UPDATE 1-Citi ending Zale credit-card deal in Canada

Mon Apr 5, 2010 8:35am EDT

* Canadian deal with Citi ends June 30

* 25 pct of Canadian sales made on Citi-backed cards

* Zale looking for other potential partners

NEW YORK, April 5 (Reuters) - Citibank will end its deal with jewelry store operator Zale Corp ZLC.N under which the bank issues the credit cards used in about one-quarter of the retailer's sales in Canada.

Citi Cards Canada, a unit of Citigroup Inc (C.N), told the struggling jeweler on Thursday that their agreement would end on June 30, according to a filing on Monday with the U.S. Securities and Exchange Commission.

The jeweler said it was in discussions to find a new partner for its private-label credit cards.

Zale, whose chains include Zales Jewelers in the United States and the Peoples Jewellers chain in Canada, was also facing the end of its deal with Citi in the United States, where the branded credit cards are used in 40 percent of sales.

Zale said in a filing last week that Citi had given it an extra month to decide whether to pay a $6 million penalty to make up for the low level of credit-card sales, or face an early termination of their U.S. deal, which is scheduled to end next March. [ID:nN30156554]

Zale had said last month it was expecting Citi to end their Canadian arrangement.

The Dallas-based chain, struggling with sharp sales declines and currently seeking investors, operates about 200 stores in Canada. Its Canadian operations made up about 14 percent of total revenue in Zale's fiscal year 2009. (Reporting by Phil Wahba, editing by Maureen Bavdek)

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