 View printer-friendly version | | << Back | | Zale Reports Third Quarter Fiscal 2009 Results | | Comparable Store Sales Down 20% for the Third Quarter Third Quarter Gross Margin Increases to 50.1% SG&A Down $22 Million Compared to Prior Year Debt Reduced $57 Million During the Third Quarter
DALLAS--(BUSINESS WIRE)--May. 27, 2009--
Zale Corporation (NYSE: ZLC), a leading specialty retailer of fine
jewelry in North America, today announced a net loss from continuing
operations of $23.2 million, or $0.73 per share, compared to a loss of
$17.4 million, or $0.42 per share, for the third quarter ended April 30,
2009 and 2008, respectively. As compared with the prior year, earnings
per share were negatively impacted by $0.17 related to the 10 million
reduced outstanding share count.
Revenues for the third quarter of fiscal 2009 were $379 million as
compared to $477 million for the prior period, a decrease of 20.5%.
During the quarter comparable store sales decreased 20.0% as compared to
an increase of 5.8% for the 2008 period. The prior year’s results were
positively impacted by a clearance initiative that permanently reduced
inventory by $100 million. The Company achieved a gross margin on sales
during the third quarter of fiscal 2009 of 50.1%, compared to 47.5% the
prior year. Overall results were impacted positively by a reduction of
aggregate selling, general and administrative expense by $22 million
compared to the prior year, primarily resulting from the impact of cost
reductions previously implemented by the Company. The Company is
currently in the process of implementing additional reductions in
operating costs including realigning its rent structure with sales
trends, closing underperforming stores, renewing leases that offer the
best returns and negotiating an efficient exit from its Bailey, Banks
and Biddle contingent liability.
As of April 30, 2009, the Company had outstanding debt of $333 million,
a reduction of $57 million from the second quarter of fiscal 2009.
“Our key goals coming into the quarter were to strengthen and stabilize
the foundation of the business while recapturing the gross margin we
lost from our promotional stance during Holiday,” commented Neal
Goldberg, Chief Executive Officer. “We accomplished these goals as we
generated positive free cash flow for the period with debt levels being
reduced approximately $57 million from the second quarter and gross
margins returning to above 50%.”
Mr. Goldberg concluded, “While we have taken important steps to creating
a more efficient business model, we are up against difficult same store
sales comparisons due to the clearance initiative through September
2009.”
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 diamonds and other
jewelry products in North America, operating more than 2,050 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 estimated cost savings and inventory reductions, financial
condition and liquidity, as well as other strategies being implemented
by the Company and their future success. 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 continues to perform poorly,
discretionary spending on goods that are, or are perceived to be,
“luxuries” may 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; the Company’s contingent
liability with respect to lease obligations for Bailey Banks & Biddle
stores sold by the Company in November 2007 and 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, 2008. 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,
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
379,110
|
|
|
$
|
476,736
|
|
|
$
|
1,422,630
|
|
|
$
|
1,681,819
|
|
|
Cost of Sales
|
|
|
189,075
|
|
|
|
250,196
|
|
|
|
757,209
|
|
|
|
849,082
|
|
|
Gross Margin
|
|
|
190,035
|
|
|
|
226,540
|
|
|
|
665,421
|
|
|
|
832,737
|
|
|
% of Revenue
|
|
|
50.1
|
%
|
|
|
47.5
|
%
|
|
|
46.8
|
%
|
|
|
49.5
|
%
|
|
Selling, General and Administrative
|
|
|
209,509
|
|
|
|
231,660
|
|
|
|
713,003
|
|
|
|
752,777
|
|
|
% of Revenue
|
|
|
55.3
|
%
|
|
|
48.6
|
%
|
|
|
50.1
|
%
|
|
|
44.8
|
%
|
|
Cost of Insurance Operations
|
|
|
1,804
|
|
|
|
1,875
|
|
|
|
4,960
|
|
|
|
5,087
|
|
|
Depreciation and Amortization
|
|
|
14,453
|
|
|
|
14,887
|
|
|
|
44,498
|
|
|
|
45,117
|
|
|
Impairment Charges
|
|
|
-
|
|
|
|
-
|
|
|
|
13,221
|
|
|
|
1,632
|
|
|
Operating (Loss) Earnings
|
|
|
(35,731
|
)
|
|
|
(21,882
|
)
|
|
|
(110,261
|
)
|
|
|
28,124
|
|
|
% of Revenue
|
|
|
-9.4
|
%
|
|
|
-4.6
|
%
|
|
|
-7.8
|
%
|
|
|
1.7
|
%
|
|
Interest Expense
|
|
|
1,929
|
|
|
|
1,769
|
|
|
|
8,633
|
|
|
|
9,590
|
|
|
(Loss)Earnings Before Income Taxes
|
|
|
(37,660
|
)
|
|
|
(23,651
|
)
|
|
|
(118,894
|
)
|
|
|
18,534
|
|
|
Income Tax (Benefit) Expense
|
|
|
(14,465
|
)
|
|
|
(6,254
|
)
|
|
|
(26,776
|
)
|
|
|
9,934
|
|
|
(Loss)Earnings from continuing operations
|
|
|
(23,195
|
)
|
|
|
(17,397
|
)
|
|
|
(92,118
|
)
|
|
|
8,600
|
|
|
Earnings from discontinued operations, net of taxes
|
|
|
-
|
|
|
|
604
|
|
|
|
-
|
|
|
|
7,084
|
|
|
Net (Loss)Earnings
|
|
$
|
(23,195
|
)
|
|
$
|
(16,793
|
)
|
|
$
|
(92,118
|
)
|
|
$
|
15,684
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (Loss)Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
(Loss)Earnings from continuing operations
|
|
$
|
(0.73
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
(2.89
|
)
|
|
$
|
0.19
|
|
|
Earnings from discontinued operations
|
|
$
|
-
|
|
|
$
|
0.02
|
|
|
$
|
-
|
|
|
$
|
0.16
|
|
|
Net (Loss)Earnings per share
|
|
$
|
(0.73
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(2.89
|
)
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (Loss)Earnings Per Common Share:
|
|
|
|
|
|
|
|
|
|
(Loss) earnings from continuing operations
|
|
$
|
(0.73
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
(2.89
|
)
|
|
$
|
0.19
|
|
|
Earnings from discontinued operations
|
|
$
|
-
|
|
|
$
|
0.02
|
|
|
$
|
-
|
|
|
$
|
0.16
|
|
|
Net (Loss)Earnings per share
|
|
$
|
(0.73
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(2.89
|
)
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
31,972
|
|
|
|
41,568
|
|
|
|
31,879
|
|
|
|
45,319
|
|
|
Diluted
|
|
|
31,972
|
|
|
|
41,568
|
|
|
|
31,879
|
|
|
|
45,414
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Share
|
|
Amount
|
|
Per 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 from continuing operations, as adjusted
|
|
$
|
(6,967
|
)
|
|
$
|
(0.17
|
)
|
|
$
|
47,744
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact on GAAP Information from Special Items for the 3rd Quarter
fiscal 2009, diluted:
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
April 30, 2009
|
|
April 30, 2009
|
|
|
|
Amount
|
|
Per Share
|
|
Amount
|
|
Per Share
|
|
Net Loss from Continuing Operations, Per Above
|
|
$
|
(23,195
|
)
|
|
$
|
(0.73
|
)
|
|
$
|
(92,118
|
)
|
|
$
|
(2.89
|
)
|
|
Store impairments
|
|
|
-
|
|
|
|
-
|
|
|
|
5,003
|
|
|
|
0.16
|
|
|
Goodwill Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
5,020
|
|
|
|
0.16
|
|
|
Tax Adjustments (a)
|
|
|
(4,150
|
)
|
|
|
(0.13
|
)
|
|
|
11,697
|
|
|
|
0.37
|
|
|
Loss before change in deferred revenue
|
|
|
(27,345
|
)
|
|
|
(0.86
|
)
|
|
|
(70,398
|
)
|
|
|
(2.20
|
)
|
|
Change in deferred revenue
|
|
|
4,313
|
|
|
|
0.14
|
|
|
|
21,613
|
|
|
|
0.67
|
|
|
Net loss from continuing operations, as adjusted
|
|
$
|
(23,032
|
)
|
|
$
|
(0.72
|
)
|
|
$
|
(48,785
|
)
|
|
$
|
(1.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(a) Tax adjustments for the nine months ended April 30, 2009
relate to a valuation reserve on foreign tax credits resulting
from our decision to revoke our APB 23 election during the second
quarter of fiscal 2009. Tax adjustments for the three months ended
April 30, 2009 include a benefit totaling $6.9 million related to
a decrease in the estimated valuation reserve and a charge
totaling $2.7 million related to the expiration of net operating
loss carryforwards.
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEET DATA
|
|
(Unaudited, Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference
|
|
|
April 30,
|
|
April 30,
|
|
April 2009 vs April 2008
|
|
|
|
2009
|
|
|
|
2008
|
|
|
Amount
|
|
Percent
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
23,950
|
|
|
$
|
67,648
|
|
|
$
|
(43,698
|
)
|
|
-64.6
|
%
|
|
Merchandise inventories
|
|
758,994
|
|
|
|
866,961
|
|
|
|
(107,967
|
)
|
|
-12.5
|
%
|
|
Other current assets
|
|
83,260
|
|
|
|
91,917
|
|
|
|
(8,657
|
)
|
|
-9.4
|
%
|
|
Total current assets
|
|
866,204
|
|
|
|
1,026,526
|
|
|
|
(160,322
|
)
|
|
-15.6
|
%
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
708,632
|
|
|
|
713,513
|
|
|
|
(4,881
|
)
|
|
-0.7
|
%
|
|
Less accumulated depreciation and amortization
|
|
(447,894
|
)
|
|
|
(427,445
|
)
|
|
|
(20,449
|
)
|
|
-4.8
|
%
|
|
Net property and equipment
|
|
260,738
|
|
|
|
286,068
|
|
|
|
(25,330
|
)
|
|
-8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
87,454
|
|
|
|
105,011
|
|
|
|
(17,557
|
)
|
|
-16.7
|
%
|
|
Other assets
|
|
28,289
|
|
|
|
35,953
|
|
|
|
(7,664
|
)
|
|
-21.3
|
%
|
|
Deferred tax asset
|
|
54,642
|
|
|
|
3,963
|
|
|
|
50,679
|
|
|
1278.8
|
%
|
|
Total Assets
|
$
|
1,297,327
|
|
|
$
|
1,457,521
|
|
|
$
|
(160,194
|
)
|
|
-11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
220,228
|
|
|
$
|
287,236
|
|
|
$
|
(67,008
|
)
|
|
-23.3
|
%
|
|
Deferred tax liability
|
|
71,915
|
|
|
|
56,521
|
|
|
|
15,394
|
|
|
27.2
|
%
|
|
Total current liabilities
|
|
292,143
|
|
|
|
343,757
|
|
|
|
(51,614
|
)
|
|
-15.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
332,800
|
|
|
|
269,106
|
|
|
|
63,694
|
|
|
23.7
|
%
|
|
Other liabilities
|
|
188,916
|
|
|
|
159,962
|
|
|
|
28,954
|
|
|
18.1
|
%
|
|
|
|
|
|
|
|
|
|
|
Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Investment:
|
|
|
|
|
|
|
|
|
Common stock
|
|
488
|
|
|
|
488
|
|
|
|
0
|
|
|
0.0
|
%
|
|
Additional paid-In capital
|
|
147,271
|
|
|
|
143,376
|
|
|
|
3,895
|
|
|
2.7
|
%
|
|
Accumulated other comprehensive income
|
|
18,217
|
|
|
|
53,356
|
|
|
|
(35,139
|
)
|
|
-65.9
|
%
|
|
Accumulated earnings
|
|
787,395
|
|
|
|
883,795
|
|
|
|
(96,400
|
)
|
|
-10.9
|
%
|
|
|
|
953,371
|
|
|
|
1,081,015
|
|
|
|
(127,644
|
)
|
|
-11.8
|
%
|
|
Treasury stock
|
|
(469,903
|
)
|
|
|
(396,319
|
)
|
|
|
(73,584
|
)
|
|
-18.6
|
%
|
|
Total stockholders’ investment
|
|
483,468
|
|
|
|
684,696
|
|
|
|
(201,228
|
)
|
|
-29.4
|
%
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ investment
|
$
|
1,297,327
|
|
|
$
|
1,457,521
|
|
|
$
|
(160,194
|
)
|
|
-11.0
|
%
|
Non-GAAP Financial Measures and Reconciliations
This press release includes a presentation of earnings and earnings per
share for the three months and nine months ended April 30, 2009, as
adjusted to include deferred revenue under the lifetime jewelry plan and
to exclude store impairment charges, goodwill impairment charges and the
impact of certain tax adjustments. In addition, this press release
includes a presentation of earnings and earnings per share for the three
months and nine months ended April 30, 2008, as adjusted to include
deferred revenue under the lifetime jewelry plan. 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.
Reconciliations of these measures to earnings and earnings per share
under GAAP are presented above under “Consolidated Selected Financial
Information.”
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 store impairment charges, goodwill
impairment charges and certain tax adjustments 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. 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 a statement regarding "free cash flow"
for the three months ended April 30, 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. Capital
expenditures include additions to property and equipment. The Company
considers cash flows from operating activities to be the most comparable
GAAP financial measure.
The Company believes the presentation of free cash flow presents useful
information about the amount of cash generated from operations after
making capital investments to support growth initiatives. Free 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 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 the 3rd
Quarter fiscal 2009:
|
|
|
|
Three Months Ended
|
|
|
|
April 30, 2009
|
|
|
|
Amount
|
|
Net cash provided by operating activities
|
|
$
|
7,630
|
|
|
Payments for property and equipment
|
|
|
(4,080
|
)
|
|
Free cash flow
|
|
$
|
3,550
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
$
|
341
|
|
|
Net cash used in financing activities
|
|
$
|
(57,205
|
)
|
Source: Zale Corporation
Zale Corporation
Investor Relations
David Sternblitz, Vice
President and Treasurer, 972-580-5047
or
Rhett Butler, Manager
of Investor Relations, 972-580-5047
|
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