Good morning, and welcome to the Signet Jewelers Fiscal 2023 Second Quarter Earnings Call. Please note, this event is being recorded. I'd like to turn the conference over to Vinnie Sinisi, Senior Vice President, Investor Relations.

Good morning, and welcome to our second quarter earnings conference call. On the call today are Signet's CEO, Gina Drosos; and Chief Financial and Strategy Officer, Joan Hilson. During today's presentation, we'll make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. We urge you to read the risk factors, cautionary language and other disclosures in our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events. During the call, we will discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as reconciliations of the non-GAAP measures to the most directly comparable GAAP measures, investors should review the news release we posted on our website at www.signetjewelers.com/investors. And with that, I'll turn the call over to Gina.

Thank you, Vinny, and thanks to all of you for joining us today. I want to begin by thanking our Signet team. Their passion for building lifetime relationships with our customers and fulfilling our purpose is central to everything we do. I continue to be inspired by their excellence and agility every day, no matter the conditions. It's an honor to work at their side. Here are the key takeaways from my remarks today. We believe that Signet's growth strategy and the structural advantages we've created in our operating model enable us to do three things consistently. First, deliver an annual double-digit operating margin; second, invest to achieve market share expansion; and third, create meaningful shareholder value. Q2 was yet another demonstration of these advantages. Our team delivered $1.8 billion in revenue and $193 million in non-GAAP operating income. Revenue was down 1.9% versus record-setting second quarter sales last year, and up 29% versus the second quarter of our fiscal year '20, which was the pre-pandemic base. Importantly, we delivered operating income within our original guidance range and non-GAAP operating margin was strong at 11%, which is nearly 3x higher than Signet's operating rate in fiscal year '20. So despite a softer top-line environment, our structural transformation and the flexibility we now have in our operating model enabled us to leverage SG&A to deliver double-digit operating margin and maintain strategic investments and return capital to shareholders in Q2. Our strategy is working. We are winning in our biggest businesses with our diversified portfolio of Banter, expanding accessible luxury, accelerating services and leading in digital. We are able to be strategically flexible leaning further into the areas of our business with the most growth opportunities, driving both customer and shareholder value. Before I get into our results, let me first share some jewelry category context. What we're seeing in our proprietary data is that consumers shopping at lower price points, primarily buying discretionary fashion items or with lower incomes are being impacted most directly by macroeconomic pressures. We believe lower jewelry price tiers are also seeing the most negative impact from deep discounting in apparel and other fashion and discretionary categories. So in general, jewelry price points below $500 are seeing steep declines, with price points below $1,000 also being negatively impacted. Conversely, higher price point items are showing more strength and this is reflected in the fastest jewelry growth being luxury price tiers, followed by accessible luxury. What's particularly interesting is that our proprietary customer research for Kay, Jared and Zales is showing relative strength in what we call considered purchases; that is, sentimental items over $1,000 like engagement rings, anniversary bands and other sentimental gifts are outperforming their categories. Our strategies around consumer insights, banners differentiation and tearing up into accessible luxury are allowing us to lean into these trends. So while Q2 was a mix of headwinds and tailwinds, we responded to these precisely as our company is now designed to do. We drove growth in bridal in our biggest banners, especially in the $4,000 to $5,000 price range where revenue increased 11% versus last year, and all banners grew 15% in aggregate for purchases in the $10,000 plus price range. We grew services nearly 7%, which has a higher margin profile and drives traffic to our stores. We reduced core inventory, excluding Diamonds Direct, almost 2% versus last year with more efficient data-driven assortment and flexible fulfillment. This is enabling us to quickly respond to changes in consumer trends, maximize newness and limit clearance. With that context, let's take a closer look at how we're doing across our four growth strategies and why we believe we're building moats of competitive advantage that will lead to long-term profitable share growth. Winning in our biggest businesses is our first 'where-to-play' strategy and bridal is a big part of the story this quarter. We estimate that our bridal share is now approximately 30%. This is a real advantage, driven by the high consumer awareness of our banners, our leadership marketing spend and personalized, always-on media approach. Our connected commerce presence, which is unrivaled in the jewelry category, ensures that we are uniquely able to meet our customers' needs whenever, wherever, and however they want to engage. Relevance plus readiness is a powerful combination, and it is precisely the combination we've built with our portfolio of highly differentiated banners, our optimized footprint of brick-and-mortar stores, and our expanding digital capabilities and experiences. As predicted, 2022 has become the year of the wedding with 2.5 million weddings expected this year. In addition, with in-person events growing, we've seen an increase in pre-wedding and other wedding-related events, which are great opportunities for gifting. In fact, our data suggests that jewelry represents 43% of the gifts shared at wedding-related celebrations, including gifts for the bridal party, mothers, and the couple themselves, making this a $1.9 billion opportunity in the U.S. Because Signet delights so many couples with engagement ring purchases, we are now focused on making the most of all wedding opportunities. We've made changes to our assortment, services, and marketing, and are creating new digital content, online shopping guides and targeted media campaigns, all to serve our customers throughout their special events and capture the entire value of the wedding. Our second 'where-to-play' strategy is to expand the market we play in. And in this economic environment, we are both leaning into accessible luxury while also increasing our value equation for more economically challenged customers. To delight higher-income customers, we've added higher price point items to our assortments across banners. We've expanded concierge-level services like Jared Foundry, which offers customers the ability to design custom pieces from scratch. We've increased the availability of personalized appointment bookings, particularly at Jared and Diamonds Direct. Diamonds Direct is proving to be the strong strategic acquisition we anticipated it would be, delivering $113 million in revenue this quarter, ahead of acquisition expectations. We believe we grew our share of accessible luxury in the quarter more than two points. We are also navigating the impact of inflation and economic pressure on value shoppers. To maximize the value of their spend, we are leveraging our scale, our vertical integration capabilities, and our strategic vendor relationships to value-engineer pieces that make jewelry more affordable for all our customers. A great example is how we are leveraging lab-created diamonds for a bigger look for less in our fashion pieces. We've also designed innovative new items using diamonds that are more plentiful and have a lower cost basis. Finally, we've strengthened our financing offerings, including expanding our 0% down payment promotional financing. Accelerating services is our third 'where-to-play' strategy and is delivering strong revenue growth with first half sales up nearly 12% versus a year ago and Q2 up 7%. This performance was driven largely by growth in warranty attachment and repairs. Extended service agreements revenue was driven by a mix of our newer, more customer-appealing bundles, price increases, and higher attachment rates. Repair growth reflects increasing NPS scores, driven by faster turnaround time, team training, and new digital tracking visibility. Further, in the second quarter, we launched several new services based on our consumer research; these included appraisal services at Kay and a new insurance product at Jared, Kay, and Zales to protect jewelry from theft and loss. We also launched Bridal by Rocksbox, a new premium rental service for brides at all their wedding events, ranging from bridal showers to bachelorette parties to their wedding day. We believe this service will help us continue attracting younger and more diverse customers as well as expand repeat purchases. The Rocksbox subscriber base increased 15% in Q2, illustrating the power of Signet's scale for a newly acquired banner. We continue to be very bullish about the expansion of our Volt Rewards loyalty program, which is currently in Jared and Kay's. It's on pace to be rolled out in e-commerce and to more than 1,800 Jared, Kay, and Zales stores by this holiday. This continues to be a meaningful source of future growth with transaction values among loyalty members at Jared, for example, nearly $600 higher and repeat rates up 700 basis points versus non-loyalty members. We continue to see services as a $1 billion business and are steadily making progress toward that goal. Importantly, service margins remain consistent and accretive. Our fourth 'where-to-play' strategy is leading in digital. Digital is our multiplier. It is the capability that creates the most advantage and is most difficult for competitors to match given the investments we've made. It's a multiplier because it makes browsing, shopping, and buying even easier and more fulfilling for our customers who are increasingly looking for an integrated multichannel experience and it leverages our data and scale in powerful and targeted ways to drive conversion. Being the digital leader in jewelry means much more than leading in e-commerce. We are leveraging our digital capability and technology to innovate in every part of our business now with industry-leading speed. For example, we've added several new and easy ways for customers to book appointments, which is driving higher levels of customer engagement. In the second quarter, 65% more appointments were booked online versus a year ago. This is important because the conversion rate of a merchandise appointment is 3x greater than for a walk-in customer. And the average transaction value is 30% higher. We've also expanded virtual try-on for more of our key products, which increases conversion rates between three and six-fold. We saw a 22% increase in checkout start rates this quarter versus last year after launching our new mobile first mini bag shopping companion. This makes it easy for customers to see at-glance views of their orders, applied discounts, total cost, and progress toward earning loyalty incentives. In Q2, more than 20% of customers used one or more of our flexible fulfillment options, including ship to and from store, buy online, pick up in store or same-day delivery, all of which improved both customer convenience and inventory efficiency. These offerings also drive traffic to stores so that our expert jewelry consultants can further build relationships. We are increasingly linking our digital and physical experiences. We now have 28,000 e-tags tracking loose diamonds at the store level. This proprietary e-tag ecosystem was developed at Signet. E-tags are innovative and valuable technology for many reasons. First, because our e-TAGS enabled storytelling with a visible QR code, customers can easily access information about each diamond. Second, by leveraging a motion sensor and sales data, e-TAGS give us the ability to dynamically adjust pricing or offer incentives to close a sale within seconds. We can now optimize inventory levels and maximize sales and margin on a nearly real-time basis. Nearly every loose diamond at Jared will soon have an e-TAG, and we are continuing to expand the technology across other products and banners. With the digital innovation of our proprietary e-TAG system, we're essentially adding Internet of Things technology to our connected commerce capabilities in a way that no other jewelry company is doing. We invested in digital from the beginning of our past Brilliance transformation, and we're not letting up. Our recent acquisition of Blue Nile is a good example. Blue Nile is the pioneer in online diamond marketplace shopping, bringing a new customer cohort to our portfolio, younger, more affluent, and highly diverse. It has the highest brand recognition of any digital pure-play jewelry retailer and expands the top end of our accessible luxury offerings. Blue Nile has unique shopping technology featured in their 23 showrooms through which customers are educated by a trained jewelry consultant and are then able to complete their purchase online. We can learn from this low inventory showroom model. We see incredible synergy opportunities with Blue Nile and James Allen, while strengthening and growing each of their unique banner value propositions. We now expect the Blue Nile acquisition to be accretive through both revenue and cost synergies no later than Q4 of next year. The final point I want to make is that a significant factor in our performance from quarter to quarter is the strength of our financial position. We've reset our operating model with significantly reduced fixed costs such as occupancy through our store fleet optimization, and leaned into zero-based budgeting. Our operating model takes advantage of our scale. That's why we're confident in committing to an annual double-digit operating margin with expansion over time. We've demonstrated that we have several levers we can pull to respond to changing market conditions, which is precisely what we did in Q2. We're using our financial strength and flexibility to invest in the business in ways that create the most competitive advantage and that our customers see and are delighted by, whether that's through the value of our assortment, the breadth of virtual shopping journeys we enable or through strategic acquisitions. We are focused on consistent long-term value creation and our stated capital allocation priorities. First, investing strategically in our core business and acquisitions to expand market share. Second, maintaining appropriate levels of leverage; and third, returning cash to shareholders through repurchases and dividends with a goal of being a dividend growth company. So I'll close where I began. Signet's Q2 results are a strong reason to believe our core message. We have the strategic clarity, structural advantages, financial flexibility, and winning culture to deliver consistent, reliable, and sustainable growth and meaningful shareholder value. Signet is strong and growing stronger. On that note, I'll hand it over to Joan.

Thanks, Gina, and good morning, everyone. I want to leave you with three messages today that all illustrate the sustainability of our operating model. First, we are confident we can deliver an annual double-digit operating margin, while growing market share consistently and reliably. We believe we have the disciplined operating structure and innovative culture to do this year after year. Second, with the health of our balance sheet and working capital efficiencies, we believe we are well positioned to make strategic investments that drive long-term growth. And third, we continue to prioritize shareholder returns alongside continued investments. Now turning to second quarter performance. Q2 is a perfect example of how we are effectively managing the top and bottom line. We delivered total sales of $1.8 billion down 1.9% compared to the record-setting sales performance we delivered in Q2 a year ago. The answer represented almost 1/3 of our comp decline during the quarter, offsetting a strong performance in bridal and accessible luxury. As Gina explained, we are taking full advantage of our strength in bridal and leaning into higher price points, while at the same time, moving Banter out of underperforming malls and accelerating the growth of digital. As previously reported, we saw trends soften across all price points in July, along with weaker traffic. That said, for the quarter, our average transaction value in North America was up 10.8% on a comp basis. Sales per square foot was up over 40% compared to the second quarter of FY '20, a direct result of our connected commerce strategy, coupled with our fleet rationalization that reduced our store base by 20%. In addition, warranty and repair services were drivers in the quarter and delivered nearly 7% growth. Importantly, we began to see improvement in August as a result of non-comp activities. Now let's turn to gross margin. Non-GAAP gross margin was 38% of sales, down 190 basis points compared to the second quarter last year. This reflects deleverage of occupancy on a negative 8.2% comp and the impact of Diamonds Direct, which carries a lower relative margin. Importantly, our organic banners merchandise margin was similar to last year. Additionally, strategic technology investments and the absence of COVID-related tax abatements from prior year also impacted the change in gross margin. In spite of the softer top line, we leveraged SG&A this quarter. SG&A was $477 million or 27% of sales, a 90 basis point improvement over last year. Our team managed SG&A in response to shifting market conditions, all while maintaining priority growth investments and returns to shareholders. This is driven by our disciplined spend management, our gating approach to investments, lower payroll costs driven by our flexible labor model, and benefits from our enhanced financial services agreements. Non-GAAP operating income was $190 million or 11% of sales, which excludes acquisition-related charges of $6.4 million and compares to $223 million or 12.5% of sales last year. Please note that last year included $9 million of income from COVID-related brands. Notably, our Q2 operating margin performance is nearly 3x higher than FY '20. Looking back further, this also exceeds our performance seven years ago when we had credit factored into our margin mix. This demonstrates the strength of our transformed operating model. Let's look now at the strength of our balance sheet. We have the flexibility to innovate and invest in even a softer top line environment because of our working capital efficiencies. We continue to deploy capital consistent with our stated priorities. At the end of the quarter, we had $852 million in cash and equivalents. Our focus on cash and working capital efficiencies have enabled us to achieve the following since FY '20. We returned cash to shareholders through $600 million of share repurchases and given our stock's current multiple, which we believe is undervalued, we will continue to use our remaining $622 million multiyear authorization. We paid $37 million in common dividends since reinstatement with a goal to become a dividend growth company. We've also invested nearly $900 million in strategic acquisitions, augmenting our accessible luxury tier within our differentiated portfolio. Further, our leverage ratio on a trailing 12-month basis currently stands at approximately 1.9x EBITDA, and well below our previously stated goal of below 3x and down nearly 50% from FY '20. And today, reflecting the strength and confidence in our operating model, we're revising our leverage ratio target to maintain below 2.75x EBITDA. Now I'd like to turn to inventory, which remains a critical differentiator for Signet. Inventory management is at the heart of our working capital efficiencies. Since fiscal year '20, we've made it a strategic imperative to reduce inventory overall, and we've done it even including Diamond Direct. Overall, core inventory is down 13% in the quarter compared to the second quarter of FY '20 or $300 million, and importantly, it's also nearly 2% down for last year, indicating our ability to change quickly in response to macroeconomic shifts. Penetration of clearance inventory at the end of Q2 is down one point to last year and down eight points compared to FY '20, reflecting the health of our inventory, and inventory turn of 1.5x at quarter end is turning 47% faster compared to pre-pandemic levels and is also improved to last year. We continue to use the appropriate levers to maintain a healthy level of inventory and are well prepared for the holiday season. We partnered with our vendors to secure the right inventory to meet consumer demands and trends. While still maintaining the rigorous inventory management that drives much of our cash and cost discipline, we manage inventory holistically to grow market share and improve operating margin. This has become a reliable component of our annual double-digit operating margin commitment. Now let me move to guidance and then we're happy to take your questions. We are reaffirming our full-year fiscal '23 annual revenue and operating income guidance. We now expect non-GAAP earnings per share for full year of fiscal 2023 in the range of $10.98 to $11.57, including the impact of share repurchases through the second quarter. Our full year fiscal '23 guidance does not include a material worsening of macroeconomic factors, and it does not include Blue Nile's performance. For the third quarter, we expect revenue in the range of $1.46 billion to $1.49 billion with non-GAAP operating income in the range of $20 million to $34 million. Please note that our strategic shift to an always-on marketing model has moved costs to the third quarter with associated revenue largely occurring in the fourth quarter. Before we open the call for Q&A, I want to acknowledge the capability and commitment that I see in our team day in and day out. Our team members operate with such commitment to our customers and accountability to our shareholders, and it is genuinely inspiring. What I love most about this team is that they are both high performance and high potential, delivering exceptional performance every single day and striving to be even better.

We take our first question from Ike Boruchow from Wells Fargo. Please go ahead.

Hi everyone. Thanks for the question. Two quick ones. Just on the quarter-to-date, it sounds like August has gotten a little better. When we look at your Q2 performance versus the Q3 guide, it does look like you're embedding a decent slowdown in revenues organically both year-over-year and on a multiyear basis. So just kind of walk us through the conservatism built in and what you commented on what you've seen in August. A lot of retailers have seen a little bit of a rebound? And then a quick follow-up is just on the Blue Nile transaction. Assuming this does close before holiday, I understand your guidance does not include any impacts from them. But if the deal does close ahead of the holiday, would that be a positive or a negative to your EBIT that you're currently guiding to in the fourth quarter? Thank you.

Hi, Ike, thanks for your questions. I'll start with the first one. So when we guided a couple of weeks ago on the balance of the year at the time that we announced the transaction with Blue Nile, we really wanted to make sure we were reflecting the current reality of where we see the customer now. And so the low end of our guide was very clearly representing a continuation of the trends that we were seeing, but not a material worsening, not including Blue Nile. We did see some improvement in August. I think that's really a combination of the customer. We have continued to see some strength, as I said in my remarks, at higher price points and also for considered purchases, especially sentimental gifts and bridal, which we saw up 5% in the quarter. So I think there's some good news as we've come into August, but we didn't reflect any of that in the low end of the guide that we gave. And then, Joan, you want to talk a little bit about Blue Nile?

Yes, we recently completed the transaction. Our team has been actively collaborating with the Blue Nile team over the past week to develop our holiday plans. Therefore, it's a bit early to discuss our outlook for the fourth quarter. However, we are very optimistic about the potential for synergies and the integration of the two brands with the James Allen team. We see many opportunities to leverage back-office synergies, but it is still too early to provide guidance for the fourth quarter.

Okay. Thank you.

The next question comes from Lorraine Hutchinson from Bank of America. Please go ahead, Lorraine.

Thank you. Good morning. Encouraging to hear about the August stabilization. But I guess I just wanted to see how you were stress testing the model. And maybe hear your view if sales soften further, just talk through some of the levers that you can use to offset that deleverage to allow you to maintain that goal of double-digit operating margin?

Thanks, Lorraine, for the question. So our commitment and goal is to maintain an annual double-digit operating margin. And so if you think about what we closed off in the second quarter, it was a negative 8.2% comp, and we delivered a very strong double-digit operating margin. So how did we do that was, one, strong inventory management, healthy inventories, clearance were below last year. And clearance sales were below last year. So again, healthy margins, as I mentioned, merchandise mix in our organic banners was similar to last year. So really able to leverage and build on the strong inventory disciplines that our teams are working on and have really put as part of our daily operations. The other levers are labor, right? What we said is we have a very flexible labor model. We use data analytics to manage labor to traffic and ensure that our teams are. We're putting coverage in the stores to support our customers at the right time and in the right locations, and then our spend management, we gate our investments. And it's really gated against our view of where we see the top line trending. We protect priority investments that are critical to long-term growth and really evaluate each based on our ability to support our revenue in the short term with the eye to the long term, as I mentioned. I would also say that as we're looking forward into the back half, we've applied all of these same disciplines, and we work very closely with our NPI teams and vendors on inventory to ensure that we have the right trends, but we have the flexibility to move receipts should that be needed. And then from the P&L perspective, our always-on marketing, the shift that I mentioned, the rain for the third quarter is just wanted to amplify that because it's a cost in the quarter that we continue to drive, and the revenue relates to the fourth quarter. And then I would say in the third quarter, recall that as we are anniversarying investments in the prior year, we don't really get to that investment anniversary until the fourth quarter. So we are very closely watching our investments. And really, as we think of our guidance for the third quarter and then the implied guide for the back half, we have considered all of those factors.

Thank you.

The next question comes from Dana Telsey from Telsey Advisory Group. Please go ahead.

Hi, good morning, everyone. As you think about the gross margin and now the new buckets of the gross margin with new businesses entering like Diamonds Direct, how do you think about the shaping of it, whether on an annual basis, a quarterly basis and what the opportunity is for the levers of gross margin?

Thanks, Dana. So gross margin, as I mentioned, our organic banners in the second quarter were similar to last year. As we move forward into the back half of the year, we have the same Diamonds Direct mix, which carries a relatively lower margin because of the bridal mix, but also our inventories are healthy. And what that means is that our clearance marks are not as deep. And therefore, our yield on clearance selling is stronger. So that's a lever that we continue to pull and use clearance as a strategic lever for us for promotion, but able to carry a relatively higher margin given the health of the clearance inventory. Then vertical integration is another lever for us to continue to drive to optimize our costs and continue to drive expansion in gross margin over time. And then I would also add the value engineering that Gina mentioned in her remarks, as we work with our vendor base in this environment, we continue to value engineer to ensure that we're bringing beautiful products that are relevant and on trend across that enables us to have the right pricing and also bring value to the customer.

Thank you.

The next question comes from Oliver Chen from Cowen and Company. Please go ahead, Oliver.

Hi Gina, and Joan, thank you. Regarding the lower price point products, what do you see for innovation there ahead? And what's necessary and timing on that? And how does that relate to traffic and merchandise margins? You're calling out promotions and also the reality of the bifurcation in the lower end to consumer? And Joan, as we think about inventory turns, you made a lot of progress there. Which parts of the product portfolio have the most opportunity to increase inventory turns? Thank you very much.

Hi, Oliver, thank you for your questions. Over the past several years, we have significantly enhanced our consumer insight capabilities, allowing us to analyze the category by price tiers and customer journeys. From a pricing perspective, luxury has shown strong growth, a segment that is somewhat above our core market. We have been actively working to offer higher price point products across all our brands. We believe we gained two percentage points of market share in accessible luxury last quarter, a focus we embraced early on. We placed our holiday orders by Memorial Day, positioning ourselves ahead in inventory management, which Joan mentioned. We have tiered up to higher price points in our inventory this year. For lower price customers, they are currently facing two main challenges: macroeconomic factors like inflation and significant discounting prompted by excess inventory in apparel and other discretionary goods. We've noticed a decline in self-purchase behavior, especially for items priced under $500. However, as the holiday season approaches, we expect the value-engineered products we've developed will be very attractive to these customers. For example, we've utilized lab-created diamonds to offer substantial looks at lower prices. We've strategically priced our items to ensure exceptional value while being mindful of price increases, particularly at the lower end, which we believe establishes Signet as offering superior value in the market. We've collaborated with our vendors to leverage existing inventory, allowing us to create appealing products at lower costs. Additionally, we've innovated with diamond cut gold, using a laser cutting technique to create the appearance of diamonds in gold pieces without actually using diamonds, providing a luxurious look at an affordable price. We've also enhanced our financing options for value customers, such as split payments, which saw a 35% increase in usage in e-commerce. Our leasing options and expanded 0% down promotional offerings on private label credit cards are additional opportunities for customers facing financial constraints. With our consumer insights, we've placed orders early and pursued innovations that enhance our access to a growing market while remaining competitive at the lower price point. Regarding inventory turns, I want to highlight a few points. First, our inventory health has improved, and our consignment inventory position has decreased significantly compared to previous years. This allows us greater flexibility with our vendors, enabling us to test products, bring them in on a trial basis, and adjust our portfolio based on customer acceptance, increasing our ability to introduce new items and improve inventory turnover. We have also made great strides with our fulfillment capabilities, integrating flexible fulfillment into our purchasing and product delivery across all locations, enhancing our selling capabilities and driving inventory turnover. This effort is ongoing, and we are still progressing in our maturity concerning inventory management. Lastly, we are focusing on just-in-time inventory strategies and collaborating with our vendors on core inventory products. While we have opportunities for improvement, achieving these will require time and precision across our operations.

Thank you. Best regards.

We take our next question from Jim Sanderson from North Coast Research. Please go ahead, Jim.

Thank you for the questions. Could you provide some insight into the second half of the year, specifically regarding the factors affecting overhead expense and gross margin that lead to a significantly lower operating income this quarter and a potential increase in the fourth quarter? What are the key elements between those cost areas that contribute to your year-end guidance based on your outlook for the third quarter?

Thank you for your question. When considering the second half of the year, our guidance for the third quarter reflects additional investments that will be accounted for in the fourth quarter. This is the reason for the decline in operating income in the third quarter, primarily driven by these future investments. Additionally, as we evaluate our ongoing marketing strategy, there are extra marketing costs in the third quarter that won't contribute to revenue until the fourth quarter. Therefore, this is the reason for the quarterly differences you are observing. It's also important to note that in the fourth quarter of last year, we incurred an inventory-related charge due to a decrease in our inventory, which included costs that were capitalized in inventory. This will be beneficial for us as we compare results this year.

Okay. We'll take the next question.

Thank you. So the next question comes from Paul Lejuez from Citi. Please go ahead, Paul.

Hi everyone. This is Brandon Cheatham on for Paul. Thanks for taking our question. I was wondering if you could talk a little bit about how ticket and traffic trended this quarter? And when did you start seeing this kind of inflection in the kind of higher price point penetration that seemingly is driving results? And what are your expectations for that price point for the rest of the year?

So in terms of traffic, we actually saw traffic begin to go down in the spring. So call it, March, April kind of timeline with a more significant drop after Mother's Day. Brick-and-mortar traffic this year relative to e-commerce traffic has been stronger; that's customers' desire to return to store. Of course, in our case, it's really not just about e-commerce sales. Digital for us is very much about browsing and preparing customers for their store journey. We have 2/3 of our customers now that are having a multichannel experience with us, but we have seen more purchase and more traffic happening in brick-and-mortar. And then in terms of the sort of bifurcation of challenged lower price points and growing higher price points, I would say that was most pronounced following Mother's Day. We saw that as a big kind of June sort of phenomenon. July, the surprise of July was that higher price points actually became a bit more challenged. But as we've said, we have seen some stabilization in August from that.

And is your guidance assumed that that trend kind of continues in the higher price points? Or are you expecting kind of an inflection in your lower value range?

So the way to think about it is our high guide assumes a continuation of the Q2 trend on comp, carries into Q3, and Q4 is positioned with a modest improvement, largely from non-comp activities that we're putting in place to improve performance. Our low guide positions Q3 and Q4 comps similar to the trends that we saw in July and August. And the underlying assumption here is that the macro environment remains constrained in the back half.

Got it. That's helpful. And then I was wondering, you've talked in the past about gaining more share of kind of wedding day related jewelry. I think historically, you did a good job of capturing the engagement and then you didn't capture as much of the wedding day as you wanted. So I was wondering if you could kind of talk about how is your penetration on the wedding day related jewelry going? Where do you think that can kind of grow to and where you are in kind of that progression? Thank you.

I would say we're reasonably early in that progression, but our first-party data captures the investments we've made in our consumer data platform. All of that is really a big help to us. So we are, I would say, more than ever able to not just get to know couples at the engagement stage but then really stay with them to work toward wedding band purchases and all the different wedding day purchases I talked about. The research that I quoted is Signet's proprietary research around wedding activities and the fact that 43% of all gifts given around the wedding or jewelry, we think is a big opportunity for us. We are launching new programs to go after that. So gift guides that help the bridal party is a big to-do list coming out of the engagement and working toward the wedding. So the more we can help on that, the better. And I'm excited about some of the other innovations. So I talked in my remarks about what we're doing on Rocksbox and having launched a bridal event rental program. That's a great opportunity for brides to be able to wear nice jewelry that they might have otherwise for all of their events, whether it's the bachelorette party or announcement of the engagement all the way to the wedding day. And of course, once she's been looking at those photos for a year or more of that beautiful jewelry, we're certainly then using our data and our targeted marketing efforts to try to drive a choice of that as a great first anniversary gift or birthday gift during the first year. So it's really a combination of the consumer insights that we've developed, the work that we're doing with our CDP to capture more and more information and be more helpful to our customers throughout the process and then the assortment that we're putting in place that we think can really help them. So our services business coming to life matched up with data and assortment.

Our final question comes from Mauricio Serna from UBS. Please go ahead.

Good morning. And thanks for taking my questions. I wanted to ask just very quickly, you mentioned that you closed the Blue Nile acquisition. So I'm just wondering like is that something that will be already be reflected in Q3? Or does that begin in Q4? So maybe if you could provide some guidance around that? And then maybe if you could elaborate a little bit more about how you see this acquisition versus specifically the James Allen business. Just wondering if there's any big customer overlap or anything there that could be leading to some cannibalization between both formats? And then maybe if you can talk about Q3 sales outlook, I think it implies roughly 24% sales growth versus in 2019. But if you take your guidance for the year, I think that assumes like a 20% growth in Q4. So just wondering what are you thinking there in the guidance for sales? Thank you.

Thank you, Mauricio. I'll address the first question, and then I'll provide guidance, Gina. We completed the Blue Nile acquisition in the third quarter, and it will be included in our performance moving forward from the closing date. Our teams have been working hard on-site for about a week, and we are closely collaborating to develop forecasts and plans for the remainder of the year. Please stay tuned for updates. However, I want to clarify that this acquisition is not included in our guidance for the rest of this year.

In terms of the growth potential from Blue Nile, we view it as a significant opportunity for market share expansion. Prior to the acquisition, we conducted extensive consumer research and discovered that Blue Nile appeals to a unique demographic; they are younger, more diverse, and more affluent compared to our other brands. Additionally, their approach to the market differs from that of our James Allen business. With 23 showrooms, they operate on a low inventory model while providing a high-touch, high-service environment that allows customers to explore styles, try on pieces, and understand their preferences, before placing orders online in a manner akin to what we do at James Allen. We anticipate that there are considerable back-office synergies to be realized from this acquisition, which will enable us to further invest in growing both brands as distinct entities within our portfolio. Following the acquisition, our team met with the Blue Nile team, and we have been impressed by the talent and enthusiasm present in their organization to ensure a successful transition. I would say we are off to a good start on this front.

To address Q3 and Q4, the high guidance assumes the continuation of the Q2 trend on a comparable basis, extending that into Q3 with modest improvement in Q4 due to non-comparable activities that the team has tested and will implement for the holiday season. On the low end, the guidance reflects Q3 and Q4 trends similar to what we experienced in July and August. I believe this is a more conservative approach, and it's worth noting that we did see some improvement in August, which gave us confidence in the high guidance.

But just to be really clear, Blue Nile is not in our guide at this point in time. It's just too early for us to really know what that's going to look like for Q3 or Q4.

That's very helpful. And any thoughts on the share repurchases outlook or potential share repurchases given that you still have over $600 million available?

Well, what we said is that it remains part of our state of capital priorities. And given our belief that we believe our stock is undervalued, we will remain part of our priorities, and we have a multiyear program and the authorization is $622 million.

We have no further questions left in the queue. So I'll hand it back to management for any closing remarks.

I want to thank everyone again for joining us today. What I hope you took away is that Signet has the strategic clarity, structural advantages, financial flexibility, and winning culture to deliver consistent, reliable and sustainable growth and meaningful shareholder value. Thank you, everyone.

Thank you all for joining. This now concludes today's call. Please disconnect your lines.