NEW YORK — Red ink was the common denominator among several specialty stores reporting quarterly results on Tuesday.

This story first appeared in the November 19, 2003 issue of WWD. Subscribe Today.

Zale Corp., United Retail and Gadzooks all saw their losses widen in the just-concluded quarter. Cato Corp.’s earnings nearly evaporated under pressure from retirement agreements, but Wilson’s The Leather Experts was able to trim its losses despite a double-digit sales decline.


Zale Corp., the largest specialty jeweler in the U.S., said its first-quarter loss widened, hurt by the hefty cost of share repurchases and a change in accounting methods.

The Dallas-based retailer, operator of the Zales, Gordon’s, Bailey Banks & Biddle and Piercing Pagoda chains, said net losses grew to $9.2 million, or 34 cents a diluted share, for the first quarter ended Oct. 31. That compares with a loss of $6.7 million, or 20 cents a share, in the year-ago period. Analysts expected a loss of 35 cents, according to First Call.

Zale’s results in the quarter were reduced by 7 cents because of a change in accounting for advertising programs, by another 6 cents for share repurchases and 3 cents a share for a write-down of office and distribution space previously used by Piercing Pagoda.

Overall, revenue inched up 1.2 percent to $416.6 million from $412.1 million, while same-store sales rose 1.6 percent.

“Overall, for the quarter, we were pleased with our execution and the continued improvement in our business, especially in light of the external environment, which, while stabilized somewhat, remains challenging with mall traffic still down year-over-year,” Mary Forte, president and chief executive, said on a morning conference call. “We continued to improve our merchandise assortment, including the launch of several new proprietary products, staying focused on the bridal business, and had the pilot launch of direct product sourcing in our Canadian stores.”

For the second quarter, Zale forecast earnings between $3.55 and $3.59 a share, based on a 1.5 to 2.5 percent comparable-store sales increase. That compares with reported earnings of $2.80 last year and the $3.59 anticipated by Wall Street analysts.


Hurt by a severance charge connected with retirement agreements, Cato’s third-quarter income fell by more than 85 percent.

Cato said Tuesday that income for the three months ended Nov. 1 slid to $797,000, or 4 cents a share, from $5.4 million, or 21 cents, in the year-ago quarter. The results include a $1.8 million aftertax charge related to the previously announced retirement agreements with the company’s founders.

Revenue for the quarter fell by 3.1 percent to $157.1 million from $162.2 million, which included a 3 percent decrease in sales to $153.2 million from $158.2 million. Other revenue in the quarter was principally from finance and late fees, as well as layaway charges. Same-store sales in the quarter decreased by 10 percent.

John Cato, vice chairman, president and chief executive officer, said in a statement, “We will continue to aggressively manage inventory levels and expenses during the fourth quarter.”

He noted that the company’s fourth-quarter earnings per share guidance is unchanged from its previous estimate of between 22 cents and 30 cents. Last year’s EPS was 38 cents.

For the nine months, income dropped 27.7 percent to $26 million, or $1.06 a diluted share, from $36 million, or $1.39, in the year-ago period. Revenues dipped by 0.6 percent to $550.3 million from $553.4 million, which included a 0.6 percent decline in sales to $538.7 million from $541.7 million.


While accessories and men’s wear helped narrow losses in the third quarter, Wilson’s The Leather Experts continued to feel the heat from a warm fall and an aggressive cost reduction campaign.

For the three months ended Nov. 1, the Minneapolis, Minn.-based leather retailer reported a loss of $11.6 million, or 57 cents a diluted share, compared with a loss of $17 million, or 84 cents, last year.

Sales for the period fell 11.2 percent to $97.9 million from $110.2 million in the 2002 quarter. Comparable-store sales were down 9 percent against a 6.8 percent slide last year.

Results were hampered by a $4.2 million net loss stemming from the liquidation and shuttering of the company’s 135-chain travel subsidiaries.

Joel Waller, chairman and chief executive officer, said during the company conference call, “Our results were disappointing. Unseasonably warm weather had a significant impact on our sales results.”

Warm weather has already affected November comps going into the fourth quarter. According to Waller, comps for the first week of November were down 20.5 percent. However, comps were down 10.1 percent in the second week as cooler weather took hold.

For the nine-month period, losses narrowed to $46 million, or $2.24 a diluted share, against $83.3 million, or $4.17 a share, last year.

Sales for the year to date were down 5.8 percent to $253 million from $268.4 million last year. Comps fell 4.9 percent, slightly less than the 5.5 percent decline reported last year. The company has closed 28 stores so far and believes, ultimately, between 50 and 65 stores could be closed.


With increased competition in the plus-size market, United Retail Group’s third-quarter net loss widened to $6.2 million, or 48 cents a diluted share, compared with a loss of $5.2 million, or 40 cents, in the same period last year. Excluding an aftertax valuation allowance of $2.7 million for net deferred tax assets and net operating loss carryforwards, the loss was slimmer, down to $3.5 million, or 27 cents a share.

Sales for the quarter notched down 8.7 percent to $88.5 million from $97 million, while comparable-store sales decreased 7 percent.

“Our competition for large-size customers is increasing across all channels of distribution,” Raphael Benaroya, chairman and chief executive, said on a conference call. “Practically every retail segment is pursuing the opportunities available in the large-size business. We have seen mass merchant extension, size extension by traditionally smaller-size brands and new large-size divisions of manufacturers and retailers and a number of new specialized Internet sites.”

To regain momentum, Benaroya said the firm’s goal is to go after market share rather than relying on what had previously been but no longer is an underserved market, he said. To achieve this, he said, merchandise must be differentiated as opposed to basic and the firm needs to target a well-defined segment of the large-size market, rather than the business in its entirety.

For the first nine months, UR reported a loss of $15 million, or $1.16 a diluted share, compared with a loss of $7 million, or 53 cents. Total sales fell 9.6 percent to $294.9 million from $326.3 million and were down 9 percent on a comp basis.


Gadzooks Inc.’s move to focus solely on female teens and young adults and abandon its men’s business has come at a hefty cost, pushing the company to a sizeable loss for the third quarter.

For the three months ended Nov. 1, the Dallas-based retailer reported a loss of $22.1 million, or $2.42 a diluted share, more than doubling Wall Street’s consensus estimate of a loss of $1.11. Comparatively, the company reported a loss of $856,000, or 9 cents, in last year’s quarter.

Sales for the period slid 33.3 percent to $49.2 million, compared with the year-ago mark of $73.7 million. Comparable-store sales plummeted 31.4 percent compared with a 5.1 percent decline last year.

While costs associated with the implementation of the company’s new direction were significant, the company also incurred an $8.7 million noncash charge to reduce deferred tax assets during the quarter. James Motley, vice president and chief financial officer, said during the company conference call that the charge was “a book adjustment only.”

Gerald Szczepanski, chief executive officer, said during the call that “sales and losses have been within the ranges of our expectations.” He went on to say that the company anticipates the transition period will extend through next year’s spring break before the company can reach a more normal or standard level of operation.

For the nine months to date losses mounted to $34.1 million, or $3.73 a diluted share, against a year-ago profit of $1.0 million, or 11 cents.

Sales for the period were down 17.6 percent to $188.4 million against $228.7 million in the 2002 period. Comps declined 17 percent compared with a 3.6 percent dip last year.

The company anticipates closing 10 to 15 stores during the fourth quarter. Year-to-date, 25 underperforming stores have been shuttered, leaving the firm with 415 units.

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