Multichannel jewelry retailer Zale Corp. has closed the books on fiscal 2009, a year in which web sales increased slightly while total sales slid by nearly 17%. The company has also disclosed it is the subject of a U.S. Securities and Exchange Commission investigation.
In its year-end earnings call with Wall Street analysts, chief financial officer Matt Appel acknowledged that the SEC was conducting an investigation and looking closer into the reasons Zale restated some earnings for the 2007 and 2008 fiscal years.
In a Sept. 18 regulatory filing, Zale, No. 185 in the Internet Retailer Top 500 Guide, noted the company was restating earnings to reflect accounting adjustments for advertising costs, intercompany accounts receivable, depository bank accounts, federal income taxes and personal property taxes. In fiscal years 2007 and 2008, Zale failed to record prepaid advertising costs of $18 million and $23 million, respectively, as an expense, the filing says.
On the earnings call Appel told analysts that Zale had now reviewed its advertising accounting dating back five years. “We found that certain advertising costs previously recorded as prepaid were expensed in periods subsequent to the period in which the advertisement actually ran,” he told analysts. “We are cooperating in a forthright manner.”
The restatement of earnings and the SEC investigation mark the end of a tough fiscal year for Zale, although e-commerce sales for Zale, which operates Zales.com and GordonJewelers.com, increased slightly.
For the 2009 fiscal year ended July 31, Zale reported:
- Web sales increased 0.9% to $56.2 million from $55.7 million in fiscal 2008.
- Total sales decreased 16.9% to $1.77 billion from $2.13 billion in the prior fiscal year.
- The web accounted for 3.2% of total sales.
- Comparable-store sales declined 17%.
- Net loss was $189.5 million compared with net earnings of $631,000 in fiscal 2008.
“Our financial results for fiscal 2009 reflected the most difficult year in retailing in memory. Nonetheless, we believe we have positioned the business for much improved performance,” says Zale CEO Neal Goldberg. “We have streamlined our cost structure and closed over 200 underperforming locations. We have reduced and realigned inventories and increased our proprietary products and collections.”
Zale doesn’t break out quarterly web sales, but for the fourth quarter of fiscal 2009 reported:
- Total sales decreased 21.7% to $357.1 million from $456.2 million in the prior fiscal year.
- Comparable-store sales declined 21.2%.
- Net loss was $89.8 million compared with a net loss of $9.9 million in fiscal 2008.
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