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Last week's

item that questioned the quality of

Estee Lauder's


latest quarter stirred quite a response (er, series of responses) from

The Motley Fool's

Dale Wettlaufer. Smart guy, that Dale. We've corresponded over the years. We've agreed; mostly disagreed. Love that First Amendment. This time, once again, we agree to disagree. The item in question, this time around, pointed out how one short-seller suspected the cosmetics concern had managed its allowance for doubtful accounts in a way to help the company meet Wall Street estimates. (Actually not just


short-seller, but one of the best I know when it comes to spotting signs of trouble before everybody else.)

Dale went through a quite thorough and impressive analysis of Estee Lauder's receivables vs. the short-seller's allegation. "I think it's an unfounded one," he wrote, "and I think it's wrong to accuse a reputable company -- however much Herb Greenberg disclaims it as only a possibility that the company might have done it -- of engaging in accounting chicanery to fool investors. Sure, one should question things and the rewards are great enough to tempt many companies, even reputable companies, into using accounting skullduggery to 'make their numbers.' But Greenberg is relying heavily on someone who is talking up their position, someone who is short Estee Lauder based apparently on its valuation."

As if that's some crime?! No hiding under rocks, here. The reality is that, in the end, the short-seller's performance (and credibility) is based on


analysis and convictions; ditto for me and this column when it comes to choosing whom to quote, and what stories to pursue, even if and when their names aren't used. (No pride in giving myself or my sources failing marks in this column's

semi-annual report card , though it often takes more than six months for a company's fundamentals to fully unravel.)

What Dale did say, which I agree with, is that my analysis didn't go deep enough. But by "deep enough" I mean that in my quest to keep it simple (I often just grab a chunk of a story), I didn't put the doubtful-account situation, and how it helped earnings, in context with the short-seller's reason for being short Estee Lauder in the first place.

That reason: It operates in an industry in which the general sales trend is down and the competitive dynamics are changing. So, why pick on Estee Lauder, which by all accounts is a fine company? Because at 35-times forward earnings -- the kind of multiple rewarded for fast earnings growth -- the quality of profits has got to be pristine. Yet this is a company whose sales are growing slower than earnings. That can mean one of two things (and this is how short-sellers view the world): That company has been cutting costs (not the case at Estee Lauder, whose margins already are high) or it has been juggling some of its numbers to make earnings look better. (Plenty of companies do this; it's the time-honored practice of managing earnings to meet Wall Street expectations.)

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In the case of Estee Lauder: The last fiscal year, which ended in June, was the first year in which Estee Lauder's provision for uncollected bills was lower than the amount actually charged off. (Historically, at Estee Lauder, it has been the other way around.) The provision is a discretionary number that has a direct hit on earnings. The actual amount charged off was a balance sheet item. As a result, the company reported a respectable 15% gain in earnings.

Had the charge-offs and provision been kept more in line with one another, the short-seller's contention is earnings growth would've been even lower. The example used here was that the company would've missed estimates by 2 cents per share -- not what you want to see at such a high multiple company. "History is that when the top line is growing slower than the bottom line and management pushes levers, sooner or later there's a problem that they can't hide," the short-seller said. "I'm not saying next quarter, but the trend is happening."

Time will tell if he's right, but I remember when this very same short-seller told me a year or so ago, when Wall Street was in love with

CKE Restaurants


, that


falling comp store sales wern't a good sign because falling comp store sales are never a good sign for a restaurant company. At the time CKE traded in the mid-20s. Today it's around 7.

Pass the perfume, please.

(Okay, Dale, your turn.)

It's Official

An item

here Friday mentioned that


had joined with



Buena Vista Internet Group

-- not

Action Performance


, as had been originally announced -- to produce its e-commerce site. Nascar said the same thing in its own press release issued Thursday night. Bray Cary, VP of Broadcasting and Special Projects, says Nascar doesn't see Action as a competitor and says Nascar's relationship with Action ended last fall when Action told Nascar it didn't want to honor that agreement. (Funny, Action, which put out a press release when the deal was struck, never said a word publicly when it was killed.)

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.