Letter to our shareholders
Fiscal 2008 was a year of transition for our Com-
pany. Our business had become just another mall
jeweler with little differentiation. Instead of building
the emotional equity that should be inherent in the
jewelry business, we became primarily defined by
the depth and frequency of our product promotions.
Celebrations of love and happiness, for which our
product is purchased, could not cut through the
commoditized items and the overcrowded cases.
Those realities, however, were juxtaposed against a
group of talented employees, loyal customers and a
we have such tremendous opportunity. To
realize that opportunity, we quickly set to work
defining and implementing a very focused plan with
clear objectives for the back half of the fiscal year.
We are pleased to report that we achieved those
objectives and in some cases exceeded them, as will
be described in further detail below.
From a financial standpoint, we had a challenging
start to fiscal 2008, which included a disappointing
Holiday season. Even in a difficult year ending July 31,
2008, the Company reported essentially flat
comparable store sales that benefited from an
aggressive clearance strategy in the second half of
fiscal 2008. We had operating cash flows of approxi-
mately $137 million and capital expenditures of $85
million, resulting in $52 million free cash flow.
Earnings from continuing operations in fiscal 2008
were $3.7 million or $0.09 per diluted share,
compared to earnings of $48.1 million or $0.98 per
diluted share in the prior year. For the year ending
July 31, 2008, total warranty sales increased 12% to
$121 million. Earnings continue to be impacted by
the Company’s accounting method for its lifetime
jewelry protection plan with deferred revenue
growing an additional $79 million in fiscal 2008.
Among our businesses, our Canadian brands stood
out, generating double-digit comparable store sales
increases that exceeded our sales and earnings
plans. We have a dominant position in Canada and
see even more market share opportunity through
new assortments as well as additional store growth.
In fiscal year 2008, we opened an additional 16
stores in Canada.
Our E-Commerce business also continued to
expand, exceeding $55 million in annual revenue and
achieving over a 30% increase in sales for the year.
We have seen significant improvements in traffic and
conversion rates as we made creative changes to
the site and enhanced functionality, increased
marketing as well as expanded the assortment. We
acquired over 215,000 new customers on-line in
fiscal 2008, a 48% increase over the prior year.
Our greatest progress in 2008, however, came in
shaping and beginning to execute our strategic plan,
which centers on leveraging Zale’s strength as the
major “value” player in the jewelry industry.
consists of three parts: (1) re-engaging our core
customer, (2) enhancing our operational
effectiveness, and (3) maintaining financial rigor.