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Predictably, we’re seeing the 13D/F filings pick up meaningfully in Retail. Why not??? We’re at the point where average/poor CEOs are facing the music as it relates to negative organic growth due to poor planning and investment in growth during the recent downturn. They’re either blowing up, buying growth, or both. With the cost of borrowing just about as close to Japan as it can get, and the M&A cycle at the lowest level in almost 2 decades, M&A activity seemingly has only one way to go. That’s higher.

We’re seeing that with weak companies like JNY that need to add opacity to its model by doing deals. Anyone see the Cramer segment where he asked Wes Card (JNY CEO) why he is not buying back stock? Wes answered by saying that he’d rather buy other businesses than his own. I kid you not.

Yes, it’s 2007 all over again.

With that, we’re seeing investors get a step ahead of the game. Three that come to mind are JCP, CRI, and SKX – all of which represent different approaches.

JCP and CRI are two of our favorite fundamental shorts. Both are at peak margins, and face a material unfavorable change in secular, cyclical as well as near-term headwinds. We’ve been vocal about this in our work. I guess Ackman and Berkshire Partners don’t care as it relates to JCP and CRI, respectively.

SKX (Tiger Consumer) is an example of an investor stepping up in the face of management shooting itself in the toning shoe. This is going to be a long healing process for SKX – at least 3 quarters. But the reality is that it has a relevant brand in a more defendable space with far less exposure to raw material cross currents (esp cotton). Again, we think it’s too early to get involved here. But ultimately, there is value. It’s all about duration.

 JCP, JNY, CRI, SKX? 2007 All Over Again - 11 9 10 post