Skip to main content

Zale Corp

Long-time excellent stock picker Jim Garvin noticed this today and passed it along:

Hi Gene, This morning Goldman Sachs highlighted Zale as a "source of opportunity". They recommend that their clients short the stock, and put a target of $18. The reasoning: "...growing macro headwinds, management upheaval, and poor strategic positioning will likely pressure earnings." I've never shorted a stock in my life, but I found this interesting and wanted to pass it on.

I had noticed the downdraft in the stock, but hadn't seen the Goldman analyst report.

(Chart).

I've got a lot to say about this. The Zale board and CEO should have been gone long ago. Apparently they announced that they are looking for a COO. Well, they had an excellent COO - Sue Gove, who knew the business inside and out - and they threw her out about three years ago or so on accounting concerns - which proved to be completely unfounded. As far as I know, they never apologized to Sue after their review showed that there weren't any issues tied to her.

Zale has been up and down since the hostile takeover 20 years ago - when Jim and I worked there. It was one of the last hurrahs for Milken and Drexel Burnham - with tiny People's Jewelers acquiring Zale. At the time, Zale had a strong vertical integration, and leadership positions in Europe - all of which got unwound after the takeover. The company eventually went bankrupt under the failing leadership from Peoples - and languished for years in bankruptcy. It has been a revolving door of CEO's since - I would guess average tenures of less than four years - not long enough to learn the intricacies of a more complicated industry than apparent.

So, let me make a rescue proposal to anyone on the board paying attention: Don Zale, who's family name still adorns most of the doors, is still there in Dallas - bring him back as Chairman - and beg Sue Gove to come back and stop the bleeding...

Jim, Sue and Donald, you are all welcome to comment.

(In edit: Jim - I'm surprised you've never shorted - this is a great time to play on the dark side...)

Comments

James said…
This morning I saw the news that Zale has made a deal to sell Bailey, Banks & Biddle to Finlay for $200,000,000. The price equates to about 70% of annual sales, or 8.7 times EBITDA. I think that is a good strategic move as it will narrow the focus and should enable Zale to get rid of a ton of headquarters expense.

Popular posts from this blog

Book Review: What Matters Now by Gary Hamel

Interview of Eric Schmidt by Gary Hamel at the MLab dinner tonight. Google's Marissa Mayer and Hal Varian also joined the open dialog about Google's culture and management style, from chaos to arrogance. The video just went up on YouTube. It's quite entertaining. (Photo credit: Wikipedia)Cover of The Future of ManagementMy list of must-read business writers continues to expand.Gary Hamel, however, author of What Matters Now, with the very long subtitle of How to Win in a World of Relentless Change, Ferocious Competition, and Unstoppable Innovation, has been on the list for quite some time.Continuing his thesis on the need for a new approach to management introduced in his prior book The Future of Management, Hamel calls for a complete rethinking of how enterprises are run.

Fundamental to his recommendation is that the practice of management is ossified in a command and control system that is now generations old and needs to be replaced with something that reflects an educat…

Add This Great Work to Your History Bookshelf

Team of Rivals: The Political Genius of Abraham Lincoln (Photo credit: Wikipedia)
The more I study American history, the more I realize how little I really know. I just completed Doris Kearns Goodwin’s Team of Rivals in which she explores the inter-workings, personalities and politics of the Lincoln administration.Every American schoolboy or schoolgirl knows that Lincoln presided over the most difficult period in American history save the George Washington era.Most know that he struggled with a series of second rate generals until Grant emerged. And that he was tragically assassinated just as the War Between the States ended. But how many of us know that many of the cabinet members opposed Lincoln in the primary?That many of those thought he was unqualified for the office?That one of them – Salmon Chase – actually tried to build support to oppose Lincoln in the 1864 election?Or that Lincoln’s opponent in 1864 was former General McClelland, who so famously failed to take advantage of his…

Is Too Little Sleep As Bad For Your Brain as Crack?

Sleep is essential to brain health. Dr. Nora Volkow just gave a speech titled Probing the Sleep-Deprived Human Brain. Dr. Volkow is the Director of the National Institute on Drug Abuse-part of the National Institute for Health She gave that speech at Radcliffe College which was reported in the Harvard Gazette.Dr. Volkow is an expert on the effects of addictive drugs on the brain, particularly the effects that cocaine has on the brain. She has found that cocaine disrupts dopamine transmission. Dopamine is a neurotransmitter that plays an essential role in brain function. In part, it is released by neurons to signal other neurons.Specifically, she found that that using cocaine resulted in brain cells releasing dopamine but being unable to receive it. She has found that lack of sleep can have the same effect on dopamine transmission. Here is a quote from her: “Yet lack of sleep itself produces some of the same effects that drugs do: It disrupts memory, inhibits alertness and can contrib…