Lower costs help boost margins, offsetting continued revenue declines at jeweler Zale Corp.

Monday, September 27, 2010

Zale posts smaller quarterly loss on cost cuts

DALLAS — Jewelry seller Zale Corp. on Monday reported a much smaller loss for its fiscal fourth quarter, as cost cuts helped boost margins and offset lower sales.

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 and shuffled top management. 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.

Latest quarterly results were helped by fewer merchandise discounts and higher bookings of warranty revenue. Selling, general and administrative expenses fell 5 percent, due to operating fewer stores.

Losses for the three months ended July 31 totaled $28.5 million, or 89 cents per share, compared with $89.8 million, or $2.81 per share, last year when the company booked hefty write-downs and one-time charges. That beat the loss of $1.21 per share that analysts polled by Thomson Reuters had expected.

Revenue continued to slip, however, falling 3 percent to $345 million from $357.1 million last year. Revenue in stores open at least one year dipped 2.1 percent. Revenue at stores open at least a year is a key indicator of a retailer’s performance because it excludes growth at stores that open or close during the year.

For the year, losses totaled $93.7 million, or $2.92 per share, down from $189.5 million, or $5.94 per share, a year earlier. Revenue fell 9 percent to $1.62 billion from $1.78 billion last year.

CEO Theo Killion said the company has made progress on its turnaround strategy.

“Our disciplined approach to promotion, inventory investments and costs will continue to serve us well as we complete preparations for the holiday selling season,” he said in a statement.

Separately, Zale said it has amended its credit agreement with Golden Gate Capital to eliminate the minimum covenant on its term loan. In return Zale will pay $25 million, including $11.3 million on its outstanding balance, $1.25 million as a prepayment and $12.5 million as an amendment fee.

Zale shares dipped 9 cents to $2.10 in midday trading.

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