Signet Jewelers Ltd Q4 FY2025 Earnings Call

Good morning, and welcome to the Signet Jewelers Fourth Quarter Fiscal 2025 Earnings Call. Please note that this event is being recorded. Joining us today on the call are Rob Ballew, Senior Vice President of Investor Relations; J.K. Symancyk, Chief Executive Officer; Joan Hilson, Chief Operating and Financial Officer. At this time, I would like to turn the call over to Rob. Please go ahead.

Good morning. Welcome to Signet Jewelers fourth quarter fiscal '25 earnings conference call. During today's discussion, we will make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risks and uncertainties. Actual results may differ materially. We urge you to read the risk factors, cautionary language, and other disclosures in our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Acceptance 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. Further discussion of the non-GAAP financial measures, as well as reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures, investors should review the news release we posted on our website at ir.signetjewelers.com. With that, I'll turn the call over to J.K.

Thanks, Rob, and good morning, everyone. I'd first like to thank our Signet team. Your efforts positioned us well to deliver positive same-store sales over the last three months, including Valentine's Day. Thank you for all your hard work. Alongside my remarks, we provided a summary presentation on our website to accompany what I'm covering today. Before we talk about the year ahead and my observations on the business, let's quickly recap the holidays and the actions we've taken since. Bridal and services were in line with our expectations over the holidays. However, key gifting price points underperformed in the two weeks before Christmas, leading to a softer fashion performance. While we saw 40% growth in lab-grown diamond fashion, we didn't have enough of the right inventory to meet demand, particularly at the $200 to $500 price point. Since the holidays, the team has been focused on filling these assortment gaps and expanding the availability of on-trend merchandise. Clearly, there's more progress to be made, but I'm pleased with the team's quick adjustments, which delivered positive comp sales in January and quarter-to-date in both bridal and fashion. We will continue to make changes to our assortment this spring to drive improvement for the next two major gifting seasons, Mother's Day and the Winter Holidays, and we are tracking to deliver relevant products throughout the coming months. Now, looking to the future with an eye toward driving organic growth, I have immersed myself in the business over these last few months working alongside Signet’s leaders to understand our challenges and opportunities. We met with critical stakeholders including strategic vendors, jewelry industry leaders, and customers. Now more than ever, I have clear conviction in the upside for Signet and believe in the strong foundation to build on while fully leveraging the benefits of scale that have not been maximized under our current structure. Our overall Q4 performance and lack of growth over the past several quarters informed our new strategy to grow our business. This strategy, Grow Brand Love, is transformative and focuses on accelerating growth and builds on a strong core foundation to create shareholder value. It requires a relentless focus by our team to grow through style and product innovation, captivating experiences, and building brand loyalty, while harnessing centralized core capabilities. In working with our senior team, we've developed three imperatives to drive shareholder value. First, we are moving to a brand mindset rather than banners. This is a critical distinction that I will explain in a moment. Second, we will be relentless in gaining share in the core business and growing in adjacent areas where we have a right to play. Finally, we are changing our operating model and real estate portfolio to accelerate our execution of the first two imperatives. Now, let me take you through them in detail. First, brands build loyalty with customers through emotional and engaging connections, while banners are transactional, literally a static nameplate on the door. Fortunately, our brand portfolio, especially our three largest brands, Kay, Zales, and Jared, all have high consumer awareness and a leading position in the industry. However, growth has been elusive in recent years, reflecting lower consideration. Building brand loyalty, we believe we can drive brand consideration with just a five-point increase worth approximately $500 million in revenue. To this end, we are launching a full modernization of our go-to-market strategy. We're creating a clearer distinction between brands to attract new and loyal consumers that see themselves reflected in the DNA of each brand. To achieve this, our marketing, product, and experiences will invite consumers to follow the stories of our new design collections and collaborations across relevant media channels to drive emotional and everyday connection rather than primarily relying on promotion. Alongside our strategic vendors, we are building in-house design and trend capabilities that will leverage fashion as a differentiator by brand, all with increased speed to market. The first example of this is our Blue Nile by Jared collection. It was developed and released to market in less than half the normal time with a strategic vendor. This collection was one of the best new performers across the holiday. This puts style and innovation in the hands of our brand ambassadors, backed by industry voices, designers, and the creator community. Another example, we created a natural diamond collection called Unspoken at Jared last year. This collection comprised of 14-carat gold infinity inspired designs that wrap around a brilliant center diamond, infusing style, storytelling, and innovation into a new and unique product. It was one of the stronger introductions over the holidays and gained traction into Valentine's Day. Finally, to round out our go-to-market strategy, we will create a captivating and more modern shopping experience for our customers. Our focus will be an experience reflecting each brand identity. This ranges from new store designs to product presentation, as well as e-commerce for storytelling of style introductions. We are also realigning our real estate footprint to support the positioning of our brands and modernizing our stores through capital improvements. We plan to make meaningful progress this year. Our second strategic imperative is to grow our share in our core, bridal and gold as an example, and further expand into adjacent categories such as self-purchase and gifting. Signet is by far the leader in the U.S. bridal jewelry market today, representing roughly half of our merchandise sales. The total bridal jewelry market in the U.S. is around $10 billion, and we have a nearly 30% dollar share. We believe we can grow our share in this category through assortment and price point architecture along with more modern design enhancements. We will leverage our in-house design and strategic vendor partners in bridal as well to bring to market a more timely pipeline of new and trending designs in a range of price points. The U.S. fashion jewelry market is over $50 billion, of which we have a mid-single-digit share. At everyday jewelry, we have only a low-single-digit share. Put another way, growing our bridal share by 1 point is worth $100 million in revenue, while 1 point of fashion is more than 5 times the impact. Given our high brand awareness and the significance of our scale, I believe we have the right to win here through both milestone gifting and self-purchase. We're opening our aperture to an opportunity to drive more everyday shopping, making us less reliant on key holidays, diamond pricing, and the bridal market. That said, everyday jewelry is also the fastest growing part of the industry, and we believe it will continue to grow for the foreseeable future. Our third and final strategic imperative is to redesign our operating model to better support the execution of our strategy Grow Brand Love. We will simplify how we work, increase efficiencies, improve accountability, and reduce costs all in support of future sales and profit growth. We expect this reorganization to transition over the next quarter, and I am setting higher expectations for the brand leaders to move with greater speed. We're creating an executive leadership team predominantly with the brands, merchandising, marketing, and corporate functions reporting to me, and most operational teams reporting to Joan, in addition to Blue Nile and James Allen, in her role as Chief Operating and Financial Officer. We're also streamlining the organization to speed up decision-making and enable an action orientation for our new go-to-market strategies. Our new model includes reducing the number of our senior leadership team members by roughly 30%. Let me further explain this reorganization. First, we will simplify the structure underlying our brand portfolio and services. Organizationally, we will centralize the leadership and operation of Signet's brands into four distinct customer families. First, core milestone and romantic gifting jewelry, reflecting Kay and people's. Second, style and trend composed of Zales and Banter. Third, Inspired Luxury, made up of Jared and Diamonds Direct. And fourth, Digital Pure Play, including Blue Nile, James Allen, and Rocksbox. Second, we will be centralizing a number of functions in order to maximize benefits of scale and optimize spend. This includes media buying, certain core basic merchandising and sourcing functions, services, and an integrated digital and IT function. In marketing, we've begun a search for a new Chief Marketing Officer, who will be tasked with delivering on the benefits at scale by allocating ads to the highest returns for the company, while working with the brands to develop creative content and storytelling. Within merchandising, we have many products that we consider core across most of our brands, including solitaires, pendants, stud earrings, and some gold merchandise. Centralizing the buying of this core product will realize sourcing savings and operational efficiencies while allowing the brands to focus on creative design, product assortment, and fashion innovation. This change will also simplify the processes for our strategic vendors. It will enable continued improvements in working capital as we believe we will be able to rationalize the assortment and lower our inventory levels over time. In services, we'll centralize all repair capabilities under one leader to expand opportunities and accelerate growth in mail-in repair, business-to-business, and personalization. Next, we're going to maximize our technology investments by combining and aligning our digital and IT teams into an integrated function, again, streamlining the organization to gain speed and improve efficiencies. Finally, we will be reorganizing our store operations team to a brand-specific structure to manage efficiencies and improve speed of decision-making and execution. This will also enable each brand to sharply identify and deliver more distinct experiences for their customers. These changes will allow us to adapt to evolving market conditions through meaningful simplification and increased accountability, while bringing us closer to consumers and realizing the scale advantages that Signet is capable of achieving. I also wanted to discuss our position and more proactive strategy relative to the diamond category. We recognize it's been a dynamic time in the diamond industry, one that we have a good track record of navigating. In my experience, companies that focus solely on risk or solely on opportunities during times of disruption underperform. Companies that aggressively pursue opportunities while considering risk mitigation tactics, I believe, can thrive in dynamic times. To this end, we will work to protect the allure and value of natural stones in engagement rings while pursuing the significant opportunity lab diamonds provide to grow fashion, particularly within self-purchase and gifting. We're evaluating our brand architecture across our portfolio to be more intentional about diamond assortment mix. Additionally, Signet intends to collaborate with De Beers and other industry leaders on more effective marketing, enhanced traceability, and delivering more dynamic consumer education this year. Critically, fashion lab-grown diamonds carry a significant AUR premium within our assortment at attractive margins. As an example, LGD fashion sales are up 60% in our big three brands quarter-to-date, driving fashion AUR growth, margin expansion, and 5 points of penetration growth in the category to low-double-digits. We expect this trend to continue, bolstering AUR and margin while providing customers new styles and trends, encouraging our customers to trade up from gold jewelry, Melee natural diamonds, and cubic zirconium pieces. I'd like to sum up with my key takeaways today before turning it over to Joan. First, we are pivoting from a banner mindset to a relentless focus on our brands. Second, we will focus on growing the core business, bridal and gold, while expanding into adjacent areas where we have a right to win like self-purchase, gifting, and e-commerce. And third, we are realigning our organization to achieve our objectives, increase accountability and realize economies of scale. We're excited to execute our Grow Brand Love plan as we reorganize the company to deliver on a framework that can support sustainable profit growth and shareholder value creation in the years ahead. We will have an outsized focus on our big three brands, Kay, Zales, and Jared while evaluating the role and potential of the other brands in our portfolio. My intention is to keep a sharp eye on their contributions to shareholder value and position within our portfolio. I look forward to updating you as we execute against this strategy. Joan?

Thanks, J.K., and good morning, everyone. Revenue for the quarter was down 6% last year, but finished ahead of our updated guidance. Same-store sales were down 1.1%. Recall that the larger gap between total sales and same-store sales reflects the cycling of the 53rd week in the prior year, representing about 4 points. Our stronger January performance reflects landed product at key price points and engagements that have their strongest months for the fiscal year. Merchandise AUR grew 7% with bridal AUR up 2%, the best quarter performance in two years. Fashion AUR was up 8%, although this is higher-than-expected due to the underperformance of key gifting price points over the holiday season. Turning to gross margin, adjusted gross margin of $1 billion, or 42.6% of sales this quarter, was down 70 basis points to last year, reflecting modest merchandise margin expansion that was more than offset by fixed cost leverage. Items related to year-end adjustments in our digital brands and overhead allocations. Turning to SG&A, adjusted expense was down $32 million to $638 million for the quarter. At 27.1% of sales, SG&A rate was up 30 basis points, related to somewhat higher advertising, partially offset by store labor efficiency. Adjusted operating income was $356 million for the quarter, ahead of our updated expectations but below the prior year. Adjusted EPS was $6.62 nearly in line with last year as we benefited from a significantly lower diluted share count. Turning to the balance sheet and cash flow, inventory continues to be healthy, ending the year at $1.9 billion or roughly flat to last year, while bringing in newer styles to support our first quarter. Capital expenditures for the year were $153 million, reflecting a lower number of new store openings and renovations as we work to ensure alignment with our new strategy. Both of these are reflected in our FY '25 free cash flow of $438 million, or approximately 88% cash conversion of adjusted operating income. Our cash flow enabled us to reduce Signet's diluted share count nearly 20% last year by returning approximately $1 billion to shareholders, including the Preferred Share retirement. Further, we're raising our quarterly dividend by 10% to $0.32 per share, Signet's fourth consecutive annual increase. We ended the year with $1.7 billion in total liquidity. Before turning to guidance, I'd like to touch on some additional factors within our new strategy. Regarding sourcing, we are fully centralizing our sourcing practices to leverage the scale of our buying power and deep market expertise. The newly chartered Signet diamond sourcing team will negotiate pricing across our portfolio and improve our agility as a large buyer in the marketplace for both loose diamonds and finished diamond jewelry. Further, we believe this will provide greater transparency of true demand in the market. This all-encompassing approach, combined with our integrated retail agreement as a De Beers site holder, makes us confident we can bring the highest quality, responsibly sourced diamonds at the most competitive pricing. Turning to real estate, our strategy is a four-pronged approach to optimize the fleet. First, we'll close negative contributing doors. While this is a small portion of our fleet, it's the lowest hanging fruit. There are 150 underperforming doors we are evaluating for potential improvement or ultimately closure over the next two years, leveraging our shorter lease terms primarily in mall locations. Second, we'll optimize sales transference following closures by shifting sales to remaining doors and to our e-commerce channel, allowing us to further leverage fixed costs. We believe that loyalty to brand and unique product assortment is a key factor to driving transference to new and repositioned locations as well as e-commerce. Third, nearly 200 doors in our fleet have healthy performance but are in venues that we believe are in decline. Over the next two to three years, we expect to reposition many of these doors to off-mall locations. This will also allow us to create an experience in primarily Kay, Zales, and Jared that aligns with our Grow Brand Love strategy. Lastly, we'll continue to refresh our existing fleet, bringing more stores to brand standard. We expect to renovate approximately 200 stores this year. We've seen our reposition and renovation investments deliver a low to mid-single-digit lift in sales once normalized. Collectively, we believe these actions will deliver a roughly 1 point margin improvement in four-wall contribution and reduce our North American mall revenue penetration to under 30% over the next three years from mid-30s today. Now turning to guidance. Q1 to-date reflects positive comps as we landed product and key price points in both gifting and bridal. We've also seen higher AUR and merchandise margin expansion resulting from balanced overall pricing architecture. We expect total sales in the range of $1.5 billion to $1.53 billion with same-store sales in the range of flat to up 2% and are at the high-end of this range quarter-to-date. We expect adjusted operating income between $48 million to $60 million in the quarter. For the year, we expect total sales between $6.53 billion to $6.8 billion, but same-store sales in the range of down 2.5% to up 1.5%. The sales range anticipates a measured consumer environment, providing for variability in consumer spending over the year. Our gross merchant base margin outlook includes moderate expansion for the year and does not assume any further improvement from recent performance. Our guidance excludes the potential for any significant impact resulting from new tariffs and regulations. We have a team that actively manages tariffs and we will work closely with vendors as needed. At the high end of our guide, we expect SG&A as a percentage of sales to be slightly higher year-over-year. We expect $50 million to $60 million in savings this year from the reorganization. This will largely offset the reset of incentive compensation and normal levels of inflation. We expect the annualized impact of the reorganization to be at least $100 million, most of which will be in SG&A. We are still evaluating one-time costs related to this reorganization, and we expect the majority to be excluded from adjusted operating income. We expect adjusted operating income between $420 million to $510 million. Our capital allocation priorities are organic growth and return of excess cash to shareholders while maintaining a conservative balance sheet. We expect CapEx to be largely flat to last year in a range of $145 million to $160 million, including 10 to 15 new store openings and approximately 15 repositioning. We expect EPS in the range of $7.31 to $9.10 per diluted share. We expect EPS for the year to be impacted by a roughly 6-point tax rate increase, primarily related to the change in Bermuda Regulation, which is non-cash. As such, we expect cash taxes to be below financially reported tax. Our guidance includes share repurchases to-date, and we will be opportunistic in repurchasing shares throughout the year, especially at recent share price. As a reminder, liquidity over $1.5 billion at the end of the year is what we consider available for capital returns to shareholders. We will continue to show the same inventory discipline we've shown in the past as we infuse style and innovation into our product assortment. Before we turn to Q&A, I'd like to thank our Signet team for driving the trend shift we've seen in our business since the holiday. I truly appreciate the commitment of our team to deliver experiences for our customers that drive customer loyalty and shareholder value. I'd like to turn the call over for questions.

Thank you. First, we will hear from Ike Boruchow at Wells Fargo. Please go ahead.

Good morning, everyone. Thank you for taking my question. This is Juliana standing in for Ike. First, I'd like to ask J.K. about strategy. Considering the opportunities you mentioned, how do you view the current balance between bridal and fashion? Do you anticipate a shift in this over the next few years? Additionally, for Joan, what are your expectations for the holiday and cube in your new guidance based on the past quarter? How are you approaching the comp cadence for the remainder of the year? Thank you.

Yes. Thanks, Juliana. Thanks for the question. I think the right way to think about it is not so much a penetration or mix question. It's how do we delineate the growth of both. As we said in the script, I think there is opportunity for us to grow share in bridal. One of the key deliverables for us to do that is to have a sharper point of view around the role that natural plays and really reinvigorating the natural diamond penetration in that mix, also sharpening our assortment architecture and modernizing that assortment by brand. On the fashion side of the house, lab-grown diamonds play a little bit more of a role there because it really does create growth opportunity at lower price points, which create expansion opportunities for us from a category standpoint. It's not a mix shift nor is it a trade. It is a new customer. One thing that we could delineate a little bit better is it also opens the door for expanded digital commerce for us. That everyday purchase and the growth that's happening there, much of what's happening online. We're seeing that pull-through in our mix. And so while our penetrations may change a little bit, it's because you're changing both the numerator and the denominator by tapping into that opportunity for growth.

Juliana, with respect to our guidance, as we mentioned, our quarter-to-date sales are running positive. That said, as we look at the full year, our guide anticipates a measured consumer environment, providing for variability in consumer spending. At the midpoint of our guide, same-store sales is slightly negative. We haven't positioned it as a hockey stick, as we approach holiday. We've remained measured throughout the balance of the year in our view of same-store sales.

Thank you so much.

Thank you. Next question will be from Lorraine Hutchinson at Bank of America. Please go ahead.

Thank you. Good morning. I’d like to follow up on the same-store sales question. Are there any challenges you foresee? Is there anything in the current quarter’s numbers that you believe is one-time only related to same-store sales? The decline seems quite significant for the remainder of the year, especially considering there are some lessons to be learned for the critical fourth quarter. It looks like there is potential for improvement. Any additional context you could provide would be appreciated.

Thanks, Lorraine. Our position is that we think it will serve us well to remain prudent and conservative in our outlook as we think about the consumer backdrop and the dynamic environment that we're in today. Q1 performance to your point, we're pleased with that performance. We saw the teams bring in land product post-holiday that filled in the assortment gaps for key gifting periods and still more work to do. But with the quarter running positive, we're seeing bridal recovery occur. We are really managing our business against a continued improvement in bridal as expected, but we're not including that in any large way in our guidance. So good news on AUR, good news on bridal performance, good news on the fashion response, and we feel that we're positioned properly as we look to the balance of the year.

Thank you. And then the strategy that you laid out is focusing on natural diamonds for engagement and lab-grown for fashion. What is the customer saying to you about lab-grown in engagement? Is there a risk that as prices for lab grown fall that could cause some longer-term challenges to the business?

Thanks for the question. I might reframe the summary a bit. It's really about having the right roles by brand and the right assortment architecture in place by brand, to recognize what the consumer is telling us, which is there is a place for both in their life. We think the growth opportunities for lab are more well-positioned given price point and design capabilities for fashion and also because of the dynamic you mentioned as it relates to what's the consumer viewpoint on value, etc. In natural, we are seeing a return to growth there in engagement. What you'll see us talk about a little more is what roles each play in our engagement assortment by brand in a higher tier, more luxury-inspired brand like Jared or Diamonds Direct, where you still have a prevalent customization percentage of your mix, where you're still doing more loose stones and selling higher price points. Natural should be a stronger part of our assortment. When you're looking at a brand like Kay, which speaks to a broader cross-section of customers, there's a bit more balance there between the role that lab-grown plays at maybe a lower price point for a more budget-conscious consumer, but you still see healthy growth in our natural diamond business. Part of what we tried to articulate is just a stronger point of view around how we want to serve customers, meet the demand on both sides, but also be good stewards of the category and also take our responsibility of educating consumers really well. There's a lot of miseducation or maybe confusion over what each is and being able to connect customers to what they're looking for and that investment is something they feel confident about.

Thank you.

Thank you. Next question will be from Paul Lejuez at Citi. Please go ahead.

Hey, thanks, guys. Can you talk about what your expectations are for the engagement category overall at a market level, this upcoming year that are built into your guidance? I'm also curious if you can talk about the promotional environment in both bridal and fashion and how that translates into what you assume for AURs in each of those categories this year? Thanks.

Thanks, Paul. As we think of the engagement category, our guidance assumes a range of low single-digits to down low single-digit. As we think of AUR, we would expect it to be down low single-digits to flat, just recognizing the thinking around the mix of the product, lab-grown carrying a nice average unit retail. The experience we've seen overall in natural as we reported what we've seen in January through the first quarter-to-date. So feeling confident about our ability to manage the bridal AUR effectively. When we think about fashion, we are flattish in fashion on a unit basis, if you will. But the AUR is where we would expect to see some growth as we've been experiencing growth maybe even a little higher than we had expected in January, but based on the composition, including more lab-grown diamond in the fashion product, we would expect to see AUR growth there. Within our guide for the year, we've given a range down low single-digit to up. At the midpoint, as I mentioned, it's slightly negative. It's really pointing out some of the variability between those two categories, but we believe based on what we've seen to-date that we have the ability to manage both.

I think it does. The second part of that about the promotional environment is we're really not seeing a different approach in that space right now. We do have some modest margin expansion built in. That is really more about execution on our end. It's not a reflection of a change in the promotional environment one way or the other. It's about tighter assortment architecture and really controlling what we can control, Paul. We sat in a category that is measured and considered a purchase, which means it's got a different profile as it relates to consumer responsiveness. This isn't a category like maybe some other apparel categories that is quite as responsive to disposable income changes and therefore, ramps up or ramps down from cadence in response to the outside world quite on the same arc. I think we see some predictability there. I feel like we've got the right plans to manage it and feel like the choices that we're making around how we drive mix and assortment better position us to be able to deliver that. As Joan said, we're also watching what's going on with consumer to make sure that we're responding accordingly.

Yes. Got it. Thank you. Just one follow-up, Joan, free cash flow target for the year, maybe you can tie that into how you plan to manage inventory?

We haven't given a free cash flow target per se, but our inventory management continues to be a strength for us as we reported our year-end inventory was flat brought in flat to last year as we brought in new products and new styles in January to support our first quarter. The teams are focused on turning our inventory at least in line with last year and believe that will serve us well as we manage our cash flow going forward, which, as you are aware, is our single biggest lever outside of operating income within our cash flow.

Thank you guys, Good luck.

Yes. Thanks.

Next question will be from Dana Telsey at Telsey Group. Please go ahead.

Hi, good morning, everyone, and nice to see the progress. J.K. as you've made this pivot with the AUR improving? How are you thinking about fashion versus bridal? Any thoughts as to the cadence through the year about how you're thinking about it and where you would have the most traction? Then, Joan, would be up to 150 store closures. How do you think of the timing of determining yes, these channels close these 50 will close? What are the markers that you're looking at? Thank you.

Sure, Dana, thank you for your question and comment. As I think about the year ahead, I believe we should continue to make progress. The first half of the year, as seen in our Q1 results, reflects an increased focus on execution and a better strategy for allocating inventory to align with customer demand and respond to market changes. Over time, our efforts to refine our product assortments and clarify the distinct roles of each brand in our portfolio should help us to expand into adjacent growth categories. The key indicator of our success will be same-store sales. We need to leverage our brands that have high awareness to enhance consideration and conversion. I understand that achieving this requires effort, and we have significant work to do in how we communicate our stories and connect with customers. However, I believe that there are immediate execution-related actions we can take to drive improvement, as reflected in our results, while we work toward larger long-term opportunities in our business.

Dana, regarding store closures, we will assess the locations based on their current negative contributions, but we are seeing some progress in our business. It is essential for us to understand the potential of each store based on the market and whether the opportunity lies within the store itself or its location. We are collaborating with store teams to identify what they believe the opportunities can be. Our primary measures will be top-line performance and our capacity to improve the contribution from each location, while also considering if there might be better locations for those stores or if we should shift focus to our e-commerce channel. Additionally, we will assess sales transference as a way to enhance profitability. Our jewelry consultants and brand ambassadors play a vital role in fostering customer loyalty, complemented by the unique products offered by Signet brands. We will frame this within our overall strategy to evaluate the upside potential for all our locations. This assessment will take place over the next two to three years to ensure we are prepared for changes in market dynamics.

Thank you.

Thank you. Next question will be from Mauricio Serna at UBS Financial. Please go ahead.

Good morning. I appreciate you taking my questions. First, could you provide a range for the first quarter to date comparable sales? I would also like to know more about how the Valentine's performance was and any changes in customer behavior you noticed afterwards. What are your growth expectations for the U.S. jewelry industry this year? Thank you.

Well, I'll take the first two. For the quarter, we're pleased with the performance on a comp sales basis, and we're at near the high-end of our guidance range. We saw a nice holiday as well. The new product landed in time for the holiday build and we were able to fortify key price points for gifting and bridal. Throughout the quarter, quarter-to-date, that's what we're seeing is towards the high-end of our guide. We feel pleased with where we're positioned currently.

Yes. From an industry standpoint, within our guide, we see it flattish plus or minus low single-digits. I think that's the consensus read you'd see out there, and that's kind of the way we've baked it into our guide.

Great. And just another follow-up on gross margin. How should we think about that for the year? I think you've alluded to some modest merchandise margin expansion, but on a gross margin basis, how should we think about that? Any details on the cadence of what that could look like for the year? Thank you.

We have experienced moderate GMM expansion to date within our first quarter, and we're pleased with that. We have not assumed an increase in that expansion throughout the balance of the year within our guidance. We expect to continue with a moderate expansion throughout the year.

Got it. And sorry, one very last one. As you think about just the high-end and low-end of the sales guide, what are like the puts and takes that get you from the low end to the high end on that?

As I mentioned earlier, if I understand your question correctly, I apologize if my response is unclear. I referenced the bridal units and bridal average unit retail. We're experiencing a low single-digit increase and a low single-digit decrease, looking at a range within bridal and fashion that balance each other. We're pleased with the average unit retail in bridal thus far, and we're also satisfied with the fashion average unit retail we're seeing. We're adjusting that from a low single-digit decrease to a low single-digit increase on a unit basis while working through our sort and driving the average unit retail.

Got it. Thank you very much and good luck.

Thanks, Mauricio.

And last question will be from Jim Sanderson at Northcoast Research. Please go ahead.

Hey, good morning. Thanks for the question. I wanted to go back to the many changes you outlined in the process of Signet. I wonder how you see the Signet profit model evolving in terms of flow-through on incremental sales, assuming business normalizes and you start to see some improvement on your sales trends. This is in the context of the, let's say, 7% EBIT margin you've been reporting the past couple of fiscal years.

As we navigate the operating model change, we've noted, Jim, that there is $50 million to $60 million of cost out largely in SG&A offsetting most of the reset incentive comp. As we think of driving comps in our core banners, we believe that this is the most efficient flow-through that we can expect. We'll balance performance, as J.K. mentioned in his remarks, with the other brands within our portfolio to ensure that they're contributing. Our model is designed to continue to drive merchandise margin expansion and leverage SG&A with that comp for growth. We would expect a range of 30% to 35% flow-through overall as we see comps increase. That's our goal and we believe that the operating structure we're putting forward will allow us to achieve that over time.

Joan nailed it. The only other thing I'd add to it, maybe to build on is I think having an outsized focus on our largest brands is the best way to pull that through. We're certainly evaluating the total portfolio. But for the most part, they're accretive; they just don't generate the same kind of top-line impact to help pull it through. By maintaining that outsized focus on really Kay, Zales, Jared, and then the continued improvement in growth of our digital business, that really is the best way to maximize that opportunity. That's where our efforts are focused. When you look at the lion's share of the strategic impact and the work that we've engaged in and continue to push through, it really is that outsized focus to make sure we can pull it through.

All right. Just a quick follow-up question on the engagement category. Your range, I think, of low single-digit negative to positive. Is that a reflection of you thinking you need to capture market share in order to achieve growth in the category? Or is the backdrop that the industry trend is flattish to declining? Just how that range reflects what's going on with consumer demand.

We're seeing consumer demand for engagements up in January and February. Our goal, Jim, is to drive market share gain in the engagement category. What we're positioning is a conservative view within our own model and within our guidance this year, but certainly, our intention is to drive market share gains as we see engagements continue to recover over the course of the year.

And you still see that recovery in process industry-wide? Is that the right way to look at that?

We believe in the engagement recovery and directionally, we're positioning our business within our guidance to capture that engagement recovery as it occurs.

Thank you. At this time, I would like to turn the call back over to Mr. Symancyk for closing remarks.

Okay. Thank you, everybody, for your time today. This company has clear runway ahead, and I believe we have the right strategy with Grow Brand Love in place along with the strategic advantages to grow market share and drive shareholder value. Really, thank you for joining us today, and I look forward to sharing more of our progress as we move through the year. Thanks. Goodbye.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines.