Jewelry retailer Zale Corp. said Wednesday that it will close 105 stores (23 more than previously announced) and cut 225 staff positions as part of a program to generate more than $65 million in ongoing, annualized savings beginning in the company’s fourth quarter of fiscal 2008.
The program, which the Dallas-based company said is the product of comprehensive review of operating and capital expenses by management in consultation with the company’s board of directors, will include reductions in capital spending and inventory (previously announced).
Key elements of the program include:
* Estimated $65 plus million in ongoing, annualized savings, a majority of which is overhead spending. Approximately $5 million of savings are expected to be realized in the fourth quarter of fiscal 2008;
* Organizational streamlining, primarily involving a reduction of the company’s headquarters staff by 225 filled and open positions (approximately 20 percent);
* Anticipated total program cost, including severance-related benefits, of less than $4 million pre-tax, will be incurred largely in the company’s fiscal third quarter ending April 30;
* A reduction of planned capital spending from an expected $85 million in fiscal 2008 to approximately $45 million in fiscal 2009;
* Continued optimization of company’s store portfolio, including the closure of an additional 23 underperforming locations, bringing the total number of planned store closures to approximately 105 in fiscal 2008; and,
* A $100 million reduction in inventory in fiscal 2008, which was announced previously. The decrease in inventory levels was based on a detailed review by category and item and the company intends to make the reduction permanent.
“In order to improve Zale’s overall performance and provide our value-oriented customer with an exceptional experience, it is essential that we reduce the company’s infrastructure costs, which have outpaced its sales growth since 2002,” said Neal Goldberg, Zale president and chief executive officer. “The program we are announcing today follows an extensive review, and will enhance our operational effectiveness significantly. It builds upon steps we have already taken to reduce redundancies, simplify processes, and create a more agile company, such as the realignment of our merchandise and sourcing organizations.”
Goldberg added, “Creating a culture of cost discipline and financial rigor is vital to Zale’s ongoing success. While we recognize that expense saves will help drive efficiencies in the near-term, our ultimate success will come from optimizing the balance between top-line growth, margin expansion and expense control. These actions are difficult for our entire organization but are important steps in order to connect us more closely to our customers. We thank our associates affected by these changes for their dedication, hard work, and contributions.”
The company said it eliminated approximately 140 filled and 85 open positions, representing approximately 20 percent of its company’s headquarters staff. As a result of this action, the Zale said it expects to reduce corporate staff payroll by approximately $15 million, or 20 percent per year, and non-selling field payroll by approximately $8 million. In addition, approximately $40 million of non-compensation expenses such as consulting, marketing, and travel are planned to be eliminated, representing 20 percent of such expenses, as well as $2 million related to distribution.
Zale said its capital expenditures for fiscal 2009 are expected to be $45 million, a reduction of $40 million from the $85 million level the company expects for the current fiscal year. Capital expenditure reductions will be realized primarily from more effective spending on store remodels, slower store growth in the near-term and a deceleration of information technology initiatives.
With the estimated $65 plus million in operating savings and $40 million in capital expenditure reductions, Zale said it expects a substantial increase in its free cash flow for fiscal 2009.
The store optimization component of the program involves the closure in fiscal 2008 of approximately 105 locations, of which 95 are underperforming and 50 are kiosks. These locations will close primarily as leases mature; as such, the company said it expects to incur minimal exit costs.
Zale did say it will continue to commit to “needed and profitable investments in the existing store base, as well as dedicate its capital expenditures to brands offering greater strategic opportunity and higher return on investment.”
Zale said it expects to exit fiscal year 2008, which ends July 31, with approximately 2,145 retail locations.
Zale Corp. is a leading specialty retailer of fine jewelry in North America, operating throughout the United States, Canada, and Puerto Rico in 2,167 retail locations. Its brands include Zales Jewelers, Zales Outlet, Gordon’s Jewelers, Peoples Jewellers, Mappins Jewellers, and Piercing Pagoda. Zale also operates online at www.zales.com and www.gordonsjewelers.com.