Piper Jaffrey "Best On The Street" Analyst Called It: "Inventories Very Lean And Very Tight"; August Was The Turning Point

• On 2:49 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); hhgregg (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); Dicks Sporting Goods (DKS); Foot Locker (FL); Steve Madden (SHOO); Skechers (SKX); Deckers (DECK); Hibbetts (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, an award winning analyst discusses the outlook for the sector and for investors.

Neely Tamminga is a principal and senior research analyst at Piper Jaffray & Co., focusing on specialty retailing: women's apparel & accessories, and personal products. Tamminga ranked as a top sell-side analyst in The Wall Street Journal 2006 Best on the Street analyst survey for her coverage in broadline and apparel retailers. In addition, Tamminga was ranked in the Top 20 sell-side analysts in 2006 by Institutional Investor magazine for her coverage of the retailing/specialty stores sector after receiving Honorable Mention in 2005 and 2004. Tamminga has also received recognition by Institutional Investor magazine for her coverage in the apparel & footwear, department stores, and hardlines retailing sectors. In 2009, FT/Starmine ranked Tamminga No. 2 Industry Estimator for her 2008 coverage in Personal Products. Prior to joining Piper Jaffray in 2002, Tamminga worked at A.G. Edwards & Sons, Inc. in St. Louis, where she covered specialty apparel retailing companies. Tamminga holds a bachelor's degree in economics from Calvin College in Grand Rapids, Michigan and a master's degree in business administration from Saint Louis University.

Piper

TWST: Where are you focusing your attention at this point?

Ms. Tamminga: Primarily in the women's apparel specialty retail coverage, but this would include retailers ranging from Nordstrom (JWN), Coach (COH) down to Ann Taylor (ANN) and Coldwater Creek (CWTR) in terms of market cap.

TWST: Here we are, kind of half way through the year, how has business been in this space relative to what you had anticipated?

Ms. Tamminga: It's actually tracking on plan relative to what we are looking for thus far. Earlier this year we made a controversial call that we thought that the women's apparel specialty space should be an area for improvement and recovery and we are starting to see that in the second half of this year. Through August, we are hearing some positive touch points on how the fall assortments are checking with consumers. We are encouraged by what we hear.

TWST: As we look at the results for the first half, was it a difficult period and kind of characterized by lots of cost cutting?

Ms. Tamminga: Yes absolutely. Back in January and February, there were investor concerns about whether or not some of these retailers would even make it as publicly traded companies. We outlined a case for stabilization in losses based on five cost savings initiatives including retailers closing stores, renegotiating lease deals, cutting headcounts, better sourcing costs and keeping inventories very tight, all of which are currently contributing to stabilization in losses and in some cases the early signs of profit recovery.

TWST: As you look at inventories at this point, where are they relative to where retailers want them?

Ms. Tamminga: Inventories are very lean, very tight, and largely in line with or better than retailers' expectations. August has been an interesting month because the product is largely being sold a full, or "fuller" price versus prior years when August represented the last gasp of summer clearance activity for this women's apparel retailing group. It feels very clean on the floor and the financials are bearing that out as well.

TWST: Is there risk of these companies basically trying to sell out of empty wagons as they keep the inventories airtight?

Ms. Tamminga: It certainly is a risk in the second half and in fact, most CEOs acknowledge what we believe is a high-class problem to have. No one wants to repeat the inventory and related promotional activity that ensued in Q4 last year. It is definitely a concern in terms of not being able to fully deliver some of the sales trends, but nonetheless, it's probably the right strategic decision.

TWST: Better to be light than heavy.

Ms. Tamminga: Yes, sir.

TWST: In terms of the cost cutting, what has it done from an operating point of view? Have these companies changed their approaches here to accommodate this different environment?

Ms. Tamminga: Yes, very likely. Whether retailers or other companies dealing with the recession, the difference in this environment is ultimately asking your staff to do more with less. That is a common situation among companies out there, not specific to retailers. It just happens to be a bit more meaningful in driving those cost savings down to the bottom line, given that payroll is a significant cost line item in a retailer's income statement. It ends up driving some meaningful cost savings for the bottom line when sales stabilize.

TWST: Are they done at this point, or is there still more work to be done?

Ms. Tamminga: There is certainly more work that could be done. I think we will still see these cost savings carry through in the quarters to come. When the cost associated with a person being removed from an organization, that is a real cost savings and that doesn't impact a single quarter; you will see the effect of that throughout the balance of the year, particularly if sales are to stabilize and improve. We would expect some additional cost savings. In fact, so far through second quarter, we have heard retailers indicate that they are ahead of plan with respect to their cost savings initiatives.

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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