Zale reports smaller 3Q net loss as margin improve, lower costs

Zale loss narrows on improved margins, lower costs

NEW YORK — Jewelry retailer Zale Corp. on Wednesday reported a smaller net loss in its fiscal third quarter, helped by a tax benefit, by cutting costs and by selling more items at full price.

Its shares rose 6 percent in morning trading.

Zale’s revenue tumbled during the recession, hurt by tighter credit and high unemployment. It has closed hundreds of stores over the past two years. Its CEO and other executives left in January following a tough holiday season.

The retailer has been working with adviser Peter J. Solomon Co. on ways to improve its cash situation, including a possible sale of all or part of the company.

Zale president and interim CEO Theo Killion said the company has completed the initial stages of its turnaround plan and it can now focus on “fixing the business in order to return it to profitability.”

The company, based in Irving, Texas, reported a net loss of $12.1 million, or 38 cents per share, for the three months that ended April 30. That compares with a year-ago loss of $19.5 million, or 61 cents per share.

Excluding a $12 million tax benefit and other items, Zale’s net loss was 76 cents per share. Analysts polled by Thomson Reuters, on average, expected a larger loss of 95 cents per share.

Revenue fell 5 percent to $359.8 million from $379.1 million a year ago.

In a call with analysts, Killion said revenue was weak in the third quarter because the company had shut its supply chain to preserve its liquidity in December and its merchandise flow didn’t get back to normal until mid-April. The company also cut back on advertising and markdowns.

Zale now plans to reduce the number of items it carries and drop slower-selling products. Its best sellers are silver low-price jewelry, the company said.

Killion said Mothers Day sales were “soft” but margins were strong.

The company said it does not plan to close many stores.

The company cut its costs by $16 million in the quarter and reduced its inventory by $70 million to $693 million from a year earlier.

Zale said this month that it received a $150 million lifeline from private equity firm Golden Gate Capital and a new $650 million credit line that will bolster the jeweler’s cash position, allowing it to restructure its retail locations and expand online sales.

Zale also said it is in talks to extend its U.S. credit card deal with Citigroup Inc.’s Citibank past March 2011 and defer a $6 million payment until at least June as talks continue.

Shares rose 16 cents, or 6 percent, to $2.84 during morning trading. The stock has traded between $1.80 and $8.51 during the past 52 weeks.