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Zale Reports Fourth Quarter And Fiscal Year 2012 Results

Gross margin on sales was $961 million, or 51.5 percent, an increase of $81 million compared to $880 million, or 50.5 percent, in fiscal year 2011. Selling, general and administrative expenses were $902 million, or 48.3 percent of revenues compared to $860 million, or 49.3 percent of revenues, in fiscal year 2011. Operating earnings were $19 million, or 1.0 percent of revenues, compared to an operating loss of $28 million, or 1.6 percent of revenues, in the prior fiscal year.

Interest expense was $45 million, compared to $83 million in fiscal year 2011. Interest expense for fiscal year 2012 includes a charge of $5 million, or $0.15 per share, related to the previously announced debt refinancing transactions. Interest expense for fiscal year 2011 includes a charge of $46 million, or $1.43 per share, that resulted from a previous amendment to our Senior Secured Term Loan.

Net loss from continuing operations was $27 million, or $0.84 per share, compared to a net loss from continuing operations of $112 million, or $3.49 per share, in fiscal year 2011. The previously disclosed change in warranty revenue recognition improved the net loss per share from continuing operations for fiscal year 2012 by $1.00.

Fiscal Year 2013 Outlook

Based on the current momentum of the business and the recent debt refinancing, the company expects to achieve positive net income for fiscal year 2013.

Conference Call

Zale management will host a conference call today at 8:30 a.m. ET to discuss fourth quarter and fiscal year 2012 results. The conference call will be broadcast live over the internet and can be accessed, along with a slide presentation, on the Investor Relations section of the company’s web site at In addition, you can listen to the call live by dialing 877-545-6744 (within the United States) or 706-634-1959 (for international callers), passcode 21104674. The webcast will be archived shortly after the conference call concludes and will be available on the company’s web site. 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 1,780 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,,, and Additional information on Zale Corporation and its brands is available at

This release and related presentations contain forward-looking statements, including statements regarding expected operating performance, interest expense, effective tax rate, 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 Form 10-K for fiscal 2011 and subsequent reports on Forms 10-Q and 8-K. 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.

(Unaudited, in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
July 31, July 31,
2012 2011 2012 2011
Revenues $ 406,963 $ 377,267 $ 1,866,878 $ 1,742,563
Cost of Sales   197,078     183,792     905,613     862,468  
Gross Margin 209,885 193,475 961,265 880,095
% of Revenue 51.6 % 51.3 % 51.5 % 50.5 %
Selling, General and Administrative 207,546 203,953 902,287 859,588
% of Revenue 51.0 % 54.1 % 48.3 % 49.3 %
Depreciation and Amortization 9,431 10,275 37,887 41,326
Other Charges   700     3,332     1,973     7,047  
Operating (Loss) Earnings (7,792 ) (24,085 ) 19,118 (27,866 )
% of Revenue (1.9 )% (6.4 )% 1.0 % (1.6 )%
Interest Expense (a)   14,514     9,185     44,649     82,619  
Loss Before Income Taxes (22,306 ) (33,270 ) (25,531 ) (110,485 )
Income Tax (Benefit) Expense   (2,641 )   (567 )   1,365     1,557  
Loss from Continuing Operations (19,665 ) (32,703 ) (26,896 ) (112,042 )
(Loss) Earnings from Discontinued Operations, Net of Taxes   (82 )   60     (414 )   (264 )
Net Loss $ (19,747 ) $ (32,643 ) $ (27,310 ) $ (112,306 )
Basic and Diluted Net Loss per Common Share:
Loss from Continuing Operations $ (0.61 ) $ (1.02 ) $ (0.84 ) $ (3.49 )
Loss from Discontinued Operations   -     -     (0.01 )   (0.01 )
Net Loss per Share $ (0.61 ) $ (1.02 ) $ (0.85 ) $ (3.50 )
Weighted Average Number of Common Shares Outstanding:
Basic 32,219 32,151 32,196 32,129
Diluted 32,219 32,151 32,196 32,129

(a) Interest expense for the three and twelve months ended July 31, 2012 includes $5.0 million associated with the debt refinancing transactions completed on July 24, 2012. Interest expense for the twelve months ended July 31, 2011 includes a $45.8 million charge associated with the amendment to our Senior Secured Term Loan during the first quarter of fiscal 2011.

(Unaudited, in thousands)
July 31,
2012 2011
Current Assets:
Cash and cash equivalents $ 24,603 $ 35,125
Merchandise inventories 741,788 720,782
Other current assets   42,987     48,670  
Total current assets 809,378 804,577
Property and equipment 696,485 704,813
Less accumulated depreciation and amortization   (574,361 )   (563,062 )
Net property and equipment 122,124 141,751
Other assets   239,536     242,430  
Total Assets $ 1,171,038   $ 1,188,758  
Current liabilities:
Accounts payable and accrued liabilities $ 205,529 $ 218,115
Deferred revenue 85,714 94,188
Deferred tax liability   92,512     92,721  
Total current liabilities 383,755 405,024
Long-term debt 452,908 395,454
Deferred revenue — long-term 122,802 137,992
Other liabilities 32,637 37,461
Stockholders’ Investment   178,936     212,827  
Total liabilities and stockholders’ investment $ 1,171,038   $ 1,188,758  

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