Zale Corp (NYSE:ZLC)

What works on Wall Street.

Raw materials prices going down. Margins going up!

Weak competitor in a very competitive industry. More debt than I am comfortable with most small cap having on their balance sheet and alot of negative earnings.

Bankruptcy is probably inevitable.

Low end jewelry retailer. Unemployment in the US at a record high. US economy not recovering. Congress fighting over raising the debt ceiling. Greece staring default as well as the rest of the PIIGS. The entire EU looking shaky. None of this bodes well for a good Christmas. And it certainly doesn't sound like Dad is about to buy a bunch of jewelry for Mom. I don't see the forward growth for this company.

Here's an inside perspective. As a former employee of Sterling I can tell you that Kay and JBR were used as a tag team to keep Zale underwater at comparative locations. On the surface the strategy doesn't seem like a good one (2 stores selling exactly the same merchandise at exactly the same price only a few hundred feet from one another), but it seems to have worked.

As Zale continues to struggle Sterling is closing JBR locations nationwide. They no longer fear them as a competitor. This, in my opinion, is the worst form of a no confidence vote, when your competitors feel safe enough to wait for the bankruptcy because you are so deep in you can't get out.

check out its P/B and P/Sales ratio, this stock is cheap, but having hard time

VERY LONG

A1R/Z

..

Cost of financing with Golden Gate is way too high. Debt on top of debt with no profit margins will only result in almost certain BK.

I don't see Zales making it past Christmas with the economy in an extended malaise.

strong buy

Low end luxury targeted market still hardest hit by current economic conditions. Relvoving door upper manangement prevents any continuity of marketing and operational strategy. Company management beating up store and operations staff over performance resulting in disasterous morale problems.

Strength in Market:

Zales is weak financially, but just like any other jeweler out there
in the market place it has lost its financial strength due to heavy
overheads & operating expenses. Leases double in christmas & new
employees have to be added.

Zales has been added as a COD buyer for watches & diamonds from a lot
of suppliers which is a very bad thing but its like being on probation
& if you do good in the year or two, in our industry you are back in
business better than before. People are bailing themselves out in our
industry & terms from 180 days have fallen to 90 days which is a huge
drop.

20 - 30% competition is out of market be it chain stores, mom & pop
outlets or your local jeweler.

Massive restructuring of mid wholesalers is going on, there was a
wavre of semi wholesalers who made 50 - 60k a year & were their own
boss are hit with major bad debts & can hardly breakeven on their
lease & 40%+ are out of business or on the verge of getting out of
business.

Summing up, Zales is well positioned today than it was ever in history
of diamonds & jewelry industry. They are going thru a probationary
period.

Sales:

Sales are down 15% but today being in this industry we are not worried
about sales but overheads & I am more impressed by 191 store closed
down or 15% of 1294 stores. For those number folks this should answer
your question why sales fell.

But one more great insight is diamond sales are down & thats where
they make money but silver sales have sky rocketed where they mint
money, an average 2 gram chain costs $1 & sells for $50 - $100. This
year has seen record sales of silver & if I were you or any other
smart analysts reading my post please dissect balance sheet for silver
sales v/s diamonds v/s gold v/s watches or go & ask them to give you
numbers. Its a public company & I am sure they have to provide this
information.

Bottom Line

Zales is going nowhere as long as people percieve value in diamonds &
going forward 5 years & beyond I see Zales opening flagships globally
with glocalization as it is an American brand & a great goodwill to
its name. In our industry people pay hundreds of thousands to buy a
kiosk with goodwill so just imagine the potential of Zales franchising
overseas & their independant outlet stores are showing great returns.

Stock Price:

Looking as a value investor, I don't think there could be a better
time to get in this industry from the standpoint of investing be it
Tiffany, Bluenile or Zales & expect returns in upwards of 30%
compounded annually 5 years from today which puts my estimate at $10+

Struggling but jewelry inventories hold value unlike real-estate, other investments. Possible BK or takeover. I don't see the demand for wedding rings drastically changing. Recovery=more wealth, income=more sales.

Zale has sunk so much with the recession (and poor earnings to go with it) that barring bankruptcy (which won't happen) there is nowhere to go but up. With many underperforming stores eliminated, the operating margin has improved already. This will be a 10-20 dollar stock again in the future.

Zsa Zsa Gabor suxs

High debt, extremely high paid upper management along with unreal bonuses for the exec's plus NEGATIVE income = a disaster waiting to happen. Sad to see Zales in this position but it is because of managment implimentations over the past 2 years.

Right after mothers day will see this company filing with the SEC for Bankruptcy !