Atlas Shrugged
Long/short equity, special situations

Zale Corporation: Deteriorating Fundamentals, Aggressive Accounting, Equity Dilution, And Overvaluation

When a bleeding animal is cornered, it becomes desperate. This is the story of Zale Corporation (NYSE:ZLC), a mid-tier jewelry retailer which operates roughly 1,100 stores and 650 kiosks under the nameplates Zales Jewelers, Zales Outlet, Gordon's Jewelers, Peoples Jewelers, Mappins Jewelers, and Piercing Pagoda in the United States, Canada, and Puerto Rico. The retailer experienced a stunning fall from grace as the financial crisis obliterated sales and sent net income into a freefall.

At the company's nadir in 2010, revenues had fallen more than 33% from 2007 highs, while net income had collapsed by more than 250%. The stock was taken out back and shot, dipping below a dollar from heights of $30 before the crisis. After...

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