Danielle Abril/Dallas Business Journal—Zale Corp.’s announcement that it agreed to be sold to Signet Jewelers Limited for $690 million has left industry analysts with a positive outlook on the Irving-based jeweler, even though there are still a lot of unanswered questions.
Wednesday morning, Zale’s stock popped about 40 percent to $20.87 per share from $14.91 per share at the close of the stock market Tuesday.
“We are most encouraged on further global leadership, combination of proprietary brand portfolio, greater scale in vertical integration of diamond sourcing and ongoing future-proofing through omnichannel,” Oliver Chen, analyst with Citi, wrote in a note released Wednesday.
Signet agreed to buy Zale (NYSE: ZLC) for $21 per share, with a total purchase price estimated t o equal $1.4 billion.
Zale announced that it would continue to operate with its CEO Theo Killion at the helm and use Signet’s operating strengths to spur future growth. The company has been working on a multiyear turnaround that last year produced Zale’s first annual profit in five years. Its sales have been somewhat stagnate for the past few years, and the company has more than $500 million in debt.
The acquisition makes Signet, and as a result Zale, one of the largest players in the jewelry market.
“Signet Jewelers and Zale Corp. hold about 10 percent and 5 percent of the market share, respectively,” said Vanessa Giraldo, analyst with research firm IBISWorld. “As one entity, it will control (about) 15 percent of the market, strengthening its lead over competitors such as Tiffany and Co. and giving Signet a competitive edge.”
Since Signet owns competitors Kay Jewelers and Jared Jewelers, consumers could see changes at Zale.
“You wouldn’t own two companies that competed directly against each other because then you’re just slicing up the same pie,” said Jeff Green, CEO of Jeff Green Partners, a retail consulting company. “So Zales will either become a little higher end or a little lower end.”
And with that, consumers could also see relocations on the menu as Signet re-evaluates its corporate footprint, maximizing the profits of each location. But therein lies the risk, Green said, as Zale will have to effectively communicate its new branding strategy to consumers to maintain profitability.
It could also reconsider some of the leaders in merchandising and operations positions, as it implements its new strategy, Green said.
The sale won’t necessarily change the industry, Green said, but it could have a nice side effect for Dallas-Fort Worth.
Signet operates its corporate headquarters out of Hamilton, Bermuda. But with four major brands, several regional brands and a huge Zale headquarters located near one of the nation’s largest international airports, it could reconsider its home base, Green said.
“If I was a betting man, I’d say they move Signet to their (Zale’s) headquarters,” Green said.
The acquisition is consistent with Signet’s long-term growth strategy, Giraldo said. In 2012, the company acquired Ultra Stores Inc. as it worked to expand its business.
While analysts seem optimistic about the news, a lot of details must be worked out, according to analysts.
“There are many unanswered questions about the long-term position of Zales,” Green said.