UPDATE 2-Zale CEO, others quit amid losses; shares slide

* Theo Killion, president, named interim CEO

* CEO, other resignations effective immediately

* Chief merchandising officer, chief store officer quit

* Shares fall 8 percent in aftermarket trade (Adds quote, background, byline)

By Phil Wahba

NEW YORK, Jan 13 (Reuters) - Struggling jewelry chain Zale Corp (ZLC.N) said on Wednesday that its chief executive officer and other top executives have left the company in a management shakeup designed to "return the company to profitability."

Zale said CEO Neal Goldberg, Chief Merchandising Officer Mary Kwan and Chief Stores Officer William Acevedo have quit, effective immediately.

Zale shares fell 26 cents, or 8 percent, in after-hours trading, after closing up 2.5 percent at $3.23 on the New York Stock Exchange.

Zale, whose store chains include Zales Jewelers stores in the United States and Peoples Jewellers in Canada, said its board selected its president, Theo Killion, to serve as interim CEO.

The moves are also part of the company's efforts to focus more on its "core" diamond business, Zale said.

Killion joined Zale in 2008 and previously held senior management positions at companies such as Tommy Hilfiger and Limited Brands Inc (LTD.N).

Zale's troubles stem a difficulty in finding a niche, leading it to miss an opportunity to gain market share following the bankruptcies of several rivals, an expert said.

"Zale has never understood who they were going after," said Milton Pedraza, chief executive of the Luxury Institute.

Pedraza said Zale is stuck between an upscale market, cornered by Tiffany & Co (TIF.N), and independent jewelers that have a hold on the more affordable segment.

A high U.S. unemployment rate has made its offerings too expensive for many shoppers, he said.

The weak market for some segments of jewelry claimed a number of victims last year. Finlay Enterprises Inc FNLYQ.OB filed for bankruptcy protection in August, while regional luxury retailer Fortunoff filed for Chapter 11 in February.

MOUNTING DEBT, MOUNTING WOES

The Dallas-based chain has liquidated inventory in the past year to combat sharply weaker sales, and its long-term debt rose 20.8 percent in the first quarter ended Oct. 31, 2009 to $465.5 million from a year earlier when it was $368.5 million, burdening it with large interest payments.

Last month, a week before Christmas, Zale said it had canceled some orders with suppliers and delayed payments.

The news on Wednesday of the executive shakeup comes less than a week after the chain announced that sales at its stores open at least a year, or same-store-sales, had fallen 12 percent in November and December.

That performance contrasts with the 12 percent gain in same-store sales over the same period that Tiffany reported on Tuesday.

The retailer has reported losses in seven of the last eight quarters, with damage from dwindling sales limited only by the shuttering of stores.

Zale is also being investigated by the U.S. Securities and Exchange Commission over accounting practices that led it to restate 2008 and 2009 earnings.

Zale's shares have fallen about 62 percent since mid-September, when they hit a year high of $8.50.

(Reporting by Phil Wahba; Editing by Richard Chang)