zale corporation - Signet Jewelers

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 8-K
Current Report
Dated February 27, 2014
of
ZALE CORPORATION
A Delaware Corporation
IRS Employer Identification No. 75-0675400
SEC File Number 001-04129
901 West Walnut Hill Lane
Irving, Texas 75038
(972) 580-4000
⃞ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
⊠ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
⃞ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
⃞ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02
Results of Operations and Financial Condition.
On February 27, 2014, Zale Corporation (“Zale”) issued a press release reporting its financial results for the three months ended January 31, 2014. A
copy of the press release is being furnished as Exhibit 99.1 and is incorporated herein by reference. A copy of a slide presentation that will accompany Zale’s
earnings conference call is being furnished as Exhibit 99.2 and is incorporated herein by reference.
The information set forth in Exhibit 99.1 and Exhibit 99.2 is being furnished and shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended,
except as shall be expressly set forth by specific reference in such filing.
Item 8.01 Other Events.
On February 27, 2014, Zale issued the press release described in Item 2.02 above and attached hereto as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits.
99.1
Press release
99.2
Investor presentation
Additional Information and Where to Find It
This communication may be deemed to be solicitation material in respect of the proposed acquisition of the Company by Signet. In connection with the
proposed acquisition, the Company intends to file relevant materials with the SEC, including the Company’s proxy statement in preliminary and definitive
form. Stockholders of the Company are urged to read all relevant documents filed with the SEC, including the Company's proxy statement when
it becomes available, because they will contain important information about the proposed transaction and the parties to the proposed
transaction . Investors and security holders are able to obtain the documents (once available) free of charge at the SEC’s web site, http://www.sec.gov, or for
free from the Company by contacting Zale Investor Relations by phone at (972) 580-4391 or by email at [email protected].
Participants in the Solicitation
Signet, the Company and their respective directors, executive officers and other members of management and employees, under SEC rules, may be deemed to
be “participants” in the solicitation of proxies from stockholders of the Company in favor of the proposed transaction. Information about Signet’s directors
and executive officers is set forth in Signet’s Proxy Statement on Schedule 14A for its 2013 Annual Meeting of Shareholders, which was filed with the SEC on
April 26, 2013, and its Form 8-Ks filed with the SEC on July 9, 2013 and July 11, 2013. Information about the Company's directors and executive officers
is set forth in the Company's Proxy Statement on Schedule 14A for its 2013 Annual Meeting of Stockholders, which was filed with the SEC on October 2,
2013, and its Annual Report on Form 10-K for the fiscal year ended July 31, 2013, which was filed with the SEC on September 27, 2013. Information
concerning the interests of the Company's participants in the solicitation, which may, in some cases, be different than those of the Company's stockholders
generally, is set forth in the materials filed by the Company with the SEC, and will be set forth in the proxy statement relating to the proposed transaction
when it becomes available.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
ZALE CORPORATION
By:
Date:
February 27, 2014
/s/ THOMAS A. HAUBENSTRICKER
Thomas A. Haubenstricker
Senior Vice President,
Chief Financial Officer
Exhibit 99.1
Zale Corporation Reports Second Quarter Fiscal 2014 Results
Zales branded stores up 3.9 percent; Peoples branded stores up 2.7 percent at constant exchange rates
Overall comparable store sales up 1.9 percent at constant exchange rates
Gross margin up 240 basis points
Operating margin up 150 basis points
Net earnings up $10 million; diluted earnings per share up $0.11 to $1.13
Definitive agreement for Signet Jewelers to acquire Zale was announced on February 19, 2014
DALLAS--(BUSINESS WIRE)--February 27, 2014--Zale Corporation (NYSE: ZLC) today reported its financial results for the second quarter ended January 31, 2014.
Second Quarter Fiscal 2014 Results
Revenues were $656 million compared to $671 million in the second quarter of fiscal 2013. The decrease in revenues is primarily due to the net decrease of 86 stores compared to last
year and a decline in the Canadian exchange rate, partially offset by the 1.9 percent constant currency comparable store sales growth.
For the second quarter of fiscal 2014, comparable store sales increased 1.9 percent at constant exchange rates, or 0.6 percent on a U.S. dollar reported basis. This increase follows a 2.2
percent rise at constant exchange rates, or a 2.8 percent rise on a U.S. dollar reported basis, in the same period last year.
Comparable Store Sales Detail
Q2 Fiscal 2014
Q2 Fiscal 2013
At Constant
At Constant
Exchange
Brand
U.S. Dollar
Zales/Zales Outlet
Gordon's
U.S. Fine Jewelry
Peoples
Mappins
Canadian Fine Jewelry
Total Fine Jewelry
Piercing Pagoda
Total Company
3.9%
(4.5%)
3.1%
(4.3%)
(11.4%)
(5.6%)
1.3%
(4.6%)
0.6%
Rates
3.9%
(4.5%)
3.1%
2.7%
(4.9%)
1.3%
2.7%
(4.6%)
1.9%
Exchange
U.S. Dollar
3.6%
(3.3%)
2.8%
6.4%
(5.6%)
3.8%
3.0%
1.0%
2.8%
Rates
3.6%
(3.3%)
2.8%
3.0%
(8.6%)
0.5%
2.3%
1.0%
2.2%
All comparable store sales include the associated ecommerce businesses.
Gross margin on sales was $348 million, or 53.0 percent, an increase of 240 basis points compared to $340 million, or 50.6 percent, in the second quarter of fiscal 2013. The gross margin
improvement is primarily due to the benefits generated from our sourcing initiatives, our disciplined promotional cadence throughout the holiday selling period and a favorable commodity
cost environment. Selling, general and administrative expenses were $280 million, or 42.7 percent of revenues compared to $279 million, or 41.6 percent of revenues, in the second
quarter of fiscal 2013. This increase was primarily due to higher holiday marketing expenses. Operating earnings were $60 million, or 9.1 percent of revenues, compared to operating
earnings of $51 million, or 7.6 percent of revenues, in the same quarter in the prior year.
For the quarter ending January 31, 2014, interest expense was $6 million, flat with the second quarter of fiscal 2013. Income tax expense was $3 million compared to $4 million in the
second quarter of fiscal 2013.
Net earnings were $51 million, or $1.13 per diluted share, compared to net earnings of $41 million, or $1.02 per diluted share, in the second quarter of fiscal 2013.
Inventory at January 31, 2014 stood at $864 million, compared to $837 million on January 31, 2013. The Company had outstanding debt of $445 million on January 31, 2014, a
reduction of $29 million compared to $474 million on January 31, 2013.
First Half Fiscal 2014 Results
For the six months ended January 31, 2014, revenues were $1.0 billion, a decrease of $9 million compared to the same period last year. Comparable store sales increased 3.0 percent at
constant exchange rates, or 1.9 percent on a U.S. dollar reported basis, in the first half of 2014. This increase follows a 2.7 percent rise at constant exchange rates, or a 3.2 percent rise
on a U.S. dollar reported basis, in the same period last year. Operating earnings were $37 million, or 3.7 percent of revenues, compared to $28 million, or 2.7 percent of revenues, in the
first half of fiscal 2013. Net earnings were $23 million, or $0.52 per diluted share, compared to net earnings of $13 million, or $0.32 per diluted share, in the same period last year.
Other Recent Developments
On February 19, 2014, Signet Jewelers Limited and Zale Corporation announced they have entered into a definitive agreement for Signet to acquire all of the issued and outstanding
stock of Zale for $21.00 per share in cash consideration. The transaction is subject to Zale stockholder approval, certain regulatory approvals and customary closing conditions. The
transaction is anticipated to close by the end of 2014. Please refer to the Form 8-K filed by the Company on February 19, 2014, for more information.
Conference Call
Zale management will host a conference call today at 9:00 a.m. ET to discuss second quarter fiscal 2014 results. The conference call will be broadcast live over the internet and can be
accessed, along with a slide presentation, on the Investor Relations section of the company’s web site at www.zalecorp.com. In addition, you can listen to the call live by dialing 877-5456744 (within the United States) or 706-634-1959 (for international callers), passcode 4393764. The webcast will be archived shortly after the conference call concludes and will be
available on the company’s web site. For additional information, contact Investor Relations at 972-580-4391.
About Zale Corporation
Zale Corporation is a leading specialty retailer of diamond and other jewelry products in North America, operating approximately 1,660 retail locations throughout the United States,
Canada and Puerto Rico, as well as online. Zale Corporation's brands include Zales Jewelers, Zales Outlet, Gordon's Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda.
Zale also operates webstores at www.zales.com, www.zalesoutlet.com, www.gordonsjewelers.com, www.peoplesjewellers.com, and www.pagoda.com. Additional information on Zale
Corporation and its brands is available at www.zalecorp.com.
This release and related presentations contain forward-looking statements, including statements regarding future sales, expected operating performance, expenses, margins,
profitability, earnings, interest expense, effective tax rate, merchandising and marketing initiatives and industry growth forecasts. Forward-looking statements are not guarantees of
future performance and a variety of factors could cause the Company's actual results to differ materially from the results expressed in the forward-looking statements. These factors
include, but are not limited to: if the general economy performs poorly, discretionary spending on goods that are, or are perceived to be, “luxuries” may decrease; the concentration of
a substantial portion of the Company’s sales in three, relatively brief selling seasons means that the Company’s performance is more susceptible to disruptions; if the Company does
not achieve targeted sales growth its operating results and earnings will be adversely impacted; most of the Company’s sales are of products that include diamonds, precious metals
and other commodities, and fluctuations in the availability and pricing of commodities could impact the Company’s ability to obtain and produce products at favorable prices; the
Company’s sales are dependent upon mall traffic; the Company operates in a highly competitive industry; the financing market remains difficult, and if we are unable to meet the
financial commitments in our current financing arrangements it will be difficult to replace or restructure these arrangements; changes in regulatory requirements may increase the
cost or adversely affect the Company’s operations and its ability to provide consumer credit and write credit insurance; the Company's and Signet Jewelers Limited's ("Signet") ability
to consummate the proposed acquisition of the Company by Signet; the conditions to the completion of the proposed transaction being satisfied, including the receipt of stockholder
approval and applicable regulatory approvals; operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with
employees, customers, competitors or suppliers) may be greater than expected following the announcement of the proposed transaction; and the retention of certain key employees of
the Company may be difficult. Additional information and other factors are contained in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 2013, and
subsequent reports on Form 10-Q and 8-K filed with the Securities and Exchange Commission (“ SEC”). Because the factors referred to above could cause actual results or outcomes
to differ materially from those expressed or implied in any forward-looking statements made by the Company, you should not place undue reliance on any such forward-looking
statements. Further, any forward-looking statement speaks only as of the date of this communication, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after such date.
Additional Information and Where to Find It
This communication may be deemed to be solicitation material in respect of the proposed acquisition of the Company by Signet. In connection with the proposed acquisition, the
Company intends to file relevant materials with the SEC, including the Company’s proxy statement in preliminary and definitive form. Stockholders of the Company are urged to
read all relevant documents filed with the SEC, including the Company's proxy statement when it becomes available, because they will contain important information
about the proposed transaction and the parties to the proposed transaction . Investors and security holders are able to obtain the documents (once available) free of charge at the
SEC’s web site, http://www.sec.gov, or for free from the Company by contacting Zale Investor Relations by phone at (972) 580-4391 or by email at [email protected] .
Participants in the Solicitation
Signet, the Company and their respective directors, executive officers and other members of management and employees, under SEC rules, may be deemed to be “participants” in the
solicitation of proxies from stockholders of the Company in favor of the proposed transaction. Information about Signet’s directors and executive officers is set forth in Signet’s Proxy
Statement on Schedule 14A for its 2013 Annual Meeting of Shareholders, which was filed with the SEC on April 26, 2013, and its Form 8-Ks filed with the SEC on July 9, 2013 and
July 11, 2013. Information about the Company's directors and executive officers is set forth in the Company's Proxy Statement on Schedule 14A for its 2013 Annual Meeting of
Stockholders, which was filed with the SEC on October 2, 2013, and its Annual Report on Form 10-K for the fiscal year ended July 31, 2013, which was filed with the SEC on
September 27, 2013. Information concerning the interests of the Company's participants in the solicitation, which may, in some cases, be different than those of the Company's
stockholders generally, is set forth in the materials filed by the Company with the SEC, and will be set forth in the proxy statement relating to the proposed transaction when it
becomes available.
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Six Months Ended
Three Months Ended
January 31,
Revenues
Cost of sales
$
January 31,
2013
2014
339,651
50.6%
541,407
53.1%
1,028,220
498,234
529,986
51.5%
280,148
42.7%
7,461
488
279,064
41.6%
8,388
926
488,306
47.9%
15,122
488
485,529
47.2%
17,034
(847)
59,522
9.1%
6,096
51,273
7.6%
6,088
37,491
3.7%
11,706
28,270
2.7%
11,930
$
45,185
3,977
41,208
$
25,785
2,305
23,480
16,340
3,396
$
53,426
2,640
50,786
$
12,944
Basic net earnings per common share
$
1.54
$
1.27
$
0.72
$
0.40
Diluted net earnings per common share
$
1.13
$
1.02
$
0.52
$
0.32
Gross margin
% of Revenue
Selling, general and administrative
% of Revenue
Depreciation and amortization
Other charges (gains)
Operating earnings
% of Revenue
Interest expense
Earnings before income taxes
Income tax expense
Net earnings
Weighted average number of common shares outstanding
Basic
Diluted
656,449
308,830
347,619
53.0%
32,919
45,022
$
670,752
2013
2014
$
331,101
32,426
40,305
1,019,063
477,656
32,827
44,837
$
32,362
40,470
ZALE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
January 31,
2013
2014
ASSETS
Current assets:
Cash and cash equivalents
$
Merchandise inventories
Other current assets
Total current assets
Property and equipment
Less accumulated depreciation and amortization
Net property and equipment
23,251
864,275
48,260
$
935,786
906,451
666,000
(562,286)
103,714
688,558
(575,646)
112,912
248,115
241,204
Other assets
18,516
836,624
51,311
Total assets
$
1,280,704
$
1,267,478
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
Current liabilities:
Accounts payable and accrued liabilities
Deferred revenue
Deferred tax liability
$
276,907
81,667
107,479
$
263,384
86,813
97,233
Total current liabilities
466,053
447,430
Long-term debt
445,267
Deferred revenue – long-term
Other liabilities
105,004
72,307
473,975
115,664
36,504
Stockholders’ investment
192,073
193,905
Total liabilities and stockholders’ investment
CONTACT:
Zale Corporation
Roxane Barry, 972-580-4391
Director of Investor Relations
$
1,280,704
$
1,267,478
Exhibit 99.2
S e c o n d
Q u a r t e r
F i s c a l
Y e a r 2 0 1 4
E a r n i n g s
C a l l
F e b r u a r y
2 7 ,
2 0 1 4
1
F o r w a r d - L o o k i n g S t a t e m e n t s a n d U s e o f N o n - G A A P F i n a n c i a l M e a s u r e s T h i s p r e s e n t a t i o n c o n t a i n s f o r w a r d - l o o k i n g s t a t e m e n t s , i n c l u d i n g s t a t e m e n t s r e g a r d i n g f u t u r e
s a l e s ,
e x p e c t e d
o p e r a t i n g
p e r f o r m a n c e ,
e x p e n s e s ,
m a r g i n s , p r o f i t a b i l i t y , e a r n i n g s , i n t e r e s t e x p e n s e , e f f e c t i v e t a x r a t e , m e r c h a n d i s i n g a n d m a r k e t i n g i n i t i a t i v e s a n d i n d u s t r y g r o w t h f o r e c a s t s . F o r w a r d - l o o k i n g s t a t e m e n t s a r e n o t g u a r a n t e e s o f f u t u r e p e r f o r m a n c e a n d a v a r i e t y o f f a c t o r s c o u l d c a u s e t h e C o m p a n y ' s a c t u a l r e s u l t s t o d i f f e r m a t e r i a l l y f r o m t h e r e s u l t s e x p r e s s e d i n t h e f o r w a r d - l o o k i n g s t a t e m e n t s . T h e s e f a c t o r s i n c l u d e , b u t a r e n o t l i m i t e d t o : i f t h e g e n e r a l e c o n o m y p e r f o r m s p o o r l y , d i s c r e t i o n a r y s p e n d i n g o n g o o d s t h a t a r e , o r a r e p e r c e i v e d
t o
b e ,
“ l u x u r i e s ”
m a y
d e c r e a s e ; t h e c o n c e n t r a t i o n o f a s u b s t a n t i a l p o r t i o n o f t h e C o m p a n y ’ s s a l e s i n t h r e e , r e l a t i v e l y b r i e f s e l l i n g s e a s o n s m e a n s t h a t t h e C o m p a n y ’ s p e r f o r m a n c e i s m o r e s u s c e p t i b l e t o d i s r u p t i o n s ; i f t h e C o m p a n y d o e s n o t a c h i e v e t a r g e t e d s a l e s g r o w t h i t s o p e r a t i n g r e s u l t s a n d e a r n i n g s w i l l b e a d v e r s e l y i m p a c t e d ; m o s t o f t h e C o m p a n y ’ s s a l e s a r e o f p r o d u c t s t h a t i n c l u d e d i a m o n d s , p r e c i o u s m e t a l s a n d o t h e r c o m m o d i t i e s , a n d f l u c t u a t i o n s i n t h e a v a i l a b i l i t y a n d p r i c i n g o f c o m m o d i t i e s c o u l d i m p a c t t h e C o m p a n y ’ s a b i l i t y t o o b t a i n a n d p r o d u c e p r o d u c t s a t f a v o r a b l e p r i c e s ; t h e C o m p a n y ’ s s a l e s a r e d e p e n d e n t u p o n m a l l t r a f f i c ; t h e C o m p a n y o p e r a t e s i n a h i g h l y c o m p e t i t i v e i n d u s t r y ; t h e f i n a n c i n g m a r k e t r e m a i n s d i f f i c u l t , a n d i f w e a r e u n a b l e t o m e e t t h e
f i n a n c i a l c o m m i t m e n t s i n o u r c u r r e n t f i n a n c i n g a r r a n g e m e n t s i t w i l l b e d i f f i c u l t t o r e p l a c e o r r e s t r u c t u r e t h e s e a r r a n g e m e n t s ; c h a n g e s i n r e g u l a t o r y r e q u i r e m e n t s m a y i n c r e a s e t h e c o s t o r a d v e r s e l y a f f e c t t h e C o m p a n y ’ s o p e r a t i o n s a n d i t s a b i l i t y t o p r o v i d e c o n s u m e r c r e d i t a n d w r i t e c r e d i t i n s u r a n c e ; t h e C o m p a n y ' s a n d S i g n e t J e w e l e r s L i m i t e d ' s ( " S i g n e t " ) a b i l i t y t o c o n s u m m a t e t h e p r o p o s e d a c q u i s i t i o n o f t h e C o m p a n y b y S i g n e t ; t h e c o n d i t i o n s t o t h e c o m p l e t i o n o f t h e p r o p o s e d t r a n s a c t i o n b e i n g s a t i s f i e d , i n c l u d i n g t h e r e c e i p t o f s t o c k h o l d e r a p p r o v a l
a n d
a p p l i c a b l e
r e g u l a t o r y
a p p r o v a l s ;
o p e r a t i n g
c o s t s ,
c u s t o m e r l o s s
a n d
b u s i n e s s
d i s r u p t i o n
( i n c l u d i n g ,
w i t h o u t
l i m i t a t i o n , d i f f i c u l t i e s
i n
m a i n t a i n i n g
r e l a t i o n s h i p s
w i t h
e m p l o y e e s ,
c u s t o m e r s , c o m p e t i t o r s o r s u p p l i e r s ) m a y b e g r e a t e r t h a n e x p e c t e d f o l l o w i n g t h e a n n o u n c e m e n t o f t h e p r o p o s e d t r a n s a c t i o n ; a n d t h e r e t e n t i o n o f c e r t a i n k e y e m p l o y e e s o f t h e C o m p a n y m a y b e d i f f i c u l t . A d d i t i o n a l i n f o r m a t i o n a n d o t h e r f a c t o r s a r e c o n t a i n e d i n t h e C o m p a n y ' s A n n u a l R e p o r t o n F o r m 1 0 - K f o r t h e f i s c a l y e a r e n d e d J u l y 3 1 , 2 0 1 3 , a n d s u b s e q u e n t r e p o r t s o n F o r m 1 0 - Q a n d 8 - K f i l e d w i t h t h e S e c u r i t i e s a n d E x c h a n g e C o m m i s s i o n ( “ S E C ” ) . B e c a u s e t h e f a c t o r s r e f e r r e d t o a b o v e c o u l d c a u s e a c t u a l r e s u l t s o r o u t c o m e s t o d i f f e r m a t e r i a l l y f r o m t h o s e e x p r e s s e d o r i m p l i e d i n a n y f o r w a r d - l o o k i n g s t a t e m e n t s m a d e b y t h e C o m p a n y , y o u s h o u l d n o t p l a c e
u n d u e
r e l i a n c e
o n
a n y
s u c h
f o r w a r d - l o o k i n g
s t a t e m e n t s .
F u r t h e r , a n y f o r w a r d l o o k i n g s t a t e m e n t
s p e a k s o n l y a s o f t h e d a t e o f t h i s c o m m u n i c a t i o n , a n d t h e C o m p a n y u n d e r t a k e s n o o b l i g a t i o n t o u p d a t e a n y f o r w a r d l o o k i n g s t a t e m e n t t o r e f l e c t e v e n t s o r c i r c u m s t a n c e s a f t e r s u c h d a t e . T h i s p r e s e n t a t i o n c o n t a i n s c e r t a i n n o n - G A A P m e a s u r e s a s d e f i n e d b y S E C r u l e s . O n e o f t h e s e n o n - G A A P m e a s u r e s i s E B I T D A , w h i c h i s d e f i n e d a s e a r n i n g s b e f o r e i n t e r e s t , t a x e s , d e p r e c i a t i o n a n d a m o r t i z a t i o n . A s e c o n d n o n - G A A P m e a s u r e i s a d j u s t e d E B I T D A , w h i c h i s f u r t h e r a d j u s t e d t o e x c l u d e c h a r g e s r e l a t e d t o s t o r e c l o s u r e s . W e u s e t h e s e m e a s u r e m e n t s a s p a r t o f o u r e v a l u a t i o n o f t h e p e r f o r m a n c e o f t h e C o m p a n y . I n a d d i t i o n , w e b e l i e v e t h e s e m e a s u r e s p r o v i d e u s e f u l i n f o r m a t i o n t o i n v e s t o r s . P l e a s e r e f e r t o t h e a p p e n d i x a t t h e b a c k o f t h i s p r e s e n t a t i o n f o r a
r e c o n c i l i a t i o n o f t h e s e n o n - G A A P m e a s u r e s t o t h e m o s t c o m p a r a b l e G A A P f i n a n c i a l
m e a s u r e s .
2
Q 2
F Y 1 4
P e r f o r m a n c e C o m p a r a b l e
s t o r e
s a l e s
( 1 )
U p
1 . 9 %
a t
c o n s t a n t
e x c h a n g e
r a t e s
Z a l e s
b r a n d e d
s t o r e s
u p
3 . 9 % . . . f o l l o w s
a
3 . 6 %
r i s e
i n
Q 2
F Y 1 3
P e o p l e s
b r a n d e d
s t o r e s
u p
2 . 7 %
a t
c o n s t a n t
e x c h a n g e
r a t e s … f o l l o w s
a
3 . 0 %
r i s e
i n
Q 2
F Y 1 3 S i g n i f i c a n t
m a r g i n
a n d
e a r n i n g s
i m p r o v e m e n t
G r o s s
m a r g i n
u p
2 4 0
b a s i s p o i n t s
O p e r a t i n g
m a r g i n
u p
1 5 0
b a s i s
p o i n t s
N e t
i n c o m e
i m p r o v e d
$ 1 0
m i l l i o n ;
d i l u t e d
e a r n i n g s
p e r
s h a r e
i m p r o v e d
$ 0 . 1 1
t o
$ 1 . 1 3
3 ( 1 ) C o m p a r a b l e
S t o r e
S a l e s
e x c l u d e
r e v e n u e
r e c o g n i z e d
f r o m
w a r r a n t i e s .
T h e
s a l e s
r e s u l t s
o f
n e w
s t o r e s
a r e
i n c l u d e d
b e g i n n i n g
w i t h
t h e
t h i r t e e n t h f u l l
m o n t h
o f
o p e r a t i o n s ,
a n d
t h e
s a l e s
r e s u l t s
o f
c l o s e d
s t o r e s
a r e e x c l u d e d
f r o m
t h e
c a l c u l a t i o n .
C o m p a r a b l e
s t o r e
s a l e s
i n c l u d e
a s s o c i a t e d e c o m m e r c e
b u s i n e s s e s . 3
Q 2
F Y 1 4 … K e y s
t o
o u r P e r f o r m a n c e
C o m p e l l i n g
m e r c h a n d i s e
E x c l u s i v e ,
b r a n d e d
c o l l e c t i o n s
V e r a
W a n g
L O V E
T h e
C e l e b r a t i o n
D i a m o n d
C o l l e c t i o n ®
N e w
f a s h i o n
p r o d u c t … T h e H e a r t
W i t h i n ™
C a n d y
C o l o r e d
D i a m o n d s
a n d
G e m s t o n e s ™
A r c t i c
B r i l l i a n c e C a n a d i a n
D i a m o n d s ™
C o r e
n a t i o n a l
b r a n d s … Z a l e s
a n d
P e o p l e s
M u l t i - c h a n n e l
m a r k e t i n g
c a m p a i g n
S t r o n g
e c o m m e r c e
b u s i n e s s
M e r c h a n d i s e
s o u r c i n g a c t i v i t i e s
a n d
d i s c i p l i n e d
p r o m o t i o n a l c a d e n c e
d r o v e
g r o s s
m a r g i n
i m p r o v e m e n t
4
D e f i n i t i v e
M e r g e r
A g r e e m e n t A n n o u n c e d
F e b r u a r y
1 9 ,
2 0 1 4
S i g n e t
t o
a c q u i r e
a l l
o f
t h e
i s s u e d
a n d
o u t s t a n d i n g
s t o c k
o f
Z a l e
f o r
$ 2 1 . 0 0
p e r
s h a r e
i n
c a s h
c o n s i d e r a t i o n S u b j e c t
t o
Z a l e
s t o c k h o l d e r
a p p r o v a l ,
c e r t a i n
r e g u l a t o r y
a p p r o v a l s
a n d
c u s t o m a r y
c l o s i n g
c o n d i t i o n s
A n t i c i p a t e d
t o
c l o s e
b y
t h e
e n d
o f
c a l e n d a r 2 0 1 4
S e e
t h e
F o r m
8 - K
f i l e d
b y
t h e
C o m p a n y
o n
F e b r u a r y
1 9 ,
2 0 1 4 ,
f o r m o r e
i n f o r m a t i o n
5
Q 2 F is c al Y e a r 2 01 4 F i n a n c i a l
t o Q 2 F is c al Y e a r 2 0 1 3
H i g h l i g h t s
( 1 )
R e v e n u e s
d e c r e a s e d
$ 1 4
m i l l i o n
t o
$ 6 5 6
m i l l i o n
C o m p a r a b l e
s t o r e
s a l e s
u p
1 . 9
p e r c e n t
a t
c o n s t a n t
e x c h a n g e
r a t e s
O f f s e t
b y
8 6
n e t
s t o r e
c l o s u r e s
a n d
i m p a c t
o f
C a n a d i a n
e x c h a n g e
r a t e
G r o s s m a r g i n
o f
$ 3 4 8
m i l l i o n ,
o r
5 3 . 0 % ,
c o m p a r e d
t o
$ 3 4 0
m i l l i o n ,
o r
5 0 . 6 % S G & A
e x p e n s e
o f
$ 2 8 0
m i l l i o n ,
o r
4 2 . 7 %
o f
r e v e n u e s ,
c o m p a r e d
t o
$ 2 7 9 m i l l i o n ,
o r
4 1 . 6 %
o f
r e v e n u e s
O p e r a t i n g
e a r n i n g s
o f
$ 6 0
m i l l i o n ,
o r
9 . 1 %
o f
r e v e n u e s , c o m p a r e d
t o
o p e r a t i n g
e a r n i n g s
o f
$ 5 1
m i l l i o n ,
o r
7 . 6 %
o f
r e v e n u e s
I n t e r e s t
e x p e n s e
o f
$ 6
m i l l i o n ,
f l a t
w i t h
p r i o r
y e a r
q u a r t e r I n c o m e
t a x
e x p e n s e
o f
$ 3
m i l l i o n
c o m p a r e d
t o
$ 4
m i l l i o n
N e t
e a r n i n g s
o f $ 5 1
m i l l i o n ,
o r
$ 1 . 1 3
p e r
d i l u t e d
s h a r e ,
a n
i m p r o v e m e n t
o f
$ 1 0
m i l l i o n ,
o r
$ 0 . 1 1
p e r
d i l u t e d
s h a r e
6
( 1 )
A l l
c o m p a r i s o n s
a r e
D r i v e r s
o f
I m p r o v e m e n t
i n N e t
E a r n i n g s
Q 2
F Y 1 3
t o
Q 2
F Y 1 4
$ 9 . 6
M i l l i o n
I m p r o v e m e n t
( I n
M i l l i o n s
o f U S D )
Q 2
F Y 1 3
G r o s s
M a r g i n
I m p r o v e m e n t
H i g h e r
S G & A
T a x
/
O t h e r
Q 2 FY14$41.2
$50.8
($1.1)
$8.0
$2.7
7
Q 2
F Y 1 4
C o m p a r a b l e
S t o r e S a le s
D et a il
Q 2
F Y1 4
Q 2
F Y 1 3
B ra n d
( %
o f
Re v e n u e )
U .S.
D ol l a r
A t C o n s t a n t
E x c h a n g e
R a t e s
U . S .
D o l l a r
A t
C o n s t a n t
E x c h a n g e
R a t e s Z a les /Z a les
O utlet
(65% )
+ 3.9%
+3.9%
+3.6%
+3.6%
G ordon’s
(7% )
-4.5% -4.5% -3.3% -3.3% U.S. Fine Jewelry (72%) +3.1% +3.1% +2.8% +2.8%
P e o p l e s
( 1 4 % )
- 4 . 3 %
+ 2 . 7 %
+ 6 . 4 %
+ 3 . 0 %
M a p p i n s
( 3 % )
- 1 1 . 4 %
- 4 . 9 %
- 5 . 6 % -8.6%
Canadian
Fine
Jewelry
(17%)
-5.6%
+1.3%
+3.8%
+0.5%
Total
Fine J e w e l r y
( 8 9 % )
+ 1 . 3 %
+ 2 . 7 %
+ 3 . 0 %
+ 2 . 3 %
P i e r c i n g
P a g o d a
( 1 1 % )
- 4 . 6 %
- 4 . 6 % + 1 . 0 %
+ 1 . 0 %
T o t a l
C o m p a n y
+ 0 . 6 %
+ 1 . 9 %
+ 2 . 8 %
+ 2 . 2 %
R e v e n u e s
o f
$ 6 5 6 m i l l i o n
c o m p a r e d
t o
$ 6 7 1
m i l l i o n
i n
p r i o r
y e a r
p e r i o d
T o t a l
c o m p a r a b l e
s t o r e
s a l e s
u p
1 . 9 %
a t
c o n s t a n t
e x c h a n g e
r a t e s
C o r e
n a t i o n a l
b r a n d s : Z a l e s
u p
3 . 9 %
P e o p l e s
u p
2 . 7 %
a t
c o n s t a n t
e x c h a n g e
r a t e s
8
Q 2
F i s c a l
Y e a r
2 0 1 4
B a l a n c e S h e e t
a n d
L i q u i d i t y
C a s h
a n d
c a s h
e q u i v a l e n t s
o f
$ 2 3 . 3
m i l l i o n
c o m p a r e d t o
$ 1 8 . 5
m i l l i o n
a t
J a n u a r y
3 1 ,
2 0 1 3
I n v e n t o r y
s t o o d
a t
$ 8 6 4
m i l l i o n c o m p a r e d
t o
$ 8 3 7
m i l l i o n
a t
J a n u a r y
3 1 ,
2 0 1 3
F i r s t
h a l f
F Y 1 4
c a p i t a l e x p e n d i t u r e s
o f
$ 1 8
m i l l i o n
c o m p a r e d
t o
$ 1 3
m i l l i o n
i n
p r i o r
y e a r
p e r i o d T o t a l
d e b t
a t
$ 4 4 5
m i l l i o n ,
d o w n
$ 2 9
m i l l i o n
f r o m
$ 4 7 4
m i l l i o n
a t
J a n u a r y
3 1 ,
2 0 1 3
C u r r e n t
n e t
r e v o l v e r
a v a i l a b i l i t y
a t
$ 2 5 9
m i l l i o n
F i x e d
c h a r g e
c o v e r a g e
r a t i o
a t
2 . 4 7 ,
a b o v e
k e y
t h r e s h o l d
o f
1 . 0
9
F i s c a l
t o b e
Y e a r 2 0 1 4 E x p e c t a t i o n s
E x c l u d e s
I m p a c t
f r o m
t h e
P r o p o s e d
T r a n s a c t i o n
a p p r o x i m a t e l y 4 6 m i l l i o n a t c u r r e n t s t o c k p r i c e C a p i t a l e x p e n d i t u r e s o f
w i t h
S i g n e t A n n o u n c e d
$ 4 5 t o $ 5 0 m i l l i o n N e w
F e b r u a r y 1 9 , 2 0 1 4
s t o r e o p e n i n g s a n d
R e v e n u e P e r f o r m a n c e P o s i t i v e c o m p s d r i v e n b y Z a l e s a n d P e o p l e s a n d
r e m o d e l s i n c o r e b r a n d s I T i n f r a s t r u c t u r e i n v e s t m e n t s – p o i n t - o f - s a l e
b y i n c r e a s e d
s y s t e m s a n d
p e n e t r a t i o n o f e x c l u s i v e ,
s t o r e m o d e r n i z a t i o n 1 0
b r a n d e d
p r o d u c t
O f f s e t
b y
n e t
s t o r e
c l o s u r e s
( a p p r o x i m a t e l y
2 8 0
b a s i s
p o i n t s )
a n d
i m p a c t
o f
C a n a d i a n
e x c h a n g e
r a t e
M a j o r i t y
o f
c l o s u r e s
i n
o u r r e g i o n a l
b r a n d s ,
G o r d o n ’ s
a n d
M a p p i n s ,
a n d
i n
P a g o d a
T o t a l
n e t
c l o s u r e s n o w
e x p e c t e d
t o
b e
7 0
t o
7 5
r e t a i l
l o c a t i o n s
O p e r a t i n g
m a r g i n
e x p a n s i o n o f
5 0 +
b a s i s
p o i n t s
N e t
b e n e f i t s
f r o m
s o u r c i n g
e f f i c i e n c i e s
a n d c o m m o d i t y
c o s t s
P a r t i a l l y
o f f s e t
b y
h i g h e r
i n v e s t m e n t s
i n
S G & A
T a x e x p e n s e
o f
a b o u t
$ 2
t o
$ 3
m i l l i o n
I n t e r e s t
e x p e n s e
a p p r o x i m a t e l y
f l a t w i t h
F Y 1 3
D i l u t e d
s h a r e
c o u n t
e x p e c t e d
A p p e n d i x
1 1
Q2 and YTD Fiscal 2014 R e v e n u e
W a l k
( $
i n
M i l l i o n s )
( 1 )
A t
c o n s t a n t
e x c h a n g e
r a t e s
Q 2
F i s c a l
2 0 1 4
Q 2
F i s c a l
2 0 1 3
R e p o r t e d
R e v e n u e s
6 5 6
$
6 7 1
$
O p e n
/
C l o s e d
S t o r e s ( 1 )
( 1 8 )
C u r r e n c y
-
( 8 )
W a r r a n t y
( 4 0 )
( 4 1 )
I n s u r a n c e
/
O t h e r
( 4 )
( 4 ) C o m p a r a b l e
S t o r e
S a l e s
R e v e n u e
( 1 )
6 1 1
$
6 0 0
$
1 . 9 %
Y T D
F Y 1 4
Y T D
F Y 1 3 R e p o r t e d
R e v e n u e s
1 , 0 1 9
$
1 , 0 2 8
$
O p e n
/
C l o s e d
S t o r e s
( 3 )
( 2 8 )
C u r r e n c y -
( 1 0 )
W a r r a n t y
( 7 4 )
( 7 6 )
I n s u r a n c e
/
O t h e r
( 7 )
( 6 )
C o m p a r a b l e
S t o r e S a l e s
R e v e n u e
( 1 )
9 3 5
$
9 0 8
$
3 . 0 %
1 2
YTD
Fiscal
Year
2014 F i n a n c i a l
H i g h l i g h t s
( 1 )
R e v e n u e s
d e c r e a s e d
$ 9
m i l l i o n
t o
$ 1 . 0 2
b i l l i o n C o m p a r a b l e
s t o r e
s a l e s
u p
3 %
a t
c o n s t a n t
e x c h a n g e
r a t e s
P a r t i a l l y
o f f s e t
b y
8 6
n e t
s t o r e
c l o s u r e s
a s
c o m p a r e d
t o
p r i o r
y e a r
p e r i o d
a n d
i m p a c t
o f C a n a d i a n
e x c h a n g e
r a t e
G r o s s
m a r g i n
o f
$ 5 4 1
m i l l i o n ,
o r
5 3 . 1 % ,
c o m p a r e d t o
$ 5 3 0
m i l l i o n ,
o r
5 1 . 5 %
S G & A
e x p e n s e
o f
$ 4 8 8
m i l l i o n ,
o r
4 7 . 9 %
o f r e v e n u e s ,
c o m p a r e d
t o
$ 4 8 6
m i l l i o n ,
o r
4 7 . 2 %
o f
r e v e n u e s
O p e r a t i n g e a r n i n g s
o f
$ 3 7
m i l l i o n ,
o r
3 . 7 %
o f
r e v e n u e s ,
c o m p a r e d
t o
o p e r a t i n g e a r n i n g s
o f
$ 2 8
m i l l i o n ,
o r
2 . 7 %
o f
r e v e n u e s
I n t e r e s t
e x p e n s e
o f
$ 1 2 m i l l i o n ,
f l a t
w i t h
p r i o r
y e a r
p e r i o d
N e t
e a r n i n g s
o f
$ 2 3
m i l l i o n ,
o r $ 0 . 5 2
p e r
d i l u t e d
s h a r e ,
a n
i n c r e a s e
o f
$ 0 . 2 0
p e r
d i l u t e d
s h a r e
1 3
( 1 )
A l l
c o m p a r i s o n s
a r e
t o
F i r s t
H a l f
F i s c a l
Y e a r
2 0 1 3
D r i v e r s
o f
I m p r o v e m e n t
i n N e t
E a r n i n g s
Y T D
F Y 1 3
t o
Y T D
F Y 1 4
$ 1 0 . 6
M i l l i o n
I m p r o v e m e n t
( I n
M i l l i o n s o f
U S D )
Y T D
F Y 1 3
G r o s s
M a r g i n
I m p r o v e m e n t
H i g h e r
S G & A
T a x
/
O t h e r
Y T D F Y 1 4
$ 1 2 . 9
$ 2 3 . 5
( $ 2 . 8 )
$ 1 1 . 4
$ 2 . 0
1 4
Y T D
F Y 1 4
C o m p a r a b l e
S t o r e Sales
Detail
YTD
FY14
YTD
FY13
Brand
(%
of
Revenue)
U.S.
Dollar
At
C o n s t a n t
E x c h a n g e
R a t e s
U . S .
D o l l a r
A t
C o n s t a n t
E x c h a n g e
R a t e s Zale s/Zale s
Outle t
(65%)
+5.1%
+5. 1%
+4.0%
+ 4.0%
Gordon’s
(7% )
-4.3% -4.3% -3.0% -3.0% U.S. Fine Jewelry (72%) +4.1% +4.1% +3.2% +3.2%
P e o p l e s
( 1 4 % )
- 1 . 8 %
+ 4 . 6 %
+ 7 . 2 %
+ 4 . 4 %
M a p p i n s
( 3 % )
- 8 . 2 %
- 2 . 2 %
- 5 . 6 %
-8.1%
Canadian
Fine
Jewelry
(17%)
-3.0%
+3.3%
+4.4%
+1.6%
Total
Fine J e w e l r y
( 8 9 % )
+ 2 . 6 %
+ 4 . 0 %
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w e b s i t e , h t t p : / / w w w . s e c . g o v , o r f o r f r e e f r o m t h e C o m p a n y b y c o n t a c t i n g Z a l e I n v e s t o r R e l a t i o n s b y p h o n e a t ( 9 7 2 ) 5 8 0 - 4 3 9 1 o r b y e m a i l a t i r @ z a l e c o r p . c o m . P a r t i c i p a n t s i n t h e S o l i c i t a t i o n S i g n e t , t h e C o m p a n y a n d t h e i r r e s p e c t i v e d i r e c t o r s , e x e c u t i v e o f f i c e r s a n d o t h e r m e m b e r s o f m a n a g e m e n t a n d e m p l o y e e s , u n d e r S E C r u l e s , m a y b e d e e m e d t o b e “ p a r t i c i p a n t s ” i n t h e s o l i c i t a t i o n o f p r o x i e s f r o m s t o c k h o l d e r s o f t h e C o m p a n y i n f a v o r o f t h e p r o p o s e d t r a n s a c t i o n . I n f o r m a t i o n a b o u t S i g n e t ’ s d i r e c t o r s a n d e x e c u t i v e o f f i c e r s i s s e t f o r t h i n S i g n e t ’ s P r o x y S t a t e m e n t o n S c h e d u l e 1 4 A f o r i t s 2 0 1 3 A n n u a l M e e t i n g o f S h a r e h o l d e r s , w h i c h w a s f i l e d w i t h t h e S E C o n A p r i l
d i r e c t o r s a n d e x e c u t i v e o f f i c e r s i s s e t f o r t h i n t h e C o m p a n y ' s P r o x y S t a t e m e n t o n S c h e d u l e 1 4 A f o r i t s 2 0 1 3 A n n u a l M e e t i n g o f S t o c k h o l d e r s , w h i c h w a s f i l e d w i t h t h e S E C o n O c t o b e r 2 , 2 0 1 3 , a n d i t s A n n u a l R e p o r t o n F o r m 1 0 - K f o r t h e f i s c a l y e a r e n d e d J u l y 3 1 , 2 0 1 3 , w h i c h w a s f i l e d w i t h t h e S E C o n S e p t e m b e r 2 7 , 2 0 1 3 . I n f o r m a t i o n c o n c e r n i n g t h e i n t e r e s t s o f t h e C o m p a n y ' s p a r t i c i p a n t s i n t h e s o l i c i t a t i o n , w h i c h m a y , i n s o m e c a s e s , b e d i f f e r e n t t h a n t h o s e o f t h e C o m p a n y ' s s t o c k h o l d e r s g e n e r a l l y , i s s e t f o r t h i n t h e m a t e r i a l s f i l e d b y t h e C o m p a n y w i t h t h e S E C , a n d w i l l b e s e t f o r t h i n t h e p r o x y s t a t e m e n t r e l a t i n g t o t h e p r o p o s e d t r a n s a c t i o n w h e n i t b e c o m e s a v a i l a b l e . 1 9
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