IDEX Online Research: Zale Needs a CEO Now

Zale management felt it had an obligation to make a public report to its vendors, its bankers, its shareholders and its employees. So, management held its obligatory quarterly conference call after announcing financial results for the three-month period ended January 2010.

Unfortunately, more was left unsaid than was actually said on the conference call. And, it is very important to note, much of what was said consisted of high level platitudes designed to calm a nervous public. There was very little of substance, in our opinion. Why? With only an “interim” CEO, only so much can be said about the future of the company.

Until a permanent CEO is named, Zale will remain like a ship idling in the harbor: its crew will be performing maintenance and generally “holding things together.” But, like any harbor-bound ship waiting for orders to sail, Zale has no long term strategy, no set course and no battle plan to capture market share. The sooner the board appoints a new CEO, the sooner Zale will be able to move ahead.

·        Zale’s Financials Subject to Interpretation – While Zale followed both U.S. GAAP accounting standards and the “letter of the law” in its news release, if readers focused simply on the top line and the bottom line (net profits), we’d argue that they would not have an accurate picture of Zale’s financial health. Unfortunately, the accounting regulations have gotten complex, and while we can’t call them misleading (they were drawn up by people much smarter than we are), we would call them incomplete (not due to anything Zale has done wrong).

Zale’s bottom line financials show that the company made a profit in the January quarter of 2010 versus a large loss in the same quarter a year ago. After adjusting for unusual items, including a huge tax credit in the January 2010 quarter, we’d argue that Zale’s pretax earnings were slightly lower in January 2010 versus the prior year.

Click here to read our analysis of Zale's financials.

·        Conference Call Comments Not Terribly Meaningful – Theo Killion, Zale’s president and interim CEO, delivered platitudes that were designed to calm restless and nervous vendors, bankers, and shareholders. He spent much time describing the tedious work that the merchandise managers and the marketing staff have undertaken. We’d argue that there was nothing unusual here; they are simply doing their job. Further, we hope that the functions Killion described were being done all along. If not, the staff should be replaced.

Killion left many questions unanswered, primarily because the next CEO must answer those questions. Killion’s job is to hold the company together until the next team takes over.

Killion highlighted a “back to basics” strategy: he says Zale will focus on what worked in the past. That’s a relatively safe and low risk strategy, though there is some question about whether past-day strategies will entice present-day consumers – with their changing tastes – into Zale stores.

Click here to read our analysis of the conference call comments.