This pitch deck summarizes an investment thesis for Signet Jewelers (SIG). The pitch team argues that SIG's multi-channel business model and initiatives like credit restructuring and the R2Net acquisition position it for growth despite headwinds in the retail industry. Near-term costs associated with these changes will be offset by long-term benefits like profitable credit streams and an increased online presence. Risks like decreasing marriage rates and volatile input prices are mitigated by SIG's focus on millennials and diversified supplier base.
3. Market View
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
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Volume Adj Close
(34.96%)
$76.58
$49.80
(34.71%)
$47.88
$74.48
SIG has a series of
scandals under poor
leadership and credit
practices
SIG misses earnings has
sizeable upfront costs to
their credit restructuring
programs
4. Market View
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
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Volume Adj Close
(34.96%)
$76.58
$49.80
(34.71%)
$47.88
$74.48
SIG has a series of
scandals under poor
leadership and credit
practices
SIG misses earnings has
sizeable upfront costs to
their credit restructuring
programs
StoreService
Irresponsible practicesandalackoftrainingleadstothe
replacementoffakediamondsinstores
Macrotrends
Poorperformanceinkeymacroindustrydrivers
andthethreatofe-commerceanddeclining
B&M
SelfishBusiness Practices
Scandal-PoorLeadershipleadstothemisallocation
ofbusinessresources
HarmfulBusinessTreatment
Scandal- Poor Treatment of female workers
Poor Leadership
5. Market View
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
0
10
20
30
40
50
60
70
80
0
2
4
6
8
10
12
14
16
18
20
Volume Adj Close
(34.96%)
$76.58
$49.80
(34.71%)
$47.88
$74.48
SIG has a series of
scandals under poor
leadership and credit
practices
SIG misses earnings has
sizeable upfront costs to
their credit restructuring
programs
CreditRestructuring
One off credit outsourcing system transition
complications has overshadowed SJ’s revenue
expansion potential resulting from debt restructuring.
WeatherRelatedCosts
MacroEvents suchasrisinginputcostsandnatural
disastersaffectedQ3earnings.
10M
Inefficiencies
slowed down
growth
One Time costs for Strategy
6. Market View
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
0
10
20
30
40
50
60
70
80
0
2
4
6
8
10
12
14
16
18
20
Volume Adj Close
(34.96%)
$76.58
$49.80
(34.71%)
$47.88
$74.48
SIG has a series of
scandals under poor
leadership and credit
practices
SIG misses earnings has
sizeable upfront costs to
their credit restructuring
programs
"We have also implemented several synergies from the R2Net acquisition ahead of
plan….. As a result, we now expect our fourth quarter same store sales to be down
low- to mid-single digits, leading to Fiscal 2018 same store sales down mid-single
digits and earnings ranging from $6.10 to $6.50 per share.”-Signet
10M
Inefficiencies
slowed down
growth
One Time costs for Strategy
7. Variant View
Company Restructuring
Leadership news and one off credit outsourcing system transition
complications has overshadowed SJ’s revenue expansion potential
resulting from debt restructuring and the acquisition of R2Net.
1
UnfairMarketCharacterization
Signet’s Omni-channel approach is generating a digitization of the retail
jewelry experience that allows for a competitive advantage against pure
play e-commerce and B&M competitors
2
Macro IndustryTrends
Industry trends put pressure on boutique store margins, and Signet is
poised to increase market share in a declining industry through a
discounted retail strategy and increased brand awareness.
3
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
8. INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
Credit Structures
Signet will sell $1.0 billion of
its prime-only credit quality
accounts receivable to Alliance
Data
Alliance Data will become the
primary provider of credit
funding Kay, Jared and
Regional brands’ customers.
Retain existing non-prime
accounts receivable
Originate new accounts,
while outsourcing the
credit servicing functions
of those accounts to
Genesis Financial Solutions
Seven-year partnership
with Progressive Leasing, a
subsidiary of Aaron’s, Inc. to
provide a lease-purchase
payment program to Signet
customers who do not
qualify for Signet’s credit
programs.
5%
Same Store Sales down 120 basis
points
$.25
Per share in net transaction costs
related to the first phase of strategic
credit outsourcing
Signet is sacrificing sales and margins now for long term profitable credit streams and practices
10. INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
MALL TRAFFIC
Threat of E-commerceThe rise of e-commerce retail has threatened the traditional retail serves of Signet.
B&M
MID MARKET
VS.
11. INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
Unfairly Lumped into B&M Stores
Traditional Jewelry Based
12. INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
Future: FullPivot to Omni-
channel approach, capitalize as
pure e-commerce players push
traditional jewelry B&M out of
the market and brand pivots to
discount retailer
Acquired R2Net.
Costs associated
hit earnings hard
Q1 Continue Debt and Credit
Outsourcing and build of newly
acquired R2Net. Distribute
gem scopes and integrate
stores into online platforms
Q2EarningsReflectcompletion
andthetransitionandpricingof
thenewR2platform
Tail end of the scandal
dilemma, New CEO
comes in
Future: Growth of
Market Share
Use the Rio platform to
market heavily towards the
millennial generation and
grow market and user
base growing value brand.
Expand to new mid market
segments
Q22017 Q32017 Q42017 Q12018 2018
Q4Creditdisruptionsexpected
tocontinueforrelativelynear
future. Q2 Credit
outsourcing is
finalized and
costs are in the
books
Timeline
Signet continues to
consolidate business
practices and the
integration with e-
commerce platforms
15. Market ShareStrong Market Share across a multitude of markets allow for an optimal position for growth
Mid- Market Retail
E-Commerce predicted
market share by 2020Kitchen & Cookware
Mid- Market ($41B) Retail
16%
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
% of industry that are not top 3
10%78.6%
17. R2netStructure
.
Big Selection.
Inspected in Person. Conflict-free Guarantee.
A Range of Options.
50%2015 to 2016 sales growth rate (192M- 288M)
Revolutionizing
traditional retail
platforms
85,000 loose diamonds- Transparency and
proprietary satisfaction
Selective Targeting
Branding
Discounted
growth and
line
expansion
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
18. R2Net
6.3
4.8
4.2
3.7
3.5
3.3
3.2
2.6
2.3
0 1 2 3 4 5 6 7
jamesallen.com
bluenile.com
helzberg.com
diamondnexus.com
whiteflash.com
allurez.com
ritani.com
angara.com
adiamor.com
Average time spent on site (in minutes) for Top 1000 online jewelers, 2016 average
4C’s
OFTHE
JewelryIndustry
MARKET
Cut ● Color ● Clarity ● Carat
Key Revenue Drivers
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
19. INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
R2Net
46%
44%
41%
39%
37%
36%
34%
33%
31%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
JamesAllen.com
WhiteFlash.com
BlueNile.com
Adiamor
Ritani LLC
Diamond Nexus
Hezburg Diamonds
Angara Inc.
Allurez
% of 2016 web traffic from consumers under 35 for top 100 online jewlers
Recommitted marketing purposes to grow customer base
Animated movies Viral Targeted Personality Marketing
20. Competitive Advantages
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
New Initiatives with
customer feedback
Personalized Content
and Targeting
Growth potential, Upcoming
e-commerce Platforms
Affordability
Reducing SG&A costs
Consolidation of Leadership
and Distribution
Customer First Omni-Channel Approach Agility and Efficiency
21. Competitive Advantages
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
New Initiatives with
customer feedback
Personalized Content
and Targeting
Growth potential, Upcoming
e-commerce Platforms
Affordability
Reducing SG&A costs
Consolidation of Leadership
and Distribution
Customer First Omni-Channel Approach Agility and Efficiency
High End Retail Pure e-commerceBrick and Mortar
23. Diamond Prices
0
50
100
150
200
250
300
2014* 2018 2022 2026 2030 2034 2038 2042 2044 2050
Rough diamond demand-supply gap worldwide 2014-2050
35.00%
27.40%
7.20%
6.70%
6.30%
3.20%
14.20%
Control of Global Diamond Supply in 2017
De Beers in the 1980s:
90% of market share
As demand for diamonds outpaces supply, the volatility and price of the market will increase
INVESTMENTTHESIS COMPANYOVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
24. Specialty Jewelry Stores
INVESTMENTTHESIS COMPANYOVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
Increased preferences for branded jewelry make it more difficult for boutique stores to compete
27.2
22.2
0
5
10
15
20
25
30
2000 2011
Number of Specialty Jewelry Stores
(in thousands)
18.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2003 2005 2007 2009 2011 2020E
Market Share of Branded Jewelry
Unbranded Branded
Customers are looking for specialized jewelry
that caters to their tastes
Boutique stores have been closing over the
years as a result of increased interest in brand
value
25. E-Commerce Trends
INVESTMENTTHESIS COMPANYOVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
Although e-commerce will not be the preferred method of purchasing jewelry, it improves customer
experience
5% of Market
Share in 2017
10% of Est.
Market Share in
2020
Expected to level off in 2020 because of
fundamental nature of purchasing jewelry
26. Porter’s Five Forces Model
INVESTMENTTHESIS COMPANYOVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
Threat of New Entrants - Low
Bargaining Power of Suppliers - High
Bargaining Power of Buyers - Medium
Threats of Substitutes - Medium
Rivalry among Existing Competitors - Low
31. Decreasing Marriage Rate
3
4
5
6
7
8
9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Rateper1,000totalpopulation
Year
MARRIAGE RATE
“…in 2015, millennial purchases
comprised 45% of retail diamond sales in
the four key markets (U.S, China, Japan
and India) and 41% in the U.S.”
-DeBeers
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
32. Volatility of Input Prices
5.5%
20.4%
74.1%
SUPPLIERS
Largest Supplier Next Four Largest Suppliers Other Suppliers
Polished Diamond Prices
Gold Prices
INVESTMENTTHESIS COMPANY OVERVIEW INDUSTRYOVERVIEW VALUATION RISKSAND MITIGANTS
-A lot of the items that Sears and Macy’s sell don’t need to be experienced in person
-Can already see Amazon infesting the product lines that these stores sell
-Market sees Signet as one of these because the jewelry sector as a whole is struggling
-Arguing that in fact the struggling sector is good for Signet because it means we can take advantage of our already large dominance
-We are also operating at a much higher price point than traditional brick and mortar therefore requiring people to come in person and make a decision
-Zale breaking the trend through increasing revenue
James Allen is our top recommended online diamond retailer for several reasons:
They've been in the online diamond business for over 10 years.
They offer 360-degree HD videos of the actual diamond you'll be purchasing.
They have a wide selection of diamonds and settings so you can create the perfect customized ring.
They offer 24/7 specialized customer service.
Big Selection. over 85,000 loose diamonds in 10 different shapes. It even has about 2,000 fancy colored diamonds. Every single diamond is GIA, AGS, or IGI certified.
Inspected in Person. James Allen sends out staff members to take stunning HD videos of every diamond on the site. but each one is examined by in-house experts before it's shipped to you.
A Range of Options. James Allen offers diamonds at every price point and quality. Since you can “see” every diamond, you can find the most affordable stones that look virtually flawless.
They even have an exclusive line of diamonds called True Hearts. These are the most ideally cut diamonds with the best optical beauty and brilliance.
Conflict-free Guarantee. Every diamond from James Allen is conflict-free and procured through legitimate means. It also has a collection of Canada Mark diamonds mined from Canada. These diamonds are clean of conflict and human rights abuses.
James Allen is our top recommended online diamond retailer for several reasons:
They've been in the online diamond business for over 10 years.
They offer 360-degree HD videos of the actual diamond you'll be purchasing.
They have a wide selection of diamonds and settings so you can create the perfect customized ring.
They offer 24/7 specialized customer service.
Hans.m.uy@gmail.com
texasusit123
Big Selection. over 85,000 loose diamonds in 10 different shapes. It even has about 2,000 fancy colored diamonds. Every single diamond is GIA, AGS, or IGI certified.
Tip: James Allen mostly sells loose diamonds. The idea is that you create a customized ring by choosing your perfect diamond and setting. But it does have a small selection of pre-set rings as well.
Inspected in Person. James Allen sends out staff members to take stunning HD videos of every diamond on the site. but each one is examined by in-house experts before it's shipped to you.
A Range of Options. James Allen offers diamonds at every price point and quality. Since you can “see” every diamond, you can find the most affordable stones that look virtually flawless.
They even have an exclusive line of diamonds called True Hearts. These are the most ideally cut diamonds with the best optical beauty and brilliance.
Conflict-free Guarantee. Every diamond from James Allen is conflict-free and procured through legitimate means. It also has a collection of Canada Mark diamonds mined from Canada. These diamonds are clean of conflict and human rights abuses.
James Allen is our top recommended online diamond retailer for several reasons:
They've been in the online diamond business for over 10 years.
They offer 360-degree HD videos of the actual diamond you'll be purchasing.
They have a wide selection of diamonds and settings so you can create the perfect customized ring.
They offer 24/7 specialized customer service.
Hans.m.uy@gmail.com
texasusit123
Big Selection. James Allen has over 85,000 loose diamonds in 10 different shapes. It even has about 2,000 fancy colored diamonds. Every single diamond is GIA, AGS, or IGI certified. Besides diamonds, it also has a decent selection of sapphires, rubies, and emeralds.
Tip: James Allen mostly sells loose diamonds. The idea is that you create a customized ring by choosing your perfect diamond and setting. But it does have a small selection of pre-set rings as well.
Inspected in Person. James Allen sends out staff members to take stunning HD videos of every diamond on the site. Their inventory is from nearby suppliers in the New York area and diamond hubs worldwide. They don’t own their own diamonds, but each one is examined by in-house experts before it's shipped to you.
A Range of Options. James Allen offers diamonds at every price point and quality. Since you can “see” every diamond, you can find the most affordable stones that look virtually flawless.
They even have an exclusive line of diamonds called True Hearts. These are the most ideally cut diamonds with the best optical beauty and brilliance.
Conflict-free Guarantee. Every diamond from James Allen is conflict-free and procured through legitimate means. It also has a collection of Canada Mark diamonds mined from Canada. These diamonds are clean of conflict and human rights abuses.
-Increased focus on digital marketing
-Growing brand awareness
Present on the 6 most prominent social media platforms with now over 1
BILLION impressions
-Personalizing advertising content = about 20% of customers
-Rolling out Jared Design-A-Ring which has 24/7 support for diamond
personalization
-Ring try-on app with Kay to virtually try a ring
-OmniChannel Approach
-Page 7 of annual report
-e-commerce growth through R2Net
-Record number of independent jewelry retailer stores closed in 2017 as a
result of increased competition from online players
-Company cut prices to get rid of inventories
-Zale Hybris Product
-Agility and Efficiency
-Reducing SG&A
costs
Strategic Outsourcing of in-house credit portfolio
-Sale of prime-only credit quality accounts receivable to Alliance
Data Systems for $960 million
-Outsourcing the credit servicing function of existing and future
non-prime accounts to Genesis Financial Solutions
-Implementation of lease-purchase program with Progressive Leasing
-Streamlining process
-Distribution center consolidation = reduce distribution costs by 13%
-Reorganization of internal structure
-https://www.jckonline.com/editorial-article/signet-jewelers-reorganizes/
-
-Different Demographics
- Compared Tiffany’s and other jewelers offers more jewelry in the mid range
-Size/Market Share
- Largest specialty jewelry retailer in the U.S., Canada, and U.K.
- Has ~16% market share in $41 billion mid-market jewelry sector
-Subsidiaries
-https://seekingalpha.com/article/4147169-signet-jewelers-can-double-three-years-due-earnings-growth-multiple-expansion
-Owns Kay (#1 in the U.S. with $2.5 billion sales), Jared ($1.2 billion), Zale ($1.8
billion), online brand JamesAllen.com ($200 million), and #1 and #2 brands in the
U.K. ($650 million)
-Sterling Jewelers Division (100% U.S., Kay, Jared, and JamesAllen.com)
contributes 90% of total operating income
-Purchased R2Net (owner of JamesAllen.com) for $328 million in 2017
Sales and Costs
Sales and # of stores: Early on in the annual report (12-19)
Total store capital investment (increasing): page 11 of annual report
-Increased focus on digital marketing
-Growing brand awareness
Present on the 6 most prominent social media platforms with now over 1
BILLION impressions
-Personalizing advertising content = about 20% of customers
-Rolling out Jared Design-A-Ring which has 24/7 support for diamond
personalization
-Ring try-on app with Kay to virtually try a ring
-OmniChannel Approach
-Page 7 of annual report
-e-commerce growth through R2Net
-Record number of independent jewelry retailer stores closed in 2017 as a
result of increased competition from online players
-Company cut prices to get rid of inventories
-Zale Hybris Product
-Agility and Efficiency
-Reducing SG&A
costs
Strategic Outsourcing of in-house credit portfolio
-Sale of prime-only credit quality accounts receivable to Alliance
Data Systems for $960 million
-Outsourcing the credit servicing function of existing and future
non-prime accounts to Genesis Financial Solutions
-Implementation of lease-purchase program with Progressive Leasing
-Streamlining process
-Distribution center consolidation = reduce distribution costs by 13%
-Reorganization of internal structure
-https://www.jckonline.com/editorial-article/signet-jewelers-reorganizes/
-
-Different Demographics
- Compared Tiffany’s and other jewelers offers more jewelry in the mid range
-Size/Market Share
- Largest specialty jewelry retailer in the U.S., Canada, and U.K.
- Has ~16% market share in $41 billion mid-market jewelry sector
-Subsidiaries
-https://seekingalpha.com/article/4147169-signet-jewelers-can-double-three-years-due-earnings-growth-multiple-expansion
-Owns Kay (#1 in the U.S. with $2.5 billion sales), Jared ($1.2 billion), Zale ($1.8
billion), online brand JamesAllen.com ($200 million), and #1 and #2 brands in the
U.K. ($650 million)
-Sterling Jewelers Division (100% U.S., Kay, Jared, and JamesAllen.com)
contributes 90% of total operating income
-Purchased R2Net (owner of JamesAllen.com) for $328 million in 2017
Sales and Costs
Sales and # of stores: Early on in the annual report (12-19)
Total store capital investment (increasing): page 11 of annual report
-Historical UFCF plagued with acquisitions, therefore not indicative of the future
-Zale and R2Net
-Book Value of Debt = 696.8 – Most Recent long term debt
-Market Value of Equity = 3,106.29 – Market cap of company
In 2015, millennial purchases comprised 41% of retail diamond sales in the United States, 45% of such in U.S., China, Japan, and India (four key markets)
Social media marketing makes it 5 times more likely that they reach people to be married soon than traditional marketing efforts
Signet established protocols to have the retailer’s diamond suppliers map their supply chains more thoroughly than ever, which matches the younger generations’ desire to know the origin of the products they buy
Mitigant: futures?
New countries and refineries added to their supply chain
In 2015, millennial purchases comprised 41% of retail diamond sales in the United States, 45% of such in U.S., China, Japan, and India (four key markets)
Social media marketing makes it 5 times more likely that they reach people to be married soon than traditional marketing efforts
Signet established protocols to have the retailer’s diamond suppliers map their supply chains more thoroughly than ever, which matches the younger generations’ desire to know the origin of the products they buy
-H.Samuel = largest specialty jewelry store brand in UK by # of stores. Average customer household income is $55K
-Didn’t use James Allen projections from 2015-2017 because not acquired yet
-Revenue numbers from analyst projections = couldn’t find official because private company
-Deal was $328 million
-Average household income a little higher for Ernest Jones
-The Sterling Regional Brands work out of booths and are closing quickly
