Exhibit 99.1
Zale Corporation Announces Third Quarter Earnings Results
DALLAS--(BUSINESS WIRE)--May 22, 2007--Zale Corporation (NYSE:
ZLC), a leading specialty retailer of fine jewelry in North America,
today announced a net loss of $3.1 million or $0.06 per share for the
Company's third quarter ended April 30, 2007. This loss includes, on
an after-tax basis, a reduction of $6.9 million, or $0.14 per share
due to the decline in revenue recognized from the change to a lifetime
jewelry protection plan and a benefit of $1.6 million, or $0.03 per
share for the net impact of derivative versus hedge accounting on its
gold and silver contracts. Excluding these items, the Company reported
earnings of $2.2 million, or $0.05 per diluted share.
For the same period last year, the Company reported net earnings
of $16.8 million, or $0.35 per diluted share. This included, on an
after-tax basis, (1) a benefit of $8.4 million, or $0.17 per diluted
share, resulting from the settlement of certain retirement benefit
obligations partially offset by (2) a charge for severance of $2.2
million, or $0.04 per diluted share and (3) a charge of $0.9 million,
or $0.02 per diluted share, related to the closing of certain Bailey
Banks & Biddle locations. Excluding these items, third quarter
earnings in 2006 amounted to $11.6 million, or $0.24 per diluted
share.
Revenues for the quarter ended April 30, 2007 were $511.9 million
compared to $526.9 million last year, a decrease of 2.9%. Revenues
recognized were $8.7 million or 1.7% less than prior year as a result
of the change made in the method of amortizing jewelry protection plan
sales. Comparable store sales for the third quarter decreased 3.4%.
Year-to-date revenues were flat at $1.95 billion, compared to the
same period last year. Excluding revenues of $24.3 million related to
Bailey Banks & Biddle store closures in the second quarter of last
year, year-to-date revenues increased 1.3%. Year-to-date comparable
store sales decreased 0.1%. Year-to-date earnings totaled $58.6
million or $1.20 per diluted share. These earnings treat forward
commodity contracts as derivatives under SFAS 133 and reflect the
change in revenue recognition for jewelry protection plans as a result
of the change in the product sold during the year. The after-tax
impact of derivative versus hedge accounting treatment was a $0.6
million loss, or $0.01 per diluted share and the negative impact on
revenue recognized from the sale of jewelry protection plans was $16.0
million or $0.33 per diluted share. Excluding these items,
year-to-date net earnings were $75.3 million, or $1.54 per diluted
share. For the same period last year, earnings were $81.0 million, or
$1.63 per diluted share. These prior year earnings include, on an
after-tax basis, (1) costs related to the closing of Bailey Banks &
Biddle stores of $21.4 million, or $0.43 per diluted share, and (2)
severance payments of $7.6 million, or $0.16 per diluted share; this
was partially offset by (3) a tax benefit from repatriated Canadian
earnings under the American Jobs Creation Act of $11.5 million, or
$0.23 per diluted share and (4) an $8.4 million, or $0.17 per diluted
share, benefit resulting from the settlement of certain retirement
benefit obligations. Excluding these items, the Company reported
year-to-date earnings of $90.1 million last year, or $1.82 per diluted
share.
"While comp store sales decreased 3.4%, a focus on maximizing
gross margin dollars and good expense control contributed to earnings
in-line with expectations for the quarter," commented Betsy Burton,
Chief Executive Officer.
Ms. Burton continued, "We believe retail in general is showing
signs of weakness, and higher gas prices have directly impacted the
discretionary income of the moderate customer. Given these overall
macro trends, we are lowering our sales projections and, while
cautious, we are maintaining our current earnings guidance for fourth
quarter."
The Company projects a fourth quarter comparable store sales
decrease of 2% to 3% and GAAP earnings per share in the range of
($0.11) to ($0.15). The guidance includes an estimated ($0.12) impact
due to the decline in revenue recognized from the change to its
jewelry protection plan offering and approximately $0.02 for the net
impact of derivative versus hedge accounting. Excluding these items,
the Company continues to expect earnings per share in the range of
($0.01) to ($0.05) per share.
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 at 972-580-5047.
Zale Corporation is a leading specialty retailer of fine jewelry
in North America operating approximately 2,300 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 Fine Jewelers,
Peoples Jewellers, Mappins Jewellers and Piercing Pagoda. Zale also
operates online at www.zales.com, www.gordonsjewelers.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 turnaround initiatives and their
effects, and sales and earnings guidance for the fourth quarter of
fiscal year 2007. 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, 2006. 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 SELECTED FINANCIAL INFORMATION
(Unaudited, Dollars in thousands, except per share amounts)
Three Months Ended Nine Months Ended
April 30, April 30,
------------------- -----------------------
2007 2006 2007 2006
--------- --------- ----------- -----------
Revenues $511,866 $526,895 $1,948,850 $1,948,283
Comparable Store Sales % 3.4% 2.5% -0.1% 1.1%
Cost of Sales 250,935 254,361 953,550 958,266
--------- --------- ----------- -----------
Gross Margin 260,931 272,534 995,300 990,017
% of Revenue 51.0% 51.7% 51.1% 50.8%
Selling, General and
Administrative Expenses 244,188 241,348 827,802 835,758
% of Revenue 47.7% 45.8% 42.5% 42.9%
Cost of Insurance
Operations 2,070 1,598 5,179 5,014
Depreciation and
Amortization Expense 15,450 14,935 45,947 44,798
Benefit from Settlement of
Retirement Plan --- (13,403) --- (13,403)
Derivative (Gain)/Loss (155) --- 7,072 ---
--------- --------- ----------- -----------
Operating Earnings (622) 28,056 109,300 117,850
% of Revenue -0.1% 5.3% 5.6% 6.0%
--------- --------- ----------- -----------
Interest Expense, Net 4,346 2,449 15,239 7,685
--------- --------- ----------- -----------
Earnings(Loss) Before
Income Taxes (4,968) 25,607 94,061 110,165
Income Taxes (1,902) 8,776 35,461 29,180
--------- --------- ----------- -----------
Net (Loss)Earnings $(3,066) $16,831 $58,600 $80,985
========= ========= =========== ===========
Basic Earnings Per Common
Share:
Net Earnings Per Share $(0.06) $0.35 $1.21 $1.65
Diluted Earnings Per
Common Share:
Net Earnings Per Share $(0.06) $0.35 $1.20 $1.63
Weighted Average Number of
Common
Basic 48,975 47,914 48,580 49,066
Diluted 48,975 48,342 48,994 49,578
- -------------------------- -------------------------------------------
Reconciliation of GAAP Information to Non-GAAP basis 3rd Quarter FY07,
diluted:
Three Months Ended Nine Months Ended
April 30, 2007 April 30, 2007
------------------- -----------------------
Amount Per Share Amount Per Share
--------- --------- ----------- -----------
GAAP Net Earnings(Loss) $(3,066) (0.06) $58,600 1.20
Impact of Derivatives
(1) (1,568) (0.03) 641 0.01
Change in Revenue
Recognition 6,903 0.14 16,041 0.33
--------- --------- ----------- -----------
Non-GAAP Net
Earnings(Loss) $2,269 0.05 $75,282 1.54
========= ========= =========== ===========
(1) The Company does not utilize hedge accounting for its
derivatives. As a result, changes in the fair market value of
derivatives and the settlement of derivative contracts are recorded
directly to earnings. This adjustment shows the impact on net earnings
had hedge accounting been utilized.
Reconciliation of GAAP Information to Non-GAAP basis 3rd Quarter FY06,
diluted:
Three Months Nine Months
Ended Ended
April 30, 2006 April 30, 2006
--------------- ----------------
Per Per
Amount Share Amount Share
-------- ------ --------- ------
GAAP Net Earnings Per Above $16,831 0.35 $80,985 1.63
Benefit from Settlement of
Retirement Plan (8,417) (0.17) (8,417) (0.17)
CEO and COO Severance Charges 2,240 0.04 7,578 0.16
Bailey Banks & Biddle Store
Closing Charges 912 0.02 21,397 0.43
-------- ------ --------- ------
Earnings before Tax Repatriation $11,566 0.24 $101,543 2.05
Benefit from Tax Repatriation --- --- (11,465) (0.23)
-------- ------ --------- ------
-------- ------ --------- ------
Non-GAAP Net Earnings $11,566 0.24 $90,078 1.82
======== ====== ========= ======
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET DATA
(Unaudited, Dollars in thousands)
Difference
April 2007 vs
April 30, April 30, April 2006
2007 2006 Amount Percent
----------- ----------- --------- -------
ASSETS
Current Assets:
Cash and cash
equivalents $52,621 $59,920 $(7,299) -12.2%
Merchandise inventories 1,086,487 938,050 148,437 15.8%
Other current assets 111,494 83,968 27,526 32.8%
----------- ----------- --------- -------
Total current assets 1,250,602 1,081,938 168,664 15.6%
----------- ----------- --------- -------
Property and equipment 301,814 290,433 11,381 3.9%
Goodwill 97,901 97,014 887 0.9%
Other assets 35,883 34,824 1,059 3.0%
----------- ----------- --------- -------
Total Assets $1,686,200 $1,504,209 $181,991 12.1%
=========== =========== ========= =======
LIABILITIES AND
STOCKHOLDERS' INVESTMENT
Current liabilities:
Accounts payable and
accrued liabilities $320,341 $359,356 $(39,015) -10.9%
Deferred tax liability 70,073 52,059 18,014 34.6%
----------- ----------- --------- -------
Total current liabilities 390,414 411,415 (21,001) -5.1%
----------- ----------- --------- -------
Long-term debt 290,050 204,859 85,191 41.6%
Deferred tax liability 19,125 4,538 14,587 321.4%
Other liabilities 95,121 51,791 43,330 83.7%
Contingencies
Stockholders' Investment:
Common stock 492 538 (46) -8.6%
Additional paid-In
capital 136,015 107,454 28,561 26.6%
Accumulated other
comprehensive income 37,524 37,392 132 0.4%
Accumulated earnings 867,459 836,222 31,237 3.7%
----------- ----------- --------- -------
1,041,490 981,606 59,884 6.1%
Treasury stock (150,000) (150,000) 0 0.0%
----------- ----------- --------- -------
Total stockholders'
investment 891,490 831,606 59,884 7.2%
----------- ----------- --------- -------
Total liabilities and
stockholders' investment $1,686,200 $1,504,209 $181,991 12.1%
=========== =========== ========= =======
CONTACT: Zale Corporation
David H. Sternblitz, 972-580-5047
Vice President and Treasurer