This summary is based on the third quarter fiscal 2008 earnings call conducted by Zale Corporation (ZLC: chart) on May 22, 2008.

Management:

VP and Treasurer: David Sternblitz
President and CEO: Neal Goldberg
EVP, CAO and CFO: Rodney Carter
EVP and Chief Sourcing and Supply Chain Officer: Gill Hollander

Key Investors Issues

- EPS were a loss of 40 cents a share compared to 8 cents a share last year.
- Net loss widened to $16.8 million from $4 million a year earlier.
- Total revenues were $477 million, compared to $449 million, an increase of 6.2%.

Third Quarter Highlights

Comparable store sales increased 5.8%.

- All brands reported increases except Outlet, which was negative, driven primarily by the performance of the destination centers.
- Total revenues were $477 million, compared to $449 million, an increase of 6.2%.
- The average transaction was relatively flat and $175 million compared to $172 million last year.

- Reported revenue reflects a $3 million increase in recognized revenue from warranties. This trend should continue as the company begins to anniversarise the change in the product offering. Unrecognized revenues from warranty sales increased $17 million from the end of the second quarter, and the company continues to see strong attachment rates and a 52%. Customers'' response to the lifetime product is encouraging, given the focus on clearance over the past three months. This brings the year-to-date increase of unrecognized revenues to $64 million.

During the holiday period late last fiscal year, the company extended the service period for the warranty plan offered to customers from two years to the lifetime of product ownership, both simultaneously raising the retail price.

- Actual sales continue to increase over the comparable prior year period. Revenues have been negatively impacted due to more revenue being deferred.
- The company believes that the net change in unrecognized revenues will consistently provide insight into the incremental cash and the potential impact on future earnings. In addition to the generation of cash, the deferred revenue generated will be recognized over a reduced share count resulting in a substantial future EPS benefit. Gross margin was 47.5% of sales versus 52.1% last year, a reduction of 460 basis points.

The company liquidated $55 million of the $100 million that has been identified to be permanently reduced.

- Merchandise inventory at April 30, 2008 was $867 million versus $1.1 billion last year, a decrease of $220 million. Prior year inventory includes approximately $166 million related to Bailey Banks & Biddle. Excluding Bailey Banks & Biddle, inventory was down approximately $53 million as a result of the clearance initiative.
- Inventory turnover on a rolling 12-month basis was lower at 1.15 times this year versus 1.21 times last year.

SG&A, including the cost of insurance operations, was 49%, versus 49.9% last year as a percentage of revenue, primarily due to leverage generated as a result of the sales increase.

- SG&A dollars increased by $10 million, primarily in variable fields of payroll and rent.
- The company achieved approximately $4 million in savings related to the expense reduction initiative that was offset by $2 million of severance and related expenses. Operating loss was $21.9 million, compared to a loss of $4 million last year.

- The effective tax rate was 26.4% versus 38.6% last year.
- For the year, the effective tax rate is estimated at approximately 50%. The increase on an annual basis in the effective tax rate is primarily the result of the relationship of non-taxable earnings in Canada, to the consolidated loss, as a result of APB 23 election to permanently reinvest the funds. The tax rate is expected to normalize to historical levels next year.

- The net loss from continuing operations was $17.4 million or 42 cents per share, compared to a loss of $5 million or 10 cents per share last year.
- As adjusted for cash warranty, the net loss was $7 million or 17 cents per share compared to net income of $4.8 million or 10 cents per share. Earnings per share were negatively impacted by 7 cents per share due to the tax rate, and 6 cents per share as a result of the reduced share count from the stock repurchase program. The strong emphasis on enhancing shareholder value continues to be evident by share repurchase program.

The company announced a $200 million authorization in November of 2007, and an additional authorization of $100 million in March of this year.

The combined repurchases are being funded primarily by the proceeds in the Bailey Banks & Biddle divestiture, and the reduction in inventory levels. Through May 2 this fiscal year, the company has repurchased 250 million of stock, or 13.8 million shares, or 28% of the outstanding shares.

The first $100 million of authorization was accomplished through an accelerated share repurchase agreement totaling 5.9 million shares at an average price of $16.85. Additionally, the company repurchased $150 million, or 7.9 million shares at an average price of $18.98, as part of 10b5-1 program, for total average price of $18.06 for all shares purchased. The company purchased 7.9 million shares, which includes 1.6 million shares in the Romanian settlement from the ASR, and repurchased or purchased another 160,000 shares in the first week in May.