Zale First-Quarter Earnings More Than Double 2.30 p.m. ET (1930 GMT) November 12, 1999

LOS ANGELES  Zale Corp., North America's top jewelry retailer, on Friday said sound management and clever advertising more than doubled first-quarter earnings over the year-ago period, beating analysts' estimates.

The results were particularly significant given they occurred during the back-to-school season, which is not normally associated with heavy jewelry sales, analysts said.

For the quarter ended Oct. 31, Dallas-based Zale reported net earnings of $5.5 million, or 15 cents a share, vs. $2.2 million or, 6 cents a share, last year. Operating earnings rose 59.3 percent to $16.5 million from $10.3 million a year ago.

On average, analysts expected the company to post earnings of 12 cents a share according to First Call/Thomson Financial.

Net sales for the quarter were $322.6 million compared to $254.2 million last year. Zales, which operated 1,345 stores at the end of the quarter, said same-store sales increase of 10.1 percent. Total sales were up 26.9 percent over last year.

"We are pleased with our revenue and earnings performance, which demonstrates our ability to convert increased sales to bottom line profitability,'' Chairman Robert DiNicola said. ''This continued consistency in results further strengthens the company's ability to capitalize on our growth plans.''

Shares of Zale were up 1-1/8 at 45-1/8 by mid-afternoon on the New York Stock Exchange, beating a year high of 45-3/16.

"It was an amazing quarter, especially given the fact there were no holidays associated with heavy gift-giving involving jewelry,'' said Bear Stearns analyst Brian Tunick.

"They took advantage of mall traffic during department store Labor Day promotions and drove it into their stores with advertising. If they can do that in the first quarter, you can only assume what's going to happen with the holidays, Christmas and the millennium. These guys know how to run their business.''

Tunick said the stock trades at a 40 percent discount to its growth rate, while Tiffany trades at an 80 percent premium. "We think, over time, that gap will narrow,'' he added.

Things haven't always been sparkly for Zale, which spent the better part of the 1990s revamping its strategy. It has crawled out of Chapter 11 bankruptcy, which befell the jeweler after running a highly leveraged operation in the 1980s.

Since then, a new management was brought in, old stores were

closed, new stores opened, and Zales has developed a branding strategy targeting a variety of customers. Similar in style to casual apparel retailer Gap Inc., which operates Gap, Banana Republic and Old Navy stores, Zale offers four different mall stores with products ranging from discount to high-end.

Zales Jewelers, known as "the diamond store,'' offers mainstream jewelry at mid-range prices. Zales Outlet offers discount jewelry. Gordon's Jewelers offers contemporary pieces geared toward regional tastes. Bailey Banks & Biddle Fine Jewelers offer classic, high-end pieces.

In May, Zale acquired Peoples Jewellers for $78 million, making Zale the largest specialty retailer of fine jewelry in North America. In recent weeks, the company unveiled a new Web site, www.zales.com, in time for holiday shopping.

Raff said the company is poised for future revenue growth that she expects to continue at about 20 percent a year.

"Our ability to execute across all avenues of the business;

merchandising, marketing, store operations and support continues to drive improved productivity,'' she said.

"E-commerce is a very significant growth opportunity for us going forward ... The opportunity for brick and mortar people with strong brand recognition is very significant,'' she said.

-- eggman (buygold@eggman.com), November 12, 1999

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earnings doubled sales up by a quarter

Sorry!

-- eggman (buygold@eggman.com), November 12, 1999.