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Four analysts and top management from two sector firms examine the broadline retailers & discounters sector in this special 31-page Broadline Retailers & Discounters issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info515.htm

TWST: Wayne, how should investors interpret the information that came out yesterday, and to what extent are these numbers important to factor into the outlook for retailers in 2002?

Mr. Hood: I certainly think it was encouraging to see the improvement. We run an index of 70 companies, as I think most people do, and that index during the month was up 4.6%. That compared to October of last year right after September 11, when it was up 1.4%, and compares to growth of 2% a year ago. So there is an encouraging trend that began in October. I think the reason behind the improving trend is the stronger growth in real income. During the month of January it was up about 3.5% year over year, compared to about 2% in the previous three months. There are several reasons for the improvement: a reduction in federal withholding taxes, pay increases for about 3 million federal workers, and an increase in some Social Security benefits. In addition, the unemployment rate came out today and it downticked to 5.5%. So I think the macroeconomic variables that we look at are supporting some improvement.

TWST: Wayne, for the most part, have earnings been in line with your expectations over the past few quarters?

Mr. Hood: Compa-nies sensed there was a coming slowdown in the back half of the year and began to revise sales, inventory and earnings plans down. After the events of September 11, they revised them down further. The department store began to look for low single- to high single-digit sales declines. I think for the most part the sales declines were no worse than expected, as Jeff mentioned, and the inventory levels were pretty good going in relative to their sales plans. So there were several companies that ended up revising estimates upward because things were not worse than expected. Maybe at the margin they were a little bit better, and February sales got off to a good start. As a result, we’ve seen some slight estimate revisions upward for the first quarter.

TWST: Wayne, given the recession, the layoffs, and of course the events of September 11, have you been at all surprised by the level of consumer spending?

Mr. Hood: I was surprised by how well it’s held up. I think a lot of people felt that way after the events of September 11 when they saw the unemployment rate ticking up. I think we have to keep in mind that historically recessions have been broad-based and have cut across many geographic regions of the country. I think we’re finding recessions may not be as long or as deep given the diversity of our industries and the fact that technology helps us better manage inventory. So I think we could a have rolling economic recession, where you have a recession in the Tri-State area or in Northern California, but not the entire country.

TWST: Wayne, I should ask you about Sears and J.C. Penney — how should investors be looking at these stocks today?

Mr. Hood: In the case of Sears (NYSE:S), we are expecting a big top-line story, but one that is driven by margin improvement. As a result, earnings go from 4.22 last year to 4.85 this year, and 5.7 in 2003. In the short run, they’re taking out about 600 million in costs. The stock right now is trading at 10 1/2 times earnings, so we don’t believe that type of earnings progression is fully reflected in the stock.

This special issue includes:

1) Broadline Retailers & Discounters - In an in-depth (9,300 words) Analyst Roundtable, Shari Schwartzman Eberts, Vice President at J.P. Morgan Securities, Wayne Hood, Managing Director at Prudential Securities, Inc. and Jeffrey Stinson, Research Analyst at Midwest Research, examine the outlook for the sector including outlook for the economy, earings expectations and share specific stock recommendations.

2) Apparel & Footwear Stocks - In an in-depth (3,200 words) Expert Interview, Carol Pope Murray, Director at Salomon Smith Barney, examines the outlook for the sector and shares specific stock recommendations.

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