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Zale Shares Soar on Loss Reduction

Same-store sales grow at 15.2% clip in third quarter.

Shares of Zale Corp. picked up more than 18 percent Wednesday after the jewelry retailer trimmed its third-quarter loss far more than expected and reported its second consecutive quarter of same-store sales growth.

 

In the three months ended April 30, the Dallas-based firm posted a net loss of $9 million, or 28 cents a diluted share, less than half the 58-cent loss expected, on average, by analysts surveyed by Yahoo Finance. The year-ago loss was $12.1 million, or 38 cents.

 

Sales expanded 14.5 percent, to $411.8 million from $359.8 million a year ago, as comparable-store sales rose 15.2 percent versus a year-ago comp decline of 2.2 percent. Gross margin dropped to 50.1 percent of sales from 50.8 percent in the 2010 quarter, which the firm attributed to higher commodity costs and a shift in product mix towards lower-margin products.

 

“On average, diamond prices are up approximately 20 percent, gold prices are up approximately 25 percent and silver prices are up approximately 100 percent from a year ago,” Matt Appel, chief administrative officer and chief financial officer, told analysts on a Wednesday morning conference call. “As we replenished our core inventory during the quarter, it became necessary to accept additional selective price increases.”

 

The company began testing selective price increases in April, and Appel called the preliminary results “promising.”

 

“Our objective remains to maintain gross margins above 50 percent while continuing to regain market share,” he said. “We believe this is a realistic and achievable goal.”

 

Theo Killion, chief executive officer, said the company plans to close about 10 jewelry stores and seven kiosks in the final quarter of fiscal 2011 and 20 jewelry stores and five kiosks next year. Zale’s concluded the third quarter with 1,173 jewelry stores and 673 kiosks.

 

For the nine months, the net loss expanded to $79.7 million, or $2.48 a diluted share, from $65.2 million, or $2.03, a year ago. Sales rose 7.4 percent to $1.37 billion from $1.27 billion.

 

Shares ended the day at $5.23, up 81 cents or 18.3 percent.