Zale Names New President and CEO

By Rob Bates -- JCK-Jewelers Circular Keystone, 9/1/2006

In a surprise move, Betsy Burton, 54, who was named interim chief executive officer of Zale after Mary Forte resigned in February, now holds that job permanently.

Before becoming interim CEO, Burton was a member of the Zale board of directors for three years. She has a reputation as someone who turns around troubled companies and previously served as CEO of Supercuts, PIP Printing and Document Services, and Cosmetic Center as well as interim CEO of Tower Records and toysrus.com. She has also served on the board of Staples and Rent-a-Center.

In a statement, Zale chairman of the board Richard C. Marcus said Burton had done a “superb job” in her six months as interim leader and had improved profits and market share.

Burton had previously told analysts in a conference call she wasn't interested in the job. But “as she became more involved in the company and looking at the opportunities, she became more energized and excited about being a part of the long-term future of the company,” says David Sternblitz, vice president and treasurer. “She has a proven track record and she will continue on with the strategy that she's put in place over the past six months.”

Sternblitz said Burton's priorities are shoring up the key management team, returning profitability to the business, focusing on the Zale brand, and enhancing “the customer experience.”

Zale stock rose following the announcement, and analysts said Burton's appointment could make Zale a better candidate to be sold. Burton has previously said Zale is not for sale, and proposed merger talks with Sterling fizzled.

Although the Dallas Morning News recently cited “speculation that Zale may be taken private,” Sternblitz noted that “the board has a fiduciary responsibility to evaluate any offer, but it's not anything they are actively seeking.”

In recent years, Zale has struggled with stagnant sales and profits. In April it announced it was being investigated by the Securities and Exchange Commission, and about a month later its chief financial officer was placed on indefinite leave for allegedly “failing to disclose” a delay in vendor payments. Recently, it became the subject of several class-action lawsuits (see sidebar).

Zale Corp. Named in Seven Class-Action Suits

Zale Corp. has been named in seven class-action lawsuits alleging violations of sections of the federal Securities and Exchange Commission law.

The complaints allege that Zale Corp. violated SEC laws by issuing misleading statements to the market about Zale's financial performance between Feb. 18, 2005, and May 5, 2006. The lawsuit contends that the statements had the effect of “artificially inflating” the market price of Zale stock.

Zale intends to “vigorously defend itself on the suits,” says vice president and treasurer David Sternblitz, who called the suits “without merit.”

The suits are likely related to Zale's problems with the SEC. On April 10, Zale announced that the SEC had begun a nonpublic investigation into various parts of its accounting, operations, and disclosure practices, causing Zale's stock price to drop to $25.16 (from $27.80 on April 7). On May 5, 2006, after the market closed, Zale announced it had put former chief financial officer Mark Lenz on indefinite administrative leave, and on May 8 the price of Zale stock dropped to about $24.18.

Under federal securities law, these related suits will be consolidated into a single unified one with a lead attorney and a lead plaintiff in September, 60 days after the first class-action filing on July 19. The suits are filed on behalf of shareholders who purchased Zale Corp. stock between Feb. 18, 2005, and May 5, 2006.

Named as defendants are Zale Corp. and former Zale president and chief executive officer Mary Forte, who resigned in January after the company posted disappointing financial results; Sue Gove, former chief operating officer, who resigned in March; Lenz; and Cynthia T. Gordon, Zale Corp.'s current senior vice president and controller.

—William George Shuster