After a lackluster third quarter, investors had their fingers crossed that Zale Corp.
Sales and comps both dipped 0.5% and earnings were $0.03, compared to a loss of $0.51 in last year's quarter. Adjusted earnings came in breakeven. Management focused on expense control and improved the gross margin significantly. But with fewer consumers buying jewelry these days, the company accumulated a significant amount of inventory on its books. However, management believes it has an opportunity to improve its inventory control and decrease its inventory levels.
The challenged economy has put more of a strain on the disposable income that would be destined for middle-class consumers, compared to the upper class. And Zale's high-end competitors have recently reported results that support that notion. Tiffany
While the company is posting improving results, I think I would continue to steer clear of Zale until conditions improve on the home front. Sure, management is optimistic that the company is headed in the right direction. CEO Betsy Burton noted that she believes the company has "significant opportunity to drive shareholder value in both the near-term and long-term." And the conference call stated the company thinks its initiatives can deliver a sustainable 15% earnings growth.
I guess the company is off to a positive start after posting earnings rather than a loss, but I think the company will have to deliver some stronger results in all areas of the company, starting with eliminating the excessive inventory, before I become a buyer of this diamond store stock.
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