Zale reports earnings rose 76%, plans Manhattan stores

Friday, May 12th 2000, 12:00 am
By: News On 6

Zale Corp., the largest U.S. specialty jeweler, reported better-than-expected profits Thursday as earnings per share jumped 76 percent above a year ago.

The Irving-based retailer also said it will open its first Manhattan stores in neighborhoods such as Soho and Midtown where other retailers, including The Gap and Victoria's Secret, have located in recent years.

" We think it's viable for us to have three to five stores in Manhattan in neighborhood locations where other mall retailers have gone," Ms. Raff said.

Zale said its fiscal third-quarter net income was $10.53 million, or 30 cents per share, in the period ended April 30, compared with net income of $6.27 million, or 17 cents, in the same period last year.

The results beat the 26 cents per share forecast compiled by First Call-Thomson Financial. Zale's stock price was up $3.19 Thursday to close at $45.13 a share.

Revenue in the quarter, which included Valentine's Day shopping, was $361.3 million, up from $280.7 million. And sales at stores open at least a year, or same-store sales, increased 12.8 percent.

" So far, Mother's Day looks strong. There are going to be some very happy mothers out there this weekend," said Beryl B. Raff, Zale's chief executive officer.

To meet its target of 20 percent annual growth, Zale needs to record a 3 percent same-store sales gain. The company has exceeded that target for more than six years, Ms. Raff said.

The company's results were " outstanding," said Harry A. Ikenson, a retail analyst with Chase H&Q in New York.
" Zale has one hell of a management team," he said. " They just do a terrific job. They work hard at it."

The Peoples chain offers significant growth potential as the company applies what it learned with Zale's, he said.

Also, Zale still has plenty of growth opportunity with its existing stores.

" They have room to grow with the divisions they have. For example, they can take Gordon's to the West Coast," Mr. Ikenson said.

During a conference call with analysts Thursday, the jewelry chain's executives were asked about the impact of a possible slowdown in retail sales and the overall economy. The Commerce Department had announced earlier in the day that retail sales fell 0.2 percent in April after economists had predicted an 0.4 percent increase. Most analysts blamed the slowdown on cool, rainy weather that kept many Americans out of the stores.

That wasn't a problem for Zale, which, in addition to Zales Jewelers, operates Zales Outlet, Gordon's Jewelers, Bailey Banks & Biddle Fine Jewelers and Peoples Jewelers of Canada.

Zale acquired the Peoples chain last year and is remodeling those.

Robert J. DiNicola, Zale's chairman, said the retailer continues to " make money by improving productivity and not cutting expenses or lowering credit standards" to gain more customers.

" We don't allow the economy to distract us because we don't control that," Mr. DiNicola said. " What we do control is the pace within our business.

" A strong economy is good, but not essential for our business to remain good. Even with a downturn in the economy, we would continue to take market share."

Several trends will keep the momentum going for Zale's jewelry sales, Ms. Raff said.

Population shifts are working to the retailer's advantage she said. The 45- to 65-year-old population is growing, and people in that age bracket tend to spend money on jewelry.

And the wedding business, which represents 40 percent of the retailer's sales, has remained consistent during economic downturns in the past, Ms. Raff said.

Meanwhile, Zale's online sales are expected to reach about $7 million to $8 million in the current fiscal year.

Ms. Raff said that while those sales are growing at a rapid rate, they're not significant to the company's total numbers.

" We're focusing now on solidifying the structure of that business so that when we open it up, the volume can roll through," Ms. Raff said.

" Customer service and being able to execute efficiently is really our focus at this point."