Signet Jewelers Aktie

Hello, everyone. Thank you for joining us, and welcome to the Signet Jewelers Fiscal Year 2027 Quarter 2 earnings. [Operator Instructions] I will now hand the conference over to Rob Ballew Senior Vice President, Investor Relations and Capital Markets. Please go ahead.

Good morning. Thank you for joining us for today's 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 report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events.

During the call, we will discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as the 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 like to start today by thanking our Signet team. Your commitment and execution of Grow Brand Love is inspiring. We're building something great. So thank you for being a part of it. There are 3 key takeaways I'd like to leave you with today. First, we delivered another solid quarter with positive comps, now 5 of the last 6 quarters with positive comps each month of the quarter and drove more than 35% adjusted EPS growth. Second, we are accelerating our key brand initiatives, including merchandise refreshes enhancements to both the online and in-store customer experience and a more modern emotionally engaging marketing approach as we look to drive a positive comp over the holiday.

Third, we have growing confidence in our ability to deliver this year, and we're raising guidance for the second time. We had a solid quarter with comps up over 2%, reflecting high single-digit comp growth at price points over $2,000, including a strong Mother's Day. Time pieces continue to deliver strong category comp growth up almost double digit to last year. We delivered low single-digit comp growth in bridal led by stronger sales performance. Fashion saw a 1% comp decline, reflecting decreases in comps at banter and lower price points in general, largely metal pieces with nice sales growth at middle to high price points.

Beyond top line, we continue to navigate tariffs. This quarter reflects diligent and ongoing work from our team, led by Stacy Johnson Williams, who continue to minimize the impact of ongoing tariffs and pursue any and all available refund of direct tariffs previously paid. They are also actively working with our valued vendor partners to pursue recovery of any applicable indirect IEEPA tariffs and continue to build on further supply chain opportunities. The speed and agility of our team in their efforts here is a direct reflection of our improved operating model.

Looking forward to the second half, we have several initiatives working to differentiate Signet's brands. This week, we're introducing an important evolution of Kay, one of the most recognized jewelry brands in the U.S. We're building on Key's strong foundation with Love All In, a new campaign that brings a fresh expression of love to the Kay experience from our imagery and language to how and where consumers engage with the brand. The goal to Love All In is to move Kay from an idealized expression of love to something much more real and authentic while also expanding the occasions and relationships we can celebrate with them.

As we mentioned on the last call, we have redesigned the websites for Jared, Kay and Zales. We have launched both Kay and Jared and early results are promising. We expect Zales's to launch later this month. I'd encourage you to visit the Jared and K sites now. You'll immediately notice better imagery and product presentation that includes more realistic on model photography to help customers buy with confidence. A simpler navigation structure helps customers get to the right product faster alongside curated experiences that work to connect inspiration directly to product.

In short, it's a more modern, intuitive and inspiring shopping experience. This creates a foundation for digital growth by including deeper personalization, agentic discovery and greater omnichannel connectivity. I'd like to take a moment to thank our digital and technology teams. You delivered ahead of schedule while serving customers without disruption, and you've positioned us well for an important Q4 ahead. Alongside those efforts, we continue to transform our marketing playbook while driving efficiency and spend.

For example, we reduced marketing spend this quarter while driving positive comps and increased social media impressions, including unpaid impressions with the strongest increase in efficiency at our 3 largest brands. We also saw those 3 brands, Kay, Zales and Jared increase their customer consideration in the second quarter. Proof points like these give us confidence that stronger storytelling drives better brand engagement.

We believe the combination of our marketing playbook and refreshed websites can continue expanding reach and engagement to drive conversion through digital experiences that reinforce brand distinction rather than relying solely on paid traffic. Importantly, ahead of holiday, we've invested in opportunities within our assortment and across price points. We know the consumer is always focused on value across income brackets. And we will leverage the full strength of our portfolio to drive differentiation and serve customers.

This means both narrowing and deepening of top performers as well as fortifying trends and fast-following successes. We believe we are well positioned to deliver compelling value throughout the holiday season. and have provided more flexibility within our strategic vendor base to react quickly to trends.

Turning to my final takeaway today, we have growing confidence in our ability to deliver this year as we raised guidance for the second time. We are driving consistent results with momentum and focus. We're taking deliberate actions to strengthen our brands, deepen customer engagement and create long-term shareholder value.

Before I hand things over to Joan, I'd like to formally welcome our new Zales and Blue Nile Presidents. Jamie Cygielman, our new President for Zale's and Banter was most recently with Mattel, serving as Global Head of Dolls, which included leading the American Girl and Barbie lines. Jamie brings 30 years of experience building and transforming long-standing, well-known brands. Pam Cloud, our new Blue Nile President, joins us with more than 30 years of luxury retail experience. including more than 25 years with Tiffany & Company, a merchant at her core PAM understands the power of signature and proprietary collections as key to driving brand affinity.

With Jamie and Pam rounding out our brand leadership team, we believe we now have the right leaders aligned to the right strategy and the momentum to bring Grow Brand Love to life at scale. I'm excited for what this team will accomplish as we continue shaping the future of Signet. Summarizing my key takeaways today. First, we delivered another solid quarter with positive comps, now 5 of the last 6 quarters with positive comps each month of the quarter and drove more than 35% adjusted EPS growth.

Second, we are accelerating our key brand initiatives, including merchandise refreshes, enhancements to both the online and in-store customer experience, and a more modern emotionally engaging marketing approach as we look to drive a positive comp over the holiday. Last, we have growing confidence in our ability to deliver this year and we're raising guidance for the second time. With that, I'd like to turn it over to Joan.

Thanks, J.K., and good morning, everyone. We are pleased to announce that we have proactively signed an early renewal with our primary consumer credit partner, Bread Financial. After a competitive bidding process fueled by the strength of the portfolio. The new agreement extends the partnership an additional 7 years through December of 2035. The renewal includes a new profit sharing agreement that we estimate will generate over $1 billion to Signet in incremental noncomp revenue and operating income over its life. This includes roughly $80 million of cash expected to be received in the third quarter in conjunction with the signing of our agreement, which will be recognized ratably over the term.

We estimate an operating benefit over the next 36 months between $200 million and $250 million. And thereafter, the amount should increase through the term of the agreement. We expect between $30 million to $40 million of noncomp revenue and gross margin benefit this year, partially offset by higher incentive compensation. Importantly, there is no loss sharing within the agreement. This is incremental to our current profitability and is still expected to provide significant benefit to Signet even across recessionary scenarios.

In addition to the direct financial benefits, the agreement will also bring a number of customer enhancements over the next 12 to 18 months. These will focus on continued tech investments, robust analytics to enable data-driven marketing as well as an improved customer experience and credit capabilities to support customer needs, including cross-shopping amongst Signet brands. Additionally, we plan to offer credit from Bread Financial to Blue Nile customers for the first time ahead of this holiday season.

With this announcement, I'd like to thank our financial services team, which is led by Lisa Walker and also Vince Ticleni for their work, which brings tremendous value to shareholders and our customers.

Turning to progress on Blue Nile. We are doubling down on what makes Blue Nile differentiated within the Signet portfolio. Blue Nile has served as a diamond education resource since 1999. And we believe serves as one of the first touch points for consumers on their shopping journey. Building on this foundation, we'll be announcing a new luxury partnership in the coming weeks reinforcing the rarity and enduring value of natural diamonds while continuing to provide customers with exceptional choice across diamonds and other Gem stands.

Additionally, we will be transitioning more of the Blue Nile showrooms to full-service stores with an increased availability of on-hand assortment, particularly in the new collections. While not included in our comp sales, the brand delivered 10% sales growth this quarter. Now turning to the quarter. Revenue was $1.5 billion with comp growth of 2.2% and reflective of AUR growth of 6% with growth across channels and amongst categories, including bridal, time pieces and services.

Adjusted gross margin was roughly $600 million for the quarter, with rate up 70 basis points. Merchandise margin increased 20 basis points, reflecting a core performance in line with expectations and an additional $13 million of refunds of tariffs previously paid above our expectation. This offset a significant increase in gold costs and a higher effective tariff rate. SG&A expense decreased $12 million to last year, driving a 60 basis point rate improvement from operating model changes and continued spend discipline.

Adjusted operating income increased 25% to $107 million, driving 140 basis points of rate expansion. Adjusted diluted EPS increased 36%, reflecting operating income growth, higher interest income and a lower diluted share count. Now turning to the balance sheet. Inventory ended the quarter at $2 billion, down 1% to last year, even including the impact of gold costs.

Cash ended the quarter at roughly $525 million up nearly $250 million to this time last year. Free cash flow year-to-date improved by more than $10 million to last year driven by inventory and vendor payable management, improving by one week, partially offset by incentive comp payout this year as well as higher cash taxes.

Turning to share repurchases and capital allocation. With the new credit deal, core performance and our outlook, we are stepping up the pace of share repurchases while remaining committed to a strong balance sheet. To this end, this morning, we announced a nearly $400 million increase to our share repurchase authorization and a $125 million ASR and that we intend to initiate this month. Net, we will have $575 million of authorization remaining and repurchased roughly $325 million year-to-date after the completion of the ASR.

Combined with dividends, we'll have returned 12% of our recent market cap in the first 9 months of this year alone. With last year's free cash flow as a baseline and adding the benefits of the new credit deal, our shares trade at a pro forma yield of nearly 20%. Accordingly, we believe Signet shares remain undervalued and that share repurchases and attractive organic investments remain the best uses of capital to create value for our shareholders.

The incremental cash from the new credit deal will only increase our ability to invest in both of those. To recap, we delivered another quarter with positive comps and margin expansion leading to 36% adjusted EPS growth. We strengthened our balance sheet, signed a credit agreement adding meaningful value and are significantly stepping up our return of capital to shareholders while ultimately increasing our adjusted EPS guidance by over 10%.

Turning to guidance. We are raising our guidance for the year to reflect first half performance, a modest increase in expectations in the back half of the year, the improved economics from the credit renewal, refund of tariffs previously paid and additional share repurchases. For the full year, we now expect the same-store sales range to be flat to up 2.5% and increasing the low end guide 75 basis points. This reflects AUR and unit trends in the back half, similar to those in the first at the midpoint.

We now expect adjusted operating income between $535 million and $605 million, up nearly 10% or $50 million at the midpoint. This range includes the benefit from the new credit agreement and $30 million of refunds on tariffs previously paid, inclusive of the $15 million realized in Q2 and primarily direct refunds. Of note, the refund represents less than half of the net headwind from incremental tariffs in the current year. With respect to indirect refunds, we're assuming no material amount in the current year. However, timing on refunds of indirect tariffs paid is still fluid.

At this time, we expect indirect refunds to benefit fiscal '28 at a similar level or somewhat higher level than direct refunds this year. We are also actively working to accelerate holiday receipts in advance of any potential sanctions on countries that import Russian energy. As a result of these changes, we now expect GMM expansion for the full year, driven by the back half.

Turning to SG&A. We expect to show leverage in SG&A for the entirety of the year across the range with modest deleverage in the second half of the year. The deleverage in the back half reflects $17 million to $25 million in higher incentive comp expense as a result of the increase in our guidance and the expected cash from the new credit agreement. In addition to the above, we are also increasing fiscal '27 adjusted EPS guide to include additional share repurchases as well. In aggregate, our guidance range is increasing by over 10%.

Finally, for the year, we continue to expect $150 million to $180 million in capital expenditures. For the third quarter, our smallest quarter of the year, we expect a same-store sales range of down 1% to up 2% with adjusted operating income between $31 million and $48 million. This quarter, we expect $7 million to $9 million of benefit from refund of tariffs previously paid. We expect to benefit in the quarter from the new credit deal beginning in September in the range of $12 million to $16 million.

We expect 40% to 50% of the incremental incentive comp expense noted a moment ago to flow into the third quarter, causing modest SG&A deleverage. Before we turn to Q&A, I'd like to thank our team for their continued commitment and the execution of our Grow Brand Love strategy. Operator, now let's go to questions.

[Operator Instructions] Your first question comes from the line of Randy Konik with the Office of Jefferies. Please go ahead.

Yes. I guess first, J.K., when you think about your conviction and confidence for the back half of the year. What in your strategy or the recent strategies you've taken on and an execution improvement on the team and in different areas of that are giving you that confidence and conviction to kind of do well in that and continue this momentum into the back half of 2026.

Yes. Randy, thanks for the question. I think you answered part of the question the way you asked it, honestly. It starts with consistent performance within the business. The fact that I felt like it's important that we've established credibility and accountability to do what we say we're going to do. And that's a track record this team has built. And that mantra of performing while we transform the business is an important part of what gives me that confidence.

I think the second this is a busy quarter, and it's evidence that we're doing a lot of things to really make the business better, both in the short term and the long term. And whether that's what we talked about with website redesign, some of the improvements in the core business, the credit deal, the underlying skew and inventory reduction that we're seeing across the business despite some of the external factors that might make those moves more challenging. The improvements we're seeing across merchandise programming, the relaunch of Kay's brand platform all of the strength of holiday plans that we know are coming.

That all gives me confidence, and I think, in particular, coming against a backdrop that has really tested those strategies and the way that our team has navigated that change is the other thing that really helps me have much more faith in our ability to affect our will on the outcome. And I think that's probably the third leg of the stool. It's -- we've got the right team in place. And I don't think you accomplish all these things if you don't have the right talent deployed against the right strategy. And when I look at that and I think about some of the things we talked about that are clearly adding value to the business in this quarter really does position us to strike that balance between improving short-term results.

But also gives us the fuel to invest in these things that we believe are going to create long-term value for both customers and ultimately, shareholders.

Super helpful. And I guess, for Joan, one thing that we keep kind of telling people is to buy the math, and that means look at the cash flows that Signet generates and not just -- the overall cash flow, but the free cash flow like that. So maybe kind of give us a reminder on what you think is base level of free cash flow from an ongoing standpoint to give us some perspective of how you think about the CapEx needs of the business. You gave us a little math there before. .

And then maybe talk about, I guess, a couple of quarters ago, you gave us a change in philosophy on -- in terms of the financial capacity, I think you said you had like [Technical Difficulty] financial flexibility. You get down to the $1.5 billion, meaning you're more growth with the [Technical Difficulty] that's award of cash, but also cash flow. Just kind of give a perspective on that how we should be thinking about that going forward in already kind of put to ASR sounds like you need progressive privity board often. Just give us a bit more discussion on this topic.

Well, thank you for the question, Randy. I would say that the last part of the question, I think we were able to get the intent of the question. You were breaking up a bit. But to start off, the baseline cash flow, what I would share with the -- on the call here is that we are continuing to drive inventory discipline. One is you saw that we were down 1% in overall inventory even with gold costs, J.K. mentioned, inventory and SKU rationalization to really improve the health of our inventory. And so that's a lever we continue to pull spend discipline is another lever that we continue to pull.

And then the vendor payables, I noted in my prepared remarks that we have improved the days payable outstanding by 1 week, which is a meaningful change in our business. So applaud the teams for working with our vendors to really drive that improvement for us. And so we continue to drive free cash flow in a similar fashion while improving inventory and our vendor terms and agreements that we have. So continued positivity there.

As we look at our principles on capital allocation, we see a floor of liquidity at $1.5 billion. And we consider anything above that, and we can't target that at the end of the year, but we consider anything above that to be excess cash on the -- within our cash opportunities and number one, organic investment. J.K. talked about them -- we are investing in the website redesign. That is going well. So we'll continue to identify opportunities such as that to continue our organic investments, including our fleet.

We talked about $150 million to $180 million of capital investment. That's in our guidance. So that's, we think, an important use of capital. And beyond that, returning excess cash to shareholders is a very high priority for us. We talked about on the call that if you just use the baseline of FY '26, it's a pro forma 3% yield, and we believe that we have an attractive value within our stock and continue to prioritize the share buybacks. We also noted that we increased the authorization of our share buyback program.

And on the completion of our ASR of $125 million, we'll have $575 million remaining. So believe that we have a good capital allocation plan and priorities and look forward to continuing to drive that forward.

Your next question comes from the line of Paul Lejuez with Citi.

Or if you could talk. I think you said you changed something in the back half of your guidance slightly. Just curious if you could talk about what that was, any comments about third quarter to date? And then on the credit agreement, I think you mentioned, Joan, the $200 million to $250 million in profit over the next 36 months. Can you just go into a little bit more detail on how that flows? I think you said $1 billion overall over the life of the agreement. So can you just talk about the difference between the next 36 months and then what happens beyond?

Sure. So if we first address the guidance question in the back half, we raised the midpoint of our same-store sales guidance for the full year, 37.5 basis points. So -- and that's based on the year-to-date performance and slightly higher expectations for the second half and we raised the low end by 75 basis points. So I say the same rate the low end 75 bps based on performance. We increased our adjusted EPS guide by 10% for the year, reflecting the year-to-date performance as well as the new credit agreement, the refund of tariffs previously paid and then the additional share repurchases.

So basically, 2/3 of that raise came from the newer items that I just mentioned and 1/3 came from the core performance. We're pleased with the performance in margin on the core business. We were at expectations in -- for the core performance in the first half of the year and see the back half flat to slightly up. So continuing to manage the merchandise margin well, the team has done a good job, as J.K. noted in his remarks.

And then we expect modest A leverage for the year including the increase in incentive comp. So -- and that's a $17 million to $25 million higher SG&A cost to us. So feel that with the management of merchandise margin, the management of spend discipline and really harvesting the benefits of our operating model shift, we've been able to really post up and raise our guidance for the year. And so we're very pleased with that.

With respect to the third quarter to date. As you know, we do not comment on intra-quarter performance as part of our practice. But what we can say is that we're currently well within the guidance range provided for the third quarter. And then with respect to the Bread deal, we are very much pleased with the partnership with the Bread Financial team and what I was sharing is that the economic benefit over the term of the agreement is greater than $1 billion through 2035.

And importantly, that includes consideration for any sort of recessionary activity, and that's important to note that there's no loss sharing within this agreement. So we feel confident in terms of the benefit that we've provided over the -- to $1 billion over the term of the agreement. It's a quarterly profit sharing, which is recorded as revenue and incremental operating income. And it is -- when you think about the $200 million to $250 million, that's over 36 months. And what that reflects is just a profit sharing on the performance of the portfolio as well as there are other elements of benefit to Signet economically within that range.

So we believe that it's a strong agreement and that importantly to note that the profit sharing ratios increase over time. So the better the performance of the portfolio, we continue to generate economic benefit to Signet and shareholders.

Your next question comes from the line of Jeff Lick with Stephens Inc.

Congrats on some great results on that. Joan, just to kind of build on what Paul's question was, maybe just thinking in a different way. if you just kind of straight line it said, okay, 10 years billion dollars, so it's $100 million a year, would the right way to be thinking about it is all else equal, assuming that none of us go about this agreement, which we didn't until right now, whatever you thought SIG was going to make you're now basically just at $100 million of EBITDA on top of that?

Yes. My prepared remarks, Jeff, it's incremental to Signet.

Okay. Great. That's very helpful. And then J.K., one for you. Just curious an update. Obviously, you talked a lot over the last year about the challenges that you have in 4Q last year, you've divided the 4Q into 3 different shopping occasions effectively or segments and the inability to have the [indiscernible] price points. Just an update there as you head into that important season how confident are you on where things stand being improved over the last year. .

Yes, I appreciate the question, Jeff. I'm feeling good as we go into Q4. And I think it's an equal part of addressing those things that we learned about the consumer. But I think we're better positioned as we go into this year, not only to meet them where they are, and that's a combination of what we talked about in marketing, website redesign, which I think was a limiting factor for us as we look at some of these last couple of years and that earlier season in November, especially.

But we -- with -- last year, we were obviously chasing tariffs and dealing with pretty volatile inventory environment and not just tariffs, gold, all those sorts of things, I think our team did a great job of managing all of that to the tune of not creating a headwind, but it certainly makes merchandise assortment changes a little more challenging. And I think having a much more stable playing field in front of us and the agility that we picked up we've been much more intentional going into the quarter around how we leverage all price points across all brands to really put ourselves in a better position to take advantage of the power of the portfolio.

And I think that plus getting some progress behind us in terms of brand distinction. It really puts us in a position to show up with a much stronger footprint as we go into Q4 this year.

And then just a quick housekeeping one for Joan. Joan, I think in your prepared remarks, you made reference to the new tariff rate being higher than the old tariff rate that did I hear that wrong? Or did you just -- obviously, there's a new tariff rate that will be in place that replaces the IEEPA tariffs. Is that in your guys' case effectively higher? Or did I hear that wrong?

It's not effectively higher. It's just the way that our inventory turns over time and the impact of the tariff on the churn as it flows through cost of goods, so it's really something that we've been able to manage. What I also did say is that the tariff -- the refund of tariffs previously paid did not fully offset the impact of tariffs in the year. So that's also something that the team was able to hurdle, Jeff, and work through it with -- just working with the vendors with some price increases as well as just overall managing the assortment mix to gain the benefits that we've been able to do within the merchandise margin.

But the tariff impact is really more just a timing issue from tariffs that you probably paid 6 to 9 months ago that just show up in cost sold down...

That is accurate, Thanks for the clarification.

Thanks very much and best of luck in Q3 and Q4.

Your next question comes from the line of Rick Patel with Raymond James.

Congrats on all the progress and strong execution. Can you talk about the trajectory of AUR? I think it was 6% in the quarter, as a modest acceleration versus the prior quarter. What drove that? Was it pricing or sales mix? And how do we think about the durability of AUR growth for the back half? .

Yes. Thanks for the question, Rick. I mean, I think the AUR is really influenced probably more by mix than anything across our business, part of that. I mean, we talked about strength across the core brands. The one of our brands that isn't seeing that at the same rate as banter that drives a healthy amount of unit performance for our business. And when that is not seeing the unit growth, and I mean, it has seen some AUR expansion just because of what's going on with gold. But it changes what mix looks like within our business.

So there's a little bit of AUR inflation as a function of mix, but it is also reflective of our ability to move higher in price point within our brands. We're intentional around the opportunity we see at higher price points, particularly in natural diamond, both fashion and bridal where we see some share -- potential share gain opportunities and, I think, some assortment balance opportunities across our portfolio.

So I do feel like for the near term, AUR is going to be a little bit bigger part of the story. But we ultimately look for balance between the two and think modest unit growth and a little bit stronger AUR expansion is the right mix for our business for the longer term.

And how do we think about the impact of gold prices from here, prices are below the peak in January but higher than where they were mid-summer. So does that impact -- how does that impact the gross margin line as we think about the back half? And is there anything to call out for early fiscal '28 as those costs make their way through the system?

No. I mean this is not a new phenomenon, Rick. The question is a good one, but it's something we've been dealing with for a while. And so the answer is pretty similar. I think we've thought about from a design and mix standpoint, how do we engineer the right product at the right price points for customers and deliver the right value proposition. There's no question any time we've seen gold price increases pass through to the consumer at an industry level, not just Signet, we see some resistance on units and a little bit of pullback, particularly at kind of lower kind of value price point and gold weights.

But we're also sitting in a position where that is not our biggest input cost. Our biggest input cost is actually diamonds. And so we are fortunate that we set in the market where on both sides, natural as well as lab grown, there's opportunity there, the ability to balance that across the fulsomeness of our portfolio from a finished or standpoint really does position us.

So our guide reflects all of that. It has, and our team has really been navigating this environment now for -- if you talk about those 5 of the last 6 quarters, that has been true in all of those quarters on some levels. So we're well positioned to be able to navigate that.

Your next question comes from the line of Ike Boruchow with Wells Fargo.

Joan, thanks for all the help on the credit agreement and the benefits. Just on a super simplistic level, is the benefit expected to, over the next 3 years, effectively take EBIT up 50% outside of any organic benefits to the business? Or would you expect some of those dollars to be reinvested or a good portion of those dollars will be reinvested into the business. So I'm just asking because it's a meaningful impact to your EBIT. And so I'm just kind of curious how we should think about the models building over the next 3 years because of it.

So it's a great question. And as we navigate through to next year, we will evaluate what reinvestment is required along with continued to spend discipline management and other actions that we would take to continue to drive margin expansion for the business, but we would expect to see a majority of a flow through to an economic benefit. But remember, as we -- as I had mentioned that the rates of sharing increases over time. So it's not something that you should think about on a straight-line basis.

Right. I guess if you have multiyear line of sight in that capacity, it's almost similar to Randy's question, like do you look at your stock and consider. Obviously, you're being aggressive on the buyback with your cash, but do you consider adding leverage to take advantage of that scenario given it seems like there's a lot of profit growth that the market doesn't seem to be giving you credit for at this point?

At this stage, we're not considering adding leverage for that. But what we are considering is, as we look at our capital allocation priorities, we believe that the deal that is on the table, enables us to truly evaluate and prioritize investment as well as return of cash to shareholders in a different light than we've been able to do in the past. And so we are also feeling very strongly about the core performance of our business.

So with those 2 thoughts in mind, we believe that we have flexibility on where we can invest in our business to actually work the short term and invest in the long term to continue sustained improvement in our operating performance.

Got it. And sorry, the last one, Joan or J.K. Just on the gross margin line, so ex the refund gross margins are still down. I think last time we heard from you, you expected them to be flat and then up in the fourth quarter. Can you just confirm if that's still the plan and just kind of the -- I'm sorry if you gave it earlier, Joan, but maybe just the building blocks of the gross margins, what are the good guys and bad guys in the second quarter that still caused a like-for-like decline year-over-year?

Yes. So the second quarter actually came in at our expectations. And so from a core perspective, and we expect the margins -- merchandise margins to be down. And so what we cite there is just continued pressure from tariffs and gold cost and really trying to drive through the inventory turn. And as we got into the back half of the year with the price increases as well as the assortment opportunities that J.K. mentioned, we've been able to look at flat to slightly up in the back half of the year in terms of merchandise margin. .

And just to tee on to that, our conversion rate is consistent in our view of guidance. So it's really about really understanding the core components of the product, really optimizing in that regard, while delivering product that the customer still sees the value in. And so that's really how we've been managing margin go forward. So flat to slightly up in the back half.

Your next question comes from the line of Lorraine Hutchinson with Bank of America.

Can you talk a little bit about the performance of Fashion ex-Panther and then the role that LeBron is playing in that fashion performance?

Yes, sure. We continue -- I think one of the things that is important to note on our breakdown, fashion is pretty much everything that's not bridal. So on the whole, I would describe it as flattish with banter. With the same comments we outlined in the call is driving more growth on the high end and the middle end. And then anything that is sort of in the lower end exposed has been where they're soft if that really is all tied to metal. And as we've seen -- as we move forward, we have confidence in both plans and what we've got in the pipeline in terms of new receipts and new programs for the holidays as well as how we're seeing the customer adjust to the new normals with gold that we feel strong about that performance.

Within fashion, I mentioned higher price points is an opportunity. We've seen strength there. Natural Diamond, we continue to see as an opportunity lab-grown diamond fashion still coming off of a low base, obviously, because so much of fashion has been without stone in our business but is driving growth for us. And then even though we don't carve it out time pieces is really a source of strength across the business that has kind of flirted around the double-digit growth line for a couple of years now. So I feel good about fashion.

I think as we go into the back half of the year, also more optimistic around some of the plans we have with men's, which has driven growth, color, which I think is an opportunity in our assortment today that we address moving forward. So looking to build on that momentum and really extended across all price points.

Your next question comes from the line of Mauricio Serna with UBS.

Great. I guess just maybe you alluded a little bit to the back half of the year, specifically for Q4, what's the implied comp in your guidance at the low versus the high end? And maybe you also talked a little bit about the promotions. Maybe could you elaborate a little bit more about what you saw in promotions this quarter on a year-over-year basis? And what are your expectations for the holiday season?

Yes. Let me take promo first. I mean I think Joan hit it, importantly, we've maintained some really good discipline there and have really been -- I've been proud of the team's ability to manage that. I think we found ourselves in a position this last year, Q4, where given the start, we were a little more promotional going into it. I think we are much more confident of not only our base plan and the way we're attacking those kind of 3 parts of the season, how we're leveraging the strength of the portfolio.

I think we're more coordinated across our efforts going into the holiday this year. But we also have better contingency plans in place. And so I think you'll see that discipline hold I do believe, just given the state of the consumer that value is going to be a big story, value being sort of the right quality at the right price and really delivering on it, not necessarily meaning that in terms of high end or low end. But really, how do you set up the consumer to be motivated by value. And I think we are much more mindful of that it's reflected in our guide.

So when we talk about being well positioned for that and also going back to previous questions about margin, our expectation that we'll be able to hold and strengthen our margin performance as we go into it is something that is fully contemplated in that guidance. So we're -- that's what we're seeing. We're not seeing any sort of elevated or crazy promotional response from others in the industry right now. And so I think we've got the right kind of measured approach to make sure we've got the right value proposition to win during the quarter and also still deliver on the improvements that we're talking about.

Mauricio, to your question on the implied guide, the top line range is implied at minus 2% to plus 3% and it's an increase of approximately 25 basis points on the low end and 60 basis points on the high end, reflecting current performance. And then I would just articulate here that at the midpoint, we see ample opportunity in the fourth quarter for benefit for us. And where our 2- and 3-year stacks are -- if you look -- if you do the math, it's down low single digit on the 2-year and flattish on a 3-year. So I believe that there's ample opportunity in that quarter for us to really bring home a nice performance.

Got it. Very helpful. And then just one quick follow-up on the new credit agreement. I guess can you just give like a high level, what drives these benefits that you're going to get. What changed versus the previous credit agreement? And just to confirm that, that would still imply that you don't have -- you're not going to carry the credit in your balance sheet, right? I would assume that kind of continues to be the case.

Thank you for the question. Yes, it is not the credit portfolio, but will not be carried on our balance sheet. It is owned by the third-party credit provider. The change in the agreement is at the highest level, it's a profit-sharing agreement, which we did not have in our previous agreement. We're very pleased to be able to bring that through a competitive bidding process. And it was really on the strength of the portfolio that we have today and is something that our partners see as beneficial to both of us.

And so the profit sharing is something that we feel we'll both benefit from, but also the key point in that, Mauricio, is that there is no loss sharing. So if -- for example, if there was not a loss in the portfolio that would not impact, we would not share in a loss. And in fact, there are other revenue-generating opportunities with the agreement, which are all factored into the view that we gave of over $1 billion in benefit over the term of the agreement.

So we believe it's a very strong agreement for both parties and one that will really serve our customers well because we'll be able to continue to bring financial services offerings to them that enable cross-shopping and we're launching the Blue Nile credit card for the first time it had a holiday. We're really pleased with being able to do that in such a quick fashion. So overall, it was a very favorable outcome, we believe, for both of us.

Your next question comes from the line of John Keypour with Goldman Sachs.

Just a quick one on the credit agreement. I was just wondering if you mentioned that the economics improve, right, the sharing ratios increased over time. I'm just curious if there are like provisos or anything you have to accomplish for that to happen or if it just naturally scales as part of the deal?

That is part of the arrangement that we have in our agreement. There's no threshold. .

Okay. And then a follow-up just on unit growth. You mentioned you called out in the press release the higher ticket items did very well, high single-digit growth, but you flagged in the past that the sub $250 or the sub $150 like the cheaper it gets, the harder it gets to sell. I'm just wondering what you saw at that end of the latter and my understanding is that the lower priced items are actually quite high margin. So how does that factor into the margin expectations for the second half of the year?

Yes. No, I appreciate the question. I mean the simple answer is it's all contemplated in the guide. We saw performance in Q2, consistent with what we expected. I'll remind you that a disproportionate amount of our unit performance happens within banter and our core brands happens online. It is outsized relative to what its contribution to revenue is. And so I won't go through all of all of those numbers, people are probably tired to hear me talk about price points and doing that math.

But we have actually taken actions as it relates to new receipts and the holidays that we believe fortify those positions. We're seeing -- we've tested a lot through Q2 and into Q3 that really informs that confidence. And those receipts, as we've talked about on these calls before, all happened to flow through and really September. And so it was consistent performance with what we had seen and consistent to what we had guided to.

And I would say one important distinction, I know there was a lot in the script, so I'll reiterate this, just in case anybody missed it. While we've got confidence in the plans that we have in place to improve it, we also haven't dimensionalize big changes in performance by price point as we look at the guide for the back half of the year. We think it -- so that guide reflects the consistency we talked about.

On your question around margin, yes, I mean, it's -- we have seen -- we've seen margin rate expansion modestly in the back half of the year. The guide contemplates that. And we've been able to manage mix. I think the reality is the percents obviously change and look a little more attractive on some of the lower price point goods. But the contribution and the flow-through on the higher price point is still really good and accretive for our business. And so where so much of our business happens is in that mid-tier and we've seen really good stability there.

And so no real callouts other than what we've talked about before. We continue to see an opportunity for some rate expansion in the back half of the year. As Joan put it, we saw improvement to the trend and saw that margin fall exactly where we thought it would for Q2 once you strip out tariff refunds. So feel good about where we're positioned going into the next -- this back half.

Your next question comes from the line of James Sanderson with Northcoast Research.

Congratulations for a great quarter. Just wanted to go back to outlook for the rest of the year. You mentioned e-commerce platform improvements at Jared's and at case, wondering if you can take those learnings and help us understand how that might be a benefit to Zales going forward and if those benefits are part of your guidance already?

Sure, Jim. And I'll clarify one thing you said just to make sure everybody is on the same page. It's not a platform change, it's user experience redesign. So the only reason I think that's important is obviously -- the more you best with the back end, the more you introduce potential challenges, that's not what we've done with our websites. Back end is functional. Companies invested a lot over the last several years to make the back end sound.

So when you think about that interworking were where we have fallen short, really was and our -- what does customers see and how do we connect with the customer in a way that they shop most today. And so we've redesigned that front-end experience for our 3 largest brands, Kay, Zales, Jared. We have launched live already, Jared and Kay. And what we said in the call is early results are promising. I think we didn't give specific numbers because I think it takes more than 2 or 3 weeks for us to start reporting on something like that, but we've come out of the gate strong.

We're seeing better engagement from customers. We're seeing average order value increases. We're seeing engagement with our product display pages higher. And all of those things bode well as you move into a critical time period for our for our -- for that to be a bigger part of our business. Importantly, too, we did all this no negative impact. This was -- our team did a tremendous job of managing all of this on the back end, running in parallel and flipping a switch in a time period where it frankly was seamless.

And so I really, really appreciate the work that went into it. We will launch Zales later this month. That gives us plenty of time to do 2 things, really: one, to really rebuild natural search algorithms and all the things that happen when you start to change content. But two, it also gives us an opportunity to learn where customers are engaging the most and how to best leverage those improvements in a way that we can play offense.

And when it's all said and done, I mean, it may sound soft, but better imagery, realistic on model presentation that really does help a customer imagine style and trend differently and how it might fit them. Much simpler navigation, they're sort of shoppable editorial and the ability to navigate the site and shop in a more modern, intuitive and frankly, more inspiring content. Part of that redesign is not just the wire frames of the page, but it's updated content, all new photography, imagery, introduction of live video, better engagement that really does help, whether you're in the discovery phase for something that you know you want or you're shopping for the -- you're just looking for a thing and you're trying to be inspired.

And so really like what we're seeing from customers so far and think that it obviously is going to help us as we go through the back half of the year.

All right. I had one quick follow-up question on the credit agreement. Given the magnitude of the agreement, how does this improve the flow through profitability you expect out of the business over the next several years?

We would expect -- what I mentioned, Jim earlier is that we view it as an incremental to Signet and that it gives us the opportunity to consider some reinvestment and really bring a better experience to customers with the hope of continuing to grow the credit portfolio with our partner and again, include a greater profit sharing growth for the company. So we see it as a plus an incremental benefit, and it also provides flexibility for investments. .

So would you expect that to slightly improve that outlook or that target going forward? Is that the right way to look at it?

We would expect, yes, as our outlook for our operating margin to improve.

There are no further questions at this time. I will now turn the call back to J.K. Symancyk, Chief Executive Officer, for closing remarks.

Thank you, and thanks, everyone, for joining our call today, and thanks once again to our team. We look forward to discussing further detail on our holiday plans and our Grow Brand Love progress in December until then. Goodbye for now. Thanks.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and welcome to the Signet Jewelers First Quarter Fiscal 2027 Earnings Call. [Operator Instructions] Please note, this event is being recorded. Joining us on the call today are Rob Ballew, Senior Vice President of Investor Relations and Capital Markets; J.K. Symancyk, Chief Executive Officer; Joan Hilson, Chief Operating and Financial Officer. At this time, I would like to turn the conference over to Rob. Please go ahead.

Good morning. Thank you for joining us for today's 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 report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events.

During the call, we will discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as the 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 like to start the call this morning by thanking our Signet team. Your commitment to grow brand love has delivered a great start to the year. Thank you for your hard work, and let's continue building on our momentum. There are 3 key takeaways I'd like to leave you with today. First, we delivered another quarter of comp sales growth with effective operating performance, driving strong earnings growth. Second, we're balancing that performance with progress on our long-term transformation as we fuel this second year of grow brand love. Third, we're confident in our ability to deliver the year and are raising the midpoint of our guidance for fiscal '27. We delivered comp sales growth across every category and most brands this quarter. Within that performance, we've improved on the balance between fashion AUR growth and unit performance with unit comps improving sequentially 3 points to the fourth quarter. Alongside this trend, we continue to see strength in the higher-end consumer with some of our best performance at higher price points. Collections also continue to be an additional growth driver with Shai continuing to fuel fashion growth and Neil Lane and Monique Olivier driving growth for bridal. We delivered positive comps each month of the quarter and the expected savings from last year's reorganization. Adjusted operating income exceeded our guidance range through spending discipline. While still positive, the second half of the quarter slowed somewhat but rebounded from Mother's Day and second quarter to date. With a positive performance in both Valentine's Day and Mother's Day as proof points, we're working to accelerate focus on the go-to-market priorities for our grow brand Love strategy. Recall, in March, I laid out Signet's focus areas in the second year of our strategy would be brand distinction, unlocking portfolio value and further strengthening of our operating model. The focus on brand distinction is about sharpening our 4 core engines: Kay, Zales, Jared and Blue Nile. We are currently in the development and testing phase of the website redesign for Kay, Zales and Jared to align the search, navigation and storytelling our sites offer to today's customer expectations. Alongside this, we're actively working through SKU rationalization to improve customer shopping experience while also ultimately reducing inventory levels and improving working capital. The website redesign provides additional opportunity to clearly define brand identities.

We're furthest along with the redesign work at Jared and continue to expect all 3 to be completed in the early part of the third quarter. Websites are our largest storefronts, allowing us to reach the broadest number of both existing and new customers. Therefore, we believe this work to provide a clearer expression of each brand between both online and in-store experience is key to improving conversion ahead of this year's holiday season. In parallel, we are advancing a more modern data-driven marketing approach to strengthen each brand's relevance with its target consumer.

This includes shifting towards social-first storytelling and scaled creator partnerships to better connect with younger and more diverse audiences while also improving the efficiency of spend. Recent examples include Zale's partnership with Ashley Graham and Kay's collaboration with Christian McCaffrey, with the latter delivering more than twice our average social engagement rate. As I've said before, this isn't about spending more, but rather spending differently. At Kay, this quarter, our spend on social media was up only 1%, whereas we delivered a low double-digit growth in impressions. These early examples of our marketing transformation, similar to our website redesign efforts, represent our aim to deliver progress ahead of this year's holiday season as we focus on the right audiences, channels and messages to drive stronger customer engagement and build brand equity. We're also making progress in unlocking portfolio value.

On our previous call, we laid out actions we'd take to maximize our existing assets, including the transition of James Allen into Blue Nile and further centralization of back-of-house functions. We've completed those steps and doubled down on our focus in this area to our strategy surrounding natural diamonds. To that end, we've centralized sourcing for diamonds across our North American brands, which we believe will allow us to improve margins and inventory turns. That team has also taken steps to begin refining stone type, size, shape and quality of offerings by brand. We continue to identify and implement scale benefits through sourcing, planning and pricing, particularly as we balance our use of promotion against recent commodity highs. Further, with our scale and integrated sourcing, we see clear growth opportunities through a portfolio-level diamond strategy. We're getting clearer about the role each of our brands play across natural and lab-grown offerings.

Through brand-level improvements to mix, we can strengthen our position in the more valuable segments of the natural diamond category to support both sales growth and margin without exiting the customer base that's seeking lab-grown product. Lastly, on our grow brand love strategy, we continue to make progress enhancing our operating model. An important factor in those efforts is strengthening our high-performing team, meaning we're organizing, developing and incentivizing talent to directly support execution.

Examples of this work are organizing for better leverage across the company alongside sharper accountability. This includes the centralization and integration of back-of-house teams I just mentioned. Also, developing long-term focus through the build-out of career development plans for high-potential talent as well as an enhanced performance review process. And finally, incentivizing through changes to how we pay, how we train and how we recruit at the brand level to drive optimal in-store experience. Talent is a big part of how we perform while we transform. As the jewelry customer evolves, our talent model has to evolve with them. Gen Z wants to shop in store, but they've set the bar higher for what experience looks like.

They want a stronger personal connection. In jewelry, the customer is often doing business with 2 brands, the name above the door and the name on the consultant's name tech. That connection is an increasingly important factor in customer experience. That's why aligning how we recruit, train and reward talent to that customer mindset is so important. We believe that work is key to winning the future of jewelry shopping.

This brings me to my third takeaway. Our performance year-to-date and the progress we've made on our strategic priorities provide us the confidence to raise the midpoint of guidance today. We've now delivered positive comps in 15 of the last 17 months and have seen recently our strongest 2-year stack since pandemic stimulus spending. Top line performance has been balanced between categories. We continue to see further opportunity to improve fashion units as well as upside for AUR expansion. Said differently, while we've seen early benefits from our new strategy, we still see significant runway.

We believe Grow Brand Love is setting the foundation for sustainable long-term growth, with the ability to grow even during turbulent macro periods.

Before I hand things over to Joan, I'd like to quickly provide an update on tariffs. The muscle we built last year to navigate the ever-changing landscape continues to bolster us this year. Our team is monitoring updates, including potential new tariffs and will be ready to adjust as needed. With regards to refund, Signet is the importer of record on a small fraction of our purchases. We've already submitted claims for most of those purchases. And to date, a small amount has been approved and received. We are working with our vendors for the remainder of those refunds. At this time, it's too early to quantify the amount or timing of those potential refunds as well as how any proceeds may be used and when it may impact our P&L.

Summarizing my key takeaways today. First, we delivered another quarter of comp sales growth with effective operating performance, driving strong earnings growth. Second, we're balancing that performance with progress on our long-term transformation as we fuel this second year of Grow Brand Love. Finally, we're confident in our ability to deliver the year and are raising the midpoint of guidance for fiscal '27.

With that, I'd like to turn it over to Joan.

Thank you, J.K., and good morning, everyone. Before discussing our first quarter results, I'd like to provide an update on the transition of Blue Nile. Recall, we are repositioning Blue Nile as a premium brand serving a broader age group with a more affluent customer. We are evolving the brand to achieve an elevated luxury position, creating a clear brand distinction as part of our Grow Brand Love strategy, anchored in the enduring value of natural diamonds. For context, we believe approximately 70% of engagement market revenue remains natural diamonds. And at the higher end or over $5,000 is more than 90% natural diamonds. This repositioning will distinguish Blue Nile at the highest end of the Signet portfolio. To accelerate this strategy, we recently acquired The Clear Cut, a digitally native natural diamond jewelry brand, known for technology innovation, its bespoke concierge service in both bridal and fine jewelry and a significant social media following. This small tuck-in acquisition combines the reach and credibility of an established brand like Blue Nile with rich diamond expertise, a proprietary curation process and a white glove approach to customer experience. The Clear Cut has demonstrated a strong ability to connect with a younger, digitally made of luxury customer through authentic, education led storytelling, and we're pleased the entire team is joining Blue Nile.

Ultimately, this partnership allows us to accelerate innovation within Blue Nile to deliver a more distinctive luxury experience rooted in transparency, craftsmanship and trusted expertise.

With regards to James Allen, with the sunsetting of the commercial site in mid-May, we've redirected traffic to Blue Nile with meaningful transference to date. As I mentioned last quarter, we are now leveraging the James Allen brand as a proprietary collection and transitions complementary products and styles to the Blue Nile website. Finally, we have discontinued the remaining James Allen assortment that is not relevant to other brands.

With the exit of this inventory, we've taken a $32 million noncash inventory write-down. Along with the other organizational changes announced last quarter, we saw total restructuring and related charges of $42 million, of which the majority was noncash. We don't anticipate any material charges relating to James Allen's transition moving forward.

Turning to the quarter. Revenue was $1.6 billion, with comp growth of 1.8%. James Allen represented a 1-point drag to the quarter. By category, growth was low single digit for bridal and fashion with stronger growth in watches and services. AUR grew nearly 5% up in all categories again this quarter with bridal up high single digits.

Adjusted gross margin was $589 million for the quarter, with the rate down approximately 1 point. As expected, this reflects 70 basis points of merchandise margin decline, primarily from higher gold cost. Conversely, we continue to leverage higher gold value to opportunistically melt clearance product and make room for new introductions with a small impact to gross margin. Further, this was largely offset by 20 basis points of occupancy leverage.

SG&A expenses were down 3% to last year, resulting from the Grow Brand Love operating model, restructuring and ongoing spend discipline to drive 12% growth in adjusted operating income. We believe that at low single-digit sales growth we can expand operating margin, a formula that will fuel organic investment and return of capital to shareholders.

Adjusted diluted earnings per share grew more than 30% to $1.56, reflecting earnings growth, higher interest income and a lower diluted share count.

As of this morning, we've repurchased approximately 1.3 million shares for $114 million. Additionally, we announced today a $50 million accelerated share repurchase program that we intend to initiate in June.

Our intent is to utilize ASRs in instances where we can lock in a discount to VWAP more frequently as part of our programmatic repurchases moving forward. We also continue to leverage 10b5-1 plans in the open market for both programmatic and opportunistic repurchases. The company will have approximately $355 million in share repurchase authorization remaining once the ASR is completed.

Turning to the balance sheet. Inventory ended the quarter at $2 billion, roughly flat to last year. Cash grew nearly $340 million to more than $600 million in cash at the end of the quarter. Free cash flow improved by $43 million to last year despite the payout of an annual incentive comp this year, which we did not have in the prior year.

Regarding credit financing, we continue to see consistent performance with little trend change to applications, approvals and total amount financed. With the strength of the portfolio over the last few years, we see potential opportunity to improve the economics of our private credit programs over time as we evaluate current agreements with third-party providers.

Turning to guidance. We are raising the midpoint for the year to reflect Q1 performance and Q2 momentum. We are further increasing the adjusted EPS range for the year to reflect the additional share repurchases since March as well as the upcoming ASR. For the full year, we now expect the same-store sales range to be down 0.75% and to up 2.5%, with total revenue between $6.7 billion and $6.9 billion. Also, we expect AUR growth across categories with modest unit declines, particularly at lower price points, largely due to higher gold costs.

As a reminder, beginning in the second quarter, Blue Nile and James Allen will not be included in same-store sales for the next year to reflect the transition of those brands, which will benefit same-store sales by 50 to 70 basis points going forward.

We continue to expect a low single-digit decline in square footage from the closure of approximately 100 doors.

We now expect adjusted operating income between $480 million and $560 million. At the midpoint of our guidance, we expect leverage in SG&A and a flat to slightly down merchandise margin. We expect adjusted EPS between $9.20 and $11 per share, a more than 3% increase at the midpoint of our previous guidance. This assumes a weighted average diluted share count of approximately 39.5 million shares for the full year.

We continue to expect a mid-teens effective tariff rate for the year, assuming new tariffs are similar or modestly higher to current rates. If specific country rates become substantially higher, we would likely shift country of origin to minimize impact. Additionally, this update only includes a minimal amount of tariff-free funds and also reflects continued mitigation efforts.

Finally, for the year, we expect $150 million to $180 million in capital expenditures. This includes over 200 renovations, up to 20 repositions and up to 10 store openings. For the second quarter, we expect a same-store sales range of up 0.5% and to 2.5%, with adjusted operating income between $79 million and $93 million. We expect merchandise margin rate to be somewhat lower in the quarter, reflecting higher gold costs. At the midpoint of guide, we believe this will generally be offset by leverage in SG&A and occupancy.

Before we turn to Q&A, I'd like to thank the team for delivering a great start to the year, continuing to deliver on our short-term expectations while driving progress on our long-term strategy.

Operator, let's now go to questions.

[Operator Instructions] Your first question comes from the line of Jeff Lick with Stephens.

Congrats on a nice quarter. J.K., you made reference to some unit acceleration. I was wondering if you can tie that into the work you were doing with the pricing architecture and the volatility in tariffs and commodities last year. And that's -- guide at least the volatility elements died down. So I was wondering if you can tie that in, just talk about into unit and unit growth.

Sure, Jeff. Thanks for the question and the comment. From a unit perspective, we feel good about the progress. I think what we talked about on the call was balance in terms of certainly driving AUR performance, but seeing unit trend improvement across all categories, both fashion engagement. I would say, we see more opportunity on the high end. And for us, the high end is a little bit less of a driver of overall unit volume, but is more important as it relates to revenue.

We would -- if you look at price points above $2,000 in our business, there, call it, mid-ish single digits in terms of unit penetration, but 40-ish percent as it relates to revenue. So seeing unit growth on the high end, I think, is an important driver of our business. We've seen better performance in what I would call the mid-price point buckets of units. And not surprisingly, when you look at those lower-end price points sub-$150, that's where we're a little more challenged in terms of unit growth, and are doing, I think, great work to balance our sourcing plans, our supply chain capabilities and some assortment reconfiguration to make sure that we can still serve customers there. That's the business that's most exposed to gold and tends to also have a little bit more exposure when you look at a brand like Banter or online. So it's important for us, I think, a little less important as you look at a quarter like the first quarter. But certainly, as you can see from the guide, we see the improvement, but we also have good plans in place. We feel like we can maximize that opportunity as we get into the holiday.

And just kind of to drill down a little further on the -- what you referenced in terms of strength in the higher end because we've been seeing things like, for example, in categories like luxury cars, how you're in mattresses that it seemed like it had softened a little bit. I'm just wondering what you're seeing. Is that largely due to things you're doing internally in terms of assortment and focus where you're just picking up market share?

Yes, I'd say so. I mean, I think -- look, the important distinction I'd make as well is our our higher-end price point is still catering to a customer in the middle tier, right? So when I talk about numbers like I just shared, we're disproportionately talking about [indiscernible] just because they're the lion's share of driver. You heard Joan's comments on the strategy of Blue Nile. I assume we'll probably have some questions there, and so I won't go into detail, but we see an opportunity to get a bigger share as it relates to the upper middle. And in the case of Blue Nile, we see an opportunity on the higher end where -- or maybe we're not taking our fair share today to be completely honest, which I think is both an upside as it relates to our growth opportunities moving forward. I also think it's reflective of the benefit of not just better assortment work, Jeff, and pricing architecture, but also a clear strategy in terms of our diamond strategy overall and the balance that we see in terms of the the continued growth opportunity on the lower end price point in fashion with lab-grown Diamond, but also the affinity for customers with natural diamond and the opportunity at higher price points for growth. That's certainly paying off when you look at this quarter, and we think we've got runway ahead of us.

Your next question comes from the line of Randy Konik with Jefferies.

I guess first, J.K., just on the question of -- or the topic of AUR, you talked about the ability to continue to drive that up over time. Can you just give me -- I guess, give us some perspective on where you think headroom is on the bridal side and the fashion side, just to kind of think through how we should think about AUR trends long term? And then just related to that, on the unit side, given the last question, do you think we can get to a place where units inflect perhaps early next year, just given the work you're doing on the low-end price points? Like just give us some thoughts on the dynamics between AUR and unit velocity ahead?

Sure. I mean let me start with the last one -- last part of your question first, Randy. I think we go into this -- we're intentional around balancing AUR and unit performance. As I mentioned earlier, I think the greatest driver of unit volume is a lower ticket, call it, sub-$150. And I think we have good plans in place in terms of what we do to maximize that. That's important for us because I think it is the opportunity for people even in the luxury tier. That opening price point ability for people to experience the brand and the opportunity that, that creates to develop a relationship with the customer and grow your business is important for us.

And so there's a lot of moving parts. And when you look at a short quarter where we've got a pretty tight window in terms of what we can do with pricing changes, et cetera, because of Valentine's Day falling in February and then Mother's Day coming on the heels a bit where we've taken a little longer view and are balancing pricing decisions and movements around assortment, where there's a lot of transition that happens over the summer months to position us for the Q4 holiday. But we expect that trend to continue. We really believe that there's an opportunity to move unit volume positively. We're certainly seeing it in the high end and feel really good about the progress we made in the mid-tier and are really focused on what do we do to serve that customer who is shopping at a budget, whether it's a brand like Banter or online where you got a little bit more exposure from a lower price point unit perspective. But definitely, that's how we're building our plans, pleased with the progress in Q1 and would expect that to continue and frankly, are making progress against it despite some of the other volatility that's coming with tariffs and commodities.

In terms of AUR, this is an emotional category. And I would tell you, we see -- I get asked a lot how much of this AUR growth is being driven because of whatever may be happening in terms of commodity. The truth is where we're really seeing the biggest AUR expansion is at higher price points, and it's because we're underdeveloped there. I think the more we drive distinction with our brands, particularly seizing the opportunity on the higher side with brands like Blue Nile, Jared and Diamonds Direct, we certainly see headroom to move up there. But to be honest, we see it in Jared as well. As an entry point, consumers are aspirational in nature and even in a category like engagement, our first ring is not always our last ring. That opportunity to trade up and develop a longer-term relationship with customers is something that we see headroom moving in those brands. And by by really sharpening our focus, not only on brand strategy, but as well our diamond strategy. We know there's market share gain opportunities that we can drive on both sides of the ledger.

Super helpful. And then on the balance of margin, you had some nice SG&A leverage in the quarter, occupancy leverage as well. Merchandise margins down a little bit. Maybe kind of expand upon that philosophy of how you can see more visibility in the business to get a lot of levers you can work with to drive margin expansion further into the out years? And just given the inventory turns don't turn a lot, can you kind of expand upon things you're working on to offset rising gold prices to perhaps improve those merchandise margins maybe not this year, I think you guided the flat to down slightly, but into 2027 and beyond. Just kind of thoughts there would be very helpful.

Sure. Let me start, and I'm sure Jana might want to add a little bit of color here, too, because this is something our teams are really, really working hard on. I'm proud of what our team is -- and our partners are doing. When I look back at this last year, to manage the volatility on the commodity side as well as all of the volatility with tariffs and still deliver at the high side as well as deliver in line with where we said we were going to be in Q1. You're still dealing with the same set of variables. This is a short quarter. We don't really take any pricing or change the architecture before Valentine's Day. You've got a very short window before Mother's Day. And then the lion's share of transition really happens over Q2 and Q3. So our guide reflects that. We knew where we were going to be in Q1 and have shown up consistent with that guide.

In terms of how we manage margin, I think we feel really good about what's happening on the upper end and are better positioned there and are much more focused on how we protect the lower price point goods in our assortment to drive volume. That's going to be really critical, and we know we've got the right plan in place to be able to drive it for the holiday. I think in terms of gold specifically, we talked about this a little bit before, but we're -- we've reintroduced hedging that helps us balance our inventory being better control of inventory and actually taking advantage of some of the opportunities to melt product and have a healthier balance of inventory is something that positions us well as we go through the last part of the year and this quarter.

We did not slow down clearance, clearance contributed at a higher level because we believe having the right assortment is going to be critical for performance. And we knew we had the expense base to be able to continue to stay clean and didn't slow that down. So team is pulling the right levers. I think with gold, you're going to continue to see design that takes advantage of lower weight in brands like Banter. We've introduced platelet assortment that helps protect at lower price points, that's testing very well with customers, and we believe positions us to serve that base well, from a design perspective, look for alternative metals to come back into play. We're also taking advantage of a little bit of softness on the diamond cost side to really balance supply chain and input costs so that we can mix from a design perspective to deliver stronger margins within the business.

So when you add all that up, both being more efficient on supply chain and sourcing strategies and then also getting the right assortment architecture in place, we feel good about margin, not only for the year, but also about the expansion opportunities, particularly as we pull it through the bottom line.

The only thing I'd add on to that, J.K., is just the pricing and promo work that the teams have been engaged in since last fall, and we are wrapping around and won't cycle that until the back half of this year. So we still have room within the pricing and promotion work to number of days on sale, not going as deep and in the promotions and being more selective, judicious about the categories or styles that are on promotion. So that would be 1 addition. I think the other work that we're doing is J.K. alluded to it, is in the diamond category with the integration of Diamonds Direct and Jared, we are now able to centralize all of our diamond sourcing under our Signet diamond sourcing team, which enables us to utilize our diamonds across our entire portfolio. So that range to the question on inventory turn. That will also help us with better pricing across the business, but also turning the diamonds that we own within our own portfolio. So feel that, that was a nice add and one that can serve us well into the future.

And I would just say the branding work that the teams are doing in terms of very distinctive brands, elevating collections and designs, which served us well. We met -- J.K. mentioned Venice. So those are the branding work and the designer collections will also help us to drive some gross margin expansion.

Our next question comes from the line of Paul Lejuez with Citigroup.

This is Ben Cheatham on for Paul. I wanted to circle back on the 50 to 70 basis point comp lift that you're seeing from that including Canon Blue Nile, is that benefit built into second quarter guidance in the full year? And just any more details you could share on that.

Sure. Thanks, Paul. It is baked into the guidance that we've given for the second quarter. that we see in the second quarter, it's roughly 70 basis points. So if you think of where we're moving from Q1 to Q2, that will with the high end of the guide at 2.5% comp growth. And then we would see that begin to move down a bit in Q3 and Q4. Think of it as 60 basis points, 50 basis points in the fourth quarter, bringing the year in that guidance range that I gave of 50 to 70 basis points down. So really reflected in the high end of our guide. And we also saw as we noted that we've raised the low end of our guide. And as a result, the midpoint came up. So we've reflected that within the guide itself across the year.

Got it. And just a follow-up. You all mentioned you're seeing the strongest 2-year stack since over COVID there. What is that stack? We obviously don't know May last year. And then I wanted to make sure it sounds like Mother's Day was strong, but also sounds like these last couple of weeks of the second quarter is an acceleration of how you exited the first quarter. If you could just kind of expand on that?

Yes, sure. Yes. I would say if you look at last year, we were up low single digits, this year, up low single digits. So you're talking about -- yes, you're talking about mid-single digit 2-year stacks, which is stronger than where we've been. In terms of overall performance, yes, I mean, we had a good Mother's Day. We've seen that momentum hold similar performance where we're seeing strength across all brands, categories and have seen that momentum continue to build. So no other real color there from a consumer perspective. The only thing I would say to, we commented on a little bit of that momentum return. It also coincides with getting through the round of pricing architecture work that happens in between Valentine's Day and Mother's Day. So as we do that work, as a reminder, then we've got a -- we turn off promotion, rely a little more on clearance during that time period and the baseline run rate of the business are less -- spend a little bit less in marketing as we work that transition. We saw the business pull back a bit during that time period, remain positive. And then as we put our signs back up and communicate with customers and really turn marketing on, then we saw the business return.

And I know Joan mentioned it earlier, we're -- that's all happening against the backdrop of continued discipline around promo effectiveness. We're not -- we're consistent with the run rate we were running this last year. So there's no there's not more promo in the business. We're just seeing better health across the base.

Your next question comes from the line of Lorraine Hutchison with BOA.

You saw any benefit from higher tax refunds? And is there any change in customer behavior that you're noting with fluctuation in gas prices and inflation?

Short answer is no. I mean, I think we can't really call out a notable change in behavior tied to either of those things, frankly, from a higher tax refund point of view as well as from a higher gas price. The truth is we're not only an emotional purchase, but a considered purchase, right? And my wife and I were joking about this the other day when I was getting ready to ask her, I don't know that she would have taken a pause because of the price per gallon of gas. I think this is -- we tend to set in a category where there's a little more thought that's gone into it. We're much more tied to milestone, whether that's engagement, gift, holiday, et cetera., also tied to a big chunk of our business to a purchase that relies on credit or some form of financing for our customer. And so bottom line is, those kind of short-term moves don't have as big of an impact in our business.

I would say we're more resilient in that regard. And and we tend to focus on those things that are a little more longer-term structural as it relates to the consumer to make sure that we're positioning our business well. But can't really call out either a headwind or a tailwind necessarily in this quarter that would be noteworthy. And I do think we look at that and pay attention to it a little bit more. So in in a business like Banter, where we're a little more exposed to both a lower income customer, it's just -- it's not as big of a driver of revenue for our business. So it's not...

It's a year-over-year...

Yes, I was going to say it's not a headline. And year-over-year, there's not as much noise there.

And then, Jana, you talked about an opportunity to improve the economics of private credit. Can you talk about what that might look like? And is this just a cost opportunity? Or is there an opportunity to potentially drive sales as well?

Well, what we're seeing is the health of our portfolio, and I commented on the consistency of the performance in terms of the metrics, the amount financed is holding up nicely, application rates, approval rates, are very, very little in terms of ups and downs. So very consistent. So we feel that, that bodes well given we've seen it over the last several quarters and last couple of years that as we come to renegotiating our vendor agreements that, that will serve us well as we come into that period of time. And so that's what we're really talking about there. The [indiscernible] is consistency, good performance of the portfolio should bode well for cost and the cost of those programs to us.

Your next question comes from the line of Ike Boruchow with Wells Fargo.

This is Juliana on for Ike. I was wondering if you could comment more on the pricing in both lab and natural and how low continues to trend within both bridal and fashion. I know that you've previously mentioned [indiscernible] at a higher rate. Have you continued to see that?

Yes. Thanks for the question, Juliana. No real change in trend. I mean I would say we continue to see AUR growth and trade up on both sides of that. I think one of the things we called out in the script is we believe there's even more opportunity on the natural side as we look at higher price point, and as we clarify our strategy by brand. So we see that both as an AUR and sales opportunity, ultimately, one that's tied to some opportunity to gain share as well. So no new news there other than continued progress against that trend, and we're doing our part to take advantage of it.

Your next question comes from the line of Jon Keypour with Goldman Sachs.

Just wanted to ask about the Blue Nile, I guess, premiumization strategy moving up that ladder. Does that signal an intent to graduate other banners in the portfolio of that ladder as well I understand you want to keep a balance with your core customer, but it sounds like the general direction is to premiumize where you can. So I guess if that's true also, what are the priorities by banner about who would move up that ladder next?

Yes. Maybe let me talk at the macro level and then I'd love to Joan to lean in a little more on specifically what we see with Blue Nile. But I would say at a high level, it really is about leaning into the opportunity to differentiate and drive distinction by brand. We see Blue Nile at the highest end of that. I mean that really is what the legacy positioning of that brand is. And in some ways, not to deprioritize this at all, but it is about returning to a spot that I think is really the equity and rightful spot for that brand to be.

It also, I think, every healthy portfolio has a north star, if you will, that really is the anchor point of aspiration and that really allows you to build a life cycle approach to a customer and really does allow you to play across a full landscape.

We've talked about it before, but Jared and Diamonds Direct, I think we describe it as accessible luxury or affordable luxury, but that opportunity in the upper middle and low or high end, where you're really playing on the shoulders of kind of that smart value of high quality at the right price. It really does appeal to an upper middle income customer as well as to a more affluent customer is a wide open space right now. As a lot of brands have looked to move up and chase luxury, we really feel like that space has opened up, and it represents an opportunity for growth for us. Kay is smack in the middle, serving the largest cross-section of customers as the largest brand in not only our portfolio, but really in the jewelry space. And we love that. It really does allow us to play across the full spectrum of customers. And even there, we do see an opportunity. And maybe it's not about premiumization of the brand, but it's about recognition of how customers in that segment routinely trade up and trade down. And so there's a wider cross-section of opportunity there.

Zales is similarly placed, but also probably a little bit more of an entry point into the category, driving fashion and jewelry basics as an opportunity, which will mean you've got a little bit more affordable price points, although similar cross-section when you think about AUR across the business. But I do think paramount to this is our strategy to really drive premium at Blue Nile, not only because of the opportunity it represents for the company, but also because it's a point of destination for people that are researching across the category and is such a shaper of perspective and trend for so many consumers that really do shop all of our brands. So maybe, Jana, if you want, kind of dive into some of the high points of where we see this opportunity for Blue Nile?

Yes. I mean I just would come in over the top on the natural diamond strategy first is that the business -- our business has the unique scale and opportunity to present to our customers high-quality natural diamonds across all of our brands. And we mentioned in our prepared remarks, natural diamonds represent 70% of the engagement revenue in the market and 90% of those -- 90% are natural diamonds with above $5,000. So there's an opportunity, while it doesn't appear to be necessarily premium pricing, but above $5,000 is a considered purchase price, and we can serve that customer across all our brands with the right offering of natural diamonds.

Blue Nile is the -- is an elevated luxury positioning for us. And to J.K.'s point, it is an education and storytelling entrance point for many of our customers. It appeals to a more affluent and diverse younger customer for our business. And we believe that serving that customer with the concierge service as well as really assisting them through their journey in a more personalized emotional way, we will bring more customers into the natural diamond engagement market as well as really elevate the perception of that for the rest of our business.

And so really the most recent acquisition that we accomplished with The Clear Cut is another -- is a pillar within our initiative within that opportunity of concierge service and really creating a journey that the customer can gain confidence, find a better way, we can curate better stones for that customer, unique to their their desires and really believe that with that acquisition, the digital and technology innovation helps us get that curation right the first time.

So building on that technology for the balance of our brands will be what we would look to do in the future. So really elevating Blue Nile, bringing consumer confidence, curation and transparency to the process while educating the customer is really the start of that premiumization for us.

Your next question comes from the line of Mauricio Serna with UBS.

Your next question comes from the line of Dana Telsey with Telsey Advisory Group.

As you think about -- and you mentioned that the AUR at the higher end is selling through well. How do you think of that higher-end AUR? Where do you expect it to go? What is the customer giving you the opportunity to go to?

And then as you think about self purchase in terms of fashion, how is that performing versus bridal and expectations going forward?

Sure. Sure, Dana. Thanks for the question. We've not given a target AUR number, but certainly, we see an opportunity to expand, particularly as we look at natural diamond above $2,500 or so. As we pointed out on the call, we're seeing trend improvement across all categories. We don't talk about a lot time pieces, actually, even as maybe among the strongest of the group. So that very much is a testament to the work that we're doing with fashion. So I think self-purchase, early days. We talked about the including -- or inclusion of Rocks box as a driver with Kay. We're seeing the customer really respond well there as we introduce plated and Verma options in Banter, we're seeing the self-purchase customer respond, seeing continued growth in Zales as well. So across the board, right momentum in place, and we're looking to continue to build on that.

Your next question comes from the line of Jim Sanderson with Northcoast Research.

I wanted to go back to same-store sales trend. I think you mentioned each month, they were up. But was that the case for all banners? I think there was a problem with Zale's last quarter, wondering if that's improved?

Yes. We've seen improvement across the business. We talked about positive comps across most brands, really, there were only 2 in the quarter that were not positive. Diamonds Direct was one, but was improved sequentially from where they have been performing and was closed, and then James Allen obviously, is the other. But across that -- across the rest of the brands, we saw health and actually saw improvement in Diamonds Direct from a sequential standpoint.

Okay. So you did see positive comps for Zales for the quarter?

Yes.

Very good. I wanted to talk a little bit more about The Clear Cut acquisition. Any feedback you can provide on more or less what you purchased the purchase price, the impact on cash. And then the idea of how you're going to leverage this technology, that's going to be across banners related to the units -- the technology that you've purchased?

Yes. I'll take that one. The Clear Cut acquisition, we actually closed yesterday, which we're very pleased with. And it's really a small tuck-in capability-led investment for us, Jim, and it really brings a few things to the business that we believe are critical. It will help us bring exceptional natural diamond expertise. Kyle Simon and Olivia [indiscernible] are standouts in the industry. They have generational experience and diamonds. And they have a distinctive way with our technology of connecting with luxury consumers through social commerce as well as technology. They've developed a GEM technology, which is proprietary platform, which is designed to deliver a personalized jewelry experience at scale. We will -- it essentially equips the expert gemologists with tools, insights and customer context to curate with greater precision to serve diamonds to them -- to the customers and get it right the first time. And it also preserves a bespoke white-glove digital experience. There's also an AI engine on top of that really predicts demand and optimizes pricing while analyzing client conversations so that we can steer the client to the diamonds that we believe better serve what they're looking for.

And so we can continue to refine recommendations with that technology. What's interesting is that The Clear Cut clients who purchased more than 55% of them select a diamond from their first curated set of recommendations, and across purchases, they average nearly $30,000 per transaction. So really another way for us to continue to drive the natural diamond opportunity within our business, but as Olivier and Kyle are very much passionate about the natural diamond industry.

In the beginning, we will be leveraging the technology for Blue Nile, and then our hope over the next couple of years is to further integrate that opportunity within our other brands where it fits their selling process.

All right. That was very helpful. And just last question for me. Looking at your gross profit margin, I think you called out a 70-basis-point headwind in the quarter. Is the expectation that, that will continue going forward? And with any benefit from sales leverage offsetting that as the year progresses for that gross profit margin rate?

Yes. We expect to see continued pressure on gross margin. For the full year, we said flat to slightly down. So really down in the first half of the year. and flat to slightly up in the back half of the year, which is what give to that full year guide. So as we anniversary the fall season, we see a better opportunity there in merchandise margin.

All right. And last question for me, if you would. I think you called out that you may not be taking your fair share in certain segments. With 1% growth for the quarter, is the industry growing in line with Signet or are you lagging the industry?

We're growing in line. I think what we do is -- what we recognize is we've seen strengthen independence at higher price points, nowhere near the unit performance that we have, but certainly taking advantage of trade-up and higher-end customers. We tend to be leading mass and big box and are kind of on the pulse of where the industry is, which is good. But we recognize within our base, there's a share opportunity on the higher end, and that's where I don't know, Jon and I both talked about it, our balance in terms of diamond strategy and really leaning into the growth proposition on both ends is really important for us.

Your next question comes from the line of Mauricio Serna with UBS.

Apologies for what happened a few weeks ago. Just on the gross margin, I know you mentioned the merchandise margin contracting 70 basis points on higher gold. Was there anything related to promotions to call out? And then how are you thinking about the second quarter gross margin expectations? And then a quick follow-up, just excluding just the benefit or excluding. Now that you're taking out James Allen and [indiscernible] from the comps, is the comp essentially the same as prior -- or like was that is somewhat like excluding that should be actually a little bit below where you were last quarter?

No, go ahead. Well, I was just going to say, on the margin front, look, we're -- promotionally, there's nothing extra there, right? We're very consistent with where we have been running last year, so this is not an effect of promo. And really, the exposure is primarily commodity related. We've talked about it. I think it's important for us to balance AUR and unit performance. And while we still believe strongly that there's margin expansion opportunity for the business, we're also being thoughtful around how we approach this commodity environment, and in particular, how we think about exposure on lower end price points, which is really where this pressure gets managed and why it's important as we think about balancing AUR and units overall. So expect that to continue and to improve, in Q2, we'd see it moderate and then we see opportunity in the back half of the year for improvement. So you'll see that line continue to build.

I would -- and I think we're in line with where we thought we'd be in Q1, are thoughtful around how we're managing against a volatile environment and actually really happy with performance because of the balance we see across the business. I think it points to the health of the portfolio. Maybe I'll let Joan jump in and talk about comp impact, but overall, no, we're not hiding the ball there. I think we see strength on the balance of the business.

Mauricio, the James Allen impact that we called out, it was a 1 point drag in the first quarter, and we posted a 1.8% comp. We're -- our guidance for the year is 2.5% and at the high end for comp in Q2 is the same 2.5%. So we're reflecting the impact within our comp guidance. We're also raising the low end of the guide. So what we did say earlier is that we moved from 1 point to 70 basis points impact approximately in Q2, and it continues to -- the impact continues to lessen to 60 to 50 basis points in third and fourth quarter.

And Blue Nile, just for everyone to recall, Blue Nile is also excluded from the comp calculation. We feel that as we've transitioned a significant portion of James Allen SKUs over to the Blue Nile brand that it's most appropriate that we keep both of those brands out of comp until we -- for the next 4 quarters essentially.

We have reached the end of the Q&A session. I will now turn the call back to J.K. for closing remarks.

All right. As we end the call, I want to thank everybody for their time and also really like to thank our team and partners. We've got a great start to the year. We're staying focused on performing while we transform our business and look forward to sharing more updates on our grow brand love progress in September. Thanks for joining. Goodbye for now.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and welcome to the Signet Jewelers Fiscal Year 2026 Fourth Quarter Earnings Call. Please note, this event is being recorded.

Joining us on the call today are Rob Ballew, Senior Vice President of Investor Relations and Capital Markets; J.K. Symancyk, Chief Execute Officer; Joan Hilson, Chief Operating and Financial Officer.

At this time, I would like to turn the conference call over to Rob. Please go ahead.

Good morning. Thank you for joining us for today's 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 report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events.

During the call, we will discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as the 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 like to start the call this morning with a thank you to the Signet team. This past year highlighted your agility in the face of new obstacles and your commitment when presented with opportunity. Thank you for your dedication to Grow Brand Love in the crucial first year of our strategy.

There are 2 key takeaways I'd like to leave you with today. First, as we announced last week, we delivered at or above the high end of our adjusted operating income and EPS guidance range amidst unprecedented tariffs, record gold costs and a measured consumer while generating 20% more free cash flow on a simplified operating model.

Second, building on recent positive sales momentum, fiscal '27 will focus on accelerating core performance through sharper brand differentiation, broader customer reach, and a more seamless in-store and digital experience.

Looking back over this first year of Grow Brand Love, our heightened focus on our 3 largest brands, Kay, Zales and Jared proved to be a critical factor in delivering positive same-store sales for the year. In fact, we delivered positive comps for the vast majority of the past year. Within that performance, Kay, Zales and Jared delivered over 3% combined comp sales growth.

Further, the team's focus on cost management as well as leveraging value engineering, vendor relationships and country of origin pivots have delivered adjusted operating income growth even as we digest a reset to short-term incentive compensation, record gold prices and elevated tariffs.

Now more specific to the fourth quarter, performance in each month of the quarter improved on both a 1- and 2-year comp basis, and included a positive performance for the 10 peak holiday selling days as well as the balance of the quarter.

Turning to fiscal '27, sales momentum continued into the year with a positive Valentine's Day performance, which has continued quarter-to-date. This momentum leads me to my next key takeaway today. Our Grow Brand Love imperatives will evolve in year 2 of our strategy. The first year of Grow Brand Love returned the business to growth, a result we look to amplify.

We're applying learnings from this past year to refine each of the strategy's imperatives. I'll outline the key updates to these imperatives and then spend the balance of my remarks, taking a deeper look at the first.

Our first imperative, shifting from a banner mindset to a brand mindset, remains foundational. Over the past year, we strengthened brand positioning across the portfolio. which clarified our path toward building distinct, highly desired brands. In fiscal '27, we will advance this work.

Our second imperative, focusing on our core to earn the right to expand into adjacencies, delivered results this year as our core brands drove the majority of growth. In fiscal '27, we will leverage our scale to unlock additional portfolio value. This includes improving inventory turns, managing exposure to tariffs and commodity volatility and enhancing pricing architecture to reflect each brand's customer profile. Our scale also positions us to win in growth avenues such as services and with an integrated diamond strategy.

Our final imperative included restructuring the operating model to support strategy. In fiscal '27, we will continue to strengthen our operating model through strategic real estate actions, ongoing brand portfolio optimization and developing a higher-performing organization to ensure opportunity for our team and bench strength for our future.

Now I'd like to drill in on shaping distinct and coveted brands. In fiscal '26, we placed an outsized focus on our 3 largest brands that represent roughly 70% of revenue. For fiscal '27, we're sharpening our go-to-market strategy for these brands and taking action to evolve assortment and product design and elevate the customer experience, both in-store and online.

We're also transforming our approach to marketing to support these efforts. A critical step forward is enhancing the customer experience through redesigning Kay, Zales and Jared websites. While we operate an effective platform, we recognize that the front-end experience needs improvement.

The redesign for each of these brands will provide customers with a more curated selection informed by their behavior with improved navigation. Our site refresh will better align to a purchase journey that is emotional and highly considered through more intuitive features and design, enhanced product discovery and improved storytelling. We expect this to be complete by Q3 in order to take full advantage of the holiday shopping season.

Additionally, we expect to implement a new content management system next year that will provide further improvements. Moving to the in-store customer experience. We've seen an incremental low single-digit comp increase from renovations. Building on this performance we're accelerating renovations to touch 30% more stores this year, equating to nearly 10% of the fleet with a particular focus on brands and markets that represent the best opportunities.

These efforts are integrated with marketing campaigns and product activations. As we look to further differentiate our brands and experiences both in-store and online, we'll also be focusing on distinct product design and unique assortment architecture. Along with more frequent and relevant new product, we will continue lowering complexity and duplication through SKU rationalization.

These actions are designed to focus on a more productive assortment that leads to other operating efficiencies, ultimately leading to a positive contribution to margin. Our efforts to further distinguish each of our brands will be supported by a transformation of our marketing approach. At the center of this work is a renewed focus on brand-relevant content and storytelling. This is a full funnel strategy supported by 3 key levers.

First is maximizing key demand periods; second, is generating an amplifying brand moments; and finally, is growing a stronger and more engaged social media presence. Further, we're taking a more disciplined approach to performance metrics, which will increase accountability to facilitate change faster and create more impactful decision-making.

To be clear, this is about an increase in impact, not an increase in budget. This evolution of our go-to-market strategy built on enhanced customer experience, online and in-store as well as marketing transformation is designed to drive brand consideration. We believe that each point of increase in purchase consideration across Signet's brands equates to $100 million of revenue.

Summarizing my key takeaways today. First, as we announced last week, we delivered at the high end of our fiscal 2026 guidance range amidst unprecedented tariffs, record gold costs and a measured consumer while generating 20% more free cash flow on a simplified operating model. Second, as we started with positive sales momentum, fiscal '27 will focus on accelerating core performance through sharper brand differentiation, broader customer reach and a more seamless in-store and digital experience.

With that, I'd like to turn it over to Joan.

Thanks, J.K., and good morning, everyone. Before discussing our fourth quarter results, I'd like to comment on our efforts to unlock portfolio value and further achieve benefits of scale. We've completed a review of our portfolio and have identified synergies as well as opportunities to integrate stand-alone smaller brands into brands of size to augment core performance and to focus on brands with higher growth potential.

Previously, we were supporting 8 distinct independent businesses. We've changed our focus to a portfolio of brands with 4 core engines. This has impacted the way we focus resources, including capital and time. These changes are leveraging scale on the back end more than we have historically and sharpening focus.

To this end, we are aligning select brands within our portfolio to prioritize our larger consumer brands and amplify growth opportunities, maximize the benefits of shared resources and expand customer reach. all in an effort to drive sustainable comp performance. More specifically, Blue Nile plays a distinct role as a premium brand serving a broader age range with a more affluent customer. We are evolving Blue Nile to achieve an elevated luxury position anchored in the enduring value of natural diamonds.

This allows Blue Nile to distinguish itself at the highest end of the Signet portfolio, expanding our customer reach among households with higher income without diluting accessibility to customers across the portfolio. To support our growth aspirations for Blue Nile, we will leverage the James Allen brand as a proprietary collection and transition complementary products and styles to the Blue Nile website.

Over the second quarter, we will be sunsetting the jamesallen.com site. We also see additional opportunity for other brands within the portfolio to utilize the custom capabilities and technology of James Allen. Further, the Rocksbox private label fashion assortment will become a distinct proprietary collection within Kay. Rocksbox will operate within the Kay team rather than as a stand-alone brand. We expect a bottom line financial impact from this transition to be minimal.

Rounding out our portfolio, the U.K. brands and Peoples brands are performing well and are generally self-sustaining. At this time, we believe the cash generation from these businesses as well as the potential tax cost of exiting these brands significantly outweighs any potential sale proceeds.

Finally, we continue to evaluate the long-term role of Banter, our high-margin and capital-light brand, which is currently positioned as mid value within our portfolio. To reinforce this brand mindset, we are further centralizing support functions that operate inside brands today to provide for brand leader focus on go-to-market priorities. This change will be most pronounced for digital brands and Diamonds Direct, particularly in our contact centers as well as in the fulfillment and technology teams.

Additionally, to better achieve benefits of scale, we have implemented an integrated diamond sourcing process, which will provide better management of our virtual diamond marketplace, drive further vertical integration and elevate the natural diamond offering available for our brands, particularly Blue Nile.

We've also established a fully integrated jewelry service network that is now in a position to provide additional capacity for custom services, B2B repair and repair jewelry purchased from other retailers. This will build on the momentum we've generated in recent years as well as continue to support the growth of our service plan program.

Operating model optimization also focuses on maximizing the performance of our fleet as we reduce exposure to declining venues and target underpenetrated high-growth trade areas. This strategy includes a learning agenda this year to test new formats, fixtures within formats and new experiential designs. Our portfolio review, centralization efforts and fleet optimization we believe will further deliver operating efficiency and free cash flow conversion.

Now turning to the quarter. Revenue for the quarter was $2.3 billion with a comp decrease of 0.7%. Excluding James Allen and the net impact of weather, comps grew 1%. November and the first half of December was the slowest period of the quarter, down around 3%. We implemented broader promotions ahead of our high-volume days in December to deliver a positive performance in the back half of the month with further improvement in January.

By category, this quarter's results reflect mid-single-digit comp growth in services. and low single-digit declines in bridal and fashion. AUR grew 5%, up in all categories.

Moving to gross margin. We delivered approximately $1 billion, down roughly 60 basis points. We saw a 30 basis point decrease in merchandise margins to the prior year. reflecting higher commodity costs and tariffs, partially offset by assortment architecture, pricing and growth in services. Cost reductions allowed us to achieve the high end of our adjusted operating income guidance of $327 million for the quarter.

Excluding incentive comp reset, SG&A was roughly flat in rate and dollars. Inclusive of the incentive comp reset, SG&A rate was up roughly 80 basis points. For the full year fiscal '26, comp sales grew 1.3%, gross margin expanded 30 basis points and adjusted operating income grew to $515 million while delivering 7% adjusted diluted EPS growth.

Turning to the balance sheet. Inventory ended the quarter flat to last year at $1.9 billion. Cash ended the quarter at $875 million with total liquidity of roughly $2 billion and an undrawn ABL. As a reminder, we consider an excess liquidity at the end of the year over $1.5 billion as available for returns to shareholders or further organic investments. Free cash flow for the year was approximately $525 million, up 20% to last year on higher earnings, lower cash taxes and working capital efficiency.

As a reminder, our capital allocation priorities are organic growth and return of excess cash to shareholders while maintaining a conservative balance sheet. We repurchased $205 million or more than 3 million shares in fiscal '26 at an average purchase price of roughly $66. This includes approximately $27 million or nearly 300,000 shares in the fourth quarter. The total repurchases for the year represented more than 7% of shares outstanding. The remaining repurchase authorization at the year-end was approximately $518 million.

Now turning to guidance. We are coming into the year with positive momentum and traction in our core brands. The high guide for the year assumes a fairly consistent comp performance quarter-to-quarter while the low guide allows for flexibility in consumer spending.

For the full year, we expect the comp sales range to be down 1.25% to up 2.5% with total revenue between $6.6 billion and $6.9 billion. Total revenue this year will be impacted by $60 million to $80 million of lost sales contribution from the transition of James Allen. Also, we plan to exclude digital brands from our Q2 through Q4 comp sales reporting as we repositioned both James Allen and Blue Nile.

Further, our revenue guidance assumes approximately 100 store closures, leading to a low single-digit decline in square footage. We anticipate merchandise margin rate for the year will be relatively flat at the midpoint of guidance. We believe the combined incremental impact of tariffs and commodity increases is lower than the headwind we mitigated last year. We also have a longer lead time to address these headwinds with the following actions: select pricing actions related to commodities, reduced off-holiday discounting, increased LGD mix, assortment architecture and to a lesser degree, benefits from gold hedges.

We expect adjusted operating income between $470 million and $560 million. We expect adjusted EPS between $8.80 and $10.74 per share. At the high end of these ranges, we expect to leverage our fixed cost base to drive operating margin expansion. Finally, for the year, we expect $150 million to $180 million in capital expenditures, inclusive of a somewhat higher spend on our real estate compared to last year. This includes over 200 renovations and up to 20 repositions as well as up to 10 store openings.

For the first quarter, we expect comp sales range to be up 0.5% to 2.5% with adjusted operating income between $66 million and $77 million. We expect merchandise margins to be somewhat lower in the first quarter, generally offset by leverage in SG&A.

Before we turn to Q&A, I'd like to thank the team for delivering strong progress in the first year of our Grow Brand Love strategy as well as driving momentum to start fiscal '27. Now I'd like to turn the call over to questions.

[Operator Instructions] Your first question is from Paul Lejuez from Citigroup.

On the gross margin line and just comments right there, Joan, lots of moving pieces. Maybe talk about the headwinds and tailwinds in 1Q. I think you said 1Q would be lower. And which pieces will change as you move throughout the year? And then maybe, J.K. can you just talk about what worked over Valentine's Day, how that compares to what worked during the holiday season? And what were the learnings from this past holiday that you'll apply to 2026?

So to start with the GMM rate for the year. At the midpoint, what we said is that it would be flat. As we look into the first quarter, we would see a little bit more pressure on the GMM rate as we work through the wrap of Q1 -- in Q1 of tariffs as well as the higher commodity prices. What we -- and we will continue to work with our assortment architecture and some of the gold hedges and so forth as we progress through the year.

But the first half definitely has a little bit more pressure, and we believe the back half begins to neutralize in terms of the GMM impact related to tariffs and commodities, but continue to do much of the same work that was successful for us in the back half of fiscal '26 to work to mitigate the impact of these costs.

Thanks, Paul. I appreciate the question on holiday and really Valentine's Day. I mean our business overall continued to strengthen as we came through the quarter. When you look at Q4 in particular, the softness map to what we saw more macro as consumer softness in really November and the first part of -- first week or 10 days of December.

As we got to the peak holiday selling period for us, we saw positive comps in our business, and that momentum continued to build through January and not only carried through Valentine's Day, but has carried through the quarter. So one of the big learnings, I think, for us from the prior year was really how to focus the assortment over those peak selling days. That actually worked well for us at Christmas, and I think it was part of what really led to building momentum through the quarter.

We certainly carried that muscle memory into Valentine's Day, and we're better positioned, and I would actually say better balanced across all of the brands, which is maybe a little different than where we were a year ago.

From a learning standpoint, I do think despite the macro consumer malaise that was going on with consumer sentiment and all of the noise in November this past year, I do think we recognize that maybe the quarter kind of falls into 3 distinct selling periods for us. And we've been pretty good at post holiday and have built on that momentum. I think we got better this past year at the peak selling days, those 10 days and the key price points leading into Christmas where I think we got an opportunity to sharpen our game and how we're looking forward to plans for this year is the early selling period in November, absent that noise is a little bit different consumer.

It's a little bit different price point and a little different selling model digitally than what the balance of the year looks like. It's a little less assortment driven, a little more key item driven. And I think that's one of the takeaways that we look at that we think can help us strengthen the opportunity for Q4 moving forward.

Got it. And Joan, just one quick follow-up. The tariff assumptions that you used for the guidance this year and maybe India specifically?

Generally speaking on that, for the year, we believe that the tariff and commodity increases are lower than the headwinds that we experienced last year that we mitigated and we have a longer lead time to address with some of the balanced actions that I talked about in my prepared remarks.

So I believe that we are in a position to offset a good portion of it. But in the guide itself, we would expect GMM rate will be flat at the midpoint with some decline at the low end of guide.

Are you assuming rates equal to the pre-Supreme Court decision? Or are you building in where we are now?

We're building in where we are now. And essentially, it's a mid-teen rate that we are looking at for the balance of the year, the impact to margin with that is something that we're able to -- we believe, to manage to a flat position at the midpoint.

Your next question is from Lorraine Hutchinson from Bank of America.

Could you give us an update on the lab grown diamond business? How did it perform over holiday for both fashion and bridal? What did pricing look like for LGD specifically? And then what's your outlook for the year on this product?

Yes. I mean I think we've gotten to the point where we see a distinct market for both, Lorraine. And if you look at the industry more broadly over the course of the year, actually it was growth in both natural and lab grown at an industry level. Now I would say in natural, that skews more towards higher end and is probably more of an AUR story. That's certainly what we saw in our business and where we see there to be greater opportunity.

Lab-grown diamond fashion in particular, continues to grow at a higher rate. And I'll remind you that a lot of that is because diamonds are less penetrated in the fashion category. And so the -- maybe differently than we've talked about center stone based bridal and engagement business. In fashion, there's not a lot of center stone presence period, let alone diamond. And so the opportunity for growth there, we continue to see as outsized relative to the rest of diamond jewelry.

And it's because it's stretching the category. But to be clear, as we look at this year, we really see an opportunity for growth in both parts of the business. We see them as distinct value propositions for customers that even overlap with the same customer, depending on use case, let alone being a little more price point sensitive, I suppose.

The only other thing, I guess, I would add kind of following up on the other part of your question, what's happened with the pricing, we've seen it really be stable, I guess, would be the word that I would use. Not a lot of volatility. There's actually periods during the latter part of the year where we saw the cost side of both actually see some slight increases.

And so I don't see any -- I know one of the questions is how do we think about deflation or cost pressure on, frankly, either side of that equation. And we really have seen stability, both on the wholesale cost side as well as on the retail architecture with us and competitors and feel like there's a little more normal run rate in that business today.

And what was the penetration of lab grown for holiday in fashion and bridal?

The penetration for lab grown in total, we're closer to half and half when you look at -- we're under 50% for bridal. When you look at lab grown fashion, it actually grew to just north of 20%. And on the year, that's higher than what the run rate was for the year. The year coming into it was probably setting at about 15%.

Your next question is from Randy Konik from Jefferies.

I guess, Joan, for you, I think you made a comment in the script that said something in the effect of $2 billion of liquidity, I think you like to have $1.5 billion. With the balance sheet having no debt and near $1 billion of cash, and it sounds like this year, you'll be generating another banner year of free cash flow, while you stepped up the buyback in '25 through '24, and it looks like the dividend is increasing. Could we expect, given that comment of $2 billion versus $1.5 billion, could you get even more aggressive with share repurchases ahead?

Just how do you think about that cash flow and putting it to work? And is there anything in the horizon over the next few years that would prevent the business that looks like it's becoming very, very stable and predictable from generating around $0.5 billion of free cash a year going forward into perpetuity? I just want to get your thoughts there.

Yes. Thanks, Randy. So as you mentioned, we had a $2 billion liquidity at the end of the year. It's $500 million over our target and it does provide some dry powder for us for organic investment, and we talked about the capital investment in our fleet. J.K. mentioned the website redesign and some of those technology investments, there will be some investment with the Blue Nile transition as well.

So from an organic investment, we'll continue to invest in our fleet, the strategic priorities and frankly, invest in capabilities that are going to support the go-to-market strategies of our brand. And next is we want to maintain a conservative balance sheet, but we also find it very important to return capital to shareholders.

And as we do -- as we look forward, we believe shares remain attractive with an implied 15% free cash yield on last year's free cash flow. So there's nothing in our way to continue to exercise that capital priorities I just outlined. It's part of our capital allocation priorities that are important. And so we'll continue to do that.

Year-to-date, we've repurchased $45 million or almost 500,000 shares already through March 17. So clearly, it's something that we intend to engage in this year. and we have a $518 million or so of share repurchase authorization available to us at the end of the year.

Got it. And just on the, I mean, let's say, on the horizon, do you feel like you're at a place where we can generate this amount of free cash annually going forward? Are there any kind of weird impediments in the way that would prevent that?

We don't see anything in our way. We target a very healthy free cash flow conversion. And what I would say there is that the components of free cash flow that I articulated in my remarks, Randy, included strong earnings contributing to that as well as working capital efficiencies, which we -- that we came in flat for the year on inventory. We continue to drive -- we were flat on turn this year coming out of the fourth quarter. And so we continue to drive those levers as well as really working with our strategic vendors to maintain a healthy terms that can benefit both of us.

Great. And last question, I guess, for J.K. You talked about SKU productivity or looking at product architecture and kind of rationalizing the number of SKUs, it sounds like across the different brands. Can you give us a little bit more perspective on, a little quantification on where you're going to do that, how much, how you think it will help drive the business, improve inventory turnover? Just give us a little more color there would be very helpful.

Sure. Thanks for the question, Randy. I just think the more we can leverage scale across the business on those things that are commoditized, the more efficient we can be with inventory, the more we can navigate, and frankly, some of the moving parts that are the world we're operating in today.

One of the things I'm proudest of as it relates to our team this past year is the work to simplify our operating model really put us in a position to continue to raise our guide in the face of one hurdle after another relative to tariffs and cost increases, et cetera. We not only became a stronger business, we actually were a better partner to our suppliers, able to work better together all with a more focused inventory assortment.

So when I look at it, I still think there's room for us to go. We reduced on the order of magnitude of 20-ish percent or so SKUs out of the Kay assortment moving forward as we sit on a spring floor set today. And I think there's still opportunity within a business like that.

I think the other opportunity that may not show up in a total SKU count number, but where we do have items that are a little more commoditized getting to a similar base where we're able to pull from one pool of inventory across multiple brands will make us that much more efficient, will help us leverage cost. And ultimately, that adds up to margin rate opportunity for us moving forward.

I would just add to that, that the core engine discussion and really focusing on the 4 major brands, including Blue Nile, will also help us as we roll a smaller brand like Rocksbox into Kay and James Allen into the Blue Nile website and Diamonds Direct falling under the accessible luxury family within our business is also going to help us ramp with the SKU rationalization aspect of it and continue to help us improve our turns. 0.1 turn is worth $100 million to us and an improvement is worth $100 million to us in free cash flow.

So the teams can really wrap their mind around what that can help us drive in our business because it's going to provide room to bring in fresh receipts and support our fashion strategy as well.

And I think the last point, I guess, I'd make is I talked about the places where we should work from a shared pool of inventory, this work also helps us eliminate overlap. Candidly, even as we look at some of the challenges with brands like Blue Nile, James Allen, the number of SKUs that may overlap and set in both places we think causes confusion. It certainly makes us less efficient as a business.

We're not leveraging the flow-through with each of the brands at the rate that we should. And so there are some known costs, but there's also some hidden cost opportunities as it relates to margin, and frankly, top line revenue that come with a more focused assortment.

So we've seen that work. We're seeing the benefit of it, and we -- I think what we're doing to further realign and focus across these 4 main fronts of our business, if you will, will, to Joan's point, I think it's going to help us be that much better.

Your next question is from Ike Boruchow from Wells Fargo.

Two for me. I don't know if this is for J.K. or Joan, but can you just talk about some merch margin understanding what happened in the fourth quarter? You had to get a little bit more promotional when things were off to the tough start. But you kind of mentioned merch margin should stay down in the first quarter. It sounds like Valentine's Day was good, and you guys are positive.

Just can you kind of walk us through the puts and takes of selling margin, what you're doing in the first quarter. And then based on the year, it sounds like you're expecting things to improve from here. Just sort of trying to understand that better.

Sure. Let me -- we'll probably tag team it, to be honest, because I totally understand the question. I would say, at a macro level, for Q4, part of the story is promotion, part of the story is tariffs, if I'm really trying to oversimplify this.

I think the reality of all the moving parts and in particular, the way that inventory flows to land for the holidays, we talked about this a bit before. we land goods, we set a base retail price, and then we have follow-on replenishment that comes to give us depth for the holiday. And that's always the way it works. We need to land goods early to establish price because we can't do anything promotionally unless we've established that baseline price.

Ike, one of the things that happened this year is the goal line kept moving in the sense of tariff rates changed as we were going through that process. So part of it is the starting point you established in terms of the strategy going into the holiday and the fact that there wasn't a stable baseline cost to establish those retails against.

And then to your point, when those costs kept moving, we also found ourselves in a situation where the consumer more broadly was softer in November. And the blunt instrument that we really have to flex during that holiday time period is promotion. And with as many broad off promotions as there are in our business, the ability to be as surgical around mix with all of those variables is just a little more challenged in the period.

So I would say it's partly a choice around promo and partly the case of navigating a race where both the path and the finish line kept moving around a little bit on us. And I think we're still working through that. Obviously, there's still some moving parts as it relates to tariffs. But I'll also remind you of Joan's comments. I mean, we did a nice job of, I think, navigating that unknown this year. We developed that set of muscles as it relates to flexibility in our supply chain and the agility to move, whether it be country of origin or think about the buy windows that may make sense or how to consolidate and work on cost, we'll certainly look to those things as we move forward.

The benefit or the confidence that we have as it relates to margin, particularly for the year is we've got kind of roughly half the size of headwind, and we've got significantly more time to be able to manage it. So I think we're well positioned to do it.

I think any time you've got that kind of external macro, there's always the risk of some lumpiness and how it flows through. But I'm also really proud of what our team did to manage it and the way that we've built our plan and our business to be able to protect the bottom line and manage a little bit of that noise in gross merch margins, I think, really positions us well for this year.

Got it. And then again to both of you, just more of a modeling question, so maybe for Joan. Just so the comp revenue spreads like 10 basis points in the first quarter, you're transition -- you're sunsetting James Allen and then removing Blue Nile from the comp base. So that spread widens the rest of the year.

Can you just kind of like -- just so we all kind of know like the puts and takes on how everything should flow compress revenue for the year? Can you just kind of let us know how this all should take place?

Sure. So as we noted, Q1 will have the impact of James Allen in the comp. And as we progress through Q2, 3 and 4 because of the amount of effort and change and repositioning with the Blue Nile brand and then the sunsetting of James Allen, we're pulling them out of comps as we progress through the year.

The impact of James Allen was roughly 1 point in Q4, a little over 1 point and the impact in Q1, we would expect to be similar as we look through the balance of the year, like it's early to kind of forecast what we think the impact would be, which is one of the reasons why we want to take it out of the comp but what I mentioned is that $60 million to $80 million comes out of revenue, and that would likely be $20 million to $30 million of top line revenue over the course of the balance of the year.

So if that helps to mention it, that's how we're thinking about it internally. And of course, working to transition as much volume as we can from the James Allen brand over to Blue Nile where appropriate with the complementary SKUs and the proprietary James Allen selection, the teams are doing a fantastic job in navigating this here for us in the first quarter and then leveraging the James Allen capabilities and a brand -- the tip of the spear there will be with Kay where we can see more custom product coming in the Kay brand because they're now -- they will be able to more so in the back half of the year to leverage the custom capability that James Allen provides. So that's the dimension of the revenue. That's how we're thinking about it.

And just to bear in mind, go ahead.

I'm sorry. Can you just help us, can you quantify just the size of Blue Nile since you're removing it from the comp base for the year, just so we know how to kind of model that impact?

Yes. What we said is that it's $60 million to $80 million coming out. Last year, the total revenue was roughly $150-ish million -- Blue Nile, sorry, the question you asked. So it's $350 million for Blue Nile. And James Allen is what I had articulated. So trying to move as much of James Allen over to Blue Nile as we can and then send it into the other brands.

Your next question is from Jeff Lick from Stephens.

Congrats on a great year and a great start to this year. J.K. or Joan, I was wondering if I just kind of formulate a simple mental model of, this past year, you generated $687 million of EBITDA on $6.8 billion of revenue. and then you take, call it, the $40 million of kind of still wrapping around from the Grow Brand Love that you still have of the $100 million. And then if you just use your math of the SG&A that you disclosed, that implies that incentive comes about $17 million, so call it $57 million.

And if you add that to the $687 million, that gets you to about $744 million of EBITDA, just -- so I just think about it if you just do what you did last year, you come pretty close to making your high end of your EBITDA guidance. And obviously, you guys have a high end of your revenue guidance at $6.9 million. So could you just walk through the puts and takes of that model and where I might be off or what's going to be harder, what's not going to be as hard?

Yes. So on the full year, we expect -- from a modeling perspective, we expect at the midpoint margins to be flat. And we see on the high end of the guide, a modest increase in merchandise margin and at the low end, a modest decrease. Where we begin to get some leverage is in the SG&A and believe that what we've been able to do there is with the wraparound of the cost savings in the front half of the year, which was roughly $40 million, $15 million in the first quarter, Jeff. And then in the second and third quarters, we tend to see more of that flow through because some of it relates to contracts on that.

But we feel very good about the $40 million SG&A ramp. We also, from a business perspective, the way that the brands really position their plans for this year is we focus on comp growth, but we focus on flow through. And each brand must deliver different levels of flow-through based on their -- the type of product they sell. So brands that sell more loose goods as opposed to finished goods will have a different margin structure, merchandise margin structure than those that don't.

So we balance flow through, and we feel very good about how the businesses operate and the discipline in the business on the SG&A side. So really leveraging SG&A here in the face of what is more of a flattish margin. for gross margin for the year is the structure of our model as we look at fiscal '27.

The teams are very well aligned. I'd remind you that on a slightly positive comp sales, we can leverage gross margin. On a low single-digit comp sales, we leveraged SG&A and EBIT. So that's the structure that our teams operate within, and we're all aligned.

And then just a quick follow-up, Joan, just a point of clarification. Did you say 0.1 increase in turn? I mean because I think you guys are a little under 2, so call it 1.9, going to 2, that would equate to a $100 million increase in free cash flow, which, I guess, just given what you're doing -- what you did last year, that would mean a 20% increase in free cash flow. Is that roughly right?

Yes, as we begin to turn our inventory, now doing that is in the face of inventory transition as J.K. was articulating. What the teams are doing is really leveraging that muscle to bring in and transition the assortment. So -- but yes, that's what the math would say.

Great. Best of luck in 2026.

Thank you.

Thank you.

Your next question is from John Keypour from Goldman Sachs.

Just a quick bookkeeping question. You'd mentioned sourcing and ops coming out of the UAE. Just given everything that's happening, just wondering if you're seeing any impact or if you've been able to pivot fairly quickly. And then tacking on to that kind of similar topic,anything you're seeing from a cost of crude in terms of how maybe sourcing freight, that kind of thing is flowing through?

Yes, I appreciate the question. And the short answer is no, we really haven't seen anything. The longer answer is, on the supply chain side, the -- I mean we don't have tons of trailers moving back and forth. I mean, we got high-value inventory, and it's pretty small cube. So I've worked in every category of retail. I can actually say this is first time that I have not actually looked at the price of oil and worried about what freight cost was going to be to me from a supply chain standpoint.

So we're in good shape there. I would say more broadly on the disruption front, we have built a much more flexible supply chain in really in advance of all of the mitigation efforts around tariffs. And so the flexibility and redundancy that we've built in to being able to source goods from multiple countries, including increased flexibility here in the U.S. around what we choose to cast or may finish here is stronger than where we were a year ago, and we're really well positioned.

I say all that, we also haven't seen any disruption as it relates to goods certainly for Valentine's Day, for Mother's Day receipts. I mean, any of those countries that may be in that sort of flight path or adjacent to any of those areas, we've actually been able to manage it all fine. So nothing to call out.

I know there's been a few articles that have surfaced. But to be honest, we're not seeing that in the industry either. So I think we're really well positioned to navigate the environment we're operating in and don't really see it as an issue.

Got it. And then just a follow on. You had mentioned, I think, last week that Zales was a little bit weaker out of the big 3. I'm just wondering what you -- what's driving that and if that's evolved at all? Or I guess, where you see that kind of panning out for the year?

Yes, I appreciate it. Actually, the good news is we've -- the Zales business, I think, has refocused. We've seen strength through Valentine's into the quarter and return to more of the normal run rate within that business. I think part of the challenge of Q4 was a little bit more distorted exposure to a middle income and lower income customer in November. And that's certainly I think, part of the story.

I do think there are some things as we work through assortment transition in that business where we could focus key items around selling period better and that there are some adjustments that we can make that will actually strengthen the business that maybe got exposed by some of that consumer pressure.

So in particular, I think the one thing we learned was we built an essentials program that really was less promotional and a little more baseline price driven, and that works really, really well during the year. But that gift-giving customer that plays at the lower end price points in our business really does look for promotion during the quarter and building a little more promotional assortment to supplement what we do on our base assortment, I think, is something that will actually strengthen the holiday selling period for sales, absent all the other macro stuff that was going on.

Your next question is from Mauricio Serna from UBS Financial.

Great. Maybe could you start by speaking on what your quarter-to-date looks like relative to your guidance for the quarter? And then as you look into your outlook for the year, like how should we think about bridal versus fashion growth? And same question, how are you thinking about AUR versus unit growth?

So we're off to a really good start on the top line this year in the first quarter with the comps that we're seeing at Valentine -- that we saw at Valentine's Day continue through the quarter. All of our core brands and most of our smaller brands are running plus comps quarter-to-date.

James Allen, as I mentioned earlier, is -- continues to be compressing the comp in the quarter. So we feel very good about what we're seeing in the quarter and believe we have real momentum coming into the year. I think for the year, as we think about bridal and fashion, on a comp basis, I mean, we really think on the high end, we're sitting at -- looking at a low single-digit sales comp and fashion similar.

And we continue to expect to see AUR up over the course of the year, which -- with some compression on unit performance with that. So -- we are, we believe, positioned to start the year for good selling within our assortments and believe we have the inventory in the -- in most of our brands in the right composition to drive business.

Understood. And then just a follow-up on maybe specifically on holidays, given your learnings on what happened with last fourth quarter. How are you thinking about growth in holiday when I look at your low and high end of the guidance?

And also just digging into one of your comments on the merchandise margin. You talked about off holiday promotional strategy. Maybe could you just speak on like what -- if promotions are going to be either a tailwind or a headwind this year? And maybe how does that vary according to maybe like which quarter we're in, maybe more promotions in Q4? Just thinking like, yes, like promotions, it's like a tailwind or a headwind for this year merchandise margins?

So the comment we made earlier is that we -- our guide assumes a fairly consistent quarter-on-quarter comp for the year and at the high end -- at the low end, we've given ourselves some room for -- some flexibility for the consumer macro. The comment that we made around discounting is really off-holiday discounting, recognizing that to J.K. comments that holiday -- high selling at holiday is different than the balance of the year for us.

So we see the opportunity throughout the 10 months of the year to reduce discounting, take select price actions as it relates to commodities, which we do throughout the year and mindful of compliance on rest periods and so forth, and then really leaning into the assortment architecture, which includes mix of products that carry a higher margin.

Fashion in -- with LGD is one of those opportunities and continues to be so, and the teams are very focused on a balanced assortment there at the right price points. And then as well in the natural diamond space, we see opportunities across price points. And so we'll be managing architecture and then the assortment that way to really look at the year with a -- at the midpoint, we're looking at flat margin with trying to leverage the SG&A line to mitigate any pressure that we might see on our gross margin.

Your next question is from Jim Sanderson from North Coast Research.

Just following it up on the previous discussion about average unit revenues and unit volumes. Can you walk through the math, so to speak, for your expectations for the bridal category with respect to units and AUR?

So what I mentioned is that we saw at a comp level, bridal would be a low single digit up or down for the year. that's the guide assumption underneath our top line assumption. And then units would be at the high end, given the AUR growth, we would see a low single-digit decline at the high end and a potential of a mid-single-digit decline, excuse me, at the low end of that guide.

Understood. And just wanted to shift over briefly to your real estate portfolio strategy. You've got low single-digit declines in square footage. But how does that convert or play a role in the revenue guidance you've gotten? And is there some recapture there from remodels as well? Just how we should think of it?

Yes. I mean, J.K. mentioned it in his prepared remarks that we're seeing nice lift in renovation plan that we've been engaged in. So we've really increased that to include 10% of the fleet this year really targeted towards growth markets, which in an effort to really drive as much increment in top line as we can, those investments are focused on the brands that are furthest along, which Jared is -- has a significant investment this year.

And we're also investing in Kay in markets where we really want to protect and grow volume. So those are reflected in our view of revenue for the year. I think that and as well as the low single-digit decline in square footage is also reflected, Jim, in our outlook.

Yes, it is. The only thing I'd add is on the low single-digit decline in square footage, it's disproportionately weighted to kiosks. I mean these are -- it is a much lower impact as you think about revenue overall and pretty focused in that regard.

So I think really thoughtful strategy to kind of the places that are, frankly, not productive and then to focus the investment in the areas where we can get outsized returns and know that there's more opportunity for growth.

All right. And that will be -- those closures will be evenly spread throughout the year for the most part. So is that the right way to look at that?

Well, they'll be invested pre-holiday. We want to it all done before holiday, yes.

Between now and Q3, I would say, is the way to think about it, Jim.

All right. Understood. Last question for me. You've got a very strong cash position balance sheet. Any change in philosophy on M&A as you look to opportunities going forward?

No, not at all. I mean we continue to really see the opportunity to create value balance between 2 decision points. First and foremost, we're going to continue to look for ways to invest in organic growth in the business and gain some leverage and strength against a stronger core.

And as Joan dimentionalized in her comments, we also see opportunities to return capital to shareholders via buyback and our balance in those 2 things as we look forward, but also see some great opportunities for organic growth ahead.

There are no further questions at this time. I will now hand the call back to J.K. Symancyk for the closing remarks.

Okay. Thank you. Listen, folks, I'll close the way that I started today, and that's by thanking our team. This was a year that tested agility and discipline and our people delivered, staying focused on the quarter, executing Grow Brand Love and living our purpose of inspiring love.

I'm so proud of what our team accomplished and the momentum that we've built heading into fiscal '27. Thank you for your time this morning, and we look forward to speaking again next quarter. Thank you.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.

Paul Lejuez, Citigroup. Thanks, everybody, for being here. I'm here with the Signet management team, JK Symancyk, CEO; and Jackson Speake, Global Head of FP&A. Thank you, guys, for being here, supporting the conference.

You've released some preliminary results for the fourth quarter. Today, first time that we've heard from you about this past holiday season. Maybe start there. What can you tell us about the quarter and how it all played out?

Yes. No, I appreciate it, and thanks for the opportunity to be here. I think the benefit, honestly, is we'll report final numbers next week on the 19th, I think the chance to be here and talk a little bit about the quarter, not only Q4 but also quarter-to-date, what we've seen at the start of the year is nice, which also sort of frees us up, cliff hanger to spend a little bit more time talking about fiscal year '27 guide and strategic priorities next week when we get into the final numbers. But overall, feel good about the quarter, particularly given where it started. I mean I think as we reported our Q3 numbers, we were pretty deep into November and had it behind us and obviously, consumer had a bit of a hiccup in November. And I think like a lot of us, we found ourselves in a spot where a little bit of a trend change from where we were.

And what we saw, though, was sequential improvement across the quarter month by month on both a 1- and a 2-year stack basis and a reaction to what started with some of the pressures around government shutdown and the pressures that we saw with lower and middle-income customers but a strong holiday selling marked by the 10 peak days of Christmas are really critical for us. So having positive comps during that window were really important. We saw that continue to build through January. Actually, like a lot, took a little bit of a hit at the end of the quarter with winter storm Fern. Actually, we're setting at a positive on the quarter actually heading into that. So a strong build. And then we've seen the business continue to perform as we've come through Valentine's Day quarter-to-date.

Within the quarter itself, I think the -- with a little bit more measured consumer environment, we did see a little bit more promotional activity. And I think that resulted -- we called out a little bit of margin give back or decline in part because we had called for a little bit of expansion. It was modes and I think we shared at Paul more to give us permission to talk about it but structurally, not a significant thing. And the nice thing is we pulled that through to the bottom line with expense management where we deliver operating income at the high end of guide. So I feel good about that.

Kay, Jared, Blue Nile, Peoples, U.K. and services, all real bright spots for us in the quarter, all positive comp. Some continued drag as you look at James Allen and weather. And then on the whole, when you look at the full year, I think our ability to navigate that dynamic environment, particularly with tariffs changing, right up till the end. I know you'll probably have a few questions about that but no way in the world we do that without the re-org that we did earlier in the year and the ability to really manage that and still perform at the high end of the guide, actually raising our guide as we go.

And then I think the other -- our focus on our core brands, Kay Zale, Jared, really performed well for us over the course of the year. We returned this business to positive comps for the full year for the first time since fiscal year '22. So I'm pleased with what the team did to deliver that. And it was really led by those core brands. We were up over 3% comp in those businesses. And probably one of the bigger highlights is when you look at the end of the year, we'll generate over $500 million of free cash flow. That is a 20% increase year-over-year on relatively flat inventory. And in this kind of tariff plus commodity increase environment, I think it speaks volumes to some of the opportunities we've leveraged as it relates to scale across the organization. So slower start as a lot of people had but good sequential improvement through and happy to see that momentum carry into the start of the year.

It's a great starting point. You mentioned a lot of things that we'll probably just jump around and touch on a little bit. Consumer behavior, what did you see just in terms of their behavior leading up to the holiday. You mentioned those 10 days leading up to Christmas. I think last year, that was a bit of a challenge for you guys have the right product this year. What do you see in terms of the consumer as they kind of got closer to the holiday and even beyond?

Yes. I think one of the learnings or realizations for me and our team is a little clear understanding of the fact that we really operate 2 businesses. We operate a fine jewelry business 12 months out of the year, and then we operate a gift-giving business during that time period. And certainly, we talked a lot about our misses at key price points in the prior holiday. And so it was a big focal point for us as we came into this year. Good news is it worked. I mean that's part of what contributed to positive comps over those peak days. I think it was harder to be able to deliver that just given the dynamic nature of what was going on with supply chain and tariffs and frankly, a set of baseline costs that were moving around a lot.

And for the most part, it flowed through really well. I would say the one thing that we look at and can draw from as we move forward is it's harder to deliver meaningful price points below $150. And so at least with the assortment architecture that we've always had. And so that disproportionately is where we felt any sort of unit velocity changes but the work in that $200 to $500 price point and $500 to $1,000 was healthy overall. And we really saw consumers respond to that. Interestingly, we also saw consumers willing to trade up in the right places. And I think that's also an opportunity for us as we look forward to this next year. I think particularly with natural diamond at higher price points, we think there's opportunity for focus and some expansion there.

And so on the whole, I think what we did see though was it did require a little bit more impetus around promo. And that, I think, is -- we're not alone in that. I think that was a little more of a hallmark of this holiday and particularly that consumer in the middle, the lower end that felt a little more pressure. And we managed that well and thankfully, did not have the drags on us that we had the prior quarter. So we were able to digest it.

Yes. Can we maybe dig into that a little bit because I think coming in, you thought merch margins were going to be up. So you said down. Was that any one particular brand or banner or price point where you had to really pull the promotional levers? And was it -- did you see it coming from the independents, other chains?

I think it's 2 things. I mean when you look at -- there's really the way that tariffs played out over the course of the year, typically, when we set price for a category, we'll take price once or twice a year, depending. Typically, we would do it, and we're in one of those periods right now. We get on the backside of Valentine's Day, and we really want to set price for the spring. That becomes important because we have to have a rest period after we set prices before we can actually promote against those prices, right?

So typically, we would set price somewhere -- we would want to have prices set by the end of September so that we're clean and clear to be able to drive promotional strategies for the holiday. I think this last year or this prior -- this last quarter, the challenge was we had -- to do that, you have to have goods landed but you may not have 100% of your -- of the receipts, right? So you've got all the SKUs received, but you may not have all of your inventory in each of those SKUs received. And in many cases, we had landed a particular mix and then we had tariffs change yet again or you had commodity costs change yet again. And so you're stuck with the prices that you've set.

We've typically aimed a little bit high but you're planning on mix so that you can promote down. And I think, particularly for a brand like Kay that -- I mean, one, we work in an industry that runs on promotion during that time period. But two, for a brand like Kay, which is really responsive but tends to live on broad percent off promotions, it's kind of a blunt instrument. You go from 40 to 50 off where you go from 40 to 30 off, like the ability to be precise if you're trying to massage what unit velocity looks like, there was a little bit of spill, right? And I think that's a function of -- that's the best way to manage a really dynamic environment.

And to the degree that you're talking about a small number of basis points moving here or there, manageable. We certainly manage it on the operating income side. I wouldn't look at it as a structural shift in our business. But I also think we learn from it and say, okay, how do we focus a little bit more on items at a price and really build a few more mechanisms for the holiday that allows us to be a little more surgical. That's one thing.

I think the other I mentioned, sub $150. I mean, as much as we are focused on key price points, you might have had a little bit of movement across some thresholds in that time period. And if you -- the item that you sold at $150 is now $199 and you're not moving the right unit velocity, you want to move. And so you make those investments. And the runway to have a full year to manage assortment architecture, I think, gives us a lot more flexibility. I do think rising commodity costs are one of those things we're going to have to manage because it certainly feel a little bit more on the lower end where gold is more of a driver of the component cost.

What are the winning categories for the holiday? And it's more of a fashion-driven period but maybe talk fashion versus bridal and if there was anything that really stood out in the assortment as being kind of the big winners.

Big winners. I mean, believe it or not, I mean, time pieces are -- I mean, the world has tried to kill that trend a couple of times but customers are coming back and particularly younger customers within fashion, lab-grown diamonds still is an opportunity for growth in large part because it's underpenetrated in the category. And so there's a lot of newness that is driven there. I think essentials in a time period where people are a little more uncertain, those jewelry box essentials, whether it's tennis bracelets, studs, I mean there is a return to basics during that time period that I think is probably not a surprise to people. I mean the same is true in apparel, footwear, a lot of our fashion categories. And then within categories like bridal, engagement, even fashion, there was growth, all AUR driven, but trade up. Those people who have affluency or have the means or just care enough around that emotional category, they showed a willingness to trade up and spend more for quality during that time period.

Less so a category too, but our services business continued positive kind of across all. So both on the warranty and repair.

Yes. I mean services contributed 0.5 point of comp in the quarter. So I mean, it continues to be a source of strength for us. And attachment rates are higher. The more you see AUR expansion, the more you see attachment rates go up but repair actually outpacing warranties as a growth driver. So strong.

Got it. And I think you mentioned earlier the different banners all performed well, maybe with the exception of James Allen. Can you talk about maybe banner performance and even like Blue Nile specifically because I think that was kind of a point of pressure this time last year.

Blue Nile moved positive. James Allen continued to perform as a drag. We'll spend a little bit more time talking about strategies by brand as we get to next week's readout. The only other one, I mean, I think we had seen we had seen greater strength out of Zales in the first 3 quarters and saw a little bit of a pullback in our Zales business this quarter. And certainly, that -- a lot of moving parts there. I think one of the lessons or one of the takeaways for us there is we really drove a business through self-purchase through the first 3 quarters and maybe we're a little too focused on self-purchase in Q4 and the opportunity to broaden the aperture and think about gift giving is, I think, an opportunity for upside for that business.

And the good news is made the adjustment, saw the same build in sequential improvement and really return to what that run rate was before as we got into Valentine's Day. So I think it is a little more of a blip. Also a little bit more exposure on the lower end with that customer compared to some of our brands. So probably felt a little more that hit in November, and then we didn't recover at probably the same rate there. But feel great about the potential as we move into this year and also about the momentum that we're building there.

And February isn't a super important month for most retailers. It is for you. You did mention a good Valentine's Day. Maybe just talk about what you saw during that important period for you guys?

What we saw was just more balanced strength across the business. I mean I think -- I do think we're in a period where AUR is going to continue to be important, expanding average unit retail and both as a function of how we're managing the cost environment that we're operating in but also covering really where the natural momentum of the category is. Time pieces continue to be strong. But all in all, I think we saw a little better balance across all the categories and the time periods without some of the peaks and valleys that we saw in Q4.

A little more brand balance to start the year, which is good.

Yes, I think that's a good add.

Is there typically a good correlation between Valentine's Day and Mother's Day? Anything that you saw during the Valentine's Day period, key selling period that influences how you think about or plan for Mother's Day?

I mean they're different. I think it's -- I think in particular, while there's not a direct correlation in performance from one to the other, they're great periods for us to drive trial, right? And so if you're thinking about a gold market that's pretty dynamic and you're trying to get a sense of what's the impact of where do I pass along price? How do I balance margin and unit velocity? And I mean that's really where we get a good read on how is the consumer going to respond whenever we get to a bigger peak. Same is true when you think about sort of key price point introductions, will a customer value vermeil over, say, a 10-carat gold program? If I want to do something different with colored gemstones and introduce a different design aesthetic or if I'm launching a new brand, it's -- those are great windows for us to drive trial on some of those new programs, both to gauge acceptance, but also to help figure out, okay, what depth should we buy this at whenever we get to a more peak -- a bigger peak selling window. That's probably the biggest driver. Anything you'd add?

No, I think that's clear.

Yes. I think that's probably the lion's share of it.

Yes. Hot topic is tariffs. Obviously, some changes there over the last couple of weeks for you guys, in particular, India is an important country of origin. So certainly some changes there. Maybe talk about what your outlook is on that front. talk about potential refunds if you might build that in, if you might assume that, that comes to you, a lot of moving pieces I know.

Well, we're importer of record on a small percentage of what we buy. So refunds are a little less of a focus in the near term for us. I mean it's largely just on direct import gold, which is less than 20% of our inventory. So -- but what we did do is reset supplier agreements and terms in this past year to more clearly define, hey, as this environment changes, how do we manage that together? What are we sharing? What do we -- what do we claw back or how do we pass that along either to the business or to the customer. And so I think when the rules of the road are determined and that -- I mean, I haven't checked my phone but -- and I don't know that we know yet. Once we settle what that game plan is, and I think we know how to work it.

I think for us, everybody is a little bit different, and I realize -- I mean, this is -- everybody wants to build a model on it or to think about what -- how to dimensionalize it. So much of mitigation efforts in our world were about moving country of origin or thinking about supply chain flexibility to help mitigate what the impact of tariff would have been. If I moved product from a country like India that literally went from 5% to 15% to 25% to 50% tariffs over successive weeks. A move might not have made sense at 15% or 25% but could be brilliant at 50%. And so unwinding -- I mean, our first priority is let's make sure we've got the right cost inventory to be competitive with the market and responsive to the consumer. And then let's make sure we flow it through to create value. I think that drove our decisions around mitigation. It will drive what our responses are, whether it's about refund or how do we flex the supply chain to move back and where might things move.

So a lot of moving parts right now but I think we -- the good news is we've developed flexibility around sourcing and supply chain that not only enabled us to manage it without calling out a bogey or lowering our guide, which is hats off to our team and our partners in the supply chain for being able to deliver that. But it also -- that same flexibility will serve us well as we figure out how to navigate this.

And to your point, I think it's more good news than not, at least if the rules of the road get laid out the way we believe they're going to be right now. And the more we know that and the sooner we know that, then I think the better it positions us to be able to plan for the rest of the year and figure out how to pass that along best.

Yes. It definitely seems like you've navigated the tariff situation well and maybe another area that needs navigation, commodities, gold and silver prices, obviously up a bunch. How have you managed through that? What are you assuming for 2026 in terms of pricing of some of those very key inputs to you guys?

Yes. On gold, we're assuming more or less where we're at today going in. We're -- as JK mentioned, still exploring what consumers will accept in terms of other product alternatives, either 8K vermeil , 10K, other types of gold. From a -- we'll get into guide next week. We have some gold hedges in place. Those on the P&L will hit a little more backload over Q3 and Q4. And broadly, our cost, we do weighted average cost, so it will start to bleed into the P&L through the rest of the year. But that gives us time also to balance the assortment with new receipts.

Yes. I think the other thing from an assortment standpoint is we, along with a lot in the industry are really thinking about what are some of the alternative material choices that we think will come in. I mean I think it's less exposure on the finished jewelry standpoint where there's stone involved because you've got more parts to play with, right? It's not just design and metal weight but the number of stones, what other materials am I using? I think when you look at a pure historic gold commodity business like chain, the question of not just what price -- I mean, historically, consumers know there's a gold market, you're able to pass along price. I think we are entering into new territory there. And so that is going to, I think, create a little bit more exploration around alternative metals, plated, bonded, vermeil, different gold purity weights.

I mean I was talking to a customer 1.5 weeks ago in a store that was trying to understand why gold would be that expensive and she was explaining to me, I've got this platinum ring and gold is higher than platinum. Let me show you the market. It's -- but I do think there's a little bit of consumer education, and there's also opportunities for us to think about design, fabrication and material a little bit differently, particularly -- I think we're particularly focused on it in that $150 and below when you think about gift giving. So that becomes a little more important as we get to Q4 but we've got the benefit of time to solve for that.

Yes, certainly. I guess maybe sticking with the navigation theme, we've got $100 oil. If I ask you last week, what your view was of the consumer, what would you have said? And now that I'm asking you today with what we've had occur over the past week, how does that maybe change your view of "the consumer"?

I mean, we talked about this a little bit last year at different points of volatility. Short-term volatility is less impactful to our consumer. I think they tend to be a little more resilient in part because it's a highly emotional purchase and it's a planned purchase. I mean, very few people are stumbling through the mall and decide, okay, today is the day I'm going to buy an engagement ring. Like there's research, there's process that goes through it. And frankly, the people who stumble through and decide the day is today, they're less plus by these economic short-term conditions.

And so structurally, it doesn't change our thoughts. I mean we'll talk about outlook this next year. I mean I do think over time, right, I mean, we monitor these things because anything that starts to reset how people plan their budgets over time can have an impact on us. But in the short term, that a blip like where we are and when I say short term, I mean, even over the course of the year, less impactful if you look back historically, a little bit more correlation on things like interest rates and home cost. And we're probably a little more focused there, honestly, because I think there's a -- that tends to align with some of the life decisions that go into engagement and some of those other things.

But even there, we've been through this cycle for a bit, and we've seen stabilization there. So I think we're -- we would describe the consumer as resilient but we also recognize there's always a breaking point. And it's part of why we try to be responsive in Q4 when we saw some signals in November.

Well said, I think that for us, it's the broader consumer health measures rather than oil.

Yes. Understood. Just thinking as we think out to '26, you've had a pretty big focus on the 3 kind of big brands in the portfolio. They've performed generally well. You've had some underperformers. Is there anything that you're thinking about in terms of, I don't know, maybe cutting ties or pulling back on investment with any of the brands or segments that have been a little bit more of underperformers and distractions, if you would -- I don't know if you would characterize them that way.

As we came into Q4, I've successfully and successively hunted this question to the start of the year, and we'll talk a little bit more about it next week. I think we spent some time reviewing. I think on the whole, safe to say that we are focused on those things that have been drags and feel there's still going to be outsized focus on core brands because they are so fundamentally tied to the overall health of the portfolio. But that said, to remove those drags from being a footnote, that's a negative. I mean -- and you can remove them 1 or 2 ways. You can think about how do they fit in the portfolio, which may be part of what we talk about in some cases. In other cases, it's what opportunities do they represent with strategic turnaround plans and how we think they can contribute differently.

And so we're focused on both. I would say for the -- to give you a little something as it relates to James Allen, which has been a really -- a pretty visible part of that drag when you look at digital brands, there's 2 parts to that business. And one is the site and the business that operates under that brand name. But the other is the set of capabilities that feed the other parts of our business. I mean there is a Diamond marketplace that runs within that engine. There's customization that runs within that engine. And so as we think about how do these pieces and parts fit together. We're also mindful of what are the benefits that may confer from a business like that, that show up in other parts of the P&L and how might we leverage them strategically a little bit differently to create better value overall.

Makes sense. And it sounds like more to come maybe we'll get more detail.

Ultimately, cliffhanger. We'll drop the other episodes next week.

All right. Got it. I guess along those lines in terms of cliffhanger, when you do give guidance, what are the things that we should be thinking about next year outside of that conversation? What are the things we should be thinking about in terms of puts and takes as we look out to '26. It seems like a lot of moving parts.

Yes. I mean I think we will we've talked about most of them. And I think this question of the puts and takes around tariffs and commodity costs and how we're going to manage them. I won't belabor those because we've talked about the levers that we'll pull there. I do think there's clearly, I think, an opportunity for us to talk about what do we do to address the first part of Q4, where we saw some softness and what might that look like. And then I think it's safe to say that the -- I'm extremely proud of how our team managed all of the curveballs that came in the course of this year and took those things that weren't in our control and then converted them to things that we could control to affect the outcome. That's great. It also takes a lot of energy and a lot of mind share.

And while I don't necessarily think the landscape is going to be any more -- I don't think everything is going to all of a sudden turn easy. I mean I still think there's probably a more dynamic environment in front of us. I do think having developed that muscle and having line of sight to some of it and knowing what we can anticipate, it does free up energy and resource for us to focus more on brand differentiation. I think as we came into the back half of the year, we made a conscious choice to slow some of the more accelerated brand differentiation efforts to manage risk, candidly. I mean there's only so many moving parts you want to have at one point in time.

And so as we move into this next week and drop those episodes, I think focusing a little more on how do we lean into each of these brands and really create sharper identities for each and what are the opportunities for growth that come out of them is a big part of where we're focused.

Is marketing a big area of focus for '26? Should we expect an acceleration?

Yes. I would say if you're looking for headings of what domains we will be talking about, whether they're next week or venturing into successive quarters, marketing is part of it. Customer experience is part of it, for sure.

I'd add on the puts and takes going into next year. So this year, we'll have some deleverage on SG&A. It's almost entirely from incentive comp, both at the corporate and store level. We're not quite at 100%, but reasonably close for next year, that's going in pretty clean. So we expect -- inclusive of advertising, we'd expect to be able to leverage SG&A on a low single-digit comp.

Yes, I do think it is probably a little cleaner set of compares overall. I mean there's probably fewer moving parts, which will allow us to actually focus on the core drivers of our business a little bit more.

Yes. Tariffs will work their way through in the first couple of quarters because the Liberation Day was in the back half of last year but otherwise, it's pretty clean.

Got it. I mean based on your performance in holiday of '24, was the issue, I guess, was those 10 days leading up to Christmas. It seems like you've corrected that this year and had some good performance. You mentioned your performance in November of this holiday period. So was that something more than just external factors that were going against you? And is that sort of the key learning from this holiday that you can improve on in '26?

I mean it was largely macro. But what I would also say is I think if you knew then what you know now, there's always choices you can make in the macro to leverage it. And I think the learning or really the area of increased focus for us is that recognition that, a, there's 2 businesses, fine jewelry business and gift-giving business. But when you break down gift-giving business, it's a little bit like a hockey game, right? I mean you got kind of 3 periods within that quarter. There is an early selling period that the drivers, the promotions are less broad. They're more focused on key items. It's just a different consumer that shops during that earlier window and the leverage points are to serve them are different.

As you get closer, broad probably works in our favor because you can leverage the breadth of inventory that you have and still offer a value proposition, but it allows you to pick what works best for you, particularly as you get a little more last minute. And then post-holiday, there's -- which is actually something our team has been pretty good at for the last couple of years is leveraging that sort of gift card cash, let me treat myself. I mean that has been a source of strength for the last couple of years. We don't want to give that ground up. I think we've focused well there but I think the breakdown of each 3 of those parts of the season represent an opportunity for us to attack it a little bit differently. And if we're doing our jobs right, then I think it adds up to some opportunity.

Sounds good. $500 million free cash flow. Is that number correct? Pretty big number. Maybe talk capital priorities at this stage. Talk about share repo. Is there anything you can say about what happened this quarter?

I think we'll provide that next week, but -- we'll finish the year above our total liquidity threshold. So we'll have excess cash available for return. From a priority standpoint, we've said the top priority is organic investment. I'd say there's probably a little more opportunity to invest deeper into our stores, particularly in the Kay, Zales and Jared in the core focus areas. And then invest in the balance sheet. We don't have any debt. The balance sheet is overall very clean. So there's not a lot of cleanup that's needed there, and then it would be returns to shareholders. We haven't called out M&A as a major priority.

Got it. And last year, I think you talked a bit about some real estate actions. Maybe just talk about how you're thinking about this upcoming year? What should we expect on that front?

Not different. I mean I think a healthy fleet overall. We -- as part of the Grow Brand Love reset, we highlighted up to 200 stores that we felt like were opportunities to maybe prune the fleet. Disproportionately, I mean, while it may sound like a lot relative to square footage, much lower percentage when you look at revenue because it's disproportionately weighted to some of the kiosks where we had multiple locations, same mall, et cetera. And no real change to that. Actually, if anything, a little more focused on where might -- we recognize we've got some investment opportunities in stores that tie to customer experience.

So as we talk about strategic priorities, we'll get into that a little bit more. We obviously a lot of test and learn but relatively high threshold on return, and we're exceeding that. And so we want to think about how we accelerate that as an opportunity to create more growth.

We also called out a reposition strategy last year, which will continue through next year. As JK mentioned, the fleet in those locations right now are pretty healthy. It's more getting out in front of where we see venues that will decline over the next 2 to 4 years and getting out in front of that.

Got it. You mentioned, Jackson, earlier, that you would achieve -- you would expect to achieve SG&A leverage on a low single-digit positive comp. Is that the right framework that we should be thinking about?

Generally, yes, once you get rid of the incentive comp noise.

Yes, actually, we're probably better -- I mean, the team has done a great job every year of strengthening that position, but actually I think we're better positioned to do that coming into this year than even before.

And then -- and what does the gross margin look like in that same sort of low single-digit comp scenario? And should we think about it in terms of an algorithm?

I don't think we're quite ready to put the margin construct out, I'd say we feel good about where we sit today on overall expansion from last year. I think there will be a little bit of lumpiness with some of the quarters with the tariff and gold wrapping a little more at the first half of the year. As I mentioned before, we've got gold hedges in the back half that should help offset some of that. So I think it will bounce but maybe a little bit up and down over the quarters.

Yes, I think that's right. I mean we're obviously not giving guide yet but I would say no change in our thought process around where the opportunities are with margin. And if anything, timing maybe a little bit different as we navigate some of the environment. But generally, I think you'll see some consistency and approach there.

Got it. Can you talk about maybe just what you're seeing on the natural side versus the lab grown in terms of costs, on the cost side for one but also at retail, what's sort of been happening?

Sure. It's interesting. I probably got asked this question more in the last year, particularly at the start of the year.

I saved until the end.

Well, no, it's inappropriately, right? It's tailing off. I mean it was the first one, and now it's like, okay, I think things have stabilized but can you validate for me? And I would say that's stable is probably the best word. I mean I -- it's -- we even sort of reluctantly -- I mean, we don't really lead with penetration numbers or any of those things because I think what we would tell you is it's -- they both are a part of our mix, right? And even with often in the same customer's jewelry box. And so the fact that there is a clear role for each. And frankly, we want both to grow is where we're focused. Penetration will still grow for lab-grown on the fashion side in large part because it's very underpenetrated, and it's not a replacement. It's not either/or. I mean this is a category extender. That still holds true and no change to that.

I think on the cost side, the lab has largely stabilized. I think the cost and profit margin side are tight enough now that there's just not as much volatility on the supplier side. And to the degree that there's any sort of give there one way or the other, it probably doesn't make it through to retail construct because we're low enough now that I think there's good stability there. We're still seeing average unit retail expansion as people trade up. We're still seeing margins hold. So no fundamental change to what that model looks like.

And then on the natural side, we've actually seen a little bit of strength. And I would also say, if I'm completely honest, it's buoyed by the high side, right? And so I think where the growth opportunity there is on AUR, higher quality natural diamonds. And as we look at our assortment, we see the opportunity to pull natural up and create interest there. We actually believe there's consumer demand for it. We see it, and we see even some evidence of that in independents. So feel good. And to the degree that there's sort of this bear versus bull argument there, the bear case is really not in play. And I think it just becomes -- at some point, it's almost like gold and silver, right? I mean it's just a part of our mix, and it's how do we plan and solve for that to meet customer demand because there's growth opportunity for both.

That's great. We are at time. So JK, Jackson, thank you for being with us, and I appreciate everybody listening in.

Yes. Thank you guys. Appreciate it.

Thank you.

Good morning, and welcome to the Signet Jewelers Third Quarter Fiscal 2026 Earnings Call. Please note, this event is being recorded. Joining us on the call today are Rob Ballew, Senior Vice President of Investor Relations and Capital Markets; JK Symancyk, Chief Executive Officer; Joan Hilson, Chief Operating and Financial Officer.

At this time, I would like to turn the conference over to Rob. Please go ahead.

Good morning. Welcome to Signet Jewelers Third Quarter Fiscal '26 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 the annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events.

During the call, we will discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as the reconciliation of the non-GAAP financial measure 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 JK.

Thanks, Rob, and good morning, everyone. I'd like to start the call this morning by thanking our team. Your efforts to date are delivering meaningful progress to this first year of Grow Brand Love while driving near-term momentum in our performance. Thank you for your hard work and commitment to our customers as we enter our critical holiday season.

There are 3 key takeaways I'd like to leave you with today. First, we delivered our third consecutive quarter of positive same-store sales and grew adjusted operating income double Q3 of last year. Second, our efforts to expand merchandise margin are delivering meaningful and sustainable results that have worked to drive operating margin expansion and offset pressure from tariffs and commodity pricing. Third, we believe we're well positioned for the holiday season with a focused assortment aligned to key categories and price points, supported by a modernized marketing approach.

Turning to the quarter. We delivered 3% same-store sales growth to this time last year. Our 3 largest brands, Kay, Zales and Jared delivered a combined same-store sales performance of 6% to last year. That reflects our intentional focus on the core of our business with growth in both bridal and fashion categories. The results that we delivered this quarter are also a reflection of our brand equity work, assortment strategy and a refined approach to pricing and promotion. Further, the reorganization under Grow Brand Love has empowered brand leaders to act swiftly on decisions that drive brand equity, fueled by a strengthened center of excellence that leverages our scale.

Building on that, I'd like to highlight a few of the more significant factors in our Q3 results. Within merchandise, we delivered growth across all categories, bridal, fashion and watches. This performance underscores the strength of our assortment architecture and ability to respond to evolving consumer preferences. In bridal, continued focus on differentiated offerings and strategic pricing resonated most from mid-tier consumers with Kay, Zales and Peoples, all delivering high single-digit sales growth or better. This strong growth was led by long-standing brand collections like Neil Lane, Vera Wang and Monique Lhuilllier. In fashion, Jared delivered 10% comp sales growth, reflecting strong performance in diamond, gold and men's jewelry bolstered by strength of recent collections like Italia D'Oro.

Alongside that, we continue to see runway in the fashion category, particularly in lab-grown diamonds or LGDs, which expanded penetration to 15% of fashion sales this quarter, roughly double last year's rate. In marketing this quarter, we are making progress on modernizing our playbook. This includes a more robust full funnel media strategy, amplified social media and digital first led content as well as brand ambassadors like Antonia Gentry and Chloe Fineman to drive buzzworthy campaigns. We continue to see double-digit growth in impressions off a low to mid-single-digit increase in spend from this updated approach. At Jared, we're using story-led marketing to drive results. This quarter, Jared launched its storied diamond collection in partnership with De Beers. This collection uses blockchain technology to track a stone's journey from its origin in Botswana all the way to its final setting in Jared's collection.

Alongside this, we premiered a diamond is born, a documentary by Academy Award-winning filmmaker, [ Luke Shake ]. This documentary details the diamond's journey as well as the lives that it enhances along the way. We look forward to seeing the impact of this campaign over the holiday as early results are driving traffic.

My second key takeaway today relates to our efforts to expand merchandise margin. Year-to-date, we have delivered 50 basis points on merchandise margin expansion with 80 basis points for Q3 despite a significant impact from tariffs and increases in gold costs. We have been carefully rolling out a refined pricing and promotion strategy. While this has included select price increases, it's a much more fulsome playbook. We are carefully turning the dials on how many days our brands are on promo, what items are eligible and depth of discount, particularly the periods where there is no preexisting consumer expectation for value shopping. Promotion can be an effective traffic driver. But over reliance on it can impact brand equity and ultimately leave money on the table. Brand equity also helps drive margin expansion. Jared is furthest along with its brand identity work and overall pricing and promo strategy, leading to 25% reduced discounting to Q3 last year.

Lastly, our high-margin services business is also growing faster than merchandise and helping expand margins. It's the overall combination of these efforts driving year-to-date results despite pressure from tariffs and notable increases to gold costs. With regards to the current tariff landscape and specifically India, we believe that we have mitigated a majority of the higher rates through strategic sourcing and the merchandise margin actions I've detailed and will be the same levers we look to as we set our sights on the year ahead.

Turning to the holiday season. Based on customer insight and preferences as well as learnings from last holiday, we have taken a decisive inventory position in key gifting items at targeted price points. This strategy includes on-trend categories like LGD fashion, men's fashion, gold jewelry and colored stones. For example, we've made a material investment in LGD fashion at price points below $1,000 compared to last holiday. We're also being strategic in our marketing spend this holiday. More than 70% of adults now stream as a primary way to watch video. So we continue to rebalance the channels we spend into in order to drive efficient reach. This work will be even more important as we navigate a period of lower U.S. consumer confidence. We've taken action to meet the more pronounced value expectations of consumers this season with a well-balanced assortment and promotional cadence. Delivering on holiday is our highest near-term priority and our Grow Brand Love Strategy continues to set the stage for sustainable long-term growth.

Summarizing my key takeaways today. First, we delivered our third consecutive quarter of positive same-store sales and grew adjusted operating income double Q3 of last year. Second, our efforts to expand merchandise margin are delivering meaningful and sustainable results that have worked to drive operating margin expansion and offset pressure from tariffs and commodity pricing. Third, we believe we're well positioned for the holiday season with a focused assortment aligned to key categories and price points and supported by a modernized marketing approach.

With that, I'd like to turn it over to Joan.

Thanks, JK, and good morning, everyone. Revenue for the quarter was approximately $1.4 billion, with comp growth up 3% to last year. This reflects the expansion of average unit retail of 7%. Unit performance improved sequentially, while still down to last year, driven by a better performance at banter and sales. Fashion AUR grew 8%, largely on assortment mix to LGD fashion, which carries a higher AUR as well as higher gold prices.

Bridal AUR grew 6% in the quarter reflecting a growing mix of LGD wedding and anniversary bands, which also carries a higher AUR than other bands. Importantly, services grew high single digits in the quarter with nearly 5 consecutive years of positive comps. We saw growth in extended service agreements, or ESAs which saw attachment rates up over 1.5 points in the quarter. This reflects higher attachment online for bridal and higher in-store attachment and fashion.

Moving on to gross margin. We delivered a rate expansion of 130 basis points to last year. This was led by merchandise margin expansion of 80 basis points which JK detailed a moment ago. We also delivered 30 basis points of occupancy leverage, reflecting the efficiency within our operating model to expand margins on a slightly positive comp. Lastly, we drove a 20 basis point improvement from distribution efficiencies, taking advantage of higher gold prices by accelerating scrap recovery as well as better shrink performance. The SG&A rate for the quarter was nearly flat despite a 70 basis point impact from higher incentive compensation. Excluding the incentive compensation, SG&A improvement reflects more efficient marketing spend and store labor planning as well as favorability in transaction fee costs.

Adjusted operating income was $32 million for the quarter. This result is ahead of our guidance equally on higher sales and operating efficiencies across gross margin and SG&A. The combination of our capital allocation strategy, further tariff mitigation efforts, the improvements in our operating model and the focus on the 3 largest brands led to a more than 2.5x increase in adjusted EPS. Turning to real estate. The work to refresh stores this year is already delivering mid-single-digit sales lift to stores recently renovated at Kay, Jared and Zales. Additionally, early results from the reposition in SK stores are also showing positive traction, pacing towards just over a 2-year payback as we continue to relocate high-performing doors away from declining venues to better locations in otherwise strong markets.

Now turning to the balance sheet. Inventory ended the quarter at $2.1 billion, down 1% to last year despite a nearly 50% increase in gold costs and higher tariffs. Cash ended the quarter at $235 million with total liquidity of approximately $1.4 billion with an undrawn ABL. Free cash flow improved by more than $100 million for the quarter and by more than $150 million year-to-date from timing of receipts that will shift payment to the fourth quarter and inventory discipline. We repurchased approximately $28 million or roughly 300,000 shares in the quarter, bringing our year-to-date repurchases to nearly $180 million or 2.8 million shares, which represents more than 6% of the diluted shares outstanding. Our remaining repurchase authorization is approximately $545 million.

Turning to guidance. We are modestly updating our expectations. This includes raising the low end of our full year guide to reflect our beat in the third quarter, further tariff mitigation efforts and a measured outlook for the fourth quarter. This measured outlook reflects external disruptions since late October and potential continued softness in consumer confidence. We believe it's prudent to have a cautious approach to guidance given we've seen softer traffic in the past 5 weeks, particularly among brands with more exposure to lower to middle income households. We are raising our full year same-store sales low guide to down 0.2% and maintaining our high guide of plus 1.75% and introducing a fourth quarter same-store sales range of plus 0.5% to down 5%. With just over 70% of the quarter to go, we're well within that range.

Our guidance assumes merchandise margin rate to be roughly flat to a slight increase in the quarter, providing some flexibility for the current macro environment. We are raising our full year adjusted operating income below guide by $20 million to $465 million and maintaining our high guide of $515 million. This translates to an increased adjusted EPS range of $8.43 to $9.59 per diluted share, inclusive of share repurchases to date. Lastly, we're introducing a fourth quarter range of $277 million to $327 million of adjusted operating income. We also continue to expect $145 million to $160 million in capital expenditures for the year inclusive of pulling forward real estate spend to take advantage of the strong returns we've seen to date.

Before we turn to Q&A, I'd like to thank the team for your dedication, resilience and focus this year. I wish a happy and healthy holiday season to you and to your families. Operator, let's now go to questions.

[Operator Instructions] Your first question comes from Paul Lejuez with Citi.

Curious if you could talk about what you've seen quarter-to-date and specifically over the Thanksgiving weekend, how that might have informed your comp guidance for 4Q? And maybe you could just dig in a little bit more about the external disruptions since late October that you referenced, just wanted to understand what you were referring to. If that was the traffic comments that you just made? Or if it was something else?

Yes, Paul, thanks for the question. I think we've been pretty cautious as it relates to Q4 all year long. And our guide, we're maintaining a little bit of softness at the start of November, which, obviously, you've seen everything from consumer confidence surveys to issues with government shutdown Snap, our consumers are dealing with a lot. And what we saw quarter-to-date is really seeing that play out a little bit, most notably in the brands that have a greater density of lower and middle income customers.

Outside of the U.S., consistent trends in those brands of ours that have more exposure to high-income customers. We're still seeing spends be consistent. And so while we've watched a moderation of that and really believe that the holiday is going to happen per normal and that we've got confidence in our plan moving forward. We also didn't feel like that, that prudence around Q4 was wrong. We've been pretty consistent in that guide all year. And I think this is a reflection of that.

As far as the weekend, we don't -- I don't know. What I've learned as I've looked through our data and seen play out is, first of all, Black Friday to Cyber Monday is just not as big of a of an impact on our quarter. If you look at the month of November, it's 25% of our total quarter. So for us, December is a whole lot more important. And good Black Friday, bad Black Friday in between really has very little bearing on our results. Our overall performance is so much more tied to those 10 days leading into to Christmas when you look at the volume, those days are more important than the whole month that we just finished. I think we've seen fairly consistent results quarter-to-date from all the way through Black Friday. So no big change there and no call for pessimism, but I think we're right to be guarded. And I do think we've got a customer that is going to be more intently focused on value as they come through the holiday and our guide and our actions are really focused on that.

The only thing that I would to that, JK -- well, I was going to add that the guide that we've given and what we've said in our prepared remarks is that we believe we're well within the top line guide for the fourth quarter, which is important. And to JK's point, we have 70% of the quarter ahead of us. And so at this position, we believe it's prudent to be conservatively positioned and provide for variability in consumer spending.

Got it. And then I guess just a follow-up on the 10 days leading up to Christmas, obviously, I think you kind of had a miss there last year. So is it your expectation that once we get to that point that you would see an acceleration in sales as we move to that period within the quarter?

Yes. We think we're well positioned for it. I mean I would say the -- if you recall, the opportunity that we had last year was we really were under inventoried relative to the sub-$500 and sub-$1,000 price points, particularly in the fashion side. And I mean, depending on what bucket you're looking at and what brand you're looking at, we've got anywhere from 5 to 8x the inventory there, well positioned on trends, same investment, particularly in LGD fashion at those lower price points that has been driving improvement all year, and we're really ready for the business and I think have the right promotional cadence set up to be able to support what's going to resonate with customers.

So we're certainly building towards that. And I think we're positioned to be able to deliver value to customers during that time period, which also should represent an opportunity for us to drive performance different than last year.

Your next question comes from Lorraine Hutchinson with Bank of America.

So last quarter, you spoke to the low end of guidance if the India tariffs remained. What were the key mitigating factors that had the biggest impact to allow you to raise that low end today?

Yes. I appreciate the question, Lorraine. And maybe more importantly, I appreciate the work our team has done to deliver it. We've never fully dimensionalized a number as it relates to tariffs in part because it moved around a lot. I think one of our challenges has always been, if I gave you a number on Tuesday, on Wednesday, it might look a little bit different just based off of the volatility there.

And even though even though we haven't seen the India tariffs pull back through a combination of a number of things, a lot of moves as it relates to country of origin to really partner with our supplier. When I talk about our teams, I'm not just talking about our merchants and supply chain folks who've worked hard, but upstream, our supplier partners have really been nimble. And we've moved some production to the U.S. We've moved some production to other countries. We've found ways to build efficiency in the supply chain. In this environment, given the commodities, there is a little bit of price that has moved through. And I think we've been able to mitigate that and mute it ultimately to try to protect value for our customers along the way. And given what our team has worked through, particularly over the last couple of months, not only does that position us well for the holiday, but ultimately, these are the same levers that we will use to drive the businesses next year.

But I'm -- I love you asked the question because I think it really does point to the fact that despite this disruption and moving from effectively a low of 5% tariff to north of 50% tariff in India. Our team has been able to do that, grow the business and actually raise the bottom side of guide and take that downside off of the table which I just think is great work across our business and also puts us in a position of strength as we're moving into this next year.

And then can we just talk a little bit more about pricing. With gold prices and tariffs, it sounds like you are pulling the pricing lever a little bit. How do you tread carefully enough, given that you're seeing that pressure at the low-income consumer, I guess, how do you balance the need to offset some of these cost pressures with the consumer struggles that you're seeing?

Yes. It's -- thank you. I think that's the art and science of running a retail business right now. And for us, I'll break it into 2 parts. Gold as a straight commodity is -- and when you think about that, think about more go-forward pieces or things like gold chain, for example, that are all about gold. I think historically, we've seen that customers understand that's a commodity market. They understand the value associated with it.

And as we as we pass along the fluctuations of price on the -- that are purely commodity driven, we generally see customers recognize that value. And we are obviously tethered to a market and look to leverage our scale and strength of supply chain to make sure that we're offering the right value proposition relative to the rest of the market. I think our team does that well. And historically, we've -- every time we see what we think may be a ceiling, we recognize the consumer understands that commodity price and tends to be resilient because of the residual value of what they're buying. And so we may see a little bit of a drop off in units in gold as a result of some of those price increases. But from that plays out across the market, and we know how to navigate that pretty well.

In the case of tariffs and/or other -- the other side of that coin, that's where it really becomes important for us to think about design, all of the elements of a piece of jewelry and how do we leverage design and our supply chain and supplier partner base. to really drive sharp adherence to some of these key price points. And I think that is more important this time of year than ever. If I look at a business like Kay, for example, sub-$500. We're significantly higher on inventory and positioning than where we were last year because we know that's going to be critically important to that customer. That customer we'll understand those key price points, whether it's that item that I buy for [ $1.99 or $2.99 ] or $500 and we work hard to engineer a product that still delivers value proposition and carries that emotional value but can stay within the price point ranges that make sense for the holiday.

Your next question comes from Randy Konik with Jefferies.

I guess, Joan, maybe what would be helpful is to kind of hindsight fourth quarter last year. Maybe give us a little bit more color on, if not quantitatively, more qualitatively how the quarter played out and kind of how you think about that as it pertains to fourth quarter this year, I think you said that the 10 days, 14 days, whatever it was before Christmas last year were pretty difficult, providing opportunity. So it'd just be helpful to kind of get some perspective on how everything kind of played out last year to give some perspective how things should maybe play out this year? And then as a follow-up to that, commentary. Maybe JP can give us some perspective of what you're kind of constructing teams to do to execute the holiday season to make it a success. You've done a good job or done work around marketing and merchandising.

So just kind of just give us your thoughts on what you're instructing everyone to kind of get done over the next 30 to 60 days.

So thanks, Randy. With respect to last year, I mean, it was clear that we had assortment gaps in key gift-giving price points, particularly under 1,000 and even more so under 500. And we did not have the lab-grown penetration in fashion that, particularly in fashion somewhat in bridal, but we didn't have that penetration last year. This year, lab diamonds are roughly 40% of our bridal business and they're up to 15%, double last year in our lab-grown fashion business. So we've closed that gap and really responded to what the customer is -- was asking for last year that we didn't have, and we've now bridged that gap. So we feel strongly about the assortment architecture that we've been able to put forward.

Importantly, Randy, the next step of that is our -- we need to be in depth position in key price points in key styles. The team has worked very diligently to ensure that as we progress through the holiday selling period and we approach the last 10 days before Christmas, which we know is critically important, we're in stock in the key items that the customer is responding to. One of the things that we're seeing that gives us confidence is that our conversion from quarter-to-quarter has been relatively consistent. So we believe as we get closer to the holiday selling period, we're seeing strength in our traffic in brick-and-mortar. It's stronger, that, that will bode well for us on top of the conversion metric that has remained relatively consistent. So that speaks to for us, the strength of our assortment and closing that gap.

We also have fortified post holiday selling -- it's -- as you'll recall, we lead up to Valentine's Day in the month of January. It's not as big of a holiday for us, but it's an important holiday for us. And we've ensured that we are in stock and have received flow post the holiday selling season, which will bode well for the first quarter of next year.

I think as far as the next 30 to 60 days, I mean Joan touched on it. December is a critically important month, and it is particularly important because that's when that's when customers who shop our category really do come more into the mindset of making a purchase. And we are a great last-minute option, whether that's because people save for it or because it's a simple solution at the end. I think it's incumbent on us to make sure that we make that as frictionless for customers as possible.

And I think if -- of anything, this category can be a little bit intimidating to customers. And at a time period where I think there's a little bit more going on with a little bit more uncertainty in our lives leading up to the holiday as consumers the more we can simplify and focus our message for them, I think the better off we are. And to Joan's point, that really does mean honing in on simple value propositions, trying to really streamline promotions so that it's less complex, and we're much more straightforward with customers around what the value proposition is. I think that's a risk. And one of the things we've learned as we've looked at the consumer response this month is simpler is better. And so the more we can simplify that and be straightforward the better off we are.

And then from an operational standpoint, it is about making sure we've got inventory in the right place that we maintain depth and in particular, have product available, not only for shipment online, particularly in the first half of the month. But as we move towards the end of the month, it's about having product available in store so that we can focus on the biggest opportunity we have, which is conversion. What we're seeing is some modest improvements in conversion. So if we -- and that was really -- that was the opportunity last year. If we're really honest about our shortfall, particularly in those 10 days. It was not a traffic opportunity for us. It was a conversion opportunity. There was a very clear message from customers that we were not as good at delivering the merchandise that they needed to solve that the gift that they were looking for, we're much better positioned today to do that. I think you see that playing out and in our Q3 results when you look at strength across all categories.

And so now it really is about making sure that we get that message in front of people simply. We're executing tightly and have that inventory we've invested in available at the point of purchase. And then ultimately, we're doing what we can from an operational standpoint within all the brands to convert and get them on their way to celebrate the holiday with their love ones.

Great. And then when you think about the bridal category versus the fashion category, just as an industry, how do you think -- how do you feel about those 2 different sectors? And then when you think about architecting the business over the next -- and changes to it over the next 12 to 24 months, are you thinking about changing the balance between bridal and fashion at all any changes you're contemplating thoughts on the portfolio? You keep talking to a distortion of capital towards the mega brands of Kay, Zales and Jared, just kind of curious on how you're thinking about the next 12 to 24 months moving things around the chessboard?

Yes, it's a great question. I'll answer part of it and probably push part of it until after the holiday because I -- the last thing I want to do is introduce a lot of hypotheticals to our team as we should be really focused on closing with customers and really delivering the holiday. To your point, we love the balance of the 2, honestly. And I mean given the share we have in bridal, we want to maintain that dominance. But we recognize that, that it is harder to gain outsized growth there because we do set in a position of dominance. We certainly don't want to see that. We love that balance within our business. We love being there for customers with that important point in their life, and we're going to continue to be dominant and bridal across the business. No question about that.

We talk a lot about fashion just because it's underdeveloped relative to our business, and that's where the opportunity for outsized growth is. So mathematically, that may change the mix over time. It isn't about a pivot away from fashion, and it's absolutely about a pivot -- or excuse me, a pivot away from bridal. It's more about a pivot into the opportunity that fashion presents for our business and the overall lift that can provide to the total portfolio. And I think the work we're doing to further delineate and position our brands to be complementary in that regard, give us degrees of freedom to lean a little more heavily in some brands into fashion and also stay a little more staunchly in the bridal focused area for other brands.

As far as the portfolio is concerned and capital, I think once we get through the holidays, it's a great time for us to talk about some of the other strategic opportunities that we have. We've alluded to a few of them. And I think given -- as we've said all along with some of the other noncore brand decisions once we get through Q4, we'll be in a position to lay out thoughts. But I think the focus we've had on our core brands to really reignite growth across our business is what gives us not only confidence, but the degrees of freedom to really think a little more aggressively around how we deploy capital strategically across the business to continue to generate growth.

Your next question comes from Ike Boruchow with Wells Fargo.

To the first question is really just about promo. Maybe JK or Joan, could you talk about the Black Friday week, what your strategies were. Did you deviate from those at all? And then kind of how does promo play into comment -- the cautious commentary. So understanding that the comp guide, just kind of curious how your markdown strategy is planned for the holiday today?

So over the weekend, Cyber 5, we stayed on plan. We were -- in terms of our promotional strategy, we were pleased with how we were able to lean out some discount in the appropriate places within our business. And really believe that, that strategy served us well from -- particularly from a margin perspective. As we head into the holiday selling season, I would say that we are into peak selling, we are -- we have a plan that gives us flexibility. I noted that our guide for the fourth quarter is -- gives us some allows for some variability in consumer spending. And I believe and we believe as a team that, that's a prudent measure, just as we navigate our way through the next 70% of business in our quarter. So it's important that we retain that flexibility.

The discounting, as we think about it, one of the things from an earlier question, is our assortment architecture that we've created for the fourth quarter gives us those price points buckets like that really allow us to serve customers at different levels under $1,000, and it provides for the variability in consumer household incomes that our portfolio spans in terms of the mid-market. So our strategy allows for that not only in promotion, but in assortment architecture. We believe that's just as important. We have a nice assortment in what we would consider wild price points in -- with depth in those styles that can serve customers under $1,000 and under $100. So it's really about understanding the customer for each of the brands.

Got it. And then within that, Joan, could you maybe for 4Q specifically, the gross margin plan? And could you kind of intertwine your promo plan along with whatever the tariff headwind is? Like basically, you stack the puts and takes for 4Q gross margin that's embedded in the EBIT guide?

So for the fourth quarter, our GMM rate, our gross merchandise margin rate considered flat to flat to a slightly up view. And that's what's giving us the flexibility that we may need depending on those consumer spending patterns. You'll recall like leading into the third quarter, we had an expansion of 50 basis points. And again, you heard our results this quarter were very good in terms of margin expansion. Some of that came from pricing and a large part of it also came from architecture within the assortment. So we're continuing through that but giving our continue with the architecture, but giving ourselves that pricing flexibility.

So that's the overall view of a GMM. As you know, and we've said in the past that our gross margin, we're able to leverage gross margin on a slightly positive comp. And so that considers just some of the work that we've been doing in our operating model efficiency within our distribution centers, we actually took advantage of and will continue to do so in the fourth quarter. We took advantage of the gold price and accelerated some planned [indiscernible] recovery that we typically do in our business, but we accelerated it to take advantage of the pricing. So we're taking all of those measures in hand and bringing those forward into the fourth quarter as well.

Just so I'm clear. So the merchant margin flat to up, but the comp is negative, would gross margin be down due to deleverage on fixed costs within [ cards ]?

Yes, that's accurate.

Your next question comes from Dana Telsey with Tesla Group.

Nice to see the progress. I think you had mentioned about some of the smaller banners like James Allen or Banter for the second half of the year, a guide towards the 60 to 90 basis point margin drag. Is that still in place? Or has anything changed there? And 2 other things, given the upcoming holiday season and the opportunity for this year, what is the percentage of newness that you're thinking about in the assortment, whether for bridal or fashion for this fourth quarter? And Joan, any updates on the real estate optimization plans?

So I'll start with James Allen. Right now, our guide would assume that we are -- it would negatively impact comps by 120 basis points. It's been relatively consistent throughout the back half. We've seen some slight improvement in certain periods of time. But overall, that's the negative impact that we would see on overall comp in the -- we saw it in this quarter, and we would expect the same in the fourth quarter.

With respect to newness, we target roughly 30%, Dana. The most important part of that is what is the content of the newness and the depth in styles. And so in the past, we may -- as we saw last year, we had a breadth of assortment, but weren't deep enough in styles that we're resonating with the customers. So while the factor -- the percentage is important, it's the content and depth of the key item that's most important. And then the real estate update, I mentioned it in my prepared remarks, but we're very pleased with the results in our refresh program. And it's up mid-single-digit comps from the brands that we've refreshed and largely our largest brands. And the renovations have been particularly strong for us, just over a 2-year payback. And you can really see the results of that within our Jared business. The team has done a terrific job in bringing to the customer a more modern view of that brand and upscale the interior to meet the product assortment that has been leveled up from an offering perspective.

But obviously, while maintaining the right assortment architecture to cover a wide range of price points. So really pleased with that. We still intend to close up to 100 stores this year over the next 2 years, we think it's roughly 150 stores. Several of those, Dana, are in Banter which are -- have been in declining malls and we'll understand if there's a repositioned strategy for those locations. Banter is a highly productive brand for us, and it has a strong 4-wall contribution. And so we'll really evaluate where that -- the future might be in terms of newer locations for that brand.

Your next question comes from Jeff Lick with Stephens.

I was wondering if you could maybe unpack a little bit more. I think those of us have been following the story. We've all looked at Q4 as this kind of this battle between the consumer versus the improvements you're making. If I use last year's EBITDA of 394 and then the high end of your EBITDA this year at 374, it kind of implies that almost no matter what the consumer element is a bigger factor than the improvements that you're making. It kind of seems like your improvements are whether it's a fashion or just the [ lab ] in diamonds we have. Could you maybe just unpack? Are we -- is that how it should be read? Or is it possible that things could come in much better because from the get-go, it seems like the consumer element seems to be a much bigger factor than the -- what was thought to be pretty sizable improvements potential for Q4 this year?

Yes, Jeff, maybe Joan and I can tag team this one. I think there's 2 things to unpack there. As far as any sort of guardedness on Q4. I do think from day 1 of this year, we have -- despite the opportunity for improvement in top line for Q4, we've been a little bit guarded just knowing that -- some of the consumer uncertainty, what that may mean to the competitive landscape, we want to retain the flexibility to be responsive in the market to their needs as well as some of the curve balls as it relates to costs, not just on the commodity side, but especially with tariffs. Those have all been considerations and led to what has been actually a pretty consistent guide for Q4 from day 1.

When you're looking at EBIT for that quarter, incentive comp is a pretty big factor when you start thinking about the reload of incentive comp and how that plays out. And so it's -- you've got a little bit of apples and oranges that may be going into the comparison there. But listen, I think this is an environment where we also want to retain the ability to be responsive to the consumer at a time period where they have been dealing with a lot. And we feel like maintaining that flexibility to continue to drive momentum is really important for us. And I think our guide reflects that.

And so I don't know, Joan, if there's anything you want to add to it. But that's -- if I were trying to summarize or give you a synopsis of maybe how to square up those 2 parts of the story, that's the intersection that makes sense to me.

The only thing I'd add is that our Q3 momentum, we feel the business had momentum, has momentum. We are seeing a stronger we're seeing a slightly increase -- a slight increase in conversion rate, which, to us, speaks to the architecture and the assortment that we're bringing forward, we are able to reset some of the -- with respect to tariffs, we've been able to offset those while driving in the assortment architecture that continues to aid us in merchandise margins. So that's a positive, Jeff. And then I think some deleverage on fixed costs that the lower end of our guide is part of that.

But to JK's point, almost at the high, we expect deleverage in SG&A. But it's entirely related to the incentive comp reset, much of what we saw in third quarter. And at the low end of the guide, it's really, to a lesser degree, incentive comp, but also that fixed cost to leverage. So we'd like the assortment. We like the position and just responding to what might happen at the range of our guide.

Yes, don't misunderstand the question. I think it's prudent to get the guidance that you gave. We're just trying to handicap those 2 kind of opposing forces. One quick question on the Indian tariffs. Is there any chance you can give us a sense of the dollar amount if, let's say, tariffs were to go back to, say, 25%, 20%, which is kind of what the other countries are getting? How much of an eventual obviously, it won't be instant because of the way inventory turns? But how much of a get back -- or how much dollars have you absorbed or could you get back?

That is -- in this world, that is a what should be a simple question, but is actually much harder only because in some cases, we made decisions around relocating to a different country of origin or even potentially changing design and what we would buy to maintain not just assortment architecture but margin architecture in some of those things. So it's -- I would say the -- gosh, it's -- because we haven't dimensionalized a headwind, I can't as easily articulate what the giveback may be, I would say, the plus of that pullback would be the range of product and the predictability of supply chain relative to really being able to lean into top line driving performance is greatly aided by a reduction in tariffs.

I think one of the challenges that many retailers, not just us are facing as it relates to the timing of some of the tariff announcements is literally running out of runway relative to Q4 and having to make decisions on what do you pass on, what do you absorb, what do you not do that maybe you would have considered before. And so above all, I mean listen, I think our team has done a an exceptional job of navigating that uncertainty and positioning us to be there for the consumer, not just for Q4, but delivering this performance throughout the year. And honestly, some of what we've had to develop in terms of nimbleness and responsiveness within the supply chain. That's going to carry a benefit for us moving forward. I mean, the better we are controlling our inventory and really mastering all of the input costs that come along with the supply chain for a scale player like us gives us a competitive advantage. And so in the classic sense of that which does not kill you makes you stronger.

Like this is one of those things that we're finding the blessing in it and going to leverage that to our benefit moving forward. But that uncertainty and the short runway leading up to Q4, certainly hamstrings some of the degrees of freedom relative to assortment planning and would only benefit from stability, particularly if that stability comes with a more moderate tariff than what we've been dealing with. And so I know I didn't answer your question relative to the dollar amount. It's hard because we never gave you a dollar amount on the front side, but I at least want to convey to you that we're thoughtful around what levers there are for us to pull that can be accretive to the business ultimately when we land at a little more normalized state relative to the tariff environment.

So I guess to close that, from a qualitative basis, if the only thing in the tariff landscape that changes next year is that the Indian tariffs go down, obviously, because the other tariffs seem to be a little more set at this point, so you can kind of have an idea of the landscape. But if the Indian tariffs go down, all things being equal, that's going to be a positive for 2027 and beyond.

Yes, it should. I mean, I think inherently, quantifying the overall dollar impact, I think it's a little bit harder thing to do. But absolutely, that gives you more opportunity to play offense.

Your next question comes from Mauricio Serna with UBS.

Just a point of clarification on the Q4 guidance. When you said that you are within -- well within the range, does that mean you're at the top end, midpoint? I'm just trying to understand that part of the guidance. And then also in Q4, thinking about the promotional environment, can you talk about what you've seen so far in terms of like at an industry level, what you've seen in promotions? And do you expect that to maybe year-over-year be more intense, be in line? Just any thoughts on what you're thinking about that the promotional environment would be great.

So we articulated that we were well within the range of our top line guidance, Mauricio. And the reason that we can position ourselves with that statement is that historically, when you think about the fact that the Black Friday weekend is a very small piece of the overall quarter and that from the run rate of the November month-to-date into the holiday selling period even last year as well with some of the assortment gaps that we've had, we see improved run rate historically from November to December as historical and we've seen over the last several years.

So it's really -- it's more pertinent to think about the overall guide and understanding the variability in the range is just giving us a range of outcome that gives flexibility for some of the pricing actions, particularly with the EBIT. So without being specific, we feel that our business has momentum. And as we look into December, based on our assortment, we are cautious optimistic about the outcome.

And I think as far as promotion is concerned, I just think in this kind of consumer environment, it's wise for us to be prepared for it. We've seen a little bit more promotional response, I think, with some of the consumer confidence questions that have emerged in November. And I think we're well positioned to be able to deliver on the right value propositions as we get into the real crunch time for our business. So nothing exceptional that I would quantify at this point, Mauricio. But I think any time you've got a consumer that's dealing with uncertainty, it's wise for us to plan for it and to remain flexible to be responsive so that we can drive top line during a really important time of the year.

Next question comes from Jim Sanderson with Northcoast Research.

Congratulations on the great third quarter. I wanted to dig in a little bit more to the fourth quarter guidance, the lower range, the negative 5%. Given the strength you've had in average unit revenues to date, what would it take with respect to average unit volume declines to get to that negative 5% in fourth quarter, both in bridal and in fashion? Just trying to get a sense of where the greatest risk or weakness can emerge for the fourth quarter.

I'll take that, Jim. With respect to the low end of our guide, bridal units would be down roughly mid-single digit and -- which would also -- fashion units would also be down similarly. So that's the view of units. We feel that even at the high end of the guide, bridal can be down low single digit in Q4 and achieve our guidance. And so we feel very good about the performance that we're seeing in bridal, particularly in our large brands. We're seeing a high single-digit comp in bridal, in Kay and Peoples, which is not on the larger brands, but it's doing quite nicely. So I feel good about the positioning of where the guidance is positioned relative to bridal and to fashion.

All right. So -- but to make sure I understand it, even at the higher end, you would expect units to be down, let's say, low single digits for the bridal category? That's the kind of way to look at it?

That's right.

Okay. Understood. And just a question on the promotional environment. Are you satisfied with your price position, promotional price position relative to peers as you entered into the December holiday season?

Yes, it's a great question. We are. But I would also tell you, this is a time period where as people adjust, we also scrape the market and make sure that we're really well positioned. I think the dynamic nature of this environment and just given the, not only what we've talked about relative to consumer, but just the compression that happens between now and the holiday, I think we're focused on staying vigilant. And particularly when everybody is dealing with some input cost changes, I think that creates a little more focus, certainly on our part to make sure that in these commodity-based categories or in any of the key price point offerings that we really maintain the kind of competitive positioning that makes sense.

And so we've -- I think we balance that really nicely over the course of the year being less promotional, more broadly, focusing promotion where it makes sense, but also not being gratuitous and eroding brand equity in the process. And I think the other benefit of that is it enables us to really focus our value messaging to customers in a stronger way. We obviously watch the landscape and want to make sure we're maintaining that momentum as we go into such a critical time period, also not losing the progress that we've made relative to some of the discipline around pricing architecture that's paying dividends for us.

So that's where we're focused. I think more than not. We feel like we're in the right position. And win or if we have found any categories or subcategories within a brand where we don't like, then we've got the flexibility to also remix and manage it accordingly. So we're delivering the right value.

There are no further questions at this time. I will now turn the call over to JK Symancyk for closing remarks.

Okay. Thank you, everyone, for joining us today and for your interest in our business. We are fully focused on the critical holiday selling period, and we're confident in our strategy and our team's commitment to deliver results. However, you celebrate, I want to wish everyone, our employees, partners, shareholders, all of you holiday season full of joy piece and, of course, love. Look forward to speaking with you next quarter. Goodbye.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Good morning, and welcome to the Signet Jewelers Second Quarter Fiscal 2026 Earnings Call. Please note, this event is being recorded. Joining us on the call today are Rob Ballew, Senior Vice President of Investor Relations and Capital Markets; and JK Symancyk, Chief Executive Officer; and Joan Hilson, Chief Operating Officer and Financial Officer.

At this time, I would like to turn the conference over to Rob. Please go ahead.

Good morning. Welcome to Signet Jewelers second quarter fiscal '26 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 report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by law, we undertake no obligation to revise or publicly update forward-looking statements in light of new information or future events.

During the call, we will discuss certain non-GAAP financial measures. For further discussion of the non-GAAP financial measures as well as the 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 JK.

Thanks, Rob, and good morning, everyone. Before I get into prepared remarks, I'd like to quickly thank our team. Our outperformance again this quarter is a reflection of your commitment to the customer as we continue in the early stages of our Grow Brand Love strategy. Thank you for your hard work in driving consistent performance this year, and let's continue the momentum into the holiday season.

There are 3 key takeaways I'd like to leave you with today. First, we delivered another quarter of positive same-store sales and earnings ahead of our expectations. And including August, we've delivered 8 consecutive months of positive comps.

Second, we continue to make early progress on our Grow Brand Love strategy through distinct merchandise, enhanced marketing and unique experiences as well as attracting key leaders to advance our growth agenda.

And third, we are fully prepared and well positioned for holiday as we enter our most critical season with momentum and clear strategic focus.

Turning to the quarter. We delivered same-store sales of 2%, ahead of our expectations, driven by our early prioritization of the 3 largest brands, Kay, Zales and Jared, which delivered a combined same-store sales growth of approximately 5% in back-to-back quarters. At the category level, our early efforts to focus on fashion drove a 2% comp growth. Additionally, services continues to deliver, posting a high single-digit comp growth this quarter.

Fashion is important to us, both due to the size of the category as well as building customer relevance across categories. We are focused on delivering fashion pieces across key price points to reach more customers, including an expanded assortment of lab-grown diamond, or LGD, fashion pieces.

LGD fashion accelerated versus the prior quarter, growing to approximately 14% penetration of fashion sales. This continued momentum on strategic imperatives bolsters our confidence for the holiday season this year, which I'll touch more on shortly. Before that, I'd like to update our progress on Grow Brand Love go-to-market strategy via 3 key levers: merchandise, marketing and customer experience.

Within merchandise, we've developed distinct assortments that include new collections. At Jared, our assortment work is furthest along in its differentiation, highlighted by collections like UNSPOKEN and Shy Creation. We are expanding our UNSPOKEN line ahead of holiday based on strong customer response to the initial assortment. This collection reflects the rarity and uniqueness of natural center stone diamond pieces at a wide range of price points.

Shy Creation, another collection we're expanding this holiday, elevates the trend of layering or stacking multiple pieces to create a bigger and more styled look. At Kay, our sentimental gifting brand, we're introducing more milestone gifting pieces at key price points as well as items at a price that are designed to serve value-oriented customers without relying on promotions.

At Zales, we're focused on breadth and depth of self-purchase fashion. Our assortment offers a range of price points intended to target jewelry box essentials as well as fueling the stacking trend.

Turning to marketing. Our go-to-market strategy is now focused on maximizing performance across a more full funnel approach. Building off the momentum we delivered in the first quarter, our 3 largest brands drove a more than 40% increase in impressions on a mid-single-digit increase in media spend in the second quarter. We're also adjusting where we spend with a more than 20% increase in social media channel buys to last year, with social media now representing more than 1/4 of our total marketing spend. We are bringing brand messaging to more relevant channels that deliver the best reach.

We also continue to refine the messaging within each brand. For example, we launched our Love Highway campaign in Jared this quarter, moving away from the longstanding He went to Jared mentality. Love Highway is a campaign that targets affluent couples navigating life's roads together.

This campaign represents a new way for Jared to go to market, utilizing a popular social media influencer, Taylor Hill, in this example, to drive traffic and awareness. Highlighting the early effectiveness of this type of campaign, social media impressions for Jared this quarter were nearly double to what they were last year.

At Kay, we're early into modernizing the brand. Leading these efforts will be our new Kay and Peoples brand President, Julie Yoakum. Julie comes most recently from Helzberg Diamonds, where she was the President and Chief Brand Merchant Officer and previously was the Chief Merchandising Officer at Blue Nile.

Her deep experience in the jewelry industry, both as a merchant and a brand leader, will be important to refresh Kay to a more modern experience to attract the next generation of customer and increase repeat purchases from existing customers.

As part of our modernization efforts, Kay's primary marketing objective is to drive emotional connection with customers, including connection with an expanded audience, allowing the brand to reduce reliance on promotion over time. One recent example is naming Teddy Swims as Chief Love Officer. Appealing to a broader audience, the campaign has already driven more than 2 billion impressions since launch.

While these are examples of early progress in marketing, I'm excited to welcome Lisa Laich as our new Chief Marketing Officer. Lisa previously oversaw digital and brand marketing for the Crocs footwear brands. She brings over 2 decades of experience in transforming and building brands. Further, she has a strong track record of digital and social marketing excellence.

Lisa will lead our team to drive brand relevance through strategic partnerships and activate channel strategies to build loyalty with existing customers while attracting new ones to engage with our brands. She will also collaborate with the brand teams to develop creative content and storytelling to drive consideration while delivering the benefits of scale in marketing.

The customer experience is the third lever of our go-to-market strategy and the one that will take more time to fully achieve. Our goal is to create unique experiences at each of our brands that enhance the overall omnichannel model, integrating the brand experience from digital to physical down to remerchandising the cases. Our recent reorganization has placed store operations, including the store experience, directly under our brand leaders, giving them both the opportunity and the responsibility to create unique customer experiences over time.

We're early into this process, but some recent examples of the type of changes we'll be testing and potentially implementing include store formats designed to drive self-purchase and milestone gifting, more self-directed browsing and more interactive experiences.

We're furthest along in this process at Jared, where we've been enhancing the shopping and checkout experience. In stores, our presentation is aligned to recent campaigns, integrating marketing alongside the collections. This delivers styling suggestions to customers and provides them clearer illustration of how pieces can complement their personal jewelry collection.

Further, Jared has completely upgraded their packaging, which is often the first impression among important moments for our customers. This is a reflection of the end-to-end upgrade of brand touch points that are reinforcing Jared's elevated position of inspired luxury within our portfolio. Consumers are responding to this change in the shopping experience as reflected by the fact that Jared had the best year-on-year improvement to in-store sales conversion across our portfolio this quarter.

Before handing things over to Joan, I'd like to detail our thoughts around navigating the back half of the year. We believe we are well positioned to enter the holiday season with the right merchandise assortment at the right price points and the right marketing campaigns, all this to bridge the gap in holiday results last year. We believe the consumer will still seek to celebrate this holiday season, and we'll leverage our marketing and brand experience to amplify that emotion at the right time.

Within fashion, we are significantly bolstering our LGD, men's and other trending category assortments in the key gifting price points of $200 to $500 as well as higher penetration in LGD fashion across all price points. For example, we expect the number of LGD fashion pieces on hand at price points below $1,000 to be up at least threefold from last year, with even higher growth below $500.

We see our customer willing to spend as long as the assortment is compelling and delivers on their expectations of value. We believe our assortment is well positioned to deliver against that backdrop. We are navigating a dynamic tariff environment to deliver for our customers and our shareholders. We are working with our vendors to land the inventory at the best time to minimize tariffs and maximize holiday availability.

We're also working to reduce the impact of tariffs through discussions with suppliers to maximize domestic production, optimize country of origin and by value engineering pieces that deliver on customer expectations at the right price points. Finally, the team is actively evaluating ways to optimize our production as we begin to place orders into the coming year.

In summary today, my key takeaways are: first, we once again delivered positive same-store sales and earnings ahead of our expectations with 8 consecutive months of positive same-store sales through August.

Second, we continue to make early progress on our Grow Brand Love strategy through distinct merchandise, enhanced marketing and unique experiences.

And third, we're confident in our ability to navigate the second half as we prepare for our most important season.

With that, I'd like to turn it over to Joan.

Thanks, JK, and good morning, everyone.

Revenue for the quarter was over $1.5 billion with comp growth of 2%, led by growth in fashion and services. Fashion delivered a 2% comp growth, driven by continued acceleration of LGD product performance, particularly at key gifting price points. Bridal comps were roughly flat, with our 3 largest brands delivering mid-single-digit revenue growth, led by AUR expansion on relatively flat units.

Services grew over 7% in the quarter, led by higher attachment rates of extended service agreements. July was our best month of the quarter despite the toughest comparable within the quarter and was flat on a 2-year stack.

Merchandise AUR increased roughly 9%, with fashion up more than 12% and bridal up 4%. This is a consistent result benefiting from our bridal assortment strategy, which has generated AUR growth for the third consecutive quarter. We've seen price stabilization in both loose LGD and natural over the last 6 months, with natural even rebounding across carat sizes.

The fashion AUR improvement reflects the strength of our LGD fashion assortment, which carries a more than 3x AUR premium to other fashion pieces as well as higher gold prices.

With respect to units, we saw a decline of 7%, largely in Banter, which has been more impacted by gold prices and brand-specific assortment strategy to move away from some low-price promotional items.

Now moving on to gross margin. We delivered a rate expansion of 60 basis points to last year, which included gross merchandise margin expansion of 30 basis points. This reflects continued progress of our refined promotional and assortment architecture strategies, which added approximately 80 basis points of expansion. Growth in services also added roughly 20 basis points of expansion.

The expansion in merchandise margin rate was partially offset by a 70 basis point negative impact from an increase in the wholesaling of loose stones and the write-down of some discontinued product based on a comprehensive assessment of items below cost.

As a reminder, wholesaling of loose stones carry a lower margin but is important to our inventory turn and newness capacity. We also saw 30 basis points of gross margin leverage on fixed costs from a 2% comp.

Our SG&A rate improved 50 basis points to last year, driven by reorganization cost savings and disciplined expense management. We do not expect SG&A leverage to extend to the back half of the year due to the reset of incentive comp, which is overweighted to the back half of the year, particularly in the fourth quarter.

Adjusted operating income grew more than 20% to $85 million for the quarter, driven by positive same-store sales, gross margin expansion and leverage in SG&A.

Adjusted EPS was $1.61, which was 29% above last year on higher income and a lower share count, partially offset by a higher effective tax rate.

Turning to the balance sheet. Inventory ended the quarter at $2 billion, nearly flat to last year, despite a more than 30% increase in gold costs. Cash ended the quarter at $281 million, with total liquidity of more than $1.4 billion. Free cash flow for the quarter of more than $60 million improved by nearly $50 million over the prior year and improved by more than $15 million year-to-date.

We repurchased approximately $32 million of shares in the quarter or nearly 0.5 million shares, bringing our year-to-date repurchases to roughly $150 million or 6% of shares outstanding. Our remaining repurchase authorization is approximately $570 million. Recall that our approach to capital allocation includes prioritizing investment in organic growth, maintaining a conservative balance sheet and returning capital to shareholders through share repurchases and dividends.

To this end, our organic investments remain on track this year to a range of $145 million to $160 million in capital investments and is more heavily weighted to our real estate strategy.

Before moving on, I'd like to provide an update on our digital brands. We continue to remain positive with the progress we're seeing in Blue Nile. While the second quarter includes the temporary impact from shifting to a U.S.-based marketing team as well as pricing resets that required promotional cooldowns, the brand returned to positive comps in July and delivered a 25% increase in fashion revenue in the second quarter. We believe Blue Nile will further benefit from a more differentiated product assortment and further price point distinction.

We continue to evaluate the positioning of James Allen within our portfolio. The brand's performance this quarter impacted total company comps by 120 basis points, a modest improvement from the first quarter. Based on testing to date, we believe the James Allen customer will respond well to faster ship options and more finished jewelry offerings in fashion basics. We expect James Allen's impact to same-store sales for the balance of the year to moderate to a range of 60 to 90 basis points.

Turning to guidance. We expect total sales for the third quarter in the range of $1.34 billion to $1.38 billion, with same-store sales in the range of down 1.25% to up 1.25%. We expect gross margin rate to be up modestly in the quarter on continued merchandise margin expansion. We also expect some deleverage in SG&A in the quarter, including incentive comp reset, change management costs related to our reorganization and shifting some marketing spend out of Q4 and back into Q3.

Recall last year, we shifted some marketing out of Q3 until after the election in battleground states to avoid paying premium rates. We expect adjusted operating income between $3 million and $17 million in the quarter.

For the year, we are raising our guidance range, reflecting results in the first half of the year, our third quarter expectations and the current tariff landscape. We now expect total sales in the range of approximately $6.67 billion to $6.82 billion, with same-store sales in the range of down 0.75% to an increase of 1.75%.

The lower half of our sales guide continues to provide flexibility in the fourth quarter for a measured consumer environment. The implied 2-year stack in the second half of the year is in line or slightly more conservative at the high end of guide than what we have seen over the last 2 months.

We are raising our adjusted operating income expectation to a range of $445 million to $515 million. We continue to expect gross merchandise margin expansion for the year, inclusive of the impact of tariffs.

With regards to tariffs, India currently represents roughly half of our finished merchandise purchases and has seen the tariff increase from 10% to 50% in the last 5 weeks, inclusive of the incremental 25% Russian trade penalty. To minimize the penalty, we will leverage existing inventories, shift some production to other countries, evaluate pricing and promotions as well as utilize bonded warehouses.

If the penalty were to remain in effect for the balance of the year, we expect adjusted operating income in the middle to lower end of the range. Conversely, if the tariff penalty is removed in the next 2 months, we expect adjusted operating income in the upper half of the range.

Also working to offset higher tariffs, we're in the early stages of rolling out our refined promotional strategy to other brands, reflecting the success we've seen to date at Jared. We expect SG&A as a percentage of sales to be flat or slightly higher year-over-year at the high end of our guidance range. Recall that our outlook also includes an incentive compensation reset within SG&A.

We are raising our adjusted EPS guide today by approximately 3% at the midpoint to a range of $8.04 to $9.57 per diluted share, inclusive of share repurchase to date.

Before we turn to Q&A, I'd like to thank the team for the agility in navigating the impact of tariffs, all while embracing the strategic changes within our organization and delivering a consistent positive performance for our business.

Operator, let's now go to questions.

[Operator Instructions] Your first question comes from Paul Lejuez with Citibank.

Can you talk about the drivers of AUR in both bridal and fashion in terms of how much is being driven by mix versus pricing actions? And then how do you expect that to change, if at all, in the second half?

Yes. Paul, thanks for being on the call. Really, there's a couple of things going on. I'd say mix is largely the driver of it, but we'll focus on fashion first. I think there's 2 dynamics there. When you look at the introduction of lab-grown diamonds into the mix, that really does expand the AUR. It's an expansion of the category overall. And so it's not even really trade up. It's about stretching what the category of fashion looks like for us. And with that, we see continued expansion in AUR and have modeled it accordingly.

From a bridal perspective, similar. Mix is really driving it, whether that be on the lab side or the natural side, candidly. I mean, we've seen some stabilization in lab and natural markets of late, which I think bolsters what the bottom side has been. And that action that we've talked about, I think, on previous calls of how customers are really looking for opportunities to trade up continues to be something that we see playing out.

Got it. And then just on the tariffs, specifically India, is there -- as you think about the impact on this year versus next year, how are you thinking about the potential wraparound into the first half of '26? Would you expect to be able to mitigate the pressures if they stayed at this 50% rate? I'm just trying to understand how much is -- how much you're benefiting from using existing inventory versus does this just kind of create an issue for you next year?

Yes. I think -- well, we've not given any guidance for next year, obviously. But as we look at it, I mean, it's the same set of tools that we have. I think the benefit of thinking about next year is you've got a little bit more run time to be able to mitigate, particularly as you start thinking about some of the design elements at play and any of the country of origin movements that are part of our strategy, including even some onshoring of production to the U.S.

Obviously, there's a lot of moving parts in the tariff landscape right now. And we're -- I'm really proud of what our team has done. We've been able to maintain guide throughout the year and even with this incremental 25% penalty to stay within guide and also be able to pull some levers that ultimately are going to create value for our customers and for shareholders by hitting the right price points as we go into the holiday.

We expect to be able to continue to do that. Valentines is really right around the corner. So as we're looking at holiday merchandise, we really sort of lump the 2 together. Beyond that, I mean, what I would tell you is we're going to continue to exercise the same set of tools. I think this is a race where the finish line has moved around quite a bit.

But it's a set of muscles that we have because of our -- we've operated in a commodity-based environment that's had a lot of moving parts before, and we've got great partnerships with our suppliers and really leading supply chain capabilities within the industry and the balance sheet to be able to manage it. So I think we're as well positioned as we can be, and we're also doing our best to even exercise some tactics to be able to create the flexibility if things continue to be dynamic.

Your next question comes from Lorraine Hutchinson with Bank of America.

Can you give us an update on the bridal business? What are plans to try to get the unit velocity moving again? And anything specific planned for marketing into the holiday season for bridal?

Yes. So we're really pleased, Lorraine, with how bridal has been performing within our 3 largest brands and really working through the impact that James Allen is having on the bridal business. So overall, if we just focus on the 3 largest, we're seeing AUR be a strength, particularly over the last 3 quarters. It's remained relatively consistent.

The unit growth, we see the opportunity to continue to trade up into higher carat weights. JK mentioned we saw stabilization in retail pricing, and we've seen an increase in natural, particularly in some of the core larger carat weight. So we think that is a positive for us from an AUR perspective.

And then from a unit perspective, we've really fortified some of the lower price points within our assortment and continuing to drive that, and Kay, Zales and Jared is a critical focus. And then if you kind of look at that sweet spot between $2,000 and $5,000, we see opportunity, particularly as we see the stabilization and even the increase in natural diamond pricing.

So we believe that the trend of bridal, we are on pace currently with what we're seeing in the market and in the largest brands even slightly ahead. So positive signs for us as we lean into the critical fourth quarter for bridal.

And then one of the items you mentioned on your list of mitigating factors was testing pricing. Just curious if you have any test complete and what the customer reaction has been to price increases in either fashion or bridal.

Yes. It's been a really company-wide effort across our largest brands, and then we're rolling it out as we move to the back half of the year. But Jared, as we've mentioned, saw a reduction of discounting 20% to 30% over the first half of the year. With that under our belt, we've been able to apply that to Kay and Zales. And the 3 brands are posting up a mid-single-digit comp.

So we're seeing that the customer response to those changes have been -- has been good. What I'd like to share, though, is that it's not so much just retail price change per se. It's really lower discounting, but also fewer promotion days and on promotion just going less deep, if you will.

So we're seeing that we weren't getting paid for some of the pricing actions that we had in the past. And so we've removed some of the days and leaned out some of the price -- the discounts, and it was a good result.

We did mention, Lorraine, that in -- during the quarter, we had pricing and promotion cool down, so we can reset price. We do expect some of that as we roll out to the other brands to occur in the back half of the year. And really, we'll take action in other areas of the business to mitigate some of the impact of that cool down. But it's really been a strong effort across the brand and one that is embraced and, frankly, has served us well timing-wise for the impact of the tariff decisions that have impacted our business.

Yes. And I think that's spot on. The only thing I would add to it to maybe help dimensionalize it a little more is we've had pretty significant reset in assortments, particularly in the fashion category. And with that level of newness, we really have had the opportunity to focus on design and where we're buying, who we're buying from, leveraging those partnerships to be able to marry design with the sourcing capability to maintain key price points for our customers.

And I think what we're finding is they understand the commodity market. They certainly understand when gold prices move and they see value associated with that. But the ability to really adjust our assortment architecture overall and supplement with newness means we're landing new merchandise at the right price points and have been able to do that with the tariff landscape in mind, so that we're well positioned going into the holiday.

Yes. I think the only thing I'd add to that, JK, is that it's been a selective -- for existing SKUs, it's been a selective price increase. And it's been somewhat modest mid-single digit on applicable SKUs. So it's something that we've really been able to manage strategically with our promotional cadence and the depth of discounting as well. So I think all in all, it was a cohesive strategy around pricing and promotion for the business.

Your next question comes from Randy Konik with Jefferies.

I guess, JK, when you look at the fashion AUR, obviously, nice improvement there. Is there any kind of feel for what the headroom looks like in that category? Because you're talking about a significant amount of increase in the number of LGD fashion pieces to drive up, obviously, purchase activity demand and could also drive up AUR. So just any kind of feel to dimensionalize where is AUR now in fashion and what the headroom could be would be super helpful.

Yes. I think it's a great question, Randy. I think there's still runway there. Both -- we do want to be mindful that we're thinking about how to drive some unit growth along the way, although to date, a lot of our unit performance is tied to gold, and that tends to fluctuate as gold prices fluctuate.

So as we look at lab-grown -- our LGD fashion proliferation, it is generally much higher price point than what our existing assortment was. And we're setting at -- I think the number is about 14% penetration overall. And so that would tell you that there's still quite a bit of room there for us to continue to grow and expand the category.

And I think how that plays out in terms of AUR itself is -- it's also a function of what we're doing to grow some of our base categories like gold. But at the end of the day, I think we're -- we still see runway there and feel like there's an opportunity for us to continue to grow market share in fashion, particularly as we expand into that side of the category.

And the only thing I'd add there is that, that fashion penetration that JK stated is double what it was last year at this time. So to your point, Randy, there and JK, it's continued growth. The other add-on would be that we don't expect a pullback in AUR at this time, citing the higher gold prices, this LGD penetration growth, our lower level of promotions and the tariffs. So we expect AUR to continue.

Great. And then when you look at the success of an improved momentum of Jared, Zales and Kay, you gave us some crumbs that were very important around the other banners that are getting, I guess, less worse, right? Blue Nile turned. James Allen impact looks like it's going to be less worse going forward. And I think Banter hurt the units as well.

Are we looking at perhaps, let's say, 2 quarters out, 3 quarters out before we kind of -- we can lap a lot of this non-Kay, Zales, Jared items of these other banners and start to kind of -- they'll start to kind of become more neutral impact to both AUR units and comp? How do you see that? That would be really helpful just to dimensionalize that.

And then, Joan, just on the CapEx cycle, you -- I believe you reiterated the CapEx guidance for the year. Just high level, is that a kind of -- is that like a normalized type of number as we just think about the future without giving guidance? Just kind of just trying to get a sense of where we are in the CapEx cycle just for go-forward free cash flow purposes.

Do you want to take CapEx first, and then I'll come back to it?

Sure. So the $145 million to $160 million, Randy is -- as I said, was heavily weighted to real estate. I think it's -- as we look forward into our real estate strategy and we continue on the Grow Brand Love from banners to brands, our real estate strategy and in-store experience will continue to follow that strategy.

As a run rate, we really haven't assessed what that brand strategy would mean to our CapEx guidance, right, into the following year. But I wouldn't expect it to be markedly different at this time. And as you know, our capital allocation priority is to organically invest, number one, in our business. And so it will follow the strategy and -- but I wouldn't see it as being materially different than where we are today.

Thank you. And I would just -- let me take the first part of your question, Randy. The -- as far as the other brands are concerned, yes, I mean, we're focused on what we do to drive improvement there. I would say we've been very clear about the focus on Kay, Zales and Jared. Given the size, I think it's hard to be healthy if the core is not healthy.

And so I'm really pleased with the way that we've put the energy there, and I think it's absolutely the right thing to build momentum in the business. It also -- to Joan's point, whether it's how we think about promo or what we're looking at in terms of assortment, it informs the decisions that we feel like are critical to help drive the other brands. And within each, there's a little bit different story.

Blue Nile continues to build momentum. And I think that is very much about distinguishing its brand positioning and really moving back up a bit to where it has held the greatest strength. It also has an opportunity as it relates to fashion, very similar to Kay, Zales, Jared. And that's -- I think that similarity is part of why it's moving faster along with -- within that team. The focus on it is really the bellwether of the digital brands.

James Allen, we've got some work to do strategically. We have some work around price and promotion, positioning within the marketplace. We also have some work around speed to market relative to customization or the assembly customization that's really the hallmark of what James Allen does. And the team is working hard to reposition and relaunch with those improvements in place. And I think we'll -- then we'll be able to measure what it takes to win that business back from a customer standpoint and/or what are the right decisions that we should be making moving forward with James Allen.

The other businesses, we don't talk a lot about. Peoples has been a really strong business in Canada. We don't talk about it quite as much, and I probably owe a big thanks to our Peoples team in Canada. They're small, but mighty. And if you look at their business on a 2-year stack basis, it's probably the healthiest in the company, growing share and really leading well.

U.K., we don't talk a lot about for some of the same reasons. It's been relatively healthy. I think there are some market share dynamics that are unique to the U.K. market that present some opportunities for us moving forward. And -- but it's not a big source of investment or a big source of capital. And so it's probably not going to be something that we dimensionalize a lot.

And then I think Diamonds Direct is a really good business that, like a lot of businesses that are sort of founder-led, hit a growth stage where you really have to look at operating model and what it means to go from being a smaller regional founder-led business to something that is of larger scale. And so that's work that's in front of us.

The team is galvanized around that. And I do think that as we tackle that, then, yes, to your point, those things, I wouldn't use the word less worse. I think our goal is to improve them and create some tailwind behind those businesses and make them stronger parts of the portfolio, but it's going to come with the gravitational pull and the weight of having core brands like Kay, Zales and Jared that really do drive performance for us.

The only one I didn't mention is Banter. I think Banter is -- it's good business. It's got some -- it's very different from the rest of our businesses, just given lower price point, heavy reliance on gold, kiosk business. And so there's some unique dynamics there. But it's actually sort of holding its own. And I mean -- so again, not a high source of capital or investment moving forward, but something that we'll continue to manage as well. So thanks for the question.

Your next question comes from Ike Boruchow with Wells Fargo.

This is Robert on for Ike. I was wondering if you could talk a little bit more about your 3Q guide? Because it seems like it's a little below the 2Q run rate. As some softened, are you seeing some earlier demand pull forward? And also could you talk a little bit about your holiday comp plan?

So I'll take the 3Q guide. The guide -- the performance that we saw in second quarter, we saw momentum continue into the third quarter. We're pleased with that. The momentum was on a positive -- with a positive 2-year stack. So the guide itself is just -- is relatively measured, and we feel that we're pleased with how the business performed, and the guide itself just takes into account the many factors that we face in the third quarter.

So happy with the top line momentum. We'll see a little bit of -- we continue to see gross margin expansion with some deleverage in SG&A. So really relative to some incentive cost resets. So we are -- and that's the underpinning of the 3Q guide.

I think as we look at the full year, we've raised our full year guidance same-store sales with an increase in operating income, less so on the low end given the impact of tariffs and so forth, which we've discussed. But the same-store sales itself is a slight decline, if you will, in the implied guide for 4Q, and it's really all around the idea of this measured consumer environment and what -- and being somewhat conservative to what we've seen happen in the business, just knowing the backdrop of the business.

But overall, we've raised our guide, reflecting what we've seen in the second quarter, our expectations for third quarter and then just remaining somewhat measured in the fourth quarter for holiday.

Go ahead, Robert. I didn't mean to cut you off.

No. Go ahead. What were you going to say?

No. I was just going to say as far as holiday comp plan, I -- we're -- we believe we're well positioned to maximize the holiday season. I think Joan touched on it. There's a lot of moving parts in the environment right now, but we've seen our customer be resilient.

This -- we largely set in what is a planned and emotional purchase, and those drivers are fairly timeless, resilient, and we're seeing customers respond to that in the marketplace. I think we've also taken the right steps, given maybe where we didn't deliver as strongly last year, are better positioned within key price points.

We called it out in the script, but LGD fashion is 3x the inventory level or ownership levels below $1,000 and even greater below $500. And we've put a particular focus on that $250 to $500 price point because that's really critical, especially as you get into those last 10 days.

So I think we're very well positioned to be able to maximize that. And it's not just the ownership level, but when you look at the level of newness, that allocation of inventory is much more on trend and better positioned relative to what I think customers are looking for, and we'll be there ready for them because I think they'll still shop for the holiday.

The only other thing I'd add to it is from a marketing perspective, very focused on maximizing that investment in full funnel marketing across the year to really pulse demand during those last key time periods, and we'll continue to build upon the impression expansion that we've seen over the course of the year to best position ourselves to maximize the holiday season.

Great. One other follow-up on that. Can you talk about how your lab business did in the second quarter and how comps and margins are doing in it?

The lab-grown diamond business, yes, what we've said about fashion, Robert, is that it has a 14% penetration rate in fashion, and it's double what it was last year. Margins are quite nice. They're up somewhat in -- with respect to the lab-grown fashion performance.

And frankly, we're seeing -- as we said in bridal, we're seeing the stabilization of pricing in lab grown. And just conversely on natural, it's actually up. So we're seeing a nice AUR movement in both of those businesses, and the penetration to an earlier point is we see runway for that to continue to grow in fashion.

The next question comes from Mauricio Serna with UBS.

I'd like to maybe ask on -- if you could elaborate on your third quarter performance. Quarter-to-date, like how does that look versus what you were seeing at the end of -- in July, which you pointed was like your strongest month?

And then just kind of help us to also think about like the compares for the third quarter. I think I recall like last year, like August was actually like the strongest month of the quarter that -- if I'm correct. So just trying to understand like what does that imply for like the guidance for the sales guidance for Q3.

Yes. For Q3, we exited the quarter nicely. As we mentioned, July was our toughest comp, and we exited it nicely on a positive comp, highest comp in the month in the quarter -- in the second quarter. The comp has been fairly consistent across the last several months as we look into August.

We like what we're seeing, and it's a positive comp trend for us. The only caveat I'd share with you is that we'll have some further pricing resets and cool downs that we'll experience in the third quarter as we prepare for the critical fourth quarter. But overall, top line trends have held and believe that the team has done a nice job in setting architecture as we land new product throughout the quarter.

Got it. And then just one quick follow-up on the guidance for -- the updated guidance for the year. Could you give us a sense of how much pressure from tariffs you're expecting in Q4 when you're thinking about like the high end and the low end of the guide?

Yes. So Mauricio, as we think about the guidance range for operating income, what we've said that is if the Russian penalty remains, our -- on the Indian imports, we expect to be in the middle to lower end of our EBIT range. But if it's removed, we would expect to be in the upper half of the guidance range. So that's the dimension that we've put within our range.

And so we were able to evaluate -- to the discussion earlier, evaluate and opportunities to offset as much of the tariff and mitigate as much of the tariff as we can with country of origin and pricing and promotion and so forth and believe that the teams have the right pricing in place for holiday. And so that's why we were able to stay within that guidance range.

And just one point of clarification. For the high end of the guide, when you say they remove like the Russian penalty, does this mean like the tariff is 25% or 10% on?

Yes, exactly. The reciprocal tariffs remain intact, but the penalty, if that is removed, we would expect to be in the higher -- in the high end of the range.

And sorry, what would be that tariff, so 25%?

Yes, for India. So -- and with the Russian penalty, it's 50%. So we would expect to be in the upper half of the range if that penalty would be removed.

Your next question comes from Dana Telsey with Telsey Group.

As you think about the learnings from the fourth quarter applied to this year, I remember last year, some of it was not having enough of the right inventory at the price points of $200 to $500. Obviously, you had growth in lab grown fashion diamonds. How do you think of the playbook for holiday this year? And what is marketing spend going to look like this year versus last year?

Sure. Dana, thanks for the question. We feel good about the holiday. We've kept our eye on the ball relative to those assortment gaps from last year and have really invested to make sure that we are covering the right price points. Lab-grown diamond fashion is a big part of that because of the on-trend nature and customer relevance of it, particularly in the fashion category.

We've tripled our ownership of lab-grown diamond fashion below $1,000, have bigger increases below $500 and with particular focus on that $250 to $500 price point. We've also looked at what's the -- within existing SKUs, what's the content of the assortment look like relative to trend. It was -- we sold through the on-trend merchandise we had last year. We did have other merchandise, but it was dated, and we've worked hard coming out of last year and into the first part of this year to be clean from an inventory perspective and then make the assortment adjustments. And depending on the brand, you're looking at as much as 40% to 50% of an assortment shift, particularly within those price points.

So it's not just about the depth of ownership that was a big opportunity last year, but the content within it is something that we've been mindful of, particularly as we've tried to wed the assortment changes to the brand positioning for each.

And so within Kay, that means really doubling down on milestone gifting as the big driver of assortment differentiation along with men's. With Zales, it really is about more on-trend fashion assortment with particular focus on self-expression, and stacking is a big part of that trend. Within Jared, you really have both of those trends at play, but at a more elevated price point for a more discerning higher-end customer who likely has the essentials in their jewelry box already and are looking to add to their collection.

And so I think the focus that our teams have brought to the table, particularly in this environment, where we've worked on shifting the long-term strategy and have made an awful lot of changes to our operating model, but to balance that with driving performance in the near term, I'm really pleased with where we are despite maybe all the external noise that's going on in the environment.

I think our team is really well positioned and is navigating this dynamic environment well on behalf of our customers who I think will reward us, but also the impact that it can have on shareholders.

And 2 quick follow-ups. JK, is the team fully built out now? Any other holes that you're seeking to fill? And then on square footage, Joan, I think it's now down 1%. Previously, it was down 1% to flat. Anything to take away there?

Sure. Let me take the first part of that question, Dana. I'm really pleased with the leadership team and the way that we've come together. I think the mix of experience, both Signet experience as well as industry experience, and the diversity of thought that we've added to the team just makes us stronger.

And I think we're well positioned. We do have one leadership position that we are still interviewing for. It's a technology leader for the organization. I think that's going to be the last critical piece for us to fill. But as I alluded in the last calls, that process is ongoing. We're getting close to a final decision there.

And just like with the addition of Julie and Lisa and the elevation of Stacee, I'm confident that we'll add strength to the team, not only with the expertise in the area that we're looking for, but also that someone who's going to be additive to culture and really be aligned with our purpose and our strategy in a way that can be a catalyst moving forward.

So stay tuned, but we're -- team is largely set, to the point of your question, more succinctly, and I'm excited about how well everybody is working together and our alignment on the strategy moving forward.

And Dana, to your question on square footage, it's really just the refinement of our store closure plan for the balance of the year. So nothing more to take from that than just a refinement.

[Operator Instructions] Your next question comes from Jim Sanderson with Northcoast Research.

I wanted to go back to the fashion category for the quarter. Could you provide us what the unit decline was for the quarter?

Yes. We...

The decline in the unit performance, sorry, JK, was down high single digit in the fashion category. And what you should take from that, Jim, is that the gold pricing in Banter had slowed the units there, which is typically what we see over time.

And then the change in the promotional item strategy, particularly in Zales, which was a strategic decision to move away from some of those lower price points and one that we would expect to continue in the back half of the year.

So pleased with the overall fashion performance and the refinement of strategy, and the gold prices was generally -- the external commodity gold pricing was really the impact that we saw in the Banter brand.

Okay. And the bridal category, as far as your outlook for the fiscal year, do you expect the units in bridal to remain relatively flat? Or do you anticipate some pickup or momentum heading into the back half of the year for units, not AUR?

Yes. It's relatively flat on the higher end, Jim. Might be like up a low single-digit level, but it's -- that's where -- that's the guidance, and it's really remained unchanged from where we were last quarter in terms of our outlet feel.

Okay. And then one follow-up question more broadly on your assortment changes. Where do you think lab-grown diamond assortment mix will land as you build up the kind of value fashion assortments going forward? I think you said it was 7%, now up to 14% of sales mix. What's the right mix for the assortment you have in mind?

Yes. Jim, I appreciate the question. We haven't really given a penetration target in part because it's a function of both numerator and denominator, and we'd like to grow both. So I'm probably not going to give you a target there. I do think we're -- when you look at our penetration from a share perspective, it is still relatively low in fashion.

And when you look at the growth that's driving the category, lab-grown diamonds are really the impetus for that, and I'll underscore the point around category expansion. These are not replacements for something that exists today. Largely, the customer that is buying something like a lab-grown diamond tennis bracelets, for example, is not a core traditionalist that is choosing between a natural diamond or a lab-grown diamond. This is really about expansion of consumption overall for much of where that growth is.

So we still feel like there's runway there from a penetration standpoint. It is -- I think it's going to take a little bit of dimensionalizing, and we'll probably answer this question on future calls because a lot of our fashion unit performance has been disproportionately grown through a brand like Banter at a much lower price point. And as we move into what is really on-trend fashion, it will juice AUR, if you will, but it's almost apples and oranges because you're adding to the category.

And I think we're going to -- questions like yours in terms of how do you put to a model is probably going to be something we'll talk about for a little bit as we find what the baseline for this can be. But still expect a lot of growth there. And interestingly, as we routinize it, particularly in those core brands of ours, we're seeing overall balance across sort of AUR and unit growth, especially in Kay and Jared.

Okay, okay. Just one last follow-up question on marketing spending. I think this quarter, you reported spending was a little bit higher than revenue growth. Is that the trend we should look at for the back half of the year?

No, not necessarily. I mean, I -- we haven't really changed our budget for the year. What we have done is feed it if -- I mean, we're very focused from a performance standpoint. We were up 4% in spend. But if we can see that, that pulls through and we're going to grow profit based on that investment, then I think we're -- we've got our feet on the gas and the brake appropriately there, and I would call it neutral overall.

There are no further questions at this time. I will now turn the call over to JK Symancyk for closing remarks.

Thank you, and thank you, everybody, for joining us today. In closing, I'd like to again thank our team for their commitment to delivering results this quarter. We are laser-focused on holiday preparations, and we look forward to sharing further results with you in December. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.