SEC investigates Zale's accounting

Oct 30, 2009 (The Dallas Morning News - McClatchy-Tribune Information Services via COMTEX) -- ZLC | Quote | Chart | News | PowerRating -- Zale Corp. said Friday it is under investigation by the Securities and Exchange Commission's Fort Worth office for accounting matters.

The Irving-based jewelry retailer reported significant fiscal year-end losses late Thursday, and its stock price was trading down more than 15 percent Friday morning.

Zale said it is cooperating with the federal agency. Zale was initially notified on Sept. 18 after it said previously issued financial statements for 2007 and 2008 contain errors and "should no longer be relied upon." The company said in mid-September that it would be restating financial statements for 2008 and 2009 and did so in its annual report filed Thursday.

The SEC is looking at how Zale booked pre-paid advertising, intercompany accounts receivable associated with its wholly owned insurance subsidiaries, bank account reconciliations and property taxes.

It's the second time the SEC has investigated Zale since 2006 when the agency investigated Zale's accounting for extended service agreements, leases and accrued payroll as well as other matters,

"The company is cooperating with the SEC on this matter at this time we don't believe that the investigation will have a material effect on our financial condition or results of operations," said MattAppel, chief financial officer.

Appel joined Zale five months ago and said he is "comfortable with the progress to date."

"I can assure you that we will complete these efforts to improve and strengthen our accounting processes," Appel said during a call with analysts Friday morning.

Zale restated quarterly results for 2008 and 2009 -- in some cases doubling prior reported losses. The restated results reflect adjustments in the areas under investigation by the SEC.

The disclosure comes after Zale delayed the release of its fiscal year-end results for nearly two months.

Lower sales, significant one-time charges and store closings resulted in a significantly larger loss for its fourth quarter ended July 31.

Zale reported fiscal fourth-quarter net loss of $89.8 million, or $2.81 a share in the period ended July 31, compared with a net loss of $10 million, or 30 cents a share, a year ago.

Revenue fell 22 percent to $357.1 million from $456.2 million last year. Sales at stores open at least a year fell 21.2 percent, the company said. Same-store sales were also down 8 percent in the first quarter of fiscal year 2010 that began Aug. 1.

Zale recorded special charges, net of tax, of $70.8 million, or $2.22 per share during the fourth quarter, compared to special gains, net of tax, of $11.0 million, or 33 cents a share during the fourth quarter of fiscal 2008.

Excluding one-time items the loss was 59 cents a share. Results included a $50.2 million charge related to the closing of 119 store and Bailey Banks& Biddle lease guarantees. Other charges include $6.7 million for store impairments and $13.5 million inventory impairment.

Since January Zale closed 190 stores and said Friday it doesn't expect major store closings in the coming months.

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