Group Strategy
| US | UK |
The Group’s medium term objectives are to continue to achieve sector leading performance standards on both sides of the Atlantic, to increase store productivity, grow new store space in the US, and to maintain a strong balance sheet.
US
In 2007/08 the division continued to implement its proven strategy and the performance of the business against these criteria is set out below:
Strategy: To achieve sector leading performance standards
In 2007/08 the division increased total sales by 4.1% (52 week basis), and, despite the comparative weakness of the middle mass market, performed broadly in line with the total US jewellery market which grew by 4.0% to $64.7 billion in calendar 2007 (2006: $62.2 billion; source: US Department of Commerce). The Group’s share of the speciality jewellery market remained at 8.8%. In 1997/98, the division accounted for 4.8% of speciality jewellery sales and 7.0% in 2002/03.
Over the five year period ended on 2 February 2008 the division’s operating margin averaged 12.0% and Earnings Before Interest and Tax (“EBIT”) / Year End Total Assets ratio was 14.9%. Jewelers of America reported that the typical speciality retail jeweller was achieving an average operating margin of 5.4% and a 7.7% EBIT / Year End Total Assets ratio over the five years to 31 December 2006, being the last year for which figures have been published. While 2007/08 was difficult, over the last five years the Group’s total sales have increased by 56.4% and operating profit by 25.8%.
Strategy: To improve store productivity
The key driver of the division’s comparatively high operating margins and return on assets is store productivity, which is well above that of the industry as a whole. While the Group’s strategy is to increase store productivity, there was a decline in 2007/08, reflecting the fall in like for like sales and an increase in the proportion of immature stores under six years old. Over the last five years the sales per store for Kay and Jared have increased to $1.71 million from $1.53 million and to $5.34 million from $4.57 million respectively. The regional brands achieved sales per store of $1.34 million in 2007/08 with the difference in performance between Kay and the regional brands continuing to reflect the benefit of national television advertising.
Strategy: To grow new store space
The Group has strict criteria for investment which have been consistently applied. Over the last five years net new store space of 10% per annum has required a total investment of some $700 million in fixed and working capital. Appraisal reviews show that, in aggregate, investment returns continue to exceed the Group’s targeted 20% internal rate of return over five years. In 2007/08, net new store space grew by 10% (2006/07: 11%). Over 80% of the growth was outside traditional malls in 2007/08 and at 2 February 2008 about 40% of store space was off-mall. The table below sets out the store numbers, net new openings and the potential number of stores by chain and format:
| Store numbers | 3rd February 2007 | Net Openings 2007/2008 | 2 February 2008 |
Expected net openings 2008/09 |
Long term potential |
|---|---|---|---|---|---|
| Kay | |||||
| Mall | 772 | 17 | 789 | 6 | 850+ |
| Off-mall | 52 | 40 | 92 | 19 | 500+ |
| Outlet | 5 | 5 | 10 | 8 | 50-100 |
| Metropolitan | 3 | nil | 3 | nil | c.30 |
| 832 | 62 | 894 | 33 | 1,430+ | |
| Regionals | 342 | 10 | 351 | (14) | c.700 |
| Jared | 135 | 19 | 154 | 17 | c.300 |
| Total | 1,308 | 91 | 1,399 | 36 | 2,430+ |
In 2007/08 further progress was made in implementing the division’s successful strategy and its performance against those criteria are set out below:
Strategy: To achieve sector leading performance standards
The total UK jewellery market was unchanged at £4.5 billion in calendar 2007 including VAT (source: Office of National Statistics); and the division’s market share was similar to last year at 12.1%. In 2007/08, the division’s operating margin was 11.0% and its EBIT / Year End Total Assets ratio was 21.2%. In the year to 31 March 2007, the last year for which figures are available, the next five largest speciality retail jewellers had an average operating margin of 5.7% and a 6.4% EBIT / Year End Total Assets ratio.
Strategy: To improve store productivity
Store productivity increased in both H.Samuel and Ernest Jones in 2007/08 to £0.72 million from £0.70 million and to £1.11 million from £1.08 million respectively. This reflected divisional like for like sales growth of 2.0% and, in H.Samuel, a continuing reduction of the store base to focus on stores in larger centres that provide an opportunity to achieve a greater ROCE. With average selling space of about 870 square feet per store, Ernest Jones achieved the highest sales density of any Signet brand.