By  on September 1, 2006

Zale Corp., saddled with after-tax charges totaling $23.9 million, posted a heavy loss for the fourth quarter on a 3.9 percent sales gain.

For the year-end period, net earnings were about half of the previous year. But the company said Thursday it was working to "deliver a solid performance" in the first quarter — the critical holiday shopping season — and is repositioning the Zale brand with greater selection and a return to merchandising the goods by product classification.

Zale, based in Irving, Tex., did not provide any updates regarding a Securities and Exchange Commission investigation of its accounting practices that was announced in April.

For the quarter ended July 31, the net loss was $26.4 million, or 55 cents a diluted share, compared with net earnings of $4.1 million, or 8 cents, in the previous year. Sales rose to $490.7 million from $472.3 million.

Excluding the charges, which include inventory write-downs, terminating an information technology initiative and an asset impairment charge, earnings were $800,000, or 2 cents a share.

For the year-end period, net earnings dropped to $54.5 million, or $1.11, from $106.8 million, or $2.05, on sales that rose 2.3 percent to $2.44 billion from $2.38 billion.

In the quarterly report, the company said it expects revenue to grow 3 to 5 percent in the 2007 fiscal year, with comparable store sales gaining 2 to 3 percent and earnings per share ranging from $1.98 to $2.08.

"Our fourth-quarter results, excluding the charges, were on plan," Betsy Burton, president and chief executive officer, said in a statement.

Burton said during a conference call with analysts that comp store sales showed a gain of 3.5 percent and "were in line with expectations and fueled by better-than-expected top-line growth in the Zale's brand, offset by pressure on gross margins due to increased clearance."

Goldman Sachs analyst Adrianne Shapira said in a research note that "given the magnitude of the company's turnaround efforts and an increasingly tougher discretionary spending environment, we remain comfortable with our $2.01 earnings-per-share forecast. However, we believe Zale is in a unique situation, irrespective of the macro environment, to post strong holiday results as they rectify last year's strategic missteps and reintroduce key merchandising and marketing initiatives that should restore the brand image and reclaim lost market share."

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