-- Warranty adjusted EPS loss of $0.17 for the third quarter -- 5.8% increase in third quarter comparable store sales -- Better-than-expected progress on inventory reduction program -- Approximately 8.1 million shares repurchased during third quarter -- 13.8 million shares repurchased fiscal YTD at an average price of $18.06DALLAS, May 22, 2008 (BUSINESS WIRE) -- Zale Corporation (NYSE: ZLC), a leading specialty retailer of fine
jewelry in North America, today reported a net loss from continuing
operations for the third quarter of fiscal 2008 of $17.4 million, or
$0.42 per share, compared to a loss of $5.0 million, or $0.10 per
share for the third quarter of fiscal 2007.
In February, Zale 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, 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, 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 of 2008
-- Revenues for the third quarter ended April 30, 2008 were $477
million compared to $449 million last year, an increase of
6.2%.
-- Comparable store sales for the third quarter increased 5.8%.
-- Unrecognized revenues related to warranty sales increased $17
million or $0.25 per diluted share. This compares to an
increase in unrecognized revenue of $19 million or $0.23 per
diluted share in the third quarter of last year. Including the
impact of unrecognized revenues, the adjusted loss is $0.17
per share this year compared to earnings of $0.10 per diluted
share last year including a $0.03 negative impact from
derivatives.
-- Repurchased approximately 8.1 million shares during the third
quarter. Shares outstanding were 35.5 million at April 30,
2008.
First Nine Months of 2008
-- Revenues for the nine months ended April 30, 2008 were $1.68
billion compared to $1.72 billion last year, a decrease of
2.4%.
-- Comparable store sales for the nine months ended April 30,
2008 decreased 2.3%.
-- Unrecognized revenue related to warranty sales increased $64
million or $0.86 per diluted share. This compares to an
increase in unrecognized revenue of $47 million or $0.59 per
diluted share for the nine months ended April 30, 2007.
Including the impact of unrecognized revenues, adjusted
earnings are $1.05 per diluted share this year compared to
$1.57 per diluted share last year including a $0.01 gain from
derivatives.
-- The earnings from continuing operations for the nine months
ended April 30, 2008 were $8.6 million, or $0.19 per diluted
share, compared to earnings of $47.4 million, or $0.97 per
diluted share for the nine months ended April 30, 2007.
-- 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% reduction in actual shares in fiscal 2008. Approximately
$50 million remaining in authorization.
A conference call will be held today at 9:00 a.m. Eastern Time.
Parties interested in participating should dial 800-679-2671 or
706-643-7467 five minutes prior to the scheduled start time. A webcast
of the call, as well as a replay, will be available on the Company's
Web site at www.zalecorp.com. For additional information, contact
Investor Relations at 972-580-5047.
About Zale Corporation
Zale Corporation 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 Corporation'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. Additional information on Zale Corporation
and its brands is available at www.zalecorp.com.
This release contains forward-looking statements, including
statements regarding the strategies being implemented by the Company
and their future success, including the reduction of inventory and
estimated annualized savings from expense reductions. Forward-looking
statements are not guarantees of future performance and a variety of
factors could cause the Company's actual results to differ materially
from the results expressed in the forward-looking statements. These
factors include, but are not limited to: if the general economy
performs poorly, discretionary spending on goods that are, or are
perceived to be, "luxuries" may not grow and may even decrease; the
concentration of a substantial portion of the Company's sales in
three, relatively brief selling seasons means that the Company's
performance is more susceptible to disruptions; most of the Company's
sales are of products that include diamonds, precious metals and other
commodities, and fluctuations in the availability and pricing of
commodities could impact the Company's ability to obtain and produce
products at favorable prices; the Company's sales are dependent upon
mall traffic; the Company operates in a highly competitive industry;
changes in regulatory requirements or in the Company's private label
credit card arrangement with Citi may increase the cost or adversely
affect the Company's operations and its ability to provide consumer
credit and write credit insurance; acquisitions involve special risks,
including the possibility that the Company may not be able to
integrate acquisitions into its existing operations. For other
factors, see the Company's filings with the Securities and Exchange
Commission, including its Annual Report on Form 10-K for the fiscal
year ended July 31, 2007. The Company disclaims any obligation to
update or revise publicly or otherwise any forward-looking statements
to reflect subsequent events, new information or future circumstances.
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL INFORMATION
(Unaudited, Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
April 30 April 30
-------------------- ------------------------
2008 2007 2008 2007
--------- --------- ----------- -----------
Revenues $476,736 $448,956 $1,681,819 $1,722,811
Cost of Sales 250,196 214,837 849,082 827,429
--------- --------- ----------- -----------
Gross Margin 226,540 234,119 832,737 895,382
% of Revenue 47.5% 52.1% 49.5% 52.0%
Selling, General and
Administrative 231,660 221,865 754,409 750,071
% of Revenue 48.6% 49.4% 44.9% 43.5%
Cost of Insurance
Operations 1,875 2,108 5,087 5,290
Depreciation and
Amortization 14,887 14,097 45,117 42,023
Derivative (Gain) Loss 0 (155) 0 7,073
--------- --------- ----------- -----------
Operating (Loss)
Earnings (21,882) (3,796) 28,124 90,925
% of Revenue -4.6% -0.8% 1.7% 5.3%
Interest Expense 1,769 4,346 9,590 15,239
--------- --------- ----------- -----------
(Loss) Earnings Before
Income Taxes (23,651) (8,142) 18,534 75,686
Income Tax (Benefit)
Expense (6,254) (3,141) 9,934 28,294
--------- --------- ----------- -----------
(Loss) Earnings from
continuing operations (17,397) (5,001) 8,600 47,392
Earnings from
discontinued
operations, net of
taxes 604 1,051 7,084 10,323
--------- --------- ----------- -----------
Net (Loss)
Earnings $(16,793) $ (3,950) $ 15,684 $ 57,715
========= ========= =========== ===========
Basic (Loss) Earnings
Per Common Share:
(Loss) Earnings
from continuing
operations $ (0.42) $ (0.10) $ 0.19 $ 0.98
========= ========= =========== ===========
Earnings from
discontinued
operations $ 0.02 $ 0.02 $ 0.16 $ 0.21
========= ========= =========== ===========
Net (Loss)
Earnings per
share $ (0.40) $ (0.08) $ 0.35 $ 1.19
========= ========= =========== ===========
Diluted (Loss) Earnings
Per Common Share:
(Loss) Earnings
from continuing
operations $ (0.42) $ (0.10) $ 0.19 $ 0.97
========= ========= =========== ===========
Earnings from
discontinued
operations $ 0.02 $ 0.02 $ 0.16 $ 0.21
========= ========= =========== ===========
Net (Loss)
Earnings per
share $ (0.40) $ (0.08) $ 0.35 $ 1.18
========= ========= =========== ===========
Weighted Average Number
of Common Shares
Outstanding:
Basic 41,568 48,975 45,319 48,580
========= ========= =========== ===========
Diluted 41,568 48,975 45,414 48,994
========= ========= =========== ===========
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET DATA
(Unaudited, Dollars in thousands)
Difference
April 30, April 30, April 2008 vs April
2007
2008 2007 Amount Percent
----------- ----------- ---------- -------
ASSETS
Current Assets:
Cash and cash
equivalents $ 67,648 $ 52,621 $ 15,027 28.6%
Merchandise
inventories 866,961 1,086,487 (219,526) -20.2%
Other current
assets 91,917 112,060 (20,143) -18.0%
----------- ----------- ---------- -------
Total current assets 1,026,526 1,251,168 (224,642) -18.0%
Property and equipment 713,513 730,070 (16,557) -2.3%
Less accumulated
depreciation and
amortization (427,445) (428,256) 811 -0.2%
----------- ----------- ---------- -------
Net property and
equipment 286,068 301,814 (15,746) -5.2%
Goodwill 105,011 97,901 7,110 7.3%
Other assets 35,953 35,883 70 0.2%
Deferred tax asset 3,963 - 3,963 0.0%
----------- ----------- ---------- -------
Total Assets $1,457,521 $1,686,766 $(229,245) -13.6%
=========== =========== ========== =======
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
Current liabilities:
Accounts payable
and accrued
liabilities $ 287,236 $ 321,791 $ (34,555) -10.7%
Deferred tax
liability 56,521 70,073 (13,552) -19.3%
----------- ----------- ----------
Total current
liabilities 343,757 391,864 (48,107) -12.3%
Long-term debt 269,106 290,050 (20,944) -7.2%
Deferred tax liability - 19,125 (19,125) -100.0%
Other liabilities 159,962 95,121 64,841 68.2%
Contingencies
Stockholders'
Investment:
Common stock 559 492 67 13.6%
Additional paid-In
capital 143,305 136,015 7,290 5.4%
Accumulated other
comprehensive
income 53,356 37,524 15,832 42.2%
Accumulated
earnings 883,795 866,575 17,220 2.0%
----------- ----------- ---------- -------
1,081,015 1,040,606 40,409 3.9%
Treasury stock (396,319) (150,000) (246,319) 164.2%
----------- ----------- ---------- -------
Total stockholders'
investment 684,696 890,606 (205,910) -23.1%
----------- ----------- ---------- -------
Total liabilities and
stockholders'
investment $1,457,521 $1,686,766 $(229,245) -13.6%
=========== =========== ========== =======
Reconciliation of GAAP Information to Non-GAAP basis for 3rd Quarter
fiscal 2007, diluted:
Three Months Nine Months
Ended Ended
April 30, 2007 April 30, 2007
----------------- ---------------
Amount Per Amount Per
Share Share
-------- ------- -------- ------
Net (Loss) Earnings from Continuing
Operations, Per Above $(5,001) $(0.10) $47,392 $0.97
Impact of Derivatives (1,568) (0.03) 641 0.01
Change in Deferred Revenue 11,329 0.23 28,777 0.59
-------- ------- ------- ------
Net Earnings, as adjusted $ 4,760 $ 0.10 $76,810 $1.57
======== ======= ======= ======
Impact on GAAP Information from Deferred Revenue for the 3rd Quarter
fiscal 2008, diluted:
Three Months Ended Nine Months
Ended
April 30, 2008 April 30, 2008
------------------ ---------------
Amount Per Amount Per
Share Share
--------- ------- -------- ------
Net (Loss) Earnings from
Continuing Operations, Per Above $(17,397) $(0.42) $ 8,600 $0.19
Change in Deferred Revenue 10,430 0.25 39,144 0.86
--------- ------- ------- ------
Net (Loss) Earnings, as adjusted $ (6,967) $(0.17) $47,744 $1.05
========= ======= ======= ======
SOURCE: Zale Corporation
Zale Corporation
David H. Sternblitz, 972-580-5047
Vice President and Treasurer
