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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, 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 (NYSE:FD) 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.

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.