NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010

Retailer / Parent Company Ticker Retail Brands Retail Category General Risk Rating Recent Industry Commentary
Comp store sales in February were up 5% versus a consensus of (6%) and the first positive posting since November 2007. This dramatic improvement was related to moving final winter markdowns. While significant markdowns impact margins adversely, for ANF the outlook is more positive over the longer term because it appears that they are able to drive customer traffic with their products. The question continues to return to ANF appropriately pricing their merchandise. To optimize locations, ANF has announced plans to close as many as 200 weak stores of its almost 1,100 store count -- mostly through not renewing leases over the next few years. This will impact A&F and not the other concepts. International stores continue to perform well and the domestic sector is expected to pick up in the second half of 2010

Abercrombie

ANF

Abercrombie & Fitch Abercrombie Hollister Gilly Hicks

Apparel

Medium

Aeropostale

ARO

Aeropostale

Apparel

Low

ARO has fared well through the recession due to good product and appropriate pricing. Recent information from the Interbrand Design Forum has listed ARO as one of the top 50 recognized brands (at 35), ahead of Macy's. 4Q ended strong with EPS ahead of consensus and management guidance. Major metrics were all up, (comp sales up 9.0%, gross margin up 350 bps, operating margin up 340 bps, average unit pricing up 3%). As the company pushes fashion to drive pricing, there may be risk of a buying misstep.

Aldo Shoes

ALDO

Aldo Shoes

Apparel

Medium

Private Company.

AMC Entertainment

AMC

AMC Lowes Cineplex

Cinema

Low

As of year end AMC had 299 theaters and over 4,500 screens in the US and 4 international countries. AMC closed on the financing (with partners Cinemark and Regal) to roll out digital cinema infrastructure and 3D capabilities to 14,000 screens in the US and Canada. in 2009 AMC saw revenues up 10% and attendance up 5%.

American Eagle

AEO

American Eagle Aerie 77 Kids

Apparel

Medium

After launching its new concept to appeal to 25-25 year olds, AEO recently announced the closure of its Martin & Osa operations by the end of the 2nd quarter (competition with J Crew and Banana Republic was too keen for the concept to gain traction). In its place AEO is looking to expand its smaller Aerie lingerie line and the new 77 Kids format. Presently there are 950 American Eagle and 110 Aerie stores. Expansion plans include 14 new American Eagle stores and 20 remodels, as well as 20 Aerie stores and 5, 77 Kids. AEO also plans to close 15 to 25 stores. Profit was up last year, at $123M it is more than double a year earlier. While ANN has seen some improvement, it remains in recovery. EPS were $0.05. While this is ahead of the negative $0.01 consensus, it is a story of things being "less bad". Comp store sales have stopped their steep decline corporatewide (down 0.6%). Ann Taylor is still seeing comps down 7.2%, compared to up 2.1% for Loft. ANN has, however, put in place strong inventory controls and has managed to maintain pricing. Operating margins are up 2,020 bps and gross margins are up 1,680 bps. FY10 will see 72 Ann Taylor closures and 30 Loft openings (10 regular stores and 20 outlets). Continues to be a leader in the market. Corporate profit for 2Q was $3.07B, up from $1.62B a year earlier. Revenue up 49%. The iPhone platform continues to drive sales and traffic into Apple stores. Recently, Apple began a lawsuit with HTC on infringement of the iPhone platform - the suit really directed at the upcoming Android operating system and Google. While this will not likely insulate Apple from challenges in the smartphone, it has muddied the waters and stalled some development at the competitors. Apple's introduction of the iPad has been delayed. First day sales had long lines, but did not sell out. Analysts have already doubled first year sales forecasts to 5.5M units. It is unclear if the iPad will revolutionize the segment as it has with the iPhone. As the economy improves, the new iPad hardware may gain traction. BKS continues to be the segment leader over Borders. Core business continues to struggle. Although traffic has increased, bricks & mortar comps for superstores down 5.5%. Gross margins under pressure, down 370 bps. Wall Street argues that the company is in transition. While this may be true, the business shift to a more profitable digital and e-books (via the Nook reader) could impact the established bricks & mortar business model dramatically. New CEO announced (Lynch - former president). BEBE remains a stable retailer in its sector, although it has lagged its peers in comp store sales recovery. Average sales per SF was $827 in 2006. In FY09, that declined to $623/SF and is forecast to come in at $524 in FY10. Although traffic is off 14% in the stores with counters, BEBE has been able to push pricing slightly and sales conversion rates. Gross margins are up and inventory control is strong, suggesting good retailer fundamentals going forward.

Ann Taylor

ANN

Ann Taylor Ann Taylor Loft

Apparel

Medium

Apple

AAPL

Apple

Electronics

Low

Barnes & Noble

BKS

Barnes & Noble B. Dalton

Books

Medium

bebe

BEBE

Bebe

Apparel

Low

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
Retailer / Parent Company
Bed Bath & Beyond

Ticker
BBBY

Retail Brands
Bed Bath & Beyond
Christmas Tree Shops

Retail Category
Furnishings

General Risk Rating
Low

Recent Industry Commentary
BBBY continues as the sector leader. For the most recent review, comp stores were up 7.3%. Gross margin up 220 bps, driven by lower inventory costs and lower coupon redemptions. Customers continue to move away from higher margin soft home goods. SG&A costs are down 250 bps as a result of lower fixed cost leverage, payroll, and advertising costs.

buybuy BABY Harmon Face Values

Belk

BLKIB

Belk

Department Store

Medium

The largest private department store chain with 316 stores concentrated in the southern US. Little quarterly analysis is available on Belk. At the end of last year, sales continued to trend down by 2.1% on a comp store basis.

Bennigan's

MRG

Bennigan's Steak & Ale Bonanza Ponderosa

Restaurant

High

Exited Chapter 11 in October 2009 as Homestyle Dining, LLC. 300 company owned Bennigan's and Steak & Ales closed (did not affect franchise operations). Homestyle Dining now operates 250 Ponderosa and Bonanza steakhouses. John Kluge controls Homestyle Dining.

Best Buy

BBY

Best Buy Magnolia Audio Video

Electronics

Low

BBY continues as the leader in the segment, although retailers like Walmart and Costco are key competitors. From a distribution standpoint, vendors need BBY to display and move product. Most recent quarter shows an up tick in laptop and TV sales, suggesting the early stages of a broader economic recovery. BBY is in transition and their direction is unclear. They have been testing smaller free standing stores and have considered Europe as growth vehicles. They recently announced a move to open mall-based stores (as many as 1,000) to advance their mobile initiatives. Radio Shack acquisition rumored recently as a way to push brands into smaller stores.. The outlook is that BBY could have a tough year based purely on metrics, due to favorable past comparisons and the market share increases from Circuit City's closure is fully realized. Recent industry report notes that BBY and Walmart recaptured 2/3s of Circuit City sales. Video rental sector under extreme pressure from mail, kiosk, and online rentals. After financial troubles over the last few years, BBI recently announced the acquisition of select Movie Gallery assets. At the same time, BBI is weighed down by $1+ B in debt, which would seem to preclude any major acquisitions. BBI reportedly lost almost $560M last year. In a recent regulatory filling, BBI noted that Chapter 11 may be necessary to address the debt issue. In the last several weeks, Walmart announced its acquisition of Hulu.com - suggesting their move into the online video rental market, further pressuring the future of BBI. BBI is also trying to sell its European and Canadian divisions to raise cash. Announced store closures of 650 through late 2009 and 2010. Movie Gallery's decision to close remaining US stores may extend the life of BBI.

Blockbuster Video

BBI

Blockbuster Video

Video

High

Borders Group

BGP

Borders Borders Express Borders Outlet Waldenbooks

Books

High

BGP is a sector leader and operates 1,000 stores - but is running a far second to Barnes & Noble. Entire sector pressured by online availability of product. CEO resigned in January. Sales continue to slide - holiday sales at superstores reported to be down 14.6%. Decision in place now to exit lower profit multimedia products. Company is focused on conserving cash and driving profitability. Almost 200 Waldens planned to close in 2010. More store closures may be imminent based on ongoing weak financials an competitive pressures in the sector. During 2009, BKST saw net sales decline 13.4% and comp stores sales decline 7.6% 4Q financial results have been very positive and among the best of gift category. For the holiday quarter, net sales were up 3.4%, with same store sales up 9.4%. BKST had no store openings in 2009 and limited renovations (they closed 7 stores). They plan to open 5-10 stores in 2010, but are reviewing the profitability of all operations on a store by store basis. Gross margins are up 3.3 percentage points (37.7%). SG&A was lower slightly due to reduced advertising charges. 4Q metrics were improved over these levels. BKE seen as having a unique market niche in which they compete strongly. Analysts see them as having good product depth, spanning private label and branded goods. Operating margin growth of 870 bps over the last 6 years puts them in a sustainable position and a top performer (now at 20+%). Sales per SF are running $401 companywide. They plan 20-25 new stores in 2010.

Brookstone

BKST

Brookstone

Furnishings

Medium

Buckle

BKE

Buckle

Apparel

Low

Burlington Coat Factory

BURL

Burlington Coats Super Baby Depot MJM Design Shoes Cohoes Fashion

Apparel

Low

Private ownership - Bain Capital. BURL reports net sales down by 2.3%, with comp stores down 5.6% for the 6-month period ending just before the holidays. BURL operates 442 stores, of which 424 are Burlington Coat Factory Warehouse units.

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
Retailer / Parent Company
Cache

Ticker
CACH

Retail Brands
Cache Cache Luxe

Retail Category
Apparel

General Risk Rating
Medium

Recent Industry Commentary
CACH is in transition in trying to address the needs of the new consumer. The 40.9% gross margin, while high, is off the longer-term company average of 46.2%. Operating expenses decreased 44% year on year in response to tighter SG&A, lower payroll, and reduced advertising. Management forecast a negative 1Q as it continues to invest in a fresh makeover in product and works to increase pricing. Like many of the restaurant chains, the recession has shifted consumer patterns. Looking at 4Q results, 2009 saw a continued decrease in traffic. Although prices were up 1.2% for the quarter, comps were down 5.8% - a continuation of trends begun in 2008. Part of the reason for this lackluster performance is that 42% of CPKI units are located in CA, especially hard hit by the recession. CPKI is working on menu choices (Small Cravings) to raise average check and drive traffic. CKEC looks to be positioned for solid future growth. The company has completed renovation efforts and reports that maintenance should not be a major issue going forward. 3D movies appear to have gained traction with the production of movies like Avatar and numerous release scheduled for 2010. Many of the big producers have also signed on fully to 3D. This benefits CKEC with its 94% digital footprint and 15% market share of domestic 3D capable screens. CHS's turnaround story is positive. Management is working hard at reducing markdowns and increasing sourcing efficiencies. While the Chico's concept may be close to saturation, CHS believes that they can still grow. At 1,084 stores, management believes that can expand to 1,865, mostly relying on outlets for Chico's and WH-BM and Soma. Plans exist to freshen the image, with 300 Chico's stores slated for renovation. Total sales are up 8.3% and gross profit is up 17% in FY09. FY10 looks to continued improvement. Management believes they can return to the 60% GM level, up from the current 56%. CBK operates 812 apparel stores, targeting the 35 to 55 year old female shopper (543 are Christopher & Banks). 3Q10 results showed net sales down by 9.2% and comps stores down by 8.4%. While down, these metrics exceed management's expectations. The outlook is for continued challenge in the sector. CNK is in transition. With 398 screens in the US and Latin America, CNK is looking to add 1,000-1,200 screens worldwide in 2010. The company has been successful in increasing market share and pricing. Admissions outpaced North American box office totals (28% versus 19%) and the average ticket price was up 10% (due to more 3D movies). There may be increased financial risk as the company rapidly expands. Liquidation complete as a retailer. Company reborn as circuitcity.com. In June 2009, the brand owned by Systemax. (also owns CompUSA name). COH operates through multiple channels, including retail stores, department stores, and international. Sales in the luxury handbag market have been stressed during the recession, although most recent quarter has been positive. Holiday sales comp-ed down for COH versus some signs of recovery in other parts of the sector. COH's factory business continues to take market share and accounts for the majority of US sales. Ralph Lauren has recently announced its entry into the US handbag market in department stores, which could be a longer-term threat. China and Europe are growth opportunities. As of 4Q, net retail sales increased 10.7%, driven in part by a 3% gain in comp store traffic and higher sales conversion rates. Direct sales were also up 16.5% from higher catalog circulation. Value pricing continues to pull performance down. Gross margins are up 140 bps, but still at 28.2% due to markdowns. Average transaction price down. Near-term risk of metrics trending down due to higher inventories going into spring and merchandise that may not appeal to customers. CPWM has 268 stores in the 30 states in the US. The company has recently announced a reorganization plan to divide the company into 2 divisions (consumables and home) to enhance sourcing and product development. Net sales were down for most of 2009 driven by lower comp store sales. The lower comp store sales are attributable to slower traffic and push back in higher ticket home furnishings. The holiday period showed the beginning of a possible turnaround, with higher customer traffic and comp stores that were up 0.3%, although average ticket remains under pressure.

California Pizza Kitchen

CPKI

California Pizza Kitchen

Restaurant

Low

Carmike Theaters

CKEC

Carmike Theaters

Cinema

Low

Chico's

CHS

Chico's WH-BM Soma

Apparel

Medium

Christopher & Banks

CBK

Christopher & Banks CJ Banks

Apparel

Medium

Cinemark

CNK

Cinemark Century Theaters

Cinema

Low

Circuit City

CCTYQ

Circuit City

Electronics

--

Coach

COH

Coach

Apparel

Low

Coldwater Creek

CWTR

Coldwater Creek

Apparel

Medium

Cost Plus World Market

CPWM

Cost Plus

Furnishings

High

Crate & Barrel

CRATE

Crate & Barrel CB2 Land of Nod

Furnishings

Medium

Private company More than 177 stores throughout US. Plans announced in 3Q09 to open stores in the Middle East (Dubai) in 2010.

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
Retailer / Parent Company Ticker Retail Brands Retail Category General Risk Rating Recent Industry Commentary
CVS operates almost 7,100 drug stores in 44 states. Total sales in 4Q09 were up 7.0%, driven by increase in both retail pharmacy sales (4.5%) and pharmacy service sales (14.5%). Total retail same store sales were up 4.9%. Gross margins contracted slightly to 21.6%. The combination of CVS and its acquisition of Caremark and Long Drugs affords the company with a competitive advantage to deliver a range of health care options to retail customers and its PBM / managed care clients. Performance expected to be improved in 2H10. DKS currently operates 510 stores and is viewed as a well managed sector leader. Transaction rate was up in FY10 (3.0%) and sales per transaction was flat. Complete product line showed positive comps, suggesting that DKS has the right merchandise mix. Key product lines that showed strong performance were toning and golf. DKS generated $261M of free cash flow at year-end. Management sees expansion opportunities to potentially take count to 800. Near-term management is looking to open 24 Dick's and 5 Golf Galaxy stores and retrofit some second generation boxes. While ongoing challenges exist for DDS, they appear to remain a survivor in the department store sector so far. While comp sales continue a down trend (8.0% 4Q year on year), gross margins increased 820 bps and are at 33% - the highest since 1998. This suggests management has inventory under control and has not been forced into high markdowns. SG&A was also improved due to store closings, lower payroll, and lower advertising costs. Free cash flow is also improved, although this may not be sustainable given it was driven by lower capital spending. In June 2009 DBRN acquired the popular Tween Brands' "Justice". The sector is very competitive, but DBRN has been performing well due to above average execution. Comp sales are up, as are gross margins - partially fueled by the solid performance of Justice.

CVS

CVS

CVS

Drug

Low

Dick's Sporting Goods

DKS

Dick's Sporting Goods Golf Galaxy

Sports

Low

Dillard's

DDS

Dillard's

Department Store

High

Dress Barn

DBRN

Dress Barn Justice

Apparel

Low

Eddie Bauer

EBHI

Eddie Bauer

Apparel

High

EBHI filed Chapter 11 in June 2009. Golden Gate Capital won the auction for $286M in August 2009.

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

Low

Ken Hicks, former chief merchandising office for JCPenney and prior president of Payless ShoeSource, was appointed CEO at FL in August 2009. This move gives FL substantial firepower in its top ranks and should position the company for growth performance over the longer-term. FL is reportedly expanding its footwear product line to expand its customer base and revamp its apparel line. FL also plans to expand its introductory product pricing to ensure a good value relationship and drive shopper traffic. International and online are key growth vehicles.

Fossil

FOSL

Fossil

Apparel

Low

FOSL has 219 accessory stores. Analysts believe that the market (including international) could support double than level. Net sales were off by just 2% in FY09, although gross margin was up 90 bps at 54.6% and the operating margin was up 70 bps at 13.7%. The company had a strong 4Q09 due to better than expected SG&A metrics. FOSL's broad price points, a variety of distribution channels, and multiple geographies have allowed them to compete solidly during the recession. 50 new stores planned for 2010, along with closing 28 unproductive stores.

Gamestop

GME

Gamestop EB Games

Electronics

Low

Leader in the used video game market, with almost 6.600 stores throughout the US and 17 countries. Solid market position, however, competition has been accelerating at Walmart and Amazon. The much talked about advent of game downloads is likely not a near-term issue due to distribution issues with bandwidth. Total sales up 2.3% last year, with gross profit up 6.7%. Gross margins up 110bps at 269% at year end. $200 million has been budgeted for 400 new stores and capex in 2010. FY10 expected to end with $700M in cash and $400M in free cash flow. Strong market position and cash generation could make GME an acquisition target.

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
Retailer / Parent Company Ticker Retail Brands Retail Category General Risk Rating Recent Industry Commentary
GPS looks to be on track with its turnaround. They have improved metrics over the last 3 years, with EPS growth of 17% per year and 500 bps growth in operating margins. Margin improvement from better pricing and inventory management has succeeded (SG&A has been reduced by $500M in the last few years). The ability to improve these metrics have run their course. GPS is now moving to increase top line sales. They have increased spending on advertising and are focusing on profitable categories, like denim. GPS still has a way to go with sales per SF of $330 last year, versus a 5-year average of $370. Company has built up a solid cash position of $2.5B, suggesting that they will continue to repurchases shares. GPS registered 4Q comp sales up 2%, the first time in positive territory since 2004. GPS is still right sizing its portfolio, with 110 anticipated closures for 2010, 60 in the Gap brand. 65 openings are planned (35 international, such as Australia). GPS is also rethinking store size to drive productivity. While their last concept, 4th & Towne, did not gain traction, GPS is testing in San Francisco the online retailer "Athleta" it acquired in 2008.

Gap

GPS

Gap Old Navy Banana Republic

Apparel

Medium

Golds Gym

GOLDS

Golds Gym

Exercise

High

Private company operates mostly through franchises.

Gymboree

GYMB

Gymboree Janie & Jack Crazy 8

Apparel

Low

GYMB operates 953 stores (626 Gymboree, 140 outlets, 119 Janie & Jack, and 65 Crazy 8s). GYMB generated EPS in 4Q slightly ahead of consensus. Retail sales were up 3.8%, although comps were down 2%. Average unit pricing increased as the company overhauled merchandise over the last couple of years. On the strength of some of its categories, GYMB is planning on increasing inventory in some areas, such as boys wear. The company plans 100-125 new stores in 2010, including operations in the Middle East, Canada, and Australia. Strong Middle East expansion through franchise partner Azadea G Group. Crazy 8 (broke even in 2009) seen as a good vehicle for growth given affordable children's' wear niche. H&M has almost 2,000 stores worldwide. Within the US, there are 189 stores. This reflects a doubling of domestic stores over the last 4 years. Reportedly, gross margins (61.6%), operating expenses are stable, and shopper traffic is up, however, US operations play only a small role in company profitability. Sales were up 14.6% last year, with gross profit up 9.6%. Expansion to move ahead on 240 international stores, 90 of which are planned in the US.

H&M

HM'B-SK

H&M

Apparel

Low

Harris Teeter

RDK

Harris Teeter

Grocery

Low

Harris Teeter is a high quality leader in the grocery sector. As consumers tightened spending, RDK saw competitive pressures mount from discounters. The latest quarterly data show customer counts and items per basket up. Same store data showed a 2.2% increase in active households per comp store, suggesting that they have been able to retain and bring back their customers. Same store sales, however, continued down at 2.4%, driven by broad price deflation. Near-term Wall Street outlook is for comps sales to move up more strongly in the first half of 2010.

Hibbett Sporting Goods

HIBB

Hibbett Sports Sports Additions Sports & Company

Sports

Low

HIBB operates 734 sporting goods stores concentrated in the southeast US. Hibbett is the major format, with 723 stores. Net sales up 12.8% in the last quarter. Gross margins, SG&A, and operating margins all remain stable to improved over the prior year. Comp stores up 9.6% due to good product merchandising and the expansion of brands. Store growth remains conservative, although HIBB has found that renovations and expansions can boost store sales and profitability. Reportedly, they see a $50K-$100K re-investment returning a 5-20% sales increase in 2 years. Plans are to expand 20 stores this year and 20-25 annually going forward. The downturn in housing has directly impacted HD. In 2005 sales were $377/SF, with an operating margin of 11.8%. In 2009, sales had declined to $280/SF and the operating margin declined to 7.5%. As the overall economy stabilizes, sales at HD are forecast to increase, albeit at levels below their 2005 peak. If this occurs, HD should see solid profitability growth given their demonstrated ability to control expenses. Overall housing market seen as beginning to improve. Strong start to Spring selling season. HOTT operates approximately 680 Hot Topic stores and 159 Torrid stores in the US and Puerto Rico. HOTT also operates an online media download site, ShockHound, for music, movie excerpts, and related merchandise. Comp stores down 5.1% last year and forecast to continue down into the first half of the year due to merchandise not gaining traction with the customer. Slippage in Twilight merchandise also has impacted customer.

Home Depot

HD

Home Depot

Home Improvement

Low

Hot Topic

HOTT

Hot Topic Torrid

Apparel

Medium

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
Retailer / Parent Company Ticker Retail Brands Retail Category General Risk Rating Recent Industry Commentary
JCG looks to be well positioned for the future. 4Q09 EPS came in much stronger than expected and that is pressuring the stock share price. March comp sales strong on the basis of weak 2009 comparison. The retail format looks stable, with potential future opportunities. JCG has an established brand identity that is well positioned to tap the 70 million Generation Y shoppers moving into their target niche of 21-35 year olds. There has also been a loss of competition in this segment as ANF announced closing Ruehl and AEO opted to close Martin & Osa. Expansion plans include 15 stores in 2010 and more aggressive additions in 2011. JCG also moving to use a third party to sell products online internationally. Company fundamentals and Spring merchandise suggest that JCP will post positive comps for the first time since late 2007. JCP has worked hard to put in place stronger merchandising, supply chain management, marketing, and technology to drive sales and earnings over the longer-term. From 50 new stores per year a few years ago, JCP only plans to add 5 stores in 2010 to its base of 1,100 stores and focus on driving productivity gains. Wall Street sees these initiatives as positive. Recent 5 year plan calls for an increase in sales from $18B to $23B through new stores and higher productivity in existing stores ($206 to $250 per SF). JCP to continue adding Sephora boutiques and expand Mango to expand shopper base. JAS operated approximately 760 stores through the US. Sales have been growing at JAS, with comp stores up 4.4% in 4Q versus down 1.1% the prior year. Average ticket is up slightly at 1.4%, with traffic up 3.0%. JAS continues to be a key competitor in the sector and is benefiting from Walmart's move out of fabrics. Outlook is for continued improvement in main metrics. Private company controlled by Golden Gate Capital (July 2009).

J Crew

JCG

J Crew

Apparel

Low

JCPenney

JCP

JCPenney

Department Store

Low

Joann Stores

JAS

Joann Stores

Furnishings

Low

J Jill

JILL

J Jill

Apparel

High

Jos A Banks

JOSB

Jos A Banks

Apparel

Low

In the past JOSB added 45 to 50 stores per year. In FY09, they cut back to 15 new stores. Net sales were up 7.6% last year, with net income stable at $68.7M. Cost of sales and marketing were also up over the period. Plans exist to expand product line in 2010, further enhancing JOSB's established market position. Strong year-end quarter. Stores require 4-5 years to hit mature sales levels, so JOSB's recent new store ramp up may take some time to produce stronger sales performance. JOSB opening highly visible 4,000 SF store at Citigroup Center on Chicago's West Loop. Recent announcement to open 5 outlets stores to add a new revenue stream.

Kohl's

KSS

Kohl's

Department Store

Low

KSS continues to compete effectively. 4Q09 EPS share were up and beat consensus. Gross margin up 163 bps in 4Q, on top of 51 bps last year. KSS continues to manage inventory well, increase its private label brands penetration (up 220 bps in 2009 to 44.3%), and limit markdowns. Comp stores up 4.5% in 4Q09, well ahead of management guidance at flat estimate. Online sales expanding, 38% last year on top of 48% in 2008. KSS to continue to invest on online capabilities. Continued stressed economy will benefit KSS as they push to take market share from competitors.

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
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

Retail Category

General Risk Rating

Recent Industry Commentary

Kroger

KR

Grocery

Low

Kroger operates 2,468 stores in the US and controls almost 148.0 million SF. The full line grocery division accounts for 95% of company sales. KR is now the 2nd largest food retailer in the US, behind Walmart - which is its biggest competitor in both scale and pricing. Through the recession, KR has been a solid performer. Based on a Nielsen poll in 2009, KR's overall market share increased 60 bps, and rose in 13 of the 17 markets tracked by Nielsen. Underscoring KR's competitiveness, their market share rose in 12 markets where Walmart is a major competitor. KR has reportedly achieve these results through better merchandising and improved customer service. The outlook is for continued improvement in the KR brands, but the company will likely continue to see pricing pressure as it keeps prices low. In the last period, KR saw improved SG&A metrics on lower gross margins.

Limited Brands

LTD

Victoria's Secret Bath & Body Works C.O. Bigelow White Barn Candles Henri Bendel La Senza

Apparel

Medium

LTD operates under its 2 major brands, Victoria's Secret and Bath & Body Works (La Senza is their Canadian lingerie acquisition). They have closed a number of stores, such as C.O. Bigelow and now operate White Barn Candles out of Bath & Body Works. Operating margins bottomed in 2008 at 7.8%. 2009 ended at 10.0% and it is now running 11.5%. Management believes it will be in the 15-16% range by 2012. Documenting the sales decline, LTD averaged sales of $709/SF in 2006. Last year it was $618/SF. The company has a good deal of work ahead since few growth opportunities exist in the US - LTD already holds top spots in brand awareness and market share (25% market share for US). To battle this, LTD is ramping up growth in Canada and travel-related locations.

Linens n Things

LIN

Linens n Things

Furnishings

--

All stores closed. LOW operates more than 1,600 stores in the US and Canada (11 stores). EPS were above consensus estimates as of 4Q09. Although same store sales were down 1.6%, they were also better than the expected negative 3%. Gross margins were up 122 bps and SG&A showed some slight improvement. 2009 saw Home Depot become more competitive, which muted some anticipated market share gains at LOW. Business customer sales remained weaker than expected, underscoring the continued weak (but showing signs of improvement) housing market. Sales on big ticket items, however, were improved and counters and cabinets were positive, suggesting consumers may be beginning to spend. Spring selling season had a strong start.

Lowes

LOW

Lowes

Home Improvement

Low

Macy's

M-N

Macy's

Department Store

Low

M's same store sales in 4Q09 came in at negative 0.8%, which was better than expected. In addition, gross margin was better than expected, up 234 bps and SG&A was also improved. M also appears to be managing inventories more aggressively, with comp inventories down 5.6%, The "My Macy's" program is also gaining traction as the pilot markets show positive trends - all 10 of M's best districts were pilot districts. Guidance is for comp sales to return to positive territory in 2010. M closed 5 stores in 4Q09 and opened 5 stores during the year, with an ending store count of 849 (40 Bloomingdales stores). M is beginning to test an advanced price optimization plan which will let them address individual store issues and workforce management this year, with a planned rollout in 2011.

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
Retailer / Parent Company Ticker Retail Brands Retail Category General Risk Rating Recent Industry Commentary
While stock price is up 20% from the lows, comps stores still lag - down 6.6%. Semi-annual sale did not meet management expectations. Margins have improved slightly on the heels of lower markdowns. MW recently announced the closure of 100-150 under performing MW and tuxedo stores. MW appears to be a survivor after many brands taking a beating over the last several years. Key players in the segment now include JOSB and Brooks Brothers, which have limited customer overlap. As of October 2006, company controlled by Bain Capital partners and Blackstone. As of 2009 there were more than 1,000 Michaels stores in operation in 49 states and Canada. Average store size is 18,300 SF. There were also 157 Arron Brothers stores in select states (average size 5,500 SF). Private Company. Operates 140 stores in select Mid Atlantic and New England markets. Private company. FL regional chain has been expanding to challenge sector leaders. Private company. Deep relationships with movie producers. Had been 6th largest competitor in segment. Pressure on high debt for owner with CBS and Viacom. Company reached agreement with lenders in February 2009 to restructure debt ($1.5B). National moved in October to sell $1B of stock in Viacom and CBS. As of December 2009, RAVE theaters closed a deal on the purchase of 35 theaters in National's non-core markets. Funds raised are expected to pay off debt in full.

Men's Wearhouse

MW

Men's Wearhouse

Apparel

Medium

Michael's

MICH

Michael's Aaron Brothers

Furnishings

Low

Modell's Sports Muvico

MODEL MUV

Modell's Sports Muvico

Sports Cinema

Medium Medium

National Amusements

NAMUSE

Showcase Cinemas Cinema De Lux Bridge Cinema

Cinema

Medium

Nordstrom

JWN

Nordstrom Nordstrom Rack

Department Store

Low

JWN has had a mixed year. While they benefited from some consumer trade down during the recession, sales were slower overall due to the retrenchment of their aspirational customer niche. In 4Q, however, total sales grew 10.3% and comp sales came in up 6.9% (compared to management's "flat" guidance on comps). At the same time, however, gross margins while up, were slightly lower than expected and SG&A was worse than expected at 29%. Nordstrom Rack represents a solid growth vehicle and is complementary to the traditional store customer. JWN master credit data shows some deterioration in credit quality for charge-offs and delinquencies.

Office Deport

ODP

Office Deport

Office Supply

Medium

During 2009 ODP was successful at reducing costs and improving liquidity. Business fundamentals while showing signs of improvement are still in negative territory. In 4Q09 sales declined 9% with comp stores down 4% (versus down 14% in 3Q09). Transaction volume and average tickets also declined in the low single digits. After 110 closures in 2008, management does not forecast any further closures at this time. Even with lower sales, management estimates that stores are close to breakeven and that as the economy improves, they will see increased profitability. OMX has eliminated $400M of annualized costs over the last 4 years. Recent investor conference forecast OMX to reach its historical operating profit rate (3.8%) in the 5-year plan. Outlook is that as the economy improves, OMX will see good returns and limited increase in costs given 80-85% of their cost structure is fixed. Plan to move away from being an office supply chain to a business solution chain. No new stores seen ahead as the company continues to renovate selectively and relocate some stores. With 60% of leases expiring through 2014, OMX will continue to pressure landlords for concessions. PSUN has had mixed results in 2009. The company ended 2009 with $93M in cash and did not use its credit facility. Inventory looks to be proactively managed, down 13% in 4Q. 4Q09 EPS, however, was down $0.26 and comps were down 19%. Operating margin was up 270 bps, driven by an up tick in gross margin of 650 bps. SG&A was also up 380 bps. Balance sheet good, but structural weakness in overall sector. Strong fundamentals at PNRA. $250M of cash on balance sheet. Mid to high single digit comp store sales growth and 7 straight quarters of 100+ bps operating margin expansion. Solid player within fast casual niche, offering quality products and able to maintain prices. Comp stores up 1.1% versus down 6.6% last year. PSS has kept inventories lean, which may have resulted in some lost sales. Management plans to introduce greater merchandise variety in 2010 to grow sales (for example, the new Isabel Toledo line). International expansion still moving ahead with 60 new stores to open in FY10 (mostly in Columbia, with greater emphasis in the Philippines and Middle East). Sourcing costs under control and lower occupancy costs likely with 20% of stores under lease renewal.

Office Max

OMX

Office Max

Office Supply

Medium

Pacific Sunwear

PSUN

Pacific Sunwear

Apparel

Medium

Panera Bread

PNRA

Panera Bread

Restaurant

Low

Payless ShoeSource

PSS

Payless ShoeSource Stride Rite

Apparel

Low

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
Retailer / Parent Company
Petco

Ticker
PETCO

Retail Brands
Petco

Retail Category
Pets

General Risk Rating
Low

Recent Industry Commentary
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. Q4 EPS, at $0.61, was well ahead of guidance. Sales were also ahead of expectations. Comp stores came in at 1.5%, which reflects a slight increase over prior quarters. Shopper traffic also up 0.3%, compared to negative numbers in 2Q and 3Q. Gross margin down slightly (90 bps), however, better than expected. Outlook for continued improvement in EPS.

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. Major expansion underway in 3D and digital.

Rite Aid

RAD

Drug

Medium

Comp stores down 3.2% for February, brought down by both pharmacy and front end sales. FY comp stores, however, were within management's guidance but lower than consensus. This represents the 9th month of negative comps. Recently announced plans to close 80 under performing stres - a small share of their 4,000-plus store count.

Ritz Camera & Image

RITZ

Camera / Sports

High

Filed Chapter 11 on February 23, 2008. Closed 400 of 800 camera stores and has closed all 130 Boater's World stores. Emerged from bankruptcy in December 2009 as Ritz Camera and Image. Plan is to re-market the brand as a full service operation that covers anything related to take, share, or view images - including DVD, flat screens, and the like. While some applaud this shift, the new territory is also a heated sector with a number of strong competitors trying to gain market share in specific niches.

Ross Stores

ROST

Ross Stores

Apparel

Low

ROST operates almost 1,000 stores internationally and has performed well through the recession as a value leader. Company has good sales momentum and should continue to trend up over the first part of 2010. Biggest risk is that comp sale comparisons are more difficult to match going forward. Gross margins up 230 bps, with operating margins up 260 bps.

Royal Ahold

AH-AE

Giant Landover Giant Carlisle Stop & Shop Peapod

Grocery

Low

Strong 4Q earnings results. Stop & Shop / Giant Landover beat consensus margins (at 5%). Stop & Shop / Giant Landover exhibited improved cost controls and lower SG&A. Strong corporate balance sheet. Plans still underway to complete 100 remodels of Giant Landover to improve store performance.

Rue21

RUE

Rue21

Apparel

Low

With 537 stores in operation, Wall Street sees expansion to 1,000 stores possible. At the start of 2010 Rue21 has a strong retail story, with SF growth of 18-20%, positive comp sales, solid operating margins. 70% of store base is off mall focused on smaller underserved markets - giving it a competitive advantage. Store opening costs are low, giving RUE good store economics. Reportedly, RUE achieves 100% ROIC in the first year of operations.

Safeway

SWY

Safeway Von's Genuardi's Dominick's Pac n Save Randall's

Grocery

Low

As a full service grocery chain, SWY was impacted during the recession as consumers traded down in price categories. SWY is the 4th largest food retailers, behind Walmart, Kroger, and SuperValu. The continued slow economy will likely result in no near-term turnaround for SWY. Net sales likely flat in 2010. Store openings will be reduced in 2010 and 2011 - to around 175 stores (compared to almost 450 stores in 2008). SWY will be optimizing locations over the near-term, which should translate into select store closures. SWY, however, does believe that the fragmented grocery industry positions them to capture increased market share from smaller players given SWY's scale. SKS was hard hit as the luxury consumer retrenched during the recession. Net sales in 2009 were down 5.9% and are expected to be down 13.5% this year. In 2007 SKS was at a 4.7% EBIT margin. In 2009 that metric declined to 0.7%. After the company successfully put in place significant cost controls, the margin is expected to recover to 4.4% this year. Analysts believe that SKS can continue improvement and hit 8.0% over the long-term. The key issue here is the luxury consumer needs to return to the market to increase top line sales. SKS store count looks relatively good, with management stating in a recent conference call that there are perhaps 5-10 stores that are unprofitable and that they may look to close 3. One major growth vehicle for SKS is Off 5th, which has minimal overlap (10%) with the traditional SKS customer.

Saks

SKS

Saks Off Fifth

Department Store

Medium

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
Retailer / Parent Company Ticker Retail Brands Retail Category General Risk Rating Recent Industry Commentary
Kmart comps up slightly (1.7%) and Sears down 6.1%. While some operating metrics are improved, the declines in Sears appliances, lawn & garden, and home electronics (mainstays of the brand) point to continued difficulties with identity. Even though Sears holds a dominant market share position in appliances, competitors are quickly trying to erode that strength. Free cash flow high, but that was reached at large cuts in capex ($350M / year budgeted) versus a more appropriate $1.5B level. Cash flow pressure will begin to build to maintain and renovate stores. New website released to sell and lease excess space (both for closed stores and to lease out parcels and new in-store departments, such as the Edwin Watts golf deal to be rolled out in 12 locations).

Sears

SHLD

Sears Kmart

Department Store

Medium

Signet Jewelry

SIG

Kay's Jared's Sterling Jewelers

Jewelry

Medium

Jewelry sector still under pressure from consumer retrenchment during recession. For the US operations, average holiday prices down in both mall and off mall brands. Company is working to manage costs. Could benefit from the closure of sector competitors in 2010.

Staples

SPLS

Staples

Office Supply

Low

SPLS has been the sector leader and remains stable, although Office Max and Office Depot have survived the recession and may be increasingly competitive as the economy improves. SPLS has announced greater investment going forward and higher capex (up to $450M in 2010 from $313M in 2009). This shows them as taking the offensive early in the recovery. Part of their investment will be in expanding tech and copy and print services in domestic stores. Recently launched new B2B web site targeted at reducing customer costs and supplier fragmentation. Also moving into Australia with the acquisition of Corporate Express Australia.

Starbucks

SBUX

Starbucks

Restaurant

Medium

SBUX performance appears to be stabilizing. Same store sales in the US were up 4% for 1Q10, partly attributable to the introduction of their instant coffee VIA (launched in October 2009) and an improved food operation. Wall Street believes these revised metrics will be sustainable throughout 2010. Food currently accounts for 18% of store sales. With better offerings, this could increase into the low 20s. Plans announced for 100 new US stores and 200 international units. SBUX has also opened a test concept in Seattle's Capitol Hill neighborhood called Roy Street Coffee & Tea (also operates 15th Avenue Coffee & Tea). The test is a result of CEO Schultz pushing his designers to rethink the brand. The new store features a more upscale approach with higher-end FF&E, single origin coffees, wine, beer, gourmet cheeses and meats, and Indie movie nights in an effort to recapture the higher end consumer.

Steve Madden Shoes

SHOO

Steve Madden Shoes

Apparel

Low

SHOO ended Q09 with EPS of $0.80, a 100% increase from the prior year and $0.06 above consensus. Revenue was up 17% and gross margin was up almost 400 bps due to more restrained markdowns and closeouts. Comp stores were up 7%. Total revenue was up 2.7% on an 11% lower store base. The wholesale business was also up significantly at 24%.

Super Valu

SVU

Acme Super Valu Albertson's Shop 'N Save Bigg's Cub Foods Shaw's Jewel Osco Save A Lot Lucky Markets Talbot's Talbot's Kid's Talbot's Men's J. Jill

Grocery

Medium

SVU is the 3rd largest grocer in the US. SVU's brands operate across the US under a number of labels (4,300 stores). While one of the top players, SVU is under pressure in many markets (like the southwest US) from stalwarts like Walmart and new entries such as Tesco. The company has seen comp sales declines as shoppers traded down to lower cost providers. SVU is under pressure to divest non-core businesses in light of very high debt loads. This high debt level will impact free cash for the foreseeable future. The recent resignation announcement of the Acme president suggests that Acme may be the next chain to be sold, although new president was announced in late March (former CEO of United Supermarkets).

Talbot's

TLB

Apparel

High

J.Jill now controlled by Golden Gate Capital (July 2009). TLB forecasts 4Q total sales to decline 4%, an improvement over the prior 6-8% guidance. TLB is still looking for its footing with comp stores down 7%. TLB has been able to rein in expenses slightly better than anticipated. TLB operates 587 stores as of 2009. Even with J Jill sale. poor metrics suggest there could be more announced store closures ahead. TLB reportedly working attract younger customers to expand its niche to women 35+. While TGT was one of the better performers during the recession, the company did not post strong comps as customers traded down to other discounters. Target looks to be gaining traction in improved price perception by the shopper. Given better cost controls and price optimization, TGT could be poised for higher margins over the mid-term. The P-Fresh concept will continue to rolled out in 2010 - with another 350 stores being added. This will give TGT greater penetration into consumables, which should create greater return shopper business. The home category, however, continues to lag although shopper traffic is reported higher. April same store sales down 6%, which was an unexpected shift.

Target

TGT

Target

Department Store

Low

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
Retailer / Parent Company Ticker Retail Brands
Children's Place Disney Stores

Retail Category

General Risk Rating

Recent Industry Commentary
Store growth to accelerate with 50 net new stores in 2010 and 2011. Plans to expand value center presence in highvalue properties (now only 52 stores). New CEO taking proactive stance to expand brand through new merchandise lines and product offerings. Online sales initiatives to grow share of sales from the now 7% level. Sales up 5%, comps flat. Number of transactions grew by 7%, although transaction size slipped 7% due to greater promotions. 38 stores opened in 2009 with just 8 closings.

The Children's Place

PLCE

Apparel

Low

The Limited

THELTD

The Limited

Apparel

Medium

Private company. 200 mall locations.

TJ Maxx

TJX

TJ Maxx Marshalls HomeGoods AJ Wright

Apparel

Low

TJX 's value proposition was well equipped to be competitive through the recession. February comps are expected to come in up 8-10%. Total sales were up 7.6% for the year as of January, with gross profit up 8.5% and operating income up 10.3%. Outlook is for continued upside in the metrics as the economy improves and consumers are likely slow to return to paying full price. The 2,200-store chain sees the opportunity to grow to 4,200. 130 new stores are planned this year. Plans also exist to unveil a new store concept next year.

Tween Brands

TWB

Justice Limited Too

Apparel

--

Acquired by Dress Barn in June 2009.

ULTA

ULTA

Ulta

Cosmetics

Low

Rubin, formerly of Office Depot, just announced as new President and COO. Planned 4 month transition to take over CEO role. Comps up 10.5% in Q1, versus guidance of 4-6%. While store growth is on hold for now, potential exists to double store count according to Wall Street analysts. Net sales growth up 13% from last year and expected to be up 14% in 2010. Like many retailers, URBN saw comp store improvement in February, with the Urban Outfitters brand moving up. While Anthropologie saw 12-14% comp store gains as apparel picked up, home goods and accessories are still down. At year-end gross margins were up 770 bps. The outlook is for EPS to continue to improve in 2010, with URBN potentially hitting their 20% gross margin target.

Urban Outfitters

URBN

Urban Outfitters Anthropologie Free People Terrain

Furnishings

Low

Walgreens

WAG

Walgreen Duane Reed

Drug

Low

Top competitor in the segment. While WAG net sales were up 7.3% in 2009, EBIT was down 10.7% due to higher operating costs. Comps sales were also flat over the period and were down 0.2% in April. WAG tends to rely on organic growth to increase its top line sales - with competition heated due to Walmart pressuring the category. WAG recently announced the acquisition of 257 Duane Reed stores in NY at an enterprise value of $1.075B. This deal positions WAG with a major foothold in a the largest drugstore market in the US. While WAG has acquired many smaller chains in the past, this acquisition is the largest and could present challenges to integrate fully. On the cost side, WAG also assumed $475M in debt as part of the deal. WAG's lower borrowing rate will likely benefit them as these notes are refinanced. On balance, all of Duane Reeds are leased - under short-term leases. This may expose WAG to higher occupancy costs going forward.

Walmart

WMT

Walmart Sam's Club

Department Store

Low

WMT has performed well throughout the recession as consumer looked for value and aggressive pricing. In 2009 food grew to 51% of total US store sales. The decline in shopper traffic in 4Q (likely due to some shoppers leaking back to their traditional retailers as those retailers pushed pricing down) has resulted in WMT's move to be even more competitive in pricing with increased price rollbacks. WMT is moving on both the food and the apparel fronts to be more competitive and enhance the shopper experience. The relocation to NYC and complete reorganization of the apparel segment in 2007 is now fully staffed and is expected to gain momentum from a merchandising perspective. Recent industry report notes that WMT and Best Buy recaptured 2/3s of Circuit City sales.

Wet Seal

WTSLA

Wet Seal Arden B

Apparel

Medium

Wet Seal posted has positive comps for the first time in 2 years. While this is a good improvement, the $280/SF productivity level remains depressed. Wall Street expects to see an up tick in sales because Wet Seal appears to now have a product that is appealing to its target market. Plans are to open 20-40 stores in 2010. With a current count of 418, Wall Street believes that 600-700 stores could be supported. Possibility exists for market share increases as competitors like Charlotte Russe are transitioning to an older customer and Forever 21 is looking to big box off-mall locations.

NATIONAL RETAILER PERFORMANCE & RISK TRACKING AS OF MAY 2010
Retailer / Parent Company Ticker Retail Brands Retail Category General Risk Rating Recent Industry Commentary
Sales momentum grew over the last 2 quarters, suggesting that the WFMI customer is finally coming back into the stores. Comp stores were up 3.5% and identical stores were up 2.5%. WFMI has begun to move away from recessionary pricing - which has served to increase gross margins (up 98 bps). Operating margins were also slightly higher. While the shopper metrics are improved, ROIC is still below par, coming in at 3.8% in 2009 and forecast at 4.0% for 2010, despite fewer store openings smaller stores, and cost controls. WFMI ended 2009 with 284 stores, of which 229 were traditional Whole Foods. The outlook is to add 15 or so net new stores annually over the next couple of years. William Sonoma posted better than expected year-end comp sales - up 6.5%. Despite these upbeat results, management announced in a recent investor call that they plan to shutter stores in markets where they operate multiple locations - their goal being to maximize sales productivity. During last FY, WSM closed 34 stores of its 600plus store unit count, mostly in the Pottery Barn and Pottery Barn Kids brands (they opened 17 stores over the period). March sales show pick-up suggesting the worst may be past. Jewelry sector still under pressure from pullback in consumer spending. Revenues ended 1/31/10 were down 14.3% from the prior year. Comp stores sales also down 11.2% versus negative 18.8% from the year before. Gross margins were up 580 bps, at 49.8%, primarily due to lower markdowns. ZLC closed 180 location in 2009. Recent announcement that top C-level resignations may impact operations.

Whole Foods

WFMI

Whole Foods Fresh & Wild Wild Oats

Grocery

Medium

Williams Sonoma / Pottery Barn

WSM

Williams Sonoma Pottery Barn Pottery Barn Kids West Elm

Furnishings

Medium

Zales

ZLC

Zales

Jewelry

High

NOTE: Tickers noted in RED are designations for tracking purposes and do not reflect actual public company ticker symbols. Risk Rating relates to retailer operations and real estate risk attributable to occupancy, sales performance, and leasing. It does not imply risk of bankruptcy.
Source: Thomson ONE; Wall Street Analyst Reports; Company Information; Walter Bialas.

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