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Zale’s Loss Expands, Stock Falls

The mid-tier jeweler was unable to offset rising commodities costs.

Shares of Zales Corp. fell 14.1 percent to $4.08 Wednesday, after the struggling midtier jeweler widened its fiscal fourth-quarter loss.

Matthew Appel, executive vice president, chief financial and administration officer, told analysts on a conference call that the company was unable to offset “the unprecedented increases in raw material costs” and implemented price increases across all its brands.  

“Over the past year, our diamond costs are up over 20 percent, gold is up over 35 percent and silver is up over 120 percent. A good portion of these increases occurred over the second half of our fiscal year,” he said. “While we won’t be disclosing the level or extent of price increases for competitive reasons, rest assured that they were meaningful.”

The Dallas-based operator of concepts including Zales Jewelers, Gordon’s Jewelers and Piercing Pagoda, posted a net loss of $32.6 million, or $1.02 a diluted share, in the period ended July 31. This compared with a year-ago loss of $28.5 million, or 89 cents a share. Quarterly revenues rose 9.4 percent to $377.3 million, from $345 million a year earlier. Wall Street anticipated a loss of $1.15 a share on sales of $360.4 million.

Selling, general and administrative costs increased 3.7 percent to $204 million, while rising gold, silver and diamond costs pushed quarterly gross margin down to 51.3 percent of sales versus year-ago margin of 52.7 percent.

Same-store sales grew 9.8 percent, or 8.4 percent at constant exchange rates, marking the company’s third-consecutive quarter of positive same-store sales. “In fiscal 2011, we made substantial progress in the multiyear initiative to return to profitability,” said chief executive officer Theo Killion. “The strength of our assortment, marketing and field organization position us well to navigate through the current economic environment.”

In an effort to differentiate its product offering, Zale has collaborated with designer Vera Wang on an exclusive bridal jewelry collection, as well as actress and singer Jessica Simpson, who has created a diamond fashion jewelry line. Both collections are set to launch in October.

The company is also partnering with consumer-finance firm Monterey Financial Services Inc. to provide alternative financing options for its U.S. customers, many of whom have been hit especially hard by the volatile economic environment.