Zale Corp. widened its fiscal first-quarter loss, but said Tuesday that traffic in stores and online is inching up as it heads into the holiday season.

FILE 2008/The Associated Press

Zale expects its exclusive new merchandise will help it avoid the deep discounts it was forced to offer last year.

The Irving-based jewelry retailer should be able to beat last year's abysmal holiday quarter when sales declined 22 percent in December, but management would only say the company is "cautiously optimistic."

After cutting inventory by 10 percent, bringing in exclusive new merchandise and adding fashion watches to its glass cases, Zale is also putting more emphasis on its online store. Zales.com got a makeover in October, and the company is forecasting its Internet sales will be up 20 percent to more than $65 million in fiscal 2010.

Overall, the new merchandise is selling well, and Zale doesn't expect to repeat last year's unplanned, storewide holiday discounts, said chief executive Neal Goldberg. "We will not offer the same level of broad discounting this holiday season as we did in 2008, which will help us expand our gross margin."

The holiday quarter is when the jewelry industry makes most of its profit.

Zale's fiscal first-quarter net loss was better than analysts expected as store closings, lower rents and staff cuts drove results. Zale reported a net loss of $57.6 million, or $1.80 a share, in the period ended Oct. 31, compared with a net loss of $48.4 million, or $1.52 a year ago. Analysts had forecast a net loss of $2.02 a share on sales of $319.2 million, according to Thomson Reuters.

Total sales fell 9.6 percent to $329 million, from $364 million last year. In the past 12 months, the company has closed 209 stores.

Same-store sales, or sales from stores open at least a year, fell 6.8 percent from last year. Average purchases are down from a year ago, but "traffic is up some," Goldberg said. Last year, same-store sales fell 3.7 percent in the same period, but business fell off in the holiday quarter when same-store sales fell 18.1 percent.

Zale shares increased 47 cents, or 10.4 percent, to close Tuesday at $4.97 a share. It regained price declines after it delayed reporting a wider fourth-quarter loss by almost two months in late October. It also disclosed then that it was under investigation by the Securities and Exchange Commission over its accounting practices.

Since then, a half-dozen shareholder lawsuits have been filed in federal court in Dallas against the company. Zale is cooperating with the SEC, said Matt Appel, chief financial officer. On the matter of the lawsuits, Appel said, the actions are "without merit and will not have a material impact on the company."

Signet Jewelers Ltd., Zale's biggest rival and operator of Kay's Jewelers and other chains, narrowed its third-quarter loss and said Tuesday same-store sales fell 2.4 percent.

Earlier this month, online jewelry retailer Blue Nile Inc. posted higher profits and beat analyst estimates.

With sales last year of $295 million, the Seattle-based company dominates the online jewelry business that Zale is trying to build.

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