Signet Jewelers Limited ($SIG)

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

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

Yes. No, I appreciate it, and thanks for the opportunity to be here. I think the benefit, honestly, is we'll report final numbers next week on the 19th, I think the chance to be here and talk a little bit about the quarter, not only Q4 but also quarter-to-date, what we've seen at the start of the year is nice, which also sort of frees us up, cliff hanger to spend a little bit more time talking about fiscal year '27 guide and strategic priorities next week when we get into the final numbers. But overall, feel good about the quarter, particularly given where it started. I mean I think as we reported our Q3 numbers, we were pretty deep into November and had it behind us and obviously, consumer had a bit of a hiccup in November. And I think like a lot of us, we found ourselves in a spot where a little bit of a trend change from where we were. And what we saw, though, was sequential improvement across the quarter month by month on both a 1- and a 2-year stack basis and a reaction to what started with some of the pressures around government shutdown and the pressures that we saw with lower and middle-income customers but a strong holiday selling marked by the 10 peak days of Christmas are really critical for us. So having positive comps during that window were really important. We saw that continue to build through January. Actually, like a lot, took a little bit of a hit at the end of the quarter with winter storm Fern. Actually, we're setting at a positive on the quarter actually heading into that. So a strong build. And then we've seen the business continue to perform as we've come through Valentine's Day quarter-to-date. Within the quarter itself, I think the -- with a little bit more measured consumer environment, we did see a little bit more promotional activity. And I think that resulted -- we called out a little bit of margin give back or decline in part because we had called for a little bit of expansion. It was modes and I think we shared at Paul more to give us permission to talk about it but structurally, not a significant thing. And the nice thing is we pulled that through to the bottom line with expense management where we deliver operating income at the high end of guide. So I feel good about that. Kay, Jared, Blue Nile, Peoples, U.K. and services, all real bright spots for us in the quarter, all positive comp. Some continued drag as you look at James Allen and weather. And then on the whole, when you look at the full year, I think our ability to navigate that dynamic environment, particularly with tariffs changing, right up till the end. I know you'll probably have a few questions about that but no way in the world we do that without the re-org that we did earlier in the year and the ability to really manage that and still perform at the high end of the guide, actually raising our guide as we go. And then I think the other -- our focus on our core brands, Kay Zale, Jared, really performed well for us over the course of the year. We returned this business to positive comps for the full year for the first time since fiscal year '22. So I'm pleased with what the team did to deliver that. And it was really led by those core brands. We were up over 3% comp in those businesses. And probably one of the bigger highlights is when you look at the end of the year, we'll generate over $500 million of free cash flow. That is a 20% increase year-over-year on relatively flat inventory. And in this kind of tariff plus commodity increase environment, I think it speaks volumes to some of the opportunities we've leveraged as it relates to scale across the organization. So slower start as a lot of people had but good sequential improvement through and happy to see that momentum carry into the start of the year.

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

Yes. I think one of the learnings or realizations for me and our team is a little clear understanding of the fact that we really operate 2 businesses. We operate a fine jewelry business 12 months out of the year, and then we operate a gift-giving business during that time period. And certainly, we talked a lot about our misses at key price points in the prior holiday. And so it was a big focal point for us as we came into this year. Good news is it worked. I mean that's part of what contributed to positive comps over those peak days. I think it was harder to be able to deliver that just given the dynamic nature of what was going on with supply chain and tariffs and frankly, a set of baseline costs that were moving around a lot. And for the most part, it flowed through really well. I would say the one thing that we look at and can draw from as we move forward is it's harder to deliver meaningful price points below $150. And so at least with the assortment architecture that we've always had. And so that disproportionately is where we felt any sort of unit velocity changes but the work in that $200 to $500 price point and $500 to $1,000 was healthy overall. And we really saw consumers respond to that. Interestingly, we also saw consumers willing to trade up in the right places. And I think that's also an opportunity for us as we look forward to this next year. I think particularly with natural diamond at higher price points, we think there's opportunity for focus and some expansion there. And so on the whole, I think what we did see though was it did require a little bit more impetus around promo. And that, I think, is -- we're not alone in that. I think that was a little more of a hallmark of this holiday and particularly that consumer in the middle, the lower end that felt a little more pressure. And we managed that well and thankfully, did not have the drags on us that we had the prior quarter. So we were able to digest it.

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

I think it's 2 things. I mean when you look at -- there's really the way that tariffs played out over the course of the year, typically, when we set price for a category, we'll take price once or twice a year, depending. Typically, we would do it, and we're in one of those periods right now. We get on the backside of Valentine's Day, and we really want to set price for the spring. That becomes important because we have to have a rest period after we set prices before we can actually promote against those prices, right? So typically, we would set price somewhere -- we would want to have prices set by the end of September so that we're clean and clear to be able to drive promotional strategies for the holiday. I think this last year or this prior -- this last quarter, the challenge was we had -- to do that, you have to have goods landed but you may not have 100% of your -- of the receipts, right? So you've got all the SKUs received, but you may not have all of your inventory in each of those SKUs received. And in many cases, we had landed a particular mix and then we had tariffs change yet again or you had commodity costs change yet again. And so you're stuck with the prices that you've set. We've typically aimed a little bit high but you're planning on mix so that you can promote down. And I think, particularly for a brand like Kay that -- I mean, one, we work in an industry that runs on promotion during that time period. But two, for a brand like Kay, which is really responsive but tends to live on broad percent off promotions, it's kind of a blunt instrument. You go from 40 to 50 off where you go from 40 to 30 off, like the ability to be precise if you're trying to massage what unit velocity looks like, there was a little bit of spill, right? And I think that's a function of -- that's the best way to manage a really dynamic environment. And to the degree that you're talking about a small number of basis points moving here or there, manageable. We certainly manage it on the operating income side. I wouldn't look at it as a structural shift in our business. But I also think we learn from it and say, okay, how do we focus a little bit more on items at a price and really build a few more mechanisms for the holiday that allows us to be a little more surgical. That's one thing. I think the other I mentioned, sub $150. I mean, as much as we are focused on key price points, you might have had a little bit of movement across some thresholds in that time period. And if you -- the item that you sold at $150 is now $199 and you're not moving the right unit velocity, you want to move. And so you make those investments. And the runway to have a full year to manage assortment architecture, I think, gives us a lot more flexibility. I do think rising commodity costs are one of those things we're going to have to manage because it certainly feel a little bit more on the lower end where gold is more of a driver of the component cost.

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

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

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

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

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

Blue Nile moved positive. James Allen continued to perform as a drag. We'll spend a little bit more time talking about strategies by brand as we get to next week's readout. The only other one, I mean, I think we had seen we had seen greater strength out of Zales in the first 3 quarters and saw a little bit of a pullback in our Zales business this quarter. And certainly, that -- a lot of moving parts there. I think one of the lessons or one of the takeaways for us there is we really drove a business through self-purchase through the first 3 quarters and maybe we're a little too focused on self-purchase in Q4 and the opportunity to broaden the aperture and think about gift giving is, I think, an opportunity for upside for that business. And the good news is made the adjustment, saw the same build in sequential improvement and really return to what that run rate was before as we got into Valentine's Day. So I think it is a little more of a blip. Also a little bit more exposure on the lower end with that customer compared to some of our brands. So probably felt a little more that hit in November, and then we didn't recover at probably the same rate there. But feel great about the potential as we move into this year and also about the momentum that we're building there.

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

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

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

Yes, I think that's a good add.

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

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

No, I think that's clear.

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

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

Well, we're importer of record on a small percentage of what we buy. So refunds are a little less of a focus in the near term for us. I mean it's largely just on direct import gold, which is less than 20% of our inventory. So -- but what we did do is reset supplier agreements and terms in this past year to more clearly define, hey, as this environment changes, how do we manage that together? What are we sharing? What do we -- what do we claw back or how do we pass that along either to the business or to the customer. And so I think when the rules of the road are determined and that -- I mean, I haven't checked my phone but -- and I don't know that we know yet. Once we settle what that game plan is, and I think we know how to work it. I think for us, everybody is a little bit different, and I realize -- I mean, this is -- everybody wants to build a model on it or to think about what -- how to dimensionalize it. So much of mitigation efforts in our world were about moving country of origin or thinking about supply chain flexibility to help mitigate what the impact of tariff would have been. If I moved product from a country like India that literally went from 5% to 15% to 25% to 50% tariffs over successive weeks. A move might not have made sense at 15% or 25% but could be brilliant at 50%. And so unwinding -- I mean, our first priority is let's make sure we've got the right cost inventory to be competitive with the market and responsive to the consumer. And then let's make sure we flow it through to create value. I think that drove our decisions around mitigation. It will drive what our responses are, whether it's about refund or how do we flex the supply chain to move back and where might things move. So a lot of moving parts right now but I think we -- the good news is we've developed flexibility around sourcing and supply chain that not only enabled us to manage it without calling out a bogey or lowering our guide, which is hats off to our team and our partners in the supply chain for being able to deliver that. But it also -- that same flexibility will serve us well as we figure out how to navigate this. And to your point, I think it's more good news than not, at least if the rules of the road get laid out the way we believe they're going to be right now. And the more we know that and the sooner we know that, then I think the better it positions us to be able to plan for the rest of the year and figure out how to pass that along best.

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

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

Yes. I think the other thing from an assortment standpoint is we, along with a lot in the industry are really thinking about what are some of the alternative material choices that we think will come in. I mean I think it's less exposure on the finished jewelry standpoint where there's stone involved because you've got more parts to play with, right? It's not just design and metal weight but the number of stones, what other materials am I using? I think when you look at a pure historic gold commodity business like chain, the question of not just what price -- I mean, historically, consumers know there's a gold market, you're able to pass along price. I think we are entering into new territory there. And so that is going to, I think, create a little bit more exploration around alternative metals, plated, bonded, vermeil, different gold purity weights. I mean I was talking to a customer 1.5 weeks ago in a store that was trying to understand why gold would be that expensive and she was explaining to me, I've got this platinum ring and gold is higher than platinum. Let me show you the market. It's -- but I do think there's a little bit of consumer education, and there's also opportunities for us to think about design, fabrication and material a little bit differently, particularly -- I think we're particularly focused on it in that $150 and below when you think about gift giving. So that becomes a little more important as we get to Q4 but we've got the benefit of time to solve for that.

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

I mean, we talked about this a little bit last year at different points of volatility. Short-term volatility is less impactful to our consumer. I think they tend to be a little more resilient in part because it's a highly emotional purchase and it's a planned purchase. I mean, very few people are stumbling through the mall and decide, okay, today is the day I'm going to buy an engagement ring. Like there's research, there's process that goes through it. And frankly, the people who stumble through and decide the day is today, they're less plus by these economic short-term conditions. And so structurally, it doesn't change our thoughts. I mean we'll talk about outlook this next year. I mean I do think over time, right, I mean, we monitor these things because anything that starts to reset how people plan their budgets over time can have an impact on us. But in the short term, that a blip like where we are and when I say short term, I mean, even over the course of the year, less impactful if you look back historically, a little bit more correlation on things like interest rates and home cost. And we're probably a little more focused there, honestly, because I think there's a -- that tends to align with some of the life decisions that go into engagement and some of those other things. But even there, we've been through this cycle for a bit, and we've seen stabilization there. So I think we're -- we would describe the consumer as resilient but we also recognize there's always a breaking point. And it's part of why we try to be responsive in Q4 when we saw some signals in November.

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

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

As we came into Q4, I've successfully and successively hunted this question to the start of the year, and we'll talk a little bit more about it next week. I think we spent some time reviewing. I think on the whole, safe to say that we are focused on those things that have been drags and feel there's still going to be outsized focus on core brands because they are so fundamentally tied to the overall health of the portfolio. But that said, to remove those drags from being a footnote, that's a negative. I mean -- and you can remove them 1 or 2 ways. You can think about how do they fit in the portfolio, which may be part of what we talk about in some cases. In other cases, it's what opportunities do they represent with strategic turnaround plans and how we think they can contribute differently. And so we're focused on both. I would say for the -- to give you a little something as it relates to James Allen, which has been a really -- a pretty visible part of that drag when you look at digital brands, there's 2 parts to that business. And one is the site and the business that operates under that brand name. But the other is the set of capabilities that feed the other parts of our business. I mean there is a Diamond marketplace that runs within that engine. There's customization that runs within that engine. And so as we think about how do these pieces and parts fit together. We're also mindful of what are the benefits that may confer from a business like that, that show up in other parts of the P&L and how might we leverage them strategically a little bit differently to create better value overall.

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

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

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

Yes. I mean I think we will we've talked about most of them. And I think this question of the puts and takes around tariffs and commodity costs and how we're going to manage them. I won't belabor those because we've talked about the levers that we'll pull there. I do think there's clearly, I think, an opportunity for us to talk about what do we do to address the first part of Q4, where we saw some softness and what might that look like. And then I think it's safe to say that the -- I'm extremely proud of how our team managed all of the curveballs that came in the course of this year and took those things that weren't in our control and then converted them to things that we could control to affect the outcome. That's great. It also takes a lot of energy and a lot of mind share. And while I don't necessarily think the landscape is going to be any more -- I don't think everything is going to all of a sudden turn easy. I mean I still think there's probably a more dynamic environment in front of us. I do think having developed that muscle and having line of sight to some of it and knowing what we can anticipate, it does free up energy and resource for us to focus more on brand differentiation. I think as we came into the back half of the year, we made a conscious choice to slow some of the more accelerated brand differentiation efforts to manage risk, candidly. I mean there's only so many moving parts you want to have at one point in time. And so as we move into this next week and drop those episodes, I think focusing a little more on how do we lean into each of these brands and really create sharper identities for each and what are the opportunities for growth that come out of them is a big part of where we're focused.

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

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

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

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

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

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

I mean it was largely macro. But what I would also say is I think if you knew then what you know now, there's always choices you can make in the macro to leverage it. And I think the learning or really the area of increased focus for us is that recognition that, a, there's 2 businesses, fine jewelry business and gift-giving business. But when you break down gift-giving business, it's a little bit like a hockey game, right? I mean you got kind of 3 periods within that quarter. There is an early selling period that the drivers, the promotions are less broad. They're more focused on key items. It's just a different consumer that shops during that earlier window and the leverage points are to serve them are different. As you get closer, broad probably works in our favor because you can leverage the breadth of inventory that you have and still offer a value proposition, but it allows you to pick what works best for you, particularly as you get a little more last minute. And then post-holiday, there's -- which is actually something our team has been pretty good at for the last couple of years is leveraging that sort of gift card cash, let me treat myself. I mean that has been a source of strength for the last couple of years. We don't want to give that ground up. I think we've focused well there but I think the breakdown of each 3 of those parts of the season represent an opportunity for us to attack it a little bit differently. And if we're doing our jobs right, then I think it adds up to some opportunity.

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

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

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

Not different. I mean I think a healthy fleet overall. We -- as part of the Grow Brand Love reset, we highlighted up to 200 stores that we felt like were opportunities to maybe prune the fleet. Disproportionately, I mean, while it may sound like a lot relative to square footage, much lower percentage when you look at revenue because it's disproportionately weighted to some of the kiosks where we had multiple locations, same mall, et cetera. And no real change to that. Actually, if anything, a little more focused on where might -- we recognize we've got some investment opportunities in stores that tie to customer experience. So as we talk about strategic priorities, we'll get into that a little bit more. We obviously a lot of test and learn but relatively high threshold on return, and we're exceeding that. And so we want to think about how we accelerate that as an opportunity to create more growth.

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

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

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

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

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

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

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

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

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

I saved until the end.

Well, no, it's inappropriately, right? It's tailing off. I mean it was the first one, and now it's like, okay, I think things have stabilized but can you validate for me? And I would say that's stable is probably the best word. I mean I -- it's -- we even sort of reluctantly -- I mean, we don't really lead with penetration numbers or any of those things because I think what we would tell you is it's -- they both are a part of our mix, right? And even with often in the same customer's jewelry box. And so the fact that there is a clear role for each. And frankly, we want both to grow is where we're focused. Penetration will still grow for lab-grown on the fashion side in large part because it's very underpenetrated, and it's not a replacement. It's not either/or. I mean this is a category extender. That still holds true and no change to that. I think on the cost side, the lab has largely stabilized. I think the cost and profit margin side are tight enough now that there's just not as much volatility on the supplier side. And to the degree that there's any sort of give there one way or the other, it probably doesn't make it through to retail construct because we're low enough now that I think there's good stability there. We're still seeing average unit retail expansion as people trade up. We're still seeing margins hold. So no fundamental change to what that model looks like. And then on the natural side, we've actually seen a little bit of strength. And I would also say, if I'm completely honest, it's buoyed by the high side, right? And so I think where the growth opportunity there is on AUR, higher quality natural diamonds. And as we look at our assortment, we see the opportunity to pull natural up and create interest there. We actually believe there's consumer demand for it. We see it, and we see even some evidence of that in independents. So feel good. And to the degree that there's sort of this bear versus bull argument there, the bear case is really not in play. And I think it just becomes -- at some point, it's almost like gold and silver, right? I mean it's just a part of our mix, and it's how do we plan and solve for that to meet customer demand because there's growth opportunity for both.

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

Yes. Thank you guys. Appreciate it.

Thank you.