Zale Q3 Profit Tops View, But Revenues Miss

(RTTNews) - Fine jewelry retailer Zale Corp. (ZLC), which is being acquired by larger rival Signet Jewelers Ltd. (SIG.L, SIG), reported Tuesday a profit for the third quarter that grew from last year, despite a revenue drop, reflecting higher comparable store sales and gross margins. Earnings per share for the quarter topped analysts' expectations, while quarterly revenues missed their estimates.

Signet Jewelers agreed in mid-February to acquire smaller rival Zale for $21.00 per share in cash in a deal valued at about $1.4 billion. The combined company is expected to generate annual sales of about $6.2 billion, as well as generate about $100 million in annual synergies within the first three fiscal years.

The deal received regulatory approval earlier in the month and is now set for shareholder approval on May 29. Zale has recommended its stockholders to vote in favor of the Signet deal.

The Irving, Texas-based company reported net earnings of $8.82 million or $0.19 per share for the third quarter, higher than $5.05 million or $0.13 per share in the prior-year quarter.

Excluding transaction costs related to the proposed merger with Signet Jewelers, earnings stood at $15 million or $0.32 per share.

On average, five analysts polled by Thomson Reuters expected the company to report earnings of $0.17 per share for the quarter. Analysts' estimates typically exclude special items.

Revenues for the quarter declined to $431.03 million from $442.71 million in the same quarter last year, and missed Wall Street analysts' consensus estimate of $441.91 million.

Comparable store sales for the quarter edged up 0.6 percent, following a 2.3 percent rise in the same period last year. At constant exchange rates, comparable store sales increased 1.9 percent, following a 2.6 percent increase in the same period last year.

The revenue drop was attributable primarily to the net decline of 78 stores from last year and a drop in the Canadian exchange rate, partially offset by comparable store sales growth.

Operating margin for the quarter improved 100 basis points to 3.2 percent from last year, as gross margin expanded 340 basis points, partially offset by a 150 basis points increase in selling, general and administrative expenses as a percentage of total revenues.

Zale Corp. also reported that for the first 18 days of May, which included the Mother's Day selling period, comparable store sales were down 2.2 percent on a constant currency basis, or down 3.4 percent on a U.S. dollar reported basis.

In Tuesday's regular trading session, ZLC is currently trading at $22.26, up $0.28 or 1.24% on a volume of 0.63 million shares.