Some National Chains See Slowdowns

May 21, 2001

Some National Chains See Slowdowns

Zale Corp. reported its earnings for the third fiscal quarter ended April 30 fell 66% to $3.5 million, after a $2.2 million charge for severance payments for former CEO Beryl Raff. Sales were up 13.9%, but comparable store sales declined 7.3%.

Zale is still working to recover from lackluster sales during the 2000 holiday season. According to the Wall Street Journal, Zale officials say when holiday sales were much slower than expected, the company made mistakes by stocking too much cheap merchandise, offering too many specials and spending money on advertising when people weren't spending. In addition, annual staff turnover reached 60% and the integration of Piercing Pagoda, which Zale purchased last year, is taking longer than expected.

Zale is slowly selling off its excess inventory or returning it to vendors, the Journal reports, but Robert DiNicola, chairman, said he doesn't foresee a turnaround until at least fall, when the company expects the problem inventory to be replaced by a more targeted higher-quality assortment. It's also rethinking its advertising strategy. The Journal noted rival Kay Jewelers, a unit of England's Signet Group, fared better over the holidays by sticking with an advertising message equating jewelry with romance, rather than selling on price. In its quarter ending April 30, Kay's same-store sales increased in the low-single digits and its inventory levels were back to normal.

Zale isn't the only big jeweler experiencing a slowdown in sales. Tiffany & Co. announced its net sales for the three months ended April 30 declined 3% and net earnings increased 1%, compared to the same period last year. Earnings reached $30.8 million and sales hit $336.4 million. In the U.S., Tiffany's sales were $159 million, a 6% decline from last year, and comparable store sales declined 8%. International retail sales decreased 1% to $146.4 million. "We were pleased that, despite the sales shortfall, we minimized the impact on operating margin through a combination of strong gross margin and expense control," says President and CEO Michael J. Kowalski. The company expects to have mid-to-high single-digit U.S. comparable store sales growth in the second half of the year.

- by Peggy Jo Donahue and Julia M. Duncan