SIGNET JEWELERS LTD, 10-K filed on 4/3/2019
Annual Report
v3.19.1
Document and Entity Information - USD ($)
12 Months Ended
Feb. 02, 2019
Mar. 28, 2019
Aug. 04, 2018
Document And Entity Information [Abstract]      
Document type 10-K    
Amendment flag false    
Document period end date Feb. 02, 2019    
Document fiscal year focus 2019    
Document fiscal period focus FY    
Trading symbol SIG    
Entity registrant name SIGNET JEWELERS LTD    
Entity Central Index Key 0000832988    
Current Fiscal Year End Date --01-28    
Entity Well-known Seasoned Issuer Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Large Accelerated Filer    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
Entity Common Stock, Shares outstanding   51,891,985  
Entity Public Float     $ 3,058,047,614
v3.19.1
Consolidated Income Statements - USD ($)
shares in Millions, $ in Millions
3 Months Ended 12 Months Ended
Feb. 02, 2019
Nov. 03, 2018
Aug. 04, 2018
May 05, 2018
Feb. 03, 2018
Oct. 28, 2017
Jul. 29, 2017
Apr. 29, 2017
Oct. 29, 2016
Jan. 30, 2016
Oct. 31, 2015
Aug. 01, 2015
May 02, 2015
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Sales $ 2,154.7 $ 1,191.7 $ 1,420.1 $ 1,480.6 $ 2,293.1 $ 1,156.9 $ 1,399.6 $ 1,403.4           $ 6,247.1 $ 6,253.0 $ 6,408.4
Cost of sales                           (4,024.1) (4,063.0) (4,047.6)
Gross margin 877.8 371.2 427.0 484.8 919.8 321.1 457.9 491.2           2,160.8 2,190.0 2,360.8
Selling, general and administrative expenses                           (1,985.1) (1,872.2) (1,880.2)
Credit transaction, net                           (167.4) 1.3 0.0
Restructuring charges                           (63.7) 0.0 0.0
Goodwill and intangible impairments       (448.7)                   (735.4) 0.0 0.0
Other operating income, net                           26.2 260.8 282.6
Operating income (loss)                           (764.6) 579.9 763.2
Interest expense, net                           (39.7) (52.7) (49.4)
Other non-operating income                           1.7 0.0 0.0
Income (loss) before income taxes                           (802.6) 527.2 713.8
Income taxes                           145.2 (7.9) (170.6)
Net income (loss) $ (116.2) $ (38.1) $ (31.2) $ (504.8) $ 343.0 $ (12.1) $ 85.2 $ 70.3           (657.4) 519.3 543.2
Dividends on redeemable convertible preferred shares                           (32.9) (32.9) (11.9)
Net income (loss) attributable to common shareholders                           $ (690.3) $ 486.4 $ 531.3
Earnings (loss) per common share:                                
Earnings per share: basic (usd per share) $ (2.25) $ (0.74) $ (0.56) $ (8.48) $ 5.70 $ (0.20) $ 1.34 $ 1.03           $ (12.62) $ 7.72 $ 7.13
Earnings per share: diluted (usd per share) (2.25) $ (0.74) (0.56) (8.48) 5.24 (0.20) 1.33 1.03           $ (12.62) $ 7.44 $ 7.08
Weighted average common shares outstanding:                                
Weighted average common shares outstanding: basic (in shares)                           54.7 63.0 74.5
Weighted average common shares outstanding: diluted (in shares)                           54.7 69.8 76.7
Dividends declared per common share (usd per share) $ 0.37   $ 0.37 $ 0.37 $ 0.31 $ 0.37 $ 0.31 $ 0.31 $ 0.31 $ 0.26 $ 0.26 $ 0.26 $ 0.26 $ 1.48 $ 1.24 $ 1.04
Restructuring                                
Cost of sales                           $ (62.2) $ 0.0 $ 0.0
v3.19.1
Consolidated Statements Of Comprehensive Income - USD ($)
$ in Millions
12 Months Ended
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Pre-tax amount      
Foreign currency translation adjustments $ (35.9) $ 50.9 $ (25.6)
Available-for-sale securities:      
Unrealized gain (loss) [1] 0.6 0.5 0.0
Impact from adoption of new accounting pronouncements [2] (1.1)    
Cash flow hedges:      
Unrealized gain (loss) 6.2 3.4 8.8
Reclassification adjustment for losses to net income (2.1) (4.6) (0.7)
Pension plan:      
Actuarial gain (loss) (4.1) 0.0 (16.9)
Reclassification adjustment to net income for amortization of actuarial losses 0.9 2.8 1.5
Prior service costs (8.1) (0.6) (0.5)
Reclassification adjustment to net income for amortization of net prior service credits 0.0 (1.4) (1.9)
Net curtailment gain and settlement loss 0.0 (3.7) 0.0
Total other comprehensive (loss) income (43.6) 47.3 (35.3)
Tax (expense) benefit      
Foreign currency translation adjustments 0.0 0.0 0.0
Available-for-sale securities:      
Unrealized gain (loss) (1) [1] (0.2) (0.2) 0.0
Impact from adoption of new accounting pronouncements [2] 0.3    
Cash flow hedges:      
Unrealized gain (loss) (1.4) (1.6) (1.9)
Reclassification adjustment for losses to net income 0.6 1.1 0.1
Pension plan:      
Actuarial gain (loss) 0.7 0.0 3.3
Reclassification adjustment to net income for amortization of actuarial losses (0.2) (0.6) (0.3)
Prior service costs 1.6 0.1 0.1
Reclassification adjustment to net income for amortization of net prior service credits 0.0 0.3 0.4
Net curtailment gain and settlement loss 0.0 0.7 0.0
Total other comprehensive (loss) income 1.4 (0.2) 1.7
After-tax amount      
Net income (657.4) 519.3 543.2
Foreign currency translation adjustments (35.9) 50.9 (25.6)
Available-for-sale securities:      
Unrealized gain (loss) (1) [1] 0.4 0.3 0.0
Impact from adoption of new accounting pronouncements [2] (0.8)    
Cash flow hedges:      
Unrealized gain (loss) 4.8 1.8 6.9
Reclassification adjustment for losses to net income (1.5) (3.5) (0.6)
Pension plan:      
Actuarial gain (loss) (3.4) 0.0 (13.6)
Reclassification adjustment to net income for amortization of actuarial losses 0.7 2.2 1.2
Prior service costs (6.5) (0.5) (0.4)
Reclassification adjustment to net income for amortization of net prior service credits 0.0 (1.1) (1.5)
Net curtailment gain and settlement loss 0.0 (3.0) 0.0
Total other comprehensive (loss) income (42.2) 47.1 (33.6)
Total comprehensive income $ (699.6) $ 566.4 $ 509.6
[1] During Fiscal 2019, amounts represent unrealized gains related to the Company’s available-for-sale debt securities. During Fiscal 2018, amounts represent unrealized gains related to the Company’s available-for-sale debt and equity securities.
[2] Adjustment reflects the reclassification of unrealized gains related to the Company’s available-for-sale equity securities as of February 3, 2018 from AOCI into retained earnings associated with the adoption of ASU 2016-01.
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Feb. 02, 2019
Feb. 03, 2018
Current assets:    
Cash and cash equivalents $ 195.4 $ 225.1
Accounts receivable, held for sale 4.2 0.0
Accounts receivable, net 19.5 692.5
Other receivables 72.5 87.2
Other current assets 171.5 158.2
Income taxes 5.8 2.6
Inventories 2,386.9 2,280.5
Total current assets 2,855.8 3,446.1
Non-current assets:    
Property, plant and equipment, net 800.5 877.9
Goodwill 296.6 821.7
Intangible assets, net 265.0 481.5
Other assets 150.6 171.2
Deferred tax assets 21.0 1.4
Retirement benefit asset 30.6 39.8
Total assets 4,420.1 5,839.6
Current liabilities:    
Loans and overdrafts 78.8 44.0
Accounts payable 153.7 237.0
Accrued expenses and other current liabilities 502.8 448.0
Deferred revenue 270.0 288.6
Income taxes 27.7 19.6
Total current liabilities 1,033.0 1,037.2
Non-current liabilities:    
Long-term debt 649.6 688.2
Other liabilities 224.1 239.6
Deferred revenue 696.5 668.9
Deferred tax liabilities 0.0 92.3
Total liabilities 2,603.2 2,726.2
Commitments and contingencies
Series A redeemable convertible preferred shares of $0.01 par value: 500 shares authorized, 0.625 shares outstanding   613.6
Shareholders’ equity:    
Common shares of $0.18 par value: authorized 500 shares, 51.9 shares outstanding (2018: 60.5 outstanding) 12.6 15.7
Additional paid-in capital 236.5 290.2
Other reserves 0.4 0.4
Treasury shares at cost: 18.1 shares (2018: 26.7 shares) (1,027.3) (1,942.1)
Retained earnings 2,282.2 4,396.2
Accumulated other comprehensive loss (302.8) (260.6)
Total shareholders’ equity 1,201.6 2,499.8
Total liabilities, redeemable convertible preferred shares and shareholders’ equity 4,420.1 5,839.6
Series A Redeemable Convertible Preferred Stock    
Non-current liabilities:    
Series A redeemable convertible preferred shares of $0.01 par value: 500 shares authorized, 0.625 shares outstanding $ 615.3 $ 613.6
v3.19.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Feb. 02, 2019
Feb. 03, 2018
Common shares, par value (usd per share) $ 0.18 $ 0.18
Common shares, authorized 500,000,000 500,000,000
Common shares, outstanding 51,900,000 60,500,000
Treasury shares, shares 18,100,000 26,700,000
Series A Redeemable Convertible Preferred Stock    
Preferred shares, par value (usd per share) $ 0.01  
Preferred shares, authorized 500,000,000  
Preferred shares, outstanding 625,000  
v3.19.1
Consolidated Statements Of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Feb. 02, 2019
Feb. 03, 2018
Jan. 28, 2017
Cash flows from operating activities:      
Net income $ (657.4) $ 519.3 $ 543.2
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 183.6 203.4 188.8
Amortization of unfavorable leases and contracts (7.9) (13.0) (19.7)
Pension benefit (0.8) (3.5) (1.6)
Share-based compensation 16.5 16.1 8.0
Deferred taxation (105.6) (33.4) 27.7
Excess tax benefit from exercise of share awards 0.0 0.0 (2.4)
Amortization of debt discount and issuance costs 2.0 3.7 2.8
Credit transaction, net 160.4 (30.9) 0.0
Goodwill and intangible impairments 735.4 0.0 0.0
Restructuring charges 84.9 0.0 0.0
Other non-cash movements (4.6) 2.4 0.4
Changes in operating assets and liabilities:      
Decrease (increase) in accounts receivable 18.1 242.1 (102.7)
Decrease in accounts receivable held for sale 27.6 0.0 0.0
Proceeds from sale of in-house finance receivables 445.5 952.5 0.0
Decrease (increase) in other receivables and other assets 0.7 (6.0) (6.9)
Decrease (increase) in inventories (194.3) 210.9 (9.7)
Decrease in accounts payable (78.5) (51.4) (7.0)
Increase (decrease) in accrued expenses and other liabilities 55.9 3.9 (21.8)
Increase in deferred revenue 9.7 10.0 43.6
Increase (decrease) in income taxes payable 10.9 (82.4) 38.9
Pension plan contributions (4.4) (3.2) (3.3)
Net cash provided by operating activities 697.7 1,940.5 678.3
Investing activities      
Purchase of property, plant and equipment (133.5) (237.4) (278.0)
Proceeds from sale of assets 5.5 0.0 0.0
Purchase of available-for-sale securities (0.6) (2.4) (10.4)
Proceeds from sale of available-for-sale securities 9.6 2.2 10.0
Acquisition of R2Net Inc., net of cash acquired   (331.8)  
Net cash used in investing activities (119.0) (569.4) (278.4)
Financing activities      
Dividends paid on common shares (79.0) (76.5) (75.6)
Dividends paid on redeemable convertible preferred shares (31.2) (34.7) 0.0
Repurchase of common shares (485.0) (460.0) (1,000.0)
Proceeds from issuance of redeemable convertible preferred shares, net of issuance costs 0.0 0.0 611.3
Proceeds from revolving credit facility 787.0 814.0 1,270.0
Repayments of revolving credit facility (787.0) (870.0) (1,214.0)
Repayments of bank overdrafts 25.9 (0.1) (10.2)
Other financing activities (2.1) (4.0) (3.3)
Net cash used in financing activities (602.7) (1,253.6) (438.2)
Cash and cash equivalents at beginning of period 225.1 98.7 137.7
Increase (decrease) in cash and cash equivalents (24.0) 117.5 (38.3)
Effect of exchange rate changes on cash and cash equivalents (5.7) 8.9 (0.7)
Cash and cash equivalents at end of period 195.4 225.1 98.7
Non-cash investing activities:      
Capital expenditures in accounts payable 5.6 7.0 9.2
Supplemental cash flow information:      
Interest paid 39.1 50.2 47.1
Income taxes paid 44.8 122.3 104.0
Term Loan      
Financing activities      
Proceeds from debt 0.0 350.0 0.0
Repayments of debt (31.3) (372.3) (16.4)
Securitization facility      
Financing activities      
Proceeds from debt 0.0 1,745.9 2,404.1
Repayments of debt 0.0 (2,345.9) (2,404.1)
R2Net Inc.      
Investing activities      
Acquisition of R2Net Inc., net of cash acquired $ 0.0 $ (331.8) $ 0.0
v3.19.1
Consolidated Statements Of Shareholders' Equity - USD ($)
$ in Millions
Total
Common shares at par value
Additional paid-in capital
Other reserves
Treasury shares
Retained earnings
Accumulated other comprehensive (loss) income
Balance at Jan. 30, 2016 $ 3,060.7 $ 15.7 $ 279.9 $ 0.4 $ (495.8) $ 3,534.6 $ (274.1)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net income 543.2         543.2  
Other comprehensive (loss) income (33.6)           (33.6)
Dividends on common shares (75.9)         (75.9)  
Dividends on redeemable convertible preferred shares (11.9)         (11.9)  
Repurchase of common shares (1,000.0)       (1,000.0) 0.0  
Net settlement of equity based awards (2.4)   (7.2)   (1.1) 5.9  
Share options exercised 2.1       2.1    
Share-based compensation expense 8.0   8.0        
Balance at Jan. 28, 2017 2,490.2 15.7 280.7 0.4 (1,494.8) 3,995.9 (307.7)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Net income 519.3         519.3  
Other comprehensive (loss) income 47.1           47.1
Dividends on common shares (77.5)         (77.5)  
Dividends on redeemable convertible preferred shares (32.9)         (32.9)  
Repurchase of common shares (460.0)       (460.0)    
Net settlement of equity based awards (2.8)   (6.5)   12.3 (8.6)  
Share options exercised 0.3   (0.1)   0.4    
Share-based compensation expense 16.1   16.1        
Balance at Feb. 03, 2018 2,499.8 15.7 290.2 0.4 (1,942.1) 4,396.2 (260.6)
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Impact from adoption of new accounting pronouncements [1] (16.5)         (15.7) (0.8)
Net income (657.4)         (657.4)  
Other comprehensive (loss) income (41.4)           (41.4)
Dividends on common shares (79.4)         (79.4)  
Dividends on redeemable convertible preferred shares (32.9)         (32.9)  
Repurchase of common shares (485.0)       (485.0)    
Treasury share retirements 0.0 (3.1) (58.4)   1,391.0 (1,329.5)  
Net settlement of equity based awards (2.1)   (11.8)   8.8 0.9  
Share-based compensation expense 16.5   16.5        
Balance at Feb. 02, 2019 $ 1,201.6 $ 12.6 $ 236.5 $ 0.4 $ (1,027.3) $ 2,282.2 $ (302.8)
[1] Adjustments reflect reclassifications to retained earnings related to 1) deferred costs associated with the sale of extended service plans due to the adoption of ASU 2014-09 and 2) unrealized gains related to the Company’s equity security investments as of February 3, 2018 from AOCI associated with the adoption of ASU 2016-01.
v3.19.1
Organization and summary of significant accoutning policies
12 Months Ended
Feb. 02, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and summary of significant accoutning policies
Organization and summary of significant 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. During the first quarter of Fiscal 2019, the Company realigned its organizational structure. The new structure is expected to allow for further integration of operational and product development processes and support growth strategies. In accordance with this organizational change, beginning with quarterly reporting for the 13 weeks ended May 5, 2018, the Company identified three reportable segments as follows: North America, which consists of the legacy Sterling Jewelers and Zale division; International, which consists of the legacy UK Jewelry division; and Other. The “Other” reportable segment consists of all non-reportable segments, including subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones and unallocated corporate administrative functions. See Note 6 for additional discussion of the Company’s segments.
On September 12, 2017, the Company completed the acquisition of R2Net Inc., a Delaware corporation (“R2Net”). See Note 5 for additional information regarding the acquisition.
In October 2017, the Company, through its subsidiary Sterling Jewelers Inc. (“Sterling”), completed the sale of the prime-only quality portion of Sterling’s in-house finance receivable portfolio to Comenity Bank (“Comenity”). In June 2018, the Company, through its subsidiary Sterling, completed the sale of all eligible non-prime in-house accounts receivable to CarVal Investors (“CarVal”) and Castlelake, L.P. (“Castlelake”). See Note 4 for additional information regarding the transaction.
Signet’s sales are seasonal, with the fourth quarter accounting for approximately 35-40% of annual sales, with December being by far 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 transformation initiatives, we anticipate our operating profit will be almost entirely generated in the fourth quarter.
The Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued. There are no material related party transactions. The following accounting policies have been applied consistently in the preparation of the Company’s financial statements.
(a) Basis of preparation
The consolidated financial statements of Signet are prepared in accordance with US generally accepted accounting principles (“US GAAP”) and include the results for the 52 week period ended week period ended February 2, 2019 (“Fiscal 2019”), as Signet’s fiscal year ends on the Saturday nearest to January 31. The comparative periods are for the 53 week period ended week period ended February 3, 2018 (“Fiscal 2018”) and the 52 week period ended week period ended January 28, 2017 (“Fiscal 2017”). Intercompany transactions and balances have been eliminated in consolidation. Related to the adoption of new accounting pronouncements disclosed in Note 2 and the change in segments disclosed in Note 6, Signet has reclassified certain prior year amounts to conform to the current year presentation.
(b) Use of estimates
The preparation of these consolidated financial statements, in conformity with US GAAP and US Securities and Exchange Commission (“SEC”) regulations, 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 consolidated financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Estimates and assumptions are primarily made in relation to the valuation of accounts receivable, inventories, deferred revenue, derivatives, employee benefits, income taxes, contingencies, asset impairments, indefinite-lived intangible assets, depreciation and amortization of long-lived assets as well as accounting for business combinations.
The reported results of operations are not indicative of results expected in future periods.
(c) Foreign currency translation
The financial position and operating results of certain foreign operations, including the International segment and the Canadian operations 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 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 within the consolidated income statements, whereas translation adjustments and gains or losses related to intercompany loans of a long-term investment nature are recognized as a component of AOCI.
See Note 11 for additional discussion of the Company’s foreign currency translation.
(d) Revenue recognition
For the majority of the Company’s transactions, revenue is recognized when there is persuasive evidence of an arrangement, products have been delivered or services have been rendered, the sale price is fixed and determinable, and collectability is reasonably assured. The Company’s revenue streams and their respective accounting treatments are discussed below.
Merchandise sale 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. Allowance for sales returns are recorded within accrued expenses and were $16.8 million as of February 2, 2019 (February 3, 2018: $13.5 million). 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 over the life of the warranty agreement.
The North America segment sells ESP, subject to certain conditions, to perform repair work over the life of the product. 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. 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 consolidated balance sheets. Based on an evaluation of historical claims data, management currently estimates that substantially all claims will be incurred within 17 years of the sale of the warranty contract. Although claims experience varies between our national banners, thereby resulting in different recognition rates, approximately 55% of revenue is recognized within the first two years on a weighted average basis (February 3, 2018: 58%).
The North America segment 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 is the primary obligor providing 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.
See Note 3 for additional discussion of the Company’s revenue recognition.
(e) Cost of sales and selling, general and administrative expenses
Cost of sales includes merchandise costs net of discounts and allowances, freight, processing and distribution costs of moving merchandise from suppliers to distribution centers and stores inclusive of payroll, inventory shrinkage, store operating and occupancy costs, net bad debts and charges for late payments prior to credit outsourcing. Store operating and occupancy costs include utilities, rent, real estate taxes, common area maintenance charges and depreciation. Selling, general and administrative expenses include store staff and store administrative costs; centralized administrative expenses, including information technology and cost of in-house credit prior to the Company’s outsourcing initiatives and subsequently third-party credit costs; advertising and promotional costs and other operating expenses not specifically categorized elsewhere in the consolidated income statements.
Compensation and benefits costs included within cost of sales and selling, general and administrative expenses were as follows:
(in millions)
Fiscal 2019
 
Fiscal 2018
 
Fiscal 2017
Wages and salaries
$
1,127.2

 
$
1,140.3

 
$
1,183.2

Payroll taxes
90.3

 
93.8

 
96.5

Employee benefit plans
17.2

 
13.0

 
19.3

Share-based compensation
16.5

 
16.1

 
8.0

Total compensation and benefits
$
1,251.2

 
$
1,263.2

 
$
1,307.0


(f) Store opening costs
The opening costs of new locations are expensed as incurred.
(g) Advertising and promotional costs
Advertising and promotional costs are expensed within selling, general and administrative expenses. Production costs are expensed at the first communication of the advertisements, while communication expenses are recognized each time the advertisement is communicated. For catalogs and circulars, costs are all expensed at the first date they can be viewed by the customer. Point of sale promotional material is expensed when first displayed in the stores. Gross advertising costs totaled $387.8 million in Fiscal 2019 (Fiscal 2018: $360.5 million; Fiscal 2017: $380.6 million).
(h) In-house customer finance programs
Prior to the second quarter of Fiscal 2019, the North America segment operated customer in-house finance programs that allowed customers to finance merchandise purchases from its stores. Finance charges were recognized in accordance with the contractual agreements. Gross interest earned was recorded as other operating income in the consolidated income statements. See Note 13 for additional discussion of the Company’s other operating income. In addition to interest-bearing accounts, a portion of credit sales were made using interest-free financing for one year or less, subject to certain conditions.
Prior to the credit transaction entered into in October 2017 (see Note 4), the accrual of interest was suspended when accounts became more than 90 days aged on a recency basis. Upon suspension of the accrual of interest, interest income was subsequently recognized to the extent cash payments are received. Accrual of interest was resumed when receivables are removed from the non-accrual status.
As a result of the credit transaction entered into in October 2017 (see Note 4), the Company revised its policy to suspend the accrual of interest when accounts became more than 120 days past due on a contractual basis to align with the processes utilized by the Company’s third party credit service provider for the Company’s remaining in-house finance receivable portfolio.
(i) Income taxes
Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, deferred tax assets and liabilities are recognized by applying statutory tax rates in effect in the years in which the differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is established against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized, based on management’s evaluation of all available evidence, both positive and negative, including reversals of deferred tax liabilities, projected future taxable income and results of recent operations.
The Company does not recognize tax benefits related to positions taken on certain tax matters unless the position is more likely than not to be sustained upon examination by tax authorities. At any point in time, various tax years are subject to or are in the process of being audited by various taxing authorities. The Company records a reserve for uncertain tax positions, including interest and penalties. To the extent that management’s estimates of settlements change, or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made.
See Note 12 for additional discussion of the Company’s income taxes.
(j) Cash and cash equivalents
Cash and cash equivalents are comprised of cash on hand, money market deposits and amounts placed with external fund managers with an original maturity of three months or less. Cash and cash equivalents are carried at cost which approximates fair value. In addition, receivables from third-party credit card issuers typically converted to cash within 5 days of the original sales transaction are considered cash equivalents.
The following table summarizes the details of the Company’s cash and cash equivalents:
(in millions)
February 2, 2019
 
February 3, 2018
Cash and cash equivalents held in money markets and other accounts
$
164.5

 
$
182.6

Cash equivalents from third-party credit card issuers
29.1

 
40.5

Cash on hand
1.8

 
2.0

Total cash and cash equivalents
$
195.4

 
$
225.1


(k) Accounts receivable
Accounts receivable under the customer finance programs were presented net of an allowance for uncollectible amounts. This allowance represented management’s estimate of the expected losses in the accounts receivable portfolio as of the balance sheet date, and was calculated using a model that analyzed factors such as delinquency rates and recovery rates. In June 2018, the Company completed the sale of the remaining North America customer in-house finance receivables. Subsequent to the completion of the credit transaction, receivables issued by the Company but pending transfer are classified as “held for sale” and recorded at fair value in the consolidated balance sheet. See Note 20 for additional information regarding the assumptions utilized in the calculation of fair value of the finance receivables held for sale.
Prior to the credit transaction entered into in October 2017 (see Note 4), the Company calculated the allowance for uncollectible amounts as follows:
Record an allowance for amounts under 90 days aged on a recency measure of delinquency based on historical loss experience and payment performance information. The recency method measured the delinquency level by the number of days since the last qualifying payment was received, with the qualifying payment increasing with delinquency level.
Record a 100% allowance for any amount aged more than 90 days on a recency measure of delinquency and any amount associated with an account the owner of which has filed for bankruptcy.
Signet’s recency method of aging had been in place and unchanged since the inception of the in-house consumer financing program. The delinquency level was measured by the number of days since the last qualifying payment was received, with the qualifying payment increasing with delinquency level. The minimum payment does not decline as the balance declines.
Subsequent to the sale of its prime portfolio and until the sale of its non-prime accounts receivable portfolio, the Company measured delinquency under the contractual basis which aligned with the processes and collection strategies utilized by the Company’s third party credit service provider for the remaining in-house finance receivable portfolio. Under this measure of delinquency, credit card accounts were considered delinquent if the minimum payment was not received by the specified due date. The aging method was based on the number of completed billing cycles during which the customer failed to make a minimum payment. Management utilized the delinquency rates identified within the portfolio when calculating the overall allowance for the portfolio.
Subsequent to the reclassification of the non-prime accounts receivable portfolio to “held for sale” in the first quarter of Fiscal 2019, the Company no longer records allowances or bad debt expense.
See Note 14 for additional discussion of the Company’s accounts receivables.
(l) Inventories
Inventories are primarily held for resale and are valued at the lower of cost or net realizable value. Cost is determined using weighted-average cost for all inventories except for inventories held in the Company’s diamond sourcing operations, where cost is determined using specific identification. Cost includes charges directly related to bringing inventory to its present location and condition. Such charges would include warehousing, security, distribution and certain buying costs. Net realizable value is defined as estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Inventory reserves are recorded for obsolete, slow moving or defective items and shrinkage. Inventory reserves for obsolete, slow moving or defective items are calculated as the difference between the cost of inventory and its estimated market value based on targeted inventory turn rates, future demand, management strategy and market conditions. Due to the inventory being primarily comprised of precious stones and metals including gold, the age of the inventory has a limited impact on the estimated market value. Inventory reserves for shrinkage are estimated and recorded based on historical physical inventory results, expectations of future inventory losses and current inventory levels. Physical inventories are taken at least once annually for all store locations and distribution centers.
See Note 15 for additional discussion of the Company’s inventories.
(m) Vendor contributions
Contributions are received from vendors through various programs and arrangements including cooperative advertising. Where vendor contributions related to identifiable promotional events are received, contributions are matched against the costs of promotions. Vendor contributions received as general contributions and not related to specific promotional events are recognized as a reduction of inventory costs.
(n) Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation, amortization and impairment charges. Maintenance and repair costs are expensed as incurred. Depreciation and amortization are recognized on the straight-line method over the estimated useful lives of the related assets as follows:
Buildings
 
30 – 40 years when land is owned or the remaining term of lease, not to exceed 40 years
Leasehold improvements
 
Remaining term of lease, not to exceed 10 years
Furniture and fixtures
 
Ranging from 3 – 10 years
Equipment and software
 
Ranging from 3 – 5 years

Computer software purchased or developed for internal use is stated at cost less accumulated amortization. Signet’s policy provides for the capitalization of external direct costs of materials and services associated with developing or obtaining internal use computer software. In addition, Signet also capitalizes certain payroll and payroll-related costs for employees directly associated with internal use computer projects. Amortization is charged on a straight-line basis over periods from three to five years.
Property, plant and equipment 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 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 asset, based on the Company’s internal business plans. If the undiscounted cash flow is less than the asset’s carrying amount, the impairment charge recognized is determined by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value. The Company utilizes historical experience, internal business plans and an appropriate discount rate to estimate the fair value. Property and equipment at stores planned for closure are depreciated over a revised estimate of their useful lives.
See Note 16 for additional discussion of the Company’s property, plant and equipment.
(o) Goodwill and intangibles
In a business combination, the Company estimates and records the fair value of identifiable intangible assets and liabilities acquired. The fair value of these intangible assets and liabilities is estimated based on management’s assessment, including determination of appropriate valuation technique and consideration of any third party appraisals, when necessary. Significant estimates in valuing intangible assets and liabilities acquired include, but are not limited to, future expected cash flows associated with the acquired asset or liability, expected life and discount rates. The excess purchase price over the estimated fair values of the assets acquired and liabilities assumed is recognized as goodwill. Goodwill is recorded by the Company’s reporting units based on the acquisitions made by each. Goodwill is evaluated for impairment annually and more frequently if indicators of impairment arise. In evaluating goodwill for impairment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value (including goodwill). If the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then no further testing is required. However, if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then a goodwill impairment test is performed to identify a potential goodwill impairment and measure the amount of impairment to be recognized, if any. The impairment test involves estimating the fair value of all assets and liabilities of the reporting unit, including the implied fair value of goodwill, through either estimated discounted future cash flows or market-based methodologies.
Goodwill allocated to reporting units in the North America segment are reviewed for impairment annually and may be reviewed more frequently if certain events occur or circumstances change. Due to a sustained decline in the Company’s market capitalization during Fiscal 2019, the Company determined triggering events had occurred that required interim impairment assessments for all of its reporting units. As a result of the interim impairment assessments, the Company recognized pre-tax goodwill impairment charges totaling $521.2 million during Fiscal 2019. If future economic conditions are different than those projected by management, future impairment charges may be required.
Intangible assets with definite lives are amortized and reviewed for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. If the estimated undiscounted future cash flows related to the asset are less than the carrying amount, the Company recognizes an impairment charge equal to the difference between the carrying value and the estimated fair value, usually determined by the estimated discounted future cash flows of the asset.
Intangible assets with indefinite lives are reviewed for impairment annually and may be reviewed more frequently if certain events occur or circumstances change. The Company first performs a qualitative assessment to determine whether it is more likely than not that the indefinite-lived intangible asset is impaired. If the Company determines that it is more likely than not that the fair value of the asset is less than its carrying amount, the Company estimates the fair value, usually determined by the estimated discounted future cash flows of the asset, compares that value with its carrying amount and records an impairment charge, if any. In conjunction with the interim goodwill impairment tests, the Company reviewed its indefinite-lived intangible assets for potential impairment by calculating the fair values of the assets using the relief from royalty method and comparing the fair value to their respective carrying amounts. As a result of the interim impairment assessment, the Company recognized pre-tax intangible impairment charges totaling $214.2 million during Fiscal 2019. If future economic conditions are different than those projected by management, future impairment charges may be required.
See Note 17 for additional discussion of the Company’s goodwill and intangibles.
(p) Derivatives and hedge accounting
The Company enters into various types of derivative instruments to mitigate certain risk exposures related to changes in commodity costs and foreign exchange rates. Derivative instruments are recorded in the consolidated balance sheets at fair value, as either assets or liabilities, with an offset to net income or other comprehensive income (“OCI”), depending on whether the derivative qualifies as an effective hedge.
If a derivative instrument meets certain criteria, it may be designated as a cash flow hedge on the date it is entered into. For cash flow hedge transactions, the effective portion of the changes in fair value of the derivative instrument is recognized directly in equity as a component of AOCI and is recognized in the consolidated income statements in the same period(s) and on the same financial statement line in which the hedged item affects net income. Amounts excluded from the effectiveness calculation and any ineffective portions of the change in fair value of the derivatives are recognized immediately in other operating income, net in the consolidated income statements. In addition, gains and losses on derivatives that do not qualify for hedge accounting are recognized immediately in other operating income, net.
In the normal course of business, the Company may terminate cash flow hedges prior to the occurrence of the underlying forecasted transaction. For cash flow hedges terminated prior to the occurrence of the underlying forecasted transaction, management monitors the probability of the associated forecasted cash flow transactions to assess whether any gain or loss recorded in AOCI should be immediately recognized in net income. Cash flows from derivative contracts are included in net cash provided by operating activities.
See Note 19 for additional discussion of the Company’s derivatives and hedge activities.
(q) Employee Benefits
Signet operates a defined benefit pension plan in the UK (the “UK Plan”) which ceased to admit new employees effective April 2004. The UK Plan provides benefits to participating eligible employees. Beginning in Fiscal 2014, a change to the benefit structure was implemented and members’ benefits that accumulate after that date are now based upon career average salaries, whereas previously, all benefits were based on salaries at retirement. In September 2017, the Company approved an amendment to freeze benefit accruals under the UK Plan in an effort to reduce anticipated future pension expense. As a result of this amendment, the Company will freeze the pension plan for all participants with an effective date of either December 2017 or October 2019 as elected by the plan participants. The UK Plan’s assets are held by the UK Plan.
The net periodic pension cost of the UK Plan is measured on an actuarial basis using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and the expected long-term rate of return on plan assets. Other material assumptions include rates of participant mortality, the expected long-term rate of compensation and pension increases, and rates of employee attrition. Gains and losses occur when actual experience differs from actuarial assumptions. If such gains or losses exceed 10% of the greater of plan assets or plan liabilities, Signet amortizes those gains or losses over the average remaining service period of the employees. The net periodic pension cost is charged to selling, general and administrative expenses in the consolidated income statements.
The funded status of the UK Plan is recognized on the balance sheet, and is the difference between the fair value of plan assets and the projected benefit obligation measured at the balance sheet date. Gains or losses and prior service costs or credits that arise and are not included as components of net periodic pension cost are recognized, net of tax, in OCI.
Signet also operates a defined contribution plan in the UK and a defined contribution retirement savings plan in the US. Contributions made by Signet to these pension arrangements are charged primarily to selling, general and administrative expenses in the consolidated income statements as incurred.
See Note 21 for additional discussion of the Company’s employee benefits.
(r) Borrowing costs
Borrowings include interest-bearing bank loans, accounts receivable securitization program and bank overdrafts. Borrowing costs are capitalized and amortized into interest expense over the contractual term of the related loan.
See Note 22 for additional discussion of the Company’s borrowing costs.
(s) Share-based compensation
Signet measures share-based compensation cost for awards classified as equity at the grant date based on the estimated fair value of the award and recognizes the cost as an expense on a straight-line basis (net of estimated forfeitures) over the requisite service period of employees. Certain share plans include a condition whereby vesting is contingent on growth exceeding a given target, and therefore awards granted with this condition are considered to be performance-based awards.
Signet estimates fair value using a Black-Scholes model for awards granted under the Omnibus Plan and the binomial valuation model for awards granted under the Share Saving Plans. Deferred tax assets for awards that result in deductions on the income tax returns of subsidiaries are recorded by Signet based on the amount of compensation cost recognized and the subsidiaries’ statutory tax rate in the jurisdiction in which it will receive a deduction.
Share-based compensation is primarily recorded in selling, general and administrative expenses in the consolidated income statements, along with the relevant salary cost.
See Note 25 for additional discussion of the Company’s share-based compensation plans.
(t) Contingent liabilities
Provisions for contingent liabilities are recorded for probable losses when management is able to reasonably estimate the loss or range of loss. When it is reasonably possible that a contingent liability may result in a loss or additional loss, the range of the loss is disclosed.
See Note 26 for additional discussion of the Company’s contingencies.
(u) Leases
Signet’s operating leases generally include retail store locations. Certain operating leases include predetermined rent increases, which are charged to the income statement on a straight-line basis over the lease term, including any construction period or other rental holiday. Other amounts paid under operating leases, such as contingent rentals, taxes and common area maintenance, are charged to the income statement 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 rentals that are not measurable at inception. These contingent rentals are primarily based on a percentage of sales in excess of a predetermined level. These amounts are excluded from minimum rent and are included in the determination of rent expense when it is probable that the expense has been incurred and the amount is reasonably estimable.
See Note 26 for additional discussion of the Company’s leases.
(v) Dividends
Dividends on common shares are reflected as a reduction of retained earnings in the period in which they are formally declared by the Board of Directors (the “Board”). In addition, the cumulative dividends on preferred shares, whether or not declared, are reflected as a reduction of retained earnings.
v3.19.1
New accounting pronouncements
12 Months Ended
Feb. 02, 2019
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 adopted during the period
Revenue recognition
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB has issued several updates to the standard that i) defer the original effective date; ii) clarify the application of principal versus agent guidance; iii) clarify the guidance on inconsequential and perfunctory promises and licensing; and iv) clarify the guidance on the de-recognition of non-financial assets. Signet adopted ASU No. 2014‑09 and related updates effective February 4, 2018 using the modified retrospective approach applied only to contracts not completed as of the date of adoption with no restatement of prior periods and by recognizing the cumulative effect of initially applying the new standard as an adjustment to the opening balance of equity.
As a result of the adoption, the Company identified that the new standard required the Company to adjust its presentation related to customer trade-ins, accounting for returns reserves, costs associated with selling extended service plans and treatment of the amortization of certain bonus and profit-sharing arrangements related to third-party credit card programs. After the adoption of ASU No. 2014-09, the fair value of customer trade-ins will be considered non-cash consideration when determining the transaction price, and therefore classified as revenue rather than its previous classification as a reduction to cost of goods sold. Also, the Company will record its current sales return reserve within separate refund liability and asset for recovery accounts within other current asset and liabilities, respectively. Further, the capitalization and subsequent amortization of certain costs associated with selling an extended service plan, will be discontinued and recognized as expense when incurred. The change in balance classification and change in amortization treatment of certain bonus and profit-sharing arrangements were immaterial to the Company’s consolidated financial statements. See additional disclosure within Note 3. During Fiscal 2019, an additional $111.2 million of revenue was recognized primarily for non-cash consideration from customer trade-ins and $16.5 million of previously capitalized contract acquisitions costs were reclassified to beginning retained earnings due to the adoption of ASU No. 2014-09.
In addition to the pronouncement above, the following ASUs were adopted as of February 4, 2018. The impact on the Company's consolidated financial statements is described within the table below:
Standard
 
Description
ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, issued January 2016.
 
Impacts accounting for equity investments and financial liabilities under the fair value option, as well as, the presentation and disclosure requirements for financial instruments. Under the new guidance, equity investments will generally be measured at fair value, with subsequent changes in fair value recognized in net income. The adoption of ASU 2016-01 did not have a material impact on the Company’s financial position or results of operations. See immaterial presentation changes on the consolidated balance sheet and income statements and adoption adjustment within Note 11.
ASU No. 2016-04, Liabilities - Extinguishments of Liabilities (Subtopic 405-20), issued March 2016.
 
Addresses diversity in practice related to the derecognition of a prepaid stored-value product liability. Liabilities related to the sale of prepaid stored-value products within the scope of this update are financial liabilities. The adoption of ASU 2016-04 did not have a material impact on the Company’s financial position or results of operations.
ASU No. 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment, issued January 2017.
 
Requires a single-step quantitative test to identify and measure goodwill impairment based on the excess of a reporting unit's carrying amount over its fair value. A qualitative assessment may still be completed first for an entity to determine if a quantitative impairment test is necessary. ASU No. 2017-04 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019. Signet early adopted this guidance in the first quarter of Fiscal 2019. The adoption of ASU 2017-04 did not have a material impact on the Company’s financial position or results of operations.
ASU No. 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, issued March 2017.
 
Requires entities to present the service cost component of the net periodic pension cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Entities will present the other components of net benefit cost separately from the service cost component and outside of operating profit within the income statement. In addition, only the service cost component will be eligible for capitalization in assets. The adoption of ASU 2017-07 did not have a material impact on the Company’s financial position or results of operations. See immaterial presentation changes on the consolidated income statements.
New accounting pronouncements to be adopted in future periods
Leases
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The new guidance primarily impacts lessee accounting by requiring the recognition of a right-of-use asset and a corresponding lease liability on the balance sheet for long-term lease agreements. The lease liability will be equal to the present value of all reasonably certain lease payments. The right-of-use asset will be based on the liability, subject to adjustment for initial direct costs. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. In general, leases will be amortized on a straight-line basis with the exception of finance lease agreements. ASU No. 2016-02 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted.
Signet will adopt this guidance in the first quarter of our fiscal year ending February 1, 2020. Signet has established a cross-functional implementation team to evaluate and identify the impact of ASU No. 2016-02 on the Company’s consolidated financial position and results of operations. The Company currently anticipates using the additional transition method provided for in ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” which permits the Company as of the effective date of ASU No. 2016-02 to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for the majority of our leases. Additionally, the Company intends to utilize the practical expedient relief package, as well as the short-term leases and portfolio approach practical expedients.
The Company is finalizing the evaluation of the the impacts that the adoption of ASU No. 2016-02 will have on the consolidated financial statements and currently expects approximately $1.8 billion - $2.2 billion of lease liabilities to be established and right-of-use assets approximating this to be recognized upon adoption, dependent upon the lease portfolio and discount rates used on the date of adoption. The discount rates used will reflect the interest rates that the Company estimates it would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments. The Company continues to work on the following items related to the adoption of this accounting guidance: (i) implementing software to meet the new reporting requirements, (ii) identifying potential changes to its business processes and controls to support adoption of the new guidance, and (iii) finalizing the impact to the right of use asset for stores having historical impairments which would impact the effect of adoption for the right of use asset.
The Company is also currently evaluating the impact on its financial statements of the following ASUs:
Standard
 
Description
ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, issued August 2017.
 
Expands the types of risk management strategies eligible for hedge accounting, refines the documentation and effectiveness assessment requirements and modifies the presentation and disclosure requirements for hedge accounting activities. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted.
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 ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.
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.
v3.19.1
Revenue recognition
12 Months Ended
Feb. 02, 2019
Revenue from Contract with Customer [Abstract]  
Revenue recognition
Revenue recognition
The following tables provide the Company’s total sales, disaggregated by major product and channel, for Fiscal 2019, Fiscal 2018 and Fiscal 2017:
 
Fiscal 2019
(in millions)
North America
 
International
 
Other
 
Consolidated
Sales by product:
 
 
 
 
 
 
 
Bridal
$
2,478.6

 
$
234.0

 
$

 
$
2,712.6

Fashion
2,128.1

 
126.3

 

 
2,254.4

Watches
238.2

 
190.9

 

 
429.1

Other(1)
796.8

 
25.3

 
28.9

 
851.0

Total sales
$
5,641.7

 
$
576.5

 
$
28.9

 
$
6,247.1

 
 
 
 
 
 
 
 
 
Fiscal 2018
(in millions)
North America
 
International
 
Other
 
Consolidated
Sales by product:
 
 
 
 
 
 
 
Bridal
$
2,407.3

 
$
247.3

 
$

 
$
2,654.6

Fashion
2,168.2

 
137.0

 

 
2,305.2

Watches
243.6

 
195.5

 

 
439.1

Other(1)
796.1

 
36.9

 
21.1

 
854.1

Total sales
$
5,615.2

 
$
616.7

 
$
21.1

 
$
6,253.0

 
 
 
 
 
 
 
 
 
Fiscal 2017
(in millions)
North America
 
International
 
Other
 
Consolidated
Sales by product:
 
 
 
 
 
 
 
Bridal
$
2,429.0

 
$
266.6

 
$

 
$
2,695.6

Fashion
2,190.8

 
150.9

 

 
2,341.7

Watches
263.0

 
199.6

 

 
462.6

Other(1)
860.4

 
30.0

 
18.1

 
908.5

Total sales
$
5,743.2

 
$
647.1

 
$
18.1

 
$
6,408.4

(1)  
Other revenue primarily includes gift and other miscellaneous jewelery sales, repairs, warranty and other miscellaneous non-jewelry sales.
 
Fiscal 2019
(in millions)
North America
 
International
 
Other(2)
 
Consolidated
Sales by channel:
 
 
 
 
 
 
 
Store
$
5,022.4

 
$
513.4

 
$

 
$
5,535.8

eCommerce(1)
619.3

 
63.1

 

 
682.4

Other

 

 
28.9

 
28.9

Total sales
$
5,641.7

 
$
576.5

 
$
28.9

 
$
6,247.1

 
 
 
 
 
 
 
 
 
Fiscal 2018
(in millions)
North America
 
International
 
Other(2)
 
Consolidated
Sales by channel:
 
 
 
 
 
 
 
Store
$
5,176.7

 
$
557.5

 
$

 
$
5,734.2

eCommerce(1)
438.5

 
59.2

 

 
497.7

Other

 

 
21.1

 
21.1

Total sales
$
5,615.2

 
$
616.7

 
$
21.1

 
$
6,253.0

 
 
 
 
 
 
 
 
 
Fiscal 2017
(in millions)
North America
 
International
 
Other(2)
 
Consolidated
Sales by channel:
 
 
 
 
 
 
 
Store
$
5,432.0

 
$
595.2

 
$

 
$
6,027.2

eCommerce(1)
311.2

 
51.9

 

 
363.1

Other

 

 
18.1

 
18.1

Total sales
$
5,743.2

 
$
647.1

 
$
18.1

 
$
6,408.4

(1) 
North America includes $223.7 million and $88.1 million in Fiscal 2019 and Fiscal 2018, respectively, from James Allen which was acquired during the third quarter of Fiscal 2018. See Note 5 for additional information regarding the acquisition.
(2) 
Other consists of all non-reportable segments that are below the quantifiable threshold for separate disclosure as a reportable segment, including subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones.
Extended service plans and lifetime warranty agreements (“ESP”)
Unamortized deferred selling costs as of Fiscal 2019 and Fiscal 2018 were as follows:
(in millions)
February 2, 2019
 
February 3, 2018
Deferred ESP selling costs
 
 
 
Other current assets
$
23.8

 
$
30.9

Other assets
75.4

 
89.5

Total deferred ESP selling costs
$
99.2

 
$
120.4


Deferred revenue
Deferred revenue is comprised primarily of ESP and voucher promotions and other as follows:
(in millions)
February 2, 2019
 
February 3, 2018
ESP deferred revenue
$
927.6

 
$
916.1

Voucher promotions and other
38.9

 
41.4

Total deferred revenue
$
966.5

 
$
957.5

 
 
 
 
Disclosed as:
 
 
 
Current liabilities
$
270.0

 
$
288.6

Non-current liabilities
696.5

 
668.9

Total deferred revenue
$
966.5

 
$
957.5

(in millions)
Fiscal 2019
 
Fiscal 2018
ESP deferred revenue, beginning of period
$
916.1

 
$
905.6

Plans sold(1)
395.0

 
409.3

Revenue recognized
(383.5
)
 
(398.8
)
ESP deferred revenue, end of period
$
927.6

 
$
916.1

(1) 
Includes impact of foreign exchange translation.
v3.19.1
Credit transaction, net
12 Months Ended
Feb. 02, 2019
Receivables [Abstract]  
Credit transaction, net
Credit transaction, net
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. Below is a summary of the transactions the Company has entered into as a result of this strategic initiative:
Fiscal 2018
In October 2017, Signet, through its subsidiary Sterling, completed the sale of the prime-only credit quality portion of Sterling’s in-house finance receivable portfolio to Comenity. The following events summarize this credit transaction:
Receivables reclassification: In the second quarter of Fiscal 2018, certain in-house finance receivables that met the criteria for sale to Comenity were reclassified from "held for investment" to "held for sale." Accordingly, the receivables were recorded at the lower of cost (par) or fair value, resulting in the reversal of the related allowance for credit losses of $20.7 million. This reversal was recorded in credit transaction, net in the consolidated income statement during the second quarter of Fiscal 2018.
Proceeds received: In October 2017, the Company received $952.5 million in cash consideration reflecting the par value of the receivables sold. In addition, the Company recognized a beneficial interest asset of $10.2 million representing the present value of the cash flows the Company expects to receive under the economic profit sharing agreement related to the receivables sold. The gain upon recognition of the beneficial interest asset was recorded in credit transaction, net in the consolidated income statement during the third quarter of Fiscal 2018.
Expenses: During Fiscal 2018, the Company incurred $29.6 million of transaction-related costs. These costs were recorded in credit transaction, net in the consolidated income statement during Fiscal 2018.
Asset-backed securitization facility termination: In October 2017, the Company terminated the asset-backed securitization facility in order to transfer the receivables free and clear. The asset-backed securitization facility had a principal balance outstanding of $600.0 million at the time of termination. The payoff was funded through the proceeds received from the par value of receivables sold. See Note 22 for additional information regarding the asset-backed securitization facility.
Program agreement: Comenity provides credit to prime-only credit quality customers with an initial term of seven years and, unless terminated by either party, additional renewal terms of two years. Under the Program Agreement, Comenity established a program to issue Sterling credit cards to be serviced, marketed and promoted in accordance with the terms of the agreement. Subject to limited exceptions, Comenity is the exclusive issuer of private label credit cards or an installment or other closed end loan product in the United States bearing specified Company trademarks, including “Kay”, “Jared” and specified regional brands, but excluding “Zale”, during the term of the agreement. The pre-existing arrangement with Comenity for the issuing of Zale credit cards was unaffected by the execution of the Program Agreement. Upon expiration or termination by either party of the Program Agreement, Sterling retains the option to purchase, or arrange the purchase by a third party of, the program assets from Comenity on terms that are no more onerous to Sterling than those applicable to Comenity under the Purchase Agreement, or in the case of a purchase by a third party, on customary terms. Additionally, the Company received a signing bonus, which may be repayable under certain conditions if the Program Agreement is terminated, and a right to receive future payments related to the performance of the credit program under an economic profit sharing agreement. The Program Agreement contains customary representations, warranties and covenants.
Additionally, Signet and Genesis Financial Solutions (“Genesis”) entered into a five-year servicing agreement in October 2017, under which Genesis will provide credit servicing functions for Signet’s non-prime accounts receivable portfolio prior to its sale, as well as future non-prime account originations.
Fiscal 2019
During March 2018, the Company, through its subsidiary Sterling, entered into a definitive agreement with CarVal to sell all eligible non-prime in-house accounts receivable. In May 2018, the Company exercised its option to appoint a minority party, Castlelake, to purchase 30% of the eligible receivables sold to CarVal under the Receivables Purchase Agreement. In June 2018, the Company completed the sale of the non-prime in-house accounts receivable at a price expressed as 72% of the par value of the accounts receivable. The purchase price was settled with 95% received as cash upon closing. The remaining 5% of the purchase price was deferred until the second anniversary of the closing date. Final payment of the deferred purchase price is contingent upon the non-prime in-house finance receivable portfolio achieving a pre-defined yield. The agreement contains customary representations, warranties and covenants.
Receivables reclassification: In March 2018, the eligible non-prime in-house accounts receivables that met the criteria for sale were reclassified from "held for investment" to "held for sale" on the condensed consolidated balance sheet. Accordingly, the receivables were recorded at the lower of cost (par) or fair value as of the date of the reclassification with subsequent adjustments to the asset fair value as required through the closing date of the transaction. During Fiscal 2019, total valuation losses of $160.4 million were recorded within credit transaction, net in the consolidated income statement.
Proceeds received: In June 2018, the Company received $445.5 million in cash consideration for the receivables sold based on the terms of the agreements with CarVal and Castlelake described above. The Company also recorded a receivable related to the deferred purchase price payment within other assets and will adjust the asset to fair value in each period of the performance period. See Note 20 for additional information regarding the fair value of deferred purchase price.
Expenses: During Fiscal 2019, the Company incurred $7.0 million of transaction-related costs, which were recorded within credit transaction, net in the consolidated income statement.
In addition, for a five-year term, Signet will 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 will 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. Servicing of the non-prime receivables, including operational interfaces and customer servicing, will continue to be provided by Genesis.
Accounts receivable, net
Prior to the second quarter of Fiscal 2019, Signet’s accounts receivable primarily consisted of US customer in-house financing receivables. This accounts receivable portfolio historically consisted of a population that was of similar characteristics and was evaluated collectively for impairment.
In October 2017, the Company completed the sale of the prime portion of the Sterling Jewelers customer in-house finance receivables. See Note 4 for additional information regarding the sale of the prime portion of the customer in-house finance receivable portfolio.
In June 2018, the Company completed the sale of the remaining Sterling Jewelers and Zale customer in-house finance receivables. See Note 4 for additional information regarding the agreement. For a five-year term ending in 2023, Signet will remain the issuer of non-prime credit with investment funds managed by CarVal and Castlelake purchasing forward flow receivables at a discount rate determined in accordance with their respective agreements. Receivables issued by the Company but pending transfer to Carval and Castlelake as of period end are classified as “held for sale” in the consolidated balance sheet. As of February 2, 2019, the accounts receivable held for sale were recorded at fair value. See Note 20 for additional information regarding the assumptions utilized in the calculation of fair value of the finance receivables held for sale.
(in millions)
February 2, 2019
 
February 3, 2018
Accounts receivable by portfolio segment, net:
 
 
 
Legacy Sterling Jewelers customer in-house finance receivables
$

 
$
649.4

Legacy Zale customer in-house finance receivables

 
33.5

North America customer in-house finance receivables
$

 
$
682.9

Other accounts receivable
19.5

 
9.6

Total accounts receivable, net
$
19.5

 
$
692.5

 
 
 
 
Accounts receivable, held for sale
$
4.2

 
$


Prior to the sale of the remaining Sterling Jewelers and Zale customer in-house finance receivables in June 2018, Signet granted credit to customers based on a variety of credit quality indicators, including consumer financial information and prior payment experience. Management monitored the credit exposure based on past due status and collection experience, as it had found a meaningful correlation between the past due status of customers and the risk of loss.
Other accounts receivable is comprised primarily of accounts receivable relating to the insurance loss replacement business in the International segment of $10.1 million (February 3, 2018: $9.3 million).
The activity in the allowance for credit losses on Sterling Jewelers customer in-house finance receivables is shown below:
(in millions)
Fiscal 2019
 
Fiscal 2018
 
Fiscal 2017
Beginning balance:
$
(113.5
)
 
$
(138.7
)
 
$
(130.0
)
Charge-offs, net
56.3

 
221.2

 
203.4

Recoveries
4.2

 
34.3

 
35.1

Provision
(54.6
)
 
(251.0
)
 
(247.2
)
Reversal of allowance on receivables sold(1)
107.6

 
20.7

 

Ending balance
$

 
$
(113.5
)
 
$
(138.7
)
Ending receivable balance evaluated for impairment

 
762.9

 
1,952.0

Sterling Jewelers customer in-house finance receivables, net
$

 
$
649.4

 
$
1,813.3


(1) 
Amounts reflected for Fiscal 2019 and Fiscal 2018 represent activity for the periods prior to the reclassification of the in-house finance receivables portfolio to held for sale during the first quarter of Fiscal 2019 and the period prior to the reclassification of the prime receivables portfolio to held for sale in October 2017, respectively, when the allowances were reversed.
As a result of the sale of the prime-only credit portion of the customer in-house finance receivable portfolio and the outsourcing of the credit servicing on the remaining in-house finance receivable portfolio in October 2017 as disclosed in Note 4, the Company revised its methodology for measuring delinquency to be based on the contractual basis.
The credit quality indicator and age analysis of customer in-house finance receivables as of February 3, 2018 are shown below under the contractual basis:
   
February 3, 2018
(in millions)
Gross
 
Valuation
allowance
Performing (accrual status):
 
 
 
0 - 120 days past due
$
703.4

 
$
(54.0
)
121 or more days past due
59.5

 
(59.5
)
 
$
762.9

 
$
(113.5
)
 


 


Valuation allowance as a % of ending receivable balance
 
 
14.9
%
Prior to the fourth quarter of Fiscal 2018, the Company’s calculation of the allowance for credit losses was based on a recency measure of delinquency. The credit quality indicator and age analysis of customer in-house finance receivables prior to the sale of the prime-only credit portion of the in-house receivable portfolio as of January 28, 2017 are shown below under the recency basis:
   
 
January 28, 2017
(in millions)
 
Gross
 
Valuation
allowance
Performing (accrual status):
 
 
 
 
Current, aged 0 – 30 days
 
$
1,538.2

 
$
(47.2
)
Past due, aged 31 – 60 days
 
282.0

 
(9.0
)
Past due, aged 61 – 90 days
 
51.6

 
(2.3
)
Non Performing (nonaccrual status):
 
 
 
 
Past due, aged more than 90 days
 
80.2

 
(80.2
)
 
 
$
1,952.0

 
$
(138.7
)
 
 
 
 
 
Valuation allowance as a % of ending receivable balance
 
 
 
7.1
%
v3.19.1
Acquisitions
12 Months Ended
Feb. 02, 2019
Business Combinations [Abstract]  
Acquisitions
Acquisitions
On September 12, 2017, the Company acquired the outstanding shares of R2Net, the owner of online jewelry retailer JamesAllen.com and Segoma Imaging Technologies. The acquisition rapidly enhanced the Company’s digital capabilities and accelerated its OmniChannel strategy, while adding a millennial-focused online retail brand to the Company’s portfolio. The Company paid $331.7 million, net of acquired cash of $47.3 million, for R2Net. The total consideration paid was funded with a $350.0 million bridge loan. See Note 22 for additional information regarding the bridge loan.
The transaction was accounted for as a business combination during the third quarter of Fiscal 2018 with R2Net becoming a wholly-owned consolidated subsidiary of Signet. Prior to closing the acquisition, the Company incurred approximately $8.6 million of acquisition-related costs for professional services in Fiscal 2018. Acquisition-related costs were recorded as selling, general and administrative expenses in the consolidated income statement. The results of R2Net subsequent to the acquisition date are reported as a component of the results of the North America segment. See Note 6 for segment information. Pro forma results of operations have not been presented, as the impact on the Company’s consolidated financial results was not material.
Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed are recorded at their estimated fair values on the acquisition date, with the remaining unallocated net purchase price recorded as goodwill. The following table summarizes the fair values identified for the assets acquired and liabilities assumed in the R2Net acquisition as of September 12, 2017:
(in millions)
Fair values
Cash and cash equivalents
$
47.3

Inventories
12.1

Other current assets
9.7

Property, plant and equipment
3.5

Intangible assets:
 
Trade name
70.6

Technology-related
4.2

Current liabilities
(42.4
)
Deferred tax liabilities
(25.1
)
Fair value of net assets acquired
79.9

Goodwill
299.1

Total consideration transferred
$
379.0


During the second quarter of Fiscal 2019, the Company finalized the valuation of net assets acquired. The goodwill generated from the acquisition is primarily attributable to expected synergies and will not be deductible for tax purposes.
See Note 17 for additional information related to goodwill and intangible assets.
v3.19.1
Segment Information
12 Months Ended
Feb. 02, 2019
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 sales and operating income, after the elimination of any inter-segment transactions, to determine resource allocations and performance assessment measures. During the first quarter of Fiscal 2019, the Company realigned its organizational structure. The new structure will allow for further integration of operational and product development processes and support growth strategies. In accordance with this organizational change, beginning with quarterly reporting for the 13 weeks ended May 5, 2018, the Company reported three reportable segments as follows: North America, which consists of the legacy Sterling Jewelers and Zale division; International, which consists of the legacy UK Jewelry division; 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), Jared (Jared The Galleria Of Jewelry and Jared Vault), Zales (Zales Jewelers and Zales Outlet) 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, including Gordon’s Jewelers in the US and Mappins in Canada, and James Allen, which was acquired in the R2Net acquisition.
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 principally under the H.Samuel and Ernest Jones banners.
The Other reportable segment consists of all non-reportable segments that are below the quantifiable threshold for separate disclosure as a reportable segment, including subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones and unallocated corporate administrative functions.
(in millions)
Fiscal 2019
 
Fiscal 2018
 
Fiscal 2017
Sales:
 
 
 
 
 
North America segment(1)
$
5,641.7

 
$
5,615.2

 
$
5,743.2

International segment
576.5

 
616.7

 
647.1

Other
28.9

 
21.1

 
18.1

Total sales
$
6,247.1

 
$
6,253.0

 
$
6,408.4

 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
North America segment(2)
$
(621.1
)
 
$
656.1

 
$
789.2

International segment(3)
12.9

 
33.1

 
45.6

Other(4)
(156.4
)
 
(109.3
)
 
(71.6
)
Total operating income (loss)
$
(764.6
)
 
$
579.9

 
$
763.2

 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
North America segment
$
165.8

 
$
183.5

 
$
166.4

International segment
17.5

 
19.1

 
21.6

Other
0.3

 
0.8

 
0.8

Total depreciation and amortization
$
183.6

 
$
203.4

 
$
188.8

 
 
 
 
 
 
Capital additions:
 
 
 
 
 
North America segment
$
123.9

 
$
219.7

 
$
252.2

International segment
9.6

 
17.6

 
25.7

Other

 
0.1

 
0.1

Total capital additions
$
133.5

 
$
237.4

 
$
278.0

(1) 
Includes sales of $218.3 million, $235.1 million and $234.6 million generated by Canadian operations in Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
(2) 
For Fiscal 2019, includes: 1) $731.8 million related to the goodwill and intangible impairments; 2) $52.7 million related to inventory charges recorded in conjunction with the Company’s restructuring activities; and 3) $160.4 million from the valuation losses related to the sale of eligible non-prime in-house accounts receivable. See Note 17, Note 7 and Note 4 for additional information. Fiscal 2018 amount includes $20.7 million gain related to the reversal of the allowance for credit losses for the in-house receivables sold, as well as the $10.2 million gain upon recognition of beneficial interest in connection with the sale of the prime portion of in-house receivables. See Note 4 for additional information.
(3) 
Includes $3.8 million related to inventory charges recorded in conjunction with the Company’s restructuring activities. See Note 7 for additional information.
(4) 
For Fiscal 2019, Other includes: 1) $69.4 million related to charges recorded in conjunction with the Company’s restructuring activities including inventory charges; 2) $11.0 million related to the resolution of a previously disclosed regulatory matter; 3) $7.0 million representing transaction costs associated with the sale of the non-prime in-house accounts receivable; and 4) $3.6 million of goodwill impairments. See Note 7, Note 26, Note 4 and Note 17 for additional information. For Fiscal 2018, Other includes $29.6 million of transaction costs related to the credit transaction, $8.6 million of R2Net acquisition costs, and $3.4 million of CEO transition costs. See Note 4 and Note 5 for additional information regarding credit transaction and acquisition of R2Net, respectively. For Fiscal 2017, Other includes $28.4 million of integration costs for consulting expenses associated with IT implementations, severance related to organizational changes and expenses associated with the settlement of miscellaneous legal matters pending as of the date of the Zale acquisition.
(in millions)
February 2, 2019
 
February 3, 2018
Total assets:
 
 
 
North America segment
$
3,943.0

 
$
5,309.0

International segment
367.4

 
420.3

Other
109.7

 
110.3

Total assets
$
4,420.1

 
$
5,839.6

 
 
 
 
Total long-lived assets: