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Zale Corp. Reports Operating Results (10-Q)

December 11, 2012 | About:
10qk

10qk

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Zale Corp. (ZLC) filed Quarterly Report for the period ended 2012-10-31.

Zale Corporation has a market cap of $158 million; its shares were traded at around $4.49 with and P/S ratio of 0.1.
This is the annual revenues and earnings per share of ZLC over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of ZLC.


Highlight of Business Operations:

Comparable store sales increased by 3.9 percent during the first quarter of fiscal year 2013. At constant exchange rates, which excludes the effect of translating Canadian currency denominated sales into U.S. dollars, comparable store sales increased by 3.7 percent for the quarter. Gross margin decreased by 30 basis points to 53.2 percent during the first quarter of fiscal year 2013 due primarily to a change in sales mix to lower margin merchandise. Net loss for the quarter was $28.3 million, compared to $31.9 million for the same period in the prior year. The $3.6 million improvement is the result of higher sales and a decrease in interest expense, partially offset by an increase in selling, general and administrative expenses due primarily to higher labor costs.

We expect to generate positive net income in fiscal year 2013. We believe this will be achieved as a result of continued positive comparable store sales (partially offset by closed stores), maintaining gross margin rates consistent with fiscal year 2012, realizing leverage on selling, general and administrative expenses based on top line growth, while making selective investments in the business, and interest expense savings estimated at approximately $17 million as a result of the debt refinancing transactions completed on July 24, 2012. Total interest expense is expected to be between $23 million and $25 million in fiscal year 2013 compared to $44.6 million in fiscal year 2012, which included $5 million of costs associated with the debt refinancing transactions. In addition, we expect the effective tax rate to be approximately 15 percent and store closures to be in line with fiscal year 2012.

Revenues. Revenues for the quarter ended October 31, 2012 were $357.5 million, an increase of 1.8 percent compared to revenues of $351.0 million for the same period in the prior year. Comparable store sales increased 3.9 percent as compared to the same period in the prior year. The increase in comparable store sales was attributable to a 3.8 percent increase in the average price per unit and a 2.6 percent increase in the number of units sold in our bridal product lines, partially offset by a decrease in the number of units sold in our core fashion product lines. The increase in revenue was also due to a $0.8 million increase in revenues related to warranties. The increase was partially offset by a decrease in revenues related to 52 store closures (net of store openings) since October 31, 2011. In addition, we estimate that superstorm Sandy negatively impacted revenues during the quarter by approximately $1 million.

We have a Merchant Services Agreement (“MSA”) with Citibank (South Dakota), N.A. (“Citibank”), under which Citibank provides financing for our U.S. guests to purchase merchandise through private label credit cards. The MSA expires in fiscal year 2016 and will automatically renew for successive two-year periods, unless either party notifies the other in writing of its intent not to renew. In addition, the MSA can be terminated by either party upon certain breaches by the other party and also can be terminated by Citibank if our net credit card sales during any twelve-month period are less than $315 million or if net card sales during a twelve-month period decrease by 20 percent or more from the prior twelve-month period. After any termination, we may purchase or be obligated to purchase the credit card portfolio upon termination with Citibank as a result of insolvency, material breaches of the MSA and violations of applicable law related to the credit card program. As of October 31, 2012, we were in compliance with all covenants under the MSA. We currently expect to exceed the $315 million threshold for the program year ending September 30, 2013. During both the three months ended October 31, 2012 and 2011, our guests used our private label credit card to pay for approximately 33 percent and 35 percent, respectively, of purchases in the U.S.

We have a Private Label Credit Card Program Agreement (the “TD Agreement”) with TD Financing Services Inc. (“TDFS”), under which TDFS provides financing for our Canadian guests to purchase merchandise through private label credit cards. In addition, TDFS provides credit insurance for our guests and will receive 40 percent of the net profits, as defined, and the remaining 60 percent is paid to us. The TD Agreement expires in fiscal year 2015 and will automatically renew for successive one-year periods, unless either party notifies the other in writing of its intent not to renew. The agreement may be terminated at any time during the 90-day period following the end of a program year in the event that credit sales are less than $50 million in the immediately preceding year. We currently expect to exceed the $50 million threshold for the program year ending June 30, 2013. During three months ended October 31, 2012 and 2011, our guests used our private label credit card to pay for approximately 19 percent and 21 percent, respectively, of purchases in Canada.

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