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Five analysts and top management from sixteen sector firms examine the Leisure Goods & Services sector in this special 89-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info384.htm

TWST: Are there any common themes that are driving these companies? How economically vulnerable are they?

Ms. Kissel: There is one overarching theme — the aging baby boomer — that provides a long-term positive demand backdrop for the industry. As you get older, your family obligations moderate and you have more time and more disposable income. The biggest constraint for consumption of leisure is time. Furthermore, per capita spending on leisure is highest for people between the ages of 45 and 54 and second highest for those between the ages of 55 and 64. So as people age, it is good for companies that sell boats, golf clubs, vacations and resort real estate.

TWST: Is Bally Total Fitness (NYSE:BFT) the only publicly traded company in this sector?

Ms. Kissel: They are the only profitable US publicly traded company in this sector.

TWST: What is it that sets them apart from the others?

Ms. Kissel: I would say financial discipline, a unit-level economic model that is superior to many of their competitors, and also a membership structure that gives them more visibility on their revenue growth. Whereas most health club companies will sell you a one-year membership or a monthly membership, Bally Fitness sells you a three-year membership, and in this three-year contract, which is a consumer finance contract, you’re obligated to pay $40 plus per month over the next 36 months. Because of this structure, they get a much lower attrition rate — which has been the thorn in this industry’s side. Bally Fitness’s customer acquisition costs are lower because of its attrition rate of 17%, which is less than one-half of the industry average. Then in addition, when your contract expires after 36 months, on the 37th month your monthly payments drop down considerably, because you move into a dues-only phase. At that time the member pays $12 to $14 a month, which is a third of what the industry average would be for monthly dues.

TWST: So there really is an incentive to stick with it.

Ms. Kissel: And the demographics are also positive in the industry, with the echo boomers moving into Bally’s target market. They target 18-34-year-olds. The leading edge of the echo boom was born in 1977, so they’re 24 years old now. Hopefully they’re out of college, getting jobs, and that’s when people start to join a fitness club.

TWST: What’s the growth outlook for Bally? Do they build new clubs, or do they grow by acquisition?

Ms. Kissel: It’s a combination of both. Internal growth is what we forecast, and we don’t build acquisitions into our model, but they’ll add 25 clubs this year, so we’re going to continue to see them open up new clubs. We are forecasting earnings growth of 20%-25%.

TWST: And I believe you have a buy recommendation on the stock.

Ms. Kissel: Yes, we do.

TWST: Is there a final word that you would leave investors with who are thinking about putting money into leisure and toys?

Ms. Kissel: I think it’s been an interesting period for these stocks. They’ve outperformed the S&P 500 through May of this year. Through May, the group is up 11% and the S&P is down 5%, and we think there is an opportunity for continued outperformance for two reasons.

This special issue includes:

1) Leisure Goods & Services - In an in-depth (4,100 words) Analyst Interview, Timothy Conder, Vice President at A.G. Edwards & Sons, Inc., examines the outlook for the sector and shares specific stock recommendations.

2) Leisure Industry Overview - In an in-depth (3,700 words) Analyst Interview, Hayley Kissel, Director of Merrill Lynch's Global Securities Research and Economics Division, examines the outlook for the sector and shares specific stock recommendations.

3) Outlook for Leisure Stocks - In an in-depth (3,900 words) Analyst Interview, Scott Barry, Director in Credit Suisse First Boston's Equity Research group, examines the outlook for the sector and shares specific stock recommendations.

4) Cruise Lines & Motor Sports - In an in-depth (2,600 words) Analyst Interview, Joseph Hovorka, Senior Analyst at Raymond James & Associates, examines the outlook for the sector and shares specific stock recommendations.

5) Outlook for Cruise Lines - In an in-depth (4,100 words) Analyst Interview, Robin Farley, Executive Director in the equity research division of UBS Warburg, examines the outlook for the sector and shares specific stock recommendations.

6) CEO interviews (average 2,500 words). Top management of sixteen sector firms examine the outlook for their firm and the sector.