October 30, 2009 / 2:51 PM / 10 years ago

UPDATE 2-Zale says SEC probes accounting issues, shares fall

* SEC looking into issues that led to restatement

* Q4 loss $2.81/shr vs year-earlier loss $0.30/shr

* Q4 loss ex-charges $0.59/shr vs Wall St loss $0.78 view

* Shares down over 22 percent (Adds company comments, byline; updates share move)

By Brad Dorfman

CHICAGO, Oct 30 (Reuters) - Zale Corp ZLC.N said on Friday that the U.S. Securities and Exchange Commission is investigating accounting issues that led the jewelry retailer to restate 2008 and 2009 earnings, sending its shares down over 22 percent.

The investigation began after the company said in September that it would need to postpone fourth-quarter results for a review of accounting, which included how the company posted advertising expenses and accounted for income tax.

For example, the company found that advertising expenses had not been posted in the period the ads ran, which they should be, said Zale treasurer David Sternblitz.

“At this time we do not believe that the investigation will have a material effect on our financial condition or results of operations,” Chief Financial Officer Matthew Appel said during a conference call with analysts. Appel joined Zale as CFO in May.

The jewelry business has been one of the hardest hit sectors in the recession as consumers shy away from bigger-ticket discretionary purchases and use their diminishing resources for staples like food.

Zale has closed stores and liquidated some inventory to offset its troubles, steps that contributed to the large charges the company posted.

The company said its fiscal 2008 earnings were restated lower by $10.2 million after tax, swinging to a loss of $6.5 million.

For 2009, which ended on July 31, the adjustments amounted to a charge of $7.6 million, the company said.

On Thursday, Zale said its fourth-quarter loss widened to $89.8 million, or $2.81 a share, in the fourth quarter ended July 31 from $10.0 million, or 30 cents a share, a year earlier, the company said late on Thursday. [ID:nWNAB7194]

Excluding one-time items such as the asset impairment charges, the loss was 59 cents a share. Analysts on average forecast a loss of 78 cents, according to Thomson Reuters I/B/E/S.

Revenue during the quarter fell 21.7 percent to $357.1 million, below the analysts’ average estimate of $363.5 million.

Sales at stores open at least a year fell 21.2 percent, the company said. Same-store sales were also down 8 percent in the first quarter of fiscal year 2010, the company said.

Zale shares were down 22.5 percent in noon trading on Friday to $4.95. (Reporting by Brad Dorfman; Editing by Lisa Von Ahn, Dave Zimmerman, Tim Dobbyn)

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