Zale Admits Money Crunch

Zale’s latest 10Q financial filing admitted it’s short of cash and “may not have sufficient liquidity to meet our operating needs.”

It noted that, while it had hired Peter J. Solomon Co. to secure additional liquidity, “it is unclear if, or under what terms, we will be able to modify or extend our revolving credit facility or secure additional liquidity.”

Last year, Zale lost its agreement with Citibank to finance its credit cards. That agreement was to expire in 2011, but in March, Zale “received written notice to terminate the U.S. agreement in 180 days for failure to meet the required volume of credit sales, unless we pay Citibank approximately $6 million … on or before April 1, 2010. We are currently evaluating the available alternatives to determine whether we will make the $6 million payment.” That deadline was extended to April 30.

The company is talking with other institutions to replace the Citibank agreement, but it did not underplay that agreement’s importance. “[I]f we were unable to realize all of the sales currently financed under the Citibank agreements, the adverse consequences would be material and would likely impact our ability to continue to operate,” the 10Q said.