- Published: 28 August 2013
- Written by Editor
Zale Returns to Full Year Profitability
Reports Fourth Quarter and Fiscal Year 2013 Results
Fourth Quarter Highlights
Comparable store sales up 5.6 percent; Zales branded stores up 8.1 percent; Peoples branded stores up 7.0 percent at constant exchange rates
Gross margin up 150 basis points to 53.1 percent
Operating margin up 120 basis points to (0.7) percent
Fiscal Year Highlights
Net earnings of $10 million, or $0.24 diluted earnings per share, up $37 million, or $1.09 per share
Comparable store sales up 3.3 percent; Zales branded stores up 4.7 percent; Peoples branded stores up 4.8 percent at constant exchange rates
Gross margin up 60 basis points to 52.1 percent
Operating margin up 90 basis points to 1.9 percent
Zale Corporation (ZLC) today reported its financial results for the fourth quarter and full year ended July 31, 2013.
“We are pleased to report another solid quarter with a 5.6 percent comp and significant improvement to margins. Importantly, for the year we achieved a significant milestone by delivering our highest net income in six years,” commented Chief Executive Officer Theo Killion. “We intend to build on this momentum as we focus on driving profitable top-line growth and long-term shareholder value.”
Fourth Quarter Fiscal 2013 Results
Revenues were $417 million compared to $407 million in the fourth quarter of fiscal 2012. For the fourth quarter of fiscal 2013, comparable store sales 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.
- Zales branded stores, consisting of Zales Jewelers and Zales Outlet, posted a comparable store sales increase of 8.1 percent. This increase follows a 12.3 percent rise in the same period last year.
- U.S. Fine Jewelry brands, including our Zales branded stores and our regional brand, Gordon’s Jewelers, posted a comparable store sales increase of 7.2 percent. This increase 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 increase follows a 4.7 percent rise in the same period last year. At constant exchange rates, comparable store sales increased 7.0 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, consisting of Peoples Jewellers and Mappins Jewellers, posted a comparable store sales increase of 3.3 percent. This increase follows a 2.0 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, our 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.
All comparable store sales include associated ecommerce businesses.
Gross margin on sales was $222 million, or 53.1 percent, an increase of $12 million compared to $210 million, or 51.6 percent, in the fourth quarter of fiscal 2012. Selling, general and administrative expenses were $216 million, or 51.9 percent of revenues, compared to $208 million, or 51.0 percent of revenues, in the fourth quarter of fiscal 2012. The 90 basis point increase was primarily driven by investments related to sourcing and other initiatives. 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 prior year quarter.
Interest expense was $6 million, compared to $15 million in the fourth quarter of fiscal 2012. The 2012 quarter includes a charge of $5 million related to debt refinancing transactions.
Net loss was $8 million, or $0.25 per share, compared to a net loss of $20 million, or $0.61 per share, in the fourth quarter of fiscal 2012.
Fiscal Year 2013 Results
Revenues were $1.89 billion compared to $1.87 billion in fiscal year 2012. For fiscal year 2013, comparable store sales increased 3.3 percent. This increase follows a 6.9 percent rise in fiscal year 2012. At constant exchange rates, comparable store sales increased 3.1 percent.
- Zales branded stores, consisting of Zales Jewelers and Zales Outlet, posted a comparable store sales increase of 4.7 percent. This increase follows a 10.8 percent rise in the prior year.
- U.S. Fine Jewelry brands, including our Zales branded stores and our regional brand, Gordon’s Jewelers, posted a comparable store sales increase of 3.7 percent. This increase follows a 9.5 percent rise in the prior year.
- Peoples branded stores posted a comparable store sales increase of 5.7 percent. This increase follows a 4.3 percent rise in the prior year. At constant exchange rates, comparable store sales increased 4.8 percent in fiscal 2013, following an increase of 5.9 percent in the prior year.
- Canadian Fine Jewelry brands, consisting of Peoples Jewellers and Mappins Jewellers, posted a comparable store sales increase of 3.1 percent. This increase follows a 2.9 percent rise in the prior year. At constant exchange rates, comparable store sales increased 2.2 percent in fiscal 2013, following an increase of 4.5 percent in the prior year.
- Piercing Pagoda, our Kiosk Jewelry business, posted a comparable store sales increase of 1.3 percent. In the prior year, comparable store sales declined 1.0 percent.
All comparable store sales include associated ecommerce businesses.
Gross margin on sales was $984 million, or 52.1 percent, an increase of 60 basis points compared to $961 million, or 51.5 percent, in fiscal year 2012. Selling, general and administrative expenses were $916 million, or 48.5 percent of revenues, compared to $902 million, or 48.3 percent of revenues, in fiscal year 2012. Operating earnings were $35 million, or 1.9 percent of revenues, compared to operating earnings of $19 million, or 1.0 percent of revenues, in the prior fiscal year.
Interest expense was $23 million, compared to $45 million in fiscal year 2012. Interest expense for fiscal year 2012 includes a charge of $5 million related to debt refinancing transactions.
Net earnings were $10 million, or $0.24 per diluted share, compared to a net loss of $27 million, or $0.85 per share, in fiscal year 2012.
Inventory on July 31, 2013 stood at $768 million, compared to $742 million on July 31, 2012. The Company had outstanding debt of $410 million on July 31, 2013, a reduction of $43 million compared to $453 million on July 31, 2012.
Conference Call
Zale management will host a conference call today at 9:00 a.m. ET to discuss fourth quarter and fiscal year 2013 results. The conference call will be broadcast live over the internet and can be accessed, along with a slide presentation, on the Investor Relations section of the company’s web site at www.zalecorp.com. In addition, you can listen to the call live by dialing 877-545-6744 (within the United States) or 706-634-1959 (for international callers), passcode 29662626. The webcast will be archived shortly after the conference call concludes and will be available on the company’s web site. For additional information, contact Investor Relations at 972-580-4391.
About Zale Corporation
Zale Corporation is a leading specialty retailer of diamond and other jewelry products in North America, operating approximately 1,695 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 webstores at www.zales.com, www.zalesoutlet.com, www.gordonsjewelers.com, www.peoplesjewellers.com and www.pagoda.com. Additional information on Zale Corporation and its brands is available at www.zalecorp.com.
This release and related presentations contain forward-looking statements, including statements regarding future sales, expected operating performance, expenses, margins, profitability, earnings, interest expense, effective tax rate, merchandising and marketing initiatives and industry growth forecasts. 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 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; if the Company does not achieve targeted sales growth its operating results and earnings will be adversely impacted; 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; the financing market remains difficult, and if we are unable to meet the financial commitments in our current financing arrangements it will be difficult to replace or restructure these arrangements; and changes in regulatory requirements may increase the cost or adversely affect the Company’s operations and its ability to provide consumer credit and write credit insurance. 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, 2012, and subsequent reports on Forms 10-Q and 8-K. 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, except as required by law.
| ZALE CORPORATION AND SUBSIDIARIES | ||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||
| July 31, | July 31, | |||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||||
| Revenues | $ | 417,089 | $ | 406,963 | $ | 1,888,016 | $ | 1,866,878 | ||||||||||||
| Cost of sales | 195,507 | 197,078 | 903,602 | 905,613 | ||||||||||||||||
| Gross margin | 221,582 | 209,885 | 984,414 | 961,265 | ||||||||||||||||
| % of Revenue | 53.1 | % | 51.6 | % | 52.1 | % | 51.5 | % | ||||||||||||
| Selling, general and administrative | 216,337 | 207,546 | 916,274 | 902,287 | ||||||||||||||||
| % of Revenue | 51.9 | % | 51.0 | % | 48.5 | % | 48.3 | % | ||||||||||||
| Depreciation and amortization | 7,977 | 9,431 | 33,770 | 37,887 | ||||||||||||||||
| Other charges (gains) | 348 | 700 | (748 | ) | 1,973 | |||||||||||||||
| Operating (loss) earnings | (3,080 | ) | (7,792 | ) | 35,118 | 19,118 | ||||||||||||||
| % of Revenue | (0.7 | )% | (1.9 | )% | 1.9 | % | 1.0 | % | ||||||||||||
| Interest expense (a) | 5,585 | 14,514 | 23,182 | 44,649 | ||||||||||||||||
| (Loss) earnings before income taxes | (8,665 | ) | (22,306 | ) | 11,936 | (25,531 | ) | |||||||||||||
| Income tax (benefit) expense | (681 | ) | (2,641 | ) | 1,924 | 1,365 | ||||||||||||||
| (Loss) earnings from continuing operations | (7,984 | ) | (19,665 | ) | 10,012 | (26,896 | ) | |||||||||||||
| Loss from discontinued operations, net of taxes | - | (82 | ) | - | (414 | ) | ||||||||||||||
| Net (loss) earnings | $ | (7,984 | ) | $ | (19,747 | ) | $ | 10,012 | $ | (27,310 | ) | |||||||||
| Basic net (loss) earnings per common share: | ||||||||||||||||||||
| (Loss) earnings from continuing operations | $ | (0.25 | ) | $ | (0.61 | ) | $ | 0.31 | $ | (0.84 | ) | |||||||||
| Loss from discontinued operations | - | - | - | (0.01 | ) | |||||||||||||||
| Net (loss) earnings per share | $ | (0.25 | ) | $ | (0.61 | ) | $ | 0.31 | $ | (0.85 | ) | |||||||||
| Diluted net (loss) earnings per common share: | ||||||||||||||||||||
| (Loss) earnings from continuing operations | $ | (0.25 | ) | $ | (0.61 | ) | $ | 0.24 | $ | (0.84 | ) | |||||||||
| Loss from discontinued operations | - | - | - | (0.01 | ) | |||||||||||||||
| Net (loss) earnings per share | $ | (0.25 | ) | $ | (0.61 | ) | $ | 0.24 | $ | (0.85 | ) | |||||||||
| Weighted-average number of common shares outstanding: | ||||||||||||||||||||
| Basic | 32,514 | 32,219 | 32,429 | 32,196 | ||||||||||||||||
| Diluted | 32,514 | 32,219 | 40,958 | 32,196 | ||||||||||||||||
(a) Interest expense for the three and twelve months ended July 31, 2012 includes $5.0 million associated with the debt refinancing transactions completed on July 24, 2012.
| ZALE CORPORATION AND SUBSIDIARIES | ||||||||||
|
CONSOLIDATED BALANCE SHEETS |
||||||||||
| (Unaudited, in thousands) | ||||||||||
| July 31, | ||||||||||
| 2013 | 2012 | |||||||||
| ASSETS | ||||||||||
| Current assets | ||||||||||
| Cash and cash equivalents | $ | 17,060 | $ | 24,603 | ||||||
| Merchandise inventories | 767,540 | 741,788 | ||||||||
| Other current assets | 52,620 | 46,690 | ||||||||
| Total current assets | 837,220 | 813,081 | ||||||||
| Property and equipment | 681,902 | 696,485 | ||||||||
| Less accumulated depreciation and amortization | (573,027 | ) | (574,361 | ) | ||||||
| Net property and equipment | 108,875 | 122,124 | ||||||||
| Other assets | 241,160 | 245,263 | ||||||||
| Total assets | $ | 1,187,255 | $ | 1,180,468 | ||||||
| LIABILITIES AND STOCKHOLDERS’ INVESTMENT | ||||||||||
| Current liabilities: | ||||||||||
| Accounts payable and accrued liabilities | $ | 220,558 | $ | 205,082 | ||||||
| Deferred revenue | 82,110 | 85,714 | ||||||||
| Deferred tax liability | 107,016 | 96,662 | ||||||||
| Total current liabilities | 409,684 | 387,458 | ||||||||
| Long-term debt | 410,050 | 452,908 | ||||||||
| Deferred revenue — long-term | 109,135 | 122,802 | ||||||||
| Other liabilities | 73,057 | 38,364 | ||||||||
| Stockholders’ investment | 185,329 | 178,936 | ||||||||
| Total liabilities and stockholders’ investment | $ | 1,187,255 | $ | 1,180,468 | ||||||
Certain amounts have been reclassified in the fiscal year 2012 consolidated balance sheet to conform to our fiscal year 2013 presentation.
Zale Corporation
Roxane Barry, 972-580-4391
Director of Investor Relations
