Zale’s Losses Widen as Inventory is Reduced

Dallas Zale Corp. said Thursday its losses widened in the third quarter, as expected, after the company began its initiative to permanently reduce inventory levels.

Third-quarter losses totaled $16.8 million compared with $4 million in the prior year. Excluding income from discontinued operations, quarterly losses totaled $17.4 million compared with a loss of $5 million.

Quarterly revenue rose 6% to $476.7 million, from $449 million in the third quarter of 2007.

In February, after reporting that second-quarter profit dropped 31%, Zale announced an initiative to permanently reduce inventory and make the stores more appealing to price-sensitive customers. Zale said the goal was to achieve a $100 million reduction in inventory in the second half of 2008, which was expected to have a 500 basis point negative impact on gross margin.

Zale said its strategy exceeded expectations in the third quarter. The company liquidated $55 million of inventory with a 460 basis point reduction in gross margin.

“We are very pleased with our progress this quarter against our plan,” said Neal Goldberg, president and CEO. “We have a focused agenda to improve performance and the team has stayed locked-in on achieving our objectives. This includes focusing on our core customer by clarifying our merchandise offering, improving our value proposition and simplifying our marketing message that is led by product and supported by price.”