Zale Corp Q4 Sales Up 9.4%, Comp Sales Up Nearly 10%; Losses Also Rise

A Zales jewelry store worker in San Bruno, Calif. examines watch inventory.  Photo credit: Paul Sakuma / AP

Jewelry retailer Zale Corp. said Wednesday that fourth quarter sales rose 9.4 percent year-over-year to $377 million. Same store sales for the period, ended July 31, increased 9.8 percent, compared to a decrease of 2.1 percent during the same period last year. At constant exchange rates, which exclude the effect of translating Canadian currency denominated sales into U.S. dollars, same store sales increased 8.4 percent for the quarter.

However, the Dallas-based company—whose brands include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda—reported a loss of $32.6 million, or $1.02 a share, compared with $28.5 million, or 89 cents a share, a year earlier. The company said the main culprit was higher prices for gold, silver and diamonds.

“This quarter represents the third consecutive quarter of positive same store sales,” said Matt Appel, Zale Corp. chief administrative officer and chief financial officer. “Despite the headwinds imposed by volatility in commodity markets and the overall economy, our gross margin performance in the quarter and full year reflects the traction we are gaining in the marketplace.”

The company, which has 1,830 retail locations in the U.S., Canada and Puerto Rico, said gross margin on sales increased 6.4 percent to $193 million for the fourth quarter. The company achieved gross margin on sales of 51.3 percent, compared to 52.7 percent in the comparable quarter last year. Excluding last-in, first-out inventory charges of $7.9 million and $2.9 million for the fourth quarter of 2011 and fourth quarter of 2010, respectively, gross margin would have been 53.4 percent and 53.5 percent for the 2011 and 2010 quarters, respectively. The $5 million increase in LIFO charges for the fourth quarter of 2011 was due to rising diamond, gold and silver commodity costs.

Selling, general and administrative expenses for the fourth quarter were $204 million, or 54.1 percent of revenues, compared to $197 million, or 57 percent of revenues, in the same period last year. The company's operating loss for the quarter was $24 million compared to an operating loss of $31 million in the prior year quarter. Operating margin improved 270 basis points, to negative 6.4 percent, for the fourth quarter, compared to negative 9.1 percent in the same period last year.

The company recorded an income tax benefit of $1 million, compared to a benefit of $6 million in the comparable quarter last year. The 2010 quarter included a $4 million tax benefit related to net operating loss carrybacks pursuant to the Business Assistance Act of 2009. The company said it does not foresee any further benefits from this Act.

Inventory at July 31, stood at $721 million, compared to $703 million in the same period last year. The company had outstanding debt for the period was $395 million, compared to $296 million in the fourth quarter of the prior year.

2011 Fiscal Year Report After Jump

Revenues for Zale Corp.’s 2011 fiscal year, ended July 31, increased 7.8 percent to $1.74 billion. Same store sales for the year increased 8.1 percent, compared to a decrease of 6.6 percent for fiscal year 2010. At constant exchange rates, which exclude the effect of translating Canadian currency denominated sales into U.S. dollars, comparable store sales increased 7.1 percent for 2011.

However, for the fiscal year, the company incurred a net loss from continuing operations of $112 million, or $3.49 per share, compared to a net loss from continuing operations of $96 million, or $2.99 per share, in fiscal year 2010, primarily due to a charge of $46 million to interest expense, partially offset by a $26 million net decrease in store impairment and closure charges.

The company said margin on sales was $880 million, an increase of 8.1 percent compared to $814 million in the same period last year. The Company achieved gross margin on sales of 50.5 percent, compared to 50.4 percent in the prior fiscal year.

Selling, general and administrative expenses were $860 million, or 49.3 percent of revenues, in the 2011 fiscal year, compared to $846 million, or 52.4 percent of revenues, in fiscal year 2010. The company's operating loss for fiscal year 2011 improved by $87 million to $28 million, compared to an operating loss of $115 million in the prior fiscal year. Operating margin improved 550 basis points, to negative 1.6 percent for the fiscal year, compared to negative 7.1 percent for fiscal year 2010.

For the year, the company recorded income tax expense of $2 million, compared to a benefit of $29 million in fiscal year 2010. The fiscal year 2010 benefit is primarily a result of tax benefits related to net operating loss carrybacks pursuant to the Business Assistance Act of 2009.

“In fiscal 2011, we made substantial progress in the multi-year initiative to return to profitability,” commented Theo Killion, Zale Corp. CEO. “The strength of our assortment, marketing and field organization position us well to navigate through the current economic environment.”

Blue Nile Chairman to Step Down As Company Posts 5th Consecutive Quarter of Double-Digit Growth

Blue Nile Starlight Diamond Eternity Ring in platinum

Blue Nile, Inc. said Thursday that year-over-year net sales increased 18.7 percent to $108 million for the second quarter ended June 30. Operating income for the quarter totaled $3.4 million, representing an operating margin of 3.2 percent of net sales. Net income totaled $2.2 million, or $0.17 per diluted share. It’s the fifth consecutive quarter of double-digit growth, the company said.

In addition, the Seattle-based online retailer that specializes in diamonds and diamond jewelry announced that its founder, Mark Vadon, will step down from his role as chairman and director of the board effective December 31. Blue Nile President and CEO Harvey Kanter will assume the role of chairman.

"Founding and being a part of Blue Nile for the past 14 years has been a great honor, and I am tremendously proud of the entire team for fostering our culture of innovation and obsession over each and every customer," Vadon said. "After working with Harvey and his leadership team over the last year and seeing the impressive growth trajectory of the business, the entire board and I feel confident passing the chairmanship to Harvey to continue to build a global consumer brand."

"Mark revolutionized the diamond industry and founded Blue Nile on the principle that there is a better way to buy diamonds and fine jewelry by offering unique online tools, high quality diamonds, and incredible values," Kanter added. "That is and will always be his legacy, and the company will continue to execute his vision."

Non-GAAP adjusted EBITDA for the quarter totaled $5.5 million. For the trailing 12-month period ended June 30, net cash provided by operating activities totaled $26.1 million compared to $18.7 million for the prior 12-month period. For the same period ended June 30, non-GAAP free cash flow totaled $22.9 million, as compared to $15.6 million for the prior.

Other second quarter highlights include:

* U.S. engagement net sales increased 22 percent to $63.9 million.

* U.S. non-engagement net sales increased 11.3 percent to $27 million.

* International net sales increased 19.1 percent to $17.1 million. Excluding the impact from changes in foreign exchange rates, international net sales increased 20.6 percent.

*Gross profit totaled $20.1 million. As a percent of net sales, gross profit was 18.6 percent compared to 18.9 percent for the second quarter of 2012.

* Selling, general and administrative expenses were $16.7 million, compared to $14.9 million in the second quarter of 2012. This figure includes stock-based compensation expense of $1.3 million for the second quarter in 2013 and 2012.

* Earnings per diluted share included stock based compensation expense of $0.07 compared to $0.06 for the second quarter of 2012.

* At the end of the quarter, cash and cash equivalents totaled $47.3 million.

In its financial guidance, Blue Nile said it expects third quarter net sales are expected to be between $96 million and $100 million; and earnings per diluted share to run from $0.13 to $0.17.

For the 2013 fiscal year, net sales are projected to be between $440 million and $470 million; and earnings per diluted share are projected at $0.75 to $0.85.

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Tiffany Q4 Sales up 12%, Full-Year Sales up 31%

Tiffany & Co. said Monday fourth quarter worldwide net sales increased 12 percent to $1.1 billion due to growth in all geographic regions. Net earnings from continuing operations for the period rose 31 percent to $181.2 million. For the full year, net sales rose 14 percent to $3.1 billion and net earnings from continuing operations increased 39 percent to $368.4 million. Management also reduced its outlook for the first quarter of 2011 because of the crisis in Japan, where nearly a quarter of its stores are located.

“These strong fourth quarter sales, which were better than the holiday results we had previously reported, were the culmination of an excellent year of strong earnings growth for Tiffany,” said Michael J. Kowalski, Tiffany chairman and CEO. “Our broad-based success reflected healthy comparable store sales growth and successful new store openings in the Americas, Asia-Pacific and Europe, and highly successful new product introductions including our extraordinary yellow diamond collection.”

Net sales highlights by segment for the fourth-quarter and year-end period ended January 31:

* In the Americas region, which includes the U.S., Canada and Latin/South America, sales in the fourth quarter increased 10 percent to $577.1 million and in the full year rose 12 percent to $1.575 billion (representing 51 percent of worldwide sales). On a constant-exchange-rate basis, sales increased 10 percent in the quarter and 11 percent in the full year and comparable store sales increased 8 percent and 8 percent (comparable Americas' branch store sales increased 9 percent and 8 percent and sales in the New York flagship store rose 2 percent and 6 percent). Combined Internet and catalog sales in the Americas increased 8 percent in both the quarter and full year.

* In Asia-Pacific, sales increased 25 percent to $188.3 million in the fourth quarter and 29 percent in the full year to $549.2 million (representing 18 percent of worldwide sales). On a constant-exchange-rate basis, sales rose 21 percent in the fourth quarter, due to strong growth in most countries, and rose 23 percent in the full year; on that basis, comparable store sales rose 16 percent and 14 percent.

* In Japan, sales increased 11 percent to $182.6 million in the fourth quarter and rose 7 percent in the full year to $546.5 million (representing 18 percent of worldwide sales). On a constant-exchange-rate basis, sales increased 2 percent in the quarter and declined 1 percent in the full year; on that basis, comparable retail store sales rose 1 percent and declined 4 percent.

* In Europe, sales increased 14 percent to $137.9 million in the fourth quarter and rose 18 percent in the full year to $360.8 million (representing 12 percent of worldwide sales). On a constant-exchange-rate basis, sales rose 21 percent in the quarter, due to strong growth in the U.K. and most of continental Europe, and increased 23 percent in the full year; on that basis, comparable store sales rose 16 percent and 18 percent.

* The luxury jeweler opened nine branded stores in the fourth quarter, and opened 15 in the full year including five stores in the Americas (Baltimore, Houston, Jacksonville, Los Angeles and Santa Monica), two in Europe (Barcelona and London), seven stores in Asia-Pacific (four in China: Beijing, Shanghai (2) and Kunming; and one each in Seoul, Singapore and Taipei) and one in Japan. The company also closed two locations in Japan. The Company operated 233 stores as of January 31 (96 in the Americas, 56 in Japan, 52 in Asia-Pacific and 29 in Europe).

* Other sales declined 30 percent to $15.3 million in the fourth quarter and increased 2 percent to $54.2 million in the year (2 percent of worldwide sales).  Declines in wholesale sales of rough diamonds were partly offset in the quarter and entirely offset in the year by increased wholesale sales of finished goods to independent distributors within emerging markets.

Gross margin (gross profit as a percentage of net sales) rose to 60.9 percent in the fourth quarter from 58.7 percent in the prior year, with the increase primarily reflecting the recapture of higher product costs through retail price increases, as well as manufacturing efficiencies and sales leverage on fixed costs, the company said. Gross margin in the full year rose to 59.1 percent from 56.5 percent in the prior year due to similar factors.

Kowalski said that the company plans to open 21 stores across the Americas, Europe and Asia-Pacific in 2011 and will introduce new products and expand marketing communications efforts.

Japan Crises
Kowalski made the following statement about Japan and how it may affect sales and earnings in 2011:

“We are saddened by the tragic events in Japan. Our thoughts are with our more than 700 Tiffany colleagues and with all the people of Japan. Tiffany stores located in the Kanto and Tohoku regions, which generate somewhat more than half of sales in Japan, were closed or operating on reduced hours after the earthquake and tsunami, with physical damage limited to a few stores. Most stores have re-opened over the past weekend. Our stores in the southwestern Kansai region have remained open.

In preparing our financial expectations for 2011, we have assumed some continued periodic store closings or limited store hours in Japan through the end of the first quarter, resulting in worldwide sales growth of 11 percent in the first quarter, with total Japan sales declining 15 percent. This leads us to now expect that earnings in the first quarter will be reduced by approximately $0.05 per diluted share from our initial expectation of $0.62 per diluted share to a new expectation of approximately $0.57 per diluted share (versus the prior year of $0.48). We cannot provide meaningful forecasts about sales in Japan beyond the first quarter and, therefore, have not adjusted our sales or earnings plan for the remaining quarters of 2011.”

Outlook for 2011
Tiffany said it expects worldwide net sales growth of 12 percent – 14 percent for the full year of 2011 (ending Jan. 31, 2012), adding that it was on track to exceed that expectation in the first quarter prior to March 11, when the crises in Japan begun. This figure is based on the following assumptions:

* A low-double-digit percentage increase in the Americas;

* A 20 percent increase in Asia-Pacific;

* A mid-single-digit percentage sales decline in Japan;

* Sales increasing more than 20 percent in Europe; and

* Other sales are expected to increase more than 30 percent.

Net earnings are expected to increase 14 percent to 18 percent for 2011.