EX-99.1 2 a5083561ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Zale Announces Second Quarter Earnings Results and Executive Management Change DALLAS--(BUSINESS WIRE)--Feb. 17, 2006--Zale Corporation (NYSE:ZLC), North America's largest specialty retailer of fine jewelry, today announced net earnings of $88 million, or $1.78 per diluted share, for the Company's second quarter ended January 31, 2006. These earnings include: a write-down of inventory and lease settlement costs related to the closing of Bailey Banks & Biddle locations of $24 million, or $0.30 per diluted share; a tax benefit of $11.5 million, or $0.23 per diluted share, related to qualifying earnings from the Company's Canadian subsidiary repatriated under the American Jobs Creation Act; and a charge related to severance and other benefit payments in conjunction with an executive management change of $8.5 million, or $0.11 per diluted share. Excluding these items, the Company reported second quarter earnings of $97 million, or $1.96 per diluted share. For the same period last year, the Company reported net earnings of $99 million, or $1.91 per diluted share. Total revenues for the second quarter, including the results of the 29 Bailey Banks & Biddle stores previously announced as designated for closure that were managed by an independent liquidator, were $994 million compared to last year's revenues of $972 million for the period, an increase of 2.3%. Excluding the store closures, total revenues were $979 million, compared to $952 million for the same period last year, an increase of 2.8%. Comparable store sales, which exclude the store closures, increased 1.4% for the same period. Year-to-date total revenues, including the store closures, increased 1.9% to $1.421 billion, compared to $1.395 billion for the same period last year. Excluding the store closures, year-to-date total revenues increased 2.3% to $1.406 billion, compared to $1.375 billion for the same period last year. Year-to-date comparable store sales, which exclude the store closures, increased 0.6%. The Company also announced that effective immediately, John A. Zimmermann will assume the newly created position of President, Zale North America. Zimmermann, formerly President of Zale Canada, will have responsibility for merchandising and store operations of Zales Jewelers, Peoples Jewellers and Mappins Jewellers. Paul Leonard, former President of Zales Jewelers, has resigned. "Our earnings performance did not reach our expectations for the second quarter due primarily to a sales shortfall at Zales Jewelers," commented Betsy Burton, Interim Chief Executive Officer. "Upon review of Zales' business, we concluded that the new strategy negatively impacted our brand positioning because it deemphasized the value component and key diamond categories of the brand's assortment." Ms. Burton commented further, "John has 25 years of retail experience, the last five with Zale Corporation, and has consistently improved performance at our Canadian brands. We look forward to leveraging John's talents in addressing the challenges at the Zales brand." Ms. Burton concluded, "Even with the challenges at Zales and Piercing Pagoda, the strength of our other brands helped drive a 1.4% increase in comparable store sales for the quarter. We had a 100 basis points improvement in gross margins due to continued adoption of direct sourcing and supply chain management, excluding the impact of the Bailey Banks & Biddle closures. So in our critical quarter we delivered strong cash flow, which enabled us to complete our $100 million share repurchase. The net effect was earnings per share growth for the quarter above last year before the store closures, repatriation and management change items." The Company further noted that it expects flat to slightly positive comparable store sales and diluted earnings per share to range between $0.20 and $0.22 for the third fiscal quarter. As previously announced, a conference call will be held today at 9:00 a.m. Eastern Time. Parties interested in participating should dial 706-643-7467 five minutes prior to the scheduled start time. A webcast of the call, as well as a replay, will be available on the Company's Web site at www.zalecorp.com. For additional information, contact Investor Relations. Zale Corporation is North America's largest specialty retailer of fine jewelry operating approximately 2,350 retail locations throughout the United States, Canada and Puerto Rico, as well as online. Zale Corporation's brands include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Bailey Banks & Biddle, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda. Through its ZLC Direct organization, Zale also operates online at www.zales.com and www.baileybanksandbiddle.com. Additional information on Zale Corporation and its brands is available at www.zalecorp.com. This release contains forward-looking statements, including statements regarding the Company's sales and earnings guidance for the third quarter of fiscal year 2006, inventory management and merchandising and marketing strategies. Forward-looking statements are not guarantees of future performance and a variety of factors could cause the Company's actual results to differ materially from the results expressed in the forward-looking statements. These factors include, but are not limited to: if the general economy performs poorly, discretionary spending on goods that are, or are perceived to be, "luxuries" may not grow and may even decrease; the concentration of a substantial portion of the Company's sales in three, relatively brief selling seasons means that the Company's performance is more susceptible to disruptions; most of the Company's sales are of products that include diamonds, precious metals and other commodities, and fluctuations in the availability and pricing of commodities could impact the Company's ability to obtain and produce products at favorable prices; the Company's sales are dependent upon mall traffic; the Company operates in a highly competitive industry; changes in regulatory requirements or in the Company's private label credit card arrangement with Citi may increase the cost of or adversely affect the Company's operations and its ability to provide consumer credit and write credit insurance; acquisitions involve special risks, including the possibility that the Company may not be able to integrate acquisitions into its existing operations. For other factors, see the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended July 31, 2005. The Company disclaims any obligation to update or revise publicly or otherwise any forward-looking statements to reflect subsequent events, new information or future circumstances. ZALE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (amounts in thousands, except per share amounts) Three Months Ended Six Months Ended January 31, January 31, -------------------- ---------------------- 2006 2005 2006 2005 ---------- --------- ----------- ----------- Total Revenues $993,749 $972,332 $1,421,388 $1,395,106 Costs and Expenses: Cost of Sales 495,094 480,229 703,905 685,509 Selling, General and Administrative Expenses 357,155 315,937 594,409 532,968 Cost of Insurance Operations 1,591 1,432 3,417 2,868 Depreciation and Amortization Expense 14,569 15,027 29,863 29,231 --------- --------- ----------- ----------- Operating Earnings 125,340 159,707 89,794 144,530 Interest Expense, Net 2,881 2,257 5,237 4,432 --------- --------- ----------- ----------- Earnings Before Income Taxes 122,459 157,450 84,557 140,098 Income Taxes 34,644 58,253 20,403 51,833 --------- --------- ----------- ----------- Net Earnings $ 87,815 $ 99,197 $ 64,154 $ 88,265 ========= ========= =========== =========== Earnings Per Common Share - Basic: Net Earnings Per Share $ 1.80 $ 1.94 $ 1.29 $ 1.71 Earnings Per Common Share - Diluted: Net Earnings Per Share $ 1.78 $ 1.91 $ 1.28 $ 1.69 Weighted Average Number of Common Shares Outstanding: Basic 48,797 51,102 49,698 51,499 Diluted 49,301 51,885 50,258 52,221 ZALE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (amounts in thousands) (unaudited) January 31, July 31, January 31, 2006 2005 2005 ----------- ---------- ----------- ASSETS Current Assets: Cash and Cash Equivalents $ 37,465 $ 55,446 $ 55,541 Merchandise Inventories 957,356 853,580 956,956 Other Current Assets 80,214 64,042 55,611 ------------ ------------ ------------ Total Current Assets 1,075,035 973,068 1,068,108 Property and Equipment, Net 289,328 282,033 280,300 Goodwill, Net 95,533 90,774 90,025 Other Assets 34,529 35,025 35,318 ------------ ------------ ------------ Total Assets $ 1,494,425 $ 1,380,900 $ 1,473,751 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Accounts Payable and Accrued Liabilities $ 459,070 $ 306,964 $ 446,674 Deferred Tax Liability, Net 56,068 56,356 51,313 ------------ ------------ ------------ Total Current Liabilities 515,138 363,320 497,987 Non-current Liabilities 34,180 37,325 40,035 Deferred Tax Liability, Net 4,067 13,850 5,781 Long-term Debt 120,004 129,800 135,800 Long-term Accrued Rent 20,775 19,017 17,994 Commitments and Contingencies Stockholders' Investment: Preferred Stock --- --- --- Common Stock 534 531 523 Additional Paid-In Capital 100,717 88,970 69,431 Accumulated Other Comprehensive Income 35,098 24,119 21,175 Accumulated Earnings 819,391 755,237 736,727 Deferred Compensation (5,479) (1,269) (1,702) ------------ ------------ ------------ 950,261 867,588 826,154 Treasury Stock (150,000) (50,000) (50,000) ------------ ------------ ------------ Total Stockholders' Investment 800,261 817,588 776,154 ------------ ------------ ------------ Total Liabilities and Stockholders' Investment $ 1,494,425 $ 1,380,900 $ 1,473,751 ============ ============ ============ CONTACT: Zale Corporation, Dallas David H. Sternblitz, 972-580-5047 Vice President and Treasurer