by Evan Clark
From WWD Issue 04/26/2011
Prices for silver and gold, and the value of Zale Corp.’s inventory, might be on the rise, but the hot commodities market means the jeweler also has to pay up to replenish its stores.
The Dallas-based jeweler Monday said it refinanced a $120 million portion of its asset-backed credit facility Monday, pushing its due date back to April 2014 from August of this year.
Silver prices rose to $45.83 an ounce Monday as gold topped $1,507. Both commodities are near historic highs and are of just as much interest to investors as jewelers. Silver is up 52 percent this year and gold is ahead 5.7 percent.
For now, credit is cheaper than either of the precious metals.
This is part two of the firm’s refinancing. In May, Zale amended the other $530 million of its $650 million facility, which carries an interest rate 3.5 to 4 percentage points above the London Interbank Offer Rate, or LIBOR.
Borrowings under the credit agreement are contingent in part on the liquidation value of the firm’s inventory.
The company recently had its inventory reappraised, according to Matt Appel, executive vice president and chief financial officer, but he said the appraisal reflected how quickly Zale was turning its inventory and at what profit margin rather than the effect of rising commodity prices.
“Generally speaking, commodity prices would increase the cost of our inventory,” Appel said. “If we paid more to replenish inventory then the cost of what we sold would go up. As our inventory costs go up we can borrow more against it but we’re paying more for it.”
Shares of Zale slipped 1.1 percent to $3.77 Monday as the S&P Retail Index pulled back 0.3 percent to 533.34.
