Summary
1. Zale Ist Q down to 7% from last year. 2. Zale Shares are also going down. 3. Company has Sell Bailey Banks and Biddle Chains. 4. Zale is looking on Situation to Come through it.
Analysis
Zale Corporation reported a first quarter loss of $28.4 million -- up 7 percent from one year ago. This loss included $4.8 million or 10-cents per share negative net impact of derivative accounting treatment for its gold and silver contracts. Gross margin as a percentage of revenue fell to 52.5 percent (down from 52.9 percent.) Revenues for the quarter, which ended October 31, 2007, fell 1.3 percent to $377.3 million. Comparable store sales for the first quarter were flat. Cash from warranty sales, excluding Bailey Banks & Biddle, increased $9.5 million over the first fiscal quarter of 2007 and revenues recognized were $6.1 million less than the prior year as a result of the change made in the warranty offering.
Zale solds Bailey Banks & Biddle on November 9, and updated its second quarter outlook to reflect the $200 million sale to Finlay Enterprises. Zale expects same-store sales to remain flat at best, earnings from continuing operations are expected to be in the range of $1.60 to $1.65 per diluted share. There was an approximate 27-cent per share reduction in earnings expectations due to the sale of Bailey Banks & Biddle with the remainder of the adjustment being the benefit of any share repurchases offset by the company’ s cautious outlook for the Christmas holiday season.
Zale plans to enter into a $100 million accelerated share repurchase agreement with JPMorgan as part of Zale’s previously announced $200 million stock repurchase program. JPMorgan will deliver approximately 4.3 million shares to Zale on November 21, 2007.
