Zale Corporation (NYSE:ZLC), a leading specialty retailer of fine jewelry in North America, today announced earnings from continuing operations for the second quarter of fiscal 2008 of $52.7 million, or $1.16 per diluted share, compared to $77.1 million, or $1.57 per diluted share for the second quarter of fiscal 2007. The second quarter ended January 31, 2007 included a $2.5 million, or $0.05 per diluted share, positive impact related to derivative accounting treatment for the Company's gold and silver contracts.

"While these second quarter results are disappointing, I am convinced that Zale has a strong basis for improved performance as we again provide our value-oriented customer with an exceptional experience," said Neal Goldberg, President and Chief Executive Officer.

"We intend to make Zale into a more nimble and efficient organization. We remain focused on the generation of free cash flow, achieving a high return on capital and maintaining financial rigor and discipline overall. Our first step is a reduction of $100 million in excess inventory. We have conducted a detailed review by category and item and believe this product can be sold at a profit. Through fiscal 2008 we expect a negative impact on gross margin of approximately 500 basis points which is expected to be more than offset by the positive impact on free cash flow. Although we plan to make some selective investments, this $100 million reduction is not intended to be replenished. These actions are designed to ensure Zale's success and generate value for shareholders over the long-term."

Second Quarter of 2008

-- Total revenues for the second quarter ended January 31, 2008 were $828 million compared to $892 million last year, a decrease of 7.2%

-- Comparable store sales for the second quarter decreased 7.3%

-- Unrecognized revenues related to warranty sales increased $33 million or $0.44 per diluted share. This compares to an increase in unrecognized revenue of $30 million or $0.37 per diluted share in the second quarter of last year. Including the impact of unrecognized revenues, adjusted earnings are $1.60 per diluted share this year compared to $1.89 per diluted share excluding a $0.05 gain from derivatives last year.

-- Retired 5.8 million shares during the second quarter. Anticipate retiring approximately 11 million shares in total once share repurchase program is completed.

First Half of 2008

-- Total revenues for the six months ended January 31, 2008 were $1.205 billion compared to $1.274 billion last year, a decrease of 5.4%

-- Comparable store sales for the six months ended January 31, 2008 decreased 5.1%

-- Unrecognized revenue related to warranty sales increased $47 million or $0.61 per diluted share. This compares to an increase in unrecognized revenue of $29 million or $0.36 per diluted share for the six months ended January 31, 2007. Including the impact of unrecognized revenues, adjusted earnings are $1.16 per diluted share this year compared to $1.48 per diluted share excluding a $0.04 loss from derivatives last year.

-- Earnings from continuing operations for the six months ended January 31, 2008 were $26.0 million, or $0.55 per diluted share, compared to $52.4 million, or $1.08 per diluted share for the six months ended January 31, 2007. The six months ended January 31, 2007 included a $2.3 million, or $0.04 per diluted share, negative impact related to derivative accounting treatment for the Company's gold and silver contracts.

A conference call will be held today at 9:00 a.m. Eastern Time. Parties interested in participating should dial 800-679-2671 or 706-643-7467 five minutes prior to the scheduled start time. A webcast of the call, as well as a replay, will be available on the Company's Web site at www.zalecorp.com. For additional information, contact Investor Relations at 972-580-5047.

About Zale Corporation

Zale Corporation is a leading specialty retailer of fine jewelry in North America, operating over 2,150 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 online at www.zales.com and www.gordonsjewelers.com. Additional information on Zale Corporation and its brands is available at www.zalecorp.com.

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