Deborah Weinswig Citi Investment Research 212-816-1860 deborah.weinswig@citi

1. See Appendix A-1 for Analyst Certification and Important Disclosures Retail Panel Discussion CFA Society of Minnesota Deborah Weinswig Citi Investment Research 212-816-1860 deborah.weinswig@citi.com Citi Investment Research is a division of Citigroup Global Markets Inc. (the "Firm"), which does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Non-US research analysts who have prepared this report are not registered/qualified as research analysts with the NYSE and/or NASD. Such research analysts may not be associated persons of the member organization and therefore may not be subject to the NYSE Rule 472 and NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Customers of the Firm in the United States can receive independent third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at http://www.smithbarney.com (for retail clients) or http://www.citigroupgeo.com (for institutional clients) or can call (866) 836-9542 to request a copy of this research. Published: 6/23/2009

2. Overview Macro Outlook - Page 3 Sector Outlook - Page 5 Holiday 2009 Outlook - Page 12 A Historical Perspective - Page 13 Long / Short Ideas - Page 14

3. I. Macro Outlook: Consumers Hunker Down During Recession The deteriorated economic landscape from 2008, continues into 2009… Unemployment • Unemployment reached 9.8% in September, the highest monthly rate in 26 years. • Consumers have increased their level of savings due to uncertainty of their job and income. • With less jobs, delinquencies on personal loans have risen substantially, especially in 2009. 4.9% in 12/07 9.8% in 9/09 6.2% Monthly Avg. Personal Loan Delinquency Rate Savings Rate 1.4% in 12/07 3.0% in 8/09 7.0% Monthly Avg. 2.2% in 12/07 3.5% in 3/09 3.0% Monthly Avg. Source: Bureau of Labor Statistics, Haver, Citi Investment Research

4. …but has recently shown early signs of stabilization. I. Macro Outlook: Consumers Hunker Down During Recession Housing Turnover • Housing turnover rose for the second consecutive month in August, which may indicate an inflection point has occurred. • In August, food deflation increased sequentially and for the second time since October of 2002. Food deflation could continue into 2010. • Expectations for consumer demand look promising for the back half of 2009 and through 2010. Consumer Demand (YOY Change) Food Disinflation / Deflation Source: Citi Investment Research, National Association of Realtors, United States Dept. of Agriculture

5. II. Sector Outlook: Tailwinds 2008 Private Label and Exclusives as a % of Sales Tailwind #1 – Private Label Penetration • Private label products are gaining acceptance, given their low prices, improving product quality that is often comparable to national brands, and by better marketing efforts. • Retailers are increasing their focus on private label as a way to differentiate their offering from the competition as well as expand margins. 2008 / 2009 Sales Weighted SSS Tailwind #2 – Easy Compares • In 2H09, the Broadlines retailers are cycling relatively easy SSS comparisons. In 2010, SSS comparisons will be even more favorable, given retailers’ paltry performance in 2009 thus far. • If consumer spending stabilizes or improves this year, retailers should benefit from a weak sales performance in 2H08. Source: Citi Investment Research, Company Reports

6. II. Sector Outlook: Tailwinds Tailwind #3 – Retail Industry Consolidation • Several major retailers filed for bankruptcy in 2008, including Goody’s, Mervyns, Boscov’s, and Linens-N-Things, and many also announced plans to close a sizable portion of their stores. Notably, Linens-N-Things will close almost 35% of their stores. • Most notably in 2009, Gottschalks, Fortunoff, Filene’s Basement, and Eddie Bauer have all filed for bankruptcy. • We expect continued retail consolidation this year to benefit the remaining players, both from a market share and real estate perspective. • The demise of value-oriented retailers such as Goody’s, Mervyns, and Boscov’s has left market share up for grabs and we believe J.C. Penney and Kohl’s will end up benefiting the most. • The increasing glut of vacant retail real estate resulting from retail bankruptcies, store base rationalization, and over building also provides opportunities for surviving retailers to secure deals with attractive terms. Source: Website

7. II. Sector Outlook: Tailwinds Tailwind #4 – Comeback in Fashion There are signs of the beginning of a comeback in fashion. As shown below, there are a few new hot items, as women’s apparel has begun to strengthen. Consumers will not be able to shop their closets for these items which should drive traffic to the malls. Leggings Often worn with solid color skirt and belt Graphic Tees Art deco landscapes to famous faces Lace Details Can be found on intimate or formal items Skinny Jeans Snug fit through the legs with small leg opening Boots Knee-highs or ankle boots Colors for Fall 2009: Purple/berries, Blue (cobalt to navy to light blue), and neutrals (black, grey, white). Source: Doneger Group, Fashion Trendsetter, Company Websites, and Citi Investment Research and Analysis.

8. II. Sector Outlook: Tailwinds Tailwind #5 – Resurgence of D-I-Y Scratch Cooking: As a way to save money, more and more consumers are cooking at home vs. going out to a restaurant. Cooking Classes: Some grocers have started to offer cooking classes in their stores to teach consumers how to save money and eat healthy by cooking meals at home. How To Clinics: Home Depot offers in-store clinics for customers and has awarded over 187,000 product knowledge certifications to its associates.

9. II. Sector Outlook: Tailwinds Tailwind #6 – Retailers Adapt to Current Environment Convenience: CVS offers Minute Clinics inside stores Retailtainment: Target stores feature a One Spot area near the entrance where customers can find bargains for only $1 Shopping Experience: Stores have removed clutter, improved signage, and provide better help due to less turnover with store associates.

10. II. Sector Outlook: Headwinds Headwind #1 – Consumers Intensely Focused on Price • Consumers have become trained to shop promotions, and it will take time for retailers to get the consumer to buy at full-price again. We believe that this will be particularly challenging for high-end retailers like JWN and SKS. • Price, especially on consumables, has become an increasingly important driver for the consumers. They are looking for value and shop where the lowest prices are. We believe this is why traffic has been increasing at the clubs, discount stores, and discount department stores. Source: Citi Investment Research and Analysis, Company Reports.

11. II. Sector Outlook: Headwinds Headwind #2 – Not Enough Inventory • In 2008, as consumers reigned in their spending, inventories built up and retailers were forced to heavily discount many items to make room for Spring items and new merchandise. • As a result, retailers have drastically reduced their inventories and plan on chasing inventory, at least in part. If sales are more robust than expected, this could result in lost sales. Inventory / Sales Ratio • With slowing sales in December of 2008, retailers’ inventory to sales ratio reached 1.39, the highest level since mid-2003. • Retailers have since adjusted their purchasing strategies and are now operating at 1.32 times inventory to sales. Source: Citi Investment Research and Analysis, Company Reports.

12. III. Holiday 2009 Outlook • We believe retailers plan to promote Holiday merchandise earlier this year vs. last year, in order to benefit from the increasing amount of early holiday shoppers, and given the possibility of another poor Holiday sales performance this year. • During Holiday 2008, ~40% of consumers starting their shopping before November, which was up from ~34% in 2007 (according to the NRF). From recent store checks in the NY/Metro area, we have seen retailers set for the Holidays earlier than in years past. Number of Black Friday Weekend Shoppers (Thursday – Sunday) • We expect 2009 Holiday sales for retailers under our coverage to be 0 to +1%. • 2008 Holiday Sales were $441.97 billion, a (-3.4)% decline from 2007 (according to the NRF) • Our proprietary survey of ~1,050 consumers, showed that 51% plan to spend less this year than last year on total Holiday purchases, and 41% plan on spending the same. • Price was the number one reason cited when choosing where to shop this year. In addition, 85% of respondents plan on visiting a discount store (such as Wal-Mart, Target, or K-Mart) to do their Holiday shopping this year. Source: Citi Investment Research and Analysis, National Retail Federation

13. IV. A Historic Perspective History has shown that the S&P bottoms four months before GDP… Source: Citi Investment Research and Analysis

14. V. Long / Short Ideas • Long Ideas • CVS (1M) • Flawless retail business execution • Additional upside to the LDG business in 2009 • Retail/PBM model to continue to gain traction and drive strong results and market share gains into 2010 • Home Depot (1M) • Favorable long-term outlook of the home improvement industry despite near-term weakness • Comparable store sales growth are beginning to show signs of life • Improved sales and margin initiatives over the next several years will drive earnings performance • J.C. Penney (1H) • Well-positioned to gain market share due to retail bankruptcies • Strategic initiatives to drive EBIT margin improvement • Gross margin to benefit from private label and exclusive brand growth, improved inventory flow, and product cost deflation. • Short Ideas • SWY (3H) • Currently facing food deflation, that may continue through 2010, which could mute most of the gross margin improvements expected from SWY's private label and Lifestyle store initiatives. • Fierce competition from the discounters and clubs, which could lead to further pricing pressure. • Revenue from the Blackhawk business may be weak as a result of consumers cutting back on discretionary purchases. Source: Citi Investment Research and Analysis