(Rapaport…February 12, 2001) Zale Corporation announced that Beryl Raff, Zale’s chairman and chief executive officer, has resigned from the company to “devote more time to her family and her own personal interests.” Robert J. DiNicola has been appointed chairman and CEO in her place, effective February 21, 2001. DiNicola previously served in this capacity from April 1994 through September 1999. Until February 21, Richard Marcus will serve as the interim chairman of the board.
Shares of Zale’s tumbled $4.40, or 12.5% to $30.90 on the heels of Raff’s abrupt resignation and an announcement by the company that it is delaying its fiscal second-quarter earnings release until March 7, 2001.
Industry sources who wish to remain anonymous explained that the Zale’s board was unhappy when the company’s fiscal second quarter profits appeared to fall below expectations, and blamed the loss in part on weak holiday sales. Comparable store sales declined between 3 to 4% for the combined months of November and December, when during the same period last year, same-store sales jumped 16%.
Raff’s strategy for Zale’s Christmas merchandise was to target price point items in order to encourage sales. To maintain a normal profit margin, however, Zale’s allowed its merchants to buy lower quality diamonds than usual. Apparently, the consumers noted that these goods were of lesser quality, and they did not buy as much as expected. Zale’s was left with items it could not sell. Though Zale’s had exercised its return privileges, it was still left with inventory. This excess inventory will probably leave Zale’s with a charge to earnings – a decrease in profits – for its second fiscal quarter. The Zale’s board was also apparently unhappy with Raff’s strategy to fix the problem.
Zale’s has brought DiNicola back because he is the man attributed with successfully turning the company around in the early 1990’s and the Zale’s board felt it needed to act quickly to bring back a high profile performer. Extending the second-quarter earnings report until March 7 gives DiNicola enough time to write off the inventory and the charges – wipe the slate clean and move on. Aside from this, there is still the question of Valentine’s Day merchandise, which may be from the same stock used during the holiday shopping season.
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