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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: How is the industry responding to the economic environment?

Mr. Hovorka: Because we are seeing consumers trading down and a softening in prices, we’re clearly not at the peak we were at 18 months ago. We are coming off that peak, and with that we are seeing the pricing pressure and, as I said, the trading down to lower price points.

TWST: What challenges does the industry face over the next six months or a year?

Mr. Hovorka: Certainly the macroeconomy is a large factor at this point. On the cruise side, we’re also seeing quite a bit of capacity coming online in the industry, not only this year but for the next three or four years. We’re expecting part of that capacity to be moderated somewhat by ships being moved outside of the North American market into secondary markets like Europe and Asia, which will reduce that growth rate in the North American market.

TWST: Within the leisure industry, you also cover cruises. Are there any companies that you would like to highlight here?

Mr. Hovorka: We follow four cruise companies and Steiner Leisure (Nasdaq:STNR), which is a supplier to the cruise companies. We’ve focused on Royal Caribbean (NYSE:RCL) and P&O Princess (NYSE:POC) as being two of the companies that are most levered to changes in pricing in the industry, so when we do finally start seeing pricing flatten out, even start increasing again, that who are going to benefit the most are companies like Royal Caribbean and P&O Princess.

TWST: We touched upon your outlook for cruise lines earlier. Could you reiterate?

Mr. Hovorka: Our outlook is cautious in the near term, because we see considerable pricing pressure in the industry. We are seeing a very difficult pricing environment, particularly in the Caribbean and Alaska. That is what is really driving our near-term outlook. Long term, the industry still has many opportunities to grow. The industry still has a very low penetration rate into the “vacationing demographic” and represents less than 2% of travel dollars. Also, the growth in the baby boom demographic should benefit cruise demand, as this age group is a large segment of current cruise demand.

TWST: You had mentioned Royal Caribbean and P&O Princess. What is attractive about these companies?

Mr. Hovorka: We’re attracted to Royal Caribbean for two reasons. On P&O Princess it’s a little different story. P&O Princess is smaller than both Carnival (NYSE:CCL) and Royal Caribbean. It is the third largest cruise company in the world, but it’s also at a point in their fleet growth where the economies of scale curve is probably larger than they are at Carnival or Royal Caribbean. So they could actually reduce their costs on a per-unit basis. They will have a fair amount of cost rationalization because of this. Secondly, just like Royal Caribbean, they do have a fair amount of leverage to changes in price. We estimate somewhere around 0.12 a share for each 1% change in cruise price. So we think on the downside there is some protection because of the cost rationalization and on the upside you’re going to get a fair amount of leverage as well.

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.