NEW YORK — Shares of Zale Corp. advanced to a new 52-week high of $46.47 in intraday trading Tuesday after the Dallas-based jewelry specialty retailer said it plans to repurchase up to 6.4 million, or 20 percent, of its outstanding shares through a modified Dutch auction tender offer.
In addition, Zale said, in connection with the offer, it plans to enter into a new $500 million secured revolving credit facility.
The company, which operates 2,265 retail stores and kiosks in shopping malls, said in a statement that the transactions “are a prudent use of its financial resources, given its free cash flow, capital position and current stock market price.” Zale also said it expects to benefit through a capital structure which has attractive funding costs and additional flexibility for future growth.
The firm said the tender offer would be a modified Dutch auction, in which shareholders make offers ranging between $42 and $48 a share. Based on the high price of $48 a share, the maximum cost is $307.2 million. However, in Dutch auctions, prices are lowered until bids are received. The offer, managed by Bear, Stearns & Co., expires at midnight on July 29.
Zale’s stock rose $5.90 or 14.8 percent closing at $45.90 in New York Stock Exchange trading Tuesday. In the past 52 weeks it traded as high as $40.62 on June 30 and as low as $26.50 on Oct. 21.
Its new credit facility will be provided by a lending syndicate led by Fleet National Bank and will replace an existing $225 million unsecured revolver. The firm said it expects the new facility to be secured largely by inventory.
The company also issued a call for the remaining $87 million of its 8.5 percent senior notes due 2007. It said it intends to use about $140 million of its existing cash to fund the call and a portion of the share repurchase.
On March 18, Zale’s board approved a stock repurchase program in which the company could purchase up to $50 million of its common stock on the open market. Under the program, Zale purchased 58,000 shares at a cost of $2 million through April 30.For the third quarter ended April 30, Zale, boosted by the wedding and solitaire categories, posted a 22.4 percent rise in profits to $9.4 million, or 29 cents a share, compared with $7.7 million, or 22 cents a share, in the year-ago period. Overall sales gained 0.1 percent to $449.4 million, while comparable-store sales were up 0.3 percent.
Upgrading Zale to “buy” from “hold,” Jeffrey S. Stein, an analyst with McDonald Investments, said the financial transactions are opportunistic for Zale. “This Dutch auction tender offer will be very accretive to earnings and will provide a significant earnings growth opportunity for the company,” Stein said in a telephone interview. “During a period of time in which the economy and Zale’s business have been relatively sluggish, we believe this window being produced by the financial transactions they are engaging in will tide them over until the economy improves and the company will see an acceleration of top-line and bottom-line growth that will enable the company to put several strong earnings growth years back to back.”
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