Zale Gets A Lifeline

Following up on last night’s Zale
announcement
, some highlights of the conference call that was held
immediately afterwards:

– Zale’s comparable sales for the third quarter were down 2.3%. Not great,
but not as bad as the holidays.

– Gross margins for the third quarter were up 50%. Far better news.

– The shares that Golden Gate has the
option to buy will be newly issued.

– No asset sales or major store closings planned. “We are looking to grow the
company, not to shrink it,” said CFO Matt Appel.

And here are some excerpts of a short interview I did last night with senior
vice president and treasurer Steve Massanelli:

– On personnel matters: “No management changes on an executive level are
planned. We are not searching for a permanent CEO.” [Theo Killion is currently
interim CEO.]

– The company did some Mother’s Day advertising, but not as much as last
year.

– The company is only talking to Citibank about the U.S. credit
card situation. Massanelli seemed confident that would be resolved.

– Filing for bankruptcy was “never in the cards.”

– The release notes that board chairman John B. Lowe will not run for
reelection. His term expires in November. So that would be one big change.

My thoughts:

– No change in management? I can’t believe they aren’t looking to add
people. Last year, they had seven executives. Now they have four.
The important position of “Chief Stores Officer” is unfilled. Mind you, this is
no offense to the current executive team – they are all highly regarded, and I
hear are working extremely hard to get things back on track. Still, on the last
conference call, CEO Theo Killion said that the company was going to its
“direct competitor’s stores to understand and analyze their assortments.” What
the company needs is someone who understands, in their bones, why their
competitors have better sales, and can adapt that to Zale.

– Aside from repeatedly mentioning that the company wants to boost Internet
sales, the assembled executives didn’t mention anything about its marketing or
merchandising strategy, saying they would spell that out in an upcoming
conference call.  It’s really hard to judge where the company is going
until we know that.

– On the plus side, Golden Gate is a
well-regarded company, and I think the trade should take some comfort in that.

– A lot depends on the attitude of vendors, and whether they will ship on
terms again. This announcement will definitely give them a lot more confidence
in the short-term, but if things aren’t looking better by Christmas, we may end
up back where we were earlier this year.

–  All in all, there are still a lot of questions to be answered, and
there are things about the deal that give one pause – the fees and interest
aren’t low. But it’s safe to say that Zale is in far better shape this week
than it was last week, and has what might be its last chance to turn things
around.   We’ll see if they can rise to the challenge.

Be interested in your comments – either below, or privately to me, rbates@reedbusiness.com. Are any of
you out there upset the “all star” team (DiNicola, Romano) didn’t come back?

JCK News Director