Zale Posts Q2 Profits, Sales Drop 14%

Zale reported its first quarterly profit in 2 years

Zale Corp reported net earnings of $6.7 million during the fiscal quarter ended January 31, 2010, compared with a loss of $31.8 million in the equivalent period last year, the company announced Wednesday. The report marks Zale’s first quarterly profit in two years.

The quarterly profit was aided by both an income tax benefit of $12 million, compared with a tax expense of $7 million in the comparable period last year, as well as a 23 percent reduction in cost of sales. 

Zale’s revenues were $582 million, a decrease of 14.3 percent compared to $679 million during the same quarter of 2009. Same store sales decreased 11.2 percent, compared to a decrease of 18.1 percent during the 2009 period.

The company has taken large measures to cut costs in the past year, including closing underperforming stores. Zale closed 187 retail locations since January 31, 2009, 28 of which were closed in the quarter ended January 31, 2010. Selling, general and administrative expenses were reduced by $40 million during the most recent quarter, compared to the same period in fiscal 2009.

The company’s posted outstanding debt of $368 million, compared to $390 million in the same period last year.

"Our primary financial focus over the next 90 days is to strengthen our liquidity profile by attracting new capital to the business," said Matt Appel, chief financial officer. "I am confident that we will identify options to implement a long-term capital structure from which we can fuel the recovery of the business.”  

"We have made progress year over year in gross margin, expenses, earnings per share and inventory levels," said Theo Killion, president and interim chief executive officer. "Our direct competitors have demonstrated that the market for mid-tier jewelers has stabilized. It is critical that we focus on retail fundamentals and the core diamond business while we leverage our brand equity, capabilities and personnel to improve top line volumes.”