Zales vs. Peers: Possible Difficulties Ahead

Today I would like to call attention to specialty retail jeweler,
ZALE Corp, (NYSE:ZLC) and the difficult challenges
it must overcome to successfully outperform the market. After a brief
analysis, I have come to the conclusion that it will face many uphill
challenges in the coming year.<!--more--> A weakening economy coupled with an
inflationary environment will hamper efforts to revitalize the retail
jewelry market, especially where specialty brick and mortar retailers
already face stiff competition from all fronts including: booming
Internet sales from as Blue Nile (NASDAQ: NILE) and Ebay (NASDAQ: EBAY), discount
retailers such as Wal-Mart
(NYSE:WMT), and high end retailers such
as Tiffany's (NYSE: TIF).

Investors looking into Zales must keep in mind that the
majority of its sales and profitability comes from the holiday season
centered around Christmas. The remaining quarters are loss leaders, and
produce no positive earnings per share. It will be difficult to access
Zales true performance until the
early 2009, when the results of the future holiday season are to be
posted. Investors need to be prepared for the fact that for the next
three quarters, a negative earnings per share of -.54 to -.62 is to
be expected, according to a Standard and Poor report based upon
forcasted operating EPS.
That is a long 9 month wait for any positive news to come from Zales, where alternatively,
capital could be allocated to more effective uses.