Zale's (NYSE: ZLC) sparkling jewelry looks beautiful through the display window, but investors in the company have been dealt yet another quarter of tarnished results.

For the second quarter, earnings dropped 31.7%. But earnings per share came in at $1.16, beating Wall Street estimates of $1.10. Of course, beating Wall Street's low expectations isn't exactly glamorous. But in all fairness to Zale, virtually all jewelry retailers are hurting these days.

While competitor Signet (NYSE: SIG) recently announced a 6.7% drop in comparable sales, Zale's comps fell 7.3%. Even the high-flying online retailer Blue Nile (Nasdaq: NILE) has drastically cut its near-term growth projections, so any expectation for sparkling results elsewhere in this industry simply seems unreasonable to me.

But I don't think this company has completely lost its luster. Despite weakness in the sector from cutbacks in consumer spending, Zale is positioning itself to survive the sluggish economic environment. I'm glad that CEO Neal Goldberg intends "to make Zale into a more nimble and efficient organization" and has plans to reduce $100 million in excess inventory. In the second quarter alone, the company already cleared out 14.8% of its inventory on the balance sheet.

Biting the bullet on expensive inventory hurts, especially in the short term. Consequently, management anticipates a gross-margin reduction of 500 basis points throughout 2008 as Zale continues to tidy up its inventory levels. However, the longer-term benefits will certainly outweigh current penalties to margins.

I also think the company made two good moves recently, in selling the high-end Bailey Banks & Biddle chain in November, and deciding to streamline the merchandising and marketing of moderate brands last summer. Both moves allowed the company to focus on its namesake mid-market brand.

With recession storm clouds looming while revenues and earnings remain in a holding pattern, it's difficult to judge how well Zale is truly performing. I believe that the company's current valuation reflects much of the current risks and uncertainties, so the value play is available here for Fools who can stomach the possibility of riding out a recession. I'm bowing out of this dance for now, but there's still enough sparkle for me to keep my eye on this one.

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Fool contributor Jason Ramage does not own shares of any companies mentioned in this article. The Fool sports a beautiful disclosure policy.