Zale Reports a Q3 Loss of $17.4 Million

Zale Corp., onThursday reported a net loss from continuing operations for the third quarter of fiscal 2008 of $17.4 million, compared to a loss of $5 million for the third quarter of fiscal 2007.

In February, the Dallas-based specialty retailer of fine jewelry launched a program to permanently reduce inventory levels in order to better clarify merchandise presentation, improve inventory efficiency and to help position the Company for the future. The company’s goal was to achieve a $100 million reduction in inventory at an anticipated 500 basis point negative impact on gross margin in the second half of fiscal 2008.

During the third quarter, the clearance strategy exceeded expectations, the company said, resulting in the liquidation of $55 million of inventory with a 460 basis point reduction in gross margin. Earnings per share for the quarter was negatively impacted compared to the prior year reflecting the gross margin compression related to the liquidation, the Company’s aggressive stock repurchases, and a change to the effective tax rate.

“We are very pleased with our progress this quarter against our plan,” said Neal Goldberg, Zale Corp. president and chief executive officer. “We have a focused agenda to improve performance and the team has stayed locked-in on achieving our objectives. This includes focusing on our core customer by clarifying our merchandise offering, improving our value proposition and simplifying our marketing message that is led by product and supported by price. We are enhancing our operational effectiveness through the implementation of our efficiency program and the proper alignment of the organizational structure. Finally, we are maintaining financial rigor and discipline by executing on our inventory liquidation program, generating savings from the $65 plus million in identified expense reductions and returning value to shareholders through a significant stock repurchase program.”

Third quarter 2008 results include: 

• Revenues for the third quarter ended April 30, 2008 were $477 million compared to $449 million last year, an increase of 6.2%.
• Same-store sales for the third quarter increased 5.8%.
• Unrecognized revenues related to warranty sales increased $17 million. This compares to an increase in unrecognized revenue of $19 million in the third quarter of last year.
• Repurchased approximately 8.1 million shares. Shares outstanding were 35.5 million at April 30.

First nine months of 2008 results include:

• Revenues for the nine months ended April 30 were $1.68 billion compared to $1.72 billion last year, a decrease of 2.4 percent.
• Same-store sales for the period decreased 2.3 percent.
• Unrecognized revenue related to warranty sales increased $64 million. This compares to an increase in unrecognized revenue of $47 million for the nine months ended April 30, 2007.
• The earnings from continuing operations for the nine months ended April 30, 2008 were $8.6 million, compared to earnings of $47.4 million for the prior nine-month period.
• Approximately 13.8 million shares repurchased fiscal YTD at an average price of $18.06. This represents approximately $250 million of the $300 million stock repurchase authorization—a 28 percent reduction in actual shares in fiscal 2008. Approximately $50 million remaining in authorization.

Zale Corp. is a leading specialty retailer of fine jewelry in North America, operating approximately 2,150 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.