Exhibit 99.1
Zale Announces Second Quarter Earnings Results and Executive Management Change
DALLAS--(BUSINESS WIRE)--Feb. 17, 2006--Zale Corporation
(NYSE:ZLC), North America's largest specialty retailer of fine
jewelry, today announced net earnings of $88 million, or $1.78 per
diluted share, for the Company's second quarter ended January 31,
2006. These earnings include: a write-down of inventory and lease
settlement costs related to the closing of Bailey Banks & Biddle
locations of $24 million, or $0.30 per diluted share; a tax benefit of
$11.5 million, or $0.23 per diluted share, related to qualifying
earnings from the Company's Canadian subsidiary repatriated under the
American Jobs Creation Act; and a charge related to severance and
other benefit payments in conjunction with an executive management
change of $8.5 million, or $0.11 per diluted share. Excluding these
items, the Company reported second quarter earnings of $97 million, or
$1.96 per diluted share. For the same period last year, the Company
reported net earnings of $99 million, or $1.91 per diluted share.
Total revenues for the second quarter, including the results of
the 29 Bailey Banks & Biddle stores previously announced as designated
for closure that were managed by an independent liquidator, were $994
million compared to last year's revenues of $972 million for the
period, an increase of 2.3%. Excluding the store closures, total
revenues were $979 million, compared to $952 million for the same
period last year, an increase of 2.8%. Comparable store sales, which
exclude the store closures, increased 1.4% for the same period.
Year-to-date total revenues, including the store closures,
increased 1.9% to $1.421 billion, compared to $1.395 billion for the
same period last year. Excluding the store closures, year-to-date
total revenues increased 2.3% to $1.406 billion, compared to $1.375
billion for the same period last year. Year-to-date comparable store
sales, which exclude the store closures, increased 0.6%.
The Company also announced that effective immediately, John A.
Zimmermann will assume the newly created position of President, Zale
North America. Zimmermann, formerly President of Zale Canada, will
have responsibility for merchandising and store operations of Zales
Jewelers, Peoples Jewellers and Mappins Jewellers. Paul Leonard,
former President of Zales Jewelers, has resigned.
"Our earnings performance did not reach our expectations for the
second quarter due primarily to a sales shortfall at Zales Jewelers,"
commented Betsy Burton, Interim Chief Executive Officer. "Upon review
of Zales' business, we concluded that the new strategy negatively
impacted our brand positioning because it deemphasized the value
component and key diamond categories of the brand's assortment."
Ms. Burton commented further, "John has 25 years of retail
experience, the last five with Zale Corporation, and has consistently
improved performance at our Canadian brands. We look forward to
leveraging John's talents in addressing the challenges at the Zales
brand."
Ms. Burton concluded, "Even with the challenges at Zales and
Piercing Pagoda, the strength of our other brands helped drive a 1.4%
increase in comparable store sales for the quarter. We had a 100 basis
points improvement in gross margins due to continued adoption of
direct sourcing and supply chain management, excluding the impact of
the Bailey Banks & Biddle closures. So in our critical quarter we
delivered strong cash flow, which enabled us to complete our $100
million share repurchase. The net effect was earnings per share growth
for the quarter above last year before the store closures,
repatriation and management change items."
The Company further noted that it expects flat to slightly
positive comparable store sales and diluted earnings per share to
range between $0.20 and $0.22 for the third fiscal quarter.
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. A
webcast of the call, as well as a replay, will be available on the
Company's Web site at www.zalecorp.com. For additional information,
contact Investor Relations.
Zale Corporation is North America's largest specialty retailer of
fine jewelry operating approximately 2,350 retail locations throughout
the United States, Canada and Puerto Rico, as well as online. Zale
Corporation's brands include Zales Jewelers, Zales Outlet, Gordon's
Jewelers, Bailey Banks & Biddle, Peoples Jewellers, Mappins Jewellers
and Piercing Pagoda. Through its ZLC Direct organization, Zale also
operates online at www.zales.com and www.baileybanksandbiddle.com.
Additional information on Zale Corporation and its brands is available
at www.zalecorp.com.
This release contains forward-looking statements, including
statements regarding the Company's sales and earnings guidance for the
third quarter of fiscal year 2006, inventory management and
merchandising and marketing strategies. 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
results expressed in the forward-looking statements. These factors
include, but are not limited to: if the general economy performs
poorly, discretionary spending on goods that are, or are perceived to
be, "luxuries" may not grow and may even decrease; the concentration
of a substantial portion of the Company's sales in three, relatively
brief selling seasons means that the Company's performance is more
susceptible to disruptions; most of the Company's sales are of
products that include diamonds, precious metals and other commodities,
and fluctuations in the availability and pricing of commodities could
impact the Company's ability to obtain and produce products at
favorable prices; the Company's sales are dependent upon mall traffic;
the Company operates in a highly competitive industry; changes in
regulatory requirements or in the Company's private label credit card
arrangement with Citi may increase the cost of or adversely affect the
Company's operations and its ability to provide consumer credit and
write credit insurance; acquisitions involve special risks, including
the possibility that the Company may not be able to integrate
acquisitions into its existing operations. For other factors, see the
Company's filings with the Securities and Exchange Commission,
including its Annual Report on Form 10-K for the fiscal year ended
July 31, 2005. 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.
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(amounts in thousands, except per share amounts)
Three Months Ended Six Months Ended
January 31, January 31,
-------------------- ----------------------
2006 2005 2006 2005
---------- --------- ----------- -----------
Total Revenues $993,749 $972,332 $1,421,388 $1,395,106
Costs and Expenses:
Cost of Sales 495,094 480,229 703,905 685,509
Selling, General and
Administrative Expenses 357,155 315,937 594,409 532,968
Cost of Insurance
Operations 1,591 1,432 3,417 2,868
Depreciation and
Amortization Expense 14,569 15,027 29,863 29,231
--------- --------- ----------- -----------
Operating Earnings 125,340 159,707 89,794 144,530
Interest Expense, Net 2,881 2,257 5,237 4,432
--------- --------- ----------- -----------
Earnings Before Income
Taxes 122,459 157,450 84,557 140,098
Income Taxes 34,644 58,253 20,403 51,833
--------- --------- ----------- -----------
Net Earnings $ 87,815 $ 99,197 $ 64,154 $ 88,265
========= ========= =========== ===========
Earnings Per Common Share -
Basic:
Net Earnings Per Share $ 1.80 $ 1.94 $ 1.29 $ 1.71
Earnings Per Common Share -
Diluted:
Net Earnings Per Share $ 1.78 $ 1.91 $ 1.28 $ 1.69
Weighted Average Number of
Common
Shares Outstanding:
Basic 48,797 51,102 49,698 51,499
Diluted 49,301 51,885 50,258 52,221
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
January 31, July 31, January 31,
2006 2005 2005
----------- ---------- -----------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 37,465 $ 55,446 $ 55,541
Merchandise Inventories 957,356 853,580 956,956
Other Current Assets 80,214 64,042 55,611
------------ ------------ ------------
Total Current Assets 1,075,035 973,068 1,068,108
Property and Equipment, Net 289,328 282,033 280,300
Goodwill, Net 95,533 90,774 90,025
Other Assets 34,529 35,025 35,318
------------ ------------ ------------
Total Assets $ 1,494,425 $ 1,380,900 $ 1,473,751
============ ============ ============
LIABILITIES AND STOCKHOLDERS'
INVESTMENT
Current Liabilities:
Accounts Payable and Accrued
Liabilities $ 459,070 $ 306,964 $ 446,674
Deferred Tax Liability, Net 56,068 56,356 51,313
------------ ------------ ------------
Total Current Liabilities 515,138 363,320 497,987
Non-current Liabilities 34,180 37,325 40,035
Deferred Tax Liability, Net 4,067 13,850 5,781
Long-term Debt 120,004 129,800 135,800
Long-term Accrued Rent 20,775 19,017 17,994
Commitments and Contingencies
Stockholders' Investment:
Preferred Stock --- --- ---
Common Stock 534 531 523
Additional Paid-In Capital 100,717 88,970 69,431
Accumulated Other Comprehensive
Income 35,098 24,119 21,175
Accumulated Earnings 819,391 755,237 736,727
Deferred Compensation (5,479) (1,269) (1,702)
------------ ------------ ------------
950,261 867,588 826,154
Treasury Stock (150,000) (50,000) (50,000)
------------ ------------ ------------
Total Stockholders' Investment 800,261 817,588 776,154
------------ ------------ ------------
Total Liabilities and
Stockholders' Investment $ 1,494,425 $ 1,380,900 $ 1,473,751
============ ============ ============
CONTACT: Zale Corporation, Dallas
David H. Sternblitz, 972-580-5047
Vice President and Treasurer