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Zale Reports Third Quarter Fiscal 2012 Results

For the quarter ended April 30, 2012, income tax expense was $1 million, compared to a benefit of $4 million in the comparable quarter last year. The benefit in the 2011 quarter, which represented $0.14 earnings per share, was related to net operating loss carrybacks recognized pursuant to the Business Assistance Act of 2009.

Net loss from continuing operations for the quarter ended April 30, 2012 was $4 million, or $0.14 per share, compared to a net loss from continuing operations of $10 million, or $0.31 per share, in the comparable quarter last year. The change in warranty revenue recognition improved the net loss per share from continuing operations for the third quarter of fiscal 2012 by $0.25.

Inventory at April 30, 2012 stood at $779 million, compared to $756 million in the same period last year.

“The six consecutive quarters of positive comps, coupled with continued momentum through the Mother’s Day selling period, demonstrates that the strategic initiatives we’ve undertaken are resonating with our guests,” commented Theo Killion, Chief Executive Officer. “In addition, the improvement in operating earnings this quarter is another indication of the progress we are making as we accelerate towards bottom line profitability.”

Conference Call

A conference call will be held today at 9:00 a.m. Eastern Time. Parties interested in participating should dial 877-545-6744 or 706-634-1959 (passcode: 75232974) five minutes prior to the scheduled start time. A live webcast and slide presentation, as well as a replay of the call, will be available on the Investor Relations section of the Company’s web site at www.zalecorp.com. For additional information, contact Investor Relations at 972-580-4391.

About Zale Corporation

Zale Corporation is a leading specialty retailer of diamonds and other jewelry products in North America, operating approximately 1,790 retail locations throughout the United States, Canada and Puerto Rico, as well as online. Zale Corporation's brands include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda. Zale also operates online at www.zales.com, www.zalesoutlet.com, www.gordonsjewelers.com, www.peoplesjewellers.com and www.pagoda.com. Additional information on Zale Corporation and its brands is available at www.zalecorp.com.

This release and related presentations contain forward-looking statements, including statements regarding future sales, expenses, margins and profitability. Forward-looking statements are not guarantees of future performance and a variety of factors could cause the Company's actual results to differ materially from the results expressed in the forward-looking statements. These factors include, but are not limited to: if the general economy continues to perform poorly, discretionary spending on goods that are, or are perceived to be, “luxuries” may decrease; the concentration of a substantial portion of the Company’s sales in three, relatively brief selling seasons means that the Company’s performance is more susceptible to disruptions; most of the Company’s sales are of products that include diamonds, precious metals and other commodities, and fluctuations in the availability and pricing of commodities could impact the Company’s ability to obtain and produce products at favorable prices; the Company’s sales are dependent upon mall traffic; the Company operates in a highly competitive industry; the financing market remains difficult, and if we are unable to meet the financial commitments in our current financing arrangements it will be difficult to replace or restructure these arrangements; and changes in regulatory requirements may increase the cost or adversely affect the Company’s operations and its ability to provide consumer credit and write credit insurance. For other factors, see the Company's filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the fiscal quarter ended January 31, 2012. The Company disclaims any obligation to update or revise publicly or otherwise any forward-looking statements to reflect subsequent events, new information or future circumstances, except as required by law.
 
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
             
 
Three Months Ended Nine Months Ended
April 30, April 30,
2012 2011 2012 2011
 
Revenues $ 445,170 $ 411,843 $ 1,459,915 $ 1,365,296
Cost of Sales   216,977     205,424     708,535     678,677  
Gross Margin 228,193 206,419 751,380 686,619
% of Revenue 51.3 % 50.1 % 51.5 % 50.3 %
Selling, General and Administrative 213,088 202,347 694,740 655,635
% of Revenue 47.9 % 49.1 % 47.6 % 48.0 %
Depreciation and Amortization 9,275 9,773 28,456 31,052
Other (Gains) Charges   (375 )   (265 )   1,274     3,715  
Operating Earnings (Loss) 6,205 (5,436 ) 26,910 (3,783 )
% of Revenue 1.4 % -1.3 % 1.8 % -0.3 %
Interest Expense   9,777     8,653     30,135     73,433  
Loss Before Income Taxes (3,572 ) (14,089 ) (3,225 ) (77,216 )
Income Tax Expense (Benefit)   868     (4,161 )   4,006     2,124  
Loss from Continuing Operations (4,440 ) (9,928 ) (7,231 ) (79,340 )
(Loss) Earnings from Discontinued Operations, Net of Taxes   (87 )   935     (332 )   (324 )
Net Loss $ (4,527 ) $ (8,993 ) $ (7,563 ) $ (79,664 )
 
Basic and Diluted Net Loss per Common Share:
Loss from Continuing Operations $ (0.14 ) $ (0.31 ) $ (0.22 ) $ (2.47 )
(Loss) Earnings from Discontinued Operations   -     0.03     (0.01 )   (0.01 )
Net Loss per Share $ (0.14 ) $ (0.28 ) $ (0.23 ) $ (2.48 )
 
Weighted Average Number of Common Shares Outstanding:
Basic 32,213 32,135 32,189 32,122
Diluted 32,213 32,135 32,189 32,122
 

 
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited, in thousands)
     
 
April 30,
2012 2011
ASSETS
Current Assets:
Cash and cash equivalents $ 37,291 $ 36,875
Merchandise inventories 778,705 756,439
Other current assets   41,500     37,635  
Total current assets 857,496 830,949
 
Property and equipment 700,505 704,131
Less accumulated depreciation and amortization   (572,998 )   (555,046 )
Net property and equipment 127,507 149,085
 
Other assets   236,327     226,768  
Total Assets $ 1,221,330   $ 1,206,802  
 
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities $ 229,034 $ 238,655
Deferred revenue 87,798 96,136
Deferred tax liability   93,281     72,225  
Total current liabilities 410,113 407,016
 
Long-term debt 445,505 375,454
Deferred revenue — long-term 130,029 139,356
Other liabilities 33,547 38,941
 
Stockholders’ Investment   202,136     246,035  
 
Total liabilities and stockholders’ investment $ 1,221,330   $ 1,206,802  

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