Is Zale Commitment-Worthy?

In the midst of a year-long turnaround, Zale (NYSE: ZLC  ) released sales figures on Thursday for its first quarter ending Oct. 31. And, well, it apparently still has some work to do.

Competitor Signet Group (NYSE: SIG  ) -- the operator of Kay Jewelers, Jared The Galleria, and H. Samuel stores -- came through in a big way, with 10% sales growth (in constant currency) and a 5.4% jump in same-store sales for its third quarter. In comparison, Zale managed only a meek 0.4% same-store-sales increase and a 0.9% improvement in sales during its quarter.

The one caveat is that Zale's figures were not adjusted for the closure of several Bailey Banks & Biddle stores within the past year, which negatively affected sales by 2.2%. So pro forma results showed a 3.1% increase in sales. Unfortunately, I find it difficult to get excited over the fact that sales were helped by clearance-priced merchandise in preparation for the holiday shopping season. I would rather read about customers flocking to the stores for regular-priced items. Of course, that's exactly what Zale's management team, headed by recently named President and CEO Betsy Burton, intends to do. (The last CEO was ousted following Zale's poor 2005 holiday season.)

However, this whole story feels like a bit of deja vu, maybe because I'm reminded of my initial investment in Zale after the net loss it reported for fiscal 2003. While this current downturn doesn't seem as severe as the last one, I would want greater assurance that Zale will be consistently successful before making a long-term investment in this company.

As Stephen Simpson pointed out in his commentary, Zale's brand name is solid and the financials are in good shape. Signet's recent sales figures clearly show that the retail jewelry market is perfectly healthy, and its stores don't hold any sort of defensive moat against Zale. The more important question for investors may not be if Zale can regain its market share, but whether it can defend its turf going forward.

Related links:

• Can This Signet Be a Swan?
• Zale: Diamond in the Rough?

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Fool contributor Jason Ramage holds no financial interest in the companies mentioned here.