Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Zale (NYSE:ZLC)

Q2 2011 Earnings Call

February 23, 2011 9:00 am ET

Executives

Theo Killion - Chief Executive Officer, President and Director

Matthew Appel - Chief Financial Officer and Executive Vice President

Roxane Barry - Director of Investor Relations

Analysts

Rick Patel - BofA Merrill Lynch

David Wu - Global Crown

William Armstrong - CL King & Associates, Inc

Jeffery Stein - Soleil Securities Group, Inc.

Janet Kloppenburg - JJK Research

Operator

Good morning, my name is Ashley, and I will be your conference operator today. I would like to welcome everyone to Zale Corporation’s Fiscal Second Quarter 2011 Results Conference Call [Operator Instructions] I would now like to turn the call over to Roxane Barry, Director of Investor Relations. Please go ahead.

Roxane Barry

Good morning, and thank you for joining us on the Zale Corporation’s Fiscal Second Quarter 2011 Conference Call. I'm Roxane Barry, Director of Investor Relations. On the call with me today are Theo Killion, Chief Executive Officer; and Matt Appel, Executive Vice President and Chief Financial Officer.

Before we begin, I'll read our Safe Harbor statement. Our commentary and responses to your questions on this conference call will contain forward-looking statements, including statements relating to our future goals, plans and objectives. These forward-looking statements are not guarantees of future performance and a variety of factors could cause our actual results to differ materially from the anticipated or expected results expressed in these forward-looking statements. Additional information concerning other factors that would cause actual results to differ materially from those contained in the forward-looking statements is available in our quarterly report on Form 10-Q for the fiscal quarter ended October 31, 2010.

I'll now turn the call over to Matt.

Matthew Appel

Thank you, Roxane, and good morning to everyone. We are very pleased to report our second quarter results that marked another quarter of solid progress as we continue to execute the multiyear turnaround of the business. Revenues for the quarter ended January 31, 2011 were $626 million, an increase of $44 million or 7.6%, compared to $582 million for the same period in the prior year. The increase in revenues is primarily due to higher same-store sales, an increase in revenues recognized on our lifetime warranty programs and appreciation of the Canadian dollar. The increase was partially offset by a net decrease of 36 stores compared to last year.

Comparable store sales for the second quarter increased 7.9%, compared to a decrease of 11.2% in the prior year. The increase in comparable store sales was driven by an increase in both the number of customer transactions and average transaction price. The constant exchange rates, which excludes the effect of translating Canadian currency, denominated sales at the U.S. dollars, same-store sales increased 7% for the quarter.

During the second quarter, the Canadian dollar remained strong relative to the U.S. dollar, with an average exchange rate of approximately $0.99. In the second quarter of last year at this rate stood at approximately $0.95, therefore, year-over-year, the Canadian dollar was 5% stronger. Impact on the 2011 quarter's earnings was not significant, as the rate differential almost equally impacted all P&L line items.

Gross margin for the quarter ended January 31, 2011 was 50.3% compared to 49.8% for the prior-year period. The overall improvement of 50 basis points was due to the combination of the following factors: higher recognized revenues from lifetime warranty worth 65 basis points, a pickup of approximately 230 basis points due to improvement in overall inventory quality by moving from 60% to 78% core and higher rate of inventory turn compared to last year. This was partially offset by an approximate 200 basis point impact of higher cost of merchandise, which we account for on a LIFO basis, and a change in mix to lower margin merchandise.

I'd now like to address the subject of commodity prices. Since last fall, diamond producers have experienced a significant increase in the price of rough. We have accepted some modest price increases with more recent receipts. However, based on the well-publicized price pressure in the marketplace, it will be necessary to accept additional selective price increases this spring as we replenish our core inventory. As we manage through this process, we are evaluating our pricing strategy with a focus on maximizing gross margin dollars.

Gold pricing is far less significant to us. However, over the past year, gold prices have increased by approximately 24%. We have addressed this by shifting more merchandise into alternative metals for example, in Pagoda, and by taking selective price increases. Our objective remains to maintain gross margins above 50% while continuing to regain market share. SG&A expense for the quarter was 41.2% of revenues as compared to 43.3% of revenues in the fiscal 2010 period, or $258 million in the second quarter of fiscal '11 compared to $252 million in the comparable 2010 period.

The increase in SG&A expense of $6 million was due to the following factors: first, a higher level of staffing in our stores during the holiday season; secondly, higher performance-based compensation earned by our field and corporate personnel; and finally, lower promotional expenses as a result of the timing of certain Valentine's Day promotions and a more efficient advertising buy for holiday.

Keep in mind, as our sales increase, as demonstrated this quarter; we are beginning to realize SG&A leverage. Other charges of $2.9 million in the second quarter consist primarily of a non-cash $3.7 million charge to the impairment of certain underperforming stores. In the comparable 2010 period, other charges included a $23.3 million charge in the impairment of underperforming stores and a $3.7 million charge related to closed stores.

Operating earnings for the second quarter were $44 million compared to a loss of $3 million in the prior-year period, representing an improvement of $47 million. Operating margin for the quarter was 7.0% compared to negative 0.5% in the comparable fiscal 2010 period. This improvement embodies the progress made at holiday with respect to our turnaround initiatives.

Interest expense for the second quarter of 2011 was $9.5 million, compared to $2 million in the prior year. This quarter's interest expense reflects approximately $5.3 million for the Senior Secured Term Loan, as well as an increase of approximately 210 basis points year-over-year in the interest rate on our revolving credit agreement.

In the second quarter of fiscal 2011, we incurred income tax expense of $6.4 million, compared to a benefit of $12 million in the comparable period last year. Income tax expense for the second quarter of 2011 is primarily associated with earnings of our Canadian operations. The income tax benefit in the prior year was primarily attributable to a $16.9 million refund associated with the Business Assistance Act of 2009.

At this time, we believe that all U.S. net operating loss carrybacks have been exhausted. Earnings from continuing operations for the quarter ended January 31, 2011 were $27.7 million or $0.86 per basic share and $0.74 per diluted share. Because we had net earnings this quarter, warrants and options that are in the money were dilutive to share count. In the prior-year quarter, earnings from continuing operations were $7.2 million or $0.22 per basic and diluted share.

We ended the second quarter with 1,197 fine jewelry stores and 674 kiosks for a total of 1,871 retail locations, compared to 1,228 fine jewelry stores, 679 kiosks for a total of 1,907 locations in the prior-year quarter. During the quarter, we closed 21 fine jewelry stores. Most of these were underperforming stores, which had reached the end of their natural lease term. During the quarter, we also opened four kiosks and closed three kiosks for a net increase of one. Our expectation continues to be that we will selectively open stores where the opportunity is compelling and close stores that are underperforming if the economics make sense. We do not expect future store closures will be material.

Now let's turn to the balance sheet. Inventory at January 31, 2011 stood at $777 million, compared to $738 million at the end of the second quarter last year. The increase of $39 million was due to a planned ramp up of core product in anticipation of the Valentine's Day selling period. We now have the liquidity to sustain appropriate replenishment of core inventory and continue to place orders and receive goods in the normal course. Support from our vendors has been significant and unwavering as evidenced by the growth of approximately $45 million in trade payables year-over-year.

I would like to take this opportunity to thank the vendors who supported us throughout the past year. Our continued partnership is essential to completing our turnaround initiatives and returning the company to profitability. As of January 31, 2011, the company had total outstanding debt of $385 million compared to $368 million as of January 31, 2010. In addition to the term loan of $140 million, long-term debt included $245 million borrowed under the revolving credit facility. Total available borrowing capacity as of January 31, 2011 stood at approximately $177 million, compared to $67 million of availability as of January 31, 2010, an increase of approximately $110 million.

This quarter, the company was required to meet certain financial covenants of our term loan agreement for the first time. These covenants are minimum store contribution for the 12 months ended January 31, 2011 for both Piercing Pagoda and Canada, and minimum liquidity on the term loan. I want to emphasize that all term loan covenants were exceeded by a comfortable margin.

In the second quarter, we benefited from an acceleration of positive trends and proprietary credit. During the holiday selling period, we offered an attractive menu of credit options. In the U.S., we offered a variety of no-interest options. In Canada, we offered a no-interest no-payments plan until 2012 program. These credit choices added value, convenience and affordability for our customers.

We were pleased with the feedback we received from our customers on these highly competitive offerings. We experienced an increase in the number of applications submitted per store in both the United States and Canada, along with double-digit percentage increases in the average credit sales ticket over the same period in the prior year. It is also important to note that in a credit environment that has been characterized by continued regulatory and macroeconomic headwinds, our approval rates have remained stable. I'd like to thank our proprietary credit partners in the U.S. and Canada for their support during the holiday season.

I would now like to comment on February results to date. For the four-day Valentine's Day selling period, we experienced a positive 12% comp and our month-to-date performance is very much in line with those results. Importantly, our margins remain above 50% despite the cost pressures I discussed earlier. In conclusion, we are pleased with the results to date from our turnaround initiatives, but we recognize that we must sustain these efforts in order to achieve our goal of returning the company to profitability.

I'd now like to turn the call over to Theo.

Theo Killion

Thank you, Matt. Before I begin talking about the business, I'd like to thank Chuck Sonsteby, who stepped down from board service after over four years of distinguished leadership. On behalf of our management team and the Board of Directors, thanks, Chuck, for helping to guide us through some challenging times. I'd also like to welcome David F. Dyer to our board. David is an experienced retail leader with over 37 years in the business. He is currently President and Chief Executive Officer of Chico's, where he has served on the board since 2007. David's retail pedigree includes brands such as HSN, Lands' End, J. Crew, and Tommy Hilfiger. Welcome, David.

Now let's talk about the business. It was exactly one year ago today that I addressed this audience for the first time. And without reliving the challenging financial and organizational issues that confronted the business a year ago, I think it's important for us to be accountable to the objectives that we set for ourselves back then. We said that we were going to return to our heritage as the diamond store by fixing the core assortment, investing in proven strategies and returning to basics, and here's what we've done. 78% of our inventory is now core. That's an 18% percentage point improvement from the 60% of a year ago. We have methodically rebuilt the assortment architecture, while simultaneously eliminating unproductive inventory without sacrificing margin.

With the stated objective of once again reclaiming our heritage as the diamond store, we focused on the bridal categories, which, for the second quarter, delivered a comp performance exceeding that of the overall business. We said we'd create a marketing message that supported our focus on the core. And it drove home our aspiration to be the diamond store.

Last October, we introduced our first ever bridal campaign in support of our Wedding categories. We concentrated on creating efficiency and effectiveness within our holiday marketing campaigns, allowing us to deliver significantly more communication weight at lower cost. For example, this holiday, on a lower budget, we delivered a 7% increase in television weight and a 20% increase in online impressions, ensuring that our core customers saw our message during critical holiday selling periods. These ads were flexible enough to not only incorporate several promotional messages, but also capture the very special moments that people share when they celebrate love in their life. Rich Lennox, our Chief Marketing Officer, and his team did a terrific job of optimizing.

We also said we'd focus on the, field. Investing in technical training that built confidence in our core assortment, specifically focusing on the diamond categories. We also said that we believe the district manager was the linchpin between corporate strategy and execution in the field. Therefore, we had to make sure that we had the right talent in this critical role. By investing in DCA training, we more than doubled the number of jewelry consultants who have the technical expertise needed to sell diamonds. During holiday, the DCA-trained consultants were more productive with an almost double the average SPH or sales per hour of other consultants and their sales reflected a higher penetration of diamonds, 66% versus non-DCA-certified consultants at 60%.

In terms of district managers, we made the difficult decision of replacing almost 30% of the team while also introducing a new 45-day on-boarding program for new DMs. We also made important investments in our current DMs while adding positions in order to reduce spans of control. Becky Mick, our Chief Stores Officer and the stores' team were well prepared for the holiday selling season.

Finally, we said we'd focus on brand differentiation. In the fall, we began an initiative focused on our Canadian business that was based on an organizational design to ensure accountability and focus in Canada. We added dedicated resources in stores, merchandising, marketing and planning and allocation, focused singularly on Canada and delivered a Canadian dollar comp increase of 8% in the second quarter. Each of the initiatives that I've described were intended to be in place prior to our October floor set. Since then, we've delivered four consecutive months of positive comps, October, November, December and January. And as Matt indicated, we're well on our way to delivering a fifth month in February. This includes positive comps in each one of our brands.

Our performance was a direct result of the hard work of the teams assigned to these initiatives, as well as an organization coalescing on a single focus: to deliver a good holiday. But make no mistake about it; we are pleased, but we're not content. We learned a tremendous amount this quarter, and we know that we have an even greater opportunity if we translate these learnings into better execution next holiday.

We started planning our process for Q2 of next fiscal year the 1st week of January, and we'll continue to refine that process as we go into the fall season. We have been, and we will continue to be, methodical and deliberate in the execution of our plans. What we're doing is what our Chief Merchandising Officer, Gil Hollander, describes as blocking and tackling, restoring the core assortment, offering our guests beautiful product, supporting that product with aspirational marketing and building lasting relationships with our guests by having talented field teams who own the business.

Along the way, we want to deliver great experiences at point-of-sale and as Matt indicated, return the business to profitability. I, too, would like to extend my sincere thanks to our vendors, as Matt did earlier today. And I look forward to meeting many of them when Gil and I and our diamond sourcing team travel to India next month. But I'd especially like to thank the 13,000 employees at the Zale Corporation for their support in delivering a good second quarter.

Now we'll take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Rick Patel with Bank of America Merrill Lynch.

Rick Patel - BofA Merrill Lynch

Can you give us some more color around the price increases that you're planning for the spring, perhaps characterize the magnitude of the increase?

Matthew Appel

So, Rick, we are still assembling our pricing plan as I indicated earlier. We're firming up our diamond pricing and as Theo indicated, we have a very important trip to India coming up in short order. The price increases, though, are going to be selective. They're going to maintain our value stance. They're going to be in line with competition. And they're going to assure that we maintain our goal of 50% or better gross margin.

Theo Killion

I think it's important, Rick, to mention that across the supply chain, there's a tremendous amount of pressure, both on the vendor side and clearly on our customers' side and all parts in between. We have a responsibility to continue to build the partnerships that have been so important to us over the last year with their vendors, but also to offer opening price points and an assortment that recognizes the fact that our customers are having a difficult time and that we need to offer an assortment that makes sense to them. So we're managing both ends of the supply chain, and we'll make strategic decisions to take the price increases, as Matt indicated, in a selective way, but making sure that our customers have opening price points so they can continue to shop at Zale's.

Operator

And our next question comes from the line of Bill Armstrong with CL King & Associates.

William Armstrong - CL King & Associates, Inc

Just to follow-up on that, are we just looking at the price hikes in the diamond component of your jewelry, or will you also be reflecting higher costs for gold?

Matthew Appel

We will also be looking at gold. We've taken some selective hikes in gold-related product. But our focus right now is on the pressure in the supply chain with respect to diamonds. Gold is not as significant in terms of product content to us as diamonds are.

William Armstrong - CL King & Associates, Inc

The SG&A dollar increase year-over-year, it's the first dollar year we've seen in a while. You mentioned higher store payroll and incentive comps. Is this just more store hours or were there -- is there higher compensation per person as well?

Matthew Appel

Slightly higher staffing than in the past to address the higher rate of sale this holiday season. Performance/variable-based compensation both for the field with respect to the better quarter as well as the corporate staff. And those costs, which aggregate about $10 million overall were offset by timing in terms of marketing and the effectiveness of the spend. So keep in mind, we got 210 basis point better leverage in SG&A and as our sales continue to climb, we expect that, that will continue as well.

William Armstrong - CL King & Associates, Inc

On that other charges item, Matt, I think I heard you say it's $3.7 million store impairment charge. Did I hear that correctly?

Matthew Appel

Yes, you did, Bill. There's also an offsetting gain with respect to our closed store reserve that makes up the difference to get you to $2.9 million.

William Armstrong - CL King & Associates, Inc

For Valentine's, any particular promotions or any other actions that you took that produced this very impressive 12% comp?

Theo Killion

Our Valentine's Day promotional posture was very much in line with what we did on Black Friday, with what we did over holiday, and it seems to be paying off for us so far. So by building an assortment that the customer is interested in, by putting an advertising campaign out that we believe elevates that assortment and gives us some flexibility, the combination of those things appear to be working for us.

William Armstrong - CL King & Associates, Inc

And then the 8% comps in Canada for the quarter, is that in local currency?

Theo Killion

Canadian dollars.

Operator

And our next question comes from the line of Jeff Stein with Soleil Securities.

Jeffery Stein - Soleil Securities Group, Inc.

I just want to make sure I understand the SG&A. It sounds to me like you did shift some marketing spend from Q2 into Q3. And I'm wondering, are we going to see perhaps even a bigger jump in SG&A dollars or percent year-on-year in the third quarter?

Matthew Appel

Let me address that, on an overall basis for the year, Jeff, our marketing expenses, we expect will be $3 million to $5 million higher. We've intentionally and thoughtfully looked at the entire year rather than just holiday as a way to more effectively spend our marketing dollars. The $2 million of the variance that I talked about year-over-year was timing in the way Valentine's Day-related marketing was incurred. And we were able to get more leverage on the buy. So we were able to devote more to the back half of year. But there will be more in the second half of the year on a year-over-year basis, to answer your question.

Theo Killion

We expect on a total year basis in advertising that we'll more than double our newspaper circulation, for instance, in Canada, and our online impressions will have as much as a 33% increase in TRPs and impressions for the Zales brand in the United States. So as I mentioned earlier, I think Rich and his team took a small increase and spread it out in a way so that we could be strategically effective in the way that we delivered our message to the guest.

Jeffery Stein - Soleil Securities Group, Inc.

Question for both Theo and Matt, there's been considerable speculation in the trade regarding what you guys might want to do with Piercing Pagoda. And I don't know if you'd care to comment on that, but my question relates to kind of a what if question. If you were to sell Piercing Pagoda or any other asset for that matter, what is your flexibility with respect to paying down the term debt? And what, if any, penalties might you incur in doing so?

Matthew Appel

Jeff, this is Matt, I'll take that. First, we're not currently pursuing any asset sales in this business. With respect to the term loan, like any lender who has collateral, we would require that lender's consent in order to sell a portion of their collateral. And secondly, there are prepayment penalties in paying the loan down early. There's a sliding scale from 10% down to 0% over the five-year period in 2.5% increments.

Theo Killion

I think it's important to take the opportunity to also say that though there have been some transitions at Golden Gate, we've seen no change at all in our board and in the meetings that we have had and we've had several of them over the last few weeks with the representatives from Golden Gate Capital. We continue to enjoy a strong relationship and they're very enthusiastic about the progress that we're making in our turnaround efforts.

Jeffery Stein - Soleil Securities Group, Inc.

Matt, just one question on the share count, can you talk a little bit about -- I understand the fact that you made money and that boosted the share count, but how do these warrants kind of weigh in to the calculation when you do make money? In other words, does it have to do with kind of the vesting schedule and how should we think about that going forward?

Matthew Appel

The way it works, Jeff, is that the dilution or the number of shares that are added for dilution purposes are calculated using the treasury stock method. And so to the extent an instrument is in the money, you take the gain and you divide it into the number of instruments. And in this case, we were $2.5 to $3 in the money, divided into 11 million to 12 million instruments. You get about a $5.3 million dilution. And that's why you're seeing the share can going from 32 to mid-37s, with respect to EPS.

Jeffery Stein - Soleil Securities Group, Inc.

The diamond situation, can you talk about kind of what is driving the higher demand for diamonds? Is it U.S. demand, is it world demand? And If you guys believe that it's going to continue to increase, any type of hedging strategies anticipated?

Theo Killion

It's really world demand. We're seeing that and a lot of speculation. It's not a direct correlation to what happened in other kinds of bubbles that we've seen, but there's speculation back and fourth among the people who own the rough. There are things that are going up in the world demand. We are certainly not in the business of hedging or predicting, so we're managing it with our vendors and trying to get in front of it as much as we can. We feel pretty comfortable we'll still be able to offer the kind of value that we need at point-of-sale.

Jeffery Stein - Soleil Securities Group, Inc.

And your credit penetration, can you talk about that during the holiday season compared to the prior year?

Matthew Appel

The credit penetration, Jeff, was slightly lower, but we saw much higher tickets and stable approval rates. And we saw people buying up basically because of the acceptance of our no-interest plans. And so what I'd say is that with the new agreement or the renewed agreement in the U.S., and the new provider in Canada, we're enjoying very stable, mutually beneficial-type business relationship. And we're very pleased with where credit is at this time.

Jeffery Stein - Soleil Securities Group, Inc.

Traffic is ticket in the second quarter?

Matthew Appel

In terms of the mix, we saw about a 6% increase in the value of transactions and about a 2% increase in the number of tickets.

Operator

And our next question comes from David Wu with Telsey Advisory Group.

David Wu - Global Crown

In terms of the cost savings, can you talk about maybe some of the levers that are left to pull? I know, in terms of rent negotiations, is there probably -- you're probably getting less traction from that as well as from lower occupancy, but maybe in some other areas?

Matthew Appel

Well our focus is always on minimizing cost wherever appropriate and possible. Our focus has really been on selectively and carefully building back critical elements of the infrastructure to support the recovery of the business. And so we're less focused on the cost reduction mode that you're accustomed to hearing about here and more on bringing the right talent into this business to propel us towards our goals with respect to recovery.

Theo Killion

I think that a couple of things are important to mention here, one is that, as we think about where we are year-over-year, a year ago, we were in the stabilization mode. And this year, we are in the mode of developing relationships with our critical partners, so that Matt and the real estate team and I have had meetings with our Canadian landlords. I recently had lots of conversation with our partners at Simon. We intend to have more conversations on an offensive total portfolio basis so that we're all making money in a way that makes sense for us. And we will be extending that thoughtfulness to what we're going to be doing in investor conferences. We are attending investor conferences this year. As you know, David will be at the Telsey Group Conference. We think it's important to tell our story. And the whole idea of an annual meeting with vendors, talking about the business, not about tomorrow or next week, but really talking about the next three or five years of partnership is a significant change from where we were a year ago.

David Wu - Global Crown

And with respect to the solid February trends, can you talk about which product category faired the best?

Theo Killion

We continue to see wonderful improvements in our bridal categories, which we've talked about in the last two calls. Diamond fashion has also improved over the last couple of months. It's an important category for us we go into Mother's Day. But that selling improved dramatically over Valentine's Day. So we're actually getting a lift throughout our categories, and we are certainly hopeful that, that lift will continue into Mother's Day.

Operator

And our next question comes from Janet Kloppenburg with JJK Research.

Janet Kloppenburg - JJK Research

Couple of questions and I got on late, so I apologize. The no-interest marketing campaign over the holiday, was that new to this year or reinstituted in the second quarter as opposed to not being available and not offered last year?

Matthew Appel

They were new plans, yes.

Janet Kloppenburg - JJK Research

And that continued into the Valentine's Day season as well?

Matthew Appel

Yes, to some extent. That was primarily a holiday promotion. But our program contains much more dimension to it than just the no-interest plans. And so we have very competitive program with respect to down payments and payback rates. So we are extremely competitive across the spectrum of our current plans.

Janet Kloppenburg - JJK Research

And I think you said that the average unit retail, the AUR, did experience an increase in the second quarter, is that right year-over-year?

Matthew Appel

Yes, 6%.

Janet Kloppenburg - JJK Research

And can you talk about what happened at Valentine's Day? Was it about the same?

Matthew Appel

About the same, but we're not disclosing that data for Valentine's Day, simply talking about the comp. But there's been no significant change in the business and in the components between the holiday seasons.

Janet Kloppenburg - JJK Research

And I was wondering, Theo, if you were to look back over the holiday season and think about a lot of the things you did right and maybe some opportunities you weren't able to capitalize on, opportunities perhaps that present themselves for this upcoming holiday season. What should we be thinking about? What other strategies or components of the strategy will we see as the year unfolds?

Theo Killion

I think that you'll see more concentration and deliberation on some of the things that we talked about earlier. So we believe that there is an opportunity to be even more effective with our advertising and our advertising spend. Certainly, in the early weeks of December, there may be an opportunity, but we will continue to look at that and refine it as we get close to the holiday. We'll continue to make an investment in technical training for our jewelry consultants. You asked about credit before, and as you know, credit is such a critical component, well, not only what we do as a business, but for those DCA-trained jewelry consultants and for our million-dollar sellers, about 40% to 45% of every sale that they close includes credit. So we'll continue to work those relationships. This is really about getting out of the mode of managing the business for the minute and for the day, and thinking about a forward-looking strategy that we can refine as we get closer to holiday. Last year, we didn't have as much time as we got out of our liquidity raise, to plan holiday. This year, we're going to be working on holiday all the time and all of the go-forward major events. So it'll be continued refinement of the strategy that we've talked about last year.

Janet Kloppenburg - JJK Research

Did you talk about the growth you experienced in the direct channel, perhaps the e-commerce results? And I did want to clarify, are you expecting to raise prices on diamonds, diamond jewelry in the holiday period of next year, or is that still something that's to be determined?

Matthew Appel

First, let me comment on the direct channel, which continues to perform beyond our expectations. Rather than give the specific number, which we don't talk about, Janet, I would like to color it by saying that we are -- continue at above-average growth rates for this business as they support our brick-and-mortar. And in terms of price increases, it's not just a holiday concept. We're evaluating it now with regard to current changes in the supply chain for diamonds. And so we'll selectively introduce price changes, price increases as necessary throughout the year.

Theo Killion

And just to be clear on that color that Matt did add on direct, when he says above average, it's not above Zale average, it's above what generally is being reported in the industry. Our direct channel has been above that.

Operator

And ladies and gentlemen, that is all the questions for today. I will now turn the call back over to management for closing remarks.

Theo Killion

I just like to say, once again to our 13,000 employees, thank you very much for all of your hard work and all of your concentration on a very, very critical holiday season. And we look forward to a ratcheting up of those efforts as we continue to deliver good results. So thank you very much.

Operator

Ladies and gentlemen, that concludes the Zale Corporation’s Second Quarter Fiscal 2011 Results Conference Call. We appreciate your time. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Zale's CEO Discusses Q2 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts