The Polishing At Zale Starts To Pay Off

A year ago, Zale Corp. barely looked like a survivor. After collapsing under a junk-laden debt load in 1992, the nation's largest jewelry retailer emerged from Chapter 11 debt-free in July, 1993. But its sales were dropping. Quarterly losses weren't uncommon. Before long, stockholders unloaded their shares. Zale's stock fell 15% in the final quarter of last year, to 91/4.

Investors who bailed out of Zale undoubtedly now regret their impatience. Over the past three months, the Irving, Tex.-based company's stock has glittered, rising 55%, to a new high of 135/8 on Oct. 24. After settling back a bit, Zale's stock is rising again (chart). And some prescient investors feel vindicated. Apollo Advisors, for one, a Zale investor headed by former Drexel Burnham Lambert Inc. investment banker Leon Black, acquired a 14% stake in the chain last year. "We saw a terrific franchise that had been beaten up as a result of being overleveraged," says Peter P. Copses, an Apollo partner and Zale director. Ironically, Black's old firm helped create that overleverage, underwriting half the $1.6 billion in junk bonds Zale used to finance ill-timed acquisitions in the 1980s.

Much of the credit for the new perception goes to Zale's chief executive, Robert J. DiNicola. The former head of Federated Department Stores Bon Marche division, DiNicola, 47, joined Zale last April and hasn't wasted time. Lower prices, a new marketing campaign, and even a $60 million face-lift for most of Zale's 1,235 stores are part of his plan to revive the chain. "We simply have to rebuild the very foundation of the company," DiNicola says.

A BARGAIN. The rally in Zale stock began within days of the company's Aug. 10 announcement that its losses narrowed to $5.7 million in the quarter ended June 30 from $33.4 million a year ago. Sales were up 4%, to $183.6 million. Not enly was Zale less sickly, its stock seemed a bargain. At

8 3/4, it was trading 20% below its book value of $11 a share. By September, daily volume in Zale stock was 5 million shares vs. 1 million in June.

Analysts remain upbeat about the company. David M. Glatstein, chief executive of Barre & Co., a Dallas investment banking firm, figures that Zale's profits could climb 11% in the company's new fiscal year that ends in July, to $31.2 million, as its sales rise 4.7%, to $963.5 million. But DiNicola has to demonstrate that he can fulfill such expectations. The Christmas season, which accounts for 40% of Zale's annual sales, is looming. "If the business is out there, we intend to get our fair share of it," vows DiNicola. He had better. Judging from past experience, most Zale shareholders aren't too patient.

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