Financial Reporting
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Zale's 2009 same-store sales fall 16.6 percent
October 30, 2009
Editor's note: This story was updated Friday afternoon to reflect additional news that emerged from an earnings call and National Jeweler's interview with Zale Chief Executive Officer Neal Goldberg.
Dallas--Sales fell 16.8 percent in fiscal year 2009 for Zale Corp., which reported its long-delayed fourth-quarter and fiscal 2009 results late Thursday.
Zale's revenues for the fiscal year 2009, which ended July 31, 2009, totaled $1.78 billion, compared to $2.14 billion in fiscal 2008. Same-store sales were down 16.6 percent, compared to a 0.7 percent decrease in 2008, while gross margins fell from 49 percent in 2008 to 46.7 percent in fiscal 2009.
For the fourth quarter, Zale reported revenues of $357.1 million, a decline of 21.7 percent compared to $456.2 million in fourth quarter 2008. Same-store sales for the fourth quarter declined 21.2 percent, compared to a 6.1 percent increase in the fourth quarter 2008, a disparity the company attributes to the clearance sales it held in its stores during the fourth quarter of last year. Gross margins in the fiscal fourth quarter also slipped, totaling 46.4 percent compared to 47.3 percent in the prior year period.
"Our financial results for fiscal 2009 reflected the most difficult year in retailing in memory," Zale Chief Executive Officer Neal Goldberg said in a news release issued Thursday. "Nonetheless, we believe we have positioned the business for much-improved performance."
One area of improvement mentioned by Goldberg in the release and emphasized during the earnings call Friday morning lies in Zale's proprietary products and collections.
Goldberg announced during the call that the company's merchandising initiatives now include three "big ideas," including the Shared Hearts Collection, Fashion Watches and the Everlon Collection.
Everlon is the line of knot-themed diamond jewelry unveiled by De Beers in September as its "big idea" intended to spur diamond jewelry sales this holiday season, and Zale's Fashion Watches category refers to the recognizable timepiece brands Zale is now carrying, including Fossil, Diesel, DKNY, Armani and Casio's G-shock, all retailing at affordable prices.
Shared Hearts, Goldberg explained in an interview with National Jeweler, is a line of heart-within-a-heart pieces priced from about $35 to just under $1,000, intended to convey the message of two hearts beating as one.
Zale will donate part of the proceeds from the sale of the line to the charity Autism Speaks.
"We think it's a great item and there's a great message tied to it," Goldberg said.
In addition, during the call, Zale executives revealed that a multichannel holiday advertising campaign will kick off this Sunday.
It is being led by new Chief Marketing Officer Richard Lennox, who joined Zale in August after heading the De Beers Group's marketing arm at ad agency JWT in New York since 1998.
Goldberg declined to release too many specifics, but noted that the campaign would include some methods of advertising that go outside the limits of traditional TV and radio spots, such as movie theater advertisements and social networking.
"We believe social networking is key and we will be involved in all the different forms of media," he said.
During the call, Goldberg and Chief Financial Officer Matthew Appel noted that the financial results for 2009 were "disappointing" but that the company remains "cautiously optimistic" heading into 2010.
Zale reports that its same-store sales for the first quarter 2010 are down 8 percent to date.
Zale's financial results Thursday were announced after nearly a month-long delay in which the company twice put off reporting in order to make adjustments to its accounting.
During the conference call, Appel announced that the Securities and Exchange Commission's (SEC) Fort Worth, Texas office had launched an investigation into Zale.
In an interview following the call, Appel told National Jeweler that the investigation began in September, after Zale delayed the reporting of its financials for the second time. Originally slated to release its fiscal year and fourth-quarter 2009 results on Sept. 2, Zale first pushed their release back to Sept. 9 before delaying them indefinitely.
Appel said there were a few accounting errors that Zale didn't initially identify--the main one being the reporting of expenses related to advertising--that the company already has fixed.
He dismissed the SEC investigation as being standard practice.
"It's fairly, I wouldn't call it routine, but it's expected when a company restates their financials that the SEC will look at that," he said.
Zale ranks as North America's largest jewelry retailer by store count, according to National Jeweler's Top 50 list, published as part of the annual State of the Majors supplement.
According to information provided during the conference call, Zale operates a total of 1,931 retail locations, including 1,247 stores and 684 kiosks.
The company closed 118 locations, including 108 stores and 10 kiosks, in the fourth quarter 2009 and opened none. Zale officials said the company doesn't have any major store closures planned for fiscal year 2010.
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Financial Reporting
A shareholders' class-action lawsuit has been filed against Zale Corp., its chief executive officer and three former executives, claiming the Irving, Texas-based, 1,931-store chain deliberately deceived investors. Read More
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