Zale states lower quarterly profit though beats expectations

Zale Corp stated a lower quarterly profit on Thursday, caused by a significant drop in sales as moneyless customers avoided jewelry purchases during the holidays.

Zale Corporation is the second largest specialty retailer of fine jewelry in North America , operating 2,203 retail locations, throughout the United States , Canada , and Puerto Rico as of October 31 2007 . It includes both kiosks/carts and stores. Zale Corporation is comprised of several different business units: Zales Outlet, Gordon's Jewelers, Piercing Pagoda, Peoples Jewelers and Mappins Jewelers.

Zale has struggled recently, taking steps such as polishing its customer service to attract shoppers back into its core mall-based stores.

But like other jewelers, Zale has failed. The reason is that shoppers encounter higher costs for food and fuel and cut back on nonessential purchases.

Net profit fell to $60.8 million, or $1.34 a share, in the fiscal second quarter ended Jan. 31, from $88.1 million, or $1.80 a share, a year earlier.

The company reported a profit of $1.16 a share from continuing operations, higher than the $1.10 that analysts were expecting.

Sales at Zale, with brands like Piercing Pagoda and Gordon's, fell a little more than 7 % to $828 million.

Sales at its established stores slipped 7.3 % in the quarter.

Zale intends to curtail $100 million in excess inventory, which it does not plan to restock.

Through fiscal 2008, the company expects gross margin to decrease by about 5 percentage points. The gross margin decline would be outstripped by "the positive impact on free cash flow," the company said.

The company named Neal Goldberg as its chief executive in December, replacing Betsy Burton.