For Subscribers

Get the complete article now!

Two analysts and top management from five sector firms examine the Home Improvement sector in this 31 - page Home Improvement Issue from The Wall Street Transcript available at (212/952-7433) or http://www.twst.com/info/info601.htm

TWST: Anthony, why don’t you begin for us today by telling us what you include in your coverage universe?

Mr. Lebiedzinski: I currently cover seven stocks: Tractor Supply Company (TSCO), SCP Pool Corporation (POOL), Sharper Image (Nasdaq:SHRP), Brookstone (BKST), Hibbett Sporting Goods (HIBB), The Sports Authority (TSA) and PETsMART (PETM).

TWST: Specifically, how have those stocks performed over the past 12-18 months?

Mr. Lebiedzinski: Tractor Supply, SCP Pool and Sharper Image have done well over the last 12 months, with the exception of July, when all of these stocks went down along with the rest of the market.

TWST: Prior to last month, to what do you attribute the strong performance?

Mr. Lebiedzinski: Fundamentals have improved at all three of these companies. Tractor Supply made an acquisition in late December that is already accretive to the company. Then you have Sharper Image, which had a down year in 2001 but has shown considerable improvement thus far in 2002. SCP Pool has always had strong fundamentals and is just a consistent performer.

TWST: How does this compare historically?

Mr. Lebiedzinski: Sharper Image has been a volatile stock in the past, considering that many of their products are discretionary in nature and depend on the sentiment of consumers.

TWST: You also mentioned Brookstone and Sharper Image. What are your ratings and what is the rationale behind them?

Mr. Lebiedzinski: On Sharper Image, we currently have a buy rating. I like the company’s strategy of expanding their product merchandise, which includes more higher margin proprietary and private label products. When you look at the company historically, about five years ago, they were selling a lot of third party branded goods, and they made a strategic shift to sell more private label and proprietary products. These products carry better margins than third-party goods and minimize price competition. The company is continuing to increase its product mix. Right now, about 70%-75% of their products are actually private label and proprietary.

TWST: When we look at Brookstone and at Sharper Image, are there risks involved that investors should be aware of?

Mr. Lebiedzinski: Yes. The economy is a risk factor, as most of the purchases that customers make at these stores are discretionary in nature. For Sharper Image, I think that risk is a little higher, since their average price point is around $70, as opposed to Brookstone, which is around $40. The other factor is seasonality. Both companies are highly seasonal. They traditionally have lost money in the first three quarters, which would be the April, July and October quarters, and they make a ton of money in the January quarter as that coincides with Christmas.

TWST: Is it too soon to be looking at the 2002 holiday season, or should investors be already concerned with it? What are you anticipating for Brookstone and Sharper Image for the upcoming holiday season?

Mr. Lebiedzinski: I think it is a little soon; however, we think they will do well. They did well last year, all things considered, and with everything that went on after September 11. Both companies have done a good job of managing their inventories and I think that they’ll have more improvements in store for this Christmas.

TWST: Have they been at all impacted by the slowdown in consumer confidence these days?

Mr. Lebiedzinski: Sharper Image has not seen a slowdown thus far. The company posted a $0.02 per share loss in the April quarter, versus a loss of $0.23 in the previous year. The company has shown improvements in the July quarter as well.

1) Specialty Retail Niche Stocks - In an in-depth (2,500 words) Analyst Interview, Anthony Lebiedzinski, an Equity Analyst at Sidoti & Company, examines the outlook for the sector and shares specific stock recommendations.

2) Home Improvement & Home Furnishings - In an in-depth (4,200 words) Analyst Interview, Ozarslan Tangun, a Senior VP at SWS Securities, examines the outlook for the sector and shares specific stock recommendations.

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