More on Finlay (and Zale)


A while ago, Finlay announced it would be closing some 40 stores. But despite a number of queries, we haven’t been able to figure out what stores they are. Finlay is basically non-responsive to requests for information.


Here is what we do know: 97-year-old Zell Bros. Jewelers in Portland – the only non-Bailey’s store in the Bailey’s chain – seems due to close, despite being the only store to make target, according to Leonard Zell, a member of the founding family. He says there a “few parties interested” in buying it, though its future is “iffy.”


My commenters believe that the entire five store Congress Jewelers chain is closing, but I haven’t been able to confirm that with the company.


As for Finlay itself, it’s still hanging in there, despite having one of the lowest credit ratings for publicly traded retailers.


There is still a lot of talk about how Finlay’s problems could impact Zale – given the Bailey’s lease situation – so I found this take rather interesting::


Terms of [the Bailey Banks & Biddle] sale included a provision that ZLC would re-assume the lease obligations on those BBB stores if Finlay went BK.

The contingency was $89 million a year ago, but with the passage of time is now only $71 million as of January 31, 2009, the latest 10Q from ZLC. The lease overhang is shrinking by over $1 million per month, so is now at $69 million. And that is not a lump sum due, were Finlay to file for bankruptcy, but rather a stream of payments that ZLC would make over the next six years, roughly.

One must also consider that Zales could use the space, mostly in large malls, to open new stores, while possibly shutting down some other Zales or Gordons locations in nearby malls, if need be. It could also sub-lease the space in most cases to another merchant, or possibly even have legal standing to walk away from the obligation in the case of “dying” malls, where the anchors leave and the mall is no longer viable as a going concern. There is a lot of negotiating latitude in some lease situations, and co-tenancy clauses give tenants an out if the mall becomes trashy, fails to provide adequate security, loses a big chunk of its traffic, or the anchors leave or close up due to bankruptcy. Because there are so many twists and turns and possible outcomes, all in part driven by economic events that could go either way, ZLC does not put a contingency for this BBB lease situation on its balance sheet – but it has been disclosed in footnotes in every 10Q and 10K.

This squares with what I’m hearing.


Now, I think it’s safe to say that Zale would rather not have to deal with the lease situation at all; they have plenty on their plate already. And it’s probably not a coincidence that they just hired real estate advisors. 


But it’s not as if Finlay goes, and then Zale will quickly follow, which is what some in the market seem to believe. The lease agreement may not have been the smartest long-term planning ever, but it is not as suicidal as it first appeared.

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