RAPAPORT...  Zale Corporation's revenues fell 9.6 percent to $329.2 million during the first quarter of fiscal 2010, which ended on October 31, 2009. The retailer's same-store sales dropped 6.8 percent, compared with a same-store sales decline of 3.7 percent one year ago. Gross margin as a percentage of sales was flat at 48.6 percent. Zale also reported a loss of $57.6 million, an increase from the loss of $48.4 million it posted one year ago.

Zale reduced its aggregate selling, general and administrative expenses (SGA) by $24 million during the quarter, based upon the closure of 209 stores and corresponding reductions in occupany costs, rent and headcount. As a result, Zale's operating margin for the quarter was 16.6 percent, an improvement of 80 basis points. Inventory as of October 31 was $902 million, a decrease of approximately $100 million from October 2008. Zale had an outstanding debt of $466 million at the close of the quarter, compared with the $369 million debt recorded one year ago.

“We are encouraged that both sales and margin strengthened as the quarter progressed,” said Neal Goldberg, Zale's chief executive officer (CEO). “Importantly, we are well positioned to improve our holiday execution and financial performance. Our merchandising initiatives have been tested, our stores are fully set and we have the inventory to deliver on our holiday plans. We will not offer the same level of broad discounting this holiday season as we did in 2008, which will help us expand our gross margin.”

Zale expects to continue reducing operating costs over the next 12 months, according to chief financial officer (CFO) Matt Appel. 

“Continuing steps to reduce costs will complement stronger pricing discipline and reduced inventory purchases as we work to enhance free cash flow," Appel noted. "We are taking strong steps to achieve higher margin realization, while also continuing a trend toward lower aggregate inventory throughout the system.”

LH