Stefan Kaluzny Zale's

Stefan Kaluzny Zale
Zale’s unveils restructuring plan to boost cash flow
Zale’s three-part recapitalization gives it a stronger future. ‘This gives us a very healthy foundation to complete our turnaround strategy,’ said chief financial officer Matt Appel.

Zale Corp. on Monday announced a three-pronged recapitalization, including a $150 million loan from a private equity firm, to help turn around the struggling jeweler beset by falling sales and cash-flow issues.
“This gives us a very healthy foundation to complete our turnaround strategy,” said Zale chief financial officer Matt Appel. The Irving-based retailer has been hurting for cash and closing stores.
San Francisco-based private equity firm Golden Gate Capital provided the $150 million loan in exchange for a 25 percent equity stake. Golden Gate’s stake will be in common shares that it can purchase later at $2 each.
Zale closed on a $650 million bank credit line to replace its previous $600 million credit facility. The lead bank was Bank of America , which partnered with General Electric Capital Corp. and Wells Fargo Retail Finance.
It also reached a five-year agreement with TD Financing Services to offer a store-brand credit card to customers of Peoples Jewellers and Mappins Jewellers in Canada starting July 1. Zale still is negotiating with Citibank to reach a similar agreement for its U.S. stores by the end of this month.
When asked about the cost of the deals, Appel said: “This is right in the strike zone and in the sweet spot of what we were expecting.”
Zale announced the restructuring after the stock market closed Monday. Zale shares rose 27 cents, or roughly 10 percent, to close at $3.
The infusion comes at a critical time for Zale. The 1,900-store chain has been losing market share and running short on cash. In January, the company replaced its chief executive and two other top executives. In February, it hired a New York investment banking firm to help it find at least $100 million.
Zale received nearly a dozen offers, CEO Theo Killion said in a conference call with analysts Monday.
With the recapitalization behind it, Zale can focus on inventory, expense and capital management, and invest in Internet sales and restructuring its retail network, Appel said in the call. He also said the company has no plans for asset sales or “significant” store closings.
“The value that Golden Gate brings to Zale is its extensive retail experience,” Appel said. “Its retail experience is well-documented with Express, J. Jill and Eddie Bauer. They’re experienced in multi-channel, Internet-based sales and retail and real estate logistics.”
Golden Gate has been on a recent spending spree in the Dallas area, investing $170 million in Dallas-based window and door maker Atrium Cos . as part of a plan to exit bankruptcy and buying On the Border Mexican Grill & Cantina from Dallas-based Brinker International Inc. It also owns a majority stake in the Romano’s Macaroni Grill chain.
Golden Gate officials didn’t return a phone call Monday.
“This is a great brand with great potential,” Stefan Kaluzny, a managing director at Golden Gate, said in a written statement. “I look forward to partnering with management and supporting the company as its turnaround plan is executed.”
Zale named Golden Gate’s Kaluzny and principal Peter Morrow to its board of directors; existing directors Thomas C. Shull and David M. Szymanski resigned. It also said chairman John B. Lowe Jr. will resign when his term expires at the end of the year.
Analysts on the conference call wanted to know more about the recapitalization’s effect on Zale’s balance sheet.
Zale will see higher interest expense on the Golden Gate loan starting in the fiscal fourth quarter, but it will not take any charges against earnings, Appel said. The loan carries a 15 percent annual interest rate.
Appel said Zale never considered bankruptcy.
“There was never any need for it. It was never on our radar screen,” he said. “Business is performing better.”
Zale posted its first quarterly profit in two years in February, helped by a tax benefit and cuts in expenses. Last year, revenue fell 17 percent to $1.78 billion, and Zale closed 187 locations.
The company is scheduled to report earnings for the quarter ended in April later this month.

By SHERYL JEAN / The Dallas Morning News sjean@dallasnews.com

Eddie Bauer - Stefan Kaluzny

Bellevue-based retailer Eddie Bauer said Tuesday it has completed its previously announced sale to San Francisco private-equity firm Golden Gate Capital, enabling it to emerge from bankruptcy protection as a new, privately held company.

Golden Gate won a bankruptcy-court auction last month with a $286 million cash bid for Eddie Bauer. As part of its purchase, it agreed to operate at least 300 of Eddie Bauer’s 370 North American stores and keep most of its employees, including management.

Tuesday, Golden Gate indicated its support for a two-year-old effort, begun by Chief Executive Officer Neil Fiske, to return Eddie Bauer to its active-outdoor roots.

“We are very pleased to acquire the Eddie Bauer operations and to partner with the existing management team in continuing to restore and rebuild this iconic brand,” Golden Gate managing director Stefan Kaluzny said in a statement.

Fiske said the company is talking with its landlords about new lease terms for all of its stores, as well as its Bellevue headquarters.

Store closures will largely depend “on what landlords are willing to do with us” over the next 90 to 120 days, Fiske said.

Eddie Bauer moved its headquarters two years ago from Redmond to downtown Bellevue, where it has a 15-year lease for 220,000 square feet at Lincoln Square.

“We’re committed to staying in the Seattle area, and we like Bellevue,” Fiske said. “Hopefully, we stay right where we are.”

Fiske said he also hopes to avoid additional layoffs. The company eliminated about 70 jobs at its headquarters early this year under a plan to cut up to $15 million from its operating cost structure, following cuts of as much as $50 million last year. It now employs about 420 full-time workers at its headquarters.

“We’ve done a lot of the restructuring,” he said. “Now, the focus is on how we strengthen and build the organization while still keeping it lean.”

Since 2003, Golden Gate has bought 20 retailers and consumer-products companies, including women’s clothiers Express and J.Jill. All told, its apparel companies have annual sales of $4 billion and 1,250 stores covering nearly 10 million square feet, Golden Gate said.

Founded in 1920 in Seattle, Eddie Bauer filed for Chapter 11 bankruptcy-court protection in June, citing a crushing debt burden, the current recession, and the lingering effects of a shift in focus from its outdoor heritage in the 1990s and early-2000s under then-owner Spiegel. In 2005, two years after catalog retailer Spiegel filed for bankruptcy, Eddie Bauer became a stand-alone, publicly traded company.

Its sale to Golden Gate allows it to emerge from bankruptcy with “a much stronger balance sheet, little or no long-term debt and a substantially lower cost structure,” the retailer said in a statement.

“We’re one of few retailers that’s gone into bankruptcy in the past two or three years and come out,” Fiske said. “And we’ve come out in record time 47 days is almost unheard of.

“Clearly, we still have challenges, but we’re in a much stronger position,” he said. “And people are excited about what the future holds.”

Source: http://www.allbusiness.com/company-activities-management/company-structures-ownership/12615933-1.html#ixzz1nWg1bUg9