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What Will Happen To Zales?
The Dallas Morning News reports that Zales, the largest United States jewelry chain's stock price has fallen more than 12 percent since Thanksgiving, as Wall Street expresses concerns about the Irving, TX-based company's shrinking market share.
The company has lowered sales and profit expectations in recent months and has admitted that it has lost market share to Kay Jewelers.
Since reaching its split-adjusted high of $34.50 in July, Zale stock has fallen more than 25 percent, closing December 27 at $25.28, down 47-cents.
After disappointing results for Christmas 2004, the company shuffled management at Zales Jewelers, which makes up 45 percent of Zale Corp.'s sales. But a year later, the chain is still stumbling.
In a shift in direction, Zales is getting away from its "price-driven strategy" and emphasizing "a more style and quality image," said David Sternblitz, Zale vice president and treasurer.
The chain is buying basic jewelry directly from overseas sources, bypassing traditional wholesalers in the United States. And it has hedged against rising gold prices in recent months, he said December 23.
Zales is advertising for the first time in The New York Times Sunday magazine and has ditched its longtime television commercials for image ads. It's also using more direct mail and fewer newspaper inserts, Mr. Sternbiltz said.
The many moving parts have put Wall Street on guard. In November, J.P. Morgan and Goldman Sachs downgraded the stock.
Analysts say major competitor Kay Jewelers and department stores such as J.C. Penney Co., and Federated Department Stores Inc., which operates Macy's and Bloomingdale's, are luring away Zales' traditional customers.
In a note issued last week, Goldman downgraded Zale stock because of "extensive internal merchandising and marketing repositionings during the critical holiday season, which accounts for 100 percent of earnings."
Penney's jewelry offerings were "more contemporary and fashion-forward," the report said. "Zales continues to bleed market share to Kay, as demonstrated by the annual same-store sales trends since 2003."
Kay Jewelers and off-mall chain Jared are both owned by London-based Signet Group and operated by its subsidiary, Sterling Jewelers Inc., based in Akron, Ohio.
"We've experienced an erosion in market share to our next largest competitor over the past three years, and that's why we're repositioning Zales," Sternblitz said.
"We have been visiting Zales stores across malls over the past few weeks in search of positive evidence that management has been executing its brand repositioning efforts well. We have come up empty," wrote Goldman Sachs analyst Adrianne Shapira.
The week before Christmas, Zales stores put up "Lowest Prices of the Season" banners in an attempt to meet sales targets.
Sternblitz said that the company estimates comparable store sales to increase 2 percent to 3 percent. It plans to announce combined November-December results on January 5, when chain stores are scheduled to report December sales.
In addition to its flagship Zales Jewelers division, Zale owns Gordon's Jewelers, Bailey Banks & Biddle Fine Jewelers and other chains.
Zale expects to report fiscal second-quarter earnings of $2.05 to $2.08 a share, excluding a one-time gain.
Comments
Zales is the best jewelry store in North Carolina. In the other states Zales's stores should also do well during the wedding season. Overall Zales’s stock should take a large jump. When you walk into a Zales it is evident that the associates have years of training and knowledge in jewelry. Associates at Kays, on the other hand, have no confidence and look like they have just been hired from McDonalds. After quick comparison, it is obvious that Kays’s employees do not know what they are doing, while Zales employees are knowledgeable and experienced. In short, Kays is getting away with paying there associates poorly, but they will pay the ultimate price shortly as their customer's will turn to other jewelry stores and their talented and experienced employees are going elsewhere to find the pay that they are truly worth. Zales offers better prices, equal warranties, and more knowledgeable workers. As a result expect Zales's stock to jump in the market and Sterling’s to fall.
Posted by: NA on March 10, 2007 4:08 AM
After reading this article, I believe we are in recession and obviously, folks are not going to buy a cocktail ring, a diamond bracelet or a pair of diamond earrings when they loss they job or have to pay down their mortgage, buy food and gas to and from work!
Everyone is hurting in America! Let's fix the trade deficit and do something! Zales over all is a great Diamond Store for middle income folks who wants to get an engagement ring or buy an anniversary gift for parents or spouse!
I was a sales associate for Zales for years and I think there is room for improvement for any retail stores!! vy/SouthBay, CA.
Posted by: vivien yang/MBA~Global Strategic Advisor on April 13, 2008 6:09 PM
I think that it is rather funny that people feel that the Zales staff has more knowledge when on average, the only person in the store that is a certified diamontologist is the store manager when the majority of all full time associates at Kay Jewelers are certified diamontologists and many are even gemologists. Who would you trust, just a sales person or an educated or well trained person?
Posted by: Anonymous on February 5, 2009 8:48 PM
about the feb 5th 2009 post the traning that is given to both kays and zales associates is a joke. Anyone can pass a test when you sit them down with the book to look up the answers as they complete the test the so called (certified diamondtologist) is just a sales tool. You must be a Kays Ass. to post a commint like this they should be teaching you not to knock other stores it makes you look bad. I am a Jeweler that has done work for both stores for 40 years!
Posted by: Anonymous on February 22, 2009 11:36 AM