Another blow for jewellery chain

Posted March 16, 2010 |

Experts say struggling jewellery retailer Zales might be on its last legs after the company’s biggest shareholder sold most of its shares.

The news is yet another sign of the continuing effects of the global financial crisis on retailers, especially in the US.

According to a Reuters report Franklin Resources, once the company’s second largest shareholder with a 16.4% stake, has slashed its ownership to 4.7%.

Market analysts Gerson Lehrman Group said the decision to sell more than 70 per cent of its shares suggests the company might be cutting its losses and getting out before Zale Corp folds.

“Clearly, Franklin Resources took a huge loss on the sale, thinking whatever they could recover now was better than nothing, which is what shareholders will likely receive in the event Zale files Chapter 11 (bankruptcy),” the company wrote in an analysis.

Last week it was reported Zales was taking steps to shore up its finances amid crippling debt and falling sales.

The company was selling leases on stores in prime locations, and had slashed its advertising.

The retailer has been grappling with sliding sales over the past two years.

The share sell-off has been interpreted as a sign that any potential takeover deals had fallen through.

Last week’s report also stated that private equity firm Apollo Management was considering taking a stake in the company.

Gerson Lehrman suggested it is likely “Franklin Resources came to the conclusion that neither Apollo’s offer to buy a material stake in Zale nor a separate offer to buy the Canadian stores was realistic.”

The Gerson Lehrman analysis concluded: “It’s becoming more apparent daily that Zales' days are numbered”.