Zale Sees Improved Second Quarter, But Slow February

Zale Corp.’s second quarter saw increases in both sales and profits—though it struggled with a slow start to February.

The company’s comp sales for the second quarter of 2013 (ended Jan. 31) rose 3.2 percent, marking the ninth consecutive quarter of positive comps.

For the first six months of the year, the company reported net earnings of $13 million, compared to a $3 million loss the prior year. The company, which has posted losses for the past few fiscal years, expects to turn a profit for fiscal 2013.

In a conference call following the results’ release, CEO Theo Killion attributed the positive results to the company’s new branded jewelry collections—particularly the Vera Wang LOVE collection and Celebration Fire diamond—backed up by its marketing and increased staff training.

“Exclusive branded product now represents 10 percent of our merchandise mix,” Killion said. “We believe this merchandise could grow to about 25 percent of the total assortment.”

Branded product now accounts for 26 percent of the merchandise mix at rival Sterling.

The call did include one negative note, with chief financial officer Thomas A. Haubenstricker reporting that sales had been “very soft” in the first 10 days of Februrary. He blamed the decline on a “challenging environment” caused by poor weather, the increase in payroll taxes, and delayed IRS refunds. However, the sales trend turned “significantly stronger” both on Valentine’s Day and the days following, he said.

“On Valentine’s Day, we were comp positive,” added Killion. “The pressure is largely in [the macro environment] and it’s things that we can’t control.” 

Even with the slide in February sales, Killion said, “We don’t see any radical changes to our promotional posture,” and he expects comps for the upcoming quarter to stay positive.

During the quarter, Zale closed 14 stores and one kiosk, and opened one kiosk. 

Other highlights of Zale’s second quarter financial results:

  • Comp sales at Zales branded stores (Zale Jewelers and Zale outlet): Up 3.6 percent
  • Comp sales at U.S. fine jewelry brands (Zale and Gordon’s): Up 2.8 percent
  • Comp sales at Canadian fine jewelry brands: Up 3.8 percent, up 0.5 percent at constant exchange rates
  • Sales at Piercing Pagoda: Up 1 percent
  • Revenues: Up 1.3 percent, to $1.03 billion
  • Operating margin: 7.8 percent
  • Operating earnings: $51 million
  • Net earnings: $41 million, up 41 percent from last year’s $29 million

JCK News Director