Zale places CFO on administrative leave

Zale Corp. has placed chief financial officer Mark Lenz on indefinite administrative leave.

The announcement follows the Irving, Texas–based jewelry retailer’s April disclosure that the Securities and Exchange Commission was investigating the company’s accounting practices related to, among other things, timing of vendor payments.

This decision was made, Zale said in a statement released Friday night, based on Lenz’s failure to timely disclose in conversations with company auditors that vendor payments scheduled to be made during the last two weeks of the company’s fiscal year ended July 2005, were delayed until the first week of August 2005. The delay of the scheduled payments, which the company said did not exceed $8.2 million, did not affect reported revenues or earnings, but did increase net cash flows from operating activities and free operating cash flow.

Zale said it believes that cash and accounts payable were properly reflected on the balance sheet. For the fiscal year ended July 31, 2005, Zale reported net cash flows from operating activities of $168 million and disclosed free operating cash flow, a non-GAAP financial measurement, of $89 million. The company said has discussed this matter with the Securities and Exchange Commission and is reviewing the matter internally and with its auditors.

“The company’s Board of Directors concluded that based on this information a change in chief financial officers was appropriate,” said Betsy Burton, acting chief executive officer. “The company continues to believe that its accounting was appropriate and complied with generally accepted accounting principles.”

Zale named George Mihalko acting chief administrative officer and chief financial officer effective immediately. He has also been appointed to the company’s board of directors and will report directly to Burton.

Mihalko had served as vice chairman, chief administrative officer and chief financial officer of The Sports Authority, Inc. until August 2003. He has also held executive positions with Pamida Holdings Corporation and Pier 1 Imports. Prior to that, he served in diverse management positions with Burlington Northern, Inc., Porsche Cars North America, Inc. and Firestone Tire & Rubber Company. Mr. Mihalko holds a B.S. and an M.B.A in Finance and International Business from the University of Pittsburgh.

Prior to the SEC investigation disclosure, the company had experienced executive departures and disappointing sales. In January, the board ousted chief executive Mary L. Forte, after a failed plan to raise sales by tailoring Zales Jewelers brand to a wealthier, more fashionable clientele. The effort, launched in the holiday season, contributed to a nearly 12% drop in fiscal second-quarter profit, Zale said. The board asked Paul Leonard, Zales division president, to resign in February, and in March, Sue Gove, chief operating officer, resigned.

Zale Corp. is North America’s largest specialty retailer of fine jewelry operating approximately 2,345 retail locations throughout the United States, Canada and Puerto Rico. Through its ZLC Direct organization, Zale also operates online at and Zale Corp.’s brands include Zales Jewelers, Zales Outlet, Gordon’s Jewelers, Bailey Banks & Biddle Fine Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda.

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