By
Billy Fisher
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More Articles
May 23, 2007
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Customers are presently tightening their grips on their wallets, considering the current economic conditions. Jewelry retailer Zale (NYSE: ZLC ) felt the effects of fewer purchases of new bling at its bottom line. The retailer that once recorded the sale of a $100,000 engagement ring to Kobe Bryant is now struggling to get into the pocketbooks of the common person.
On Tuesday, the company reported its Q3 results that showed a little less shine. To make matters even duller, Zale offered only a few glimmers of optimism for the upcoming quarters for its shareholders. Management announced a Q3 loss of $0.06 per share, compared to net earnings of $0.35 per share in its year-ago quarter. To compound the resistance that its stock will face in the upcoming quarters is the fact that the company sees its Q4 comparable-store sales decreasing by 2% to 3% versus the prior-year Q4.
The outlook for Zale shareholders is significantly bleaker than those of competitors Tiffany & Company (NYSE: TIF ) and Blue Nile (Nasdaq: NILE ) . Shares of Tiffany presently trade near the stock's 52-week high, as the jeweler reported a 15% increase in revenue for its most recent fiscal quarter. Blue Nile has seen its stock price appreciate 13% this month alone, as it posted a 34% increase in net income for its Q1.
Management attributed the swing to the red for Zale to multiple factors. The biggest factor was a change in the company's accounting treatment in terms of revenue recognition on its lifetime jewelry protection plan. The switch adversely affected earnings on a comparative basis to the tune of $0.14 per share. Other factors that hindered the company's earnings figures were a 2.9% decrease in revenues on a year-over-year basis and a decline in comparable-store sales of 3.4%.
As I listened to the Zale conference call discussing its Q3 results, company management highlighted the impact that it sees rising gas prices having on its own sales growth. As middle-class families are increasingly seeing the need to spend more of their disposable income on gasoline, the company has noted a significant decrease in the volume of transactions occurring that total less than $500.
On the positive side, the company noted that it has weeded out most of its underperforming stores in the past year. Management also professed its intention to continue to strengthen its higher-end brands while continuing to keep its operating expenses in check via prudent store management. All in all, it appears that management is taking an ideal approach from an operations standpoint. It just might take a break in gas prices or other alternative catalysts to provide additional sparks to the retail industry in general and push the Diamond Store back into the black.
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Fool contributor Billy Fisher does not own shares of any of the companies mentioned. The Fool has a disclosure policy.
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