Zale jeweler to close 115 stores
Jewelry retailer Zale Corp. posted quarterly results that missed Wall Street estimates Wednesday as aggressive price cuts in the face of lower consumer spending ate into profit margins, and its shares fell more than 11%.
The company outlined additional cost cuts that include the closure of 115 stores and said margins had improved from January through Valentine’s Day.
The company recorded various charges and posted a net loss of $23.6 million, or 74 cents per share, for the fiscal second quarter ended Jan. 31, compared with net earnings of $60.8 million, or $1.34 per share, a year earlier.
The charges included 32 cents a share tied to store and goodwill impairments and 58 cents a share related to a valuation reserve on foreign tax credits.
Adjusted for special items, profit came to 16 cents a share in the latest period, compared with 48 cents a share expected by analysts on average, according to Reuters Estimates.
Sales dropped 17.9% to $679.4 million, while same-store sales fell 18.1% as consumers cut back and Zale competed with rivals’ store-closing sales.
Gross margin shrank to 44% of revenue from 49.3% a year earlier, hurt by aggressive discounting. Zale said merchandise margins and same-store sales had improved since it began focusing on item-specific promotions as opposed to storewide discounts quick payday loan.
Zale has been hurt by consumer cutbacks as the recession put more pressure on households facing rising unemployment, tighter credit and the housing slump. Sales at bankrupt rivals such as Whitehall Jewelers Holdings have also been a challenge.
"We believe we are positioned to benefit from both the shakeout of competitors and our own decisions to right-size the business," Chief Executive Neal Goldberg said during a conference call.
Zale said it was taking additional actions to cut costs that include reducing inventory and closing about 115 stores with weak sales when their leases mature. The company said it cut 245 jobs this month, and said it will cut capital spending 65%.
The company also said it planned to reduce debt by at least $40 million from the end of its second quarter through July, when its fiscal year ends. It added that the recent addition of Canadian and Puerto Rican assets as collateral to its asset-backed credit facility gives it more flexibility, and said it feels it has sufficient liquidity.
Zale (ZLC) has more than 2,080 stores. The company’s shares were down 17 cents at $1.29 on the New York Stock Exchange.
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