Signet Jewelers Ltd (SIG) Q1 2022 Earnings Call Transcript

Signet Jewelers, Ltd.  (NYSE: SIG) Q1 2022 earnings call dated Jun. 10, 2021.

Corporate Participants:

Vinnie Sinisi — Senior Vice President, Investor Relations and Treasury

Virginia C. Drosos — Chief Executive Officer

Joan Hilson — Chief Financial Officer

Analysts:

Paul Lejuez — Citi — Analyst

Dana Telsey — Telsey Advisory Group — Analyst

Tim Vierengel — Northcoast Research — Analyst

Lorraine Hutchinson — Bank of America Merrill Lynch — Analyst

Ike Boruchow — Wells Fargo Securities — Analyst

Presentation:

Operator

Good morning, and welcome to the Signet Jewelers’ First Quarter Fiscal 2022 Earnings Call. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. I’d now like to turn the conference over to Vinnie Sinisi, Senior Vice President, Investor Relations and Treasury. Please go ahead.

Vinnie Sinisi — Senior Vice President, Investor Relations and Treasury

Great. Thanks very much, Jason, and good morning, everyone. Welcome to our first quarter earnings conference call. On the call today are Signet’s CEO, Gina Drosos; and CFO, Joan Hilson. During today’s presentation, we’ll make certain forward-looking statements. Any statements that are not historical facts are subject to a number of risk and uncertainties and actual results may differ materially. We urge you to read risk factors, cautionary language and other disclosures in our annual report on 10-K, quarterlies on 10-Q and current reports on 8-Ks. 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’ll discuss certain non-GAAP financial measures. For further discussion of the non-GAAP measures as well as reconciliations of events to the most directly comparable GAAP measures, investors should review the news release we posted on our website at www.signetjewelers.com/investors.

And with that, I’ll turn the call over to Gina.

Virginia C. Drosos — Chief Executive Officer

Thank you, Vinnie, and thanks to all of you who are on the call with us today. I also want to thank our Signet team members who continue to inspire me with their relentless dedication to our customers and to each other. We are embracing new capabilities in connected commerce with excellence as evidenced in this quarter’s results.

Thanks to our team, we built on the momentum of a very strong holiday performance and delivered both a strong Valentine’s Day and strong Mother’s Day, by continuing to serve customers whenever, wherever and however they choose to shop with us. Further to this, we are unlocking our team member’s potential.

We know from listening and from our ongoing surveys that our team members are inspired by our purpose. They are proud to be part of our organization, and they’re confident in the tightly integrated strategies that are guiding our growth. Our team members’ inspiration, pride, confidence, expertise and growing digital capabilities are the most important drivers of my confidence in our long-term success. It is an honor to work at their side.

As I review Signet’s performance in Q1, I want to leave you with three messages. Number one, we outperformed Q1 expectations and are raising our fiscal ’22 guidance today. Number two, we’re making steady progress in all four of our where-to-play strategic focus areas and all three of our How to win core strengths: Consumer inspired insights; Connected commerce presence and; our Culture of innovation and agility. We are continuing to expand these strengths, because we know they are sources of competitive advantage.

We are outpacing market growth, and as a result, we’re growing share. I will talk through each of these points. But first, let’s look high level at the Q1 numbers. Total sales were $1.7 billion, an increase of more than $250 million or 18% compared to Q1 two years ago. This is significant because two years ago, we had 467 more stores than we have today. eCommerce is playing an increasingly important role with sales up more than 110% in the quarter versus last year and 124% versus two years ago.

Cash flow from operating activities of $161 million year-to-date was up $169 million compared to last year and $56 million compared to two years ago. Having already paid down debt and with $1.3 billion of cash at quarter end, we are continuing to invest in growing our business, and as John will discuss, returning cash to shareholders, ending inventory with $2 billion, $373 million lower than last year. Our inventory reduction efforts are now institutionalized. Less about rationalization and more about optimizing our merchandise mix and availability, getting the right product to the right places to maximize speed of delivery and sales. Our digital capabilities give customers access to virtually every piece of jewelry in our system, no matter where it is, which is unlocking new levels of inventory productivity.

So this has become more than a working capital story. We are increasing our ability to flow newness into our inventory pipeline bringing more innovative new products to more customers, more frequently, and with data analytics, we’re ensuring we have optimized assortments where we need them. Our Q1 performance demonstrates that we are off to a strong start implementing Phase 2 of Signet’s transformation, which we call Inspiring Brilliance.

On that note, I want to transition now to taking a closer look at the progress we’re making in each of the four where-to-play strategic focus areas that we outlined two months ago in our virtual investor event. First, we are winning in our biggest businesses. Our strategy for keeping our core strong and growing is holistic. It begins with the work we’ve done to differentiate our banners including merchandise assortment, price tiers, balancing self purchase and gifting and offering brands that are designed to appeal to each banners’ distinct target customer. For example, we’re generating compelling and highly targeted content that’s tailored for each channel where we communicate with customers and for the moment in their journey when they are engaging with us.

Our merchandise assortment is also uniquely targeted for each banner including Neil Lane and Adrianna Papell at Kay, Vera Wang and Disney Enchanted at Zales, LeVian and Pnina Tornai at Jared and others across our portfolio. Perhaps most importantly, we’re focused on product. Our merchants are continuing to innovate and scour the market for emerging ideas in bridal. This means larger, high-quality diamonds with more radiance and sleeker designs.

For the gift giver, collections with meaning really help our customers express their feelings. And for the self-purchasing women and man, our most innovative collections reflect the style changes that we have seen this year. Yellow gold, layered neck pieces and fully outfitted earrings [Phonetic]. We’re finding that customers want to wear jewelry with all looks, including casual, athleisure, professional, and they want to do so particularly now that they are reigniting their social lives.

Our differentiated banner propositions are working. All of our U.S. banners delivered double-digit revenue growth compared to two years ago. We attribute much of this to the success we’re having attracting new customers across our banners, with our holistic marketing and customer experience strategies, while maintaining the loyalty of existing customers as well. For example, roughly 60% of our sales growth in Q1 across Kay and Zales came from new customers.

We’ve benefited from stimulus spending and other tailwinds, of course. But we believe that we’ve captured more than our fair share of the spending by having the right targeted assortments with the right level of newness, differentiated by banner. This is evidenced by Kay’s strong growth in gifting and Zales’ in self purchase. Further, the increasingly optimized assortments for our target customers led to an ATV increase of nearly 20% in these banners versus two years ago. When we combine our knowledge of product as a jeweler, and our knowledge of customers as a retailer, along with the scale of our data-driven operations, we win; especially in our biggest businesses.

Second, we’re making progress on our strategy to accelerate services which are returning to pre-pandemic levels. Services are especially important because they are a long-term relationship builder, the glue that connects a lifetime value of relationship and purchases between a customer and our Signet team. We jumpstarted services in Q1 in several ways. We enhanced our financial services by expanding and strengthening payment offerings for customers.

We recently announced a new and more favorable agreement with two long-term partners: ADS and Genesis. This gives us the ability to provide more payment flexibility, more simply and more profitably than we could before. We are also continuing to expand customization services. This remains a growing trend. Among recently engaged people, 13% designed their ring from scratch. We are offering customization tools across all our largest banners.

With the Vera Wang LOVE configurator, Zales customers can choose a diamond or a gemstone center. Kay enables customers to create a completely customizable engagement ring with the create your own design tool or design a ring with Neil Lane to get that handcrafted Hollywood glamour style, just the way they want. And Jared customers have a variety of ways to put their personal touches on jewelry, whether adding an engraved phrase to a ring or working directly with Jared artisans online or in person at one of our in-store foundry studios.

Consistent with this, customization sales are up low double-digits in Jared stores with a foundry. We also continue to build on our investments in James Allen, a specialist in the custom jewelry space, and we’re seeing strong results with more than 130% revenue growth to last year. Further, we launched custom design and restoration events across Kay, Zales and Jared in Q1. We offered customers a 10% discount to bring in existing pieces of jewelry to be reimagined or restored to their previous brilliance. These events on their own enabled us to exceed our goals for the quarter, and we plan to continue hosting them banner by banner going forward.

We’re also moving into new areas such as jewelry rental subscriptions with the acquisition of Rocksbox, and we’re quickly growing brand awareness through cross promotion within our banners. Jared, for example, offered customers a free two months subscription to Rocksbox when purchasing a Jared piece and then provided a bounce back coupon to anyone who activated a Rocksbox subscription.

We’ll be offering a growing range of cross banner promotions like this in the months ahead, including a Rocksbox rental offering partnership with Piercing Pagoda this summer.

We are building momentum in services, which we continue to believe is a billion dollar growth opportunity on the path to the $9 billion overall revenue goal, we laid out at our virtual investor event. The third strategic focus area where we’re making progress is expanding mid-market accessible luxury and value. We’re focused sharply on growing the top end of the mid-market with more intentional accessible luxury offerings. For example, Jared’s fastest growth this quarter came through higher price point merchandise, primarily above $3,000. This includes Jared’s new premium diamond assortment with sales of larger stones up roughly 30% to two years ago. Chosen Platinum, Pnina Tornai and Royal Asscher were strong merchandise drivers.

Piercing Pagoda is expanding our strength at the value end of the mid-market delivering its strongest quarter ever in Q1. Just to emphasize, ever means Q1 fiscal ’22 was higher total revenue than any prior quarter for Pagoda, including fourth quarters. Customers are highly receptive to our new assortment with particular emphasis on gold, which represents 75% of Pagoda sales. Pagoda now has more than 135 stores on track to deliver $1 million in sales this year, and we currently have four Pagoda locations that already have more than $1 million in sales to-date this fiscal year, a feat that took until August to achieve in fiscal ’20.

We are eager to keep Piercing Pagoda growing and highly relevant. We’re taking two critical steps in that direction by investing in advertising and launching a branding refresh. The strong return on our additional investment in advertising was proven this quarter as we continued to increase Pagoda’s banner awareness. Sales were up three times to Q1 of last year and up 80% to two years ago on a smaller store base in both years. Our second step, updating branding is one that we believe will further accelerate our return on advertising spend.

Our customer research indicates that the Piercing Pagoda name doesn’t have the same modernity that our merchandise and banner experience bring. So we’re testing the opportunity to freshen and broaden Pagoda’s brand equity and attract new customers while retaining existing ones. Our fourth strategy is to lead digital commerce in the jewelry industry. Our ability to combine digital and in-store experiences at the scale we are able to, is a significant competitive advantage, and we are continuing to innovate and to invest in both. For perspective, Kay delivered nearly 17% more brick and mortar sales per square foot of physical store space than in the first quarter two years ago, and Zales is delivering 35% more.

In total, Q1 eCommerce sales were up more than 110% compared to last year and brick and mortar same-store sales were up more than 105%. As part of our growing connected commerce approach, we are integrating our physical stores into the digital customer experience with data driven in store consultations, buy online pickup in store, and curbside and increasingly seamless interaction across our websites, stores and inventory pipeline. This integration is making a difference. While physical foot traffic is still down compared to this time two years ago, we’ve delivered growth through both higher conversion and higher average transaction value.

We believe this is because we are starting to provide a best-in-class experience from the first touch point of the digital shopping experience, all the way through in person store consultations and fulfillment. We added more than 100 new features and capabilities across our digital platforms in Q1 to ensure every digital touch point is a moment of customer delight. Virtual try-on for Kay drove over a 110% increase in its add to cart rate, and nearly a 70% increase in order conversion in Q1.

We also rolled out Google business messages and Apple Business Chat, features that allow customers to engage virtual jewelry consultants in real time or offline from search results or maps. Applications like these are laying the groundwork for further enhancements later this year as we build our agile team infrastructure and iterative innovation capabilities.

Last year, we implemented virtual selling at the end of Q1 and had around 50,000 virtual interactions with customers. This quarter we had more than 450,000 virtual interactions, and importantly, conversion is also improving as our team’s capabilities continue to mature. Further, our cart to checkout conversion rate is up, and the rate of site visits that turn into cart views is up as well. Our digital development teams are not settling for creating the best online jewelry experience. They’re setting the bar higher by finding and innovating the best online consumer experiences in any category, and then bringing those experiences for our jewelry customers.

I’ll share one quick example of how this integration and growing digital capability is working. We recently worked with a customer who came to us through our virtual chat feature with a mission and a deadline. He wanted to propose to his girlfriend, the next day. Erika, one of our virtual consultants noticed the urgency in his messages, and she made it her mission to help him achieve his. This customer’s soon to be fiance had a dream ring in mind, a cushion cut, two carat, thin, Pave ring in white gold.

Erika immediately began searching our virtual inventory to identify stores nationwide that had or could create the piece he was looking for. She found a store near him that had the cushion cut with the color, clarity and size that he needed. Erika connected him directly to that store. The next morning, he was greeted in person by our in-store consultant, Yara who was ready to serve. The customer loved the ring and bought it on the spot, a $25,000 sale, I might add.

The team set and sized the ring while he waited. He proposed that evening, she said, yes, and he sent our team photos of the happy moment. This customer told us he loved being able to start his shopping journey virtually, look at pieces online, chat with a virtual consultant, have us do the shopping with him and then have the diamond and ring together for him to view in person. That’s the power of Signet connecting digital and physical alongside our mission of helping all people celebrate life and express their love even in 24 hours or less.

What I hope you can see is that we are growing in each of our integrated strategic focus areas. The best strategies are tightly integrated and create more value because they are mutually reinforcing. It’s making a difference as we’ve outpaced market growth over the last year and are gaining market share. I also want to emphasize that we are delivering the performance I’ve outlined with a deep sense of purpose.

We are committed to ongoing leadership in Corporate Citizenship and Sustainability and we view ESG initiatives as an important growth driver. This past quarter, we released the Company’s first-ever Corporate Citizenship and Sustainability Report. This reflects our continued leadership, prioritization and Board oversight of ESG initiatives. We announced our 2030 Corporate Sustainability Goals through our Three Love: Love for all, love for our team and love for our planet and products.

As we enhance our Corporate Citizenship and sustainability goals, we believe in prioritizing our own team. This quarter we launched Signet’s first team member experience, which is focused on providing team members with an exceptional and inclusive place to work, while also providing a robust set of learning and career development opportunities.

Having been named a Certified Great Place to Work Company last year, we aim to keep our high engagement and discretionary effort momentum going. And we are active in the communities we serve as advocates for change. We made the first donation from our Signet Love Inspires Foundation to the Equal Justice Initiative as there is much to be done to fight systemic racism.

And in line with our mission of celebrating life and expressing love for all, the Company is celebrating Pride month across Signet banners and has endorsed the Human Rights Council’s Business Statement on anti-LGBTQ plus State Legislation. As a global Company, with long-standing partners and vendors around the world, we donated to the Gajera Charitable Trust in India with the intention of support for COVID relief efforts. We believe these purpose inspired actions are attracting even more top talent to our highly dedicated team and are attracting and appealing to customers who are voting with their wallets in support of companies and brands that share their values and take a stand.

In summary, the inspiring brilliant phase of our transformation is off to a strong start. We outperformed expectations in Q1, and we’re making progress in all of our strategic focus areas. We are growing our core strengths in the meaningful competitive advantages and most importantly, we are outpacing the market, growing share and fulfilling our purpose as a Company. We still have plenty of hard work to do to sustain our performance and deliver long-term growth. But we are encouraged by the momentum that’s building, and inspired by the opportunity to serve our customers and help grow the jewelry industry.

I’ll now turn the call over to Joan.

Joan Hilson — Chief Financial Officer

Thanks, Gina. Hello everyone. Inspiring Brilliance is advancing our transformation and has accelerated our growth to deliver a strong first quarter performance. Our topline is outpacing the U.S. specialty jewelry market, and we believe we are winning share, particularly in the mid-market. There are four key highlights this quarter. First, our financial performance was strong in the quarter as we grew our top and bottom lines on a lower store base. We grew our topline through higher conversion and average order value, despite lower traffic. Our top-line strength was complemented by our continued cost discipline and leveraging of our fixed cost base.

Second, our balance sheet is strong. Efficient use of working capital through inventory reduction and spend management delivered an increase in liquidity to last year. Third, we successfully executed new credit agreements resulting in benefits to our customers, and favorable economics to Signet, reflected in our raise of cost savings guidance.

Lastly, we’re committed to invest in Signet’s growth and are raising our capital expenditures for the fiscal year. We are investing in our talent, banner differentiation and technology. We are also pleased to announce today, the reinstatement of a common dividend, demonstrating our confidence in cash flows and business performance, despite our conservative view of the back half.

Turning to the quarter, first quarter total sales grew 98.2% over last year on a lower store base. Our sales growth was broad-based. We saw strong performance across formats, regions, channels and categories. While overall jewelry category trends remained healthy, we continue to outpace the market growth. According to MasterCard data, the U.S. specialty jewelry market grew over 72% for the three months ending in April. Compared to that market growth, our U.S. banners grew total sales more than a 109% this quarter.

Our integrated strategic choices, including new connected commerce capabilities, modern marketing strategies and enhanced product assortment are all enabling a more than 250 basis point increase to our brick and mortar conversion rate, within our biggest businesses versus two years ago.

Moving on to gross margin, we delivered approximately $680 million this quarter or 40.3% of sales. While that rate is a significant improvement to last year, when we look back versus two years ago, this is a 540 basis point improvement. We expanded our gross margin rate through a combination of factors. First, our topline performance allowed us to leverage fixed costs, and we are benefiting from cost savings within gross margin.

Second, services revenue carries a more favorable margin profile and is growing. Importantly, compared to two years ago in programs such as extended service agreements. Lastly, through enhanced pricing discipline and new capabilities, we improved our merchandise margin during the quarter. Flexible fulfillment and ship from store provide our customers nearly all of our product across our channels, while more effectively managing our inventory throughout its life cycle. For the first time, ship from store automation is now available across all of our banners.

Turning to SG&A. SG&A was approximately $512 million or 30.3% of sales. Here again, the rate reflects a significant improvement to last year, but it was also a 290 basis point improvement to two years ago. We’re effectively using data analytics to create a labor model that integrates our new capabilities, resulting in a 60% improvement in labor productivity versus two years ago. Our new labor model, coupled with our enhanced product assortment and marketing strategies, resulted in a 15.2% increase in our North America average transaction value to last year.

In addition to labor productivity improvements, we are continuing our cost savings efforts including technology harmonization, optimizing our real estate portfolio and overall spend management. Non-GAAP operating profit was $168.9 million compared to an operating loss of $142.5 million in the prior year. First quarter non-GAAP diluted EPS was $2.23, up from a loss per share of $1.59 in the prior year.

Turning to the balance sheet, we continue to drive working capital efficiencies. We reduced our inventory by $373 million to this time last year. Accounts payable also remains an important component of our working capital management and we continue to effectively manage payment terms within our network of vendors. We ended the quarter with $2.5 billion in liquidity, up over $1.2 billion to last year. Recall, we have no drawings under our revolver and our longer-term obligations mature in calendar 2024.

Turning now to financial services and as recently announced, we finalized agreements to restructure our credit offerings. We’ve extended and expanded agreements with two of our long-standing credit partners through calendar year 2025. The terms of the new agreements will help to streamline the process for customers. As an example, ADS will originate a wider array of customer profiles and Genesis will expand our second look program to do the same.

I’d note that all banners will now harmonize to offer our customers no down payment financing with a minimum monthly payment structure. These agreements which are effective July 1st, also provides favorable economics to Signet. As these agreements were more favorable than originally contemplated, we’re raising our fiscal ’22 cost savings guidance by $20 million to a range of $75 million to $95 million, and we now expect cumulative three-year cost savings to be in the range of $220 million to $240 million. Recall, our current agreements with third-party, non-prime receivable purchasers are in place until the end of June. We have signed a non-binding letter of intent with them, and are currently working towards a definitive agreement and the terms would remove consumer credit risk from our balance sheet.

Now, I’d like to discuss our fiscal 2022 financial guidance. We continue to expect stronger sales performance in the first half of the fiscal year. As the vaccine roll-out progresses, we continue to believe there could be a shift in wallet share away from the jewelry category, toward experienced-oriented categories, the magnitude and timing of which is difficult to predict. As such, we’re planning for increased marketing expenses to continue to fuel momentum in the front half as well as proactively manage against changes in consumer spending as the year progresses. As a result, we continue to conservatively plan for same-store sales to be negative in the second half of the fiscal year.

Additionally, India continues to see the tragic impact of the pandemic. And while we’ve proactively managed against disruptions to date, supply chain risk could increase later in the year. We expect second quarter total sales in the range of $1.60 billion to $1.65 billion with same-store sales in the range of 76% to 82%, and non-GAAP EBIT of $118 million to $130 million.

For the fiscal year, we now expect total sales to be in the range of $6.50 billion to $6.65 billion with same-store sales in the range of 24% to 27%, and non-GAAP EBIT of $490 million to $545 million. We remain on track to open up to 100 locations and close at least 100 locations, with nine openings and nine closings this year. This includes the testing of formats that are quick to set up, and require significantly less inventory on hand, as well as formats that contain multiple banners. We will continue using format testing this year to determine the best way to offer our customers, our breadth of capabilities as efficiently and effectively as possible. Our long-term capital priorities remain to invest in the business, pay down debt and return capital to our shareholders.

First, in keeping with these priorities and as a result of our performance and cash generation, we are increasing our capex by $25 million to invest in growth initiatives. This brings our fiscal ’22 capital expenditures to a range of $175 million to $200 million with a continued focus on digital and technology investments to further strengthen our competitive advantage and long-term positioning.

Second, recall that we paid down the balance of our revolver and FILO loan in Q4 of fiscal ’21 and our remaining maturities which carry favorable interest rates come due in calendar 2024. And third, on capital return, as we announced today, we are pleased to return cash to shareholders through a common quarterly dividend which has been reinstated at $0.18 per share.

Before we open the call for Q&A, I’d like to take a moment to thank our Signet team. We’re proud of the results we delivered this quarter and we’re proud of our team’s execution and commitment to each other and to our customers. And as we look ahead, we remain focused on our continued transformation under Inspiring Brilliance.

And now I’ll turn the call over to the operator to begin the Q&A session.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. First question comes from Paul Lejuez from Citi. Please go ahead.

Paul Lejuez — Citi — Analyst

Hey, thanks guys. Couple of questions. One, just remind us what percent of your product comes from India? What you’re seeing currently in terms of delays? Second, you mentioned, I think you’re planning an increase in marketing expense, curious if you could just size that for us. So what are you comparing that to when you say an increase, how does it look versus 2019 levels?

And then last, curious if you could just share the performance of stores that you’ve got that share a center with another one of your banners versus those that stand-alone in the center. Thanks.

Virginia C. Drosos — Chief Executive Officer

Hi, Paul. I’ll start out on the India question. We haven’t actually given a percentage of merchandise that comes from any different country, but let me answer your question in a different way. So, first and foremost, we’re very concerned about the families and teams of our India partners. It’s one of the reasons why we made the donation to the Gajera Trust that I offered earlier — or talked about earlier. We’ve also been in very close touch with our vendors on their production planning. We’ve actually pulled forward significantly our holiday orders, and what this does is it gives our vendors the opportunity to better plan their production. And as they do that, they can create more social distancing, keep their employees safe, that kind of thing.

As we look at their capacity, even as some of them are running in the 50% range or in the 70% range of capacity, we believe that we have secured sufficient capacity to deliver the orders that we need between now and holiday. Part of this comes because we’ve really strengthened our relationship with strategic vendors over the last couple of years, we’ve narrowed that vendor base. And as we’ve worked with those vendors, they have diversified their production capabilities. So they are not singularly in India for production. Many of them have expanded to other markets whether that’s China or Thailand or Vietnam. And so, we’re able to access those production sites as well.

So any disruption that we might see from this year, we’ve already factored into our guidance.

Joan Hilson — Chief Financial Officer

And Paul, with respect to marketing, our expense marketing increases and spend are reflected as well in our guidance, and I would remind you that as we said in the past, we can leverage our cost base on a slightly positive — flat to slightly positive comp. So that’s in our thinking as well. In Q1, you can see that we were able to leverage our cost significantly, and that as well had an incremental marketing spend. So marketing for us is an effective mix of digital and social, and we are working that on a day-by-day, week-by-week basis with our marketing team.

So we feel very good about our ability to be flexible and we’re holding the marketing spend within our guidance because of — as the year progresses, and the relative uncertainty of the back half, and the potential shift of customer behavior to travel and other experience-oriented categories. We believe that’s very important for us, to maintain that flexibility.

With respect to real estate and multiple banners in specific malls, as we said in the past for our data analytics, we look at our real estate on a trade area basis. And so, we do have clearly locations with multiple banners of Pagoda, a Zales, a Kay, a Jared, a James Allen, and what we find is that it’s based on the market, we don’t see a distinctive difference between our banners within a specific mall and as I mentioned in my remarks, we saw strong performance across category, geography, real estate. So, we’re really not seeing a distinctive difference, strong across all.

Paul Lejuez — Citi — Analyst

Got it. Thank you. Good luck.

Virginia C. Drosos — Chief Executive Officer

Thank you.

Operator

[Operator Instructions]. The next question comes from Dana Telsey from Telsey Advisory Group. Please go ahead.

Dana Telsey — Telsey Advisory Group — Analyst

Congratulations on the nice progress. As you look at the average transaction value, up both obviously in North America and International, what do you — how are you thinking about pricing? And was it in any particular category where you’re seeing the change? And just any other particular category call-outs, particularly as we go into the back half of the year, and any product and marketing initiatives we should be watching for? Thank you.

Virginia C. Drosos — Chief Executive Officer

Hi, Dana. Thanks so much. I’ll start on that one. The ATV increases that we’re seeing are actually broad-based. So we saw them both in brick and mortar and in e-commerce, and we saw them across our banners and we saw it in both bridal and fashion. We would credit that to a couple of things. One is, I think we’re doing a better job getting the right customers to the right banner, based on all of our targeted marketing and our new, more distinctive banner value propositions. And then we’re better targeting the assortments that we have available in those banners.

We anticipated that there would be some tailwinds from stimulus and tax refund checks, and we actually broadened our assortment to reach more price points, so that when we had customers either interact with us online or in-store, we could get higher conversion rates. That’s what we saw. And particularly, when we have a counseled [Phonetic] sale. So for example in e-com when someone interacts with one of our virtual consultants versus just navigating fully on their own, we’re seeing that ATV is up substantially. So that consultation really makes a difference to give customers confidence in the product that they’re buying. So broad-based, and I think also reflective of some of the new strategies that we’re putting in place.

Joan Hilson — Chief Financial Officer

And then with respect to the product and marketing initiatives that I would just add on here Dana is, as Gina cited a point to add [Phonetic] in there, our biggest banners, we were able to attract 60% of our growth was related to new customers. So I think that speaks to the strength of marketing and reaching out to our customers at the right time and having the right offer for them to support that average transaction value growth.

Dana Telsey — Telsey Advisory Group — Analyst

Got it. And just one follow-up. Inventory levels, how are you planning inventory levels in the second quarter and balance of the year?

Joan Hilson — Chief Financial Officer

So what we’re really pleased with Dana is that, we’ve been able to continue on our working capital disciplines and the lifecycle management and as Gina said, inventory management is now institutionalized. And as we think about that, that means the flexible fulfillment, the ship from store automation, buy online pickup in store, and then having our inventory, all of our product, nearly all of our product available to our — all of our customers irrespective of channel is what we’re going to continue to work through and drive our assortment and drive our inventory efficiency.

Importantly, this is opening up our ability and the product team’s ability to bring in a more frequent flow of new product and particularly important as well when we think about the self purchaser and the fashion customers. So I’m really pleased with how the inventory is being managed by the teams.

Virginia C. Drosos — Chief Executive Officer

I guess the one thing I would add on that is lifecycle management where also because we are accessing product across our store base, nationally, we’re able to move more quickly through a markdown cycle, and so we’re seeing that happen in a higher margin way, which is also a benefit for the business.

Dana Telsey — Telsey Advisory Group — Analyst

Thank you.

Operator

The next question comes from Tim Vierengel from Northcoast Research. Please go ahead.

Tim Vierengel — Northcoast Research — Analyst

Good morning, and thank you for taking my question. I was wondering if you guys could just spend a minute walking us through your capex, the increase there, and maybe in a longer-term sense, give us an idea of where you feel you are — just maybe in terms of based on [Indecipherable] what inning we are in terms of the investments you want to make and technology and stuff there? Thanks.

Joan Hilson — Chief Financial Officer

So with respect to our capital investment and our increase, it’s really about continuing to drive on digital and technology innovation and we spoke about at our Investor Day that our harmonization process is still underway, we believe we have some time to go on that, another year or so and then the digitally — digital investments are ongoing, and we are pulling forward and accelerating the things that we believe have the greatest opportunity for growth and can better serve our customers and remove friction and just integrate connected commerce in a more powerful way.

So that’s our focus. And that will continue throughout the next couple of years. And really it supports our vision that in Inspiring Brilliance, that we’re looking to connect our customer wherever and whenever and however they want to shop, Tim.

Virginia C. Drosos — Chief Executive Officer

And I think in terms of the longer-term question that you asked, what we — we are a Company who is hungry and believes in continual improvement. So I think no matter of what phase of the transformation we were in, I would say third inning. That’s because we feel good about the progress that we’re making. We’ve laid a strong foundation, we believe that we are building competitive strengths that are enduring, and can lead to long-term sustainable growth. But we always think about the hard work ahead to really make that a reality and never lose sight of the goal, which of course is winning the World Series. Thanks for the opportunity on the sports analogy.

Tim Vierengel — Northcoast Research — Analyst

Yeah. That’s great color, I appreciate that. And then I guess one just a little thing. You mentioned merchandise margin was up during the quarter. It seems across all of retail, retailers are getting the prices they want with limited promotional activity. Can you walk us through, whether you guys promotional strategy has changed, as you’ve seen the demand just surge, at least short-term, I think that long term you kind of indicated that you manage it to, you know, to capture better sales, but can you just walk us through how you guys are thinking about promotions one more time?

Joan Hilson — Chief Financial Officer

Sure. Thank you. From the perspective of merch margins, the lifecycle management itself is helping to really improve. Our margin is benefiting from the lifecycle management activity. But from our promotional perspective what we found is that we are — because of that we are able to have a leaner markdowns and able to — you can see that in our average transaction value. So promotion we’re not necessarily pulling back, but it’s not as widely cast, when we do run a promotion. That’s number one.

Two, the assortment itself is — and the newness is really the customers responding to it. So the need for promotion is less, and we’re really pleased with that, and as Gina said earlier, the ATV or the assortment lift that we’re seeing is broad based. So it’s across fashion, and core product and bridal. So it’s really a healthy inventory, it’s great lifecycle management by the team, and continued evaluation of where we need to take our price points.

Tim Vierengel — Northcoast Research — Analyst

Thank you.

Operator

[Operator Instructions]. The next question comes from Lorraine Hutchinson from Bank of America. Please go ahead.

Lorraine Hutchinson — Bank of America Merrill Lynch — Analyst

Thanks. Good morning. I wanted to follow up on the comments around the enhanced relationship with your credit partners. What’s the mix of sales from each type of credit at this point? And can you compare the profitability of sales through your various payment options?

Joan Hilson — Chief Financial Officer

So what we — what we can see is that the customer right now, Lorraine is really there is a mix shift in bank card use versus PLCC versus leasing. And we’re seeing the customer being able to make a choice, which is what’s really important for us is for them to have a choice and have opportunities to buy jewelry through whatever works best for them.

So with the change in providers, what we’re seeing — or the change in the agreements and the new agreements we just signed, we’re seeing that the economic benefit is that ADS and Genesis through the second look program with Genesis and ADS is the prime provider. They are able to offer that to a wider array of customers that would have been purchased through the non-prime provider in the past.

So that’s where the benefit is coming from. And, we’re really pleased with the opportunity to harmonize that program as well across our customer base. So it’s — it’s a customer benefit that we can also offer more promotional programs with them. And the other benefit that I would just highlight as I mentioned in my remarks is that with the non-binding letter of intent that would, as we move forward and get to a definitive agreement, that would remove consumer credit risk from our balance sheet importantly.

Virginia C. Drosos — Chief Executive Officer

The other thing I would just add is from the consumer perspective, the variety of finance options that we are now offering is highly appealing. It was a much more narrow set in the past, but for example, online attachment rate for financing alternatives historically has always been lower, but we’re seeing that grow dramatically. And particularly among Gen Z customers, we’re seeing our Affirm split pay products grow about 60% of the usage of that product is Gen Z. So we’re really thinking more strategically about having a mix of financing options that appeal to customers across channels and across demographics.

Lorraine Hutchinson — Bank of America Merrill Lynch — Analyst

Thank you.

Operator

The last question comes from Ike Boruchow from Wells Fargo. Please go ahead.

Ike Boruchow — Wells Fargo Securities — Analyst

Hey, good morning everyone. I guess just two questions from me. On the back half comp guidance, can you just — kind of just maybe give us some insights into how you’re thinking about the negative comp, meaning traffic, how you expect it to worsen. I’m just kind of curious what’s going through your thought process just because the business has obviously done — doing so well in real time, but you obviously have some tough compare. So any help there would be great.

And then maybe Joan, just on inflation, I mean clearly there is inflation in a lot of the key inputs that you have gold, silver, diamonds. Can you kind of talk about that? Is that impacting you this year? Is that more of a 2022 dynamic that we need to keep in mind? Just anything there would also be helpful.

Virginia C. Drosos — Chief Executive Officer

Great. Thanks, Ike. As you noted, the back half of the year is — remains hard to predict for the reasons that I detailed. But we think there are both headwinds and tailwinds, right. And so as we think about the tailwinds, consumers coming back to the office and the shopping that might entail may include accessorizing as well.

We see — to your point on gold, we see continued strength in gold and believe that, that is a solid trend, and that — and it’s also a fashion trend. And so from a fashion perspective, we think that there is strength there. But as we think about the headwinds, the larger headwinds, the pent-up demand for experience based sectors like vacations and restaurants and movies, that’s the unknown that we’re just prepared for and as we mentioned we’re prepared to — we have marketing in place in our — and as reflected in our guidance to do what we can do to control that. And as also you mentioned, we did have a back half comp last year [Phonetic] that was a positive 10%.

So we believe that we need to conservatively plan, be realistic, but do the things that we can do within our — within our strategies to drive our business. And we are having traction, we’ve — as we’ve mentioned with our Inspiring Brilliance strategy. So we’re seeing that come to life through our marketing our product and our new capabilities, and as we mentioned for growing market share. So we’ll lean into the good things that we’re doing and control the things that we can.

Ike Boruchow — Wells Fargo Securities — Analyst

And on inflation?

Joan Hilson — Chief Financial Officer

And on inflation, what we’re seeing is it’s very interesting there is elasticity in gold, and the strength in gold is something that we’re able to work through from a pricing perspective and really work with our vendor base to present product to our customers that enable them to continue to buy gold even with rising prices. So that’s that.

And then as we look at the vendor networks that we do have, our relationships are very strong and we’re able to work with our vendor teams to put product together, to satisfy our customers and continue to drive the economics that we need to drive to support our business.

Ike Boruchow — Wells Fargo Securities — Analyst

I guess, what I’m asking is, the inventory turn for you guys is very slow. So the inflation we’re seeing now is really going to come through next year. Is there anything from an AUC perspective that we should kind of keep in mind that you’ll be coming up against, I guess 12 months from now?

Virginia C. Drosos — Chief Executive Officer

What we’re seeing is that we’re able to navigate currently. And so, and as we’re buying — and buying through our product now, that we’re able to work our way through it, and we’ll continue to do so as we progress through the year, and if we see anything different, we’ll be sure to work through that and comment on it in the future.

Ike Boruchow — Wells Fargo Securities — Analyst

Okay, thanks.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Gina Drosos for any closing remarks.

Virginia C. Drosos — Chief Executive Officer

Well, thank you again everyone for your questions and your ongoing engagement in our business. We are pleased with our organization’s performance this past quarter and confident in our ability to deliver guidance we’ve shared here today. I want to thank our team members and partners for their dedication, agility and excellence as we move into this next phase of our transformation. Thank you.

Operator

[Operator Closing Remarks].