Is the Zale Turnaround for Real This Time?

Zale’s recent financial results hold out some hope that the company may—finally—be seeing some light at the end of its two-year tunnel. Even more promising, CEO Theo Killion said on the company’s conference call that comps for the four-week Valentine’s Day period were up 12%, an even more impressive figure than its holiday results.

Executives had a lot to brag about on today’s call. The “back to basics” approach is making progress, with Killion noting that bridal and diamond fashion have been particularly strong. Citibank seems to be doing a much better job managing the company’s credit card than before, offering a lot more options, and Zale’s advertising is a lot more visible and effective than it’s been in years. It’s also nice to see a brick-and-mortar jeweler talk up its online channel. 

More importantly, the trade is feeling a lot more confident. It has been Zale’s vendors’ support—perhaps even more than Golden Gate’s—that kept it alive during the days last year when people openly talked about a bankruptcy. Zale’s execs are apparently so confident that they have basically called off the Pagoda deal—with CFO Matt Appel noting that its main lender (presumably Golden Gate) would have to approve such a deal. That didn’t stop Peter J. Solomon from “putting a book out” on Pagoda last year. But it seems executives no longer feel they have to consummate what some analysts may have viewed (fairly or not) as a “distress sale.” 

For all this, one good quarter, and selling period, does not a full-fledged comeback make. The company looks like it will survive—which isn’t nothing—but it is only back to where it was perhaps two and a half years ago, before the worst of the recession hit. It still has a ways to go until it gets back to anything close to the force that it was. It also still has real challenges ahead, some of which are unique to the company (like the high fees and interest from the Golden Gate deal, and figuring out what to do with Gordon’s and Pagoda), and some of which aren’t (the increasing price of gas, the rising cost of gold and diamonds.)  And it’s hard to figure out what Golden Gate is up to; it’s a major lender to the company, and yet it doesn’t presently have any representation on its board. But for now, Zale seems in a lot better shape. And that means the industry is as well. 

 

 

JCK News Director