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TWST: Brian, how do you see the economic outlook out there at A.G. Edwards and how do you view the impact of higher interest rates, not just on the consumers, but also on the retailers?

Mr. Postol: I think Mark's point about the degree of uncertainty in the marketplace goes a long way in explaining why many of the retailing names have generally underperformed over recent months. Additionally, as interest rates move higher the overall perception of retail stocks becomes more negative, given a slowing economy as well as the cost of the capital that retailers will need to potentially grow their base and/or fund internal working capital needs. Presently, the perception is that the Federal Reserve will continue raising rates in order to engineer a soft landing; however, I believe many investors remain worried about the potential for over-tightening by the Fed and thus the impact on consumer spending -- and retail sales trends. While these concerns are valid, we find comfort to some extent looking back to the period of 1994-1995 when the Federal Reserve raised rates to slow down the economy, which led to a soft landing for the economy. This period did not harm retail stocks to a large degree but provided a springboard for the continuation of healthy economic growth, as well as a revitalization of investor enthusiasm in retail stocks, which continued through the end of calendar 1999. As for the current period, I think most retail stocks have been impacted more by psychology than by diminishing fundamentals, as for the most part the group's performance over the last three to four months has been negative (...)

TWST: Brian, are there any other companies that you would like to highlight?

Mr. Postol: We also favor the shares of Cost Plus (Nasdaq:CPWM). CPWM possess one of the more exciting, new retailing concepts on the scene today, offering a unique blend of home decor and consumables. With 104 stores in operation, primarily located in the Western and Southwestern portions of the United States with recent expansion into the Midwest region, the potential for controlled, yet aggressive, 25% annual unit growth in heavily populated eastern and southeastern markets adds a growth flair that is quite exciting. Cost Plus targets its product selection to reflect the broadening trends of the 1990s, with an emphasis on more casual lifestyles and a propensity for consumers to spend on home décor. The company sources from over 50 different countries offering a unique array of casual home furnishings along with a broad assortment of consumables. Within its home-related category, CPWM offers powerful presentations of home décor items, table-top items and handcrafted products. The home décor assortment is complemented by a dominant selection of consumables including wine, specialty beers, coffee and gourmet foods, each of which is instrumental in generating store traffic. In our opinion, through this unique combination, Cost Plus has successfully made its stores an exciting shopping experience for today's consumer. Currently, CPWM is in the midst of rolling out a proprietary credit card providing the potential for continued strong sales gains. Based on past history, the introduction of a proprietary card generally leads to an increase in the average transaction on the card relative to other payment means. In test markets to date, CPWM has seen a “notable” increase in the average ticket size relative to that on Visa and MasterCard. The rollout -- expected to be completed before mid-year -- bodes well for healthy sales gains during the second half. We project yearly earnings growth of a minimum of 20% through January 2002, a growth rate that will exceed most mid- to large cap retailers over this time frame.