2021:
(in millions)
 
Termination benefits
 
Store closure and other costs
 
Consolidated
Balance at February 1, 2020
 
$
2.0

 
$
10.4

 
$
12.4

Payments and other adjustments
 
(1.2
)
 
(10.8
)
 
(12.0
)
Charged to expense
 
2.9

 
9.4

 
12.3

Balance at May 2, 2020
 
$
3.7

 
$
9.0

 
$
12.7


v3.20.2
Redeemable preferred shares
3 Months Ended
May 02, 2020
Temporary Equity [Abstract]  
Redeemable preferred shares Redeemable preferred shares
On October 5, 2016, the Company issued 625,000 shares of Series A Convertible Preference Shares (“Preferred Shares”) to certain affiliates of Leonard Green & Partners, L.P., for an aggregate purchase price of $625.0 million, or $1,000 per share (the “Stated Value”) pursuant to the investment agreement dated August 24, 2016. Preferred shareholders are entitled to a cumulative dividend at the rate of 5% per annum, payable quarterly in arrears either in cash or by increasing the stated value of the preferred shares. The Company declared the preferred share dividend during the first quarter of Fiscal 2021 payable “in-kind” by increasing the stated value of the preferred shares. The stated value of the preferred shares will increase by $12.50 per share during the second quarter of Fiscal 2021, and will become payable upon liquidation of the Preferred Shares. Refer to Note 7 for additional discussion of the Company’s dividends on Preferred Shares.
(in millions, except conversion rate and conversion price)
May 2, 2020
 
February 1, 2020
 
May 4, 2019
Conversion rate
12.2297

 
12.2297

 
11.5493

Conversion price
$
81.7682

 
$
81.7682

 
$
86.5853

Potential impact of preferred shares if-converted to common shares
7.6

 
7.6

 
7.2

Liquidation preference
$
632.8

 
$
632.8

 
$
632.8


In connection with the issuance of the preferred shares, the Company incurred direct and incremental expenses of $13.7 million. These direct and incremental expenses originally reduced the preferred shares carrying value and will be accreted through retained earnings as a deemed dividend from the date of issuance through the first possible known redemption date in November 2024. Accumulated accretion recorded in the condensed consolidated balance sheets was $6.1 million as of May 2, 2020 (February 1, 2020 and May 4, 2019: $5.7 million and $4.4 million, respectively).
Accretion of $0.4 million was recorded to preferred shares in the condensed consolidated balance sheets during the 13 weeks ended May 2, 2020 ($0.4 million for the 13 weeks ended May 4, 2019).
v3.20.2
Shareholders' equity
3 Months Ended
May 02, 2020
Equity [Abstract]  
Shareholders' equity Shareholders’ equity
As a result of COVID-19, Signet’s Board of Directors has elected to temporarily suspend the dividend program on common shares and has elected to pay the quarterly dividend declared on its preferred shares “in-kind” for the first quarter of Fiscal 2021.
Dividends on common shares
Dividends declared on common shares during the 13 weeks ended May 2, 2020 and May 4, 2019 were as follows:
 
Fiscal 2021
 
Fiscal 2020
(in millions, except per share amounts)
Cash dividend per share
 
Total
dividends
 
Cash dividend
per share
 
Total
dividends
First quarter(1)
$
0.00

 
$
0.0

 
$
0.37

 
$
19.3

(1) 
Signet’s dividend policy for common shares results in the dividend payment date being a quarter in arrears from the declaration date. As a result, as of May 4, 2019, $19.3 million, was recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets reflecting the cash dividends on common shares declared for the first quarter of Fiscal 2020.
Dividends on preferred shares
Dividends declared on preferred shares during the 13 weeks ended May 2, 2020 and May 4, 2019 were as follows:
 
Fiscal 2021
 
Fiscal 2020
(in millions, except per share amounts)
Dividends
per share
 
Total dividends
 
Dividends
per share
 
Total dividends
First quarter(1)
$
12.50

 
$
7.8

 
$
12.50

 
$
7.8

(1) 
Signet’s preferred shares dividends result in the dividend payment date being a quarter in arrears from the declaration date. As a result, as of May 2, 2020 and May 4, 2019, $7.8 million and $7.8 million, respectively, has been recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets reflecting the dividends on preferred shares declared for the first quarter of Fiscal 2021 and Fiscal 2020, respectively. As disclosed in Note 6, the first quarter Fiscal 2021 dividend will be paid “in-kind” during the second quarter of Fiscal 2021.
There were no cumulative undeclared dividends on the preferred shares that reduced net income (loss) attributable to common shareholders during the 13 weeks ended May 2, 2020 or May 4, 2019. See Note 6 for additional discussion of the Company’s preferred shares.
Share repurchases
There were no share repurchases executed during the 13 weeks ended May 2, 2020 and May 4, 2019. The 2017 Program had $165.6 million remaining as of May 2, 2020.
v3.20.2
Earnings (loss) per common share (EPS)
3 Months Ended
May 02, 2020
Earnings Per Share [Abstract]  
Earnings (loss) per common share (“EPS”) Earnings (loss) per common share (EPS)
Basic EPS is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. The computation of basic EPS is outlined in the table below:
 
13 weeks ended
(in millions, except per share amounts)
May 2, 2020
 
May 4, 2019
Numerator:
 
 
 
Net income (loss) attributable to common shareholders
$
(205.3
)
 
$
(18.2
)
Denominator:
 
 
 
Weighted average common shares outstanding
51.8

 
51.6

EPS – basic
$
(3.96
)
 
$
(0.35
)

The dilutive effect of share awards represents the potential impact of outstanding awards issued under the Company’s share-based compensation plans, including restricted shares, restricted stock units and stock options issued under the Omnibus Plan and stock options issued under the Share Saving Plans. The dilutive effect of preferred shares represents the potential impact for common shares that would be issued upon conversion. Potential common share dilution related to share awards and preferred shares is determined using the treasury stock and if-converted methods, respectively. Under the if-converted method, the preferred shares are assumed to be converted at the beginning of the period, and the resulting common shares are included in the denominator of the diluted EPS calculation for the entire period being presented, only in the periods in which such effect is dilutive. Additionally, in periods in which preferred shares are dilutive, cumulative dividends and accretion for issuance costs associated with the preferred shares are added back to net income (loss) attributable to common shareholders. See Note 6 for additional discussion of the Company’s preferred shares.
The computation of diluted EPS is outlined in the table below:
 
13 weeks ended
(in millions, except per share amounts)
May 2, 2020
 
May 4, 2019
Numerator:
 
 
 
Net income (loss) attributable to common shareholders
$
(205.3
)
 
$
(18.2
)
Denominator:
 
 
 
Weighted average common shares outstanding
51.8

 
51.6

EPS – diluted
$
(3.96
)
 
$
(0.35
)

The calculation of diluted EPS excludes the following items for each respective period on the basis that their effect would be anti-dilutive.
 
13 weeks ended
(in millions)
May 2, 2020
 
May 4, 2019
Share awards
1.0

 
1.1

Potential impact of preferred shares
7.6

 
7.2

Total anti-dilutive shares
8.6

 
8.3


v3.20.2
Accumulated other comprehensive income (loss)
3 Months Ended
May 02, 2020
Equity [Abstract]  
Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss)
The following tables present the changes in AOCI by component and the reclassifications out of AOCI, net of tax:
 
 
 
 
 
 
 
Pension plan
 
 
(in millions)
Foreign
currency
translation
 
Gains (losses) on available-for-sale securities, net
 
Gains (losses)
on cash flow
hedges
 
Actuarial
gains (losses)
 
Prior
service
credits (costs)
 
Accumulated
other
comprehensive
income (loss)
Balance at February 1, 2020
$
(250.1
)
 
$
0.3

 
$
12.5

 
$
(52.4
)
 
$
(4.1
)
 
$
(293.8
)
Other comprehensive income (loss) (“OCI”) before reclassifications
(26.7
)
 
0.3

 
0.2

 

 

 
(26.2
)
Amounts reclassified from AOCI to net income

 

 
(8.1
)
 
0.1

 
0.2

 
(7.8
)
Net current period OCI
(26.7
)
 
0.3

 
(7.9
)
 
0.1

 
0.2

 
(34.0
)
Balance at May 2, 2020
$
(276.8
)
 
$
0.6

 
$
4.6

 
$
(52.3
)
 
$
(3.9
)
 
$
(327.8
)

The amounts reclassified from AOCI were as follows:
 
Amounts reclassified from AOCI
 
 
 
13 weeks ended
 
 
(in millions)
May 2, 2020
 
May 4, 2019
 
Statement of operations caption
Losses (gains) on cash flow hedges:
 
 
 
 
 
Foreign currency contracts
$

 
$
(0.3
)
 
Cost of sales (see Note 16)
Interest rate swaps

 
(0.6
)
 
Interest expense, net (see Note 16)
Commodity contracts
(0.8
)
 
0.4

 
Cost of sales (see Note 16)
Total before income tax
(0.8
)
 
(0.5
)
 
 
Losses (gains) on dedesignating cash flow hedges:
 
 
 
 
 
Foreign currency contracts
(0.6
)
 

 
Other operating income (loss) (see Note 16)
Commodity contracts
(9.3
)
 

 
Other operating income (loss) (see Note 16)
Total before income tax
(9.9
)
 

 
 
Income taxes
2.6

 
0.1

 
 
Net of tax
(8.1
)
 
(0.4
)
 
 
 
 
 
 
 
 
Defined benefit pension plan items:
 
 
 
 
 
Amortization of unrecognized actuarial losses
0.1

 
0.3

 
Other non-operating income, net
Amortization of unrecognized net prior service credits
0.2

 

 
Other non-operating income, net
Total before income tax
0.3

 
0.3

 
 
Income taxes

 
(0.1
)
 
 
Net of tax
0.3

 
0.2

 
 
 
 
 
 
 
 
Total reclassifications, net of tax
$
(7.8
)
 
$
(0.2
)
 
 

v3.20.2
Income taxes
3 Months Ended
May 02, 2020
Income Tax Disclosure [Abstract]  
Income taxes Income taxes
 
13 weeks ended
 
May 2, 2020
 
May 4, 2019
Estimated annual effective tax rate before discrete items
24.5
%
 
14.7
 %
Discrete items recognized
11.2
%
 
(1.7
)%
Effective tax rate recognized in statement of operations
35.7
%
 
13.0
 %

During the 13 weeks ended May 2, 2020, the Company’s effective tax rate was higher than the US federal income tax rate primarily due to the anticipated benefit from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted on March 27, 2020, recognized as a discrete item in the first quarter of Fiscal 2021, partially offset by the unfavorable impact of a valuation allowance recorded against certain US and state deferred tax assets and the impairment of goodwill which was not deductible for tax purposes. The Company’s effective tax rate for the same period during the prior year was lower than the US federal income tax rate primarily due to the favorable impact of foreign tax rate differences and benefits from global reinsurance arrangements.
The CARES Act provides a technical correction to the Tax Cuts and Jobs Act (TCJA) allowing fiscal year tax filers with federal net operating losses arising in the 2017/2018 tax year to be carried back two years to tax years that had higher enacted tax rates resulting in a tax benefit of $67.5 million. The CARES Act also provides for net operating losses incurred in Fiscal 2021 to be carried back five years to tax years with higher enacted tax rates resulting in an anticipated tax benefit of $48.5 million. In addition, during the first quarter of Fiscal 2021, based on weighing all positive and negative evidence, management determined it was more likely than not that it would not be able to realize certain US and state deferred tax assets primarily related to state deferred tax assets including state net operating losses and recorded a valuation allowance of $56.7 million. The estimated annual effective tax rate excludes the effects of any discrete items that may be recognized in future periods.
As of May 2, 2020, there has been no material change in the amounts of unrecognized tax benefits, or the related accrued interest and penalties (where appropriate), in respect of uncertain tax positions identified and recorded as of February 1, 2020.
v3.20.2
Accounts receivable
3 Months Ended
May 02, 2020
Receivables [Abstract]  
Accounts receivable Accounts receivable
The following table presents the components of Signet’s accounts receivable:
(in millions)
May 2, 2020
 
February 1, 2020
 
May 4, 2019
Accounts receivable, held for investment
$
27.8

 
$
34.4

 
$
15.3

Accounts receivable, held for sale
2.0

 
4.4

 
7.8

Accounts receivable
$
29.8

 
$
38.8

 
$
23.1



As previously disclosed, during Fiscal 2018, Signet announced a strategic initiative to outsource its North America private label credit card programs and sell the existing in-house finance receivables. In October 2017, Signet, through its subsidiary Sterling Jewelers Inc. (“Sterling”), completed the sale of the prime-only credit quality portion of Sterling’s in-house finance receivable portfolio to Comenity Bank (“Comenity”). In June 2018, the Company completed the sale of the non-prime in-house accounts receivable to CarVal Investors (“CarVal”) and the appointed minority party, Castlelake, L.P. (“Castlelake”).
In addition, for a five-year term, Signet would remain the issuer of non-prime credit with investment funds managed by CarVal and Castlelake purchasing forward receivables at a discount rate determined in accordance with their respective agreements. Signet would hold the newly issued non-prime credit receivables on its balance sheet for two business days prior to selling the receivables to the respective counterparty in accordance with the agreements. Receivables issued by the Company but pending transfer to CarVal and Castlelake as of period end were classified as “held for sale” and included in the accounts receivable caption in the condensed consolidated balance sheets. As of May 2, 2020, February 1, 2020, and May 4, 2019, the accounts receivable held for sale were recorded at fair value.
In conjunction with the sale of the majority of Signet’s non-prime in-house accounts receivable to CarVal and Castlelake (collectively, the “Investors”), beginning in June 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 until June 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 in June 2018 until the new agreements terminate. The Company’s agreement with the credit servicer Genesis Financial Solutions remains in place.
Receivables issued by the Company but pending transfer to its credit partners as of period end are classified as held for sale. Accounts receivable classified as held for investment is comprised primarily of accounts receivable related to the sale of diamonds to third parties from its polishing factory deemed unsuitable for Signet's needs in the Other segment.
v3.20.2
Inventories
3 Months Ended
May 02, 2020
Inventory Disclosure [Abstract]  
Inventories Inventories
The following table summarizes the Company’s inventory by classification:
(in millions)
May 2, 2020
 
February 1, 2020
 
May 4, 2019
Raw materials
$
69.8

 
$
56.2

 
$
74.2

Finished goods
2,322.4

 
2,275.5

 
2,320.0

Total inventories
$
2,392.2

 
$
2,331.7

 
$
2,394.2


As of May 2, 2020, inventory reserves were $55.5 million (February 1, 2020 and May 4, 2019: $67.0 million and $84.7 million, respectively).
v3.20.2
Asset Impairment
3 Months Ended
May 02, 2020
Asset Impairment Charges [Abstract]  
Asset Impairment Asset Impairment

The following table summarizes the Company's asset impairment activity for the periods presented:

 
13 weeks ended
(in millions)
May 2, 2020
 
May 4, 2019
Goodwill impairment (1)
$
10.7

 
$

Indefinite-lived intangible asset impairment (1)
83.3

 

Property, plant and equipment impairment
13.8

 

Operating lease ROU asset impairment
28.5

 

Total
$
136.3

 
$

(1)
Refer to Note 15 for additional information.

Long-lived assets of the Company consist primarily of property, plant 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 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.

Due to the various impacts of COVID-19 to the Company’s business during the 13 weeks ended May 2, 2020, including the temporary closure of all the Company’s stores beginning in late March 2020 (see additional information in Note 1), the Company determined a triggering event had occurred for certain of the Company’s long-lived asset groups at the individual stores that required an interim impairment assessment during the first quarter of Fiscal 2021. This impacted both property, plant and equipment and ROU assets at the store level. The Company identified certain stores in the initial recoverability test which had carrying values in excess of the estimated undiscounted cash flows. For these stores failing the recoverability test, a fair value assessment for these long-lived assets was performed, and as a result of the estimated fair values, the Company recorded an impairment charge for property, plant and equipment of $13.8 million and ROU assets of $28.5 million for the 13 weeks ended May 2, 2020.

The uncertainty of the COVID-19 impact to the Company’s business could continue to further negatively affect the operating performance and cash flows of the above identified stores or additional stores, including a slower than anticipated re-opening of the stores, lower than anticipated consumer traffic, changes in the Company’s real estate strategy under the Path-to-Brilliance plan (see Note 5), or the inability to achieve cost savings initiatives included in the business plans. In addition, 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.
v3.20.2
Leases
3 Months Ended
May 02, 2020
Leases [Abstract]  
Leases Leases
Signet occupies certain properties and holds machinery and vehicles under operating leases. Signet determines if an arrangement is a lease at the agreement’s inception. Certain operating leases include predetermined rent increases, which are charged to store occupancy costs within cost of sales on a straight-line basis over the lease term, including any construction period or other rental holiday. Other variable amounts paid under operating leases, such as taxes and common area maintenance, are charged to selling, general and administrative expenses as incurred. Premiums paid to acquire short-term leasehold properties and inducements to enter into a lease are recognized on a straight-line basis over the lease term. In addition, certain leases provide for contingent rent based on a percentage of sales in excess of a predetermined level. Further, certain leases provide for variable rent increases based on indexes specified within the lease agreement. As the contingent rent and variable increases are not measurable at inception, the amounts are excluded from minimum rent and the calculation of the operating lease liability. These amounts are included in variable lease cost and included in the determination of total lease cost when it is probable that the expense has been incurred and the amount is reasonably estimable. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and non-current operating lease liabilities in the Company’s condensed consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate available at the lease commencement date, based primarily on the underlying lease term, in measuring the present value of lease payments. Lease terms, which include the period of the lease that cannot be canceled, may also include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The operating lease ROU asset may also include initial direct costs, prepaid and/or accrued lease payments and the unamortized balance of lease incentives received. ROU assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of the assets may not be recoverable in accordance with the Company’s long-lived asset impairment assessment policy.
Payments arising from operating lease activity, as well as variable and short-term lease payments not included within the operating lease liability, are included as operating activities on the Company’s consolidated statement of cash flows. Operating lease payments representing costs to ready an asset for its intended use (i.e. leasehold improvements) are represented within investing activities within the Company’s consolidated statements of cash flows.

The Company deferred substantially all rent payments due in the months of April and May 2020. The Company has not recorded any provision for interest or penalties which may arise as a result of these deferrals, as management does not believe payment for any potential amounts to be probable. In April 2020, the FASB granted guidance (hereinafter, the practical expedient) permitting an entity to choose to forgo the evaluation of the enforceable rights and obligations of the original lease contract, specifically in situations where rent concessions have been agreed to with landlords as a result of COVID-19. Instead, the entity may account for COVID-19 related rent concessions, whatever their form (e.g. rent deferral, abatement or other) either: a) as if they were part of the enforceable rights and obligations of the parties under the existing lease contract; or b) as lease modifications. In accordance with this practical expedient, the Company has elected not to account for any concessions granted by landlords as a result of COVID-19 as lease modifications. Rent abatements under the practical expedient would be recorded as a negative variable lease cost. The Company is currently negotiating with nearly all of its landlords, and to date, has received certain concessions in the form of rent deferrals and other lease or rent modifications. In addition, the Company has continued recording lease expense during the deferral period in accordance with its existing policies.

The weighted average lease term and discount rate for the Company’s outstanding operating leases were as follows:
 
 
May 2, 2020
Weighted average remaining lease term (in years)
 
6.6

Weighted average discount rate
 
5.5
%

Total lease costs are as follows:
 
13 weeks ended
(in millions)
May 2, 2020
 
May 4, 2019
Operating lease cost
$
111.4

 
$
114.4

Short-term lease cost
4.9

 
7.8

Variable lease cost
25.6

 
26.6

Sublease income
(0.5
)
 
(0.7
)
Total lease cost
$
141.4

 
$
148.1


Payments arising from operating lease activity, as well as variable and short-term lease payments not included within the operating lease liability, are included as operating activities on the Company’s condensed consolidated statement of cash flows. Payments representing costs to ready a ROU asset for its intended use are represented within investing activities within the Company’s condensed consolidated statements of cash flows.
Supplemental cash flow information related to leases was as follows:
 
13 weeks ended
(in millions)
May 2, 2020
 
May 4, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
$
49.3

 
$
118.0

Operating lease right-of-use assets obtained in exchange for lease obligations
14.2

 
6.5

Reduction in the carrying amount of right-of-use assets (1)
87.9

 
87.3


(1)
Amount excludes impairment of right-of-use assets of $28.5 million during the first quarter of Fiscal 2021, as further described in note 13.

The future minimum operating lease payments for operating leases having initial or non-cancelable terms in excess of one year are as follows:
(in millions)
 
May 2, 2020
Remainder of Fiscal 2021
 
$
333.3

Fiscal 2022
 
388.6

Fiscal 2023
 
329.7

Fiscal 2024
 
262.0

Fiscal 2025
 
206.0

Thereafter
 
547.8

Total minimum lease payments
 
2,067.4

Less: Imputed interest
 
(342.3
)
Present value of lease liabilities
 
$
1,725.1


v3.20.2
Goodwill and intangibles
3 Months Ended
May 02, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and intangibles Goodwill and intangibles
Goodwill and other indefinite-lived intangible assets, such as indefinite-lived trade names, are evaluated for impairment annually. 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 asset for impairment at that time. Impairment testing compares the carrying amount of the reporting unit or other 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.
Due to various impacts of COVID-19 to the Company’s business during the 13 weeks ended May 2, 2020, the Company determined a triggering event had occurred that required an interim impairment assessment for all of its reporting units and indefinite-lived intangible assets. The income approach was used to estimate the fair value of each reporting unit, whereby the Company calculates the fair value based on the present value of estimated future cash flows, using a discount rate aligned with market-based assumptions. The relief-from-royalty method was used to estimate the fair value of indefinite-lived intangible assets. As part of the assessment, it was determined that an increase in the discount rates were required to reflect the prevailing uncertainty inherent in the forecasts due to current market conditions and potential COVID-19 impacts. This higher discount rate, in conjunction with revised long-term projections associated with certain aspects of the Company’s forecast, resulted in lower than previously projected long-term future cash flows for the reporting units and indefinite-lived intangible assets which negatively affected the valuation compared to previous valuations. As a result of the interim impairment assessment, the Company recognized pre-tax impairment charges for goodwill and indefinite-lived intangible assets totaling $94 million in the 13 weeks ended May 2, 2020.
Goodwill
During the 13 weeks ended August 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 Goodwill and intangible impairments on the condensed consolidated statements of operations related to an error in the calculation of goodwill impairments during Fiscal 2019.
During the 13 weeks ended May 2, 2020, the Company recognized pre-tax impairment charges within asset impairments on the condensed consolidated statements of operations of $10.7 million within its North America segment related to R2Net and Zales Canada goodwill.
The following table summarizes the Company’s goodwill by reportable segment:
(in millions)
 
North America
Balance at February 2, 2019
 
$
296.6

Impairment(1)
 
(47.7
)
Impact of foreign exchange and other adjustments
 
(0.1
)
Balance at February 1, 2020
 
248.8

Impairment
 
(10.7
)
Impact of foreign exchange
 
(0.1
)
Balance at May 2, 2020</