UPDATE 4-Zale results improve on full-price sales
* Q3 loss 38 cts/share vs year-ago loss 61 cts/shr
* Q3 same-store sales down 2.2 pct
* Mother's Day sales soft
* CEO plans vendor meeting, sees boost from new capital
* Zale shares down 6 pct; Signet up 0.4 pct (Updates share prices)
By Phil Wahba
NEW YORK, May 26 (Reuters) - Zale Corp (ZLC.N) reported a smaller quarterly loss as it succeeded in luring more consumers to pay full price for its jewelry and outlined its new strategy following a cash infusion.
The company, which operates chains such as Zales Jewelers in the United States and Peoples Jewellers in Canada, has been losing sales and market share for several quarters to rivals like Kay Jewelers parent Signet Jewelers Ltd (SIG.N).
Zale's sales decline moderated during its third quarter, which included a strong performance over Valentine's Day, the jewelry industry's third-largest yearly event.
Sales at stores open at least one year fell 2.2 percent in its third quarter, an improvement from the 20 percent decline for the year-earlier period and a drop over the Christmas holiday.
Still, in a sign that Zale's problems have spilled over into the current quarter, Interim Chief Executive Theo Killion said on a conference call that sales over the four-day Mother's Day weekend earlier in May had been "soft."
The company's net loss narrowed to $12.1 million, or 38 cents per share, for the quarter ended April 30 from $19.5 million, or 61 cents per share, a year earlier.
Total sales fell 5.1 percent to $359.8 million. Much of that decline came from having 149 fewer stores as of April 30 than it did a year earlier. Zale operates about 1,900 locations, with 1,224 stores, as well as kiosks.
Store closings led to a 9.2 percent drop in inventory as of April 30, helping reduce discounts and boosting gross margin by 0.7 percentage point to 50.8 percent.
Zale also said it had cut its long-term debt load to $299 million as of April 30 from $333 million a year earlier.
Zale shares finished the day down 6 percent at $2.52 on the New York Stock Exchange. Signet and upscale rival Tiffany & Co (TIF.N) are both due to report results on Thursday. Signet shares rose 0.4 percent while Tiffany rose 2.3 percent.
A LIFT FROM GOLDEN GATE
Zale's poor performance in past quarters forced it to cancel orders and delay payments to vendors in December and led it to look for additional investment. It also drastically cut marketing, even ahead of Valentine's Day.
Earlier this month, private equity firm Golden Gate Capital lent the company $150 million and took a 19.9 percent stake, becoming its second-largest shareholder. [ID:nN10238526]
Killion said on the call that the cancellation of orders was a bid to preserve liquidity, but acknowledged that it prevented the company from having "a normalized flow of merchandise until mid-April."
He sees the Golden Gate investment helping Zale return to profitability and said the company has completed the initial stages of its turnaround.
Killion said Zale is hosting a "vendor summit" next month in Dallas, an apparent bid to repair relations with suppliers.
He also said Zale would offer more merchandise that starts at lower price points to cater to its core shoppers, with an average household income of about $50,000, and bridal jewelry, both categories that have traditionally performed well.
Killion said the company would decentralize the management of its brands, which also include Gordon's Jewelers, Piercing Pagoda and Mappins Jewellers, saying they had all done well when given more leeway in the past.
Chief Financial Officer Matt Appel said that Zale had made progress in its talks with Citigroup (C.N) to renew beyond March 2011 an arrangement under which Citi issues the private label credit cards that account for 40 percent of U.S. sales.
Citi had threatened in March to end the arrangement early if Zale did not pay a penalty for a sales shortfall.
"Rest assured, that in no situation will we be without proprietary credit for our U.S. customers during the upcoming holiday season," Appel told investors.
Investors have been concerned about Zale's prospects. As of April 30, about 14 percent of Zale shares were held short by investors betting the price would fall, far above the 3.5 percent average for New York Stock Exchange listings. (Reporting by Phil Wahba; Editing by Michele Gershberg, Gerald E. McCormick and Richard Chang)
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