Aug 29, 2012
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Zale expects to return to profit in 2013

Aug 29, 2012

Zale Corp on Wednesday forecast its first annual profit in years on expectations that the momentum of its sales, strong in the fourth quarter, especially at its namesake chain, will continue.

Photo: Zale

The retailer, which caters to middle-class shoppers looking for affordable jewelry, reported a narrower loss for the fiscal fourth quarter, ended July 31, and its shares rose 3.4 percent in premarket trading.

The company has not had a profitable year since fiscal 2008, just before the financial crisis sent consumer spending into a tailspin.

In 2009 Zale faced a liquidity crisis, canceling orders before the Christmas period and pulling back on advertising, raising concerns about its viability and prompting the loss of market share to Signet Jewelers Ltd's Kay Jewelers chain.

But in 2010 the company got a $150 million lifeline from private equity firm Golden Gate Capital and sales began turning around.

That turnaround continued in the fourth quarter, the seventh quarter in a row to see same-store sales growth. Companywide, sales at stores open at least a year rose 8.3 percent.

The U.S. fine jewelry brands unit, which accounts for about 70 percent of annual revenue and consists of Zales Jewelers, Zales Outlet and Gordon's Jewelers, posted an 11.2 percent increase in sales at stores open at least a year.

Overall, quarterly revenue increased 7.9 percent to $407 million.

Still, Zales faces stiff competition from Kay, where same-store sales were up 12.5 percent last quarter.

Zale said its same-store sales in Canada, where it operates Peoples Jewellers and Mappins Jewellers, were up 2 percent, hurt by unfavorable exchange rates. Excluding the impact of currency, same-store sales rose 7.1 percent.

There was improvement at its kiosks, which consist primarily of the Piercing Pagoda mall-based chain.

The company's net loss for the fourth quarter narrowed to $19.7 million, or 61 cents per share, from $32.6 million, or $1.02 per share, a year earlier.

Last month, Zale said it had restructured its loans and prepaid part of its debt, moves it said would save $17 million a year.

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