Exhibit 99.1
Zale Announces 30 Percent Increase in Fourth Quarter and
Full Year Earnings Per Share before Unusual Items from Prior Year
DALLAS--(BUSINESS WIRE)--Aug. 31, 2004--Zale Corporation
(NYSE:ZLC), North America's largest specialty retailer of fine
jewelry, reported today a 30% increase, before an unusual item in the
prior year, in net earnings per share for the Company's fourth quarter
ended July 31, 2004. The Company reported net earnings of $6.9
million, or $0.13 per diluted share. For the same period last year,
the Company reported net earnings, before costs associated with the
redemption of its Senior Notes, of $6.7 million, or $0.10 per diluted
share. Including last year's $3.7 million debt redemption charge
($0.06 per diluted share), the Company reported fourth quarter net
earnings of $2.9 million, or $0.05 per diluted share.
Net earnings for fiscal year 2004 were $106.5 million, or $1.99
per diluted share. For the prior fiscal year, net earnings, before
unusual items, were $99.4 million, or $1.54 per diluted share.
Including last year's debt redemption costs of $3.7 million ($0.06 per
diluted share) and a $136.3 million non-cash impairment charge ($2.11
per diluted share), the net loss totaled $40.6 million, or $0.63 per
share.
For the fiscal year, total revenues increased 4.2% to $2.304
billion, compared to $2.212 billion for the prior fiscal year. On a
comparable store basis, sales increased 3.9% for the year.
"We are very pleased with these financial results for both the
fourth quarter and the fiscal year," commented Mary L. Forte,
President and Chief Executive Officer. "Earnings per share rose 30%
for the year while operating margins improved by 30 basis points. For
the third consecutive year we generated in excess of $100 million in
free operating cash flow as we generated $117 million in 2004 after
capital expenditures. We continue to maintain a healthy balance sheet
that provides substantial flexibility to pursue opportunities to
extend our market leadership."
Ms. Forte continued, "We remain confident in the underlying
strength of our business as we execute our strategic plan. Our brand
management strategy has further differentiated each brand to capture
its segment of the market. Additionally, the recent investments we
have made are yielding long-term benefits, including the roll-out of
our direct sourcing efforts, the further building of our database
marketing capabilities and the development of our off-mall real estate
portfolio."
The Company also provided its forecast for its fiscal year ending
July 2005. For the full year, it currently expects revenue growth of
5% to 7%, which includes a comparable store sales increase of 2% to
3%. The Company plans to open 85 stores and 50 kiosks during the year.
Operating margins are anticipated to increase 40 basis points with
earnings per share growing 12% to 14% for the year. Free operating
cash flow is again expected to reach $100 million for fiscal year
2005.
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 8,
2004, at 2:00 p.m. Eastern Time. Ms. Forte and Sue E. Gove, the
Company's Chief Operating Officer, will discuss Zale's strategic plan
designed to increase its competitive advantage. 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 through the
Internet at www.zales.com. Zale Corporation's brands include Zales
Jewelers, Zales Fine Jewelry Outlet, 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 at www.zalecorp.com.
Notice Regarding Forward-Looking Statements
This release contains forward-looking statements, including
statements regarding the Company's objectives and expectations
regarding its sales, earnings, operating margins, cash flows and
capital expenditures for fiscal year 2005, merchandising and marketing
strategies, and store and kiosk 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 and gold 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 and write credit insurance; 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 and reconciliations 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,
------------------- -----------------------
2004 2003 2004 2003
--------- --------- ----------- -----------
Total Revenues $455,598 $442,382 $2,304,440 $2,212,241
Costs and Expenses:
Cost of Sales 214,518 215,103 1,122,946 1,101,030
Selling, General and
Administrative Expenses 212,511 200,773 942,796 884,069
Impairment of Goodwill -- -- -- 136,300
Cost of Insurance
Operations 1,567 1,816 5,963 8,228
Depreciation and
Amortization Expense 14,394 13,918 56,381 55,690
--------- --------- ----------- -----------
Operating Earnings 12,608 10,772 176,354 26,924
Interest Expense, Net 1,643 1,044 7,528 6,319
Costs of Early Retirement
of Debt -- 5,910 -- 5,910
--------- --------- ----------- -----------
Earnings Before Income
Taxes 10,965 3,818 168,826 14,695
Income Taxes 4,070 885 62,353 55,340
--------- --------- ----------- -----------
Net Earnings (Loss) $6,895 $2,933 $106,473 $(40,645)
========= ========= =========== ===========
Earnings (Loss) Per Common
Share - Basic:
Net Earnings (Loss) Per
Share $0.13 $.05 $2.02 $(0.63)
Earnings (Loss) Per Common
Share - Diluted:
Net Earnings (Loss) Per
Share $0.13 $.05 $1.99 $(0.63)
Weighted Average Number of
Common Shares Outstanding:
Basic 51,987 63,862 52,650 64,528
Diluted 52,697 64,532 53,519 64,528
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
July 31, July 31,
2004 2003
------------ ------------
ASSETS
Current Assets:
Cash and Cash Equivalents $63,124 $35,273
Merchandise Inventories 826,824 798,761
Other Current Assets 63,956 52,450
------------ ------------
Total Current Assets 953,904 886,484
Property and Equipment, Net 266,688 266,167
Goodwill, Net 85,583 82,199
Other Assets 35,893 38,133
Deferred Tax Asset, Net -- 21,123
------------ ------------
Total Assets $1,342,068 $1,294,106
============ ============
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
Current Liabilities:
Accounts Payable and Accrued Liabilities $319,599 $307,775
Deferred Tax Liability, Net 51,417 46,266
------------ ------------
Total Current Liabilities 371,016 354,041
Non-current Liabilities 42,486 103,342
Deferred Tax Liability, Net 4,968 --
Long-term Debt 197,500 184,400
Commitments and Contingencies
Stockholders' Investment:
Preferred Stock -- --
Common Stock 521 415
Additional Paid-In Capital 63,661 566,689
Accumulated Other Comprehensive Income
(Loss) 13,470 6,834
Accumulated Earnings 648,446 589,122
Deferred Compensation -- --
------------ ------------
726,098 1,163,060
Treasury Stock -- (510,737)
------------ ------------
Total Stockholders' Investment 726,098 652,323
------------ ------------
Total Liabilities and Stockholders'
Investment $1,342,068 $1,294,106
============ ============
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Year Ended Year Ended
July 31, July 31,
2004 2003
-------------- -------------
Net Cash Flows from Operating Activities:
Net earnings (loss) $106,473 $(40,645)
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization expense 56,381 56,153
Impairment of goodwill -- 136,300
Impairment of fixed assets 2,627 2,092
Deferred taxes and utilization of NOL 30,976 46,286
Tax benefit associated with stock
option exercises 7,955 2,292
Loss from disposition of property and
equipment 2,429 6,194
Amortization of long-term debt issuance
costs 1,329 425
Amortization of deferred compensation -- 115
Changes in assets and liabilities:
Merchandise inventories (24,431) (9,073)
Other current assets (11,150) 2,419
Other assets (315) (5,539)
Accounts payable and accrued
liabilities 12,113 (26,011)
Non-current liabilities (6,309) (6,188)
-------------- -------------
Net Cash Provided by Operating Activities 178,078 164,820
-------------- -------------
Net Cash Flows from Investing Activities:
Additions to property and equipment (60,788) (43,579)
Purchase of available for sale
investments (4,980) (12,964)
Proceeds from sale of available for sale
investments 5,751 14,190
-------------- -------------
Net Cash Used in Investing Activities (60,017) (42,353)
-------------- -------------
Net Cash Flows from Financing Activities:
Payments on revolving credit agreement (704,300) (169,154)
Borrowings under revolving credit
agreement 717,400 353,554
Senior Notes Repurchase -- (86,787)
Proceeds from exercise of stock options 39,564 14,711
Loan origination costs on new revolving
credit agreement -- (6,563)
Purchase of common stock (143,357) (278,236)
-------------- -------------
Net Cash Used in Financing Activities (90,693) (172,475)
-------------- -------------
Effect of Exchange Rate Changes on Cash 483 394
Net (Decrease) Increase in Cash and Cash
Equivalents 27,851 (49,614)
Cash and Cash Equivalents at Beginning of
Period 35,273 84,887
-------------- -------------
Cash and Cash Equivalents at End of
Period $63,124 $35,273
============== =============
Non-GAAP Financial Measures
This press release includes a presentation of "free operating cash
flow" for the fiscal year ended July 31, 2004. Free operating cash
flow is a non-GAAP financial measure and is defined as cash provided
by operating activities (in accordance with GAAP) less net capital
expenditures. The Company considers cash provided by 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
(amounts in thousands)
For the Fiscal Year Ended
July 31, 2004 July 31, 2003 July 31, 2002
Cash flows from operating
activities $178,078 $164,820 $178,915
Less: Capital expenditures 60,788 43,579 54,159
-------------- -------------- -------------
Free operating cash flow $117,290 $121,241 $124,756
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. Further, free operating cash
flow does not represent the total increase or decrease in the cash
balance for the period. 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, management has presented a projection of free
operating cash flow of approximately $100 million for fiscal year
2005. This projection is based on projected cash provided by operating
activities of approximately $180 million for fiscal year 2005, less
projected net capital expenditures of approximately $80 million for
fiscal year 2005. Such projections represent management's current
expectations and are subject to a number of risks and uncertainties
that could cause actual amounts to differ materially from these
projections. Please refer to the "Notice Regarding Forward-Looking
Statements" included in this press release.
In addition, this press release includes a presentation of
earnings (and earnings per share), excluding certain unusual items
(Senior Notes redemption charges and a non-cash goodwill impairment
charge), for fiscal year 2003 and for the fourth quarter of fiscal
year 2003. 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 impact of each unusual item is shown net of
taxes.
CONTACT: Zale Corporation
David H. Sternblitz, 972-580-5047
Vice President and Treasurer