So today’s question is: What does Breeden Capital Management know that the rest of the planet doesn’t?

Breeden, a so-called “activist investor,” has substantially increased its stake in what is now regularly called “troubled” Zale Corp. from 7.7% to 13.3%. This is in spite of a mediocre jewelry market, what looks like a tough economy in the year ahead, and continuing turmoil at the top, detailed in this analysis:

Since 2006, Zale has either terminated or lost a Chief Operating Officer, Chief Financial Officer, two Zale Division Presidents, Gordon Division President, and a Bailey Banks, and Biddle President.  Add to those leadership losses the severe attrition of middle management executives and countless managers ….

And now, of course, the company just hired its second CEO in a row without any retail jewelry experience. All in all, it’s an inauspicious time to nearly double your bet.

So is there some secret plan here that the rest of us are not aware of? Breeden is an “activist investor,” and that is certainly a glamorous-sounding name – who doesn’t want an outsider to come in and fix a “troubled” company? And in the past Breeden has forced dramatic changes in the companies it’s invested in, including getting restaurant chain Applebees to merge with IHOP and changing the management of HR Block. But not all the changes have worked out well in the long run, some argue. The New York Post notes that H and R Block’s stock has languished, and some analysts (reg. required) feel the Applebees merger was premature.

So what changes could Breeden force in Zale? The Post mentions rumors (again!) that Zale will merge with Sterling. Past merger attempts have failed. What Zale really needs is stable leadership that is committed long-term to the company and to the jewelry category.  But it remains to be seen whether Breeden really cares about either.

Rob Bates

JCK News Director