EX-99.1 2 a5150959ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 Zale Corporation Reports Third Quarter Results DALLAS--(BUSINESS WIRE)--May 17, 2006--Zale Corporation (NYSE: ZLC), the largest specialty retailer of fine jewelry in North America, today reported net earnings of $16.8 million, or $0.35 per diluted share, for the third quarter ended April 30, 2006. This includes, on an after-tax basis, (1) a benefit of $8.4 million, or $0.17 per diluted share, resulting from the settlement of certain retirement benefit obligations partially offset by (2) a charge for Chief Operating Officer severance of $2.2 million, or $0.04 per diluted share and (3) a charge of $0.9 million, or $0.02 per diluted share, related to the closing of certain Bailey Banks & Biddle locations. Excluding these items, third quarter earnings amounted to $11.6 million, or $0.24 per diluted share, exceeding prior guidance by $0.02. Last year's reported earnings amounted to $14.5 million, or $0.28 per diluted share. Total revenues for the third quarter increased by 2.2% to $526.9 million from last year's $515.6 million. Last year's total revenues included $10.6 million from certain Bailey Banks & Biddle stores which were closed in this year's second fiscal quarter. Excluding these stores, total revenues increased 4.3% over last year's $505 million. Third quarter comparable store sales increased 2.5%. Year-to-date total revenues increased 2.0% to $1.948 billion, from $1.911 billion for the comparable period last year. This includes $24.3 million and $39.5 million, for each year, respectively, from the closed Bailey Banks & Biddle stores. Excluding these stores, total revenues were $1.924 billion, compared to $1.871 billion last year, an increase of 2.8%. Year-to-date comparable store sales, which do not include the Bailey Banks & Biddle store closures, increased 1.1%. Year-to-date net earnings totaled $81.0 million, or $1.63 per diluted share. This includes, on an after-tax basis, (1) a $21.4 million charge, or $0.43 per diluted share, related to the closing of certain Bailey Banks & Biddle locations and (2) a charge for Chief Executive Officer and Chief Operating Officer severance of $7.6 million, or $0.16 per diluted share; this was partially offset by (3) a tax benefit of $11.5 million, or $0.23 per diluted share, related to income repatriated from Canada under the American Jobs Creation Act and (4) an $8.4 million, or $0.17 per diluted share, benefit resulting from the settlement of certain retirement benefit obligations. Excluding these items, year-to-date net earnings amounted to $90.1 million, or $1.82 per diluted share. For the same period last year, net earnings were $102.7 million, or $1.98 per diluted share. "We are pleased with our performance for the third quarter, especially the sales momentum we are gaining," commented Betsy Burton, Acting Chief Executive Officer. "Zales, Zale Canada, Zales Outlet, Bailey Banks & Biddle and Gordon's all produced positive comparable store sales, while margins and expenses were in line with our expectations." The Company also announced guidance for the fourth fiscal quarter, with comparable store sales expected to increase in the low to mid-single digits and diluted earnings per share to range between $0.00 and $0.02. As previously announced, a conference call will be held today at 9:00 a.m. Eastern Time. Parties interested in participating should dial 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. Zale Corporation is North America's largest specialty retailer of fine jewelry operating approximately 2,345 retail locations throughout the United States, Canada and Puerto Rico. Through its ZLC Direct organization, Zale also operates online at www.zales.com and www.baileybanksandbiddle.com. Zale Corporation's brands include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Bailey Banks & Biddle, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda. Additional information on Zale Corporation and its brands is available at www.zalecorp.com. This release contains forward-looking statements, including statements regarding the Company's results of operations, including sales and earnings guidance for the fourth quarter of fiscal year 2006, and merchandising and marketing strategies. 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 of 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, 2005. 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 Nine Months Ended April 30, April 30, ------------------- ----------------------- 2006 2005 2006 2005 --------- --------- ----------- ----------- Total Revenues $526,895 $515,618 $1,948,283 $1,910,723 Comparable Store Sales % 2.5 % 3.5 % 1.1 % 0.4 % Cost of Sales 254,361 246,151 958,266 931,660 --------- --------- ----------- ----------- Gross Margin 272,534 269,467 990,017 979,063 % of Revenue 51.7 % 52.3 % 50.8 % 51.2 % Selling, General and Administrative Expenses 241,348 227,789 835,758 760,757 % of Revenue 45.8 % 44.2 % 42.9 % 39.8 % Cost of Insurance Operations 1,598 1,674 5,014 4,542 Depreciation and Amortization Expense 14,935 14,953 44,798 44,184 Benefit from Settlement of Retirement Benefit Obligation 13,403 --- 13,403 --- --------- --------- ----------- ----------- Operating Earnings 28,056 25,051 117,850 169,580 % of Revenue 5.3 % 4.9 % 6.0 % 8.9 % --------- --------- ----------- ----------- Interest Expense, Net 2,449 1,558 7,685 5,990 --------- --------- ----------- ----------- Earnings Before Income Taxes 25,607 23,493 110,165 163,590 Income Taxes 8,776 9,037 29,180 60,869 --------- --------- ----------- ----------- Net Earnings $ 16,831 $ 14,456 $ 80,985 $ 102,721 ========= ========= =========== =========== Basic Net Earnings Per Share $ 0.35 $ 0.28 $ 1.65 $ 2.00 Diluted Net Earnings Per Share $ 0.35 $ 0.28 $ 1.63 $ 1.98 Weighted Average Number of Common Shares Outstanding: Basic 47,914 50,895 49,066 51,302 Diluted 48,342 51,513 49,578 51,989 ---------------------------------------------------------------------- Reconciliation of Non-GAAP Information to GAAP basis 3rd Quarter, diluted: Three Months Ended Nine Months Ended April 30, 2006 April 30, 2006 ------------------- ----------------------- Amount Per Share Amount Per Share --------- --------- ----------- ----------- Earnings before certain benefits and charges $ 11,566 0.24 $ 90,078 1.82 Settlement of Retirement Benefit Obligation 8,417 0.17 8,417 0.17 CEO and COO Severance Charges (2,240) (0.04) (7,578) (0.16) Bailey Banks & Biddle Store Closing Charges (912) (0.02) (21,397) (0.43) --------- --------- ----------- ----------- Earnings before Benefit from Tax Repatriation 16,831 0.35 69,520 1.40 Benefit from Tax Repatriation --- --- 11,465 0.23 --------- --------- ----------- ----------- Net Earnings $ 16,831 0.35 $ 80,985 1.63 ========= ========= =========== =========== ---------------------------------------------------------------------- ZALE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DATA (Unaudited, Dollars in thousands) Difference April 2006 vs April 30, April 30, April 2005 2006 2005 Amount Percent ----------- ----------- --------- ------- ASSETS Current Assets: Cash and Cash Equivalents $52,411 $66,782 $(14,371) -21.5% Merchandise Inventories 938,050 926,798 11,252 1.2% Other Current Assets 83,968 63,002 20,966 33.3% ----------- ----------- --------- ------- Total Current Assets 1,074,429 1,056,582 17,847 1.7% Property and Equipment, Net 290,433 278,276 12,157 4.4% Goodwill, Net 97,014 89,130 7,884 8.8% Other Assets 34,824 33,961 863 2.5% Deferred Tax Asset, Net --- --- --- --- ----------- ----------- --------- ------- Total Assets $1,496,700 $1,457,949 38,751 2.7% =========== =========== ========= ======= LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Accounts Payable and Accrued Liabilities $355,831 $373,894 $(18,063) -4.8% Deferred Tax Liability, Net 52,059 51,334 725 1.4% ----------- ----------- --------- ------- Total Current Liabilities 407,890 425,228 (17,338) -4.1% Non-current Liabilities 21,176 39,075 (17,899) -45.8% Non-current Tax Liability, Net 4,538 5,616 (1,078) -19.2% Long-term Debt 204,859 162,100 42,759 26.4% Long-Term Accrued Rent 26,631 24,194 2,437 10.1% Commitments and Contingencies Stockholders' Investment: Common Stock 538 530 8 1.6% Additional Paid-In Capital 109,618 82,145 27,473 33.4% Accumulated Other Comprehensive Income 37,392 19,306 18,086 93.7% Accumulated Earnings 836,222 751,183 85,039 11.3% Deferred Compensation (2,164) (1,428) (736) 51.5% ----------- ----------- --------- ------- 981,606 851,736 129,870 15.2% Treasury Stock (150,000) (50,000) (100,000) 200.0% ----------- ----------- --------- ------- Total Stockholders' Investment 831,606 801,736 29,870 3.7% ----------- ----------- --------- ------- Total Liabilities and Stockholders' Investment $1,496,700 $1,457,949 $38,751 2.7% =========== =========== ========= ======= CONTACT: Zale Corporation David H. Sternblitz Vice President and Treasurer 972-580-5047