Signet (SIG) Q2 2026 Earnings Call Transcript

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DATE

Tuesday, September 2, 2025 at 8:30 a.m. ET

CALL PARTICIPANTS

Chief Executive Officer — JK Symancyk

Chief Financial, Strategy, and Services Officer — Joan Hilson

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RISKS

Joan Hilson stated, "India currently represents roughly half of our finished merchandise purchases and have seen the tariff increase from 10% to 50% in the last five 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."

Gross margin was negatively impacted by a 70 basis point increase, driven by the wholesaling of loose stones and a write-down of discontinued product in fiscal Q2.

SG&A leverage is not expected to continue into the back half of the year because of an incentive compensation reset, especially weighted to the fourth quarter.

Unit sales declined 7% in fiscal Q2 2026, primarily in Banter, due to higher gold prices and a strategic shift away from lower-priced promotional items.

TAKEAWAYS

Same-Store Sales-- Same-store sales rose 2% in fiscal Q2 2026 (period ended Aug. 2, 2025), marking the eighth consecutive month of positive comps, with the combined Kay, Zales, and Jared brands delivering approximately 5% comp growth for the second consecutive quarter.

Revenue-- Revenue exceeded $1.5 billion in fiscal Q2 2026, led by fashion and services, with fashion comp up 2%, and services growing over 7%.

Lab-Grown Diamond (LGD) Fashion Sales-- Penetration rose to approximately 14% of fashion sales in fiscal Q2 2026, double the level of the previous year.

Merchandise Average Unit Retail (AUR)-- AUR increased by roughly 9% in fiscal Q2 2026, with fashion AUR up more than 12%, and bridal AUR up 4%.

Gross Margin Rate-- Gross margin rate expanded by 60 basis points in fiscal Q2 2026, including a 30 basis point increase in gross merchandise margin and 30 basis points of fixed cost leverage from 2% comp growth.

Adjusted Operating Income-- Adjusted operating income grew more than 20% to $85 million in fiscal Q2 2026, driven by positive comps, gross margin gains, and disciplined SG&A expense management.

Adjusted EPS-- Adjusted EPS was $1.61 in fiscal Q2 2026, representing 29% growth due to higher income and a lower share count, partially offset by a higher effective tax rate.

Free Cash Flow-- Free cash flow in fiscal Q2 2026 was over $60 million, an improvement of nearly $50 million year over year.

Share Repurchases-- $32 million was repurchased in fiscal Q2 2026 (about 0.5 million shares), bringing the year-to-date total to $150 million, or 6% of shares outstanding, with $570 million in authorization remaining.

Third-Quarter Guidance-- Total sales for fiscal Q3 are expected to range between $1.34 billion and $1.38 billion, with same-store sales ranging from down 1.25% to up 1.25%, and adjusted operating income guidance between $3 million and $17 million.

Full-Year Guidance-- Full-year guidance was raised to total sales of $6.67 billion to $6.82 billion, same-store sales between down 0.75% to up 1.75%, and adjusted operating income of $445 million to $515 million.

Adjusted EPS Guidance-- Adjusted EPS guidance was raised by approximately 3% at the midpoint to a range of $8.04 to $9.57 per diluted share for the year, inclusive of share repurchases.

Inventory-- Inventory at the end of fiscal Q2 2026 was $2 billion, flat year over year, despite a more than 30% increase in gold cost.

Capital Expenditures-- Organic investments remain on track at $145 million to $160 million in fiscal 2026, primarily for real estate initiatives.

SG&A Rate-- SG&A rate improved by 50 basis points in fiscal Q2, but the outlook calls for flat or slightly higher SG&A as a percentage of sales at the high end of full-year guidance due to incentive compensation resets.

Brand Marketing Impressions-- Impressions for the three largest brands increased over 40% on a mid-single-digit rise in media spend; social media buys were up more than 20%, now exceeding one-quarter of total marketing spend in fiscal Q2 2026.

Digital Brands Update-- Blue Nile returned to positive comps in July, with 25% growth in fashion revenue in fiscal Q2 2026; James Allen's negative comp impact moderated to 120 basis points in fiscal Q2 2026 and is expected to moderate further to 60%-90% basis points for fiscal 2026.

Pricing and Promotional Strategy-- Discounting at Jared was reduced by 20%-30% over the first half of the year, with fewer promotion days and selective mid-single-digit price increases implemented across key SKUs at Kay and Zales.

SUMMARY

Management provided detailed visibility on strategic merchandise and assortment differentiation, with a focus on rebuilding inventory at critical holiday price points and accelerating lab-grown diamond expansion. Major leadership hires in marketing and merchandising were highlighted to underpin ongoing transformation initiatives. The team explicitly linked future adjusted operating income guidance for the year to the evolving tariff structure, indicating close attention to shifting policy risks and associated mitigations. Product mix—especially the increasing share of higher AUR LGD fashion, which reached approximately 14% penetration of fashion sales in fiscal Q2 2026—was also highlighted as a key driver in margin and revenue forecasts.

JK Symancyk said, "we are fully prepared and well-positioned for holiday. As we enter our most critical season with momentum, and clear strategic focus."

Joan Hilson explained, "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 two months, we expect adjusted operating income in the upper half of the range."

The company expects to more than triple the quantity of LGD fashion pieces priced below $1,000 for the upcoming holiday season, with even higher growth for items below $500.

The appointments of Julie Jocham and Lisa Lache were highlighted as important steps for brand modernization and enhanced digital engagement.

Management maintained current capital allocation priorities focused on organic investment and balanced shareholder returns, despite market volatility and input cost pressure.

INDUSTRY GLOSSARY

Lab-Grown Diamonds (LGD): Man-made diamonds produced in laboratories, often positioned as lower-cost alternatives to natural diamonds while exhibiting similar physical characteristics.

AUR (Average Unit Retail): The average selling price per unit, a key profitability driver for jewelry and fashion retailers, influencing revenue without requiring unit volume growth.

Full Conference Call Transcript

JK Symancyk: 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 three 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 eight 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 three 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 continue 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 diamonds, 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 three 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 boxes 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 three 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 a quarter 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 long-standing "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.

JK Symancyk: 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 Jocham. 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 customers and increase repeat purchases from existing customers. As part of our modernization efforts, Kaye'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. 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 Lache as our new chief marketing officer. Lisa previously oversaw digital and brand marketing for the Crocs footwear brands. She brings over two 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 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 will be tested 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 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 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 eight 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.

Joan Hilson: 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 three 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 two-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 six 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 three times 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 carries 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 cost.

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 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 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 cool down. 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 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 and incentive comp resets, 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 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 two-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 two months. We are raising our adjusted operating income expectation to a range of 445 to $515 million. We continue to expect gross merchandise margin expansion for the year inclusive of the impact of tariff.

With regards to tariffs, India currently represents roughly half of our finished merchandise purchases and have seen the tariff increase from 10% to 50% in the last five 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 two 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: Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift a handset before pressing any keys. Your first question comes from Paul Lejuez with Citibank. Your line is now open.

Paul Lejuez: Hey. Thanks, guys. 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?

JK Symancyk: Yeah. Paul, good morning. Thanks for being on the call. Really, you know, there's a couple of things going on. I'd say mix is largely the driver of it. We'll focus on fashion first. I think there's two 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, you know, stretching what you know, the category of fashion looks like for us. And with that, we see continued expansion in AUR. And, you know, have modeled it accordingly. From a bridal perspective, similar. Mix is really driving it.

You know, in 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, you know, 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.

Paul Lejuez: 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 '6? Would you expect to be able to mitigate the pressures if they stayed at, you know, this 50% rate? Just trying to understand how much is you know, how much you've been benefiting from using existing inventory versus does this just kind of, you know, create an issue for you next year?

JK Symancyk: Yeah. I think, well, we not given any guidance for next year, obviously, but you know, as we look at it, 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 US. Obviously, there's a lot of moving parts in the tariff landscape right now, and I'm really proud of what our team has done.

We've been able to maintain guide, you know, 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 gonna create value for our customers and for shareholders. By hitting the right price points as we go into the holiday. We, you know, we expect to be able to continue to do that. You know, Valentine's is really right around the corner. So as we're looking at holiday merchandise, we really sort of lump the two together. Beyond that, I mean, you know, I what I would tell you is we're gonna 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 you know, 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, you know, doing our best to even exercise, you know, some tactics to be able to create the flexibility if things continue to be dynamic.

Paul Lejuez: Got it. Thank you. Good luck.

JK Symancyk: Yeah. Appreciate it. Thanks for the question.

Operator: Your next question comes from Lorraine Hutchinson with Bank of America. Your line is now open.

Lorraine Hutchinson: Thank you. Good morning. 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?

Joan Hilson: Yeah. So, we're really pleased, Lorraine, with how bridal has been performing within our three largest brands and really working through the impact that James Allen is having on the bridal business. So, overall, as we just focus on the three largest, we're seeing AUR, be a strength, particularly over the last three quarters. It's remained, you know, relatively consistent. The unit growth, we see the opportunity to continue to trade up into higher carat weights.

You know, JK we saw stabilization in, you know, retail pricing, and we've seen an increase in natural, particularly in some of the core larger carat weights, so we think that is you know, a positive, for us from an AUR perspective, and then from a unit perspective, where we've really fortified some of the lower price points within our assortment and continuing to drive that. And, you know, Kay Zales and Jared is a critical focus. And then if you kinda look at that sweet spot between 2 and $5,000, We see opportunity, particularly as we see the stabilization and even the increase on natural diamond pricing.

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

Lorraine Hutchinson: Thank you. 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?

Joan Hilson: Yeah. You know, it's been a really, you know, company-wide effort across, you know, our largest bay brands, and then, you know, we're rolling it out, you know, as we move the back half of the year. But Jared, as we've mentioned, you know, saw a reduction of discounting, you know, 20% to 30% over the half of the year. With that under our belt, we've been able to apply that to Kay and Zales. And the three brands are posting up a mid-single-digit comp. So seeing that the customer response to those changes 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, you know, we weren't getting paid for some of the pricing that we had in the past. And so we've, you know, 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, you know, impacted our business.

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

Joan Hilson: Yeah. 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, you know, somewhat modest mid-single digits. 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.

Lorraine Hutchinson: Thank you.

Operator: Your next question comes from Randy Konik with Jefferies. Your line is now open.

Randy Konik: I guess, JK, when you look at the fashion AUR, nice improvement there. Is there any kind of feel for what the headroom looks like in that category? Because it you're talking about significant amount of increase in the number of LGD fashion pieces to drive up, you know, drive up obviously at 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. Thanks.

JK Symancyk: Yeah. I think it's a great question, Randy. I know, I think there's still runway there. You know, both, you know, we do wanna be mindful that we're thinking about how to drive, you know, some unit growth along the way. Although, you know, today, a lot of our unit performance is tied to gold, and, you know, that tends to fluctuate as gold prices fluctuate. So as we look at lab-grown you know, our LTD fashion, you know, proliferation, it is, you know, generally much higher price point than what our existing assortment was, and we are you know, we're setting at, I think the number is about 14% penetration overall.

And so that would tell you that there's still, you know, quite a bit of room there for us to continue to grow and expand the category. And I think, you know, 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, you know, at the end of the day, I think we're you know, 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.

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

Randy Konik: Great. And then, you know, when you look at the success of an improved momentum of Jared, Zales, and Kay, You gave us some problems that were very important around the other banners that are getting, I guess, less worse. Right? Blue Nile turned, Games Island Impact Looks like it's gonna be less worse going forward. And I think banter hurt the units as well. Are we looking at perhaps, let's say, two quarters out, three quarters out before we kinda we can lap a lot of this non-K, Zales, Jared, items of these other banners and start to kind of those start to kinda become more neutral impact to both AUR units and comp. Yeah.

How do you see that? That'd be really helpful. Just 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 you know, the future without giving guidance? Just kinda just kinda get a sense of where we are in the CapEx cycle just for go forward free cash flow purposes. Thanks.

Joan Hilson: You want to take CapEx first, and I'll go back to Sure. So the $145 to $160, Randy, is, you know, as I said, was heavily weighted to real estate. I think it's you know, 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 like 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, you know, materially different than where we are today.

JK Symancyk: Thank you. And I would just let me take you the first part of your question, Randy. As far as the other brands are concerned, I yeah. I mean, we're focused on what we do to drive improvement there. I would say, you know, we've been very clear about the focus on KZLs and Jared given the size, I you know, it's it's it's hard to be healthy if the core is not healthy. And so, you know, 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, you know, 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, you know, within each, there's a little bit different story. Blue now continues to build momentum, and I think that you know, that is very much about distinguishing you know, its brand positioning and really, you know, moving back up a bit to where, you know, it has held the greatest strength.

It also has an opportunity as it relates to fashion, very similar to KZLs Jared, and that's, I think, you know, that similarity is part of why it's moving faster along with you know, within that team, the focus on it as really the bellwether of the digital brands. James Allen, we've, you know, 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, you know, 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 know, I think we'll, you know, then we'll be able to measure you know, 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. Know, the other businesses, we don't talk a lot about. Peoples has been a really strong business in Canada. You know, we don't talk about it quite as much, and I probably owe a big thanks to our people's team in Canada. They're small but mighty, and if you look at their business on a two-year stack basis, it's probably the healthiest in the company. Growing share and really leading well.

UK, we don't talk a lot about for some of the same reasons. It's been relatively healthy and I think they're some market share dynamics that are unique to The UK market that present some opportunities for us moving forward. And, you know, But it's not a big source of investment or a big source of capital, and so it's probably gonna be something that we dimensionalize a lot.

And then, you know, I think Diamonds Direct is a really good business that you know, like a lot of like a lot of businesses that are, you know, sort of founder-led, you know, hit a growth stage where, you really have to look at operating model and what it means to go from being, you know, smaller regional, you know, founder-led business to something that is of larger scale. And so you know, we that's work that's in front of us. The team is galvanized around that. And I do think that, you know, as we tackle that, then, yeah, to your point, those things, I wouldn't use the word less worse.

I think, you know, our goal is to improve. You know, improve them and create some tailwind behind those businesses and, you know, make them stronger parts of the portfolio, but it's gonna come with the gravitational pull and the weight of having core brands like Kay's Ale's and Jared that really do drive performance for us. The only one I didn't mention is Banter. I think Banter is a good business. You know, it's got some you know, it's very different from the rest of our business. Just given lower price point, heavy reliance on gold, kiosk business. And so there's some unique dynamics there, but it's know, it's it's it's actually, you know, sort of holding its own.

And, I mean so again, not a high source of capital or investment moving forward, but something that you know, that we'll continue to manage as well. So thanks for the question.

Randy Konik: Very helpful. Thank you.

Operator: Your next question comes from Ike Boruchow with Wells Fargo. Your line is now open.

Robert: Hey. This is Robert on for Ike. I was wondering if you could talk a little bit more about three q guide, because it seems like it's a little below two q run rate. Has something softened or you're seeing some earlier demand pull forward? And also, you talk a little bit about your holiday comp plan? Thank you.

Joan Hilson: So I'll take the three q guide. You know, the guide the performance that we saw in the second quarter you know, we saw momentum continue into the third quarter. We're pleased with that the momentum was on a positive two-year, but the positive two-year stack. So, you know, the guide itself 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 what we continue to see gross margin expansion with some deleverage. In SG&A. So really relative to some incentive you know, cost reset.

So we are and that's the underpinning of the three 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 applying guide for 4Q. And it's really all around the idea of this measured consumer environment and what and being somewhat conservative to, you know, 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 our expectations for the third quarter. And then just remaining somewhat measured in the fourth quarter for holiday.

JK Symancyk: Yeah. And I think I'm sorry. Go ahead, Robert. I didn't mean to cut you off.

Robert: Oh, no. Go ahead. What were you gonna say?

JK Symancyk: No. I was just gonna say as far as holiday comp plan, I you know, 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 know, we've seen our customer be resilient. You know, the this we largely set in what is you know, a planned and emotional purchase, and those drivers, you know, 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, you know, maybe where we didn't deliver as strongly last year, are better positioned within key price points.

You know, we called it out in the script, but LGD fashion is three x. The inventory level or ownership levels below a thousand dollars 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 ten days.

So you know, 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, you know, 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, you know, 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.

Robert: Great. Thanks. 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?

Joan Hilson: The lab-grown diamond business. Yeah. What we've, you know, said about fashion, Robert, is that you know, it has a 14% penetration rate in fashion, and it's doubled what it was last year. Margins are, quite nice. They're up somewhat in with respect to the lab-grown fashion performance. And, you know, frankly, we're seeing as we said in bridal, we're seeing the stabilization of pricing in lab-grown and, you know, 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.

Robert: Great. Benjie, I'll pass along. Yeah. Thank you.

Operator: Next question comes from Mauricio Serna with UBS. Your line is now open.

Mauricio Serna: Great. Thank you for taking my questions. I'd like to maybe ask on you could elaborate on your third-quarter performance quarter to date, you know, 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 you just 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. Just trying to understand, like, what does that imply for, like, the guidance for the sales guidance for Q3? Thank you.

Joan Hilson: Yeah. 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 will 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.

Mauricio Serna: Got it. And then just one quick follow-up on guidance for, you know, the updated guidance for the year. 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?

Joan Hilson: Yeah. So, Mauricio, as we think about the guidance range for operating income, you know, what we've said that is if the Russian remains, we are 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 of the tariff and mitigate as much of the tariff as we key on.

With, you know, country of origin and the and, you know, pricing and promotion and so forth. And I 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.

Mauricio Serna: 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?

Joan Hilson: Yes. Exactly. That 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.

Mauricio Serna: I'm sorry. What would be that part? So 25%?

Joan Hilson: 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.

Mauricio Serna: Understood. Thank you so much.

Operator: Your next question comes from Dana Telsey with Telsey Group. Your line is now open.

Dana Telsey: Hi. Good morning, everyone, and nice to see the progress. As you think about the learnings from the fourth quarter of applied to this year, I remember last year, some of it was not having enough of the right inventory at the price points 200 to $500, Obviously, a growth and 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? Thank you.

JK Symancyk: Sure. Good morning, Dana. Thanks for the question. You know, I the we feel good about the holiday. You know, we've kept our eye on the ball relative to those assortment gaps from last year. And you know, 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 you know, we've tripled our ownership of Lab Grown Diamond Fashion below a thousand dollars. Have, you know, bigger increases below $500 and with particular focus on that 250 to $500 price point.

You know, we've also looked at what's the, you know, within existing SKUs, what's the content of the assortment look like relative to trend? You know, it was we sold through the on-trend merchandise we had last year. We did you know, have other merchandise, but it was dated and, you know, 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, you know, depending on the brand, you're looking at you know, as much as 40 to 50% of an assortment shift, you know, 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 web the assortment changes to the brand positioning for each. And so you know, within k, 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 on self-expression, and stacking is a big part of that trend.

Within Jared, you really have both of those trends at play, at a more elevated price point for a more discerning higher-end customer who, you know, likely has the essentials in their jewelry box already and are looking to add to their And so I think the focus that our teams have brought to the table particularly in this environment where, you know, 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 the near term, I'm really pleased with where we are, you know, 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, you know, the impact that it can have on shareholders.

Dana Telsey: Two 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? Thank you.

JK Symancyk: Sure. Let me take the first part of that question, Dana. Yeah. You know, I'm really pleased with the leadership team and the way that you know, 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 gonna be the last critical piece for us to fill. But you know, as I alluded in the last calls, know, 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 Stacy. You know, 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 gonna be additive to culture and really be aligned with, you know, our purpose and our strategy in a way that's that can be a catalyst moving forward. So stay tuned, but we team is largely set to the point of your question more succinctly, and I'm excited about how well everybody's working together and our alignment on the strategy moving forward.

Joan Hilson: And to answer your question on square footage, it's really just refinement of our store closure plan for the balance of the year, so nothing more to take. From that then, but just a refinement.

Dana Telsey: Got it. Thank you.

Operator: Ladies and gentlemen, as a reminder, should you have a question, please press 1. Your next question comes from Jim Sanderson with Northcoast Research. Your line is now open.

Jim Sanderson: Thanks for the question. I wanted to go back to the fashion category for the quarter. Did Could you provide us with the unit decline was for the quarter?

Joan Hilson: Yeah. 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. Then the change in the promotional item strategy particularly in sales, which was a 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 it was generally the external commodity gold pricing was really the impact that we saw in the banter brand.

Jim Sanderson: Okay. And in 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?

Joan Hilson: Yeah. We it's relatively flat. To you know, on the higher end, Jim might be at, like, up a low single-digit level, but it's that's where that's the guidance, and it's it's really may remain unchanged from where we were last quarter in terms of our outlook view.

Jim Sanderson: 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?

JK Symancyk: Yeah. Joe, I appreciate the question. We haven't really given a penetration target in part because you know, it's a function of both numerator and denominator and, you know, we'd like to grow both. You know? So I'm probably not gonna give you a target there. I do think we're you know, when you look at our penetration from a share perspective, it's still relatively low in fact. And when you look at the growth that's driving the category, lab-grown diamonds are really the impetus for that. And, you know, I'll underscore the point around category expansion. These are not replacements for something that exists today.

You know, largely the customer that is buying something like a lab-grown diamond tennis bracelet, 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, you know, it's gonna take a little bit of dimensionalizing and we'll probably answer this question on future calls because, you know, a lot of a lot of our fashion unit performance has been, you know, disproportionately grown, you know, through a brand like Banter at a much lower price point.

And as we move in, to what is really on-trend fashion, it will you know, 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 gonna you know, questions like yours in terms of how do you flip to a model is probably gonna 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, you know, interestingly, you know, as we routinize it, particularly in those core brands of ours, we're seeing, you know, overall balance across, you know, sort of AUR and unit growth, especially in Kay and Jared.

Jim Sanderson: 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?

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

Jim Sanderson: Alright. Thank you very much.

JK Symancyk: Yeah. Appreciate the question.

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

JK Symancyk: 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're laser-focused on holiday preparations and we look forward to sharing further results with you in December. Thank you.

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

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