WWD.com/business-news/financial/zale-corp-sinks-deeper-into-red-2356644/

Zale Corp.’s stock tum-bled 26 percent Friday after it reported a sharply higher fourth-quarter loss and a Securities and Exchange Commission investigation into accounting adjustments that led the jeweler to restate 2008 and 2009 earnings millions of dollars lower.

This story first appeared in the November 2, 2009 issue of WWD.  Subscribe Today.

Zale disclosed the investigation began in September after the firm said it needed to postpone the release of fourth-quarter results for an accounting review, which included its treatment of advertising costs, according to vice president and treasurer David Sternblitz.

“News of the SEC investigation is disappointing,” Sternblitz told WWD. “It’s been a disappointing quarter and year.”

The SEC declined to comment, but according to Zale’s filing, the firm originally posted a $10.8 million profit in 2008. Upon review, net income was restated at $631,000, or 1 cent a diluted share.

Zale said its fourth-quarter loss widened to $89.8 million, or $2.81 a share, from a loss of $10 million, or 30 cents, a year earlier. Special charges totaling $2.22 a share hurt results, while other items helped the bottom line last year.

Revenue for the quarter ended July 31 declined 31 percent to $357.1 million from $456.2 million. Analysts anticipated a net loss of $1 on sales of $335 million. Comparable-store sales for the fourth quarter slid 21.2 percent.

“We feel that the business is improving,” Sternblitz said, explaining first-quarter comp declines have moderated to 8 percent.

With refreshed merchandise, leaner inventories and less competition this year from jewelers liquidating their inventories before going out of business, Sternblitz said Zale has an opportunity to gain market share this holiday. The company has closed over 200 underperforming stores and now has 1,930 units.

For the year, Zale posted a net loss of $189.5 million, or $5.94 a share, including after-tax charges of $92.6 million, or $2.90. Sales sank 16.8 percent to $1.78 billion from $2.14 billion.

Shares closed Friday at $4.73, down $1.66.