1. earnings was actully a miss on the top and bottom line from the research i saw. if not for a tax-refund they would have lost money before interest in the christmas quarter! the surprise was the margins and expenses. i don't trust the margins and who knows about the expense control with all the previous restructuring charges.
2. the NYC stores up for sublease is NOT good news. they are trying to make a few bucks short-term selling leases on some prime locations. i call this "cutting off your nose to save your face." this is also a huge credibility issue for management. they said on the earnings call they planned no major store closings, and closing would be underperforming stores. exiting NYC is not something minor.
3. apollo last time invested in Zales debt as part of a Ch-11 and got equity in Zales when they exited Ch-11. IMHO any financial investor like apollo would not be interested in shoveling money into Zales without a pre-pack Ch-11 (which will wipeout common shareholders).
4. they are running our of cash quickly. they have 90 days max left before they file for ch-11. i am hearing as soon as april 15.
5. Breeden has lost $200 million on this puppy on paper. would any rational investor shovel more good money after bad? his investors would flee him even faster if he did.
Do not confuse the current price action with a fundamental recovery. they have not filed the 10q yet, but when they do i advise longs to read it carefully. they are going to have to make it very clear how dismal the future is for common shareholders.
you don't understand the situation. zlc borrows 90% of the liquidation value of their inventory, with a $50 million reserve if they have a fixed coverage ratio of less than 1.1 (they do). currently they are almost maxed out. if the inventory valuation is lowered they will be in default. the quality of the inventory is very suspect.
I'm not worried about the fair value of the inventory. in fact there might be a mark up. Factoring inflation and stablization since this time last year. The only thing that worries me is a negative adjustment of numbers following probe results. If this comes back with no material effect, we will instantly be trading in the fours.
That is the scariest thing about this stock at the moment. The results of the Sec probe that started last quarter. If it results in a fine or a large negative adjustment to the balance sheet, then It could immediatly drive Zlc into bankruptcy. I'm betting on the restates being accurate. And Appel's word of a cash placement. This stock at this moment is super high stake. either 100% loss or 1000% gain. I'm risking to the upside.
Same store sales are up, they are cutting management and stores. The nationwide credit crisis is over, however unemployment is still high due to no housing sector. If employment jumps sss will rise further, if unemployment remains same sss will be flat. They will be profitable as-is if unemployment does not rise.
I would't be surprised to see a buyout of the tangible book value of $10 per share. The debt levels really are not bad at under 400m compared to revenue and 50% margins. Its their cash position thats killing them. This is one will either be bought out or an equity placment by another firm. With a good cash positino combined with inventory under control and 50% plus margins, Zales is worth $30 dollars / share at the current float.