Zale Q4 Comps Up 5.6%, Revenue Loss Narrows to $8 Million

Comps at Zales Jewelers (pictured) and Zales Outlet increased 8.1%.

Fine jewelry retailer Zale Corp. said Wednesday that year-over-year revenues for the fourth quarter increased 2.4 percent to $417 million. Comparable store sales for the period increased 5.6 percent. This increase follows an 8.3 percent rise in the same period last year. At constant exchange rates, comparable store sales increased 5.8 percent.

Net loss in the fourth quarter for the company, which owns retail jewelry chains in the US, Canada and Puerto Rico, narrowed to $8 million, or 25 cents per share, compared to a net loss of $20 million, or 61 cents per share, in the fourth quarter of fiscal 2012.

Other fourth quarter highlights include:

* Zales branded stores, Zales Jewelers and Zales Outlet, posted a comparable store sales increase of 8.1 percent. This follows a 12.3 percent rise in the same period last year.

* U.S. fine jewelry brands, including Zales branded stores and regional brand, Gordon’s Jewelers, posted a comparable store sales increase of 7.2 percent. This follows an 11.2 percent rise in the same period last year.

* Peoples branded stores posted a comparable store sales increase of 5.6 percent. This follows a 4.7 percent rise in the same period last year. At constant exchange rates, comparable store sales increased 7 percent in the fourth quarter of fiscal 2013, following an increase of 9.9 percent in the same period last year.

* Canadian fine jewelry brands, Peoples Jewellers and Mappins Jewellers, posted a comparable store sales increase of 3.3 percent. This follows a 2 percent rise in the same period last year. At constant exchange rates, comparable store sales increased 4.7 percent in the fourth quarter of fiscal 2013, following an increase of 7.1 percent in the same period last year.

* Piercing Pagoda, Zale’s kiosk jewelry business, posted a comparable store sales increase of 0.3 percent. In the same period last year, comparable store sales rose 2.7 percent.

Gross margin on sales rose sharply to $222 million, or 53.1 percent, compared to $210 million, or 51.6 percent, in the fourth quarter of fiscal 2012. Operating margin increased 120 basis points.

Operating loss was $3 million, or 0.7 percent of revenues, compared to an operating loss of $8 million, or 1.9 percent of revenues, in the fourth quarter of the prior year.

For the 2013 fiscal year, the company reported a six-year high in net earnings of $10 million, or $0.24 diluted earnings per share, up $37 million, or $1.09 per share. The company said this is a six-year high.

Comparable store sales rose 3.3 percent for the year with Zales branded stores up 4.7 percent and Peoples branded stores up 4.8 percent at constant exchange rates. Gross margin was up 60 basis points to 52.1 percent and operating margin increased 90 basis points to 1.9 percent.

“For the year we achieved a significant milestone by delivering our highest net income in six years,” Theo Killion, Zale Corp. CEO, said in a statement.

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From Adversary to Partner, Terry Burman Named Chairman of Zale Corp.

Terry Burman

Zale Corp.on Wednesday made a surprise announcement that Terry Burman was named board chairman of the Dallas-based jeweler, whose retail brands include Zales Jewelers, Zales Outlet and Gordon's Jewelers. Burman was the highly successful chief executive officer of Signet Jewelers Ltd. from 2000 till 2011, Zale Corp.’s main rival.

Burman replaces John B. Lowe, Jr., who has served as chairman for the past five years. Lowe will remain on the board, the company said. The announcement overshadowed its third quarter earnings report.

Burman, a 30-year veteran of the jewelry industry, joined Signet in 1995 as the chairman and CEO of Sterling Jewelers, Inc., the U.S. division of Signet and Zale Corp.’s main rival. Sterling is the largest specialty retail jeweler in the United States with more than 1,300 stores located in 50 states, including national chains Kay Jewelers and Jared the Galleria of Jewelry. Signet also is the largest retail jeweler in the United Kingdom.

Under Burman’s leadership Sterling and then Signet experienced robust growth during the high-growth economy of the 1990s and the early 2000s and even through the economic recession and sluggish economy since 2008. Meanwhile, Zale Corp., suffered during the economic downturn under several leadership and ownership changes closing more than 100 underperforming stores.

Before joining Signet, Burman held executive positions, including president and CEO of Barry’s Jewelers, Inc., which now does business as Samuels Jewelers. He serves on the boards of Yankee Candle Company, Inc. and Tuesday Morning Corp. He also serves on St. Jude Children’s Research Hospital Board of Governors. He has received numerous jewelry industry awards, including the American Gem Society Lifetime Achievement Award in 2010 and is the former chairman of Jewelers of America.

“Terry’s track record and industry knowledge make him uniquely qualified to contribute to Zale as we execute our plans for long term growth and shareholder value,” said Theo Killion, Zale Corp. CEO.

“I am delighted to assume the role of chairman of the board at Zale at such an important point in their turnaround program,” Burman said. “I am looking forward to working with Zale’s management and board to refine the company’s strategy and priorities to drive profitable growth and create shareholder value.”

Zale Corp. is a leading specialty retailer of diamond and other jewelry products in North America, operating approximately 1,710 retail locations throughout the United States, Canada and Puerto Rico, as well as online. Zale Corp.'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, www.zalesoutlet.com, www.gordonsjewelers.com, www.peoplesjewellers.com and www.pagoda.com. 

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Zale Corp. Holiday Comps Up 2.3%; Holiday Sales Total $567 Million

Jewelry and diamond retailer, Zale Corp., said Thursday that same store sales increased 2.3 percent for the combined months of November and December 2012, encompassing the entire holiday selling period. This increase falls short of the 5.9 percent rise in same store sales for the same period last year. At constant exchange rates, which exclude the effect of translating Canadian currency denominated sales into U.S. dollars, comparable store sales increased 1.6 percent for the holiday selling period, compared to an increase of 6.2 percent in the prior year period.

Revenues for the two-month period were $567 million, an increase of $3 million compared to $564 million in the same period last year. The increase in revenues is primarily due to the same store sales growth partially offset by revenues associated with the net decrease of 50 stores compared to last year.

“This holiday season, we focused on driving bottom line improvement,” said Theo Killion, Zale Corp. CEO. “Our comp performance, combined with an expected 100 basis point operating margin improvement, brings us closer to our goal of achieving positive net income for the fiscal year.”

Holiday selling period same store sales details are as follows:

* Zales branded stores, consisting of Zales Jewelers and Zales Outlet, posted an increase of 3.1 percent, compared to an increase of 10 percent in the same period last year. U.S. fine jewelry brands including regional brand, Gordon’s Jewelers, posted an increase of 2.2 percent. In the same period last year. U.S. fine jewelry brands same store sales rose 9 percent for the 2011 holiday season.

* Canadian Fine Jewelry brands, consisting of Peoples Jewellers and Mappins Jewellers, posted a same store sales increase of 2.7 percent. This increase follows a 0.2 percent rise in the same period last year. At constant exchange rates, Canadian Fine Jewelry brands posted a comparable store sales decline of 0.7 percent, compared to an increase of 1.7 percent in the prior year period.

* Piercing Pagoda, Zale Corp.’s kiosk Jewelry business, posted a same store sales increase of 1.7 percent, compared to a declined 2.1 percent for the 2011 holiday season.

In its outlook for the quarter ending January 31, Zale Corp. said it expects gross margin to be in line with the prior year quarter’s gross margin of 50.5 percent. Operating margin is expected to be approximately 7.5 percent, or 100 basis points higher than the prior year quarter, primarily as a result of improved leverage on selling, general and administrative expenses.

As previously announced, the company expects to achieve positive net income for fiscal year 2013.

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‘The Shaq’ Designs Men’s Jewelry Collection for Zale Corp. Stores

Shaquille O’Neal has found himself a new job as a jewelry designer for Zale Corp. The former NBA star has partnered with the specialty retail jeweler to create and market a branded collection of men’s jewelry.

The Shaquille O’Neal Collection consists of a variety of men’s pendants, rings and bracelets. The collection will be offered exclusively in select Zale Corp. stores in the U.S., Canada, Puerto Rico and online. Zale Corp. operates approximately 1,780 retail locations under the following brands: Zales Jewelers, Zales Outlet, Gordon’s Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda

The partnership builds on the strengths of both brands as Shaquille O’Neal (known as “The Shaq”) is widely regarded as one of the most gregarious personalities in sports, and Zales, is one of the most recognized North American specialty jewelry brands.

“Since I was in college I have shopped at Zales because I knew I could buy a quality product at an affordable price,” O’Neal said.

“The product is an expression of Mr. O’Neal’s fun-loving personality and his unique sense of style,” said Theo Killion, Zale CEO.

The company made a promotional video of O’Neal working behind the counter at a Zale store in the Shops at Willow Bend, a mall in Plano, Texas. The video is below.



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The Jewelry Industry is Better Prepared to Handle a Downturn

The opening day crowd during the 2011 JCK Las Vegas tradeshow held at Mandalay Bay. Photo credit: Anthony DeMarco

Not since 2009 has the global economy and the jewelry industry’s place in it been so unstable. This comes as the international jewelry industry descends on Las Vegas for a series of tradeshows beginning Monday (led by JCK Las Vegas at Mandalay Bay and The Couture Show at the Wynn Las Vegas) where retailers will purchase their inventory for the all-important holiday season. It’s one of the largest jewelry trade events on the global calendar and it will be a real test on whether the U.S. jewelry industry can withstand the latest onslaught of mixed economic news.

I think the jewelry industry will prevail. The industry itself has done little to exacerbate the fragile global economic situation. In fact, it has performed admirably during these difficult economic times—outside of the diamond industry with its mishandling of the Zimbabwe human rights issue and now diamond grading scandals at two labs. 

After the contraction of the U.S. jewelry industry in 2009, it has been posting mostly positive numbers and showing consistent, incremental growth. Unlike the banking industry, it has learned from its mistakes. The jewelry industry is not as leveraged as it was in 2008. It is doing better at using the Internet and social media instead of treating it as the enemy. Creativity has taken over as well. As the cost of materials increased, designers and manufacturers have created objects of adornment using more color, a variety of materials and high-quality craftsmanship. The jewelry industry as a whole is a smarter and more humble industry than it was prior to 2008.

However, it must get past an economic situation that is again rising to a boil led by two factors that just won’t go away: Wall Street’s reckless behavior and its defiant stance against any regulation; and the Euro crisis.

The Facebook IPO debacle managed by Morgan Stanley and JPMorgan Chase’s $2 billion-plus trading loss by taking large positions in credit default swaps show that Wall Street has learned nothing from the 2008 financial crisis that nearly took down the world economy.

Meanwhile, the end of the Euro or at least a serious contraction of the European Union now seems a possibility. Greece is on the brink of outright rejecting the monetary union and other countries are saddled with outrageous debt that member countries seem unable or unwilling to resolve. There are an endless number of theories as to what will happen if the Union disbands or shrinks, which tells me that no one really knows what will happen. But everyone in Europe seems to be scared.

The jewelry industry has its own challenges and victories, some of which were revealed this week. Among them:

* Tiffany & Co., the luxury retailer jeweler that has performed like a juggernaut throughout this recession, downgraded its outlook Thursday based on a softening of sales in the U.S. and abroad.

* Meanwhile, it’s the mid-market jewelers that are showing resiliency. Signet Jewelers, the largest specialty retail jeweler in the U.S. and U.K., whose brands include Kay and Jared, reported modest growth in the first quarter Thursday (sales up 1.4 and comps up 1.2 percent). Zale Corp., the long-struggling North American specialty retail jeweler, showed significant growth in its first quarter report Wednesday (8 percent increase in sales and comps).

* Online jewelry and diamond retailer, Blue Nile, reported a 3.6 percent first quarter increase in sales. However, lower markups led to a 9.7 percent decline in gross profits.

* The Swiss watch industry, which appeared invincible throughout the recession, is reporting that its phenomenal growth is slowing to just robust levels. Watch exports increased 9 percent in April, down from 16.1 percent for the first four months of the year, according to the Swiss Federal Customs Office.

* However, the large luxury conglomerates are still poised for strong growth throughout the world. For example, LVMH reported that its Watch & Jewellery division sales increased by 141 percent increase, year-over-year, to $826.6 million. This is misleading as LVMH acquired Italian luxury jewelry house, Bulgari, in March 2011. Excluding the Bulgari acquisition, sales increased 17 percent. Richemont, reported that jewelry and watch sales rose 32 percent for the year, with overall sales in the Americas up 26 percent.

Despite the uncertainty, I expect to see a positive environment and exciting new jewelry designs at the tradeshows. Most importantly, I anticipate business to be strong. Unlike 2008, the industry is better prepared today to meet these challenges.

Zale Corp. Q3 Sales and Comps Up 8%

U. S. specialty jewelry retailer Zale Corp. reported a year-over-year revenue increase of 8.1 percent to $45 million for the third quarter of 2012, which includes $8.5 million resulting from a previously disclosed change in warranty revenue recognition.

Same store sales for the period rose 8 percent during the period, ended April 30. This increase follows a 15.2 percent rise in the same period last year. At constant exchange rates, which exclude the effect of translating Canadian currency denominated sales into U.S. dollars, comparable store sales increased 8.3 percent for the quarter.

The Dallas-based company owns and operates the following jewelry retail brands: Zales, Zales Outlets, Gordon’s Jewelers, Peoples, Mappins and Piercing Pagoda. By market segment, the company reported the following for the third quarter:

* U.S. Fine Jewelry brands (70 percent of revenues), consisting of Zales Jewelers, Zales Outlet and Gordon’s Jewelers, had an increase in comparable store sales of 10.9 percent. This increase follows a 15.9 percent rise in the same period last year.

* Canadian Fine Jewelry brands (17 percent of revenues), consisting of Peoples Jewellers and Mappins Jewellers, had an increase in comparable store sales of 3.8 percent. This increase follows a 21.6 period rise in the same period last year. At constant exchange rates, Canadian Fine Jewelry brands comparable store sales increased 6 percent following an increase of 15 period in the prior year period.

* Kiosk Jewelry (13 percent of revenues) comparable store sales decreased 1.1 percent. In the same period last year, Kiosk Jewelry comparable store sales rose 6.7 percent.

Gross margin on sales for the quarter was $228 million, or 51.3 percent, an increase of 10.5 percent, compared to $206 million, or 50.1 percent, in the same period last year. Selling, general and administrative expenses were $213 million, or 47.9 percent of revenues, for the period, compared to $202 million, or 49.1 percent of revenues, in the same period last year. Operating earnings for the quarter were $6 million, or 1.4 percent of revenues, compared to an operating loss of $5 million, or negative 1.3 period of revenues, in the prior year quarter.

For the quarter, income tax expense was $1 million, compared to a benefit of $4 million in the comparable quarter last year.

Net loss from continuing operations for the quarter was $4 million, or $0.14 per share, compared to a net loss from continuing operations of $10 million, or $0.31 per share, in the comparable quarter last year. The change in warranty revenue recognition improved the net loss per share from continuing operations for the third quarter of fiscal 2012 by $0.25.

Inventory at April 30, 2012 stood at $779 million, compared to $756 million in the same period last year.

“The six consecutive quarters of positive comps, coupled with continued momentum through the Mother’s Day selling period, demonstrates that the strategic initiatives we’ve undertaken are resonating with our guests,” said Theo Killion, Chief Executive Officer. “In addition, the improvement in operating earnings this quarter is another indication of the progress we are making as we accelerate towards bottom line profitability.”

Zale Corp. Reports Strong Holiday Sales for Second Consecutive Year

Zale Corp. said Tuesday that comparable store sales increased 5.9 percent, year-over-year, for the November-December holiday sales period. This increase follows an 8.5 period rise in the same period in the prior year.

Within this two-month period, comparable store sales increased 10.1 percent in November and 4.2 percent in December. At constant exchange rates, which exclude the effect of translating Canadian currency denominated sales into U.S. dollars, comparable store sales increased 6.2 percent for the holiday selling period, compared to an increase of 7.6 period in the prior year period.

Revenues for the two-month period increased 5.8 percent, year-over-year, to $564 million. Revenues include approximately $10 million resulting from the change in warranty revenue recognition.

Zale Corp. operates approximately 1,820 retail locations in the United States, Canada and Puerto Rico and has online operations for most of its brands.

Sales by brand and country:

* U.S. Fine Jewelry brands (which account for about 69 percent of annual revenue for the company), consisting of Zales Jewelers, Zales Outlet and Gordon’s Jewelers, had an increase in comparable store sales of 9 percent for the holiday period. This increase follows a 7.5 period rise in the same period last year.

* Canadian Fine Jewelry brands (which account for about 17 percent of annual revenue for the company), consisting of Peoples Jewellers and Mappins Jewellers, had an increase in comparable store sales of 0.2 percent. This increase follows a 15.6 percent rise in the same period last year. At constant exchange rates, Canadian Fine Jewelry brands comparable store sales increased 1.7 percent, compared to an increase of 10.2 percent in the prior year period.

* Kiosk Jewelry (which accounts for about 14 percent of annual revenue for the company) comparable store sales decreased 2.1 percent. In the same period last year, Kiosk Jewelry comparable store sales rose 4.2 percent.

In its outlook for the quarter ending January 31, Zale Corp. says it expects gross margin to be consistent with the prior year quarter’s gross margin of 50.3 percent. Operating margin is expected to be slightly below the prior year quarter’s operating margin of 7 percent due to higher selling, general and administrative expenses primarily driven by the holiday advertising campaign and marketing for the launch of proprietary products.