In Zale’s latest 10q, the company sounds a lot less confident than executives were in their conference call just two weeks ago:
Based on our cash flow projections for the remainder of calendar year 2010, we may not have sufficient liquidity to meet our operating needs…. In addition, our revolving credit facility expires in August 2011. In February 2010, we retained Peter J. Solomon Company, an investment banking advisory firm, to assist us in identifying and analyzing alternatives to secure additional liquidity. Conditions in the credit markets are volatile, and it is unclear if, or under what terms, we will be able to modify or extend our revolving credit facility or secure additional liquidity. The incurrence of indebtedness with less favorable terms would result in increased debt service costs.
The loss of the Citibank credit card agreement is also a serious problem for them …
Conditions in the U.S. and Canadian credit markets are volatile and it is unclear if, or under what terms, we will be able to secure financing arrangements for use by our customers. If we are unable to replace the agreements, our customers will have less credit available to them and our sales and earnings will be negatively impacted. Since some of the customers that would otherwise use the credit provided by Citibank may have alternative sources of credit or may pay in cash, it is impossible for us to quantify the likely impact. However, if 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.