UPDATE 3-Zale loss narrower than expected, online sales up

Tue Nov 24, 2009 3:46pm EST

* Q1 loss per share of $1.80 vs Street view loss $2.02

* Same-store sales down 6.8 pct, total sales off 9.6 pct

* CEO says less broad discounting this holiday season

* On-line sales up 17 percent

* Shares gain 36 cents, or 8 pct, to $4.86 (Adds CEO comments, Signet results, stock move)

By Phil Wahba

NEW YORK, Nov 24 (Reuters) - Zale Corp ZLC.N reported a narrower-than-expected quarterly loss as it saved money by closing stores and online sales jumped, even as the recession curtailed jewelry purchases, and its shares rose 8 percent.

The jeweler, which is being investigated by the U.S. Securities and Exchange Commission over its accounting practices, has been shutting stores and liquidating some inventory in the past year to combat sharply weaker sales.

Like many other retailers, Zale has cut back on inventory to avoid having to offer steep discounts on its merchandise.

In a statement, Chief Executive Neal Goldberg said the stores would not offer "the same level of broad discounting this holiday season" as they did last year.

Zale said it plans to spend about as much money on advertising as last year but focus more of it on its e-commerce business, where sales rose 17 percent during the quarter .

Zale plans to use outlets beyond television to advertise, Goldberg said on a conference call.

Goldberg said Zale expects its online business to rise 20 percent to between $65 million and $70 million in 2010.

The company plans to use any available cash flow it generates to pay down debt.

While Zale did not provide any holiday forecasts, Goldberg said exclusive merchandise will make up about 25 percent of the company's offerings this year, up from between 10 percent and 15 percent last year.

Separately, rival Signet Jewelers (SIG.N)(SIG.L), whose stores include Kay Jewelers, reported a narrower third-quarter loss as stronger margins and cost reductions more than offset weaker underlying sales. [ID:nGEE5AN1DF] Signet's CEO told Reuters that he is seeing less discounting in the U.S. market [ID:nGEE5AN1VF]

LOSS WIDENS, SALES FALL

Last month, Zale said the SEC was investigating accounting issues that led the retailer to restate 2008 and 2009 earnings. [ID:nN30416986] The investigation began after the company said in September it would postpone fourth-quarter results for a review of accounting.

The chain's loss widened to $57.6 million, or $1.80 per share, in its fiscal first quarter, ended Oct. 31, from a loss of $48.4 million, or $1.52 per share, a year earlier.

Analysts, on average, forecast a loss of $2.02 a share, according to Thomson Reuters I/B/E/S.

Sales at stores open at least a year, a gauge known as same-store sales, fell 6.8 percent during the quarter. Total sales fell 9.6 percent to $329.2 million.

Inventory as of Oct. 31 was valued at $902 million, down $100 million from a year earlier.

The company's outstanding debt rose to $466 million from $369 million a year earlier.

Zale's shares rose 36 cents to $4.86 on the New York Stock Exchange afternoon trading. (Reporting by Phil Wahba; Editing by Derek Caney, Maureen Bavdek and Steve Orlofsky) ((phil.wahba@thomsonreuters.com ; +1 646 223 6128; Reuters Messaging: phil.wahba.reuters.com@reuters.net)

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