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Zale Corp. Reports Operating Results (10-K)

October 12, 2010 | About:

Zale Corp. (NYSE:ZLC) filed Annual Report for the period ended 2010-07-31.

Zale Corp. has a market cap of $78 million; its shares were traded at around $2.43 . ZLC is in the portfolios of Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

During the fiscal year ended July 31, 2010, we generated $1.6 billion of revenues. We compete in the approximately $61 billion U.S. and Canadian retail jewelry industry by leveraging our established brand names, economies of scale and geographic and demographic diversity. We have significant brand name recognition as a result of each of our brands' long-standing presence in the industry and our national and regional advertising campaigns. We believe that brand name recognition is an important advantage in jewelry retailing as jewelry products are generally unbranded and consumers must trust in a retailer's reliability, credibility and commitment to customer service.

We report our operations under three business segments: Fine Jewelry, Kiosk Jewelry and All Other. An overview of each business segment follows below. During fiscal year 2010, our Fine Jewelry segment generated $1.4 billion, or approximately 85 percent of our revenues. During fiscal year 2010, the Kiosk Jewelry segment revenues represented approximately $226 million, or 14 percent of our revenues.

Zales Jewelers' and Gordon's Jewelers' combined revenues accounted for 60 percent of our total revenues, with an average transaction value of $396 in fiscal year 2010. Additionally, both brands operate as multi-channel retailers and serve internet customers through e-commerce sites: www.zales.com and www.gordonsjewelers.com, which accounted for approximately four percent of our total revenues in fiscal year 2010. Internet sales totaled $63.8 million in fiscal year 2010 compared to $56.2 million in fiscal year 2009.

We purchase the majority of our merchandise in finished form from a network of established suppliers and manufacturers located primarily in the United States, India, Southeast Asia and Italy. We have a direct sourcing team that purchases products from 18 countries and we operate a manufacturing subsidiary that is our largest supplier of finished products. At the end of fiscal year 2010, approximately four percent and 14 percent of our total inventory represented raw materials and finished goods related to our manufacturing program and distribution center, respectively. All purchasing is done through buying offices at our corporate headquarters ("Store Support Center"). Consignment inventory has historically consisted of test programs, merchandise at higher price points or merchandise that otherwise does not warrant the risk of ownership. Consignment merchandise can be returned to the vendor at any time or converted to owned inventory if it meets certain sales thresholds. We had $81.1 million and $71.5 million of consignment inventory on hand at July 31, 2010 and 2009, respectively. During fiscal years 2010 and 2009, we purchased approximately 20 percent and 12 percent, respectively, of our finished merchandise from our top five vendors with no single vendor exceeding six percent in 2010. If our supply with these top vendors were disrupted, particularly at certain critical times during the year, our sales could be adversely affected in the short term until alternative supply arrangements could be established.

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