11:21 AM EDT, 04/03/2024 (MT Newswires) -- Signet Jewelers ( SIG ) increased its fiscal 2025 earnings guidance on Wednesday as the owner of store chains including Kay Jewelers announced a deal with Leonard Green & Partners to buy back certain convertible preferred shares.

Private equity firm Leonard Green & Partners in 2016 invested $625 million in Signet's convertible preferred shares.

The preferred shares, scheduled to mature in November, were convertible into roughly 8.2 million common shares. Signet will repurchase half of the preferred shares for about $414 million in cash, according to a joint statement. That would leave $328 million remaining in stated value of the preferred shares.

Signet's shares soared 11% in Wednesday trade. The buyback will immediately reduce Signet's diluted share count by about 4.1 million shares, or about 7.6% of the company's share count. This is expected to increase Signet's fiscal 2025 adjusted earnings per share by 9% to 10%.

The company raised its non-GAAP EPS outlook to between $9.90 and $11.52 from a prior view of between $9.08 and $10.48. Analysts surveyed by Capital IQ were modeling for normalized EPS of $9.97 this year.

The diamond jewelry retailer will tap into the $1.4 billion in cash on hand it reported at the end of fiscal 2024 to settle the transaction, which is expected to close within 10 business days.

"Our flexible operating model has consistently generated well over 70% free cash flow conversion from non-GAAP operating income," Signet Chief Financial, Strategy and Services Officer Joan Hilson said in a statement. "This has enabled Signet to build a fortress balance sheet as we have significantly reduced our leverage ratio and nearly tripled liquidity to create one of the strongest financial profiles among peers."

Leonard Green & Partners and Signet will continue to work together to further execute on strategic priorities and drive shareholder value, the private equity firm's senior partner, Jonathan Seiffer, said.

"We are pleased that our partnership with (Leonard Green & Partners) has resulted in a well-planned and orderly transition of its preferred investment at an attractive price for shareholders," according to Hilson.

Price: 105.66, Change: +10.59, Percent Change: +11.14