National Jeweler Network

Financial Reporting

Q2 comps up 2 percent, profits rise for Zale

By Michelle Graff

February 27, 2014

Dallas--Zale Corp. recorded a 2 percent increase in the same-store sales in the second quarter ended Jan. 31, with its Zales and Zales Outlet stores turning in the strongest performance.

According to the company’s quarterly earnings statement released Thursday, total sales slipped 2 percent year-over-year, falling from $670.8 million to $656.4 million. Zale said the total sales decline was due to a net decrease of 86 stores and a decline in the Canadian exchange rate.

Net earnings increased 19 percent from $41.2 million to $50.8 million. Gross margin on sales was $348 million (53 percent), compared with $340 million (51 percent) in the second quarter of fiscal 2013.

Zales and Zales Outlet stores posted the strongest comps during the quarter, climbing 4 percent year-over-year. Same-store sales at Gordon’s fell 5 percent during the quarter while Piercing Pagoda comps were down 5 percent.

In Canada, Peoples (3 percent increase in same-store sales) outperformed Mappins, where quarterly comps fell 5 percent.

For the six-month period ended Jan. 31, same-store sales were up 3 percent. Total sales declined less than 1 percent to $1.02 billion, and net earnings rose from $12.9 million to $23.5 million.

During Thursday morning’s call, company executives said they would not be releasing any additional information on Zale’s big news -- the Feb. 19 announcement that the company was being acquired by longtime rival Signet Jewelers Ltd., the owner of the Kay Jewelers and Jared the Galleria of Jewelry chains in the United States.

RELATED CONTENT: Signet acquiring Zale in $1.4B deal

The $1.4 billion deal, which would create a massive chain of more than 3,000 stores in the U.S., Canada and the United Kingdom and bring together some of the most well-known names in jewelry retailing, is expected to close by the end of the year.

The company also was not releasing many details on Valentine’s Day, which fell outside of its fiscal quarter, though executives did note that same-store sales were up 4 percent in the month of February, driven by a strong holiday.

“We are very, very pleased with the Valentine’s Day weekend results and that put us back in line to have a pretty solid performance,” for the month despite other factors, including inclement weather,
Chief Financial Officer Tom Haubenstricker said.

Also, in response to an analyst who asked about the promotional environment at mall stores, CEO Theo Killion said that Zale is focusing on customer relationships going forward.

He said Zale had one salesperson in Modesto, Calif. who had sold $1 million in jewels by the second week in January--two weeks before the close of the quarter--due largely to the quality of that salesperson’s interaction with clients.