Zale Corp. inked a deal with Citi to operate its private label credit card program one day after naming Theo Killion its chief executive officer.
Zale said Friday that Citibank (South Dakota) N.A. will provide the private label credit card program for its Zales, Zales Outlet and Gordon’s brands in the United States, effective Oct. 1. The terms of the arrangement lower the minimal volume of net credit card sales to $315 million from $600 million under a previous agreement and include an initial five-year term with automatic renewals for successive two-year terms.
The agreement replaces one with Citi set to expire in March 2011 and eliminates the requirement of payment of the merchant fee differential that was due Sept. 22 under the former arrangement. Zale had been negotiating to replace the original agreement since at least early summer, first exclusively with Citi and then on a nonexclusive basis after June 16.
Investors warmed to both pieces of news, sending shares of Zale up 20 cents, or 10.1 percent, to close at $2.19 in New York Stock Exchange trading Friday.
Zale, which has had financial pressures due to the lackluster economic backdrop, won some breathing room when it secured a $150 million five-year senior secured loan from Golden Gate Capital in May in exchange for warrants to purchase a quarter of the firm’s common stock. That deal, which closed in July, gave Golden Gate a 34.5 percent stake of the shares outstanding from an initial holding of 19.9 percent.
“With the completion of our financial restructuring, we will now be able to focus 100 percent of our time on key merchandising, in-store and marketing initiatives to grow sales and return to profitability,” Killion, president and interim ceo, said at the time.
Killion, interim ceo since Jan. 10, became Zale’s official chief executive and a director of the firm on Thursday. He also became a member of Zale’s board.
“Theo has successfully led Zale through the critical initial stages of our operational and financial turnaround, showing equal skill in working with vendors, customers, shareholders and employees,” said John B. Lowe Jr., Zale’s chairman.
In other news, Richard Breeden and James Cotter have resigned from the Zale board. Both have served since January 2008. Meanwhile, Breeden Capital continues to be Zale’s largest shareholder, Zale said.