NEW YORK — Friday was not such a good day for Zale Corp.
Alan P. Shor, president and chief operating officer, resigned, and profit projections for the chain’s fourth quarter, along with the stock price, went south.
But on the brighter side, Zale seemed prepared for Shor’s departure, quickly transferring his responsibilities to other executives, and analysts said the revised forecast resulted from the economy, and remained confident in Zale’s turnaround efforts through last spring, involving a year of reining in expenses, overstocks and inferior merchandise. Since around March, the company has said it is back on track.
Instead of picking a successor to Shor, the company doled out his responsibilities by elevating Sue E. Gove to executive vice president and chief operating officer. While she retains her title of chief financial officer, she adds responsibilities for distribution, real estate and management information systems.
The title of president was given to Mary Forte, thereby giving her the additional responsibilities for human resources and the legal department. As reported, Forte, currently executive vice president and chief merchandising officer, will become chief executive officer in August, succeeding Robert DiNicola.
The 43-year-old Shor joined Zale as senior vice president and general counsel in 1995 and became president and a board member in August 2000. "I have spent the last seven years working with a talented management team in executing a major retail turnaround," Shor said in a statement Friday. "These efforts have been exciting and successful, and I feel that the time is right for me to look to the next challenge in my career."
However, there was some speculation that as Shor’s responsibilities at Zale grew to include real estate, MIS, distribution, support operations and human resources, so did his expectations of becoming chief executive of the company. But last month Zale announced that Forte would succeed DiNicola later this year. Aside from helping to turn around the chain, Shor was instrumental in selling the company’s credit operations and lease operations and the acquisitions of Piercing Pagoda and Peoples Jewellers of Canada.
The management changes came as Zale revised downward its earnings estimates for the fourth quarter ending July 31, to land between 10 and 13 cents, including a special charge of 4 cents a share to cover severance and other benefit payments. Excluding the charge, Zale forecast 14 to 17 cents a share in earnings for the quarter versus analysts’ estimates which ranged from 22 to 25 cents a share and averaged 24 cents. Zale’s own estimate had been 23 cents a share. Zale earned 9 cents a share in the fourth quarter of 2001.The company blamed "the challenging recent trends in the external environment" for the modification of its earnings expectations and the reduction of its expected comparable-store sales increase for the fourth quarter to between 1 and 2 percent. Comps slid 9.7 percent during last year’s fourth quarter.
Investors exhibited little sympathy, sending Zale’s shares down $5.29, or 15.2 percent, to close at $29.50 in New York Stock Exchange trading. Similarly, Tiffany & Co., which, as reported, said last week that its earnings for the second quarter would come in at the low end of estimates, saw its share price erode 20.7 percent during the week as it closed at $27.30 on Friday.
David Sternblitz, Zale’s director of investor and public relations, said the stock drop was exacerbated by the fact that the management change and earnings revision coincided. "Also, our numbers have improved substantially in the past year, and expectations were running fairly high, even with our efforts to keep them realistic," he said. "This quarter’s improvement won’t be quite as marked, and that obviously disappointed the market."
Saying Zale’s earnings warning came as a surprise, William R. Armstrong, an analyst at C.L. King & Associates, said the problems at Zale had more to do with the economy not recovering as strongly as anticipated than with any particular problem with the company, noting Tiffany’s similar warning last week. "Sales are falling short as consumers hunker down a little bit for discretionary-type purchases," he said. "Zale is now seeing a slowdown through its various brands in all regions of the country compared to its good start earlier this year."
Zale, the nation’s largest fine jewelry chain, operates more than 2,300 stores in the U.S., Canada and Puerto Rico. The divisions are Zale’s Jewelers, Zale’s Outlet, Zale Direct at zale’s.com, Gordon’s Jewelers, Bailey Banks & Biddle Fine Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda.
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