Specialty Retail Sales Not on Firm Footing; Industry Expert Urges Caution And Expects Stock Price Pullback

• On 2:44 pm EDT, Tuesday September 8, 2009

67 WALL STREET, New York - September 8, 2009 - The Wall Street Transcript has just published its Specialty Retail Report offering a timely review of the sector to serious investors and industry executives. This 57 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); hhgregg (HHG); Conns (CONN); GameStop (GME); Staples (SPLS); OfficeMax (OMX); Office Depot (ODP); Abercrombie & 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); 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 10 interviews in the 57 page report, an industry expert and equity analyst discusses the outlook for the sector and for investors.

Ann Poole joined Stephens Inc. in January 2008 as a Senior Analyst covering the softlines retail industry. Prior to joining Stephens, Ms. Poole was a Senior Analyst at Nollenberger Capital, covering the softlines industry. From 2004 to 2006, Ms. Poole worked as a Senior Analyst for Kevin Dann & Partners, covering the same space. Prior to Kevin Dann & Partners, she was an Associate Buyer at Saks Fifth Avenue in New York City and held merchandising positions at Bruno Magli and Neiman Marcus. She was also an owner and founder of Jooneechees Boutique in Dallas, Texas. Prior to opening Jooneechees Boutique, Ms. Poole was a retail consultant at Arthur Anderson. Ms. Poole earned her bachelor's and master's degrees in business administration from the Southern Methodist University in Dallas, Texas.

TWST: So customers are still hesitant?

Ms. Poole: I spend a lot of time in the malls, and that's really my approach to covering the space. For back-to-school, I've traveled all over the country and spent several days in malls in different markets. I have seen a more cautious consumer during the last quarter versus what I saw earlier this year. Earlier this year, I don't know if it was pent-up demand, stimulus checks, tax rebates, but I saw some strength in the mall. The customers were at the mall to buy. They were buying multiple items, carrying multiple bags and a lot of the shoppers in the mall had bags. That strength did not continue into 2Q, and what I saw in the malls were fewer bags, more consumers with just one bag and customers buying fewer items in the stores. The consumer does not yet appear to be going to the mall to stock up on BTS and/or fall merchandise.

TWST: So a little bit of a different atmosphere.

Ms. Poole: Yes, the consumer that I am seeing in the malls right now is more cautious than they were earlier in this year.

TWST: What does that mean as we look toward the fourth quarter and year end for these guys?

Ms. Poole: I definitely think that there are still some challenges out there. The biggest opportunity for EPS growth in 4Q will likely come from the gross margin from leaner inventories, lower input, and transportation costs and easy comparisons. But I think a top-line recovery could still be tough, and many of these companies can not leverage their occupancy costs on a negative comp. So some level of improvement will be needed in the top line for the retailers to fully recover.

TWST: But even as the top line is tough, can they still show margin improvement?

Ms. Poole: Yes, but the big question is the magnitude of that margin improvement. Leaner inventories and less clearance should help the gross margin, but the need to promote to drive traffic could eat up some of these gains. So, yes, I expect to see gross margin expansion, but I expect a moderate margin recovery at this point in time.

TWST: Any hot fashion trends that will help the space?

Ms. Poole: That's the million dollar question. I am yet to see that one great must-have item that will jump start the purchasing. Overall, I think the malls are a little bit safe and repetitive right now. In terms of what the retailers are going to pull out for holiday, I don't know what they have up their sleeves. All I know is that the early fall merchandise that's in the malls is not overly impressive.

TWST: Nothing very exciting.

Ms. Poole: I wouldn't say it is overly exciting right now.

TWST: I know this has been a space where we historically had seen lots of expansion. Are we going the other way now or are we beginning to see closings and contraction in this market space?

Ms. Poole: Definitely. I try to look at the positives of what this recent downturn has done for the group, and I think a great positive would be that retailers have begun to close underperforming stores. Especially in the missy space, that group became over-stored. And as Internet becomes more and more important in everyone's businesses, retailers should need fewer stores to reach their customer base.

TWST: Are we beginning to see that contraction?

Ms. Poole: Yes, a lot of the retailers have begun to close stores.

TWST: In terms of change, are we seeing anybody pull out of this space?

Ms. Poole: In terms of the companies I cover, I do not think any of them are at risk of going bankrupt. We have seen some of them shut down secondary concepts such as Abercrombie & Fitch (ANF) closing Ruehl and Aeropostale (ARO) closing JimmyZ. But overall most are just closing underperforming stores. For example, AnnTaylor (ANN) is closing around 190 stores. Retailers are closing stores and halting expansion, but I don't see any that I cover right now pulling out all together.

TWST: Is anybody still opening stores or has that pretty much come to a halt across that space?

Ms. Poole: No, there are a few retailers that are still opening stores right now. It's more in the teen space, and a lot of the new growth in store openings is additional concepts, not the core concept. For example, American Eagle (AEO) is opening aerie stores, and Aeropostale just launched a new kid's concept called PS by Aeropostale. We are seeing a little square footage or store openings from new concepts as well as some of the retailers that aren't saturated yet in the U.S. The Buckle (BKE) would be an example of a teen retailer that is opening a few stores and still has some room for growth in the U.S.

TWST: So there's still some growth taking place.

Ms. Poole: Yes, there is still some growth out there, but I think everyone is just much more cautious. Once some of these retailers fix the problems they are currently experiencing, there could be an opportunity for accelerate store growth down the road.

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 57 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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