The second largest retailer of jewelry in the United States may be in some financial trouble. The Wall Street Journal is reporting this evening that Zale’s refused to accept tens of millions of dollars of inventory just several weeks ago and has cancelled orders with some suppliers.
[...]in a filing with the SEC [Zale's] revealed sales at stores open at least a year plummeted 18.6% in November. Zale refused to accept tens of million of dollars of inventory at the end of November and is stretching payments, according to diamond suppliers familiar with the matter.
Matt Appel, Zale’s chief financial officer, said while it has cancelled some orders, it has cash on hand to pay suppliers. “Barring something catastrophic, we will pay our bills,” Mr. Appel said in an interview. He said there is still a lot of business to be conducted before Christmas.[...]
[...]On Nov. 24, Mr. Goldberg, 50, told investors the company was “cautiously optimistic” about holiday sales, which account for almost half of its annual revenues. Indeed, the sales drop for its quarter ended Oct. 31 significantly lessened. But 10 days later, Zale disclosed that November sales at stores open more than a year fell almost 19%, continuing the double-digit declines of its last three fiscal quarters.[...]
[...] Mr. Appel, the CFO, said the optimism expressed on Nov. 24 came out of expectations for the following week, including the after Thanksgiving sales kickoff. “Our expectations did not pan out for that weekend,” he said.
The owner of Zales Jewelers, Gordon’s Jewelers and Piercing Pagoda has posted losses in seven of the last eight quarters, including a $189 million loss in the fiscal year ended July 31.
Zale’s long-term debt has been mounting. The company reported long-term debt of $465.5 million on Oct. 31, up 21% from $368.6 million, a year-ago.
As of Nov. 1, it had $24 million in cash and $125 million available under a $600 million line of credit. If the amount available on that credit line falls below $50 million, Zale will be in default on its covenants, according to public records. [...]
Zale’s better hope that the last week before Christmas brings a substantial boost in sales, otherwise a flock of bankruptcy lawyers may be waiting by their telephones for a call.
Disclosure: No position in Zale’s (ZLC). Actually I did not even know they were still listed on the exchange.
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