Shares of Zale Corporation (NYSE: ZLC, ZLC message board) hit a multiyear low after the announcement of quarterly financial results. The company's performance worsened significantly and that news sent the stock down by more than 40%.The company reported a loss of $45.35 million or $1.43 per share for the first quarter of fiscal 2009. This represented a nearly 60% increase in losses from $28.36 million or $0.58 per share, which the company reported a year ago.
Zale's sales were mainly influenced by harsh economic conditions and consumers being forced to cut back on spending. The company also doesn't expect to show any significant improvement in their performance from the holiday season sales. Since Zale engages in the sale of diamonds and other jewelry they are likely to suffer continuous losses from operations during the crisis. During any crisis consumers first of all stop spending their money on luxury items and that is why the company suffers.
Still, Zale's management remains confident the company will be able to retain a free cash flow of $50 million for fiscal 2009. Neal Goldberg, CEO of Zale stated: "Though the national economic environment is challenging, we have continued to deliver strong performance on both store operations and cost control. We have recently eliminated almost $15 million of additional capital expenditures from our fiscal 2009 plan, and we intend to find more avenues for reducing both capital and expenses in the coming year. Our work to consolidate and speed up our supply chain should enable us to run with significantly lower inventory, driving greatly improved turns. We have worked hard to improve the selection of merchandise and the overall experience our customers will have during this Holiday season. We believe that Zale's position as the value provider in the industry will serve us well in these economic conditions."
Since the company heavily on seasonality, the holiday season accounts for most of their profits. A failure to deliver strong sales during this period can have very serious negative effect on the company's future performance. Reducing expenditures might not be enough to retain profitability if consumers do seriously reduce their spending.
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