Zale Corporation is a leading specialty retailer of fine jewelry in North America. At July 31, 2012, we operated 1,124 fine jewelry stores and 654 kiosks located primarily in shopping malls throughout the United States, Canada and Puerto Rico. We have significant brand name recognition as a result of each of our brands’ long-standing presence in the industry and our national and regional advertising campaigns. Zale Corporation’s portfolio of brands includes Zales Jewelers®, Zales Outlet®, Gordon's Jewelers®, Peoples Jewellers® and Mappins Jewellers® of Canada, and Piercing Pagoda®. We also operate online at www.zales.com, www.zalesoutlet.com, www.gordonsjewelers.com, www.pagoda.com and www.peoplesjewellers.com.
During the fiscal year ended July 31, 2012, Zale Corporation generated $1.87 billion of revenues. The company reports operations under three business segments: Fine Jewelry, Kiosk Jewelry and All Other. During fiscal year 2012, our Fine Jewelry segment generated $1.62 billion, or approximately 87 percent of our revenues. In the Kiosk Jewelry segment, revenues represented approximately $239 million, or 13 percent of our revenues.
From both a financial and operating perspective, we are building on the work we began in January 2010. At that time, we established a multi-year turnaround plan with a goal of returning the business to profitability in fiscal 2013.
- Fiscal 2011 (Year One): Stabilize the Business
- Fiscal 2012 (Year Two): Establish Sustainable Growth
- Fiscal 2013 (Year Three): Return to Profitability and Create Long-Term Shareholder Value
In Year One, we stabilized the business by securing the financing required to execute the plan. Key elements of the plan were rebuilding our core merchandise assortment and investing in our store teams. As a result of this work, we achieved positive comp sales in each of the last three quarters of fiscal 2011.
In Year Two, fiscal year 2012 which we just completed, we achieved positive comp sales in every quarter, marking a total of seven consecutive quarters of positive comps. In fiscal 2012, we achieved our goal of establishing the foundation for sustainable growth. Here are some of the highlights:
- Achieved revenue growth of 7.1%, reaching $1.9 billion in annual revenues.
- Delivered a 6.9% increase in comparable store sales, following an 8.1% rise in fiscal 2011.
- Generated full year operating earnings of $19 million, a $47 million improvement over the prior year, marking the first annual operating profit since fiscal 2008.
- Improved the company’s capital structure by refinancing our debt. This move will result in a reduction of the overall average borrowing cost from about 8% to about 4% at current interest rates, with an expected annual interest expense savings of approximately $17 million.
- Continued to build and strengthen our core merchandise assortment, reaching our goal of returning the core to approximately 85% of our inventory mix, while we thoughtfully introduced proprietary brands to our assortment including the Vera Wang LOVE and Persona bead collections.
- Expanded our omnichannel business model to provide guests access to our brands wherever and whenever they choose – through web stores, mobile devices, social media and traditional stores.
- Implemented a program to provide alternative financing options to our U.S. fine jewelry guests who do not qualify for financing through our primary Citi credit program.
- Increased organizational effectiveness by making deliberate, thoughtful investments in people and training.
As we begin fiscal 2013, we expect to return to profitability. Rest assured that the discipline, focus and accountability that have characterized the work of the last two years will intensify as we raise the bar on performance and focus on creating sustainable long-term shareholder value.
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