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TWST: Joan, are there any characteristics, any dynamics of hard lines retailing that are different in some way from those associated with other sectors of retail?

Ms. Bogucki-Storms: I would say that compared to soft lines, most, but not all, merchandise in the hard lines specialty retail sectors is not as fashion-oriented or as seasonally driven as apparel sales.

TWST: And for the most part, are these bigger-ticket items?

Ms. Bogucki-Storms: The average ticket varies according to the particular hard lines sector merchandise, which ranges from books to arts and crafts, to sheets and towels, to gourmet cookware, and fine jewelry.

TWST: That’s a big ticket item! Joan, is there a set of common denominators that underlie the group as a whole, or is each segment affected by different variables?

Ms. Bogucki-Storms: I would say that there are some common denominators, the primary ones related to the determinants of consumer spending and the underlying economic factors that impact disposable income. The slowdown in consumer spending we witnessed during the recent holiday selling season has been attributed to a number of factors, including higher interest rates, increased fuel and utility prices, and concerns about the Presidential election, all of which led to declining levels of consumer confidence. The economic environment may have a varying impact on different retail sectors. For example, sales in the home-improvement sector, and home goods to a lesser degree, seem to be closely tied to moves in interest rates. A low interest rate environment promotes home purchase and spending on the home.

TWST: Moving on to the outlook for 2001 and the factors that will shape the environment for retail. First, the economy. Joan, what’s the outlook for the first half of the year, and what happens in the second half?

Ms. Bogucki-Storms: I would say generally that with the two interest rate cuts by the Fed thus far and the now somewhat inevitable tax cut, we should see some improvement in consumer confidence. Specifically, we are looking to the second half of 2001 for a pickup in consumer spending, especially as a result of easier comparisons for Q4.

TWST: Joan, you follow a company called Sport Chalet. Will you tell us about it?

Ms. Bogucki-Storms: Sport Chalet (Nasdaq:SPCH) is a sporting goods superstore retailer with 23 stores, all of which are located in Southern California. The company has built strong brand recognition in its marketplace by offering higher-end merchandise compared to its competitors such as Sports Authority (NYSE:TSA), and the company stresses very high service levels. Most Southern Californians know the name “Sport Chalet.” However, the stock has a small market cap, so it is only really attractive to a micro-cap investment manager. Nevertheless, the company has had an excellent track record of late in an industry that has been over-stored. Despite being in an out-of-favor sector, the stock has had a nice run here. We attribute the stock price rise to a very energized management team that has executed on all levels as evidenced by the company’s double-digit comps and strong earnings for the past few quarters.

TWST: Are you recommending this stock as a buy today?

Ms. Bogucki-Storms: We rate SPCH with a buy rating and a 14 price target. However, we believe the company’s strategy needs to evolve into more of a growth story before we can justify a higher multiple.