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URL:  http://boards.fool.com/zale-research-report-13267328.aspx

Subject:  Zale Research Report Date:  9/8/2000  9:33 AM
Author:  ReitySoapbox Number:  19 of 31

Zale Corporation (ZLC) is the Stock of the Day for 9/8/00. Here is my snapshot analysis.

Zale is the nations' largest specialty jewelry retailer operating more than 1300 stores throughout United States, Canada and Puerto Rico. The company operates stores under the names Zales Jewelers, Gordon's Jewelers, Bailey Banks & Biddle Fine Jewelers as well as Zales Outlet, Zales Direct at www.zales.com and the recently acquired Piercing Pagoda.

Zale's business continues to be strong as it benefits from the robust U.S. economy and strong consumer spending. They are successfully selling products in a highly fragmented jewelry market by catering to a wide range of income levels and preferences at all three price points; moderately priced, more expensive, and upscale and through innovative marketing and credit promotions.

Zale has met or exceeded earnings expectations for the past 23 quarters with 11 straight quarters above street estimates. And most recently on August 30th they reported earnings that came in 3 cents ahead of estimates at 32 cents per share. Same store sales slipped from the torrid pace set in previous quarter of 12.8% to 6.4%. However, in the retail sector 6.4% is still considered very respectable. Other factors contributing to earnings growth are better inventory management and merchandising. Further its focus on reducing costs and increasing productivity will drive bottom line growth rate even higher.

Analysts have responded well to the recent earnings report and continue to boost estimates for the current and next fiscal years based on ongoing strong business trends and further margin expansion. EPS estimates for FY2001 ending in July 2001 stands at $3.77 and FY2002 is at $4.55. The market runs on fear and greed and over the last couple of months the retailers have been out of favor. Yet retailers have a way of coming back into favor in time for the holiday shopping season. Even if timeliness is not on your side, the long term investor should feel gratified that Zale represents a tremendous value. It currently trades at PE roughly 10X FY2001 earnings for a company that analysts think will grow at 19% a year. Lastly on a trading note, the company has only slipped under $35 once all year. Thus, that would seem to provide excellent support from current levels.

Look forward to your thoughts and comments. Regards,

ReitySoapbox
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