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TWST: Harry, how have the retailers that you follow performed over the past six months, and what in your view has separated the winners from the losers?

Mr. Ikenson: Over the last six months these companies have definitely underperformed compared to the tech sector, because a lot of them are considered old economy. They performed pretty well going into Christmas, and then in early January, when the numbers came out, they underperformed drastically through probably the third week of February. The reasons I would point to are interest rates moving up, energy prices moving up, and the fact that both the tech sector and the biotech sector were very hot. So investors generally take the view that when interest rates are rising, they will stay away from consumer stocks and financial stocks. In this case it was interest rates and higher energy prices, so the thinking there was that this would lead to a slowdown in the economy with less disposable income and lower consumer spending.

TWST: How would you compare Limited (NYSE:LTD) with Talbots (NYSE:TLB)? Limited is at a lower price point isn't it?

Mr. Ikenson: But Limited is also a very interesting story right now, because the company started to put in many meaningful changes several years ago. They started to hire product designers, change the culture of the company, focus on brand-building, and finally change their pricing and inventory policies. They did this to such an extent that when they reported the fourth quarter there was a big upside surprise in their merchandise margins. For the first time in probably over 10 years, all the apparel divisions of Limited have shown improvements in margins. My title for Limited right now is “Inventory Religion Pays Off,” and we think it really has; they're very well positioned on a go-forward basis.

TWST: Where did the improved earnings come from?

Mr. Ikenson: It's really the result of better merchandise margins. What they have done is offered the consumer an initial price point that is more competitive and have managed the inventories better. They're bringing in the product a little bit earlier, and they're taking their markdowns a little bit sooner. The net net of this is that they're experiencing better margins.