NEW YORK, Dec 18 (Reuters) – Zale Corp said on Friday it has canceled some orders with suppliers and delayed payments, sending shares of the big U.S. jewelry store chain down sharply.
The struggling jeweler, which operates the Zales Jewelers and Peoples Jewellers chains, has faced steep sales declines for more than a year and mounting debt, as well as a probe into its accounting practices.
Zale refused to accept tens of millions of dollars of inventory at the end of November, according to a Wall Street Journal report on Friday.
“We are in the process of reviewing and canceling certain orders,” Zale Treasurer David Sternblitz told Reuters in an email. He declined to confirm the dollar amount for the canceled orders because Zale’s review is ongoing.
“There has been some delay in payments as we determine what merchandise will be needed for the season with a significant portion of the holiday still ahead of us and what should be returned to suppliers,” he said.
Sternblitz added that many of Zale’s contracts with suppliers allow for the return of a percentage of merchandise.
Shares were down 32 cents, or 12.7 percent, at $2.21 in mid-day trade, but had fallen as low as $2.02 earlier.
The Wall Street Journal, which first reported the news of canceled orders, quoted Zale’s Chief Financial Officer Matt Appel saying in an interview that Zale has cash on hand to pay suppliers.
“Barring something catastrophic, we will pay our bills,” Appel told the paper.
Zale’s sales at stores open at least a year, a measure known as same-store sales, fell 18.6 percent in November, compared to the year-earlier period. The chain has been pressured as consumers focus their spending on essentials rather than luxury items such as jewelry.
That news, issued in early December, came less than two weeks after Chief Executive Neal Goldberg said on a conference call that the company was “cautiously optimistic” about the holiday season.
The cancellation of orders at a busy time of year is an ominous sign for Zale’s sales prospects, an analyst said.
“Anyone who thinks Christmas will be dramatically up is fooling themselves,” said Milton Pedraza Chief Executive of Luxury Institute. “It means they are in trouble, that they’re not expecting sales to be as good as expected,” he said of the cancellations.
While upscale rival Tiffany & Co is in better financial health, it may not benefit much from Zale’s travails, Pedraza said.
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