On the one hand, Zale’s latest financial results (press release here) are, as one analyst put it, “not a pretty picture,” and led its stock to fall. The 10K also contained this piece of not particularly good news:

The Staff of the Fort Worth, Texas office of the Securities and Exchange Commission notified the Company that it had begun an investigation and requested certain information relating to the matters disclosed in the Company’s Form 8-K. The Company is cooperating with the Staff’s investigation. The Company cannot predict the outcome or duration of the SEC investigation, but at this time, the Company does not believe that the investigation will have a material effect on the Company’s financial condition or results of operations.

On a more positive note, you get the feeling, from listening to the conference call, that management is certainly trying, and has a plan –the call was filled with positive news about new, differentiated products being offered at holiday (more on that in a bit), reduced expenses (particularly regarding real estate), and increased education of sales associates.

Even so, Zale is clearly a company with a lot of issues, and it’s now facing some serious headwinds, in what is still a very difficult retail environment, particularly for jewelry.

Other interesting tidbits:

– There are no store closings planned for fiscal 2011, executives said.

– First quarter 2010 comp sales are down an estimated 8 percent, as opposed to the 21.2 percent fall in the fourth quarter of 2009. That was called an “encouraging sign.” It is certainly in the right direction, but it says something about the times we are living through that an 8 percent drop is considered good news.

– The name of Richard Lennox, the former head of the De Beers account who recently became Zale’s chief marketing officer, was repeatedly invoked during the conference call. He seems to have taken the name “big ideas” with him to Zale. There are three “big ideas” planned for Zale’s holiday: “Shared Hearts” (which seems so much like other products out there I find it hard to get excited about), another built around fashion watches (this seems more interesting), and Everlon, which Lennox helped put together while at JWT. These ideas will be promoted with a “significant marketing campaign,” according to CEO Neal Goldberg.

– As Nick White recently wrote, Zale is “still in turn around mode. Better put, it still is trying to get into turn around mode.” Yes, there is an encouraging sign or two, but things need to turn around quick.

Rob Bates

JCK News Director