Zale Closes 118 Stores; Will Pay for Bailey Leases

Zale Corporation announced that it closed 118 underperforming retail locations during the fiscal fourth quarter ended July 31, 2009.

Including the actions announced today, Zale has closed 191 underperforming locations during calendar year 2009, of which 160 were retail stores and 31 were kiosks. In the aggregate, the 191 closed locations had a negative financial contribution of approximately $14 million for the twelve months preceding closure and carried approximately $56 million of inventory.

In addition to these closures, Zale has entered into agreements in principle on certain of its remaining retail locations, which will result in a reduction in aggregate rental obligations commencing in fiscal year 2010. Following the closures announced today, Zale operates 1,931 retail locations.

Zale also announced that it has reached agreements in principle to settle contingent rent obligations to landlords of 34 of 45 retail locations of Bailey, Banks & Biddle with aggregate future base rental obligations for such locations of approximately $29 million as of July 31, 2009. Contingent liabilities with respect to the remaining 11 locations are still under negotiation and aggregate approximately $33 million of base rental obligations as of July 31, 2009. The above contingent liabilities aggregating $62 million as of July 31, 2009 are associated with the sale in 2007 of Bailey Banks to Finlay Fine Jewelry Corporation, which filed for chapter 11 bankruptcy protection on August 5, 2009. Zale will record charges and reserves totaling approximately $23 million to cover the Bailey Banks contingent liabilities during the fourth quarter of fiscal 2009 and such amount is included in the $50 million pre-tax charge described below.

Zale will record a $50 million pre-tax charge during the fourth quarter ended July 31, 2009 to cover the costs of the fourth quarter retail location closures, including lease terminations and other costs of closing these locations, as well as the charges and reserves associated with the contingent liabilities relating to all 45 Bailey Banks locations. The Company expects a net cash flow benefit from the actions described above of approximately $55 million, of which approximately $30 million was realized during fiscal 2009, with the balance in fiscal year 2010.