March 31, 2010
-
News: Zale Gets 30 Extension From Citi
More than one company found themselves looking to the courts for relief from debt during the recession. Zale jewelers managed to survive the recession; however, is holding on by a thread as they struggle to generate sufficient credit card sales to meet their contract. The company owes $6 million to Citigroup Inc, the backer of Zale credit cards. Zale Corporation is a leading specialty jeweler that operates nearly 2,000 stores and kiosks throughout the United States. In a regulatory filing with the Securities and Exchange Commission, the company noted that they have been given a 30 day extension on the a $6 million fine from Citigroup for not producing a sufficient amount of credit card sales.
The jeweler hasn't yet determined if the company will be able to pay the credit card fines, but realizes that if they don't pay the fine, it could hurt their relationship with their factor. Furthermore, Citibank provides approximately 40 percent of Zale's U.S. credit card purchases. If Zale should lose Citibank's backing, most likely the consequences would be devastating and significantly impact the company's ability to continue operations. The 30 day extension comes at a time when Zale is dealing with an already financially difficult cash flow situation.
If Zale survives this next hurdle, they'll be faced with new challenges in March 2011 when their credit card agreement expires with Citibank. The bank has already notified Zale that they'll no longer be financing the jeweler's cards. In fact, the bank has already notified Zale that due to high risks, they are considering moving that date up six months. It was unwelcomed news and noted in their filing that because of the difficult credit market the company would most likely find it difficult to secure revolving credit support and additional funds for operations. It doesn't appear that the company sees any valid reason to pay the $6 million fine if it isn't able to secure adequate financing to remain in business.