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Zales (ZLC) announces store closings

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Yesterday, struggling jewelry retailer Zale Corp. (NYSE: ZLC) announced the closure of 115 stores in a drastic cost-reduction plan. The company also announced that revenue dropped nearly 18% in the second quarter.

The stores designated for closure will lock their doors for good when their leases mature. The closing stores are poor sales performers. In addition, ZLC announced that it will cut its capital spending by 65%, along with 245 jobs already cut this month. Furthermore, the jeweler plans to reduce its debt by roughly $40 million from the end of the second quarter through July (which is the end of ZLC's fiscal year). ZLC noted that the addition of Canadian and Puerto Rican assets give the company flexibility and sufficient liquidity.




All of these announcements are big news, but they accompanied the firm's earnings report. In the second quarter, ZLC posted a net loss of 74 cents per share. A year earlier, ZLC earned $1.34 per share. Quarterly charges included 43 cents per share related to store and goodwill impairments along with a charge of 58 cents per share for valuation reserve on foreign tax credits.



ZLC's adjusted earnings totaled 16 cents per share, far short of the Street's estimated earnings of 48 cents per share. Quarterly sales fell 17.9% to $679.4 million, with same-store sales falling 18.1%.

While the company struggles with the recession, the stock is battling to come back to life. Currently, shares of ZLC are working their way through the $1 region, which has acted as resistance since January. If you are looking for a diamond in the rough, I'd steer away from ZLC, as the rough may be way too rough.

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Last updated: November 25, 2009: 08:06 AM

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