Walsh University CFA Challenge Report (1)

CFA Institute Research Challenge
Hosted by
Local CFA Society of Cleveland
Walsh University

SIGNET JEWELERS LIMITED (NYSE: SIG)
1
We initiate coverage on Signet Jewelers on February 5, 2016 as a buy
recommendation with a forecasted one-year target price of $142.50. Revenue
growth in Fiscal 2016 is forecasted to grow rapidly, followed by a decline in
sales growth rate as Signet begins to fully integrate the Zale division into the
current company portfolio. The impact of net synergies relating to the Zale
acquisition will allow Signet to increase profitability and operating efficiency.
We have forecasted EPS for Fiscal 2016 of $5.99 and EPS for Fiscal 2017 of
$6.40. With increasing earnings per share, we believe Signet will continue to
return a substantial portion of earnings to shareholders with its liquid free cash
flow through dividends, share repurchasing, and reinvestment of capital in
infrastructure.
Sector: Retail - Specialty
Industry: Jewelry
Exchange: New York Stock Exchange
WALSH UNIVERSITY STUDENT RESEARCH
This report is published by students competing in the CFA Institute Research
Challenge for educational purposes
Company Name: Signet Jewelers Limited
Ticker (NYSE): SIG
Date: February 5, 2016
Current Price: $ 109.82 (as of Feb. 4, 2016)
Recommendation: Buy
Target Price: $ 142.50 (+30%)
Summary
Figure 1: Signet, Tiffany, Blue Nile Historical Stock Price
Source: Team, Yahoo! Finance

2SIGNET JEWELERS LIMITED (NYSE: SIG)
CFA INSTITUTE RESEARCH CHALLENGE FEBRUARY 5, 2016
Business Description
Originally founded in 1950 in the U.K., Signet Jeweler Ltd. is a holding company
headquartered in Bermuda and is comprised of three main jewelry-retailing
subsidiaries; these divisions include Sterling Jewelers, Zale, and UK Jewelry. The
Zale segment, recently acquired in May 2014, includes Zales, Peoples Jewelry,
and Piercing Pagoda. By the end of Fiscal 2015, Signet operated a total of 3,579
stores worldwide. Signet operates as the largest specialty retailer of jewelry in the
U.S., Canada, and the U.K., also operating stores in Puerto Rico. In the Sterling
division, Signet operates primarily under mall-based Kay Jewelers, as well as off
mall Jared the Galleria of Jewelry stores, and several regional locations. In the UK
division, 498 stores exist under the names of H. Samuel, Ernest Jones, and Leslie
Davis. These retailers sell jewelry, watches, and offer other jewelry services.
Signet targets middle market consumers, focusing on in-store selling. The middle
market consumer can be defined as earning an annual household income between
$35,000 and $150,000. At the end of 2015, Signet held the largest market share of
the specialty jewelry retail industry while employing nearly 29,000 people.
Sterling Division
Signet’s Sterling Division accounts for the largest percentage of overall company
sales. Within the Sterling Division is Kay Jewelers, Jared the Galleria of Jewelry,
and various regional brands. Bridal sales account for a significant portion of
Signet’s sales, specifically sales from the Sterling division. With the continued
success of the bridal business, the Sterling division has maintained steady YOY
growth. Not only does the performance of the Sterling division have a major
impact on Signet’s top-line revenue, but it also accounts for a substantial portion
of marketing and advertising dollars. Beyond bridal, customers that shop at the
Sterling division stores are typically in the market for stylish fashion jewelry, gift-
giving opportunities, or sentimental jewelry. In operations, Sterling division is
equipped with in house credit and financing programs, as well as repair service
plans to better serve customers.
Zale Division
The newest addition to Signet’s portfolio, the Zale Division contributes
approximately 20% of top-line revenue to the overall company. The two largest
single-store performers from the Zale Division are Zales Jewelry and Piercing
Pagoda. Zales is recognized by consumers as “The Diamond Store,” which attracts
customers who consider themselves to be status seekers. These customers will
often wear jewelry to make a statement and are usually coined as “influencers”
due to their drive to be on top of the latest trends. Piercing Pagoda is one of
Signet’s most affordable options and operates in mall-kiosks mainly in the United
States. This brand offers customers a lower price point and allows Signet to target
a broader customer base.
UK Division
The UK Division is comprised mainly of H. Samuel and Ernest Jones and
contributes a relatively small percentage of sales to Signet’s overall revenue. H.
Samuel targets the middle market and Ernest Jones aims to reach the upper middle
market. Both brands have generated fairly stable streams of revenue for Signet
and have performed increasingly well in the past two fiscal years. Signet is
confident that success in the UK Division can be a good indicator of the likelihood
for the Zale integration to be successful. In recent years, Signet has worked to
improve the UK Division by incorporating strategies and collaborative techniques
to maximize efficiency and profitability in the UK.

Expertise
Legaland Acquisitions
Operations Detail
Branding
Dale Hilpert - Director Management
Helen E. McClusky - Director Business Strategy
Marianne Miller Parrs - Director FinancialReporting
Business Efficiency
Human Resources
Branding
FinancialManagementRusselWalls - Director
Table 1: Board of Directors - Signet
*Signet Associate
Robert J. Stack - Director
Eugenia M. Ulasewicz - Director
Mark Light - CEO and Director
Thomas G. Plaskett - Director
Independent of Signet
H. Todd Stitzer - Chairman
Virginia C. Drosos - Director
Corporate Governance and Social Responsibility
Signet’s corporate team is led by CEO Mark Light, who joined Signet as a sales
associate in the Sterling division in 1978. The company’s Board of Directors is
led by Chairman, H. Todd Stitzer, who joined in 2012. Signet’s Board is made up
of all but one independent members who specialize in areas important to company
growth. One of the Board’s top priorities is to ensure that Signet continues to
support the use of non-conflict diamonds. In 2005, Signet, along with 13 other
organizations, formed the Responsible Jewellery Council (RJC), a not-for-profit
organization that sets standards for business practices involving diamonds, gold,
and other precious metals. Members are certified and commit to RJC Code of
Practices audits. The RJC currently has over 700 member companies. Signet also
supports the Kimberley Process Certification Scheme (KPCS), legislation
certifying the accurate origins of rough diamonds. All of the diamonds Signet
purchases are obtained from KPCS compliant countries.
Industry Overview and Competitive Positioning
Jewelry Industry
Signet is incorporated as a holding company, but operates as a jewelry store
retailer. The jewelry industry includes storefronts and online platforms selling
jewelry, watches, sterling silver, and plated jewelry. Companies in this industry
can also include repair or engraving services with the sale of jewelry. Most
retailers in this industry rely on brick and mortar storefronts to drive customer
experience, but also use online and mobile platforms to sell products. The
Specialty Jewelry Retail Industry is highly fragmented, in which big players like
Signet and Tiffany occupy only a modest segment of market share, where the
remainder is primarily characterized by “mom and pop” privately owned stores.
Regarding its life cycle, the industry is defined as mature because of its relatively
small annual growth and non-correlation to technological advances.
Seasonality
One notable characteristic of the jewelry industry is that revenues tend to be
unequally distributed across all four quarters of a fiscal year. The majority of
industry revenues tend to accumulate in the end of the year when the holiday
season, which consists of the months of November and December, boosts sales all
across the sector. For all companies that compose the jewelry retail industry, the
holiday season plays a great role in determining good financial performance.
Discretionary Income
Consumer discretionary income is a critical driver in the jewelry retail industry.
Goods in the jewelry retail industry are usually perceived as luxuries, which
demands consumers to potentially allocate a sizeable portion of their discretionary
income to acquire goods. However, it is worth noting that not all products may be
luxuries for consumers; in the bridal jewelry segment within the industry, goods
are often viewed as a necessity, a behavioral shift that considerably reduces the
relevance of discretionary spending for consumers when making a purchase as
opposed to a fashion jewelry purchase. Nevertheless, industry performance moves
alongside U.S economic growth and its impact in consumer spending. Currently,
U.S. GDP is growing at a slower rate than the period prior to the ’08 market crisis,
which signals good performance in the jewelry retail industry as GDP trends
upward. In line with GDP momentum, households earning more than $100,000
are expected to grow 0.8% by 2020, which should improve overall industry

performance. Furthermore, disposable income is forecasted to grow in a
compounded rate of 2.5% until 2020, already factoring in expected increase in tax
provisions. Finally, team consensus gathered data and forecasted specific changes
in consumer expenditures in durable and jewelry goods, suggesting another
positive incoming changes in the industry.
Consumer Confidence Index
Along with discretionary spending, the Conference Board Consumer Confidence
Index is a measurement that clarifies how retailers in general will perform. The
Index is closely tied to how comfortable consumers are with spending their
income. As of the latest monthly report released by the Conference Board, the
Index increased moderately in January as opposed to December, signaling that
consumers are not expecting significant fluctuations in financial markets.
Furthermore, optimism slightly improved from past reports, with consumer
indications that six-month outlook in labor market, business conditions, and
income expectations will remain positive, variables that tend to impact
discretionary spending.
Marriage Rate
Since a major part of the jewelry retail industry is composed of wedding-related
product merchandise, the bridal segmentation performance and industry
performance are closely impacted by marriage rates in the United States. Over the
course of the next five years, marriages per 1000 people are expected to decrease
from 6.6 to 6.3. The decrease in the marriage rate is due to a cohabitation shift in
behavior in which couples decide to cohabitate and delay marriage. IBIS World
points out that such shift in behavior is due mainly to employment conditions,
noting higher income for females, and overall uncertain working conditions,
which quite often require the workforce to relocate.
Competitive Positioning
Signet operates in a competitive industry that offers consumers many different
options when considering a jewelry purchase. The financing program the
company offers gives consumers the ability to manage more expensive jewelry
purchases, while also minimizing switching costs. Signet’s physical off-mall and
in-mall storefronts give consumers the ability to see and feel the product before
making the final purchase. Having a large number of stores allows Signet to
expand domestic market share. This is a major strength when compared to online
based retailers and other privately owned jewelry stores. Signet is also positioned
well against new entrants into the jewelry industry. The company has a
considerable domestic presence and the ability to support advertising campaigns.
Signet continues to build brand name recognition and brand image by offering
product differentiation that goes beyond bridal. Signet is positioned well against
a growing watch market. Blue Nile currently does not offer watches, while Tiffany
& Co. continue to launch a Tiffany branded watch. Bridal dominance is also
important to Signet, with more than half of total revenues being bridal. Signet has
gained and maintained control of an important market by offering reasonably
priced designer and unique bridal products.
Porter’s Three Generic Strategies
Signet falls into the broad differentiation category due to its current market share;
however, when considering the mid-market, the company sells products with
considerably higher costs while still offering selection to mid-market consumers.
Blue Nile also falls into the same category as Signet, but its online-only business
targets a broader global market and also offers customizable jewelry above the
mid-market price range.

Competitor Analysis
Signet has a significant competitive advantage when compared to the top two
publicly traded competitors in the jewelry industry, Tiffany & Co. and Blue Nile.
Signet’s large number of physical storefronts is its greatest strength compared to
these two competitors.
Tiffany & Co.
Tiffany & Co. state that the company’s greatest asset is its brand image and brand
name. Tiffany and Co. has an impeccable online and storefront experience
focusing on maintaining the company’s high standards of quality products. While
Tiffany may not directly compete in the mid-market, several of the products the
company sells are priced similarly to Signet. Tiffany has a strong portfolio
breakdown when compared to Signet, allocating only 23% to bridal sales.
Blue Nile
Blue Nile offers an inverted consumer experience when compared to standard
jewelry retail purchases. The company offers educational tools to help consumers
learn and understand what they are purchasing, rather than being sold a product
by a representative behind a counter. As an online-only jeweler, the company
suffers from a lack of physical inventory and a high threat of product theft and
data breaches.
Investment Summary
We issue a BUY recommendation on Signet Jewelers, with an estimated price
target of $142.50, which was derived from the discounted cash flow model. The
price offers a 30% upside compared to Signet’s closing price on February 4, 2016.
Our opinion is strongly founded on Signet’s predominant and growing presence
in the jewelry retail industry as well as on the coming benefits of numerous growth
related factors within the company.
Synergies
Upon acquiring Zale Corporation in Fiscal 2015, Signet has recognized synergies
throughout various segments and parts of its business. Synergies will positively
impact Signet by improving efficiencies across its largest brand name stores.
Through cross-selling of products, maximization of fixed resources, and the
streamlining of some of Signet’s best practices across its divisions, Signet has the
potential to see as much as $175 million of synergies by the end of Fiscal 2018.
These synergies have been incorporated into our pro-forma forecasting. We
anticipate the greatest impact of synergies to be an improvement to Signet’s cost
structure. Through companywide synergies, Signet can begin to trim costs
whether related to cost of sales, selling costs, or other general costs. On the
revenue side, brand cross selling should assist with Signet’s top-line growth over
the next several years as the full effect of these synergies are realized.
Leading Vertical Integration
The strengthening of Signet’s supply chain through improvements in vertical
integration is a notable strength for the company moving forward. Through
acquisitions and a strategic corporate strategy, Signet has been able to maximize
efficiencies at nearly every stage in the supply chain. By acquiring a diamond
polishing facility in Botswana, Signet has the ability to ensure that the customer
receives a high quality finished product. Beyond the diamond polishing facility,
Signet maintains positive business relationships with numerous mines which once
again aides in delivering a strong product. On the other end of the supply chain,
Signet owns a New York design center which allows for the creative development
of new product lines. As Signet increasingly improves efficiency through vertical
integration, customer satisfaction and profitability will continue to increase in the
long-term.

Advertising
Signet uses marketing as a tool to not only attempt to increase sales, but also to
promote brand image. The company focuses on television advertising, but also
utilizes the e-commerce market and in-store advertising. Signet increases
advertising efforts during the fourth quarter and holidays like Christmas,
Valentine’s Day, and Mother’s Day, all days being a significant purchasing period
in the jewelry industry. In order to enhance customer relationship marketing,
Signet uses technology-based systems to directly market specific product lines to
customers.
Product Line Differentiation
As an effective tool of consumer awareness, Signet has been developing uniquely
differentiated product lines and merchandise mixes, a competitive advantage that
continuously allows the company to maintain a favorable position. Through the
company’s effective advertisement campaigns, Signet delivers strong brand
premium recognition and continues to build national awareness through its
product portfolio. As of recently, Signet reported greater than expected results on
its biggest product line creation, Ever Us. The success of holiday season sales not
only shows how Signet is capable of delivering strong brand recognition, but also
demonstrates an opportunity to take advantage of the Ever Us line momentum and
expand on it, creating even more appealing product offerings.
Valuation
Using the discounted cash flows method, we arrived at a target price per share of
$142.50. Our team employed a Discounted Cash Flows Valuation due to the
efficacy of the methodology in finding Signet’s intrinsic value, particularly after
the Zale Acquisition. The target price was obtained by dividing Signet’s growth
into two stages, the first being the forecasted financial data provided in Appendix
A, and the second being a terminal phase where a constant growth rate is assumed.
In addition to the DCF calculations, a market multiple analysis was performed
using sales and P/E multiples, yielding a price per share of $142.89. In the market
multiple analysis, sales multiples received a weight of 60% and P/E multiple was
weighted at 40% (see Appendix P). Lastly, a sensitivity analysis was employed in
order to determine the impact of key inputs fluctuations on the model target price
(Appendix O).
Revenue Projection
As a strong driver of Signet’s future fair value and key input in our DCF
methodology, revenues increased by 13.93% in FY16. This was primarily due to
continuous operational synergies resulting from the Zale acquisition, as well as
Signet’s competitive advantages in the jewelry industry, and fourth quarter
marketing initiatives for Signet’s biggest product launch Ever Us. Furthermore,
the sales growth forecasted in not only FY16, but also in FY17, FY18, and FY19,
resembles Signet’s innovative, long-term, and reinvigorating strategy for its
product lines which will continue to bring momentum and financial benefits to the
company.
WACC – Weighted Average Cost of Capital
To estimate our valuation’s cost of capital, calculations started by breaking
down Signet’s capital structure. Although a substantial amount of debt was
issued for the Zale acquisition, which notably restructured Signet’s capital

as compared to historical data, Signet’s current capital structure better showcases
the company’s financial position, thus being more appropriate for DCF purposes.
To calculate the cost of debt, an estimated tax rate of 29%, as well as a weighted
average interest expense for Signet’s current interest bearing debt were used.
Furthermore, cost of equity was estimated through the CAPM model, using the
10-year Treasury Bonds’ yield for risk free rate, a Beta found by running daily
Signet’s stock returns against the S&P 500 during the last 3 years, and lastly a
market risk premium, which was estimated by subtracting 10-Year bonds
arithmetic average returns from S&P 500 arithmetic averaged returns over the
period 1966 to 2015.
Terminal Perpetuity Rate
Estimations of the terminal growth rate were obtained from an assumed 2.7%
sustainable and long-term growth rate. The 2.7% growth rate was determined
based on various factors like GDP growth, increase in discretionary spending and
low unemployment projections. The rate falls closely within expected growth of
overall potential GDP as projected by the Congressional Budget Office forecasts,
in addition to unemployment levels and discretionary spending, thus being a safe
rate of growth for a mature and strong company like Signet.
Financial Analysis
Earnings Growth
Signet’s earnings have grown steadily YOY, and we estimate this trend to
continue. For Fiscal 2016, we estimate full year income of nearly $473 million,
which translates into an EPS of approximately $5.99. For Q4 Fiscal 2016, we have
estimated EPS of $3.50 which is at the high end of Signet’s revised guidance of
$3.44 to $3.50 per share (see Appendix B). In Fiscal 2017, we expect earnings to
reach nearly $500 million, or $6.40 per share. According to our estimates YOY
EPS growth between Fiscal 2016 and Fiscal 2017 would be 6.8%.

DuPont Analysis
As shown in Figure 18, Signet's return on equity has fluctuated substantially over
the past five years. The high ROE in Fiscal 2013 was attributed to low financial
leverage and higher profitability. We forecast ROE to increase in Fiscal 2016,
mainly driven by stronger growth in Signet's bottom line than in its financial
leverage. Moving forward into Fiscal 2017 and the subsequent years, we
anticipate that Signet's ROE will decline until stabilizing near 13% in the long-
term. This will be driven by a decrease in debt-financing as Signet pays off the
long-term obligations acquired from the Zale acquisition. Despite this decline, we
believe that a healthy ROE for Signet given its current financial structure would
be in the 13% to 14% range (Appendix F).
Adjusted Leverage Ratio
Signet calculates an adjusted leverage ratio as a non-GAAP measure to analyze
its debt position year-to-year. In Fiscal 2015, Signet achieved an adjusted ratio of
4.0x which indicates that the company has undertaken a substantial debt position
and does not need further financing related to debt in upcoming years. Corporate
strategy for Fiscal 2016 is to achieve an adjusted leverage ratio of 3.5x or lower.
After forecasting this metric for the four years following Fiscal 2015, we have
estimated a steady decline in the adjusted leverage ratio. In Fiscal 2016, we have
forecasted this measure to be approximately 3.5x which confirms Signet’s
assumption of no additional debt financing in the near term. A thorough analysis
of this metric can be found in Appendix E.
Credit Analysis
The Sterling Division’s in-house credit program is a notable strength for not only
the division but for Signet overall. Through the utilization of advanced credit
analysis tools, Signet has the ability to offer more customers credit with a higher
level of confidence in the customers’ ability to meet the financing requirements.
The customer financing program has been capturing more profit over the years,
proving the effectiveness of this Signet’s initiative. Starting in the fourth quarter
of Fiscal 2016, Signet rolled out a second-look credit program while transitioning
to Alliance Data Systems (ADS) in the Zale Division. Data from this latest
implementation will be available at year-end Fiscal 2016. Signet’s credit policy
and in-house credit program offers customers a more affordable way to purchase
Signet’s jewelry which helps to increase and maximize sales.
Utilization of Cash Flow
Signet continues to redistribute earnings to shareholders through its consistent
quarterly dividend and share repurchasing program while pursuing an aggressive
plan to grow stores and gain viable market share.
Dividend Payout
After declaring its first quarterly dividend in August 2011, Signet has continually
increased its dividend on a yearly basis. As highlighted in Figure 21, dividend
growth has remained relativelystable from initial declaration through Fiscal 2015.
We anticipate this trend to continue over the projected period of Fiscal 2016 to
Fiscal 2019. Dividend growth was forecasted using a 4-year CAGR of 16.4%.
Dividend payout over the four-year period beginning Fiscal 2016 accounts for
30%-50% of cash flow from financing activities.

Share Repurchase Plan
Another way Signet returns earnings to shareholders is through its share
repurchasing plan. Starting with its 2011 Program, Signet has consistently
returned a portion of these profits to shareholders through repurchasing of shares
of common stock on a quarterly basis. Currently in its 2013 Program, Signet
authorized the repurchase of $350 million of outstanding shares (same amount
authorized in the 2011 Program). Figure 22 shows historical and forecasted share
repurchase amounts regarding the 2011 and 2013 Programs.
Acquisition Strategy
Strategic acquisitions have played a critical role in the growth of Signet within the
last several decades. Signet sales are predominantly driven by performance in the
Kay, Jared, and Zales store concepts. Through the utilization of free cash flow and
debt financing activities, Signet has broadened its reach among consumers and
has continued to integrate its corporate strategy amongst its multiple segments. As
Signet has acquired additional, smaller companies, the focus has mainly been to
convert these acquired brands into the successful, current brand names that Signet
operates under today. The Zale Corporation acquisition that took place on May
29, 2014 was significant in that the company acquired approximately $1.4 billion
in long-term debt to finance the purchase. Zale’s sales in the last full fiscal year
prior to being acquired by Signet were slightly over $1.8 billion. As Signet
continues to integrate best practices and new strategy into the Zale division, total
Signet profitability and market share will continue to strengthen and improve.
Store Growth and Expansion
Signet has dedicated a portion of its free cash flow in the past several years toward
capital investment in its stores. In Fiscal 2015, the total capital invested in stores
was $138.4 million. Figure 24 shows the breakdown of capital investment over
the last three fiscal years. Additionally, Signet has continued to increase selling
square footage for a number of its stores.
Investment Risks
Discretionary Income (R1)
Signet’s sales rely heavily on disposable income since its products are considered
to be luxuries, or non-essential purchases. Discretionary income per-capita is
estimated to achieve compound growth of 2.5% by 2020, which should benefit
Signet’s overall sales. In addition, households in the U.S. with income over
$100,000 is expected to rise by 0.8% by 2020. If these predictions fall short or are
incorrect, due to economic or geo-political issues, Signet faces a potential drop in
sales. Disposable income could also be negatively affected by additional and/or
more stringent tax laws on the consumer, which could arise post-presidential
election in 2016.
Product Price Sensitivity (R2)
Signet’s product offering is heavily reliant upon consumer discretionary spending
patterns, therefore sales can be impacted by the pricing of substitute and
comparable goods. In the case of a diamond ring, Signet in theory will generate
more sales if pricing is competitive, at or below competitor’s cost. If Signet sells
products at a higher price than competitors, sales volume will likely decrease.
Additionally, Signet recognizes that a variety of products compete for consumer
dollars and the price that the consumer pays for alternative products serves to have
a similar effect on Signet’s profitability as would substitute products.

Low Medium High
R2
R1
R4
Impact
R5
R6
R3
HighMediumLow
Probability
Figure 26: Risk Matrix
Customer Financing (R3)
With the credit participation of approximately 63% of credit sales as of the third
quarter in Fiscal 2016, Signet operates with a large in house receivables balance.
Delays in receiving cash and the risk of default on customer accounts can increase
bad debt expense and adversely affect profitability. Additionally, if interest rates
were to increase into 2020, Signet may be negatively impacted. If the cost to
finance a purchase were to increase as a result of increasing interest rates, sales
volume could decrease.
Fluctuations in Diamond Pricing (R4)
As shown in Figure 25, diamonds and diamond jewelry account for slightly over
60% of Signet’s entire merchandise mix. In Fiscal 2015, diamonds accounted for
45% of the merchandise costs. With diamonds playing such a large role in the
overall product line-up of Signet, increases in diamond prices can drive up costs
while weakening margins. Diamond prices are estimated to increase in the
upcoming years due to a rapid increase in demand. Since Signet cannot hedge its
diamond costs, this poses a potential risk to its overall cost structure.
Seasonality (R5)
Signet heavily relies on a successful fourth quarter, with 40% of sales in 2015
coming from holiday months. It is important that Signet continues to advertise
during the holiday months and sufficiently stock inventory to meet consumer
demand.
Inability to Train and Maintain Competent Employees (R6)
Properly trained and knowledgeable employees are vital to Signet stores. The
jewelry industry relies heavily on competent salespersons to serve the customer
and move product. Wages in the industry are estimated to grow by 2.1% to $4.9
billion by 2020, posing a potential threat to Signet’s operating income and total
cost of employee compensation.
Upside Potential
Faster Revenue Growth
We forecasted revenue growth at conservative rates going forward. If revenue
grows at a slightly faster rate, Signet will record higher profit. Increases in
earnings may translate to more aggressive initiatives and additional free cash flow
to allocate to capital expenditures and redistribution of profit.
Decrease in Diamond Prices
With diamond prices making up a large portion of Signet’s input costs,
fluctuations in costs can have adverse effects on financial performance,
particularly relating to cost of sales. If diamond prices were to decrease contrary
to industry forecasts, Signet would be able to increase its gross margin and
contribute more revenue toward other operating and investing activities.
More Impressive Net Synergies
Signet has estimated net synergies between $150 million and $175 million to be
achieved through Fiscal 2018 with respect to the integration of Zale. If synergies
were to improve beyond these estimates, or even achieve the higher end of the
guidance, then Signet could recognize additional revenue growth and decreasing
costs. Specifically, Zale division current operating margin still presents
opportunities for upside potential being considerably lower than Signet’s other
divisions.

Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The
author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the
content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s)
to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The
information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not
constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered
to be a recommendation by any individual affiliated with CFA Society of Cleveland, CFA Institute or the CFA Institute Research Challenge
with regard to this company’s stock.
CFA Institute Research Challenge

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"Sterling Careers - Our History." Sterling Careers. Web. 04 Feb. 2016.
<http://www.sterlingcareers.com/about/history.html>.
Tiffany & Co. 2015 Tiffany & Co. Annual Report, 2015. Web. 4 January 2016.
Value Line. Web. 23 October 2015. https://research-valueline-com.wa.opal-libraries.org/Secure/.

Appendix A: Historical and Projected Financial Statements

Appendix B: Fiscal 2016 Income Statement by Quarter
Appendix C: Fiscal 2016 Same-Store Sales Forecast

Appendix D: Q4 Fiscal 2016 Sales Forecast
Appendix E: Adjusted Leverage Ratio Calculation
Appendix F: ROE Decomposition/DuPont Analysis

Appendix G: Financial Ratios

Expertise
Legaland Acquisitions
Operations Detail
Branding
Dale Hilpert - Director Management
Helen E. McClusky - Director Business Strategy
Marianne Miller Parrs - Director FinancialReporting
Business Efficiency
Human Resources
Branding
FinancialManagement
Independent of Signet
H. Todd Stitzer - Chairman
Virginia C. Drosos - Director
RusselWalls - Director
Boardof Directors - Signet
*Signet Associate
Robert J. Stack - Director
Eugenia M. Ulasewicz - Director
Mark Light - CEO and Director
Thomas G. Plaskett - Director
Appendix H: Corporate Governance and Social Responsibility
(RJC) Founders
� ABN AMRO,
� BHP Billiton Diamonds
� Cartier
� World Jewellery Confederation
� Diamond Trading Company
� Diarough, Jewelers of America
� Zale Corporation
Date Joined
Signet Jewelers Limited 2005
Tiffany & Co. 2005
TAGHeurer 2005
JCPenny 2007
De Beers Diamond Jewelers Ltd 2011
Ralph Lauren Watch & Jewelry Co. 2012
Notable RJC Members
Company
� National Association of Goldsmiths (UK)
� Newmont Mining
� Rio Tinto
� Rosy Blue
� Signet Group
� Tiffany & Co.
The Responsible Jewellery Council (RJC) is an initiative started in 2005 by
14 organizations to form supply chain standards for the jewelry industry.
Signet is a certified member of the Responsible Jewellery Council, fully
supporting both the RJC’s Code of Practices and Chain of Custody standards.
The Code of Practices provides investors, customers, and suppliers with
information regarding ethical business practices. The chain of custody
standards applies to the mining practices surrounding Precious Metals.
� Mark Light, CEO - Appointed to Board of Directors October 2014.
Mr. Light started as a sales associate for Signet Sterling division in
1978.
� Todd Stitzer, Chairman - Director of Massachusetts Life Insurance.
� Virginia C. Drosos - President, CEO and Director of Assurex Health.
� Dale Hilpert - Past CEO of Williams-Sonoma.
� Helen E. McClusky- Director of Avon.
� Marianne Miller Parrs - Director of Stanley Black & Decker Inc.
� Thomas G. Plaskett - Chairman of Fox Run Capital Associates.
� Robert J. Stack - Director of IMI plc.
� Eugenia M Ulasewicz - Director of Bunzl plc and Vince Holding
corporation. Past president of Burberry Group plc's American
division.
� Russel Walls - Director of Biocon Limited, Mytrah Energy Limited,
Aviva Italian Holding S.p.A. Chairman of Aviva Life & Pensions UK
Limited.

Legend
0: No threat to Signet
1: Insignificant threat to Signet
2: Low threat to Signet
3: Moderate threat to Signet
4: Significant threat to Signet
5: High threat to Signet
Appendix I: Porter’s Five Forces Analysis
Porter’s Five Forces – this model was used to better understand and analyze Signet’s competitive positioning.
BUYER POWER – LOW
Signet’s large number of customers gives the company the ability to minimize buyer power. Instead of utilizing switching costs,
the company offers financing. If a customer is not comfortable with paying the full price of an item upfront, financing gives them
the ability to manage that cost.
SUPPLIER POWER – LOW
Signet’s vertical integration limits a diamond supplier’s ability to adjust the price of raw materials, and Signet’s ownership of a
diamond mine and polishing factory give it control over the supply chain. The company also hedges positions on precious metal,
offering protection from any considerable price fluctuations.
RIVALRY AGAINST EXISTING COMPETITION – HIGH
Online retailers and the private sector control a large portion of overall market share and serve mid-market consumers. Tiffany &
Co. and Blue Nile are Signet’s top publically traded competitors regarding the jewelry industry. Both competitors offer mid-
market priced items and financing. Customers may also appreciate the private market more than a chain retailer like Signet.
Several retailers like Target, Walmart, and Amazon also offer jewelry competition on a domestic and global scale.
THREAT OF NEW ENTRANTS – MODERATE
Signet’s ability to reach the mid-market makes it very difficult for new competitors to enter the market and take control of
considerable market share. Signet also offers financing and broad product differentiation. The company’s large number of
storefronts also make it difficult for new jewelry retailers to obtain considerable domestic growth. While a large portion of market
share belongs to the private sector, Signet is at a moderate to low threat of new domestic based companies.
THREAT OF SUBSTITUTES - HIGH
Consumers have a number of options regarding substitutes, including spending discretionary income on purchases other than
jewelry. Several online retailers also sell lower end jewelry that align with mid-market prices. Main competitors like Tiffany &
Co. and Blue Nile offer jewelry similarly priced compared Signet and also offer a financing program.

Appendix J: Porter’s Three Generic Strategies
Porter’s Three Generic Strategies – This model was used to better understand cost strategies among competitors.
Broad Market and Low Cost
� Amazon and Amazon Fashion offer a great deal of Jewelry to a large target market. Gifts under $100 and $250 dollars
directly compete with the mid-market. Amazon has a very broad market, and while the retailer does offer more expensive
products, the lower cost items compete with Signet’s consumer base.
� Charming Charlie has over 200 off mall and in mall stores. Almost all of the jewelry costs less than $50, and while this
offers direct competition to the mid-market, the retailer attracts consumers with discretionary income to purchase
accessories as well as jewelry.
Broad Market and High Cost
� Signet falls into the category of high cost and broad market due to the retailer having several physical store locations and
offering jewelry above mid-market cost.
� Blue Nile’s online only business model allows the company to sell in the global market. While the retailer has a large
market available, it also offers jewelry above mid-market costs.
Narrow Market and Low Cost
� Walmart has a very broad customer base, but offers limited and low cost jewelry.
� Justice targets young girls to teenage women offering relatively low costing jewelry and accessories.
Narrow Market and High Cost
� Tiffany falls into the narrow market and high cost category when considering the mid-market consumer, Tiffany offers
jewelry far above the mid-market price range. This also makes the company’s market narrow, due to a smaller customer
base that can afford Tiffany’s products.

Appendix K: Signet SWOT Analysis
This SWOT Analysis was used in order to gain a greater understanding on Signet’s competitive advantage in relation to the
industry. Each category is ranked by strength level or threat level to Signet and concludes in the above SWOT matrix in the top
left corner. This system was used to analyze Signet’s overall competitive position.

Appendix L: Tiffany & Co. SWOT Analysis
This SWOT Analysis was used in order to gain a greater understanding on Tiffany & Co.’s competitive advantage in relation to
Signet. Each category is ranked by strength level or threat level to Tiffany and concludes in the above SWOT matrix in the top left
corner. This system was used to analyze Tiffany & Co.’s competitive position regarding the mid-market consumer.

Appendix M: Blue Nile SWOT Analysis
This SWOT Analysis was used in order to gain a greater understanding on Blue Nile’s competitive advantage in relation to Signet.
Each category is ranked by strength level or threat level to Blue Nile and concludes in the above SWOT matrix in the top left
corner. This system was used to analyze Blue Nile’s competitive position regarding the mid-market consumer.

Appendix N: Discounted Cash Flow

Appendix O: Sensitivity Analysis

Company Value (Market Cap) Sales Earnings (Losses) Sales Multiples
Signet - 5,736,300.00 381,300.00 -
Tiffany 8,292,741.94 4,249,913.00 484,179.00 1.95
Blue Nile 364,449.31 473,516.00 9,731.00 0.77
L Brands 25,635,203.75 11,454,000.00 1,042,000.00 2.24
Coach 10,022,055.06 4,191,600.00 402,400.00 2.39
Company Sales Multiple PE Multiple
Signet - -
Tiffany 1.95 17.13
Blue Nile 0.77 37.45
L Brands 2.24 24.60
Coach 2.39 24.91
AVERAGE 1.84 26.02
Valuation MethodMultiple Price Weight Target Price
Sales Multiple 1.84 132.53$ 60%
P/E Multiple 26.02 158.42$ 40%
142.89$
Weight of Valuation Methods
Signet Sales Multiple Value PE Multiple Value Net Debt
Enterprise Value 10,540,488.19 12,599,240.21 1,461,300.00
Equity Value 9,079,188.19 11,137,940.21
Signet Sales Multiple Value PE Multiple Value Net Debt
Enterprise Value 10,540,488.19 12,599,240.21 1,461,300.00
Equity Value 9,079,188.19 11,137,940.21
Company Shares Outstanding
Signet 79,532,000
Appendix P: Market Multiple Analysis
The sales multiples and P/E multiples were averaged across the industry, and these average multiples were then applied to
the total sales and earnings of Signet respectively. This calculation then presented the enterprise values, which we subtracted
Signet’s net debt from in order to obtain the equity value. Then by dividing enterprise values by Signet’s outstanding shares
we obtained our target stock prices. We decided to weight the sales multiple stock price at 60% because we believe that
sales across the industry are more closely reflective of Signet’s sales than industry P/E was of Signet’s P/E, therefore we
weighted the P/E multiple stock price at 40%.

Appendix Q: Retail Competitor Analysis
Sales ($):
Sales Growth (%):
Note:
Using a 5-year CAGR, total sales for all five companies analyzed was 4.82%. Sales growth forecasted
for Signet was 5.2% in Fiscal 2017 and 4.0% in Fiscal 2018 and Fiscal 2019. Based upon the CAGR
for these five companies, the forecasted rates fall in line with historical long-term growth.
Gross Profit Margin (%)

Operating Margin (%)
Net Profit Margin (%)

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