* Locations include two Fifth Avenue stores, Herald Square
* Move may be geared toward shoring up Zale's finances
(Adds background detail, share price)
By Phil Wahba and Emily Chasan
NEW YORK, March 3 Zale Corp ZLC.N is looking
to sell the leases on as many as 12 of its New York City
jewelry stores in an apparent move to shore up its finances.
The leases include Zales stores in prime locations such as
Manhattan's Herald Square and along Fifth Avenue, as well as
two stores apiece in the Bronx, Brooklyn and Queens, according
to a listing on the website of New York-based advisory firm RCS
Real Estate Advisors.
Zale's treasurer declined to comment and the RCS agent
overseeing the sale did not return calls for comment on when
these leases were put up for sale.
It was not clear whether Zale was trying to reduce some of
its lease obligations or whether the jeweler would consider
leaving some of these locations.
Zale hired RCS almost a year ago to advise it on
restructuring its lease portfolio and reducing overall lease
The Dallas-based chain said last week it expected to have
identified the source of capital it needs to steady its
finances and to have those funds by late May [ID:nN24171650]. A
source familiar with the matter told Reuters last month that
private equity firm Apollo Management [APOLO.UL] was
considering taking a stake.
On a conference call last week, interim Chief Executive
Theo Killion said he did not anticipate a "significant" number
of store closings in 2010. In 2009, the retailer closed 187
stores, leaving it with about 1,900.
A sharp drop in commercial real estate prices in New York
City in recent years could make the Zale leases attractive to
investors and help generate cash for the retailer.
The sale could pave the way for the chain to close stores
in New York, though Zale could have lingering obligations that
would require it to guarantee the lease. Some deal could also
be reached with potential investors that would let it stay in
the stores longer.
When Zale sold its Bailey Banks & Biddle chain in 2007, it
continued to be on the hook for certain contingent liabilities
related to many of those leases.
"In theory, retailers can make money selling leases, and
some companies did back in 2005-2007. It's unlikely they would
make money today -- just reduce losses," said Michael O'Hara,
chief executive of turnaround investment banking firm Consensus
Advisory Services LLC in Boston.
Zale, which last week reported only its second profitable
quarter in the past nine despite falling sales, has steadily
lost market share to rivals such as Signet (SIG.N) SIG.L, and
grappled with a crippling debt load.
The need for Zale to infuse its balance sheet with cash has
become urgent as the company may be close to tripping a
covenant on its $600 million line of credit. It is required to
keep $50 million on the limit, and as of January, it only had
$67 million left.
Zale shares closed up almost 6 percent on Wednesday on the
New York Stock Exchange at $2.51 per share. They edged down 1
cent in after hours trading.
(Reporting by Phil Wahba and Emily Chasan; Editing by
Michele Gershberg, Richard Chang and Valerie Lee)