Economic Research

Defiance Capital Management

Economic and Investment Research & Analysis

Consumers, consumers, consumers Health of U.S. Retail Sector February 27, 2010 4 pages

Leonardo Cardoso Managing Director

Health of U.S. Retail Sector

February 27, 2010 Economic Research

Definition: Retail Sales measure the total receipts at stores that sell durable and nondurable goods. Consumer spending account for ~ 2/3 of US GDP and therefore a key element in economic growth. Our analysis of the US retail sector begins by identifying the areas that exert the most impact in the retail report. Then we combine the areas that belong to the same group. Finally, we list the companies that most likely affect the economic report. The following are all the areas within the retail sales report:
Motor vehicle and parts dealers (MV&P) Furniture, home furniture, electronics and appliance stores (part of GAFO) Building materials, garden equipment and supplies dealers Food and beverage stores Health and personal care stores Gasoline stations Clothing and clothing accessories stores (part of GAFO) Sporting goods, hobby, book, and music stores (part of GAFO) General merchandise stores (part of GAFO) Miscellaneous stores retailers (part of GAFO) Nonstore retailers Food service and drinking places

As of November 2009, Retail Sales (excluding motor vehicle and parts dealers MV&P) and Food Services represented ~ 83% of the Aggregate US Retail Sales, while MV&P represented the rest, or ~17% of the Aggregate US Retail Sales. Below is the adjustments made to the retail sales report. We group together the areas that are similar by nature and then we ranked each group based on their percent contribution to Total Retail Sales (as of November 2009):
GAFO, which represents firms that specialize in department store types of merchandise (26.8%) MV&P (16.9%) Food and beverage stores (14.1%) Food service and drinking places (10.8%) Gasoline stations (9.7%) Nonstore retailers (7.2%) Building materials, garden equipment and supplies dealers (6.6%) Health and personal care stores (6.1%)

Defiance Holdings - All rights reserved. Copyright 2010 Defiance Capital Management Economic and Investment Research & Analysis

Health of U.S. Retail Sector

February 27, 2010 Economic Research

Finally, here are the companies that represent each area of the Retail Sales report (as of November 2009):
1. GAFO, which represents firms that specialize in department store types of merchandise (26.8% of Total Sales)
a) General merchandise stores (14.2% of Total Retail Sales) General merchandise stores (TGT, FDO, DLTR, BIG, NDN) Department stores (KSS, SHLD, JCP, M, JWN, DDS, SKS) b) Clothing and clothing accessories stores (5.0% of Total Retail Sales) Apparel retail (TJX, GPS, ROST, LTD, URBN, AEO, ARO, ANF, GES, CHS, JCG, BKE, GYMB, PLCE, JOSB, BEBE) Apparel, accessories & luxury goods (COH, VFC, RL, PVH, COLM, JNY, UA, TRLG, VLCM, LIZ, ZQK, PERY) Footwear (NKE, DECK, TBL, SHOO, CROX, KSWS) c) Furniture, home furniture, electronics and appliance stores (4.6% of Total Retail Sales) Home furnishings (LEG, TPX, DIIB, LZB, ETH, FBN, BSET) Consumer electronics (SNE, PC, HAR, GRMN, COBR, MSN, UEIC, TCH) Household appliances (ELUXY, WHR) d) Miscellaneous stores retailers (2.7% of Total Retail Sales) e) Sporting goods, hobby, book and music stores (2.1% of Total Retail Sales)

2.

MV&P (16.9%)
a) Automobile and other motor vehicle dealers (15.2% of Total Retail Sales) Automobile manufacturers (TM, VLKAY, HMC, DAI, NSANY, F) Motorcycle manufacturers (HOG) b) Automotive parts, accessories and tire stores (1.8% of Total Retail Sales) Auto parts & equipment (JCI, MGA, BWA, ALV, GNTX, TRW, ARM, AZO, ORLY, AAP, AN, KMX, PAG, PBY) Tires & rubber (GT, CTB)

3.

Food and beverage stores (14.1% of Total Retail Sales)

a) Grocery stores (12.6% of Total Retail Sales) Food retail (KR, SWY, SVU, WFMI) Hypermarkets & Super Centers (WMT, COST, BJ, PSMT b) Beer, wine and liquor stores

4.

Food service and drinking places (10.8%)

a) Restaurants (MCD, YUM, SBUX, DRI, BKC, WEN, EAT, PNRA, JACK, CMG, CAKE, BOBE, PFCB, TXRH, PZZA, CEC, CBRL, BWLD, SONC, DPZ, BJRI, CPKI, RRGB, SNS, KKD, DENN, MSSR, RUTH, DAVE, BOBS)

5. 6. 7.

Gasoline stations (9.7%) Nonstore retailers (7.2%) Building materials, garden equipment and supplies dealers (6.6%)
a) Home improvement retail (HD, LOW)

Defiance Holdings - All rights reserved. Copyright 2010 Defiance Capital Management Economic and Investment Research & Analysis

Health of U.S. Retail Sector

February 27, 2010 Economic Research

8. Health and personal care stores (6.1% of Total Retail Sales)

a) Drug retail (CVS, WAG, RAD)

100% 95% 90%

4% Retail Sales 3% 2%

11% 9% 7% 5% 3% Yearly % 1%

85% 80% 75% 70% 65% 60%

07 Ju l- 0 7 Se p07 N ov -0 7 Ja n08 M ar -0 8 M ay -0 8 Ju l- 0 8 Se p08 No v08 Ja n09 M ar -0 9 M ay -0 9 Ju l- 0 9 Se p09 No v09 Ja n07 07 ay ar -

1% M onthly % 0% -1% -2% -3% M/M % J an-05 J an-06 J an-07 J ul-05 J ul-06 O c t-05 O c t-06 -4% Apr-05 Apr-06 Y/Y % J an-08 J an-09 Apr-07 Apr-08 Apr-09 J an-10 J ul-07 J ul-08 O c t-07 O c t-08 J ul-09 O c t-09
M

-1% -3% -5% -7% -9% -11% -13%

Motor vehicle and parts dealers Food services and drinking places Retail sales, total (excl. motor vehicle and parts dealers)

170 Retail Sales by group (Jan 05 = 100) 150 GAFO(1) Motor vehicle and parts dealers Food and beverage stores Food services and drinking places 110 Gasoline stations 90 Nonstore retailers Building mat. and garden equip. and supplies dealers Health and personal care stores 50

130

70

Defiance Holdings - All rights reserved. Copyright 2010 Defiance Capital Management Economic and Investment Research & Analysis

Fe b0 Ju 5 n0 O 5 ct -0 5 Fe b0 Ju 6 n0 O 6 ct -0 6 Fe b07 Ju n0 O 7 ct -0 7 Fe b0 Ju 8 n0 O 8 ct -0 8 Fe b09 Ju n0 O 9 ct -0 9 Fe b10