NATIONAL RETAILER RISK TRACKING MADISON MARQUETTE AS OF JUNE 2009

Retailer / Parent Company Ticker Retail Brands
Abercrombie Hollister Ruehl

Retail Category

Madison Risk Rating

Recent Industry Commentary
Despite accelerated promos & clearance activity, May 2009 Comps were below expectations- ANF reported -28% compared to -24.6% estimate. By division - A&F -25%, Hollister -32%, Abercrombie -28%, and Ruehl -33%. Direct sales declined -10% to $15.6 million. Good news - cost and inventory cuts & international expansion opportunity. ANF Board has approved closure of 29 Ruehl stores in 2009 - Ruehl losses resulted in 1Q09 $50.7 mil non-cash pretax impairment charge. Citi views closure of all Ruehl stores favorably.

Abercrombie

ANF

Apparel

Medium

Aeropostale

ARO

Aeropostale

Apparel

Low

Reported above consensus 1Q09 EPS of $.049 and 2Q and 3Q expectations raised. Strong inventory management with Q1 inventory turns of +21.8%, driving comps to +11%. ARO closed the Jimmy'Z concept given annualized operating losses of ~$8mil pre-tax and is opening a new concept - P.S. from Aeropostale - targeted at kids 7 to 12. Ten new stores are scheduled for open in 2009, but it will take 3-5 years before this new concept can become a meaningful growth driver.

Aldo Shoes

ALDO

Aldo Shoes

Apparel

Medium

Private Company.

AMC Entertainment

AMC

AMC Lowes Cineplex

Cinema

Medium

Private company with public debt and 2nd largest competitor in sector. AMC announced a loss of $81.2 million in fiscal year 2009 compared to $43.4 million profit the prior year. In May 2009 AMC received $600 million for a private offering of senior notes due in 2019 and will use the money to pay off $250 million in debt coming due in 2012.

American Eagle

AEO

American Eagle

Apparel

Medium

Over the past year and a half, operating margins have been cut in half from over 19% to 9% expected this year, with juniors' business (62% of the mix) in its third year of negative comps. AT $456/sq ft (vs. 5-yr avg of $490), AEO's sales productivity could have more downside if recent initiatives in juniors don't result in positive comps. Good news less negative comps, potential positive influence from return of Roger Markfield as CMO, 2H09 product cost/transport savings, possible EPS benefit from Martin + Osa improvement or closure, & AEO's robust balance sheet ($374mm net cash) & attractive FCF yield (~10%).

AnnTaylor

ANN

Ann Taylor Ann Taylor Loft

Apparel

Medium

ANN’s balance sheet is solid with $112mm in cash at the end of 2008 and $125mm draw down on its $250mm revolver and with no known liquidity issues. Strong inventory control (1Q09 at -16% psf), driving improving gross margin, ongoing cost savings/restructuring program, reduced capex, and improved product execution. 1Q09 comps = -30.7% (ATS -42.7% and Loft -24.2%), GM +230 bps (tight inventory control), & SG&A dollars -11.3%

Apple

AAPL

Apple

Electronics

Low

iPhone is emerging as the clear leader in the battle over the mobile internet. C309 - expect price cut to current generation iPhone to drive 50-100% incremental unit demand, and 15%+ of current iPhone users upgrade to a new version. Mac-iPod near term weakness are offset by strength in iPhone franchise. Apple computer sales declined 3% in most recent quarter. Apple is remodeling 100 stores this year and opening 25 new stores. Bookstore consolidation continues to be inevitable over the next 5-10 years as online and non-traditional competition increases, and digital reading is more accepted. BKS not expected to be primary source of store attrition given their best-in-class operating model. 1Q SG&A $ down 3% w/ home-office headcount reductions, renegotiated service contracts, and reduced operating expenses. 80-100 leases due annually the next 3 years, BKS may negotiate lower rents for years to come.

Barnes & Noble

BKS

Barnes & Noble B. Dalton

Books

Medium

bebe

BEBE

Bebe

Apparel

Low

3Q FY09 (year ends 7/2/09) Net Sales -15.6%, Traffic -17%, Comps -23.5%, Conversion -8%. Inventory declined by double-digit percentage (-16%) for the 2nd consecutive quarter. Low inventory combined with a stronger merchandise plan getting ready to launch, Bebe is in a position to chase up-trending categories and mitigate margin pressure.

Bed Bath & Beyond

Bed Bath & Beyond

BBBY

Christmas Tree Shops

buybuy BABY Harmon Face Values

Furnishings

Low

4Q09 (FY end Feb) comps were down 4.3%, at the better end of expectations. EPS of $0.55 were well ahead of estimates of $0.44. Linens' liquidation occurred during BBBY's 4Q, so even more positive results may come in following quarters. Company plans to add 50 to 54 new stores across concepts this year, lower than the original 65 estimated.

NATIONAL RETAILER RISK TRACKING MADISON MARQUETTE AS OF JUNE 2009
Retailer / Parent Company
Belk

Ticker
BLKIB

Retail Brands
Belk

Retail Category
Department Store

Madison Risk Rating
Medium

Recent Industry Commentary
For fiscal first quarter ending 5/2/09, Belk announced net sales of $760.9 compared to $817.3 last year, and comp sales were down 7.7%. Net income was $0.5 million compared to $5.1 million last year. Belk opened three new stores in the first quarter and expanded another, with two more expansions planned in 2009.

Bennigan's

MRG

Bennigan's Steak & Ale

Restaurant

High

Chapter 7 in July 2008. 300 units to close. Bennigan's franchises (138 units) to stay open, Company owned to close (150 units).

Best Buy

BBY

Best Buy Magnolia Audio Video

Electronics

Low

Best Buy has gained customers following the liquidation of Circuit City. U.S. market share grew by two percentage points year over year. Still, for the period ended May 30, BBY posted income of $153 million, or 36 cents per share, down from $179 million, or 43 cents per share, a year earlier. Same-store sales fell 6.2%. BBY is expanding its online offerings, and selling more outdoor furniture and equipment to make up for declines in sales or traditional products.

Blockbuster Video

BBI

Blockbuster Video

Video

Medium

BBY ended 1Q09 with 64 less stores and 74 less franchise stores than 4Q08. Posted a 12.3% decline in same-store sales for domestic rentals after four consecutive quarters of increases. Only segment to enjoy y/y revenue gain was domestic video game sales, up 10%. BBY rolling out 3,000 kiosks in 2009 to compete with Redbox, but BBY faces stiff competition here and still has a negligible portion of dvd-by-mail.

Borders Group

BGP

Borders Borders Express Borders Outlet Waldenbooks

Books

Medium

Management over the last year has significantly reduced costs, reduced debt load, closed underperforming stores, and conserved capital, putting BGP on the right track to survive and turnaround the company. 1Q09 comps were 13.5%, an improvement over -15.3% in 4Q08. SG&A declined 23% as a percent of sales from payroll and other store expenses, reduced corp overhead, and supply chain costs. BGP closed 11 Waldenbooks in 1Q (100 in the past year).

Brookstone

BKST

Brookstone

Furnishings

Medium

BKST sales down 31.6% YTD as of April 4th 2009, while comp store sales were down 25.1%. Cutting costs by reducing corporate headcount 15%, freezing capital spending, and dropping inventory levels 25%. During 1Q remodeled two and closed four stores and plan to open and remodel a limited number during 2009. Reviewing each store to determine underperforming locations to renegotiate leases or close stores.

Buckle

BKE

Buckle

Apparel

Low

BKE continues to post some of the best top-line growth in retail, with 22 consecutive months of double-digit comps while most retail is struggling. BKE's mix is shifting to women's (60% of sales today) from more important men's historically (50% of sales last year). 2nd half comps are estimated to be 10%-12%.

Burlington Coat Factory

BURL

Burlington Coats

Apparel

Low

4Q (end May 30, 2009) Net Sales were $811.5 million compared with $780.9 million last year, a 3.9% increase. Comp store sales were down 3.1%. During 12 month period ending 5/30/09, Burlington opened 36 net new stores, giving them 433 stores in 44 states and Puerto Rico. 1Q09 net sales of $53 million with comp store sales down 20.7%. Continue to lower inventory levels and cut operating expenses and now expect to save $18 million in OE this year. Cache's losses for year 2009 are projected to decrease roughly 70%. Remain selective with new store openings. During 1Q opened 2 new stores while closing 4 locations, and plan to close 6-8 more stores in 2009. 1Q09 - posted EPS of $0.11 vs. estimates of $0.10 with comps of -5.9% and revenues of $161 million. COGS were lower than expectations driven by favorable spot cheese prices, produce costs, and strong store level cost controls. 45% of stores are located in CA and FL, so exposure to worsening markets.

Cache

CACH

Cache Cache Luxe

Apparel

Medium

California Pizza Kitchen

CPKI

California Pizza Kitchen

Restaurant

Low

Carmike Theaters

CKEC

Carmike Theaters

Cinema

Low

Considered a leader in digital/3-D segment with 500 screens added in recent years, providing CKEC an advantage with more wide-release 3-D movies scheduled for release in 2009 and beyond. Plus people have to see 3-D movies in the theater, not on dvd, and ticket prices are higher. CKEC expected to increase 10% at the box office compared to 79% for the industry in 2Q.

NATIONAL RETAILER RISK TRACKING MADISON MARQUETTE AS OF JUNE 2009
Retailer / Parent Company
Chico's

Ticker
CHS

Retail Brands
Chico's WH-BM Soma

Retail Category
Apparel

Madison Risk Rating
High

Recent Industry Commentary
1Q09 EPS of $0.11 vs. estimate of $0.09. Comp sales declined -3.2% in 1Q, with Chico's down ~-6% (vs. -18.6% in 2008) and WH-BM ~+4%. New management at Chico's in 1Q able to make changes to help improve comp sales. CHS has now targeted another 45 stores to close over the next 3 years, or 30-35 stores per year.

Christopher & Banks

CBK

Christopher & Banks CJ Banks

Apparel

Medium

4Q09 (FY end Feb) loss amounted to $0.82 per share and comps declined 20%, making the fourth year of negative same store sales. Management used frequent and aggressive promotions to drive customer traffic and reduce inventory levels, and transactions declined only 5% so this may have had some success. SG&A dollars were flat y-o-y and operating margin was down -27%. CBK continues to seek out other opportunities for savings, including actively pursuing more favorable lease terms upon expiration, a renewed focus on smaller markets where there is less competition and customers are relatively more loyal, and continued expansion of product offering/sizes on the ecommerce site.

Cinemark

CNK

Cinemark Century Theaters

Cinema

Low

3rd largest competitor in sector with a strong presence in Latin American. 1Q09 EPS of $0.17, which is above estimates and up from $0.08 a year ago. CNK helping prove that cinema might be recession proof. Revenue was also up 6% from last year, including 10.6% domestically where CNK gained market share with box office up 11.2% compared to only 9.5% for the industry.

Circuit City

CCTYQ

Circuit City

Electronics

High

Chapter 11. All stores closed. Potential move to resurrect on-line business.

Coach

COH

Coach

Apparel

Low

Factory stores have sales per sq ft over $2,500 & contribute ~30% of COH's operating income. Starting FQ1:10 COH will reposition handbag assortment in full price stores (to include more $200-300 bags and fewer $300+ ones) to increase conversion and handbag penetration and offset the planned 10-15% average ticket decline as a result of the strategy. Biggest growth opportunity is China, where COH plans to open 50 more stores over the next 5 years.

Coldwater Creek

CWTR

Coldwater Creek

Apparel

Medium

1Q09 comps were down 18.6%, although they supposedly improved to high singles digit losses in April and May. While there has been some progress in recent weeks in sales and conversions (up 50 bp), traffic remains challenging (down 19.1% in Q1). CWTR does have $74.9 million in cash with no debt.

Cost Plus World Market

CPWM

Cost Plus

Furnishings

High

Cost Plus intends to close 26 stores and exit 18 markets where it has too few stores to support its marketing spend. Also planning to reduce workforce by 18%. The closures are essential for the company to maintain liquidity. With cash balances of just $3.7 million at the end of 2008 and continued negative free cash flow, debt servicing remains a challenge. Consensus estimates peg losses for fiscal year 2009 at $1.98 per share.

Crate & Barrel

CRATE

Crate & Barrel CB2 Land of Nod

Furnishings

Medium

Private company. Sector leader, but susceptible to drops in consumer discretionary spending.

CVS

CVS

CVS

Drug

Low

CVS retail pharmacy has been performing very well in the economic downturn. CVS continues to out-execute Walgreens in comps and earnings growth. Same stores sales growth up 3.5-5.5% as of 5/15/09 with 4-6% projected for the quarter.

Dick's Sporting Goods

DKS

Dick's Sporting Goods

Sports

Low

DKS is best positioned in the industry and the clear long-term winner in sporting goods. DKS is opening up to possibility of second-use sites now with the dislocation from competitors and closing by other large-format retailers. This could help induce further sq ft growth. West Coast especially opening up for DKS where regional and local competitors are going out of business, and in smaller markets, are often only one or two locations that can support a big-box store. EPS in Q109 above estimates driven by solid GMs (+28bp), as inventories fell sharply and SG&A margins improved on savings from store closures, payroll, & advertising. Comps continue to struggle, while liquidity remains strong. Closed 21 stores in FY08 and this year they have committed to closing 5 stores and it is highly likely they would close more than that, though not to the extent they closed doors in FY08.

Dillard's

DDS

Dillard's

Department Store

High

NATIONAL RETAILER RISK TRACKING MADISON MARQUETTE AS OF JUNE 2009
Retailer / Parent Company
Dress Barn

Ticker
DBRN

Retail Brands
Dress Barn

Retail Category
Apparel

Madison Risk Rating
Low

Recent Industry Commentary
3Q EPS of $0.39 exceeded management guidance, $0.30-$0.32, due to stronger sales & gross margins and tight cost control. Cash totaled $5.11/share and inventory psf declined 4%. Comp sales trends are up +3% in 3Q.

Eddie Bauer

EBHI

Eddie Bauer

Apparel

High

Eddie Bauer Holdings Inc. sought Chapter 11 bankruptcy protection on 6/18/09 with plans to sell its assets to an affiliate of private-equity firm CCMP Capital Advisors LLC or a higher bidder at auction. The loss for the first quarter ended April 4 widened to $44.5 million from a $19.3 million loss in the year-ago period. Sales fell 15.7 percent to $179.8 million from $213.2 million. Same-store sales were down 11.3 percent. The retailer operated 251 full-price units and 119 outlets as of April 4, the end of the first quarter.

Express

EXPR

Express

Apparel

Medium

Private company (Golden Gate Capital 2007).

Foot Locker

FL

Foot Locker Foot Action Champs Lady Foot Locker Kids Foot Locker

Apparel

Medium

A cyclical shift toward technical athletic footwear has benefited FL over the past several quarters, mitigating sales pressure from reduced consumer traffic in the malls. Disciplined inventory management has limited markdown activity; this, coupled with the shift to higher-Average Selling Price (ASP) marquee styles, has supported gross margins, which should continue through the remainder of ‘09. Foot Locker closed 225 underperforming doors in fiscal 2008 (on top of 274 doors the prior year), and is planning on opening 25–50 new doors and relocating or remodeling 150 doors in fiscal 2009. Management foresees the potential for another 100 store closings in the future, depending on how leases negotiations transpire.

Fossil

FOSL

Fossil

Apparel

Medium

FOSL is performing well domestically with -4% comps in 1Q09, which is outperforming the industry. Internationally, currency headwinds continue to hamper sales. Stock price is up over 80% from March lows, with estimates for further growth this year. Balance sheet is clean with over $3 in cash/share and virtually no debt.

Gamestop

GME

Gamestop EB Games

Electronics

Medium

1H09 difficult due to digital downloading, increasing competition, and lack of any big new titles released. 2H09 looks to be better with a very strong title lineup, a price cut on the PS3, and install base 1.5x higher than it was a year ago.

Gap

GPS

Gap Old Navy Banana Republic

Apparel

Medium

1Q09 EPS of $0.31, above estimates of $0.30. SG&A declined by -7.6% and inventory continues to be tight, decreasing -12% in 1Q09. GPS has outstanding liquidity ($1.7bn cash and no debt). Old Navy comps were flat in March and +1% in April, first positive comp in five years - due to improved avg unit costing and markdowns and revamped marketing program.

Golds Gym

GOLDS

Golds Gym

Exercise

High

Private company operates mostly through franchises.

Gymboree

GYMB

Gymboree Janie & Jack Crazy 8

Apparel

Low

Good top line and expense reductions this year should improve the companies position. Gross margins will likely see continued pressure in 2009 due to higher product and promotional costs. Losses from Crazy 8 cut by half -- outlook for continued improvement as company continues expansion and manages payroll more effectively. Aggressive expansion of Crazy 8 not yet proven in market. Earnings and sales likely flat for 2009.

H&M

HM'B-SK

H&M

Apparel

Low

Company continues to be impacted by currency exchange issues. Wall Street estimates that gross margins could fall 350bps in 2009. This combined with increasing operating costs that are growing faster than sales has created pressure to keep income stable. To offset these factors, H&M may have to push sales prices, which is counter to their business model of very affordable disposable fashion (Jimmy Choo recently announced as anew shoe designer for H&M). Stock price looks high. If stock value declines added pressure on company would be felt. Same store sales flat at up 0.1%. Wall Street sees the company as well positioned, despite economic slowdown. One positive metric is that shoppers have increased 2%, even though the average ticket declined -- suggesting its core shopper is shopping more frequently, but buying les per trip. For HT, gross sales rose 6% with GLA rising 7%. Company continues expansion plans.

Harris Teeter

RDK

Harris Teeter

Grocery

Low

NATIONAL RETAILER RISK TRACKING MADISON MARQUETTE AS OF JUNE 2009
Retailer / Parent Company Ticker Retail Brands Retail Category Madison Risk Rating Recent Industry Commentary
Expansion plan to grow in smaller markets that have been overlooked by its larger competitors appears successful. Discretionary consumer headwind, however, weighing on sales. Current strategy is to expand into distressed real estate at favorable rents. Good vendor relationships with Nike and added North Face recently. Better inventory management systems being advanced now could improve operating margins by 200-300 bps. More stable than a year ago. Growth to remain modest with 8 new stores in 2010. Analysts see a mature format with store base approaching saturation. HD to continue to lag Lowes. 2009 estimated to see further decline sin sales, gross profit, and operating income. HD sees a uplift of perhaps 150 bps in gross margins from merchandising initiatives and supply chain improvement. The downturn in housing and pullback in consumer high ticket items still weighing on company. 1Q09 earning beat Wall Street estimates slightly. Comps stores up 9.6% at Hot Topic and down 1.7% at Torrid. Inventories slightly elevated which may create some modest markdown pressure after 2Q. Lower store occupancy costs (rent, CAM) main reason fro gross margin improvement. May sales have slowed. Strong cash position at the end of 1Q09 -- $155M in cash and $100M in a term note. Company continues to build online capability, which is expected to add to bottom line from some pent up demand. After significant markdowns in beginning of 2009, inventory flat, which implies lower markdowns for last half of year. Apparel sector still under pressure. Store closing likely modest going forward.

Hibbett Sporting Goods

HIBB

Hibbett Sports

Sports

Low

Home Depot

HD

Home Depot

Home Improvement

Medium

Hot Topic

HOTT

Hot Topic Torrid

Apparel

Low

J Crew

JCG

J Crew

Apparel

Medium

JCPenney

JCP

JCPenney

Department Store

Low

Economy remains challenging in terms of weak shopper traffic and reluctance to spend on higher ticket items. Consumer patterns, however, appear to be stabilizing. Some sales recovery noted by region and product - market share recovering in the SW, off-mall stores doing well, and women's apparel making gains. Operations are the key to performance - inventory remains low and well managed, merchandising has been good with buyers better anticipating store needs, resulting in lower pressure for markdowns. Lower cap-ex program with 16 stores forecast through 2011. American Living and Sephora being well received by customers. Rewards program gaining traction with customers.

Joann Stores

JAS

Joann Stores

Furnishings

Low

EPS positive and beat Wall Street estimates. Wall Street sees company guidance as overly conservative. Comps up overall -- with small stores posting 3.% gains versus (0/6%) for large stores. Management continues to advance initiatives to expand gross margins, maximize e-commerce business, leverage new systems, and revitalize its portfolio. JAS benefiting from Walmarts exit of fabrics line. EPS positive at $0.62, which beat Wall Street estimates. Comps rose 4.3%. Suits performed well, growing 40% over the period. Gross margins declined 180 bps (lower than estimated) due to more promotional activity. JOSB strategy is to generate GM dollars and not manage the rate as they attempt to increase market share from competitors. Overall operating margin flat from 2008. Plans for 10-15 new stores annually in 2009 and 2010. Strategy is to pick up market share from competitors that have gone out of business and that are less competitive as a result of a cut back in operations, cap-ex, etc. Comp store sales estimated to be 150-200 bps stronger as a result of Mervyn's and Gottschalk's liquidations. Women's business still negative, but less so. One risk is higher pre-opening expenses associated with new stores due to Mervyn's expansions.

Jos A Banks

JOSB

Jos A Banks

Apparel

Low

Kohl's

KSS

Kohl's

Department Store

Low

NATIONAL RETAILER RISK TRACKING MADISON MARQUETTE AS OF JUNE 2009
Retailer / Parent Company Ticker Retail Brands
Kroger QFC Ralph's Smith's King's Fry's Owen's City Market Baker's Highlander Scott's Pay Less J C Food Stores Food 4 Less Foods Co. Fred Meyer Turkey Hill Tom Thumb Quick Stop Fred Meyer Jewelers Littman Jewelers Fox's Jewelers Barclay Jewelers Limited Victoria's Secret Bath & Body Works C.O. Bigelo White Barn Candles Henri Bendel La Senza Linens n Things

Retail Category

Madison Risk Rating

Recent Industry Commentary

Kroger

KR

Grocery

Low

KR continues as a price leader and well positioned to attract the price sensitive consumer. Wall Street shows that KR has a 15% price edge over its competitors, leading to market share gains and higher store productivity. Solid customer experience through strong merchandising keeps customers coming back. One strength is KR's customer loyalty program (gasoline) which has driven traffic. KR is moving toward a cell phone loyalty program that rewards customers with 20 free minutes for every $100 spent (KR owns a 50% stake in i-wireless).

Limited Brands

LTD

Apparel

Medium

Sales down on a per SF basis and on a store basis (average store size up 4%). Bath & Body Works sales down 2%, Pink and intimates up slightly. Wall Street sees Victoria's Secret as a benefit even in the recession (La Senza has not performed as strongly as had been estimated). Could see an upside in franchising fees from VS abroad. Apparel sector strained overall, resulting in a likely deterioration in comp store performance in 2009. Effort underway to issue $500M to re-purchase debt ($1.05B due in 2021).

Linens n Things

LIN

Furnishings

High

Chapter 11. All stores closed. Stronger competitor in sector. Low debt repayments in 2009 and 2010. After a poor 4Q08, 2009 has started more positive given the headwind to the sector. As consumers pulled back from paid home improvement projects and moved back to DIY, Lowes has benefited. GMs were up 77 bps in 1Q, a vast improvement from being down sine late 2007. Comps less negative - down 2.6% overall and 4.2% per ticket. Sales per SF expected to hit $270 in late 2009 -off from the peak of $337, but reasonable as a steady benchmark. Macy's still struggling with market position. The company anticipates its My Macy's concept to renew its customer base, although the effects of this initiatives have not yet been realized. Sales down 9.5% to $5.2B. Comp stores down 9.0%. GMs down 500nps to 38.1%. Comp stores expected to continue decline for 2009 as S&P downgraded Macy's to junk status. Bain Capital Partners & The Blackstone Group present owners (2006). In June the company reported net income of $4M for 1Q, up $24M from 1Q08. Comp stores were down 2%, even though traffic was up 3.6% the average ticket was down 5.2%. Gross margins were down 150 bps. Private Company Private company. FL regional chain that has been expanding to challenge sector leaders. Private company. Deep relationships with movie producers. 6th largest competitor in segment. Pressure on high debt for owner with CBS and Viacom. Company reached agreement with enders in February to restructure debt ($1.6B)Theater sale advanced. As of May 2009, buyer was identified for 68 US theaters and 21 UK theaters that would be sufficient to pay down near term debt.

Lowes

LOW

Lowes

Cinema

Medium

Macy's

M-N

Macy's

Department Store

Low

Michael's Modell's Sports Muvico

MICH MODEL MUV

Michael's Aaron Brothers Modell's Sports Muvico Showcase Cinemas Cinema De Lux Bridge Cinema

Furnishings Sports Cinema

Low Medium Medium

National Amusements

NAMUSE

Cinema

Medium

NATIONAL RETAILER RISK TRACKING MADISON MARQUETTE AS OF JUNE 2009
Retailer / Parent Company Ticker Retail Brands Retail Category Madison Risk Rating Recent Industry Commentary
Status quo - not much change from last year, but business trends appear to be less volatile. Comp stores down double digits. and shopper traffic still down as consumers pullback on discretionary purchases. Company more proactively managing inventory. Rack represents a growth opportunity (60 today) -- 13 new Racks to open n 2009, with 10 per year after that. Full line stores count to slow, with only 2-4 new Nordstrom stores per year going forward. Wall Street believes that the decision to migrate prices points 10% down may have a lasting impact on comp stores sales.

Nordstrom

JWN

Nordstrom Nordstrom Rack

Department Store

Low

Office Deport

ODP

Office Deport

Office Supply

Medium

Sufficient liquidity to run the company through 2010. EPS continues negative in 2009, but less so that 2008. Vendors continue to support company. As the economy begins to turn positive, the office supply stores, in general, should show improvement. Cost cutting at company has impacted sales on individual stores and the closing of 100+ units. 1Q net income fell 79% to $13M versus $62M last year. Decline attributable to consumer and business buying cutbacks. Mass merchandisers have cut prices on business products, putting pressure on the office supply sector. Office Depot shuttering stores positions OMX to gain market share. Rolling out smaller format (Ink, Paper, Scissors) to penetrate high traffic areas more effectively at a lower cost. Still challenged - gross margins declined, however, merchandise margins and distribution costs both improved. SG&A expenses also have declined by 12.6%. Denim has shown no pricing pressure, unlike footwear and accessories. PSUN has no borrowing against credit facility ($150M) and has $32M in cash -- which puts the company is a strong cash position through 2009. While comp are down and will continue down in 2009, inventories are managed down by 30% from last year which should position the company to meet street estimates.

Office Max

OMX

Office Max

Office Supply

Medium

Pacific Sunwear

PSUN

Pacific Sunwear

Apparel

Medium

Panera Bread

PNRA

Panera Bread

Restaurant

Low

Still hitting the mark with consumers as evidenced by positive EPS ($0.57), total revenue up 5.7%, and comps positive at 0.7%. Café sales strong. Biggest issue is that Wall Street is more optimistic at performance outlook and that will be difficult for Panera to match -- even though they met their performance goals. Company remains in growth mode. EPS positive at $0.59, beating Wall Street estimates slightly. Comp stores down 5.2% at Payless and down 0.5% at Stride Rite. Payless gaining market share due to promotions of children's shoes. Risk going forward is the company's plan to move to higher priced fashion items. This could impact sales, result in lower inventory turns, and the create a need to take mark downs if they miss on the buying front. Private. Owned by Leonard Green and Texas Pacific Group (2006). Continues to be solid competitor in segment and has edge over PetsMart in organic foods. Leading chain in sector wit 1,008 stores. Aggressive expense control has resulted in better than expected earning of $0.37. Total sales up 9.5% with comps up 3.9%. Gross profit down 100 bps due mostly to lower merchandise margins. Store traffic up slightly. Management wants to amass $300M by year end -- making a stock buy back program likely.

Payless ShoeSource

PSS

Payless ShoeSource Stride Rite

Apparel

Low

Petco

PETCO

Petco

Pets

Low

PetsMart

PETM

PetsMart

Pets

Low

Regal Entertainment Group

REGAL

Regal Theaters Edwards Theaters United Artists Consolidated Rite Aid Eckerd Drug Brooks Ritz Camera Wolf Camera Kits Cameras Inkley's The Camera Shops Boaters World

Cinema

Low

Private company. Largest competitor in sector.

Rite Aid

RAD

Drug

Medium

Rite aid still challenged. Fitch recently upgraded its issuer default rating to B- and its rating outlook to stable form negative due to its progress in improving liquidity and 2010 debt maturities. May store comps up 0.6% and pharmacy comps up 1.6%. Operating metrics still lag competitors.

Ritz Camera / Boaters World

RITZ

Camera / Sports

High

Filed Chapter 11 on February 23, 2008. Now in liquidation.

NATIONAL RETAILER RISK TRACKING MADISON MARQUETTE AS OF JUNE 2009
Retailer / Parent Company
Ross Stores

Ticker
ROST

Retail Brands
Ross Stores

Retail Category
Apparel

Madison Risk Rating
Low

Recent Industry Commentary
One of the few retailers delivering strong earning growth - 1Q09 EPS up 21%. Better buying, fresher merchandise, faster inventory turns, and the loss of Mervyn's have resulted in good comp gains. Q1 ended with $460M in cash and $150M in debt.

Royal Ahold

AH-AE

Giant Landover Giant Carlisle Stop & Shop Peapod Safeway Von's Genuardi's Dominick's Pac n Save Randall's

Grocery

Low

Corporate metrics still well balanced. PA and NJ are now tougher markets, but management continues to find the right match in product and market share. Sales at Stop & Shop estimated to be up 2.4% in 2009 and Giant Carlisle up 3.8%.

Safeway

SWY

Grocery

Low

Wall Street believes the worst is behind Safeway and it is poised for improvement. Most of the issues are not company related but due to the overall economy. The company's reinvestment in stores since 2003 has put pressure on them to a degree -- upgraded stores fell more expensive to the consumer, so these consumers have cut back -even though there are no pricing differences.

Saks

SKS

Saks Off Fifth

Department Store

Medium

Aggressive cost cutting has led to better than expected SG&A savings and lower cap-ex. Gross profit margins still under pressure from poor comps store sales and continued discounting to drive traffic. Revenues expected to be down 12% in 2009, resulting in continued negative operating income for 2009 and into 2010. Management still focused on more expense reductions in 2009 - up to $60M from a prior $20M-$30M. Inventories still high - although down 11% comp stores down 25%.

Sears

SHLD

Sears Kmart

Department Store

Medium

While gross margins are down due to lower sales on big ticket items, tools, appliances, and apparel, management aggressively cut operating costs which offset the drop. Overall, sales decline 9.2% year on year. Same store sales declined 7.4%. In June Sears announced the extension for their credit facility to 2010 (set to expire in 2010) and increased their borrowing capability to $4.1B from $3.8B.

Signet Jewelry

SIG

Kay's Jared's Sterling Jewelers

Jewelry

Medium

EPS slightly ahead of Wall Street estimates at $0.31. This improvement was driven by lower SG&A costs. Comps down 2.9% versus a decline in total sales of 7.3%. Management continues to push operating cost reductions ($100M in inventories for 2009 in the US) and 50% lower cap-ex. The goal is to be at $175-$225M in cash by year end to buy down debt. One upside is that the company appears to be a survivor and will benefit from the closures of competitors. One risk is that gold continues to escalate, driving the cost of good s sold higher.

Staples

SPLS

Staples

Office Supply

Low

Although sector sales remain soft, company has managed the downturn well in terms of proactively cutting SG&A and moving its distribution improvements. Customer traffic improved, with some signs that the small business segment may be beginning an improvement. Free cash increased 71% from a year ago and debt to equity was reduced to 56% from 75%. Free cash will likely be used to reduce debt by $1B in 2009. Comps down 8%, better than competitors. Plan is to continue to open stores in dense MSAs.

Starbucks

SBUX

Starbucks

Restaurant

Medium

Howard Schultz back at the helm. Schultz noted in a May conference in NYC that McDonald's introduction of coffee has not impacted SBUX sales at all. Company has made strides in cost cutting. Margins in US and International likely to improve as SBUX leverages vendor relationships better. US comps down 8%. Management sees margins getting back to their peak of 16% (2003) from the current 10.8%. This may take some time. Company recently introduced a healthy food menu that it is gradually rolling out. Company is also working with partners to offer bounce-back coupons to drive sales (Kraft, Pepsi, Dreyers Ice Cream).

Steve Madden Shoes

SHOO

Steve Madden Shoes

Apparel

Low

SHOO continues to be a successful player in the segment due to good product execution. Net sales expected to be up 1.1% for 2009. Gross margins remain in balance with trends and SG&A costs are lower, suggesting proactive cost management. Company may acquire an un-named women's athletic brand 2009.

Super Valu

SVU

Super Valu Albertson's Shop 'N Save

Grocery

Medium

CEO to be replaced with CEO of Walmart's America's brand. Company has cut cost drastically to remain competitive and this is now impacting store operations. Wall Street estimates that it is under-spending it competition by 25%. New management talent my shake things up, but it will take time for the company to get back on the right path.

NATIONAL RETAILER RISK TRACKING MADISON MARQUETTE AS OF JUNE 2009
Retailer / Parent Company Ticker Retail Brands
Talbots Talbots Kid's Talbots Men's J. Jill

Retail Category

Madison Risk Rating

Recent Industry Commentary
Buyer identified for weak J. Jill unit. Price of $75M is a significant discount from original purchase price of $515M. TLB has working capital lines of $365M - and continues to be fully drawn. Balance sheet over leveraged and comp sales continue to decline. $245M due in late 2009 or early 2010 - necessitating renewals or refinancings. Froze pensions in May. Has $550M in total outstanding debt as of 1Q09.

Talbots

TLB

Apparel

High

Target

TGT

Target

Department Store

Low

While consumers have been trading down to Target, comps sales are still off by 6.1% -- and below Wall Street's expectation. Mandatory consumer driven markdowns are part of what is driving this sales pattern. Inventory management controls are in place and credit card issues are being managed should improve the company's position.

The Childrens Place

PLCE

Children's Place Disney Stores

Apparel

Low

$186M in free cash now available to repay $15M term loan in 2010. Has been able to realize lower SG&A expenses due to lower store costs. Comp sales down 9% - lower than expected by Wall Street. Analysts see PLCE as well positioned and could realize an upside in back to school sales.

The Limited

THELTD

The Limited TJ Maxx Marshalls HomeGoods AJ Wright

Apparel

Medium

Private company - Sun Capital 2007. Sun recently invested $50M in funding and has provided a $75M line of credit to

TJ Maxx

TJX

Apparel

Low

Strong margin performance. Overall comps across all brands was up 3-4% in May. Better than expected performance has increased management's store openings - 2009 up to 85 from 65 (some of this growth is international). Total sales seen as flat for 2009, although net income will be up just slightly.

Tween Brands

TWB

Justice Limited Too

Apparel

Medium

Lower inventories driving improved margins - but comp stores (down 23%) still a drain. 1Q09 ended with $84M in cash and $165M in debt. Justice's higher price point an issue in this economy. Aggressively managing store leases and successfully converting many to percentage rent (30% lower rents in these stores).

Urban Outfitters

URBN

Urban Outfitters Anthropologie Free People Terrain

Furnishings

Low

Top line is still difficult but management is aggressively working to maximize performance. Merchandise and supply chain improvement showing margin rewards. Anthrop improving and Urban is stable but down, although performance may decline further. Sales/So at Urban are $520, down from it 5-year average of $550/SF. 2009 revenues forecast to be up 2%, a far cry from the 20% increase from past years. Still plans to add stores in 2009 and 2010 (38 per year).

Walgreen

WAG

Walgreen

Drug

Low

Same store sales up 1.0% - which was lower than expected. Comp store prescription rose 2.8%. WAG has been working to improve the shopping experience through renovations and better merchandising. This has improved traffic.

Walmart

WMT

Walmart Sam's Club

Department Store

Low

New CEO whose mandate is to continue to enhance the brand. Store count likely to grow as company begins to deploy smaller formats and brands to meet demand. Company moving away from the 195K SF model and experiment with smaller super centers - even as small ay 77K SF. Net sales expected to be up 7% in 2009. Economical consumer seeking value has benefited Walmart - comps sales up over 3%.

Whole Foods

WFMI

Whole Foods

Grocery

Medium

2Q09 comps continue to decline, but at a slower pace (down 4.8%). Consumers reportedly still view Whole Foods as expensive, an issue in this economy that has impacted discretionary spending. While the company sees flat comps for the remainder, some on Wall Street see continued risk and that comps could continue to pace negative at 4-5%. Management has had solid past gains in productivity with little attention paid to managing expenses - Wall Street believes cost cutting needs to take place to improve operating margins. Store expansions cut back from 15% to 7%. Company is also renegotiating leases and cutting labor costs at this time. Liquidity has improved with infusion of capital from Leonard Green ($425M) and Yucaipa (7% stake).

Williams Sonoma / Pottery Barn

WSM

Williams Sonoma Pottery Barn Pottery Barn Kids West Elm

Furnishings

Medium

Comp stores down 21% and total sales down 22%. PB Kids declined 25%. Gross margins declined 550bps to 30.1%. Managing rent expense is seen as a big plus for the company - with 20% or stores coming up for renewal in the next 4 years and 25% of stores having a co-tenancy issue. Wall Street estimates that this could pressure rent negotiations to be down 20% from 2008 and some stores being down 30%. PB Teens comps down 17% and West Elm was down but bucked the macro trend.

NATIONAL RETAILER RISK TRACKING MADISON MARQUETTE AS OF JUNE 2009
Retailer / Parent Company
Zales

Ticker
ZLC

Retail Brands
Zales

Retail Category
Jewelry

Madison Risk Rating
Medium

Recent Industry Commentary
EPS are down $0.73 - below Wall Street's estimate. Lower sales drove the decline - comp stores down 20%, although more closely managed SG&A took some of the decline away. Longer-term, likely a turnaround, but still seeing headwinds in the recession.

NOTE: Tickers noted in RED are Madison Marquette designations for tracking purposes and do not reflect actual public company ticker symbols.
Source: Thomson ONE; Wall Street Analyst Reports; Madison Marquette Market Research.

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