>Arnie Cohen, the former COO of J.Crew, and one of our experts in the consumer vertical, has shared his observations on a number of retailers. Arnie continues to like Steve Madden. He believes the company is very much in tune with its customer. ANF is still a disaster, their stores and clothes remain irrelevant, loud and “smelly”. Coach is problematic, and while their business overseas is gaining, the US operations are troubled. Arnie notes that if the brand is not “cool” in the US, it will stop being cool overseas. While Bath and Body appears to be OK, Arnie is less enthused bout Victoria’s Secret, saying they’re having supply issues and have lost their edge on Pink. Williams Sonoma is making positive comments, but Arnie is not buying their optimism. He continues to like URBN and J. Crew, with the latter having the best stores in the mall, in his opinion. Customers like J.Crew and the company’s successful marketing strategy is making Crew a hip place to be. Arnie is watching Bebe closely for signs of a turnaround and wants to give it till spring/summer. Chico’s is improving, but has ways to go yet. Coldwater Creek, in his view, is done and not coming back. He mentions that Macy’s, Nordstrom. J. Crew and maybe Saks are gaining from a void in the women’s segment.

>Tatum/Roulston Report

February 18, 2010

>As we mentioned last month the spike in business conditions in January was sudden and significant. Although the velocity this month slowed, if we look at the trend caused by last month, it shows stability more that specific improvement. The markets and The Tatum Survey seem to be telling us the same thing. We are in a holding pattern. Yes January changed the trend pattern but many of the other components of the Survey including backlogs, capital expenditures, employment and capital availability all show a flat trend that seems to represent a “wait and see” type holding pattern. This is contrary to January and the uptrend that we have seen in the index over the last six months. We would argue trends seem to reflect that inventories got to low and have now been rebuilt with some limited spending. But without capital availability and more importantly visibility in confidence in the outlook a January blip is the exception. The general trend in many of these factors is flat with some (good old American) optimism but a lack of catalyst or stimulus (outside of a faint government effort) is leaving businesses wanting for optimism and consistency.

Looking forward we think the economy is going to have a tough time fighting the political backstabbing that although is causing a lack of government action( a good thing) is more and more looking like the politicos will regulate as a substitute for legislate and continue to confuse, anger and penalize businesses thru rhetoric and partisan bickering.

>Our New York presenter still likes Electronic Arts (NASDAQ: ERTS, $16.60). The stock has fallen approximately 20% since early October when it was recommended. The presenter believes management sandbagged EPS guidance on the last earnings call and the company is highly likely to beat the forecast it provided. He is calling for a change at the top. The negative sentiment on the name and a possibility of a takeover are important catalysts going forward.

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Roulston Research’s Consumer chair, Craig Johnson likes the purchase of General Growth Properties by its biggest rival, Simon Property Group.

“This is a long-anticipated, long-discussed move, and is a natural,” said Craig Johnson, retail industry expert and president of consulting firm Customer Growth Partners.

Johnson said the move could bode well for malls overall, since “Simon is a far better mall operator than General Growth, and it has the capital to operate and refresh [General Growth’s] malls when necessary.”

>We spoke with our San Francisco presenter about a 30%+ drop yesterday in shares of Schweitzer-Mauduit (NYSE: SWM, $49.09). He believes a “perfect storm” led to the steep sell-off. The main concern is the strength of this cigarette paper manufacturer’s patents. The company filed a patent infringement action two days ago against four small manufacturers trying to gain share of the global market for the low ignition propensity cigarette paper. SWM believes its IP position in this area built over 20+ years is very solid. The company also had to clarify its partnership with Philip Morris USA. The statement issued this morning stresses that the terms of the contract make Schweitzer the sole supplier of the low ignition paper technology to PM.

The presenter also believes some investors were dissapointed with the 2010 earnings guidance given by the company on the Q4 call. Even though the EPS forecast was raised to $4.60, the expectation was for a significantly higher number. The presenter didn’t decrease or add to his holding following the drop and wants to let the stock settle before he makes his next move.

>One of Roulston Research’s Consumer expert has a theme for her 2010 outlook:

“This is the year of the woman, I can’t think of any store that will do well if they ignore women.”
To make her point she gives as examples Lowe’s and Home Depot. Two big box home improvement stores that appear to cater to nearly 100% men. But she points out efforts Lowe’s has made to grow its appliance business, which is now much larger than Home Depot’s appliance business.
She believes Lowe’s will see benefits from this strategy that will be missed by Home Depot.

>As Obama reaches out to politicize the Health Care Debate it follows in line of the “hail Mary” approach Mark Lindsey of the Livingston Group discussed this week. This has the potential to backfire in a major way as showing the proceedings on TV allows for a simpler and smaller program to be a much more concise and consistent story. If the dems continue to try to push thru comprehensive reform and the Republicans stick to a few simple and popular reforms the events might be great TV.