Zale's loss worse than expected, shares tumble

Tue Nov 20, 2012 5:05pm EST

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(Reuters) - Zale Corp ZLC.N, which offers affordable jewelry to middle-class shoppers, on Tuesday posted a deeper quarterly loss than Wall Street expected on sales that did not meet expectations, and shares fell more than 11 percent in after-hours trading.

For the eighth straight quarter, Zale, which three years ago faced a major liquidity loss and plunging sales during the recession, reported an increase in sales at stores open at least a year, or same-store sales, which rose 3.9 percent.

But the pace was far slower than the same-store sales gains of recent quarters and below that of its main competitor, Signet Jewelers Ltd's (SIG.N) Kay Jewelers, which saw its same-store sales rise 5.5 percent for the quarter.

Zale's U.S. fine jewelry brands unit accounts for about 70 percent of its annual revenue and consists of Zales Jewelers, Zales Outlet and Gordon's Jewelers.

Revenue in the quarter ended October 31 rose 1.8 percent to $357.5 million, missing analyst projections of $364.7 million, according to Thomson Reuters I/B/E/S. The net loss narrowed from a year earlier, but was 20 cents per share larger than analysts had expected.

Shares fell 83 cents to $6.61 in after-hours trading after the company released its results. Last Tuesday, Zale shares reached $7.66, their highest level since 2009.

In Canada, where it operates Peoples Jewelers, it reported company wide a same-store sales gains of 5.5 percent.

There was improvement at its kiosks, which consist primarily of the Piercing Pagoda mall-based chain and account for about 13 percent of sales. Same-store sales there rose 2 percent compared to a decline a year earlier.

The company's net loss for the first quarter narrowed to $28.3 million, or 88 cents per share, from $31.9 million, or 99 cents per share, a year earlier.

Selling and other expenses rose to 57.7 percent of sales, up from 56.9 percent a year earlier, largely because of higher marketing aimed at winning back shoppers and higher employee benefit costs.

Interest expense fell to $6 million from $10 million because of its July debt refinancing.

Zale reiterated its forecast that it would report a net profit for the current fiscal year, which ends July 31.

(Reporting by Phil Wahba in New York; Editing by David Gregorio and Leslie Gevirtz)

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