Zale's (NYSE:ZLC), the largest specialty jeweler in the US, saw its share stumble more than 18% recently as nervous investors headed for the exits ahead of next week's release of fiscal 2009 results. The numbers were supposed to have been made public this week, but management decided that a one-week delay was necessary in order to sort out certain "non-cash adjustments" that in some cases go back prior to 2000.
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Disclosures like this generally don't go down well with investors, as an initial revelation of minor irregularities on the books can sometimes lead to more material accounting issues that can seriously dent shareholder value. That could be why a lot of shareholders have elected not to stick around for next week's release.
Falling Demand
Further fueling investor nervousness has to be the rough state of the U.S. jewelery market. Mounting job losses and slumping house values have prompted U.S. consumers to drastically scale back their jewelery purchases. The resulting slump in demand has pushed many jewelery retailers to the breaking point. By mid-year, 917 retailers have discontinued operations and 65 have slid into bankruptcy according to stats compiled by the Jewelers Board of Trade. That's double the rate reported last year. Zale's recently announced that it would closing 118 of its nearly 2,000 outlets and would take a $50 million pre-tax charge largely connected with the decision.
Flying High
But while the low to middle end of the market remains in disarray, purveyors of higher-end merchandise, like Tiffany (NYSE:TIF) and Signet (NYSE:SIG), appear to be weathering the storm. Both companies reported better than expected results in their latest reporting periods as a result of better than expected sales and major cost cutting. Comments from management and analysts suggest that both companies could be poised to capture significant market share, primarily in the mid-price segment, while their competitors in that space remain in disarray.
Unlikely Lead
Tiffany holds a 5.5% share of the $28 billion U.S. specialty jewelery market, holding third-place behind Signet and Zale's. However, Walmart (NYSE:WMT), which is the largest seller of jewelery in the U.S., could be in a better position to expand its share over the specialty retailers. (Read Analyzing Retail Stocks to learn about the most important metrics to look at when analyzing retail stocks.)
One interesting situation in this space is Canadian diamond specialist Harry Winston (NYSE:HWD). In addition to operating a chain of luxury retail outlets, the company is unique in that it actually holds a 30% stake in a diamond mine in Canada's high Arctic. The company reports its fiscal second-quarter results next week, and judging by recent share action investors appear to betting that the numbers will be impressive.
The Bottom Line
While it looks like their be some winners and losers as the U.S. jewelery market pie gets re-sliced, no really major benefits will accrue to those gaining a larger slice until the entire pie gets bigger. And that's not likely to happen until consumers believe that the U.S. employment situation is on the mend. In the meantime, industry commentators say its anybody's guess how consumers will react during this year's critical Thanksgiving and Christmas buying season; a time when the jewelery industry makes 30 percent of its sales.
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