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Every Kiss Begins with Kay.®

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Every Kiss Begins with Kay.® 2014 ANNUAL REPORT Every kiss begins with Kay.® Every kiss begins with Kay.® Every kiss begins with Kay.® Signet Jewelers is the largest specialty jewelry retailer in the US and UK. Signet’s US division operates over 1,400 stores in all 50 states primarily under the name brands of Kay Jewelers and Jared The Galleria Of Jewelry. Signet’s UK division operates approximately 500 stores primarily under the name brands of H.Samuel and Ernest Jones. Signet’s goal is to create and offer jewelry and watch products that bring joy to its customers as they celebrate life and express love. The beginning of forever. 2 Celebrate Life. Express Love.® 3 The moments that matter. 4 Visibly brighter futures. 5 Perfect timing. 6 Stores 1,055 Kay Jewelers is the #1 specialty retail jeweler in the US based on sales. Kay’s target customer has a household income ranging from $35,000 – $100,000. Kay had sales of $2.2 billion in Fiscal 2014 with average sales per store of $2.0 million. Kay’s average store selling space is 1,400 square feet. Dreams begin here. Helps You Say it Better Stores 304 Stores 189 H.Samuel is the #1 specialty jewelry brand in Ernest Jones is a leading jeweler by the UK by number of stores with an aver- number of stores, with an average house- age household income target ranging from hold income target ranging from £30,000 £15,000 – £40,000. It had sales of £233.1 Signet’s – £65,000. It had sales of £200.3 million in million in Fiscal 2014 with average sales per Fiscal 2014 with average sales per store store of £0.7 million. H.Samuel’s average Leading Brands of £1.0 million. Ernest Jones’s average store selling space is 1,100 square feet. store selling space is 900 square feet. He went to Jared!® Stores 203 Jared is a leading off-mall destination specialty jeweler in the US. Jared’s target customer has a household income rang- ing from $50,000–$150,000. Jared had sales of $1.1 billion in Fiscal 2014 with average sales per store of $5.3 million. Jared’s average store selling space is 4,800 square feet. 7 Strong Branded Outstanding Store Brands Differentiated Customer Service and Exclusive Merchandise Our Advertising Strong Effectiveness competitive Supply Chain strengths. High Quality In-House Financial Strength Store Base Customer and Flexibility Financing (US) Results and Key Events for Fiscal 2014 Same store sales: up 4.4% (Fiscal 2013: 3.3%) Total sales: $4,209.2 million (Fiscal 2013: $3,983.4 million), up 5.7% Operating margin: 13.5% (Fiscal 2013: 14.1%) Diluted earnings per share: $4.56 (Fiscal 2013: $4.35), up 4.8% eCommerce sales: $164.1 million (Fiscal 2013: $129.8 million), up 26.4% Acquired a rough-to-polished diamond factory in Gaborone, Botswana Opened 83 new stores Increased sales of branded differentiated and exclusive merchandise by 370 basis points to 31.1% of US merchandise sales Enhanced our digital ecosystem through our websites, mobile technology and social media so customers are able to interact with us whenever and wherever they choose Repurchased $104.7 million of outstanding shares at an average price of $67.24 per share Increased quarterly dividend in Fiscal 2014 by 25% Achieved return on capital employed of 25.2% Total Sales Operating Income Breakdown by Division and Brand Breakdown by Division Jared $1,064.7m 25.3% US $553.2m Kay 92.9% $2,157.8m $4,209.2m $570.5m (1) 51.3% Regionals UK $295.1m $42.4m 7.0% 7.1% H.Samuel $368.9m Other Ernest Jones 8.8% $6.0m $316.7m 0.1% 7.5% (1) Including corporate administrative and other costs of $25.1 million. 9 Dear Shareholders, Signet’s core purpose is to help our customers None of these accomplishments would have Celebrate Life and Express Love. We do this by been possible without the incredible help and educating and assisting them in purchasing the support of our team at Signet and we would like high quality jewelry and watches we offer for to thank them for their outstanding contribution sale as gifts for their loved ones or themselves. to these results. In Fiscal 2014, your Company performed well in VISION 2020 pursuit of this purpose delivering sales of In Fiscal 2014, we drove the business across $4,209.2 million and diluted earnings per share multiple platforms in both the US and UK, pro- of $4.56 – another record in the face of a chal- ducing positive near-term results and better lenging retail environment. positioning your Company to achieve further success for the long-term. As a consolidated In addition to our operating accomplishments, team, we focused on a thorough and thoughtful we also bought back $105 million, or 2%, of our initiative to develop and communicate a long- outstanding shares during the year, and term strategy that would be our road map to announced a 20% dividend increase to $0.18 take us into the year 2020 and beyond. It is per share on March 27, 2014. This reflects our appropriately titled “Vision 2020” and has five continued confidence in the strength of our busi- core strategies: ness model and our commitment to building shareholder value. • Maximize the mid-market. Importantly, on February 19, 2014 we entered • Be the best in bridal. into an agreement to purchase Zale Corporation, • Build a best-in-class digital ecosystem. a leading jewelry retailer in the United States • Expand our footprint. and Canada. Upon completion, this transaction will transform the combined companies and cre- • Grow our people with purpose and passion. ate significant incremental shareholder value over the medium and long term. GROWTH STRATEGIES STRATEGY 1 STRATEGY 2 STRATEGY 3 STRATEGY 4 STRATEGY 5 GROW OUR MAXIMIZE BEST BEST-IN- EXPAND PEOPLE WITH THE IN CLASS DIGITAL OUR PURPOSE MID-MARKET BRIDAL ECOSYSTEM FOOTPRINT AND PASSION 10 MAXIMIZE THE MID-MARKET growth opportunities this transaction brings to The mid-market represents our largest growth our Company. The transaction is subject to Zale opportunity. Our core brands of Kay®, Jared®, stockholder approval, certain regulatory approval H.Samuel and Ernest Jones will stay true to their and customary closing conditions. heritage while focusing on merchandise initia- tives, marketing, store growth and productivity. BEST IN BRIDAL Our second core strategy is to be “Best in In Fiscal 2014, we opened 76 new Kay® and Bridal”. We will achieve this by offering the best Jared® stores, and had a 5% increase in net selection of bridal merchandise, developing cre- square footage in the US. On the merchandise ative targeted bridal marketing programs, and front, we launched several exciting new brand focusing on providing the best bridal customer extensions to bring freshness and innovation to experience in our stores. The acquisition of Zale bridal, fashion jewelry collections and beads. will support this initiative, as Zale has a comple- Branded differentiated and exclusive merchan- mentary bridal business in popular brands such dise increased penetration in our portfolio driven as Vera Wang Love® and The Celebration by growth in the Artistry and Vivid collections, Diamond Collection®. Le Vian®, Neil Lane®, Lois Hill® and Tolkowsky®. We expanded our custom jewelry initiative by The diamond supply chain is especially impor- creating a proprietary selling system and expand- tant for supporting our growing bridal offerings. ing in-store capabilities. To reflect the importance During the year, we strengthened our Strategic of custom jewelry, its growth potential, and the Diamond Sourcing Initiative (SDSI) by purchas- important contributions of the skilled artisans ing a rough-to-polished diamond factory in who deliver incredible product, we re-branded Botswana, establishing a diamond buying office our field repair shops as “Design & Service in India, and increasing our vertical integration by Center.” purchasing more rough diamonds directly from major mining companies. The SDSI enables us In adding to the core business, our integration to acquire a more consistent supply of diamonds from the Fiscal 2013 Ultra Stores acquisition was and strengthen our diamond supply chain for the well executed and very successful. This strategy long term, while continuing to build upon our is accelerating with the integration now behind long-term business relationships with existing us. All of the initiatives taken this year in adver- diamond jewelry manufacturers. tising, enhancing the merchandise mix, store training and credit are increasing performance. BEST-IN-CLASS DIGITAL ECOSYSTEM We believe this strategy will be an important Our third core strategy is to be “Best-in-class in part of our future growth. the Digital Ecosystem”. We reach customers through both eCommerce and via social media The addition of Zale will help us support our mid- touch points. In Fiscal 2014, we evolved our digi- market initiatives around merchandise, innovation tal ecosystem by launching new services and and testing, new formats, service programs, and customer touch points to drive outstanding cus- custom design. We are excited by the future tomer experiences in a variety of ways: 11 • Creating mobile and tablet optimized websites The acquisition of Zale will also help us build for Kay® and Jared®, upon our digital ecosystem. The combined • Introducing tablets in UK stores and Regional eCommerce sales of both companies approach stores in the US, $300 million today with imminent growth ahead. • Launching KayOutlet.com, EXPAND OUR FOOTPRINT • Starting an online education center, Our fourth strategic pillar for long-term growth is Jewelrywise.com, and to further expand our footprint. This has been supported through targeted M&A activity. The • Engaging customers via social media through Ultra acquisition and subsequent integration YouTube ®, Twitter®, Facebook®, and other enabled us to further expand into the outlet dis- channels.
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