Nobody said a turnaround would be easy.
Cost efficiencies, limited promotions and inventory control may have helped Zale Corp. shrink its fourth-quarter net loss, but the struggling mid-tier jeweler lost ground when it came to ringing up sales.
The Dallas-based jewelry retailer said Monday that, for the quarter ended July 31, it registered a net loss of $28.5 million, or 89 cents a diluted share, compared with a loss of $89.8 million, or $2.81 a share, in the year-ago quarter. Revenue for the period sank 3.4 percent, to $345 million from $357.1 million in the 2009 period. Same-store sales fell 2.1 percent for the quarter.
Analysts polled by Yahoo were expecting a loss of $1.21 a share on revenue of $354.6 million.
Despite the smaller than expected loss, investors were troubled by the shortfall in sales versus estimates and sent shares down 12 cents, or 5.5 percent, to $2.07.
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Quarterly SG&A declined 5.1 percent, to $196.7 million from $207.2 million in 2009, while gross margin expanded to 52.7 percent of sales, compared with year-ago levels of 46.4 percent.
On the quarterly conference call, chief executive officer Theo Killion outlined a strategy to reinvigorate sales, which included beefing up its core product assortment, differentiating merchandise across its Zales, Gordon’s, Peoples and Mappins brands, and clearing out unproductive inventory.
“When we thought about the turnaround strategy, we really focused on the business that defines the fine jewelry business, which is bridal, and we have started to get paid back,” he said. “We’re through the SG&A [selling, general and administrative] reductions, we’re through some of the draconian things that we’ve had to do over the past two years and it really is about building the business, focusing on our people, doing the right things, getting back in touch with our core customer and that really is the work that’s ahead of us.”
Killion, who had been interim ceo since just after the departure of Neal Goldberg from the post in January, was named permanent ceo last week.
Zale has experienced quite a few bumps in the last two years, closing hundreds of stores, rehauling its executive management team and drilling down its restructuring options with the help of investment banking firm Peter J. Solomon Co., which it hired in February.
The company has also been working on credit agreement deals. Zale said Monday that it amended its credit agreement with Golden Gate Capital, eliminating a minimum covenant on its term loan. The company will pay $25 million, including $11.3 million on its outstanding balance, $1.3 million as a prepayment and $12.5 million as an amendment fee.
Last week, the jeweler inked a deal with Citi to provide the private label credit card for its Zales, Zales Outlet and Gordon’s brands in the United States, effective Oct. 1.
The arrangements give the retailer some much-needed breathing room.
For fiscal 2010, Zale said it reduced its net loss to $93.7 million, or $2.92 a diluted share, from a year-ago loss of $189.5 million, or $5.94 a share. Revenue dipped 9.2 percent to $1.62 billion, from $1.78 billion, a year earlier.