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Press release from Business Wire

Zale Corporation Reports First Quarter Fiscal 2013 Results

<ul> <li class='bwlistitemmargb'> Comparable store sales up 3.9 percent; 8th consecutive positive quarter </li> <li class='bwlistitemmargb'> Net loss improved $4 million </li> </ul>

Tuesday, November 20, 2012

Zale Corporation Reports First Quarter Fiscal 2013 Results16:05 EST Tuesday, November 20, 2012 DALLAS (Business Wire) -- Zale Corporation (NYSE: ZLC) today reported its financial results for the first quarter ended October 31, 2012. “We are pleased to report our eighth consecutive quarter of positive same store sales and continued progress towards our goal of returning Zale to profitability,” commented Theo Killion, Chief Executive Officer. “As we enter the holiday period, we are confident our foundation is in place for this important selling season.” First Quarter Fiscal 2013 Results Revenues were $357 million, an increase of $6.5 million, or 1.8 percent, compared to $351 million in the first quarter of fiscal 2012. For the first quarter of fiscal 2013, comparable store sales increased 3.9 percent. This increase follows a 5.8 percent rise in the same period last year. At constant exchange rates, which exclude the effect of translating Canadian currency denominated sales into U.S. dollars, comparable store sales increased 3.7 percent. U.S. Fine Jewelry brands, consisting of Zales Jewelers, Zales Outlet and Gordon's Jewelers, posted a comparable store sales increase of 3.9 percent. This increase follows a 7.0 percent rise in the same period last year. Canadian Fine Jewelry brands, consisting of Peoples Jewellers and Mappins Jewellers, posted a comparable store sales increase of 5.5 percent. This increase follows a 7.8 percent rise in the same period last year. At constant exchange rates, comparable store sales increased 4.0 percent in the first quarter of fiscal 2013, following an increase of 4.7 percent in the same period last year. Piercing Pagoda, our Kiosk Jewelry business, posted a comparable store sales increase of 2.0 percent. In the same period last year, comparable store sales declined 1.6 percent. Gross margin on sales was $190 million, or 53.2 percent, an increase of $3 million compared to $188 million, or 53.5 percent, in the first quarter of fiscal 2012. Selling, general and administrative expenses were $206 million, or 57.7 percent of revenues compared to $200 million, or 56.9 percent of revenues, in the first quarter of fiscal 2012. The increase was primarily driven by growth initiatives and higher employee benefit costs. Operating loss was $23 million, or 6.4 percent of revenues, compared to an operating loss of $22 million, or 6.4 percent of revenues, in the prior year quarter. Interest expense was $6 million, compared to $10 million in the first quarter of fiscal 2012. The decrease is the result of the debt refinancing completed in July 2012. Net loss was $28 million, or $0.88 per share, compared to a net loss of $32 million, or $0.99 per share, in the first quarter of fiscal 2012. Inventory at October 31, 2012 stood at $908 million, compared to $857 million in the same period last year. Fiscal Year 2013 Outlook As previously announced, the company expects to achieve positive net income for fiscal year 2013. Conference Call Zale management will host a conference call today at 5:00 p.m. ET to discuss first quarter fiscal 2013 results. The conference call will be broadcast live over the internet and can be accessed, along with a slide presentation, on the Investor Relations section of the company's web site at www.zalecorp.com. In addition, you can listen to the call live by dialing 877-545-6744 (within the United States) or 706-634-1959 (for international callers), passcode 63803917. The webcast will be archived shortly after the conference call concludes and will be available on the company's web site. For additional information, contact Investor Relations at 972-580-4391. About Zale Corporation Zale Corporation is a leading specialty retailer of diamonds and other jewelry products in North America, operating approximately 1,770 retail locations throughout the United States, Canada and Puerto Rico, as well as online. Zale Corporation's brands include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda. Zale also operates online at www.zales.com, www.zalesoutlet.com, www.gordonsjewelers.com, www.peoplesjewellers.com and www.pagoda.com. Additional information on Zale Corporation and its brands is available at www.zalecorp.com. This release and related presentations contain forward-looking statements, including statements regarding future sales, expected operating performance, expenses, margins, profitability, interest expense, and effective tax rate. Forward-looking statements are not guarantees of future performance and a variety of factors could cause the Company's actual results to differ materially from the results expressed in the forward-looking statements. These factors include, but are not limited to: if the general economy continues to perform poorly, discretionary spending on goods that are, or are perceived to be, “luxuries” may decrease; the concentration of a substantial portion of the Company's sales in three, relatively brief selling seasons means that the Company's performance is more susceptible to disruptions; most of the Company's sales are of products that include diamonds, precious metals and other commodities, and fluctuations in the availability and pricing of commodities could impact the Company's ability to obtain and produce products at favorable prices; the Company's sales are dependent upon mall traffic; the Company operates in a highly competitive industry; the financing market remains difficult, and if we are unable to meet the financial commitments in our current financing arrangements it will be difficult to replace or restructure these arrangements; and changes in regulatory requirements may increase the cost or adversely affect the Company's operations and its ability to provide consumer credit and write credit insurance. For other factors, see the Company's filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended July 31, 2012, and subsequent reports on Forms 10-Q and 8-K. The Company disclaims any obligation to update or revise publicly or otherwise any forward-looking statements to reflect subsequent events, new information or future circumstances, except as required by law.     ZALE CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share amounts)(Unaudited)   Three Months EndedOctober 31,20122011   Revenues $ 357,468 $ 350,983 Cost of sales   167,133     163,309   Gross margin 190,335 187,674 % of Revenue53.2%53.5%   Selling, general and administrative 206,239 199,775 % of Revenue57.7%56.9% Depreciation and amortization 8,872 9,888 Other (gains) charges   (1,773)   498   Operating loss (23,003 ) (22,487 ) % of Revenue-6.4%-6.4% Interest expense   5,842     9,930   Loss before income taxes (28,845 ) (32,417 ) Income tax benefit   (580)   (697) Loss from continuing operations (28,265 ) (31,720 ) Loss from discontinued operations, net of taxes   -     (154) Net loss $(28,265)$(31,874)   Basic and Diluted net loss per common share: Loss from continuing operations $ (0.88 ) $ (0.99 ) Loss from discontinued operations   -     -   Net loss per share $(0.88)$(0.99)   Weighted average number of common shares outstanding: Basic 32,298 32,162 Diluted 32,298 32,162     ZALE CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Unaudited, in thousands)       October 31,20122011   ASSETS Current Assets: Cash and cash equivalents $ 14,572 $ 30,126 Merchandise inventories 908,415 856,891 Other current assets   49,897     52,738   Total current assets 972,884 939,755   Property and equipment 698,367 701,297 Less accumulated depreciation and amortization   (577,634 )   (567,045 ) Net property and equipment 120,733 134,252   Other assets   239,763     241,776   Total Assets $ 1,333,380   $ 1,315,783     LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities: Accounts payable and accrued liabilities $ 332,786 $ 300,437 Deferred revenue 83,339 82,540 Deferred tax liability   92,528     92,956   Total current liabilities 508,653 475,933   Long-term debt 524,167 493,954 Deferred revenue – long-term 115,900 137,541 Other liabilities 32,696 34,840   Stockholders' investment   151,964     173,515     Total Liabilities and Stockholders' Investment $ 1,333,380   $ 1,315,783     Zale CorporationRoxane Barry, 972-580-4391Director of Investor Relations