2010 annual report

2010 annual report - 10-18602-1 180082.indd 1 10/29/10 3:25...

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30OCT200914471655 Letter to our shareholders Dear Shareholders, • On September 23, 2010, the Company entered into an agreement with Citibank to provide the private Our financial performance in the first half of fiscal label credit card program for the Zales, Zales 2010 fell short of our expectations. As a result, in Outlet and Gordon’s brands in the United States. January of this year significant changes were made to The agreement, which commenced on October 1, the Company’s executive management team, and I was 2010, is for a term of five years with automatic appointed by the board as Interim Chief Executive renewals for successive two-year terms and Officer in addition to my role as President. The new replaces the Company’s agreement with Citibank, executive team immediately began work on a plan to which was set to expire in March 2011. improve the business. The focus of our efforts has been to execute a multi-year turnaround strategy As a result of the financing transactions noted above, aimed at returning the Company to profitability. While total available borrowing capacity on our asset-based we have a long way to go in order to achieve our goals, revolving credit facility stood at $242 million on we have made solid progress. There is no shortage of July 31, 2010, an improvement of approximately priorities that compete for the time and attention of $120 million from April 30, 2010. By completing these our management team; therefore, we’ve chosen to transactions, we created a much needed financial narrow our focus to the few things that we believe will foundation that gives us the runway to execute our provide the greatest leverage. During the second half turnaround. of fiscal 2010, we’ve worked diligently to improve our business financially, operationally and organizationally. Operationally, it all starts with having the right product at the right price. Our focus has been, and will remain, Financially, our work has been highly visible. Since on building and strengthening our core merchandise February, we announced the following key assortment–consistent sellers at a predictable margin. transactions: Our merchandising team has been working closely • On May 10, 2010, the Company announced that it with our vendor partners to restore the core had reached agreement with Golden Gate Capital, a merchandise assortment. In January of this year when private equity firm known for its deep expertise in the team began its work, our core assortment stood the retail industry, on a new $150 million, five-year at only 60% of the merchandise mix. By comparison, senior secured term loan. we believe a healthy jewelry business typically has a core mix of between 80% and 85%. Today, we are at • On May 10, 2010, the Company also announced 70% core with a goal to reach 80% by early 2011. A that it had reached agreement with its banks to 10% to 20% improvement may not seem significant; amend and extend the Company’s asset-based however, it is important to understand a couple of revolving credit facility through April 30, 2014.
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2010 annual report - 10-18602-1 180082.indd 1 10/29/10 3:25...

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