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|  | NOVEMBER 30, 2004
 INDUSTRY IN FOCUS Retailers Revel in Those Jingling Bells Wal-Mart's post-Thanksgiving sales didn't quite live up to expectations. At other chains, however, the news was solidly upbeat With the football games over and the big dinner out of the way, Americans turned to the other traditional pursuit of the long Thanksgiving weekend: storming the outlet malls and big-box stores in search of holiday bargains. And the 2004 holiday shopping season, which kicked off on "Black Friday," Nov. 26, appeared to get off to a good start. On Nov. 29, the National Retail Federation reported a 10% year-over-year gain in sales for the weekend, to $22.8 billion. Those favorable early signs have led Standard & Poor's Equity Research Services to reiterate its positive outlook on holiday retail sales. In spite of the relatively cheery outlook, however, retailing stocks lost ground on Nov. 29. The primary reason, in our view: word from No. 1 retailer Wal-Mart (WMT ; S&P investment rank, 4 STARS, buy; recent price, $53.41) that it sees November comparable-store sales up 0.7%, below its previous guidance of a 2% to 4% increase and our estimate of 3% growth. We believe the discount chain's results reflect weaker Thanksgiving week sales due to a decline in customer traffic, as the company previously stated it's planning for a more balanced holiday shopping season, with sales expected to accelerate closer to Christmas. The news sent the share price lower by more than 3% on Nov. 29. GREAT RECEPTION. Despite the weaker-than-expected November sales, we're still positive on Wal-Mart. We are keeping our earnings-per-share estimate of 75 cents for Wal-Mart's January quarter, which includes the holiday season. The reason? We see improved inventory control, fewer markdowns, and lower losses from inventory shrinkage -- all outweighing any sales weakness. We have a target price of $62 on the shares, based on our discounted cash-flow and price-earnings analyses. Apart from the sector's 800-pound gorilla, how did the other key retail groups fare in the post-Thanksgiving frenzy? It appears that many other discounters and moderate-price chains had to rely on promotions to drive sales. But we think sales of consumer electronics were particularly strong, to the benefit of Best Buy (BBY ; 5 STARS, strong buy; $57.70) and Circuit City (CC ; 4 STARS; $16.24). We think these companies and their peers will benefit from stronger consumer demand for advanced TVs, as price points in this product category are expected to decline. We also think high-end retailers fared well. One company we particularly like in this group is leather-goods merchant Coach (COH ; 4 STARS; $48.70) as it further penetrates the estimated $3.8 billion U.S. market for luxury handbags and small leather goods, with its emphasis on frequent new product offerings. Other top picks in the high-end group include Jones New York (JNY ; 4 STARS; $35.82) and Liz Claiborne (LIZ ; 4 STARS; $41.20). Required Disclosures 5-STARS (Strong Buy): Total return is expected to outperform the total return of the S&P 500 Index by a wide margin, with shares rising in price on an absolute basis. 4-STARS (Buy): Total return is expected to outperform the total return of the S&P 500 Index, with shares rising in price on an absolute basis. 3-STARS (Hold): Total return is expected to closely approximate the total return of the S&P 500 Index, with shares generally rising in price on an absolute basis. 2-STARS (Sell): Total return is expected to underperform the total return of the S&P 500 Index and share price is not anticipated to show a gain. 1-STARS (Strong Sell): Total return is expected to underperform the total return of the S&P 500 Index by a wide margin, with shares falling in price on an absolute basis. As of September 30, 2004, SPIAS and their U.S. research analysts have recommended 29.2% of issuers with buy recommendations, 58.5% with hold recommendations and 12.3% with sell recommendations. All of the views expressed in this research report accurately reflect the research analysts' personal views regarding any and all of the subject securities or issuers. No part of the analysts' compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. Additional information is available upon request to Standard & Poor's, 55 Water Street, New York, NY 10041. Other Disclosures This research report was prepared by Standard & Poor's Investment Advisory Services LLC ("SPIAS"), and may have been provided to you either by: (i) Standard & Poor's under a license agreement with The McGraw-Hill Companies, Inc., which holds the copyright to this report; or (ii) a Standard & Poor's client who is granted a sub-license by Standard & Poor's. This equity research report and recommendations are performed separately from any other analytic activity of Standard & Poor's. Standard & Poor's equity research analysts have no access to non-public information received by other units of Standard & Poor's. Standard & Poor's does not trade in its own account. SPIAS is affiliated with various entities, which may perform services for companies covered by the recommendations in this report. Each such affiliate is operationally independent from SPIAS. Disclaimers This material is based upon information that we consider to be reliable, but neither SPIAS nor its affiliates warrant its completeness or accuracy, and it should not be relied upon as such. Assumptions, opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale so any security or other financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice.  Standard & Poor's Equity Research Services analysts Amy Glynn, CFA, Michael Souers, Joseph Agnese, and Jason Asaeda contributed to this report All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of analyst compensation was, is or will be, directly or indirectly related to the specific recommendations or views expressed in this research report. Standard & Poor's Regulatory Disclosure Any advice, analysis, or recommendations contained in articles labeled "Insight from Standard & Poor's" reflect the views of Standard & Poor's, which operates separately from and independently of BusinessWeek Online. 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