Zale Corp (ZLC)

NetscribeRetail (< 20) Submitted: 5/31/07 6:12 AM : Start Price: $27.18 ZLC Score: 9.92

While retail in general is showing signs of weakness, higher gas prices have directly impacted the discretionary income of the moderate customer impacting the third quarter earnings adversely. Given these overall macro trends, company has also lowered its sales projections. Besides it is also using third party to review the performance of its brands, which could lead to management changes or selling some chains.





The company, which operates its namesake stores and the Bailey Banks & Biddle, Gordon's and Piercing Pagoda chains, had warned previously that U.S. sales had suffered as snowstorms and icy weather preceding Valentine's Day had forced it to shut several stores. Hence for third quarter, revenues decreased by 2.9% to $511.9 million as comparable store sales decreased by 3.4%. Net loss totaled $3.06 million vs. a profit of $16 million due to the absence of benefit from settlement of retirement plan. Also its namesake brand and Piercing Pagoda have faced the softest sales so far in the fiscal fourth quarter, while the more upscale Bailey Banks & Biddle and Gordon's brands were off to a stronger start, but the increase in gasoline prices can have some impact on all or most of the divisions.





Jewelry is certainly not something that's a necessity. When people are cutting back, clearly they are cutting back on jewelry as opposed to things such as apparel, which are more of a necessity. Thus it makes the future of Zale more vulnerable. Moreover for Q4, the company itself projects comparable store sales decrease of 2-3% and EPS in the range of negative $0.11 to 0.15. Hence in the middle of all these conditions the company’s circumstance definitely does not seems to improve at least in the near future.

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