Zale revenues down 9.6 percent in fiscal Q1-Market Survey-Magazine-IRISPANCY FASHION ACCESSORIES & JEWELRY

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Magazine > Market Survey > News Content

Zale revenues down 9.6 percent in fiscal Q1

11/26/2009 8:01:53 PM

Irving, Texas--Zale Corp. revealed its first-quarter fiscal 2010 results, which show that revenues for the quarter ended Oct. 31, 2009 have fallen 9.6 percent to $329 million, compared to $364 million for the same period in the previous year.

Meanwhile, comparable store sales were down 6.8 percent compared to a 3.7 percent decrease during the 2008 period, a financial news release issued Tuesday said. The company also experienced a net loss of $57.6 million compared with a $48.4 million loss in the previous year. Net loss was $1.80 per share for first fiscal-quarter 2010, compared to the earlier year's same quarter net loss of $1.52 per share.

"We are encouraged that both sales and margin strengthened as the quarter progressed," Zale Corp. Chief Executive Officer Neal Goldberg said in the media release. "Importantly, we are well positioned to improve our holiday execution and financial performance. Our merchandising initiatives have been tested, our stores are fully set and we have the inventory to deliver on our holiday plans. We will not offer the same level of broad discounting this holiday season as we did in 2008, which will help us expand our gross margin."

Zale Corp. has closed a total of 209 retail locations since Oct. 31, 2008, and as of the same date in 2009 had reduced aggregate selling, general and administrative expenses by $24 million. The reduction resulted primarily from lower occupancy costs due to store closures and rent adjustments, as well as reductions in personnel and other overhead costs previously implemented by the company. As a result, Zale Corp.'s operating margin for the quarter was 16.6 percent, an improvement of 80 basis points compared to the same period in 2008.

On the upside, gross margin on sales increased marginally, from 48.5 percent in the first fiscal-quarter 2009, to 48.6 percent for the same period in fiscal-quarter 2010. And inventory as of Oct. 31, 2009 was at $902 million, a decrease of approximately $100 million from the same period the previous year. As of Oct. 31 this year, Zale Corp. had outstanding debt of $466 million, compared to $369 million the previous year, reflecting what the company describes as earlier payments for holiday inventory purchases.

The company's asset-backed revolving credit facility increases to $600 million during the holiday season to provide liquidity for holiday purchases.

Income tax expense for the quarter was $1 million, compared to a tax benefit of $19 million during the year-earlier period. For the first fiscal-quarter 2010, Zale Corp. said it was unable to recognize a tax benefit on losses in the United States due to the three-year cumulative loss rules. However, it expects to receive a tax refund during the current fiscal year of approximately $16 million as a result of recent tax law changes that increase the net operating loss carry-back period from two to five years.

Looking forward, Matt Appel, chief financial officer for Zale Corp., said that the company expects to continue reducing operating costs during the next 12 months.

"Continuing steps to reduce costs will complement stronger pricing discipline and reduced inventory purchases as we work to enhance free cash flow," Appel said in the release. "We are taking strong steps to achieve higher margin realization, while also continuing a trend toward lower aggregate inventory throughout the system."

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