Zale’s Q2 results of fiscal 2008

Zale Corporation, a leading specialty retailer of fine jewelry in North America, today announced earnings from continuing operations for the second quarter of fiscal 2008 of $52.7 million, or $1.16 per diluted share, compared to $77.1 million, or $1.57 per diluted share for the second quarter of fiscal 2007. The second quarter ended January 31, 2007 included a $2.5 million, or $0.05 per diluted share, positive impact related to derivative accounting treatment for the Company’s gold and silver contracts.

While these second quarter results are disappointing, I am convinced that Zale has a strong basis for improved performance as we again provide our value-oriented customer with an exceptional experience, said Neal Goldberg, President and Chief Executive Officer.

We intend to make Zale into a more nimble and efficient organization. We remain focused on the generation of free cash flow, achieving a high return on capital and maintaining financial rigor and discipline overall. Our first step is a reduction of $100 million in excess inventory. We have conducted a detailed review by category and item and believe this product can be sold at a profit. Through fiscal 2008 we expect a negative impact on gross margin of approximately 500 basis points which is expected to be more than offset by the positive impact on free cash flow. Although we plan to make some selective investments, this $100 million reduction is not intended to be replenished. These actions are designed to ensure Zale’s success and generate value for shareholders over the long-term.

Story link: Zale’s Q2 results of fiscal 2008