Summary
Zale reported decline in sales by 18% in IInd Quater. Now Zale PLans to close about its 115 stores which is a direct policy to cut down the cost in weaker times.
Analysis
Zale Corporation's revenues in the second fiscal quarter fell 18 percent to $679.4 million, and same-store sales also declined 18 percent.
Cost of sales dropped 9 percent to $381 million, as of January 31, 2009.
Gross margin as a percentage of revenue slid to 44 percent, from 49.3 percent one year ago.
Zale reported a loss of $23.6 million, or a 74-cent loss per share, compared with profits of $61 million in the second fiscal quarter of 2008. Warranty sales decreased 16 percent to $36 million.
In IInd quarter Zale announce $13.2 million impairment charge; one year ago, the same charge was $1.6 million. Zale took a $5 million impairment charge against stores, a $5 million impairment charge against goodwill and nearly $19 million in charges related to a valuation reserve on foreign tax credits.
Zale reported current assets of $989.1 million, down 11 percent from January 2008, but this drop was mainly due to a reduction in inventories, which stood at $847.3 million. Cash and cash equivalents on hand increased 29 percent to $73.1 million. Total assets including property, equipment, goodwill, etc., were 8 percent lower at $1.4 billion. Liabilities, including accounts payable and deferred taxes, decreased 11 percent to $328.2 million, long-term debt rose 110 percent to $390 million and total stockholder investment fell 39 percent to $502.2 million.
In the Chirstmas Season Zale announces different types of discount and schemes to promote its sales which affect there margins but also not able to improve sales and resulted in poor conditions.
Zale implemented a cost-savings program one year ago, at which time it identified $175 million in inventory reduction and other savings measures. "In the next phase, announced today, the company has identified $140 million in additional inventory and cost reductions.
Zale expects to save $34 million in selling, general and administrative expenses through fiscal 2010 from the closure of approximately 115 underperforming stores as their leases expire. Another $21 million in savings will come from staff reductions that have already occurred — 245 associate positions were eliminated, 75 of which were open.
Zale expects to see an additional $75 million in inventory reductions from increased productivity through fiscal 2010.
This month, Zale added assets from Canada and Puerto Rico to the company’s $500 million asset-backed credit facility to increase collateral under the facility. "The company will look aggressively for further opportunities to operate the business more effectively while maintaining the financial disciplines to drive value for shareholders over the long-term.
This is just not the story of Zale Corporation but all other retailers too affected by the same means and everyone is looking to cut down there expenses in the weaker time of the market.
