Some thoughts on Zale’s recent holiday sales announcement:

– Zale said they made “tweaks” to their strategy after November, and those tweaks seemed to pay off, at least somewhat: December’s drop of 9.2% is certainly better than November’s of 16%.

According to this analysis, after going into the holiday saying their strategy wouldn’t be built around discounts, Zale began advertising on price.  This seems like the second year in a row they have changed course on this.

As I’ve written, many of the management’s strategies going into the holiday seemed smart, or at least worth pursuing. But this is a tough, unforgiving environment, and any mistakes are magnified. And that seems to be the issue here …

– Aside from the ongoing speculation about a possible takeover, we are starting to see sites list Zale as a possible bankruptcy. Officials there insist a filing isn’t in the cards, and last year they swatted down talk that Zale had hired a consulting firm to help it restructure.

Despite what the article above says, to me a Chapter 11 seems a long-shot at this juncture. Keep in mind, Richard Breeden, the investor who controls 28% of the company’s stock and two seats on its board, would probably not want Zale to go Chapter 11 even in the worst of circumstances – and I just want to be clear, executives insist we should not even be talking about this – as that would wipe out his investment..

Still, worse is the Finlay model – a company that just rode its dead horse to the very end. If Zale reaches an impasse, let’s hope they are allowed to do what they need to take care of it.

Rob Bates

JCK News Director