AP News, February 21st, 2007
Jewelry retailer Zale Corp. on Wednesday said its second-quarter profit edged up, the gain limited by one-time charges and flat revenue.
The company's shares fell more than 2 percent as the company also forecast lower than expected earnings for the third quarter and said it expects a decline in sales at stores open at least a year.
Its shares dropped 68 cents, or 2.3 poercent, to $29.28 in morning trading on the New York Stock Exchange.
Profit for the quarter ended Jan. 31 totaled $88.1 million, or $1.80 per share, compared with $87.8 million, or $1.78 per share, during the same period last year.
Revenue grew 1 percent to $1 billion from $993.7 billion a year ago, which excludes results of the Bailey Banks & Biddle stores that were closed during the second quarter of 2006.
Same-store sales, or sales in stores open at least one year, a key measure of retail performance, grew 1.4 percent during the quarter.
Excluding charges for adjustments to derivative accounting and a change in how revenue is recognized for jewelry protection plans sold during the quarter, net income totaled $1.94 per share in the latest period, compared with last year's adjusted profit of $1.96 per share.
Analysts polled by Thomson Financial expected net income of $1.89 per share on higher revenue of $1.02 billion. The estimates typically exclude one-time items.
The company said it did not reach original expectations for the quarter but is "pleased" with its first same-store sales increase in three years. Results were helped by expanded offerings in diamond and bridal jewelry categories, Zale said.
"While we gave back margins due to aggressive pricing and increased promotional activity at holiday, in January we changed our focus to maximizing gross profit dollars," said CEO Betsy Burton.
Zale also said the impact of accounting for gold and silver contracts increased profits by $2.5 million, or 5 cents per share, and the company also benefitted from expanding its jewelry protection plan sold to customers to cover the lifetime of the product rather than the two-year period previously covered.
The company expects profit to range from flat to 4 cents per share in the third quarter. Analysts polled by Thomson Financial expect net income of 25 cents per share. Zale said it expects same-store sales to decline 2 percent to 3 percent in the third quarter.
In the fourth quarter, Zale predicts same-store sales will be flat to slightly positive and expects to post a loss of 1 to 5 cents per share. Wall Street is forecasting breakeven results.
For the fiscal year, the company sees net income between $1.46 and $1.52 per share, while analysts expect 2007 earnings of $1.68 per share.
Zale said it plans to focus on cost reduction, specifically in payroll and marketing, in the second half of the fiscal year.
All company guidance excludes changes in derivative accounting and Zale's jewelry protection plan and related revenue recognition. The change in the jewelry protection plan is expected to hurt earnings by 15 cents per share in the third quarter and 14 cents per share in the fourth quarter. Analyst estimates typically exclude one-time items.
