Zale returns to being a store for Gift Giving Middle America

Will declare a CEO by late July
Zale returns to being a store for Gift Giving Middle America

Zale Corporations interim management announced on May 17, 2006 that its reversing merchandising and marketing strategies to steady the company. The jeweler also reported higher third-quarter earnings, largely on a one-time gain, and warned that current-quarter results would fall short of estimates. Acting CEO Betsy Burton said the company is going back to basics, repositioning the 783-store Zales Jewelers chain as a store for "gift-giving middle America." A failed strategy to move the brand upscale led to a management exodus this year.

"Were not taking extraordinary risks, and were sticking to our tried-and-true assortments," Burton said. That includes more diamonds vs. fashion silver and gold that dominated the merchandise at Christmas 2005 and contributed to disappointing results. The company is also resurrecting its tag line of "The Diamond Store" under a new creative team at Dallas ad agency the Richards Group.

Analyst see sale of Zale as an option since they doubt that the retailer can stand up on its own. Asked about a sale, Burton said the board "recognizes the potential" for existing shareholders. But why put the company up for sale when youve got the opportunity to fix it?" Analysts also asked whether a Securities and Exchange Commission investigation is scaring off CEO candidates. The board forced out CEO Mary Forte and remaining top management. "No one has dropped out because of the SEC," Burton said, adding that the board is trying to deliver a candidate by late July. Zale expects earnings per share in this quarter to range from flat to 2 cents vs. Wall Street expectations of 7 cents.

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