Zale Corp., a leading specialty retailer of fine jewelry in North America, on Tuesday reported a net loss of $3.1 million for third quarter ended April 30. This loss includes, on an after-tax basis, a reduction of $6.9 million due to the decline in revenue recognized from the change to a lifetime jewelry protection plan and a benefit of $1.6 million for the net impact of derivative versus hedge accounting on its gold and silver contracts.

Excluding these items, the Dallas-based company reported earnings of $2.2 million.

For the same period last year, the company reported net earnings of $16.8 million. This included, on an after-tax basis: a benefit of $8.4 million resulting from the settlement of certain retirement benefit obligations partially offset by; a charge for severance of $2.2 million; and a charge of $0.9 million related to the closing of certain Bailey Banks & Biddle locations. Excluding these items, third quarter earnings in 2006 amounted to $11.6 million.

Revenues for the quarter were $511.9 million compared to $526.9 million last year, a decrease of 2.9 percent. Revenues recognized were $8.7 million or 1.7 percent less than prior year as a result of the change made in the method of amortizing jewelry protection plan sales. Same-store sales for the third quarter decreased 3.4 percent.

Year-to-date revenues were flat at $1.95 billion, compared to the same period last year.

Excluding revenues of $24.3 million related to Bailey Banks & Biddle store closures in the second quarter of last year, year-to-date revenues increased 1.3 percent. Year-to-date same-store sales fell 0.1 percent. Year-to-date earnings totaled $58.6 million.

“While comp store sales decreased 3.4 percent, a focus on maximizing gross margin dollars and good expense control contributed to earnings in-line with expectations for the quarter,” said Betsy Burton, Zale chief executive officer.

“We believe retail in general is showing signs of weakness, and higher gas prices have directly impacted the discretionary income of the moderate customer,” Burton added. “Given these overall macro trends, we are lowering our sales projections and, while cautious, we are maintaining our current earnings guidance for fourth quarter.”

The company projects a fourth quarter same-store sales decrease of 2 percent to 3 percent.

JCK