Zale posts fiscal year sales gain, but `disappointing’ same-store drop

Zale Corp., the world’s largest specialty retailer of fine jewelry, ended fiscal 2001 (July 31) with a 13.8% gain in sales, but a 3.8% drop in same-store sales, says a preliminary report issued Aug. 7.

The fourth quarter had sales of $410.4 million, a 9.8% gain over last year’s final quarter. However, comparable store sales were down 9.7%, compared to a 6.4% gain last year. In addition, Zale said fourth quarter earnings would be five to 10 cents a share, much less than the 17 cents financial analysts reportedly expected.

Robert D. Nicola, chairman and chief executive officer of Zale Corp., called the fourth quarter results “disappointing,” and said initiatives to ensure Zale’s long-term success had caused “a short-term disruption in our business.”

He noted, though, that the company “finished this difficult year with positive cash flow and improved inventory levels,” and there are “early signs [that] the initiatives having a positive impact” in the new fiscal year.

DiNicola left retirement in February to return to Zale, replacing Beryl Raff who resigned just six months after becoming Zale’s chairman. Her resignation capped a disappointing half year for Zale (following five years of significant annual growth). Under Raff, Zale deviated from its strategy of conservative but steady growth to aggressively marketing promotional merchandise and a more fashion-focused merchandise mix. That led to sharp drops in comparable store sales and net income.

DiNicola and Zale’s revitalized executive team put the focus back on Zale’s core business in bridal and diamond merchandise; repositioned inventory, took sizeable write downs of promotional merchandise, such as low-grade diamond goods; put tighter controls on expenses and advertising, and instituted what he called “fiscally prudent” marketing plans. Zale officials also said in March that they expected comp store sales to decline or be flat for the rest of the fiscal year.

DiNicola noted on Aug. 7 that “For the past several months, we’ve worked very hard to get our business back on track. We’ve addressed the quantity and quality of product and promotional activity, and worked diligently to integrate our new credit relationship into our system.

“We’ve positioned the Piercing Pagoda [mall jewelry kiosk] business [which Zale bought last summer] properly for `back to school’ and beyond. We’ve realigned inventories, at the same time conserving cash, giving us more flexibility as we move ahead in our new fiscal year.”

Zale planned to formally release its fourth quarter and fiscal 2001 results on August 30, 2001.

Zale Corp. also said its board of directors has approved buying “from time to time and at management’s discretion,” up to $50 million of Zale common stock on the open market. This is the consecutive fiscal year for a Zale repurchase program.

In addition, Zale also said it has changed its accounting methods, effective Aug. 1, to comply with new federal rules on amortizing goodwill and other intangible assets. This change will increase per-share earnings by about 20 cents in fiscal 2002.

Zale Corp. operates more than 2,300 retail locations in the continental United States, Canada and Puerto Rico, as well as online. They include Zales Jewelers, Zales Outlet, Zale.com, Gordon’s Jewelers, Bailey Banks & Biddle Fine Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda.