Exhibit 99.1
Zale Announces 40 Percent Increase in Fourth Quarter EPS
Excluding Unusual Items;
Also Announces $100 Million Stock Repurchase Program
DALLAS--(BUSINESS WIRE)--Aug. 28, 2003--Zale Corporation (NYSE:
ZLC), North America's largest specialty retailer of fine jewelry,
today announced a 40% increase, before unusual items, in net earnings
per share for the Company's fourth quarter ended July 31, 2003. The
Company reported net earnings of $6.7 million, or $0.21 per diluted
share, before costs associated with the redemption of its Senior
Notes. For the same period last year, the Company reported net
earnings, before an unusual item related to executive management
changes, of $5.1 million, or $0.15 per diluted share. Including the
$3.7 million debt redemption charge ($0.12 per diluted share), the
Company reported current fourth quarter net earnings of $2.9 million,
or $0.09 per diluted share, an earnings per share decrease of 18%. For
the fourth quarter last year, the Company reported net earnings,
including the $1.4 million charge ($0.04 per diluted share) for the
unusual item, of $3.7 million or $0.11 per diluted share.
Net earnings for fiscal year 2003 were $99.4 million, or $3.08 per
diluted share, excluding unusual items. For the prior fiscal year, net
earnings, before unusual items and the effect of a change in
accounting principle, were $101.9 million, or $2.92 per diluted share.
The net loss for fiscal year 2003, including the debt redemption costs
of $3.7 million ($0.12 per diluted share) and a $136.3 million
non-cash impairment charge ($4.22 per diluted share), totaled $40.6
million, or $1.26 per share. For the prior fiscal year, net earnings,
including a gain from an unusual item relating to curtailment of
retiree medical benefits of $2.2 million ($0.06 per diluted share), a
loss from an unusual item relating to executive management changes of
$1.4 million ($0.04 per diluted share) and the effect of a change in
accounting principle relating to the write off of negative goodwill of
$41.3 million ($1.18 per diluted share), were $143.9 million, or $4.13
per diluted share.
For the fiscal year, total revenues increased 0.9% to $2.212
billion, compared to $2.192 billion for the prior fiscal year. On a
comparable store basis, sales increased 0.8% for the year.
"We are pleased with these financial results for both the fourth
quarter and the fiscal year," commented Mary L. Forte, President and
Chief Executive Officer. "We used our marketing and merchandising
strengths to reach our customers and provide them with appealing
assortments at terrific values. This, combined with staying flexible
in our approach to the business and making the necessary adjustments
in a difficult operating environment, enabled us to deliver both
revenue growth and a solid return on investment to our shareholders
this year. While maintaining our performance, we also made tremendous
progress in positioning the business and its infrastructure to
maximize the many opportunities ahead."
Ms. Forte continued, "Strong business disciplines remained firmly
in place as we kept inventories in line with sales trends and
generated over $120 million in free operating cash flow. We used our
solid cash position and strong balance sheet to make changes to our
capital structure that included repurchasing almost 20% of our
outstanding common stock. This structure that includes a new $500
million bank credit facility provides the Company with the flexibility
to take advantage of future opportunities to expand its market
leadership."
For fiscal 2004, the Company is required to prospectively adopt
the pronouncement, Emerging Issues Task Force ("EITF") Issue No.
02-16, "Accounting by a Customer (including a Reseller) for Certain
Consideration Received from a Vendor", which addresses the accounting
for cooperative advertising programs. In accordance with the
pronouncement, cooperative advertising support received from vendors,
which was previously recorded as an offset to advertising expense,
will be included in the purchase cost of the related inventory and
flow through the retail inventory calculation as a reduction in cost
of goods sold. Due to the nature of the retail inventory calculation
and the inventory turn impact of the prospective adoption, this will
result in an estimated one-time $0.12 reduction to earnings per share
for fiscal year 2004. This adoption should not have an impact on
future year earnings.
The Company also provided its forecast for its fiscal year ending
July 2004. Zale's outlook remained cautiously optimistic as a result
of the continued challenges in the external environment. For the full
year, the Company currently expects a comparable store sales increase
of 1.5% to 2.5% and earnings per share growth of 10% on the FY03 base.
This earnings guidance does not include a $0.40 per share positive
impact from stock repurchased in the July tender offer as well as a
$0.12 per share reduction from the adoption of the accounting EITF
described above. Including these adjustments, the Company expects an
earnings per share increase of approximately 19% on the FY03 base.
Also for the fiscal year, the Company plans to open 56 stores and 10
kiosks.
Separately, the Company announced that its Board of Directors has
approved a stock repurchase program pursuant to which the Company,
from time to time and at management's discretion, may purchase up to
an aggregate of $100 million of Zale common stock on the open market.
This action brings the Company's total authorization under its stock
repurchase program to approximately $142 million.
As previously announced, a conference call will be held today at
9:00 a.m. Eastern Time. Parties interested in participating should
dial 706-643-7467, five minutes prior to the scheduled start time. The
call is also available on the Company's Web site at www.zalecorp.com.
For additional information, contact Investor Relations.
In addition, the Company announced that it will be presenting at
the Goldman Sachs Retailing Conference on Wednesday, September 3,
2003, at 2:45 p.m. Eastern Time. Ms. Forte and Sue E. Gove, the
Company's Chief Operating Officer, will discuss Zale's strategic plan
as well as current objectives designed to improve performance. The
presentation will be available on the Company's web site at
www.zalecorp.com.
Zale Corporation is North America's largest specialty retailer of
fine jewelry operating approximately 2,235 retail locations throughout
the United States, Canada and Puerto Rico, as well as online. Zale
Corporation's brands include Zales Jewelers, Zales Outlet, Zale Direct
at www.zales.com, Gordon's Jewelers, Bailey Banks & Biddle Fine
Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda.
Additional information on Zale Corporation and its brands is available
on the Internet at www.zalecorp.com.
This release contains forward-looking statements, including
statements regarding the Company's objectives and expectations
regarding its sales and earnings, its merchandising and marketing
strategies, the impact of a new accounting pronouncement and new store
openings, which are based upon management's beliefs as well as on
assumptions made by and data currently available to management. These
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 anticipated or expected results expressed
in these forward-looking statements. The following list, which is not
intended to be an all-encompassing list of risks and uncertainties
affecting the Company, summarizes several factors that could cause the
Company's actual results to differ materially from those anticipated
or expected in these forward-looking statements: that low or negative
growth in the economy or in the financial markets will occur and
reduce discretionary spending on goods that are, or are perceived to
be, "luxuries"; that levels of mall traffic may decline as a result of
economic or other factors; that warehousing and distribution
productivity and capacity can be further improved to support the
Company's distribution requirements; that strong competitive responses
may impact the Company's efforts to leverage its brand power with its
marketing, merchandising and promotional efforts; that seasonality of
the retail jewelry business or downturns in consumer spending during
the fourth calendar quarter may adversely affect the Company's
results; that the Company may not be able to continue to manage its
inventory and product supply effectively to respond to consumer
demand; that fluctuations in diamond prices may negatively affect the
business; that legal or governmental proceedings may have an adverse
effect on the financial results or reputation of the Company; that key
personnel who have been hired or retained by the Company may depart;
that any disruption in the Company's private label credit card
arrangement may adversely affect the Company's ability to provide
consumer credit; or that changes in government or regulatory
requirements may increase the cost of or adversely affect the
Company's operations. 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.
(Tables to follow)
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
July 31, July 31,
---------------------- ----------------------
2003 2002 2003 2002
------------ --------- ---------- ----------
Total Revenues $442,382 $435,566 $2,212,241 $2,191,727
Costs and Expenses:
Cost of Sales 215,103 213,781 1,101,030 1,083,053
Selling, General and
Administrative Expenses 200,773 195,053 884,069 873,265
Impairment of Goodwill --- --- 136,300 ---
Cost of Insurance
Operations 1,816 2,562 8,228 8,620
Depreciation and
Amortization Expense 13,918 14,538 55,690 58,340
Unusual Item - Executive
Transaction --- 2,300 --- 2,300
Unusual Item - Retiree
Medical Curtailment
Gain --- --- --- (3,502)
--------- --------- ----------- -----------
Operating Earnings 10,772 7,332 26,924 169,651
Interest Expense, Net 1,044 2,415 6,319 7,750
Costs of Early Retirement
of Debt 5,910 --- 5,910 ---
--------- --------- ----------- -----------
Earnings Before Income
Taxes 3,818 4,917 14,695 161,901
Income Taxes 885 1,266 55,340 59,256
--------- --------- ----------- -----------
Earnings (Loss) Before
Effect of Accounting
Change 2,933 3,651 (40,645) 102,645
Effect of a Change in
Accounting for the Write
Off of the Excess of
Revalued Net Assets Over
Stockholders' Investment --- --- --- (41,287)
--------- --------- ----------- -----------
Net Earnings (Loss) $ 2,933 $ 3,651 $ (40,645) $ 143,932
========= ========= =========== ===========
Earnings (Loss) Per Common Share - Basic:
Before effect of change
in accounting principle$ .09 $ 0.11 $ (1.26) $ 2.97
Net Earnings (Loss) Per
Share $ .09 $ 0.11 $ (1.26) $ 4.16
Earnings (Loss) Per Common
Share - Diluted:
Before effect of change
in accounting principle$ .09 $ 0.11 $ (1.26) $ 2.95
Net Earnings (Loss) Per
Share $ .09 $ 0.11 $ (1.26) $ 4.13
Weighted Average Number of
Common Shares Outstanding:
Basic 31,931 34,015 32,264 34,589
Diluted 32,266 34,278 32,264 34,846
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
July 31, July 31,
2003 2002
--------- ---------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 35,273 $ 84,887
Merchandise Inventories 798,761 782,316
Other Current Assets 52,450 47,915
----------- -----------
Total Current Assets 886,484 915,118
Property and Equipment, Net 266,167 284,438
Goodwill, Net 82,199 212,039
Other Assets 38,133 34,654
Deferred Tax Asset, Net 11,342 31,604
----------- -----------
Total Assets $1,284,325 $1,477,853
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts Payable and Accrued Liabilities $ 307,775 $ 331,663
Deferred Tax Liability, Net 36,485 10,104
----------- -----------
Total Current Liabilities 344,260 341,767
Non-current Liabilities 103,342 109,530
Long-term Debt 184,400 86,749
Commitments and Contingencies
Stockholders' Investment:
Preferred Stock --- ---
Common Stock 415 407
Additional Paid-In Capital 566,689 549,848
Accumulated Other Comprehensive Income (Loss) 6,834 (6,559)
Accumulated Earnings 589,122 629,767
Deferred Compensation --- (115)
----------- -----------
1,163,060 1,173,348
Treasury Stock (510,737) (233,541)
----------- -----------
Total Stockholders' Investment 652,323 939,807
- ----------
Total Liabilities and Stockholders' Investment $1,284,325 $1,477,853
=========== ===========
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Year Year Year
Ended Ended Ended
July 31, July 31, July 31,
2003 2002 2001
--------- ------------ -------
Net Cash Flows from Operating Activities:
Net (loss) earnings $ (40,645) $ 143,932 $82,048
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Nonrecurring cost of sales charge --- --- 25,236
Depreciation and amortization expense 56,153 58,787 59,261
Impairment of goodwill 136,300 --- ---
Impairment of fixed assets 2,092 1,446 ---
Deferred taxes and utilization of NOL 46,631 13,668 20,281
Tax benefit associated with stock
option exercises 2,292 1,537 998
Amortization of deferred compensation 115 1,916 650
Effect of change in accounting
principle for the write off of
negative goodwill --- (41,287) ---
Retiree medical curtailment gain --- (3,502) ---
Changes in assets and liabilities, net
of Piercing Pagoda acquisitions:
Merchandise inventories (9,073) (60,940) (46,403)
Other current assets 2,419 9,092 (5,147)
Other assets (5,114) 2,009 605
Accounts payable and accrued
liabilities (26,356) 53,409 (47,861)
Non-current liabilities (6,188) (5,402) (4,553)
--------- --------- ---------
Net Cash Provided by Operating
Activities 158,626 174,665 85,115
--------- --------- ---------
Net Cash Flows from Investing Activities:
Additions to property and equipment (43,579) (54,159) (87,656)
Dispositions of property and equipment 6,194 4,250 2,060
Purchase of available for sale
investments (12,964) (8,197) (7,553)
Proceeds from sale of available for
sale investments 14,190 7,471 8,900
Acquisition of Piercing Pagoda, Inc.,
net of cash Acquired --- --- (239,530)
--------- --------- ---------
Net Cash Used in Investing Activities (36,159) (50,635) (323,779)
--------- --------- ---------
Net Cash Flows from Financing Activities:
Payments on long-term debt --- --- (8,012)
Payments on revolving credit agreements (169,154) (239,747) (563,374)
Borrowings under revolving credit
agreements 353,554 230,281 563,701
Early retirement of long-term debt (86,787) (12,735) ---
Proceeds from exercise of stock options 14,711 8,213 12,445
Loan origination costs on new revolving
credit agreement (6,563) --- ---
Purchase of common stock (278,236) (54,399) (38,736)
--------- --------- ---------
Net Cash Used in Financing Activities (172,475) (68,387) (33,976)
--------- --------- ---------
Effect of Exchange Rate Changes on Cash 394 (146) (117)
Net (Decrease) Increase in Cash and
Cash Equivalents (49,614) 55,497 (272,757)
Cash and Cash Equivalents at Beginning
of Period 84,887 29,390 302,147
--------- --------- ---------
Cash and Cash Equivalents at End of
Period $ 35,273 $ 84,887 $ 29,390
========= ========= =========
Non-GAAP Financial Measures
This press release includes a presentation of "free operating cash
flow." Free operating cash flow is a non-GAAP financial measure and
is defined as cash flows from operating activities (in accordance
with GAAP) less capital expenditures. The Company considers cash flows
from operating activities to be the most comparable GAAP financial
measure, and has included below a reconciliation of cash flows from
operating activities to free operating cash flow.
Reconciliation of Free Operating Cash Flows
To
Cash Provided by Operating Activities
For the Fiscal Year Ending July 31, 2003
(amount in thousands)
Cash flows from operating activities $ 158,626
Less: Capital expenditures (Additions And
Dispositions of Property & Equipment) 37,385
Free operating cash flow $ 121,241
The Company believes the presentation of free operating cash flow
provides investors with meaningful information regarding the Company's
ability to generate cash flow from operations after making capital
investments to support its growth initiatives. Free operating cash
flow should not be considered as an alternative to cash flows from
operating, financing or investing activities or as a measure of
liquidity. Readers are encouraged to review the Statement of Cash
Flows included in this press release for information regarding the
Company's cash flows from operating, financing and investing
activities under GAAP.
In addition, this press release includes a presentation of
earnings (earnings per share), excluding certain unusual items, for
each of fiscal year 2003 and 2002 and for the fourth quarter of each
of fiscal year 2003 and 2002. Such measures are not measures of
financial performance under GAAP and should not be considered as
alternatives to net earnings (and earnings per share) as computed
under GAAP for the applicable period. The Company considers net
earnings (and earnings per share) to be the most comparable GAAP
measure and has presented reconciling information in the first two
paragraphs of this press release. The impact of each unusual item and
the effect of the change in accounting principle is shown net of
taxes.
CONTACT: Zale Corporation
David H. Sternblitz
Senior Director, Investor and Public Relations
972-580-5047