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Weekly Ratings Alerts and Change Lists are updated on a weekly basis and are only available online. Current subscribers can view the change list for the week of February 21, 2008 by logging onto www.sandscredit.com.
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Retail Performance Monitor has become an essential tool for retail analysts and business, financial and marketing executives who need to stay ahead of developments in the retail industry. Regular features include financial performance, comp store sales, bankruptcies, mergers and acquisitions, industry change agents, trends, economic indicators and executive updates. RPM is published 26 times per year, and is paired with our General Merchandise Comp Store Sales Report, published 12 times per year according to the National Retail Federation calendar.

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Sharper Image Files Chapter 11, Seeks DIP Financing
Dragged down by declining sales, three straight years of losses and litigation involving its Ionic Breeze air purifiers, Sharper Image Corp. filed Chapter 11 on February 19 in the U.S. Bankruptcy Court for the District of Delaware. The case number is 08-10322. One of its first moves will be to shutter 90 of its 184 stores. It wants to reorganize around its remaining stores. In its filing, the gift and gadget retailer said it had $251.5 million in assets and $199 million in liabilities as of January 31. Cash on hand totaled about $700,000. "Sharper Image is in a severe liquidity crisis," CFO Rebecca Roedell said, adding that the company has suffered from increased competition, narrowing margins, litigation, lower consumer and market confidence, tighter credit from suppliers, and poorly performing stores. Sharper Image has seen its sales decline steadily since 2004, and has posted net losses in fiscal 2005, 2006, and 2007. It has lost $136 million since January 2005 while its annual sales have plummeted from $776 million to under $400 million. The retailer also cited "negative publicity" from the litigation involving its Ionic Breeze air purifiers for its declining sales. Sharper Image is seeking a $60 million loan arranged by Wells Fargo Retail Finance LLC to continue operating, according to court papers.

Lillian Vernon Files Ch. 11 as Consumer Sector Continues to Weaken
Following a steady decline in sales and increased costs, Lillian Vernon Corp. filed Chapter 11 in the U.S. Bankruptcy Court for the District of Delaware. The case number is 08-10323. The filing came shortly after the company dismissed half its year-round work force. The company said it had difficulty obtaining additional financing after a weaker-than-expected holiday season. Lillian Vernon sells low-cost gifts and gadgets through its catalog and website. The company is evaluating whether it is in the best interest of its shareholders to sell itself or liquidate.

Wal-Mart Posts Solid 4Q in Tough Environment
Wal-Mart Stores, Inc. said its fourth quarter profit grew 4% as low prices generated sales gains and as international sales continued to advance. The giant retailer said net income for the quarter ended January 31 grew to $4.10 billion, or $1.02 per share, compared to $3.94 billion, or $0.95 a share, a year earlier. Sales increased 8.3% to $106.27 billion, fueled by an 18.8% jump in international sales. Sales at U.S. Wal-Mart stores rose 5%. Overall revenue including membership fees rose to $107.43 billion from $99.078 billion a year earlier. International sales accounted for about 25% of total company sales in the quarter, up from 23% the prior year. Company CEO Lee Scott said the decision last year to refocus on low prices and basic items after a brief foray into fashion and trendier merchandise paid off in the fourth quarter, when economic uncertainty caused consumers to pull back on spending and seek discounted items. He said Wal-Mart's decision last fall to discount groceries, toys and home electronics, including name-brand flat-screen televisions and computers, paid off when the economy slowed. Health and wellness items also sold well, he said. For the 2009 fiscal year, Wal-Mart forecast earnings of $3.30 to $3.43 a share, compared to an average analyst estimate of $3.30 to $3.55, according to Thomson Financial. The company said the economic environment and inflationary pressures will present challenges this year and that fuel costs could be a potential headwind if they continue to rise beyond projections.

Wilsons Leather Closing 160 Stores
Wilsons The Leather Experts Inc., which has been struggling to boost flagging sales, said it will close up to 160 stores and cut 1,002 jobs (938 store-related positions and 64 corporate positions) as part of a cost-cutting move. The remaining 100 stores in its mall division will be remodeled into a new "Studio" concept that offers fashion accessories for women. All Wilsons stores are expected to be remodeled by August. "We expect the cost reduction initiative will enable us to reduce our working capital needs and strengthen our business, as well as provide capital for our remodel efforts to convert all remaining mall stores into our new 'Studio' concept," said Wilsons' CEO Mike Searles. Back in August, the company hired three financial advisers to assist it in devising a plan to expand into the women's accessories-only category. Wilsons Leather Outlet Division, comprised of 118 stores, will not be affected by the new mall store plans.

J.C. Penney's Profit Falls Due to Shorter Quarter, Cautious Consumer
J.C. Penney says its fourth quarter profit fell 9.9% due in part to a shorter quarter and a more frugal consumer. Net income slipped to $430 million, or $1.93 a share, from $477 million, or $2.09 a share, a year ago. The latest period included 13 weeks, versus 14 weeks a year ago. Sales declined 4.1% to $6.39 billion, while same store sales fell 2.3%. To offset falling sales, the company said it kept a close watch on expenses, with selling, general and administrative expenses decreasing 11.3%. The department store chain also gave a 2008 earnings forecast that was below Wall Street expectations, amid a weak consumer spending environment. For fiscal 2008, it projected earnings of $3.75 to $4 a share, below analysts' expectations of $4.02 a share. Penney said that with "no clear indication that the consumer environment will improve during 2008," it has taken a conservative approach to planning its business.

TJX Boosts Profit Nearly 47%
Disciplined inventory and cost controls helped TJX Cos. boost fourth quarter profit by 46.6%, although its first quarter profit forecast fell short of Wall Street estimates. The operator of TJ Maxx and Marshall's stores also reduced a legal reserve because of lower-than-expected costs so far from a massive data breach disclosed a year ago. Net income for the three months ended January 26 rose to $301.1 million, or $0.66 a share, compared with $205.5 million, or $0.43 a share, a year earlier. Not counting a gain of $11 million from reducing its breach-related legal reserve, TJX's profit was $0.64 a share. Sales rose 8% to $5.49 billion. Excluding one-time gains and expenses, TJX said it expects to post a profit of $0.40-$0.41 a share in this year's first quarter, up 18%-21% from a year ago. Analysts are calling for a profit of $0.42 a share.

Whole Foods' Profit Shrinks
Whole Foods Market Inc. said its fiscal first quarter profit narrowed, due in part to charges related to its $565 million acquisition of rival Wild Oats last August. The natural and organic food seller posted net income of $39.1 million, or $0.28 a share, for the quarter ended January 20, compared with net income of $53.8 million, or $0.38 a share, the prior year. Results for the latest quarter were $0.36 a share excluding the impact from the company's acquisition of Wild Oats. Sales rose 31.4% to $2.48 billion, while same store sales advanced 9.3%.

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Year-Ago Gain Causes Safeway's 4Q to Drop
Safeway, Inc. said its fourth quarter profit slipped 2% due to a tax gain that inflated earnings a year ago. The supermarket giant said net income fell to $301.1 million, or $0.68 a share, from $307.9 million, or $0.69 a share, the prior year. It cited a $0.08 a share gain that led to higher fourth quarter earnings in 2006. Sales rose 7% to $13.36 billion. Same store sales grew 4.4%, or 2.7% excluding fuel.

Robertson Steps Down From Old Navy
With turnaround efforts faltering at its 1,062-store Old Navy division, Gap, Inc. announced the departure of Old Navy president dawn Robertson. Tom Wyatt, who leads Gap's outlet stores, will step in as Old Navy's acting president while Gap searches for permanent replacement. Robertson joined Gap in October 2006 as part of a move by Gap to revive Old Navy's sagging sales. But Old Navy has continued so struggle, with same store sales declining 5% in its third quarter.

Corporate Express Rebuffs Staples' $3.68 Billion Offer
Dutch office product wholesaler, Corporate Express, Inc. swiftly rejected a hostile 7.25 euros a share, or $3.68 billion, takeover bid from rival Staples, Inc. It said the offer undervalued the company. Corporate Express has been under pressure from hedge funds to put itself up for sale after posting losses in the U.S., its biggest market. But, it recently indicated that it wished to remain independent. In a letter to Corporate Express, Staples wrote: "Over the last several months, we have made repeated attempts to engage in discussions with you concerning a business combination, and we have been disappointed that you have not been willing to do so. We believe that a business combination with Staples at this time would result in superior benefits for Corporate Express' stakeholders." With an acquisition, Staples would be able to expand its profitable office supplies delivery segment that serves business customers and it would significantly increase its scale in North America. But, Corporate Express responded, "Corporate Express is of the opinion that this proposal significantly undervalues the company and fails to reflect Corporate Express' prospects...We therefore reject this proposal and reiterate our commitment to pursuing our declared strategy."

Fiscal Discipline Boosts OfficeMax' Profit
OfficeMax Inc. said its fourth quarter profit jumped 23.1% as lower costs and expenses offset a decline in sales. Net income for the office supply chain rose to $71.5 million, or $0.92 a share, up from $58 million, or $0.76 a share, the year before. Excluding income related to the sale of some assets in 2004, net income was $51.1 million, or $0.65 a share. It said fourth quarter sales fell 2.6% to $2.2 billion. Sales in OfficeMax's contract business fell 0.8% during the quarter, while its retail segment experienced a 4.5% drop. Same store retail sales fell 7.3%. The company also said gross margin at its retail segment rose 30% during the quarter. OfficeMax said it experienced sales pressure in January and February and said it will cut costs throughout 2008 to offset weak sales.

Zale Feeling Effects of Consumer Spending Slowdown
Zale Corp. said its fiscal second quarter profit narrowed due to a significant drop in sales as cash-strapped shoppers shied away from jewelry purchases during the holidays. Zale has suffered as shoppers battle higher costs for food and fuel and cut back on nonessential purchases. Net income fell to $60.8 million, or $1.34 a share, in the fiscal second quarter ended January 31, from $88.1 million, or $1.80 a share, a year earlier. The company reported a profit of $52.7 million from continuing operations, higher than what analysts were expecting, but down from $77.1 million last year. Sales fell 7.2%% to $828 million, while same store sales declined 7.3%. Going forward, Zale said it plans to reduce $100 million in excess inventory, which it does not plan to restock.

Hollister Chain Boosts Abercrombie's 4Q Results
Abercrombie & Fitch Co. said its fourth quarter profit grew 9% due to increased sales from its Hollister Co. chain that caters to teens and its abercrombie stores for children. The apparel chain said it earned $216.8 million, or $2.40 per share, for the quarter ended February 2, compared to $198.2 million, or $2.14, the prior year. Sales rose 8% to $1.23 billion, although same store sales fell 1%. At the end of the quarter, Abercrombie had 447 Hollister Co. stores, compared with 390 the year before, and 201 abercrombie stores, compared with 177 the prior year. The company added that a lower theft rate and wider profit margins early in the quarter offset deeper discounts later on. In fiscal 2008, Abercrombie expects to add 110 new stores in North America and four in Britain.

Best Buy Reduces Forecast
Citing weak results in January and a challenging retail environment, Best Buy Co. says it will earn less than expected in fiscal 2008 (ending March 1). The consumer-electronics retailer now expects earnings to be $3.05 to $3.10 a share, down from a previous projection of $3.10 to $3.20 a share. It said it expects fourth quarter revenue will fall short of expectations, hurt partly by weak January traffic. For the year, it expects same store sales to increase 2.5% to 3%, down from an earlier forecast of 4%. "The macroeconomic environment grew more challenging after the holidays," said Jim Muehlbauer, Best Buy's interim CFO. "Our post-holiday results are not going to be what we originally expected."

Report: Wal-Mart Plotting Course in India
Wal-Mart Stores Inc. said it plans to open 10 to 15 large cash-and-carry stores in India in the next seven years, hoping to enter that country's booming retail market without inflaming the tiny mom-and-pop retailers and small middlemen that dominate the industry, according to a Wall Street Journal report. The stores would be 50,000 to 100,000 square feet and sell everything from fruit to footwear to retailers, hotels, hospital and other businesses, the newspaper reported.

Fed Lowers 2008 Economic Projections
Under a new economic forecast, the Federal Reserve said it now believes the nation's gross domestic product will grow between 1.3% and 2% this year. That's lower than a prior estimate by the central bank of 1.8% to 2.5% growth. In addition, the Fed said the national jobless rate will increase to 5.2%-5.3% in 2008, up from its previous forecast of 4.9%. Last year, the unemployment rate averaged 4.6%. The Fed also raised its projection for inflation. It now expects inflation to grow 2.1% to 2.4% this year, up from an old forecast of 1.8% to 2.1%. The Fed said its revised forecasts reflect a series of factors including "a further intensification of the housing market correction, tighter credit conditions...ongoing turmoil in financial markets and higher oil prices."

Housing Starts up in January, But Building Permits Down
Housing starts grew 0.8% in January to a seasonally adjusted annual rate of 1.012 million units, the Commerce Department reported. It was the first increase since October and followed a 14.8% plunge in December. However, applications for building permits, considered a barometer of future construction activity, fell 3% to an annual rate of 1.048 million units, the lowest level since November 1991. That was construed by analysts as evidence that the troubled housing sector has yet to hit bottom.

Rising Inflation May Give Fed Caution
Consumer prices moved up 0.4% in January, the Labor Department reported, due to big increases in the costs of food and health care. It was a bigger jump than what analysts expected. Excluding food and energy prices, core inflation grew 0.3%, the biggest gain in seven months. The latest inflation readings may complicate the Federal Reserve's next move. The Fed has been aggressively cutting interest rates the past few months to ward off a recession. But, if inflation continues to grow, the central bank may have to hold back on any more rate cuts, as an economic slowdown would keep inflation from increasing.

Industrial Production up Slightly in January
Industrial output increased slightly in January as strength at utilities offset weakness in manufacturing and mining. The Federal Reserve reported that production rose 0.1% in January, matching the December increase. Manufacturing output was flat, the weakest showing in three months, as factories are feeling the effects of an economic slowdown. Output declined at auto plants, which have been struggling with weak demand, and was also down at factories making wood products and furniture, sectors which have been hit hard by the prolonged housing slump. However, output was up at factories producing computers, electronic products and aerospace equipment. Output at the nation's utilities was up 2.2% in January.

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