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Financial Reporting

Q2 comps down for Zale, now officially part of Signet

By Michelle Graff

August 28, 2014

Akron, Ohio--Signet Jewelers Ltd. reported Thursday that second quarter same-store sales rose 7 percent for its Sterling Jewelers division but fell 1 percent at Zale Corp., which it officially acquired in late May.

In the second quarter ended Aug. 2, Kay Jewelers turned in the strongest performance in the company’s Sterling division, reporting an 8 percent year-over-year increase in same-store sales. Comps also were up for Jared the Galleria of Jewelry (5 percent) and Sterling’s regional brands (2 percent.) 

Total sales for Sterling Jewelers rose 9 percent to $810.4 million. 

Le Vian, Neil Lane and the company’s colored diamond collections, Artistry and Vivid, were among the top sellers for the quarter. During the quarter, Sterling also added five Pandora shop-in-shops in its Jared stores and introduced a new collection for the chain called “Earthly Treasures,” which is done in partnership with the Smithsonian and features rarer colored gemstones. 

At Zale, same-store sales were down across all nameplates expect Peoples Jewellers in Canada, where comps climbed 4 percent. Same-store sales were down 1 percent at Zales Jewelers and 3 percent at Piercing Pagoda. 

Vera Wang Love, Arctic Brilliance Canadian Diamonds, Celebration and Unstoppable Love were among the division’s top sellers in the second quarter. 

“I would say there was some distraction in the Zale business,” Signet CEO Mike Barnes said during the earnings conference call held Thursday morning, noting operational and merchandise changes that occurred during the quarter as Zale was integrated into Signet. 

The $1.4 billion deal merging the two jewelry giants officially closed on May 29, right after Zale shareholders approved the deal

Following completion of the merger, a number of top Zale executives resigned, including CEO and President Theo Killion, Chief Administrative Officer Matt Appel and Chief Marketing Officer Richard Lennox. 

RELATED CONTENT: Zale CEO resigns in post-merger shakeup

As a whole, Signet Jewelers, including its U.K. division, reported that same-store sales were up 5 percent in the quarter while total sales rose 39 percent. Excluding the Zale acquisition, total sales were up 11 percent and same-store sales increased 6 percent. 

Gross margin shrunk from 35.2 percent to 33.4 percent. Excluding the Zale acquisition, gross margin was 34.8 percent of sales. 

Net income fell 14 percent from $67.4 million to $58.0 million. Excluding the Zale acquisition, net income was $79.9 million, a 19 percent increase. 

During Thursday morning’s call, Barnes said that the company is testing Zale’s more high-profile brands in Kay Jewelers stores and vice-versa, including putting Kay’s popular Jane Seymour jewelry into Peoples Jewellers, Zale’s division in Canada. 

He also said that all the company’s divisions will be increasing their television advertising this fall and introducing new commercials. 

In addition to the integration of Zale, Signet executives said that during the second quarter it completed conversion of all remaining Ultra Diamond outlet stores into either Kay Outlets or its new concept Jared Vault stores, adding that sales in its outlet division were one of the key drivers of second quarter growth. 

Editor's note: The article was updated to correct Richard Lennox's position with Zale Corp. He was the chief marketing officer, not the chief merchandising officer as previously stated.