FINLAY TO BUY ZALE’S LEASED JEWELRY DEPARTMENTS

DALLAS — Zale Corp. has reached an agreement to sell its leased jewelry department operations to Finlay Enterprises for about $65 million.
Zale said the leased department business being sold accounted for about 8 percent of total sales and 2 percent of profits. The leased departments are operated by Zale’s Diamond Park Fine Jewelers division, which under the sales agreement, will not compete in the leased jewelry department business for seven years.
Leases being sold are for 139 locations in Mercantile Stores, Parisian and Marshall Field units. Zale’s leased departments at Dillard’s will be discontinued after Jan. 31, 1998, when the contract for those locations expires. Sales of the departments being acquired by Finlay totaled $100 million in the year ended July 31.
Zale chairman and chief executive officer Robert J. DiNicola said in a statement that the sale would allow Zale to redirect resources “from a marginally profitable, non-core asset to its more highly profitable mall jewelry store operations.”
For its part, Finlay notes that the purchase would reinforce its position as the nation’s leading jewelry department operator. Additionally, president and ceo Arthur E. Reiner said in a statement that the purchase will “eventually improve our results of operations through the leveraging of expenses and other operating synergies.”
Finlay plans to finance the purchase through an increase in its revolving credit facility to $225 million from $135 million. Finlay also plans a secondary offering of 3 million common shares, with the company selling 2 million shares and a shareholder offering the other million shares.
Finlay’s stock closed Thursday at 19 5/8, up 3/4 in over-the-counter trading. Zale stock closed at 24 3/4, up 1 1/4 on the New York Stock Exchange.
The Zale-Finlay deal is expected to be completed on Oct. 6.
Meanwhile, last week Zale reported fourth-quarter earnings of $1.6 million against earnings of only $12,000 last year.
In the latest period Zale earned 4 cents a share, beating Wall Street estimates of 3 cents.
Sales rose 9.9 percent to $273.6 million from $248.8 million.
Operating earnings surged 47.9 percent to $11.6 million from $7.8 million.
For the year, earnings were up 15.1 percent to $50.6 million, or $1.38 a share, from $43.9 million, or $1.23, after a $1.2 million charge for early debt retirement.
Operating earnings rose 15.7 percent to $115.9 million from $100.2 million last year.
“The momentum that we built in fiscal 1997 will help propel us into fiscal 1998 as we continue to aggressively position Zale as the nation’s dominant fine jewelry specialty retailer,” said DiNicola.
Zale operates 1,065 retail jewelry stores under the names Zales Jewelers, Gordon’s, and Bailey Banks & Biddle.

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