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Zale Profits Double in Quarter

NEW YORK — Zale Corp. said Tuesday fourth-quarter profits more than doubled, matching the Wall Street consensus, on a 3 percent increase in sales. <BR><BR>The company, however, noted on a subsequent conference call that it is “cautiously...

NEW YORK — Zale Corp. said Tuesday fourth-quarter profits more than doubled, matching the Wall Street consensus, on a 3 percent increase in sales.

The company, however, noted on a subsequent conference call that it is “cautiously optimistic on the external environment,” and forecast a wider-than-expected loss in the first quarter. The company also projected full-year 2005 earnings to come in below current expectations.

For the three months ended July 31, Dallas-based Zale earned $6.9 million, or 13 cents a share, compared with $2.9 million, or 5 cents, a year ago. Before costs from the redemption of senior notes, the company earned $6.7 million, or 10 cents, in the year-earlier period. Total sales in the latest quarter rose to $455.6 million from $442.4 million.

Zale, which operates Piercing Pagoda kiosks as well as jewelry outlets and the luxury brand Bailey Banks & Biddle, said operating margin increased 30 basis points in the fourth quarter. Gross margin increased to 52.9 percent of sales from 51.4 percent a year ago.

For the year-end period, Zale swung to a profit of $106.5 million, or $1.99, from a loss of $40.6 million, or 63 cents, a year ago, which included a debt redemption cost and a non-cash impairment charge. The current year results compare with a profit of $99.4 million, or $1.54, before unusual items, in the year earlier. Revenues came in at $2.3 billion, which compares with $2.2 billion in the prior year. Same-store sales showed a gain of 3.9 percent.

Gross profit margin in the year rose to 51.3 percent of total revenue from 50.2 percent in the prior period.

Looking to the first quarter, Zale expects a loss of 16 to 17 cents, versus estimates for a loss of 13 cents.

In the fiscal year ending July 2005, earnings per share are seen rising 12 to 14 percent to $2.23 to $2.27, but below the consensus of $2.30. In addition, Zale sees sales increasing 5 to 7 percent in 2005 over 2004 levels, which assumes a same-store sales increase between 2 and 3 percent.

“By sourcing basic diamond and gold product, we believe there is a tremendous opportunity to enhance revenues and improve gross margin by further leveraging our size and brand strength,” said Zale chief executive officer, Mary L. Forte, on the conference call. In 2004, for example, direct sourcing added 50 basis points of gross margin improvement.

This story first appeared in the September 1, 2004 issue of WWD.  Subscribe Today.

In 2005, Zale expects to open 85 stores and 50 kiosks. The company said it will look at lifestyle centers, or off-mall locations, as top areas to expand.

Said Forte in a Tuesday statement: “We continue to maintain a healthy balance sheet that provides substantial flexibility to pursue opportunities to extend our market leadership.”