Spring was a bit kinder to Zale
With better in-store sales, the company as a whole managed to post a nearly 7% increase in revenue for the quarter. What's more, improvements in direct sourcing and expense control led to a slight improvement in operating margin. As a result, Zale managed to post a 27% increase in net income.
Though not wholly included in this quarter's results, management reported that business related to Mother's Day was strong and that the bridal business "did very well." Looking at average transactions on a brand-by-brand basis, there weren't any unexpected pockets of weakness, and business as a whole seems quite stable.
Looking at fellow jewelry merchants such as Tiffany
While that's good for Zale in general, I'm not sure the stock is the play to make. Both Blue Nile and Tiffany are rivals that have a clear and distinctly different approach. Tiffany wants the highest of the high end and Blue Nile wants the mid-market sector to buy jewelry from its online store.
Zale, though, seems to be trying to be all things to all people -- serving higher-end customers with the Bailey Banks & Biddle chain, mid-market customers with Zales, and lower-end customers with Piercing Pagoda, while also selling jewelry online. Sometimes that sort of horizontal integration works out, but more often than not it's the specialists who best serve their customers and win the day.
On the plus side, Zale has a share-buyback program in place, a good return on equity, and same-store sales trends seem to be moving in the right direction. In addition, though the stock isn't a screaming bargain relative to likely future growth, a P/E of 14 certainly isn't out of line. Should the economy stay as it is or improve, Zale should be able to sling more bling and perhaps add a bit of zing to shares, as well.
Diamonds may have been Marilyn's best friends, but good information can take you further:
- Can Tiffany Ring Up Growth?
- No Denying Blue Nile
- Looking Into RedEnvelope
- Sharper Image Out of Focus
Selling diamonds on the Internet? That's breaking the rules for sure, and it's the reason our Motley Fool Rule Breakers service has highlighted Blue Nile for its subscribers. Take a free trial to check it out.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).