Zale initiates efficiency program

Zale Corporation has begun the implementation of a program designed to enhance the Company’s profitability and improve its overall effectiveness. The program, which seeks to generate $65 plus million in ongoing, annualized savings beginning in the Company’s fourth quarter of fiscal 2008, is the product of management’s comprehensive review of operating and capital expenses in consultation with the Board of Directors. Key elements of the program include:

– Estimated $65 plus million in ongoing, annualized savings a majority of which is overhead spending. Approximately $5 million of savings are expected to be realized in the fourth quarter of fiscal 2008;

– Organizational streamlining, primarily involving a reduction of the Company’s headquarters staff by 225 filled and open positions or approximately 20%;

– Anticipated total program cost, including severance-related benefits, of less than $4 million pre-tax, will be incurred largely in the Company’s fiscal third quarter ending April 30, 2008;

– A reduction of planned capital spending from an expected $85 million in fiscal 2008 to approximately $45 million in fiscal 2009;

– Continued optimization of Company’s store portfolio, including the closure of an additional 23 underperforming locations, bringing the total number of planned store closures to approximately 105 in fiscal 2008; and,

– A $100 million reduction in inventory in fiscal 2008, which was announced previously. The decrease in inventory levels was based on a detailed review by category and item and the Company intends to make the reduction permanent.

Zale President and Chief Executive Officer Neal Goldberg said, in order to improve Zale’s overall performance and provide our value-oriented customer with an exceptional experience, it is essential that we reduce the Company’s infrastructure costs, which have outpaced its sales growth since 2002. The program we are announcing today follows an extensive review, and will enhance our operational effectiveness significantly. It builds upon steps we have already taken to reduce redundancies, simplify processes and create a more agile company, such as the realignment of our merchandise and sourcing organizations.

Creating a culture of cost discipline and financial rigor is vital to Zale’s ongoing success. While we recognize that expense saves will help drive efficiencies in the near-term, our ultimate success will come from optimizing the balance between top-line growth, margin expansion and expense control. These actions are difficult for our entire organization but are important steps in order to connect us more closely to our customers, concluded Mr. Goldberg. We thank our associates affected by these changes for their dedication, hard work and contributions, he said.

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