Zale Corporation Stock Downgraded (ZLC)

NEW YORK (TheStreet) -- Zale Corporation (NYSE:ZLC) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its generally weak debt management and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:

• The debt-to-equity ratio is very high at 2.85 and currently higher than the industry average, implying that there is very poor management of debt levels within the company.
• ZLC's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 45.32%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
• The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, ZALE CORP's return on equity significantly trails that of both the industry average and the S&P 500.
• ZALE CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ZALE CORP reported poor results of -$3.62 versus -$3.00 in the prior year. This year, the market expects an improvement in earnings (-$0.95 versus -$3.62).
• The gross profit margin for ZALE CORP is rather high; currently it is at 53.50%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -9.10% is in-line with the industry average.

Zale Corporation, through its subsidiaries, operates as a specialty retailer of fine jewelry in North America. Zale has a market cap of $103.3 million and is part of the services sector and specialty retail industry. Shares are down 17.3% year to date as of the close of trading on Friday.

You can view the full Zale Ratings Report or get investment ideas from our investment research center.

 

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