Tiffany & Co. (NYSE: TIF) shares rose sharply today after its profits slipped but still topped estimates. The diamond retailer also issued a bullish outlook, saying that it expects "robust" growth in the non-U.S. markets that should drive earnings 10.5% higher than previously expected. However, it still expects a slight decline in U.S. same-store sales as the poor economic climate shows no signs of letting up.

The share price has been so volatile because many investors expected luxury retailers to take a hit amid weak U.S. consumer spending. Many like Tiffany's quickly expanded during the last decade into non-metropolitan markets that are now suffering with weaker consumer spending. However, strong international spending has driven results and led to a substantial increase in earnings that caught many off-guard.

The rise also spurred a rise in other luxury retailers including Zale Corp. (NYSE: ZLC), Blue Nile Inc. (NDAQ: NILE), and Harry Winston Diamond Corp. (NYSE: HWD). Many investors are now bullish on these companies, but it is worth noting that many of them have a lot more U.S. exposure than Tiffany's that has been able to rely on robust international growth to curb losses from lower U.S. consumer spending.

The reality is that Tiffany's saw 40 percent of its sales come from foreign markets with a 20 percent increase in sales volume from abroad, which is substantially higher international exposure than other luxury retailers that could still be hit hard from a U.S. slowdown. This international exposure has been the hallmark of companies that have been able to weather the storm so far this year.

In the end, Tiffany's is definitely still seeing a slowdown in the U.S., but is being helped by strong demand internationally. Investors should look to invest in companies with similar exposure in order to recession-proof their portfolio and prevent any significant losses from a slowdown in the United States.

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Capital Senior Living Corporation (NYSE: CSU) may sound like a boring business but not for shareholders! The company's shares moved sharply higher today after the company announced that it has appointed two new board members and agreed to explore a possible sale. The news comes amid substantial pressure from several activist shareholders that saw unrealized value in the country's largest operator of senior living communities.

The dissident shareholders behind the push included Boston Avenue Management (7.3% owners), West Creek Capital (6.4% owners), and Matthes Capital Management (1.7% owners). New directors from the latter two hedge funds will serve on a committee to explore strategic alternatives, including whether or not to sell Capital Senior Living. Whether or not a sale will actually happen remains to be seen, but the number of activist shareholders and board seats tilts the odds more than usual.

Capital Senior Living also swung to a profit last year after posting a loss in 2006, which substantially improves its marketing in the event of a sale. Additionally, the company's focus on providing significant income and asset growth, strengthening the balance sheet, and improving the comapny's profitability were all realized during its latest earnings announcement.

Revenues, EBITDA, and net income all significantly increased as margins expanded through higher rents and solid expense control. Monthly rental income increased by 4.4% while the average occupancy rate stood at around 90% with management fees around 48%. Additionally, the company expanded its capacity through new developments, consolidations, and in-home services.

Management expects these trends to continue as the company continues to prosper despite a poor economy. Long-term, the baby-boomer population will continue to age and be placed into senior living communities such as these. The company is well positioned as one of the leading operators in the nation and will likely to continue to benefit through these trends despite the tough economic environment.

In the end, the activists believe the stock is undervalued and are seeking to unlock value through a sale process. Meanwhile, the company continues to perform extremely well having swung to a profit and improved in almost every important measure of success. Combined, these factors can only spell good news for shareholders who stand to benefit long-term from the company's success or short-term from the activists' success.

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Borders Group (NYSE: BGP) shares soared over seven percent today after Bill Ackman's Pershing Square announced a financing agreement along with an offer to purchase the company's international businesses. However, is the high-interest financing and low-ball offer really something shareholders should be applauding or just an attempt by the activist to get a good business on the cheap?

Borders Group has been running into problems with a dangerous combination of high debt and low margins in an economy that has little to offer in terms of additional financing. This prompted the bookseller to announce an effort to explore strategic alternatives last week that eventually led to this financial commitment and offer to purchase from one of the most successful activist funds in the world.

Pershing Square's Schedule 13D/A filing offers some key details regarding the proposed deal. The first detail worth noting is the high 12.5% interest rate to be charged on the $42.5 million loan along with the fact that the international businesses are being used as collateral. Many analysts believe that the high interest rate may actually work against any buyout as the buyer would be forced to pay it off.

The $125 million buyout price for the international business may also seem low considering the majority of the company's growth is in these markets. Luckily, it is structured as a backstop purchase so the company is not obligated to sell. More, the company itself admitted this during in their latest press release and maintained that they would only use it as leverage in future negotiations.

Finally, Borders also granted Pershing Square 14.7 million warrants to purchase common stock at $7.00 per share for 7.5 years in exchange for setting up the financing. These warrants represent just under 20 percent of the full-diluted shares of the company on a pro forma basis. While the warrants are above the market price, it may cap the upside over the long-term given the dilutive effects.

In the end, Pershing Square may have bailed out the company for the time being but it certainly came at a price. The activist hedge fund is getting a 12.5% return on a debt investment secured by a purchase that it was already intent on receiving. The same debt will give it an immediate discount to any acquisition of the international businesses and an upper hand with any competition.

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