Zale Corporation reported a net loss of $189.5 million for the year ended July 31, 2009 compared to a net loss from continuing operations of $6.5 million, in fiscal 2008. Revenues fell 16.8 percent to $1.78 billion while comparable store sales declined 16.6 percent.

 

The company published the results Thursday evening after a two-month delay, due, it said, to errors it found in earlier financial statements.

 

"Our financial results for fiscal 2009 reflected the most difficult year in retailing in memory," said Zale CEO Neal Goldberg. "Nonetheless, we believe we have positioned the business for much improved performance."

 

Q4 revenues dropped 21.7% to $357 million as comparable store sales declined 21%, leading to a net loss of $89.8 million

The American jewelry chain incurred special charges totaling $92.6 million after tax. These charges included, net of tax:

(1) $16.5 million for store closures;

(2) $9.1 million for store impairments;

(3) $14.1 million for lease contingencies associated with Bailey Banks & Biddle;

(4) $8.3 million for inventory impairment;

(5) $5.0 million goodwill impairment; and

(6) $39.6 million for tax adjustments.

 

Of the total adjustments, $70.8 million were recorded in the fourth quarter. Net loss for fiscal 2009, adjusted for special charges, was $96.9 million compared to a net loss from continuing operations, adjusted for special gains, of $16.5 million in the prior year.

 

The Bailey Banks & Biddle (BB&B) lease costs may be connected to the Finlay Fine Jewelry Bankruptcy in August of last year. Finlay bought BB&B from Zale in 2007. It is understood that according to the sale agreement, under certain conditions lease payment for the BBB stores will be paid by Zale.

 

For the fourth quarter, Zale posted a net loss of $89.8 million compared to a loss of $10 million in the prior year period. Revenues in the fourth quarter were $357.1 million, a decline of 21.7 percent.

 

Comparable store sales for the fourth quarter declined 21.2 percent.

 

According to Goldberg "fiscal 2010 to date reflects improved business performance, with sales reflecting the exit of various specialty jewelry competitors."

 

In its fiscal 2010 outlook Zale states that comparable store sales have decreased approximately 8% to date in the first quarter. In addition, unlike fiscal 2009, the company does not expect to recognize any U.S. tax benefits during to offset tax expense expected from the Canadian operations.

 

On September 18, during the finalization of its 2009 financial statements, the company discovered errors in the financial statements for fiscal years 2008 and 2009.

 

According to a statement, they are:

• A significant portion of prepaid advertising costs should have been recorded as expense. Prepaid advertising reflected in the balance sheets as of July 31, 2008 and 2007 totaled approximately $23 million and $18 million, respectively.
• Certain adjustments aggregating approximately $9 million on a pre-tax basis, including (1) a charge related to an intercompany accounts receivable associated with Zale’s wholly owned insurance subsidiaries, (2) a charge related to certain depository bank account reconciliations and (3) a benefit related to personal property tax reserves. In addition, a charge totaling approximately $4 million will be recorded in fiscal 2008 related to federal income taxes resulting from the expiration of net operating loss carry forwards.

IDEX Online Research will publish an in-depth analysis of Zale's results in the coming days.