Zale 1Q Revenue Down 1.3%

Zale Corp. on Tuesday reported a net loss of $28.4 million for the first quarter ended Oct. 31.

As previously announced, the Dallas-based company’s sale of Bailey Banks & Biddle was completed Nov. 9. Net loss from continuing operations was $26.7 million and the loss from discontinued operations related to the Bailey Banks & Biddle brand was $1.7 million. For the same period last year, the company reported a net loss of $26.4 million and the net loss from continuing operations was $24.7 million. This loss included $4.8 million negative net impact of derivative accounting treatment for its gold and silver contracts.

Total revenues for the quarter ended Oct. 31 were $377 million compared to $382 million last year, a decrease of 1.3 percent. Same-store sales for the quarter fell 0.4 percent. Revenues including Bailey Banks & Biddle for the first quarter were $428 million compared to last year’s revenue of $432 million, a 1 percent decline.

Cash from warranty sales, excluding Bailey Banks & Biddle, increased $9.5 million over the first quarter last year and revenues recognized were $6.1 million less than the prior year as a result of the change made in the warranty offering. The increase in unrecognized revenues on the balance sheet was $14.3 million in the first quarter.

“Earnings performance met expectations for the quarter as we offset slightly lower sales with gross margin rate improvement across all brands after adjusting for the warranty change,” said Betsy Burton, Zale Corp. president and chief executive officer. “We continue to execute our strategy of maximizing gross margin dollars and maintaining good expense control in the current challenging macro environment.”

The company updated its second quarter guidance to reflect the sale of Bailey Banks & Biddle, anticipated share repurchases and sales trend. It now expects same-store sales of flat to slightly negative.

Zale also announced that it plans to enter into a $100 million accelerated share repurchase agreement with JPMorgan as part of Zale’s previously announced $200 million stock repurchase program.

Zale plans to enter into the ASR agreement for the repurchase of approximately 5 million shares. Under the proposed terms of the agreement, JPMorgan will deliver approximately 4.3 million shares to Zale on Nov. 21. Upon completion, the final price of shares repurchased will be determined based on a volume weighted average price for the Zale common shares over a period of up to 4.5 months, minus a set discount. Zale said it may elect to settle the purchase adjustment in shares or in cash.

In addition to the ASR agreement, Zale plans to repurchase approximately 1.2 million shares of its common stock during an approximate three-month period. Zale plans to complete its $200 million share repurchase with open market repurchases.

Zale Corp. operates approximately 2,200 retail locations throughout the United States, Canada, and Puerto Rico, as well as online. Zale Corp.’s brands include Zales Jewelers, Zales Outlet, Gordon’s Jewelers, Peoples Jewellers, Mappins Jewellers, and Piercing Pagoda. Zale also operates online at www.zales.com and www.gordonsjewelers.com.