Key Retail Stocks Have Excellent Growth Rate According to Industry Analyst

• On 3:31 pm EDT, Thursday October 8, 2009

67 WALL STREET, New York - October 8, 2009 - The Wall Street Transcript has recently published its Specialty Retail Report offering a timely review of the sector to serious investors and industry executives. This 52 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Consumer Electronics -- Innovation -- Appliance Category -- Housing Market -- Video Games -- Growth of Amazon -- International Growth -- Positives of the Downturn -- Cross-Shopping -- Buying Trends -- Competition in Specialty Retailing -- Department Stores -- Balance in Merchandise -- Underselling -- Promotions -- Informed Customers -- Internet Stores -- Change in the Consumer -- Top-Line Expansion -- Lower Cost Structure -- Teen Consumers -- Back to School -- Stablization -- Consumer Spending Trends -- Shifts in Consumer Shopping Habits -- Comparable Store Sales -- Holiday Expectations -- Retailers Reaction to Shifts in the Economy -- Value

Companies include: Amazon (AMZN); Best Buy (BBY); Estee Lauder (EL); hhg (HHG); Conns (CONN); GameStop (GME); Staples (SPLS); OfficeMax (OMX); Office Depot (ODP); Abercrombie and Fitch (ANF); AnnTaylor Stores (ANN); American Eagle Outfitters (AEO); Buckle (BKE); Chico's FAS (CHS); Bebe Stores (BEBE); Ann Taylor (ANN); Coach (COH); Coldwater Creek (CWTR); Nordstrom (JWN); Dick's Sporting Goods (DKS); Foot Locker (FL); Steve Madden (SHOO); Skechers (SKX); Deckers (DECK); Hibbett (HIBB); Shoe Carnival (SCVL); Target (TGT); Genesco (GCO); Urban Outfitters Inc. (URBN); True Religion Apparel Inc. (TRLG); GUESS? Inc. (GES); Lululemon (LULU); J.Crew (JCG); Hot Topic, (HOTT); Talbots (TLB); Chico's (CHS); Pacific Sunwear (PSUN); Kohl's (KSS); JCPenney (JCP); BJ's Wholesale (BJ); GUESS? (GES); Tween Brands (TWB); Gymboree (GYMB); Mens Wearhouse (MW)

In the following brief excerpt from just one of the 11 interviews in the 52 page report, Christine Chen discusses the outlook for the sector and for investors.

Christine Chen joined Needham & Company in 2007; she is a Principal and Senior Research Analyst with over 12 years of experience following retail. Ms. Chen joined Needham from Pacific Growth Equities, where she also covered specialty apparel retailers. Previously, she was an analyst at Tiburon Research Group, an independent equity research group also focused on retail. Before TRG, she was a retail and consumer investment banker in Credit Suisse's corporate finance department. Ms. Chen also spent three years in Morgan Stanley's M&A department in New York and Hong Kong. She holds a B.A. degree in economics from Berkeley and an MBA in finance from Wharton. She is also a frequent guest on both CNBC and Bloomberg TV. Her current coverage universe is: ANF, AEO, ARO, BEBE, COH, GES, GPS, HOTT, JCG, PSUN, RL, TRLG, URBN, VLCM.

SECTOR - SPECIALTY RETAIL

TWST: Here we are halfway through the year. How have they performed in this rotten economy?

Ms. Chen: They have actually performed rather well. Most of the retail space is up significantly. Specialty retail on average is up anywhere about 50% year to date, despite rather lackluster fundamentals because the expectation that the worst is actually behind us has propelled the stocks higher.

TWST: Is there any reality to that expectation yet?

Ms. Chen: You are starting to see stabilization. Inventories are more in line right now, so while companies are not getting top-line growth, you are not seeing as significant margin deterioration as in the back half of 2008. Expectations for the back half of this year could prove to be conservative, given that numbers came down several times in 2008. So far this earnings season, most companies have beat numbers and provided guidance in line or maybe even better than expectations.

TWST: What is going on from a sale point of view at this point? Have they been able to back off any?

Ms. Chen: Certainly, year-over-year promotions have come earlier and are definitely a little bit deeper. However, promotions are not as deep as they were during the fall and holiday quarter of 2008 simply because there is less inventory. So there hasn't been the need for broad-based discounting at 70%, 80%, 90% off ticket prices.

TWST: Looking at the teen retailers, anything hot at this point that's driving business or is it just a preponderance of teens?

Ms. Chen: Teen was one of the last to be hurt by the economic slowdown and it might be counterintuitive, but teen could be one of the first to come out of it. One of the biggest reasons is product. In the teen space, there is emerging a uniform, so to speak. There are a lot of key must-have fashion items that are popping up for back-to-school, which you really didn't have last year. Last year you had a ton of fashion, but there wasn't a handful of peer-pressure type items, as I like to call them. This year, you have the boyfriend blazer, you have the boyfriend jean, you have the plaid shirt. Hopefully you won't wear them all together in one outfit, but they are very good updates to items that you might already have in your wardrobe. Last year, you really didn't have these key items. While back-to-school will be later this year because of calendar shift and the tax-free holiday shift, the kids will go back to school, see what their peers are wearing and run back into the stores and buy similar items.

TWST: Even in tough times, kids are fashion conscious?

Ms. Chen: They are and there is a practical element too, as kids are growing so they may not be able to fit into the clothes that they wore last year.

TWST: Where are you currently pointing investors?

Ms. Chen: My favorite name is Urban Outfitters, as it is the best growth story in the space domestically. They are also building an international presence, although that is still at infant stages. My other favorite name is GUESS? (GES), which has a lot of growth left in the U.S. and has a solid international business that's growing faster than the domestic business. There is also True Religion. Premium denim, $260 jeans in this environment seems counterintuitive, but they are selling them. And they have very high square-footage growth and are just beginning to tap the international potential.

TWST: And why GUESS?

Ms. Chen: GUESS? is a global brand with multichannel distribution. They have their own stores in the U.S. across several concepts. They also have a U.S. wholesale business, a European wholesale business, a European retail business, an Asian wholesale business. It's a brand that, while it's been around for several years, has not been overly distributed internationally and still actually has quite a bit of growth left in the U.S. They are more moderately priced than True Religion. Their sweet spot price point is about $98 to $110 for jeans. But they still have square-footage growth in the U.S. and they have tremendous growth internationally.

TWST: Thank you. (TJM)

Note: Opinions and recommendations are as of 08/12/09.

CHRISTINE CHEN Principal & Senior Research Analyst Needham & Company, LLC One Ferry Building Suite 240 San Francisco, CA 94111 (415) 262-4860 (415) 262-4862 - FAX www.needhamco.com

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 52 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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