Zale Sees Strong Profit Jump Before Signet Sale

In what will likely be one of its last earning reports as a stand-alone company, Zale Corp. reported a healthy jump in profits and small rise in comps for the second quarter of 2014 (ended Jan. 31).

The company reported a $51 million profit for the quarter, a 24 percent jump from last year’s $41 million. Revenue dropped 2.2 percent to $656 million, from $671 million the prior year, due to fewer stores and the decline in the Canadian exchange rate. Overall same-store sales were basically flat at 0.6 percent, although they rose 1.9 percent on a constant currency basis.

Comps rose 3.9 percent at Zale’s stores and 2.7 percent at Peoples stores on a constant exchange basis. But they fell 4.5 percent at Gordon’s, 4.6 percent at Piercing Pagoda, and 4.9 percent at Mappins (also on a constant exchange basis). Both operating and gross margins improved.

On a conference call following the results’ release, executives said that they could not answer questions about Zale Corp.’s pending acquisition by Signet, although CEO Theo Killion did say he expected it to be completed by the end of the year.

“Signet’s offer represents a premium of approximately 41 percent over Zale’s closing price as of Feb. 18 and a premium of over 400 percent from the closing price a year ago today,” Killion said.  “If the merger is consummated, Signet’s operating strengths will enable us to accelerate Zale’s performance improvement for the benefit of our employees, and, importantly, for the benefit of our guests.”

Chief financial officer Tom Haubenstricker said that while sales at the beginning of February were challenging, with many regions affected by poor weather, the company saw a strong performance on Valentine’s Day weekend. It expects a 3.5 percent jump in comps for the month.

Killion also talked up the company’s suite of proprietary brands, which he hopes will eventually comprise 20 to 21 percent of fine jewelry revenue. (They now comprise 12 percent.) He added that initial results for its new The Heart Within collection have surpassed expectations.

He said that all the company’s marketing will now be devoted to those brands, although its overall marketing spend will be flat for the year. 

Chief administrative officer Matt Appell said that the company is planning makeovers for more of its stores.

“We are taking a more aggressive posture in terms of the look of our stores,” he said. “We are going to devote more and more [capital] to making our stores as presentable as possible.”

JCK News Director