• 118 Underperforming Retail Locations Closed
• $50 Million Pre-tax Charge to be Taken in Fourth Quarter Ended July 31, 2009, Including $23 Million to Cover Bailey, Banks & Biddle Contingent Liabilities
• Projected Net Cash Flow Benefit of $55 Million During Fiscal 2009 and 2010

Zale Corporation (NYSE: ZLC) today announced that it closed 118 underperforming retail locations during the fiscal fourth quarter ended July 31, 2009. Including the actions announced today, the Company has closed 191 underperforming locations during calendar year 2009, of which 160 were retail stores and 31 were kiosks. In the aggregate, the 191 closed locations had a negative financial contribution of approximately $14 million for the twelve months preceding closure and carried approximately $56 million of inventory. In addition to these closures, the Company has entered into agreements in principle on certain of its remaining retail locations, which will result in a reduction in aggregate rental obligations commencing in fiscal year 2010. Following the closures announced today, the Company operates 1,931 retail locations.

The Company also announced that it has reached agreements in principle to settle contingent rent obligations to landlords of 34 of 45 retail locations of Bailey, Banks & Biddle (“Bailey Banks”) with aggregate future base rental obligations for such locations of approximately $29 million as of July 31, 2009. Contingent liabilities with respect to the remaining 11 locations are still under negotiation and aggregate approximately $33 million of base rental obligations as of July 31, 2009. The above contingent liabilities aggregating $62 million as of July 31, 2009 are associated with the sale in 2007 of Bailey Banks to Finlay Fine Jewelry Corporation, which filed for chapter 11 bankruptcy protection on August 5, 2009. The Company will record charges and reserves totaling approximately $23 million to cover the Bailey Banks contingent liabilities during the fourth quarter of fiscal 2009 and such amount is included in the $50 million pre-tax charge described below.

The Company will record a $50 million pre-tax charge during the fourth quarter ended July 31, 2009 to cover the costs of the fourth quarter retail location closures, including lease terminations and other costs of closing these locations, as well as the charges and reserves associated with the contingent liabilities relating to all 45 Bailey Banks locations.