EX-99.1 2 a08-6221_1ex99d1.htm EX-99.1

Exhibit 99.1

 

 

 

Zales Jewelers

 

Executive Office:

 

 

 

Zales Outlet

 

901 West Walnut Hill Lane

 

 

 

Zale Direct

 

Irving, Texas 75038-1003

 

 

 

Gordon’s Jewelers

 

972.580.4000

ZALE CORPORATION
 

 

 

 

 

 

 

Peoples Jewellers

 

Fax 972.580.5523

 

 

 

 

 

Mappins Jewellers

 

www.zalecorp.com

 

 

 

 

 

Piercing Pagoda

 

 

 

 

 

 

 

NEWS RELEASE

                                                                CONTACT:           David H. Sternblitz

                                                                                                Vice President and Treasurer

                                                                                                (972) 580-5047

 

ZALE CORPORATION REPORTS DILUTED EPS OF $1.16 FOR THE SECOND

QUARTER OF FISCAL 2008

 

DALLAS, Texas, February 21, 2008 - Zale Corporation (NYSE: ZLC), a leading specialty retailer of fine jewelry in North America, today announced earnings from continuing operations for the second quarter of fiscal 2008 of $52.7 million, or $1.16 per diluted share, compared to $77.1 million, or $1.57 per diluted share for the second quarter of fiscal 2007.  The second quarter ended January 31, 2007 included a $2.5 million, or $0.05 per diluted share, positive impact related to derivative accounting treatment for the Company’s gold and silver contracts.

 

“While these second quarter results are disappointing, I am convinced that Zale has a strong basis for improved performance as we again provide our value-oriented customer with an exceptional experience,” said Neal Goldberg, President and Chief Executive Officer.

 

“We intend to make Zale into a more nimble and efficient organization. We remain focused on the generation of free cash flow, achieving a high return on capital and maintaining financial rigor and discipline overall. Our first step is a reduction of $100 million in excess inventory.  We have conducted a detailed review by category and item

 

 


 and believe this product can be sold at a profit.  Through fiscal 2008 we expect a negative impact on gross margin of approximately 500 basis points which is expected to be more than offset by the positive impact on free cash flow. Although we plan to make some selective investments, this $100 million reduction is not intended to be replenished. These actions are designed to ensure Zale’s success and generate value for shareholders over the long-term.”

 

Second Quarter of 2008

 

·                  Total revenues for the second quarter ended January 31, 2008 were $828 million compared to $892 million last year, a decrease of 7.2%

 

·                  Comparable store sales for the second quarter decreased 7.3%

 

·                  Unrecognized revenues related to warranty sales increased $33 million or $0.44 per diluted share.  This compares to an increase in unrecognized revenue of $30 million or $0.37 per diluted share in the second quarter of last year.  Including the impact of unrecognized revenues, adjusted earnings are $1.60 per diluted share this year compared to $1.89 per diluted share excluding a $0.05 gain from derivatives last year.

 

·                  Retired 5.8 million shares during the second quarter. Anticipate retiring approximately 11 million shares in total once share repurchase program is completed.

 

First Half of 2008

 

·                  Total revenues for the six months ended January 31, 2008 were $1.205 billion compared to $1.274 billion last year, a decrease of 5.4%

 

·                  Comparable store sales for the six months ended January 31, 2008 decreased 5.1%

 

·                  Unrecognized revenue related to warranty sales increased $47 million or $0.61 per diluted share.  This compares to an increase in unrecognized revenue of $29 million or $0.36 per diluted share for the six months ended January 31, 2007.  Including the impact of unrecognized revenues, adjusted earnings are $1.16 per diluted share this year compared to $1.48 per diluted share excluding a $0.04 loss from derivatives last year.

 

 


·                  Earnings from continuing operations for the six months ended January 31, 2008 were $26.0 million, or $0.55 per diluted share, compared to $52.4 million, or $1.08 per diluted share for the six months ended January 31, 2007.  The six months ended January 31, 2007 included a $2.3 million, or $0.04 per diluted share, negative impact related to derivative accounting treatment for the Company’s gold and silver contracts.

 

A conference call will be held today at 9:00 a.m. Eastern Time. Parties interested in participating should dial 800-679-2671 or 706-643-7467 five minutes prior to the scheduled start time.  A webcast of the call, as well as a replay, will be available on the Company’s Web site at www.zalecorp.com. For additional information, contact Investor Relations at 972-580-5047.

 

About Zale Corporation

 

Zale Corporation is a leading specialty retailer of fine jewelry in North America, operating over 2,150 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 and www.gordonsjewelers.com. Additional information on Zale Corporation and its brands is available at www.zalecorp.com.

 

This release contains forward-looking statements, including statements regarding the strategies being implemented by the Company and their future success, including the reduction of inventory. 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 performs poorly, discretionary spending on goods that are, or are perceived to be, “luxuries” may not grow and may even 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; changes in regulatory requirements or in the Company’s private label credit card arrangement with Citi may increase the cost or adversely affect the Company’s operations and its ability to provide consumer credit and write credit insurance; acquisitions involve special risks, including the possibility that the Company may not be able to integrate acquisitions into its existing operations. For other factors, see the Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended July 31, 2007.  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.

 

 


ZALE CORPORATION AND SUBSIDIARIES

CONSOLIDATED SELECTED FINANCIAL INFORMATION

(Unaudited, Dollars in thousands, except per share amounts)

 

 

 

Three Months Ended
January 31,

 

Six Months Ended
January 31,

 

 

 

2008

 

2007

 

2008

 

2007

 

Revenues

 

$

827,820

 

$

891,529

 

$

1,205,083

 

$

1,273,855

 

Cost of Sales

 

419,810

 

432,482

 

598,886

 

612,592

 

Gross Margin

 

408,010

 

459,047

 

606,197

 

661,263

 

% of Revenue

 

49.3

%

51.5

%

50.3

%

51.9

%

Selling, General & Administrative

 

303,917

 

315,567

 

522,749

 

528,206

 

% of Revenue

 

36.7

%

35.4

%

43.4

%

41.5

%

Cost of Insurance Operations

 

1,483

 

1,601

 

3,212

 

3,182

 

Depreciation and Amortization

 

15,146

 

14,332

 

30,230

 

27,926

 

Derivative (Gain) Loss

 

—

 

(1,332

)

—

 

7,228

 

Operating earnings

 

87,464

 

128,879

 

50,006

 

94,721

 

% of Revenue

 

10.6

%

14.5

%

4.1

%

7.4

%

Interest Expense

 

3,015

 

5,637

 

7,821

 

10,893

 

Earnings Before Income Taxes

 

84,449

 

123,242

 

42,185

 

83,828

 

Income Tax Expense

 

31,796

 

46,132

 

16,188

 

31,435

 

Earnings from continuing operations

 

52,653

 

77,110

 

25,997

 

52,393

 

Earnings from discontinued operations, net of taxes

 

8,181

 

10,950

 

6,480

 

9,272

 

Net Earnings

 

$

60,834

 

$

88,060

 

$

32,477

 

$

61,665

 

 

 

 

 

 

 

 

 

 

 

Basic Net Earnings Per Common Share:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.16

 

$

1.59

 

$

0.55

 

$

1.08

 

Earnings from discontinued operations

 

$

0.18

 

$

0.22

 

$

0.14

 

$

0.19

 

Basic Net earnings per share

 

$

1.34

 

$

1.81

 

$

0.69

 

$

1.27

 

 

 

 

 

 

 

 

 

 

 

Diluted Net Earnings Per Common Share:

 

 

 

 

 

 

 

 

 

Earnings from continuing operations

 

$

1.16

 

$

1.57

 

$

0.55

 

$

1.08

 

Earnings from discontinued operations

 

$

0.18

 

$

0.23

 

$

0.14

 

$

0.19

 

Diluted Net earnings per share

 

$

1.34

 

$

1.80

 

$

0.69

 

$

1.27

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Number of Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

45,242

 

48,567

 

47,164

 

48,389

 

Diluted

 

45,315

 

48,962

 

47,253

 

48,807

 

 


 

ZALE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET DATA

(Unaudited, Dollars in thousands)

 

 

 

January 31,

 

Difference
January 2008 vs January 2007

 

 

 

2008

 

2007

 

Amount

 

Percent

 

ASSETS

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

56,786

 

$

32,282

 

$

24,504

 

75.9

%

Merchandise inventories

 

952,388

 

1,118,176

 

(165,788

)

-14.8

%

Other current assets

 

102,757

 

95,346

 

7,411

 

7.8

%

Total current assets

 

1,111,931

 

1,245,804

 

(133,873

)

-10.7

%

 

 

 

 

 

 

 

 

 

 

Property and equipment

 

708,488

 

714,184

 

(5,696

)

-0.8

%

Less accumulated depreciation and amortization

 

(423,301

)

(414,572

)

(8,729

)

2.1

%

Net property and equipment

 

285,187

 

299,612

 

(14,425

)

-4.8

%

 

 

 

 

 

 

 

 

 

 

Goodwill

 

105,605

 

93,385

 

12,220

 

13.1

%

Other assets

 

36,501

 

37,225

 

(724

)

-1.9

%

Total assets

 

$

1,539,224

 

$

1,676,026

 

$

(136,802

)

-8.2

%

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

322,892

 

$

408,184

 

$

(85,292

)

-20.9

%

Deferred tax liability

 

47,731

 

64,190

 

(16,459

)

-25.6

%

Total current liabilities

 

370,623

 

472,374

 

(101,751

)

-21.5

%

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

185,606

 

232,729

 

(47,123

)

-20.2

%

Deferred tax liability

 

9,240

 

12,860

 

(3,620

)

-28.1

%

Other liabilities

 

146,948

 

77,787

 

69,161

 

88.9

%

 

 

 

 

 

 

 

 

 

 

Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Investment:

 

 

 

 

 

 

 

 

 

Common stock

 

558

 

490

 

68

 

13.8

%

Additional paid-in capital

 

141,276

 

131,836

 

9,440

 

7.2

%

Accumulated other comprehensive income

 

56,092

 

27,426

 

28,666

 

104.5

%

Accumulated earnings

 

900,589

 

870,524

 

30,065

 

3.5

%

 

 

1,098,515

 

1,030,276

 

68,239

 

6.6

%

Treasury stock

 

(271,708

)

(150,000

)

(121,708

)

81.1

%

Total stockholders’ investment

 

826,807

 

880,276

 

(53,469

)

-6.1

%

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ investment

 

$

1,539,224

 

$

1,676,026

 

$

(136,802

)

-8.2

%

 


 

Reconciliation of GAAP Information to Non-GAAP basis for 2nd Quarter fiscal 2007, diluted:

 

 

 

Three Months Ended
January 31, 2007

 

Six Months Ended
January 31, 2007

 

 

 

Amount

 

Per Share

 

Amount

 

Per Share

 

Net Earnings from Continuing Operations, Per Above

 

$

77,110

 

$

1.57

 

$

52,393

 

$

1.08

 

Impact of Derivatives

 

(2,535

)

(0.05

)

2,256

 

0.04

 

Change in Deferred Revenue

 

18,196

 

0.37

 

17,448

 

0.36

 

Net Earnings, as adjusted

 

$

92,771

 

$

1.89

 

$

72,097

 

$

1.48

 

 

Impact on GAAP Information from Deferred Revenue for 2nd Quarter fiscal 2008, diluted:

 

 

 

Three Months Ended
January 31, 2008

 

Six Months Ended
January 31, 2008

 

 

 

Amount

 

Per Share

 

Amount

 

Per Share

 

Net Earnings from Continuing Operations, Per Above

 

$

52,653

 

$

1.16

 

$

25,997

 

$

0.55

 

Change in Deferred Revenue

 

19,954

 

0.44

 

28,714

 

0.61

 

Net Earnings, as adjusted

 

$

72,607

 

$

1.60

 

$

54,711

 

$

1.16

 

 

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