-- 6.1% increase in fourth quarter comparable store sales -- $127 million clearance inventory reduction in fiscal 2008 -- 17.6 million shares were repurchased in fiscal 2008; 36% reduction in outstanding shares -- Fiscal year 2009 EPS guidance of $1.10 - $1.25; EPS adjusted for total warranty sales of $2.35 - $2.50 -- Fiscal year 2009 Free Cash Flow guidance of $145 - $155 millionDALLAS, Aug 28, 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 fourth quarter of fiscal 2008 of $4.9 million, or
$0.15 per share, compared to net earnings from continuing operations of
$0.7 million, or $0.01 per diluted share, for the fourth quarter of
fiscal 2007.
The loss for the fourth quarter of fiscal 2008 includes a benefit
associated with the release of a vacation accrual of $7.7 million, net
of taxes, or $0.23 per share, and a gain on the sale of an unproductive
asset of $3.5 million, or $0.10 per share. The earnings for the fourth
quarter of fiscal 2007 included a benefit of $1.1 million, or $0.02 per
share, for the net impact of derivative versus hedge accounting on the
Company's gold and silver contracts and a net
tax benefit of $6.7 million, or $0.14 per diluted share, primarily
related to a decision to indefinitely reinvest certain undistributed
foreign earnings in accordance with APB 23.
"In the fourth quarter, we exceeded our
expectations for sales, earnings and inventory reduction,"
said Neal Goldberg, Chief Executive Officer. "We
sustained the strong momentum we achieved in our third quarter as we
made improvements to our core assortment and executed our clearance
strategy, driving our second straight quarterly comp store increase of
approximately 6%. This demonstrates our ability to continue to drive
traffic and capture market share in a tough environment."
Mr. Goldberg concluded, "After a challenging
start to fiscal 2008, which included a disappointing Holiday season, we
executed a focused agenda with clear objectives. To improve performance
over the current fiscal year and beyond, we are concentrating on
improving our customer focus, enhancing operational effectiveness and
maintaining financial discipline. Specific actions we are taking to
achieve these objectives include differentiating our product offering by
simplifying and focusing our assortment; streamlining the organization
to eliminate redundancies; realizing $65 plus million in ongoing
annualized savings; and permanently reducing $100 million in inventory.
We believe, given the progress made against our initiatives, that we are
well-positioned as we enter the new fiscal year."
Warranty Program
The Company extended the service period covered under the warranty
program from two years to the lifetime of product ownership in 2007. As
a result, revenues are now recognized on a straight-line basis over five
years as opposed to the previous pro rata recognition based on the
timing of the related servicing costs. As the accounting for total
warranty sales continue to normalize over the next three to four years,
the Company expects recognized revenues to continue to increase and
trend more closely to actual total warranty sales.
For the quarter ending July 31, 2008, total warranty sales increased 6%
to $26.2 million, compared to $24.7 million the prior year. For the
quarter ending July 31, 2008 and 2007, revenue recognized was $11.1
million and $9.2 million while deferred revenue grew $15.1 million and
$15.5 million, respectively.
For the year ending July 31, 2008, total warranty sales increased 12% to
$120.8 million, compared to $107.9 million the prior year. For the year
ending July 31, 2008 and 2007, revenue recognized was $41.6 million and
$45.2 million while deferred revenue grew $79.2 million and $62.7
million, respectively.
Fourth Quarter of 2008
-- Revenues for the fourth quarter ended July 31, 2008 were $456
million compared to $430 million last year, an increase of 6.1%.
-- Comparable store sales for the fourth quarter increased 6.1%.
-- Repurchased approximately 3.9 million shares during the fourth
quarter. Shares outstanding were approximately 32 million at July
31, 2008.
Full Year 2008
-- Revenues for the twelve months ended July 31, 2008 were $2.14
billion compared to $2.15 billion last year, a decrease of 0.7%.
-- Comparable store sales for the twelve months ended July 31, 2008
decreased 0.7%.
-- Earnings from continuing operations for the twelve months ended
July 31, 2008 were $3.7 million or $0.09 per diluted share, compared
to earnings of $48.1 million, or $0.98 per diluted share for the
twelve months ended July 31, 2007.
-- Approximately 17.6 million shares were repurchased in fiscal 2008
at an average price of $18.59. This represents approximately $327
million of the $350 million stock repurchase authorization - a 36%
reduction in actual shares in fiscal 2008.
Guidance
As a result of the change in the Company's
warranty programs in fiscal 2007, management considers non-GAAP total
revenues and non-GAAP EPS, both adjusted for total warranty sales, as
important metrics in evaluating the Company's
current performance. As such, for the full year ended July 31, 2009, the
Company expects the following:
-- Diluted EPS in the range of $1.10 to $1.25; Diluted EPS adjusted
for total warranty sales in the range of $2.35 to $2.50.
-- Revenue includes:
-- comparable store sales in the range of negative 1% to flat;
-- a store count which is planned to be slightly down, consistent
with reduced capital spending in fiscal 2009.
-- Revenue adjusted for total warranty sales includes approximately
$65 million in additional deferred revenue.
-- Free Cash Flow in the range of $145 million to $155 million.
-- The Company expects approximately $120 million in total warranty
sales. Total revenue recognized from warranty sales is expected to
be $55 million for fiscal 2009, which includes $15 million from 2009
sales plus $40 million from sales made in 2007 and 2008.
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.
The Company also announced that it will be presenting at the Goldman
Sachs Retailing Conference on Wednesday, September 3, 2008 at 8:45 a.m.
Eastern Time. The webcast will be available on the Company's Web site at www.zalecorp.com.
About Zale Corporation
Zale Corporation is a leading specialty retailer of fine jewelry in
North America, operating approximately 2,130 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 estimates
relating to sales as adjusted for total warranty sales, earnings,
earnings per share, earnings per share adjusted for total warranty
sales, cash flows and capital expenditures, and 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 Twelve Months Ended
July 31 July 31
2008 2007 2008 2007
Revenues $ 456,222 $ 429,974 $ 2,138,041 $ 2,152,785
Cost of Sales 240,471 202,124 1,089,553 1,029,553
Gross Margin 215,751 227,850 1,048,488 1,123,232
% of Revenue 47.3 % 53.0 % 49.0 % 52.2 %
Selling, General and Administrative 215,361 217,572 969,769 967,643
% of Revenue 47.2 % 50.6 % 45.4 % 45.0 %
Cost of Insurance Operations 1,657 1,659 6,744 6,949
Depreciation and Amortization 15,127 14,572 60,244 56,595
Derivative Loss - 111 - 7,184
Operating (Loss) Earnings (16,394 ) (6,064 ) 11,731 84,861
% of Revenue -3.6 % -1.4 % 0.5 % 3.9 %
Interest Expense (2,774 ) (3,730 ) (12,364 ) (18,969 )
Other Income 3,500 - 3,500 -
(Loss) Earnings Before Income Taxes (15,668 ) (9,794 ) 2,867 65,892
Income Tax Benefit (Expense) 10,784 10,511 850 (17,783 )
(Loss) Earnings from continuing operations (4,884 ) 717 3,717 48,109
Earnings from discontinued operations, net of taxes - 820 7,084 11,143
Net (Loss) Earnings $ (4,884 ) $ 1,537 $ 10,801 $ 59,252
Basic (Loss) Earnings Per Common Share:
(Loss) Earnings from continuing operations $ (0.15 ) $ 0.01 $ 0.09 $ 0.99
Earnings from discontinued operations $ - $ 0.02 $ 0.16 $ 0.23
Net (Loss) Earnings per share $ (0.15 ) $ 0.03 $ 0.25 $ 1.22
Diluted (Loss) Earnings Per Common Share:
(Loss) Earnings from continuing operations $ (0.15 ) $ 0.01 $ 0.09 $ 0.98
Earnings from discontinued operations $ - $ 0.02 $ 0.16 $ 0.23
Net (Loss) Earnings per share $ (0.15 ) $ 0.03 $ 0.25 $ 1.21
Weighted Average Number of Common Shares Outstanding:
Basic 33,550 49,031 42,361 48,694
Diluted 33,550 49,210 42,476 48,995
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET DATA
(Unaudited, Dollars in thousands)
Difference
July 31, July 31, July 2008 vs July 2007
2008 2007 Amount Percent
ASSETS
Current Assets:
Cash and cash equivalents $ 65,579 $ 37,643 $ 27,936 74.2 %
Merchandise inventories 779,565 1,021,164 (241,599 ) -23.7 %
Other current assets 125,446 113,511 11,935 10.5 %
Total current assets 970,590 1,172,318 (201,728 ) -17.2 %
Property and equipment 734,760 743,632 (8,872 ) -1.2 %
Less accumulated depreciation and amortization (436,873 ) (439,236 ) 2,363 -0.5 %
Net property and equipment 297,887 304,396 (6,509 ) -2.1 %
Goodwill 103,685 100,740 2,945 2.9 %
Other assets 35,946 35,187 759 2.2 %
Deferred tax asset 6,184 1,305 4,879 373.9 %
Total Assets $ 1,414,292 $ 1,613,946 $ (199,654 ) -12.4 %
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities $ 262,275 $ 300,929 $ (38,654 ) -12.8 %
Deferred tax liability 57,626 73,529 (15,903 ) -21.6 %
Total current liabilities 319,901 374,458 (54,557 ) -14.6 %
Long-term debt 326,306 227,306 99,000 43.6 %
Other liabilities 169,285 109,609 59,676 54.4 %
Contingencies
Stockholders' Investment:
Common stock 488 487 1 0.2 %
Additional paid-In capital 144,456 138,036 6,420 4.7 %
Accumulated other comprehensive income 51,036 45,939 5,097 11.1 %
Accumulated earnings 879,514 868,111 11,403 1.3 %
1,075,494 1,052,573 22,921 2.2 %
Treasury stock (476,694 ) (150,000 ) (326,694 ) 217.8 %
Total stockholders' investment 598,800 902,573 (303,773 ) -33.7 %
Total liabilities and stockholders' $ 1,414,292 $ 1,613,946 $ (199,654 ) -12.4 %
investment
Non-GAAP Financial Measures and Reconciliations
This press release includes a presentation of estimates for the fiscal
year ending July 31, 2009 ("FY 2009")
with respect to earnings and earnings per share, as adjusted for
deferred revenue under the lifetime jewelry plan. In addition, this
press release includes a presentation of earnings and earnings per share
for the fiscal year ended July 31, 2008 ("FY
2008") adjusted for deferred revenue under
the lifetime jewelry plan and to exclude a gain on the sale of an asset
and a positive vacation accrual adjustment. In addition, this press
release includes a presentation of earnings and earnings per share for
the fiscal year ended July 31, 2007 ("FY 2007")
adjusted for deferred revenue under the lifetime jewelry plan and to
exclude a positive tax adjustment and the impact of derivative versus
hedge accounting on the Company's silver and
gold contracts. Earnings and earnings per share, in each case as
adjusted with respect to the items described above, are not measures of
financial performance under GAAP. These measures should not be
considered as alternatives to earnings and earnings per share as
computed under GAAP for the applicable period.
Management uses earnings and earnings per share measures adjusted for
certain items as part of its evaluation of the performance of the
Company. Since management expects sales of lifetime jewelry protection
plans to produce recognizable income in future periods and considers
sales of these plans to be an important aspect of revenue production by
stores, it considers earnings and earnings per share, as well as sales
and other performance measures, that have been adjusted to reflect
deferred revenue as important measures of sales efforts and other
operating performance. Since the positive vacation accrual adjustment
and the gain on the sale of an asset in FY 2008 and the positive tax
adjustment in FY 2007 are items that are expected to occur in
unpredictable amounts and with uncertain frequency in the future,
management excludes these items in evaluating current operating
performance. In addition, since hedging gold and silver prices reflects
financial decisions and not just operating decisions, management
utilizes earnings and earnings per share adjusted to exclude certain
hedging impacts as a tool to evaluate operating performance. Further,
the Company believes the adjusted earnings and earnings per share
measures provide useful information to investors because the items
described above had a significant impact during the applicable period
and warrant special attention on the part of investors.
This press release also includes an estimate of "free
cash flow" for FY 2009. Free cash flow is a
non-GAAP financial measure and is defined as cash flows from operating
activities (in accordance with GAAP) less net capital expenditures. Net
capital expenditures include additions to property and equipment and
proceeds from the sales of fixed assets. The Company considers cash
flows from operating activities to be the most comparable GAAP financial
measure.
The Company believes the presentation of free operating cash flow
presents useful information about the amount of cash generated from
operations after making capital investments to support growth
initiatives. Free operating cash flow should not be considered as an
alternative to cash flows from operating, financing or investing
activities or as a measure of liquidity. Further, free operating cash
flow does not represent the total increase or decrease in the cash
balance for the period.
Reconciliation of GAAP Information to Non-GAAP basis for fiscal
2007, diluted:
Dollars in thousands, except per share amounts
Three Months Ended Twelve Months Ended
July 31, 2007 July 31, 2007
Amount Per Share Amount Per Share
Net Earnings from Continuing Operations, Per Above $ 717 $ 0.01 $ 48,109 $ 0.98
Impact of Derivatives (1,051 ) (0.02 ) (411 ) (0.01 )
Tax Adjustments (6,742 ) (0.14 ) (6,742 ) (0.14 )
Total Before Change in Deferred Revenue (7,076 ) (0.15 ) 40,956 0.83
Change in Deferred Revenue 9,495 0.20 38,272 0.79
Net Earnings, as adjusted $ 2,419 $ 0.05 $ 79,228 $ 1.62
Reconciliation of GAAP Information to Non-GAAP basis for fiscal
2008, diluted:
Dollars in thousands, except per share amounts
Three Months Ended Twelve Months Ended
July 31, 2008 July 31, 2008
Amount Per Share Amount Per Share
Net (Loss) Earnings from Continuing Operations, Per Above $ (4,884 ) $ (0.15 ) $ 3,717 $ 0.09
Gain on Sale of Diamond (3,500 ) (0.10 ) (3,500 ) (0.09 )
Vacation Adjustment (7,691 ) (0.23 ) (7,691 ) (0.18 )
Total Before Change in Deferred Revenue (16,075 ) (0.48 ) (7,474 ) (0.18 )
Change in Deferred Revenue 9,191 0.27 48,335 1.14
Net (Loss) Earnings, as adjusted $ (6,884 ) $ (0.21 ) $ 40,861 $ 0.96
Reconciliation of GAAP Information to Non-GAAP basis for fiscal
2009, diluted:
Dollars in thousands, except per share amounts
Twelve Months Ended
July 31, 2009
Per Share Guidance Range
Net Earnings from Continuing Operations $ 1.10 - $ 1.25
Change in Deferred Revenue 1.25 - 1.25
Net Earnings adjusted for total warranty sales $ 2.35 - $ 2.50
Reconciliation of GAAP Information to Non-GAAP basis for fiscal 2009:
Dollars in thousands
Twelve Months Ended
July 31, 2009
Amount Guidance Range
Net cash provided by operating activities $ 190 - $ 200
Payments for property and equipment (45 ) - (45 )
Free cash flow $ 145 - $ 155
SOURCE: Zale Corporation
Zale Corporation
David Sternblitz, 972-580-5047
Vice President and Treasurer
or
Rhett Butler, 972-580-5047
Manager of Investor Relations
