December 21, 2009
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News: Citi Terminates Zales Contract
Citigroup Inc. will not be renewing its agreement with Zaless Corp. (ZLC) to continue supporting the jewelry store chain's co-branded credit card. The decision means that Zales will either be forced back to the negotiating table with Citi or on a new journey to partner up with a new credit card issuer. According to Zales Treasurer David Sternblitz, the company was not surprised by Citi's announcement since the credit card company has been the provider of Zales' card for 10 years and its contract is due to expire in March 2011. The contract does contain some terms that would allow it to be nullified if the two reach a new agreement or Zales partners up with a new lender.
Sternblitz said that Citigroup's decision to not renew Zales' credit card contract was in no associated in any way with the giant jewelry store chains sales during the holiday season. Rumors have been circulating that dwindling sales prompted Zales to cut off nearly $10 million in receipts during the month of November. Typically November is one of the largest months for receipts because retailers are getting geared up for the holiday shopping season. Wall Street Journal reported that Matt Appel, the jewelry store's Chief Financial Officer, had said that the company had also just cancelled some orders in December. Despite having the need to cancel some orders, Appel said the company has plenty of cash on hand to meet accounts payable needs. The credit card issue is not likely to affect company sales since they will have a year to negotiate with a new partner.
It is also rumored that Zales has hired the investment bank, Rothschild, to analyze the possibility of restructuring. Rothschild provides quality financial advice and execution expertise, encompassing mergers & acquisitions, debt advisory, restructuring, and equity advisory. They maintain operations in 47 locations in 34 countries around the globe. If Zales is working with Rothschild, Citigroup's decision to terminate its credit card contract with the jewelry company could have been sparked by the news. However, Sternblitz denies that any such agreement has been struck up and says that although Zales has been affected by the recession, the company possesses a highly recognizable brand and is strategically positioning itself to meet the needs of an improving economy.