Pacific Sunwear: Short Squeeze or Greek Tragedy?

 |  Includes: PIR, PSUN
by: Jakester

An interesting situation is shaping up at Pacific Sunwear (NASDAQ:PSUN) which looks likely to end up in a short squeeze or the eventual disappearance of the troubled retailer. A recent article by Retail Geeks makes the convincing case that PSUN is perhaps the worst retailer in specialty apparel. Personally I have no opinion on the merits of PSUN as a business.

What makes the future of this stock likely to be dramatic is the voracious appetite of Jorge Constantino of Greek Investments (a family partnership), who is gobbling up big blocks of PSUN on an almost daily basis. As of this writing he owns over 12,000,000 shares of the stock, up from 7,000,000 just three months ago. The former equates to a more than 18% stake in the total shares outstanding. He has paid as little as $3.49 in public filings and as much as $6.39. As this is a large percentage difference in price, he obviously seems unconcerned with daily fluctuations but is clearly ravenous for the stock.

There is nothing particularly newsworthy about insider buying in itself, although the rapidity with which Constantino is amassing a large stake is unusual. What makes this interesting is that PSUN has a huge short interest of 9,000,000 shares which is over 13% of the outstanding shares and obviously a much bigger percentage of the float.

Constantino also amassed a large position in retailer Pier I Imports (NYSE:PIR), another troubled retailer. The Greek position in PIR has been extremely profitable, so based on this they may have a good feel for potential turn-around situations. The difference here is that Constantino holds a bigger share of PSUN than he did PIR (nearly twice as large) as a percentage of outstanding shares. PIR also had and still has a large short interest, but as it has climbed from a low of a dime in March of 2009 to over $10 today, a 100-fold increase. The shorts have endured some horrible pain. With an even bigger share of PSUN, will this turn into another rout of the shorts or a Greek tragedy for Constantino and his family? It should be very interesting.

Disclosure: I am long PSUN.