John Brian Fast, CPA, had previously reported Zales accounting problems.

On September 28, 2009 we reported in a post on this site that the financial statements that Zales Corp. filed for its fiscal year ended in 2008 and for parts of its fiscal year ending in 2009 had accounting errors and could not be relied on.

The beleaguered firm reported Friday, 10/30, that it is under investigation by the Securities and Exchange Commission (SEC) for accounting matters related to the restatement of its financial results.  The company revealed the SEC investigation during its fiscal fourth-quarter earnings call, which it had postponed for more than a month. The firm said a year-end financial audit uncovered internal control and accounting issues.  Since that announcement, Zales Corp. stock has been hammered.  This morning, 11/2, CNBC reported that the company has had the largest recent percentage loss of any traded company.

As you drive south on the George Bush Turnpike in Irving, Texas, your eyes cannot help but notice an impressive building that is the headquarters of Zales Corp.  Looking at the building and considering the storied history of the formerly respected jeweler, it is hard to believe that the firm’s future is in doubt because of its poor bookkeeping.

Morris (M.B.) and William Zale opened the first Zales Jewelers store in Wichita Falls, Texas, in 1924.  In 1946, Zales Jewelers moved its headquarters from Wichita Falls to Dallas. Zales Jewelers took major steps in 1957 to broaden its reach in the marketplace. The first shopping center location was opened and the company shifted its strategy of operating only in downtown stores to retailing in the newly popular air-conditioned in door malls.

Sadly, America’s honeymoon with in door malls and Zales is over.  On one day alone, Friday, 10/30, the stock price fell 26 percent, or $ 1.65 per share, to $ 4.74 per share.   The jewelry store chain posted a steep loss of $89.8 million, or $2.81 a share, in its fiscal fourth quarter, ended July 31, 2009. During the same period in 2008, it lost $10 million, or 30 cents a share.  Excluding one-time items such as asset-impairment charges, the latest loss was 59 cents a share.  Wall Street analysts had forecast a loss of 78 cents, according to Thomson Reuters.  Revenue in the quarter fell 21.7% to $357.1 million. Sales at stores open at least a year dropped an eye-popping 21%.

Zales said that it is cooperating with the investigation that is being carried out by the SEC’s Fort Worth office.  It is the second time the SEC has investigated Zales since 2006.

Chief Executive Officer Neal Goldberg is Zales third CEO in two years.  Since January 2009, Zales has closed 190 stores.

The jewelry industry in general has been bludgeoned during the recession as job losses and tight credit have caused even high-income shoppers to forgo discretionary items such as jewelry. More than 500 jewelry retailers have shuttered their stores in the first nine months of the year, fourteen percent more than during the year-ago period.

See previous post on this subject at:  http://www.johnbrianfastcpa.com/623/no-gems-here-zales-financial-reporting-is-erroneous/