RAPAPORT... Zale Corporation increase its revenue 7.3 percent year on year, during the first-fiscal quarter, to $351 million and cost of sales rose 0.8 percent to $163.3 million for the three months that ended on October 31, 2011. Comparable store sales increased 5.8 percent. Zale improved gross margin as a percentage of sales to 53.5 percent from 50.5 percent one year ago. Nonetheless, Zale recorded a net loss of $31.9 million compared with a loss of $97.9 million.
The 300 basis point improvement in gross margin was achieved through a combination of price increases and lower levels of merchandise discounts, according to the company. Gross margin was also impacted by an 85 basis point increase from the change in warranty revenue recognition. This quarter also included a charge to interest expense of $46 million, or $1.43 earnings per share, which resulted from the amendment to Zale's senior secured term loan.
Inventory, as of October 31, increased to $857 million compared with $834 million for the same quarter in 2010. Long-term debt increased 9.7 percent year on year to $494 million.
''Our performance this quarter demonstrates the progress we are making towards returning the company to profitability,'' said Theo Killion, Zale's chief executive. ''We’ve now achieved top line growth in four consecutive quarters, and our efforts to expand operating margins are gaining traction.''
Zale began recognizing revenue on its lifetime warranty sales in proportion to when the warranty costs are expected to be incurred over an estimated eight-year life. The existing deferred lifetime warranty revenue balance will be recognized prospectively, in proportion to the remaining expected warranty costs. The change in revenue recognition positively impacted first quarter fiscal 2012 revenue, gross margin and operating results by $6.3 million and earnings per share by 18-cents. The company expects the change in revenue recognition to positively impact fiscal 2012 revenue, gross margin and operating results by approximately $30 million.