Zale in talks with Citibank to extend card deal

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Dallas Zale Corp. said it has entered into exclusive talks with Citibank to renew the jeweler’s private-label credit-card arrangement after it expires next year.

Zale also said it has been granted an extra month from Citibank to pay a penalty for low sales made on the cards.

Citibank, which issues the cards used for 40% of Zale's U.S. sales, told the retailer in December that it would not renew that agreement when it expires in March 2011.

Citibank has also agreed to give Zale until May 31, while they negotiate, to decide whether to pay a $6 million penalty designed to compensate Citibank for a sales shortfall, Zale CFO Matt Appel told Reuters on Friday.

In March, Citibank, a unit of Citigroup, warned Zale that its private-label, credit-card arrangement would end in September, six months early, if Zale failed to pay.

Under the current agreement, Zale guarantees Citibank a certain amount of return on the credit cards based on sales. Any shortfall must be made up for in penalties.