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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: Are inventories still a problem for these companies, or is excess inventory “targeted,” so to speak, for the outlet stores or the discounters?

Ms. Murray: To the industry’s credit, it did a very good job of cleaning inventory up during the fourth quarter of 2001. While the levels of markdowns and promotions were much higher than normal, the companies moved a lot of product to enter 2002 with a clean slate. We’ve just completed year-end profit reports, and the numbers reveal that inventory levels at the end of 2001 were actually down 1% versus year-end 2000. This decline is a marked improvement from September 2001, when inventories were up more than 15%. Some of the inventory was sold through off-price channels such as T.J. Maxx and factory outlet stores, in addition to very aggressive promotions at full-price specialty and department stores. An important issue to watch in the first half of 2002 is whether consumer demand was satiated in the fourth quarter of 2001, taking advantage of all the compelling deals at retail, and whether spending levels will be restrained in the early part of 2002, as they do not need to go back into the stores and buy.

TWST: Moving on to the stocks, you’ve written that the best months to own apparel and footwear stocks have historically been February and March. Has this been true for 2002, and what does this mean in terms of how investors should be looking at the stocks in April, May and June?

Ms. Murray: Similar to retail stocks, there is a seasonal pattern in stock performance for apparel and footwear companies. Looking back at a period of almost 15 years, there is a positive bias for January, February and March. In 2002, the stocks have outperformed the market in January and February, and we would expect that also to hold true for March of this year. For the rest of the year, we do not necessarily expect a reversal in performance, but the outlook is less compelling. The data indicate outperformance of roughly 55%-60% on a monthly basis, versus 80%-90% in February and March.

TWST: Back to Coach, perhaps a little background on the company, which was, I believe, a 2001 IPO.

Ms. Murray: Coach (NYSE:COH) went public in 2000, as a partial spinoff from Sara Lee (SLE), which was completed in 2001. Coach is a well-known and highly regarded accessory brand that has undergone many changes in the past few years. It is opening its own full price retail stores more aggressively; it is expanding its product mix, particularly in women’s handbags; it has changed its business model from manufacturing to sourcing; and it is investing and building market share in Asia with the Japanese consumer, an important consumer for accessory products. I think Coach is one of the most attractive growth stories in the industry. The company increased earnings by 69% in fiscal 2001, and we estimate EPS growth of more than 20% in fiscal 2002. We believe that EPS also has upside; Coach released a mid-quarter update at the end of February 2002 that revealed sales and profits were ahead of plan. The brand is very popular right now, with several successful product launches, including a Signature collection, and is winning share with consumers at home and in Asia. I also give the company high marks for wonderful in-store service, which creates a pleasant and easy shopping experience.

This special issue includes:

1) Broadline Retailers & Discounters - In an in-depth (9,300 words) Analyst Roundtable, Shari Swartzman 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.