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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 would you compare the long-term growth prospects of the discounters with the department stores and the chains?

Mr. Hood: I think the discount stores represent the best opportunity for growth. If you look at Wal-Mart and Target, you’re looking at 8% types of square footage growth. If you look at the dollar stores, you’re looking at low double-digit square footage growth. And if you look at the department stores, it’s low single-digit growth. So I think they do represent some of the better areas of growth for new stores, as well as possible increases in market share. The increase in share will come in food and pharmacy.

TWST: Wayne, what are your thoughts on con-solidation?

Mr. Hood: Certainly, as you close down stores productivity and margins improve. However, I think there is another opportunity for margins to go even higher, and that is through improved merchandise markdown management that I spoke about earlier. I think the department stores on balance do a very poor job with regard to markdown management and promotional pricing. As technology develops, I believe they will do a much better job in markdown management and promotional pricing, and therefore there is an opportunity in the gross margin line. I think there is also opportunity on the expense line if they’re willing to step up to the plate and make hard decisions. I will use Federated as a good example. Over the last couple of years, Federated has seen an absolute decline in top-line dollars. However, if you look at SG&A dollars, it has been flat at about $4 billion. So in my mind, they need to make some difficult decisions about how to bring down that cost structure in the face of what has been an absolute decline in dollar volume. In the discount store industry, I don’t know that there will be much more consolidation among the big players. I think the next consolidation phase will come from the supermarket and drugstore businesses, and that phase is going on right now. We believe the consolidation will accelerate as Wal-Mart rolls out its neighborhood markets. They have about 31 now and we are looking for an accelerated rollout in two years.

TWST: Wayne, is Kohl’s (NYSE:KSS) on your list?

Mr. Hood: Actually, it’s rated a hold. We put it on our buy list last year as there was a lot of uncertainty about monthly sales and so on, and the stock dipped. It moved to $67, and we moved it off again as we believed it was fairly valued on a discounted cash flow and EVA basis. The other thing that the company is facing, and I’ve seen this happen with other growth retailers, is that while growth is still good, it is decelerating. People are looking for low 20% growth this year, down from 33% in 2001 and something north of that in 2000. When you have decelerating earnings growth for a growth retailer, the stock typically underperforms as the marketplace tries to determine what the value of that future growth might be. We think it is $67 a share. They have a terrific format and one of the best management teams in the industry. The only thing we’re watching is new store productivity. Existing store productivity, in terms of comp stores and sales per square foot, is terrific, but if you look at new store productivity, it slipped in the fourth quarter compared to a year ago and the fourth quarter of 1998. Part of that is because they were up against some strong openings in the Tri-State area the year before. As they move into markets such as Atlanta, Houston and California, you have to make sure that they’re getting the new store volumes.

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.