The stock lost more than half its price since November 26, the day it hit a new 52-week high of $22.50, and has failed to rebound since Citron Research released a negative report on the company a few days later.

The research report alleges that the company engages in shill bidding, asserts that inventory levels are rising at least 300 percent higher than the company’s revenue run rate, and claims that the CEO is compensated 30,000 shares each month. The company has responded by saying that the allegations are untrue, but admits that Saied Aframian, manager of Bidz.com supplier LA Jewelry and owner of about 5% of Bidz.com shares, has previously had a run-in with the law.

After checking out the site myself, I found an item which includes a reference to a “Rapaport” price –  for an item that I’ve never seen on the Rapaport list. But what is possibly the most damning is the company has an “F” rating from the Los Angeles Better Business Bureau (LABBB). The company has claimed, in response, that’s an old rating, and the overwhelming majority of its customers are satisfied. That may be true, but … well, obviously, a company that is now a major player in the market has to do better. 

The LA Times article includes the new accusation that Bidz’s lab appraisal service, American International Gemologists, says “it does not physically inspect every appraisal.” I am no appraisal professional, but I think we can all agree, that is not a good way to appraise.

ShareThis

“While these second quarter results are disappointing, I am convinced that Zale has a powerful basis for improved performance as we again provide our value-oriented customer with an exceptional experience,” said Neal Goldberg, Zale president and CEO. “We intend to make Zale into a more nimble and resourceful organization." he added. "We remain focused on the generation of free cash flow, achieving a high return on capital and maintaining financial rigor and discipline overall. Our first step is a reduction of $100 million in excess inventory. We have conducted a detailed review by category and item and believe this product can be sold at a profit.

Through fiscal 2008 we expect a negative impact on gross margin of approximately 500 basis points which is expected to be more than offset by the positive impact of the inventory reduction on free cash flow. Although we plan to make some selective investments, this $100 million reduction is not intended to be replenished. These actions are designed to ensure Zale’s success and generate value for shareholders over the long-term.” Other highlights of the second quarter include:

• Unrecognized revenues related to warranty sales increased $33 million. This compares to an increase in unrecognized revenue of $30 million in the second quarter of last year.

• Retired 5.8 million shares during the second quarter. Anticipate retiring approximately 11 million shares in total once share repurchase program is completed. First Half of 2008

• Total revenues for the six months ended Jan. 31, were $1.2 billion compared to $1.27 billion last year, a decrease of 5.4 percent

• Comparable store sales for the six-month period decreased 5.1 percent

Zale Corp. is a leading specialty retailer of fine jewelry in North America, operating over 2,150 retail locations throughout the United States, Canada, and Puerto Rico, as well as online. Zale Corp’s brands include Zales Jewelers, Zales Outlet, Gordon’s Jewelers, Peoples Jewellers, Mappins Jewellers and Piercing Pagoda.

Unrecognized revenue related to warranty sales increased $47 million. This compares to an increase in unrecognized revenue of $29 million for the prior six-month period. • Earnings from continuing operations for the six-month period were $26 million, compared to $52.4 million, for the prior six month period, which included a $2.3 million negative impact related to derivative accounting treatment for the company’s gold and silver contracts

ShareThis