solasting effects; delaying back to...

Equity Research

Multi-Sector

March 21, 2016

SOLAS weight regulations for seaborne

freight have the potential to cause

confusion and slow world trade during

implementation in July.

Delays and confusion in seaborne

freight would likely benefit both air

freight and container leasing

companies.

The new rules could result in a 7-21%

jump in container shipping cost.

The implementation could disrupt

inventory flows for back to school.

Helane Becker

646.562.1399

[email protected]

Oliver Chen, CFA

646.562.1424

[email protected]

John Kernan

646.562.1324

[email protected]

Jason Seidl

646.562.1404

[email protected]

SOLASting Effects; Delaying Back To School

This report is intended for m

atthew.frankel@

cowen.com

. Unauthorized redistribution of this report is prohibited.

mailto:[email protected]

This page left blank intentionally.

www.cowen.com2

Cowen and Company

Equity Research March 21, 2016


atthew.frankel@

cowen.com


Equity Research Multi-Sector

March 21, 2016

■ Multi-Sector SOLASting Effects; Delaying Back ToSchool-Ahead Of The Curve Series+Video

Cowen [email protected]

Helane [email protected]

Oliver Chen, [email protected]

John Kernan, [email protected]

Jason H. [email protected]

The Cowen Insight

New weight verification rules for seaborne freight will go into effect July 1. Thereappears to be confusion over implementation and enforcement. We believe this couldcause delays in seaborne freight throughout July while carriers adjust to the newrules. Delays in the system could affect shipping of products for back to school andbenefit other logistics providers.

Discussion on Effects of Verified Weight Regulations

New Seaborne Freight Weight Regulations Go Into Effect This Summer

New weight regulations for seaborne freight will go into effect July 1st. To comply withthe regulations, shippers must provide a verified gross mass (VGM) for all containersloaded on a ship. There has been confusion surrounding the implementation of thisrule with large logistics providers highlighting a potential delay in seaborne freightduring the month of July. July is an important month for retail companies as they stockup for back to school shopping. Any inventory flow disruptions may have an outsizedimpact on retail results as most companies are guiding to a stronger second half withback to school leading the way.

Confusion Could Bring Positive Results for Container Lessors and Air Freight

We believe the implementation of weight verification rules for container shippingcould result in confusion and longer shipping times. Due to this, we believe somecarriers may look to air freight if shipping times increase during the implementationprocess. During the west coast port slowdown in early 2015, Atlas Air benefited fromhigher charter rates and volumes as more product shifted to air freight. The containerlessors would also benefit from longer shipping times as shippers would increasecontainer demand because container turnaround time would slow.

www.cowen.com Please see pages 28 to 30 of this report for important disclosures.3


atthew.frankel@

cowen.com


http://videos.cowen.com/detail/videos/recent/video/4807540083001/?autoStart=true

SOLAS Tradewinds Swirling for Forwarders and Drayage Providers

The cost of trade is likely to rise with the introduction of SOLAS. Our industry checkssuggest the total landed cost to ship an FEU from LA to Shanghai could increaseby approximately 14%. Drayage carriers like XPO and JBHT may collect higher feesfor increased detention time and mileage. Global freight forwarders such as EXPD,CHRW, KNIN, PWTN and RLGT may benefit from the convention as their shippingcustomers will rely heavily upon their expertise to navigate the increasingly complexglobal trade environment (think late 2014/early 2015 US West Coast labor dispute).However, SOLAS does introduce questions for non-vessel operating common carriersabout who will be on the hook should they have to verify the gross mass of a shipmentthat ends up on a submerged vessel.

Branded Apparel & Footwear - John Kernan: Hoping To Avoid A Back-to-School Shipping Disruption That Could Add Further Inventory Overhang

General feedback to date on new SOLAS legislation indicates that our coverage listhas been prepping for this issue for some time and is not anticipating a dislocationin merchandise flow. Nevertheless, while our sector is currently grappling with aninventory overhang from an unseasonably warm Fall 2015 and the West Coast Portdisruption, the timing of this legislation coincides with important back-to-schoolshipping periods and could further exacerbate the inventory surplus situation. Anypotential dislocation in merchandise flow could add widespread sales and marginpressure at a time when our branded apparel & footwear coverage is expecting aresurgent 2H C'2016 operating performance following a challenging Fall 2015 andlow expectations for Spring 2016. Extended shipping times could result in greaterair freight usage for key back-to-school deliveries, a similar tactic, albeit with highercost implications, used by our companies during the West Coast port disruption, andpotential inventory markdown or cancelled orders risk from delayed shipments. Ourtop picks continue with BURL and ADS.GR.

Specialty Retail - Oliver Chen: What’s the Retail Stock Call from PotentialSOLAS Disruption? Off-Price Positioned to Benefit While Back-to-SchoolApparel Retailers Most Vulnerable

Potential disruption from the new SOLAS rule will require some retailers to executecontingency plans, including pulling forward receipts, and shifting from ocean freightto more expensive airfreight to ensure products arrive at stores on time. Given thenew export requirement takes effect July 1, 2016, we view specialty apparel retailersas most vulnerable, including: ANF, AEO, GPS, LULU and teen retailer Justice (ASNA).We also have concerns about possible vendor lags negatively impacting stock atdept. stores (M, JCP, KSS) and broadlines (TGT, WMT). In contrast, we favor off-price names (TJX, ROST) which stand to benefit from inventory dislocation due todelayed shipments. Compared to the 2015 West Coast port issues, we anticipate fewershipping headwinds from this potential disruption with transit delays likely to last fora a month, less than the two to three month delay from last year's West Coast portslowdown. In the past, port-related timing disruptions have negatively impacted LULU,ASNA, ANF, AEO, GPS, JCP, KSS, M, WMT (See Figure 3).

www.cowen.com4

Cowen and Company



atthew.frankel@

cowen.com


Conclusion

The July 1, 2016 implementation of a new SOLAS rule could slow the transportation of

seaborne freight and necessitate the move of some time-sensitive items to the air

freight market. At the very least, weight verification of containers is likely to increase

the level of congestion at ports and turnaround time for boxes, lowering throughput.

This will put further stress on global trade growth which is already being pressured by

reduced levels of economic activity. It is also likely to increase the cost of trade. Given

current spot market pricing, the cost to ship a container from the US West Coast to

Shanghai could rise by 7-21%. Shippers will undoubtedly try to pass these costs on

to consumers in the form of higher prices.

Air Freight to Benefit

The biggest beneficiary of a possible switch from sea to air freight in our coverage

universe would be Atlas Air Worldwide Holdings. Atlas Air specializes in Boeing 747F

aircraft, which are well-suited to long haul transoceanic flights. During the West

Coast port slowdown in late 2014 and early 2015, Atlas saw additional volume and

increased charters. In 1Q15, Atlas management estimates its earnings received a

$0.50 per share boost due to the West Coast port slowdown. We believe Atlas will

receive a smaller boost from these new SOLAS rules when compared to the West

Coast port slowdown due to the shorter time period, but it still could be material. This

rule will affect worldwide trade, and not just trade to and from the US West Coast.

Atlas Air has not included any benefit from increased activity surrounding

implementation of SOLAS into their current annual earnings guidance, so this could

bring upside.

SOLAS Convention

The SOLAS (Safety of Life at Sea) Convention governs safety regulations as dictated

by the International Maritime Organization (IMO). The first version was adopted in

1914 in response to the wreck of the Titanic and has been updated periodically since

that time. The current SOLAS Convention was established in 1974. Its purpose is to

specify minimum standards for construction, operation and safety regulations for

ships. The International Maritime Organization governs the SOLAS Convention and

has 171 member states and three associate members. The member states of the

International Maritime Organization account for >98% of world merchant shipping

tonnage.

Flag states are responsible for ensuring that ships under their flag comply with the

requirements. The reason SOLAS is an issue today is because in May 2014, the IMO

approved changes to the convention regarding the mandatory weight verification

requirement. On July 1, 2016, the new conditions for container weight verification will

become legally binding and apply globally. The implications are vast and apply to

container shipping companies, ports, freight forwarders, truckers, container lessors,

airlines, shippers and of course are beneficial to cargo owners.

New Weight Verification

Beginning July 1, containers around the world will need to have a verified gross

weight before being placed on a ship. The ultimate responsibility for that will be on the

shipper. Currently, cargo weights are estimated by the shipper as mandated by the

Occupational Health and Safety Administration (OSHA) and US Customs and Border

Protection (CBP). Globally, various rules are in place and enforced. However, on July

1st the SOLAS Convention will apply the same standard globally. Countries are

www.cowen.com 5

Cowen and Company



atthew.frankel@

cowen.com


scrambling to sort out how they are going to deal with physically weighing and

verifying the mass of each box as well as efficiently transmitting the data to the

multiple parties involved in the shipping process, most notably the ocean carrier. This

becomes especially complex given the carrier alliances (for instance, you may book

with MSC but your box could end up on a Maersk vessel) that exist today.

Recent Disasters – MSC Napoli and MOL Comfort

Improper reporting and monitoring of container and vessel weights have resulted in

large disasters in the past. In January 2007, the MSC Napoli was caught in inclement

weather and suffered structural damage. The vessel took on water and the crew had

to abandon ship. This disaster was caused by improper vessel weighting of containers.

Simply stated the load of the vessel was well above the maximum the ship was

structurally mandated to handle. The salvage, clean up and lost cargo costs amounted

to ~£120MM (~US$180MM). Also, in June 2013 the MOL Comfort snapped in half

due to the excessive weight of its cargo.

Potential Adoption Issues

Confusion and frustration has ensued over the last few months as shippers and

forwarders seek answers from the IMO, ports and governing bodies as to how these

rules will be enforced. So far there has not been a cohesive response from the

international community to the new regulations. These regulations may be adopted in

one port but not in another port. Currently, Denmark is the only country that has

issued guidelines on the implementation of weight verification rules. The United

Kingdom rules are likely to be forthcoming but ports in the rest of Europe are still

waiting on government guidelines. We believe there may be inconsistencies in the

implementation of the rule. Notably, the US Coast Guard has stated they are not in

charge of enforcing the rule in the U.S.

Our concern is that while there have been some reports of ports like Charleston, South

Carolina and Southampton, Felixstowe and London Gateway in the UK saying they will

be providing container weighing services, there are many key global ports that do not

have plans in place to meet the physical mandates of SOLAS. The Port of Felixstowe,

in a recent trial run, weighed every container that arrived and found the weight of a

“very large” percentage had not been declared correctly.

After speaking with multiple private transport companies, we believe it could cost an

extra $50-$150 per container, or 7-21% more than today’s landed cost to ship a box

from LA to Shanghai. That cost is likely to be passed on to the shipper and, if possible,

the end customer.

Shipping Lines

The shipping lines have pushed for this rule and will likely end up enforcing the

regulations. Due to confusion and the cost to enforce this rule, many enforcement

agencies around the world have stated they will not be able to police this regulation.

This will result in the weight verification likely being solely enforced by the shipping

lines and the export ports. MSC and Maersk have stated they will not load containers

on their ship if they do not have a verified weight.

These companies have pushed to use verification as a way to hold the shippers

responsible for any incorrectly reported weights. The liability will now be shifted to the

shipper and not the shipping line for disasters stemming from overweight ships. Being

turned away at the port and having to find a way to verify a weight would add

www.cowen.com6

Cowen and Company



atthew.frankel@

cowen.com


additional costs and increase the shipping time for containers. In addition, confusion

at the port over which container to load could delay shipping times as the rule is

implemented.

Impact on Air Freight and Container Lessors — Helane Becker

Delays at the Ports

The implementation of this act will likely delay seaborne freight as container terminals

adjust to the additional requirements. Shippers may have to work to deliver items to

ports early in order to ensure there is enough time to weigh each container.

Additionally, freight may have to be broken into smaller payloads leading to a demand

for additional containers. We believe this will lead to an increase in container demand

from shipping lines.

The container lessors would benefit from increased shipping times and confusion in

shipping. Any increased shipping times will increase the number of containers needed

since containers will be cycled slower through the system. Container lessors only need

two weeks lead time to deliver more containers to the manufacturers, so we believe

the benefit will be felt closer to actual implementation of the rule. The container

lessors currently suffer from low utilization rates and excess capacity at the

manufacturers. In addition to the low utilization rates, Textainer estimated that

another 770,000 TEU were sitting at the manufacturers waiting for an increase in

demand. We believe slower shipping related to the implementation of this new rule

would initially use this excess capacity. This should enable the container lessors to

increase utilization rates and any increase in demand at the start of the peak shipping

season would be likely to provide an immediate earnings benefit to the lessors. Low

demand for containers over the past two years has resulted in falling lease rates per

diem and write-downs as lessors have increased sales of used containers.

Figure 1 Utilization Rates Have Fallen Across the Container Leasing Sector

Source: Company Data

75.0%

80.0%

85.0%

90.0%

95.0%

100.0%

1Q

08

3Q

08

1Q

09

3Q

09

1Q

10

3Q

10

1Q

11

3Q

11

1Q

12

3Q

12

1Q

13

3Q

13

1Q

14

3Q

14

1Q

15

3Q

15

CAI

TAL

TGH

www.cowen.com 7

Cowen and Company



atthew.frankel@

cowen.com


An increase in demand would solve some problems but the lessors still need to see a

recovery in steel prices and a decrease in competition before their results improve

meaningfully. Low steel prices have pressured per diem rates and resale prices for

used containers. High competition has resulted from indiscriminately low borrowing

rates for all lessors making it relatively easy to enter the market. Since all competitors

are seeing lower borrowing costs, they have been able to decrease bids on the few

remaining container deals.

Potential Economic Impact

There could be a substantial economic impact to global GDP if containerized trade is

slowed by the implementation of this new rule. We view the West Coast port

slowdown as a proxy for what could happen if this new regulation slowed world trade.

The West Coast port slowdown mostly impacted the U.S. but lasted about three

months versus our expectation of a one month delay resulting from implementation of

weight rules. The New York Federal Reserve estimated the port slowdown negatively

impacted US GDP by 0.2% and decreased net exports by 1.5%. A slowdown in world

ports could have a similar impact to global GDP.

Move to Air Freight

Some shippers will probably move freight to the air to bypass the additional hassle of

seaborne freight, at least in the short term. Due to the port slowdown at the West

Coast ports in 1Q16, air freight companies saw a one-time revenue and earnings

benefit. Some apparel companies shipped items by air freight during the port

slowdown last year. During that time, Atlas Air was a major beneficiary as shippers

switched from shipping by ocean to shipping by air. Since we believe these

regulations will increase the cost and complexity of seaborne freight, and given the

relatively low cost of jet fuel, it may be easier for some shippers to switch to air freight.

Expeditors’ has told its customers that will need freight delivered in a timely manner

during July to potentially look for other modes of transportation.

Figure 2 Pick Up in North American Freight Activity during West Coast Port Slowdown

Source: IATA Air Freight

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Jan

-13

Mar-

13

May-

13

Jul-

13

Sep

-13

Nov-

13

Jan

-14

Mar-

14

May-

14

Jul-

14

Sep

-14

Nov-

14

Jan

-15

Mar-

15

May-

15

Jul-

15

Sep

-15

Nov-

15

North America

FTK Growth AFTK Growth

www.cowen.com8

Cowen and Company



atthew.frankel@

cowen.com


Other Beneficiaries of an Increase in Air Freight

In addition to Atlas Air Worldwide Holdings, other beneficiaries of an increase in the

demand for air freight include FedEx Corp. and UPS. Both FedEx and UPS have

substantial air freight networks that could handle an increase in the demand for air.

While UPS shares are rated Market Perform, FedEx shares are rated Outperform.

The major reasons we favor FedEx include:

An improvement in FedEx Express operating margins, which is more than half of total

company revenues. FedEx continues to replace older, inefficient aircraft with younger

more fuel efficient aircraft, lowering operating costs.

FedEx Ground continues to grow.

The pending acquisition of TNT will enable FedEx to further grow its ground business

in Europe.

The company has a strong balance sheet and continues to return capital to

shareholders through a share repurchase program and dividends.

SOLAS’ Implications on Freight Forwarders, Truckers and Shippers — Jason Seidl

The Safety of Life at Seas Convention (SOLAS) which is set to go into effect on July 1st

is likely to have an impact on multiple parties in the supply chain, from shippers to

forwarders, drayage companies, ocean carriers, and more. It could increase the cost to

ship a container by $50-$150 which is about 7-21% of total landed costs on the

westbound TransPac. The reason we think investors should be concerned is because

the implications are global and wide-spread as 171 countries and three associated

members of the International Maritime Organization (IMO) will be directly affected.

The shorter term impact on port throughput may be felt between June and August,

but after that we think the longer term effect is moderately higher shipping costs.

Freight forwarders such as Expeditors (EXPD), CH Robinson (CHRW), Kuehne + Nagel

(KNIN), Panalpina (PWTN) and Radiant Logistics (RLGT) are in the cross-hairs of the

SOLAS Convention and will be heavily relied upon to help their customers navigate

the new requirements. In fact, EXPD suggests importers “consider possible mode

change for critical orders needed to arrive in July.” We believe airfreight may be a

temporary beneficiary of the SOLAS implementation, similar to the effect the

ILWU/PMA labor dispute had in early 2015/late 2014, which could benefit carriers or

third parties with outsized air cargo exposure.

What makes this issue so complex is that each country, port and carrier may enforce

the rule differently. As non-vessel operating common carriers (NVOCCs), these large

global forwarders could also potentially find themselves with a financial (or at least

legal) burden should they issue a bill of lading and verify the weight of a container

that ends up on a submerged vessel. Most times, the NVO never sees the freight or

the box, let alone be in a position to verify its gross mass. The likely outcome will be

utilization of Method 1 as detailed in the SOLAS Convention whereby the trucker that

www.cowen.com 9

Cowen and Company



atthew.frankel@

cowen.com


has picked up the freight will need to locate a certified weigh station near the port to

ascertain the verified gross mass (VGM).

To date, it still remains unclear how many ports around the world will be dealing with

this issue. In the US for instance, the Port of Houston will not be weighing boxes, but

the Port of Charleston will be. Interestingly, a senior official at a top-10 US port told us

that often times there are containers filled with perishables that sit at his port for 4-6

days before being exported. We think this poses a complication as the weight of the

freight in those containers is likely to change materially as moisture evaporates.

However, that box will likely be weighed upon entry into the port or just before entry,

meaning that the VGM of the container will have changed, potentially materially,

before being loaded on to a ship. In the UK, there is confusion on this issue as well.

According to The Loadstar, the director of the British International Freight Association

(BIFA) has written to the CEO of the Maritime Coastguard Agency (MCA) expressing

concern. Apparently, a number of BIFA members have reported that applications

made before the end of last year to become an approved weigher have not even been

acknowledged by the MCA “and staff is not able to indicate when approval will be

granted, or if the MCA has the capability of physically processing the applications.” As

a result, there has been speculation that the UK will not implement the regulation,

according to Robert Keen, BIFA’s director general.

Drayage carriers may be impacted by SOLAS. JB Hunt (JBHT) which operates one of

the largest private drayage fleets in the country says SOLAS will have an effect on its

business, but it will not be a big one. XPO Logistics (XPO), which owns and operates a

drayage carrier called Bridge Terminal Transport says there is a potential need for

them to charge additional accessorial fees. The shipper’s transportation cost for a

container will likely rise as a result of SOLAS and drayage may be a reason for that.

Drayage drivers are typically paid a flat rate in addition to a per-mile wage if the haul

is over a certain number of miles. It’s likely that in order to ascertain a verified weight,

dwell time and detention fees may accrue. Ultimately, the shipper or end-user will

likely bear the burden. Based on conversations we’ve had with multiple companies,

including a global private freight forwarder as well as one of the largest US drayage

providers, the added cost to ship a US export box could be in the $50-$150 range. In

today’s depressed spot market, the cost to send an FEU from Los Angeles to Shanghai

is about $400 according to World Container Index. We estimate that after factoring in

an average drayage fee of $335, SOLAS could add 7-21% to total landed transport

costs.

Specialty Retail, Department Stores, and Broadline Retailers — Oliver Chen, CFA

We believe a potential freight disruption from the new SOLAS mandate starting on

July 1, 2016 could negatively impact timing of Back-to-School deliveries and may drive

incremental transportation costs as retailers execute contingency plans to ensure

product arrives at its store on time.

Our Cowen View is:

1. Most Cautious on Apparel Retailers: Strategically, we believe fashion-driven

specialty retailers (ASNA, ANF, AEO, GPS, LULU), as well as dept. stores (M, KSS,

JCP), and broadlines (TGT, WMT) appear most at risk.

2. Related Stock Calls – Buy TJX and ROST: Off-price retailers (TJX/ROST) stand to

benefit from inventory dislocation from delayed shipments.

www.cowen.com10

Cowen and Company



atthew.frankel@

cowen.com


3. Expect Less Shipping Headwinds from SOLAS Disruption vs. West Coast Port

Slowdown: We anticipate shipment delays from a SOLAS disruption will likely last

for at least a month, less than the 2-3 month disruption arising from congestion

issues at West Coast port last year.

What Is The Risk to Retailers From the New SOLAS Rule?

1. Expect Timing Delays in July – We anticipate the SOLAS mandate will likely

slowdown exports shipments starting July 1, 2016 and expect port issues to persist

for at least a month. From a freight perspective, we acknowledge that July is crucial

period for apparel retailers given the timing of back-to-school floor set deliveries,

particularly transporting goods via ocean freight.

2. Incremental Freight Costs to Retailers – We expect the implementation of the new

SOLAS rule will likely slow down the transportation of ocean freight and necessitate

retailers to execute contingency plans, pulling forward receipts and/using expensive

air freight during July. We estimate that, on average, shifting to air freight would

yield higher transportation cost at ~2-4x the cost of ocean freight. In addition, we

believe retailers needing to ship heavier and/or bulkier items (e.g. furniture, large

electronics) are likely to face the greatest incremental costs given air freight rates

are typically calculated by weight, while ocean freight is charged by container size.

In general, we estimate inbound freight typically representsbetween 1%-5% of

revenues for most specialty retailers.

How Does the Potential SOLAS Adoption Issue Compare to the 2015 West Coast Port

Disruption?

What’s Similar? Drawing parallels from the West Coast port slowdown seen last

year, we believe the new SOLAS rule will likely impact those retailers that ship

higher volumes and/or fashion-sensitive product that require timely deliveries. In

addition, we expect delays will present greater markdown risk for apparel

retailers, but may benefit the off-price channel.

What’s Different? Given the new SOLAS rule is an export requirement, we

anticipate potential adoption issues to generate backlog in loading ships at the

port of origin vs. port congestion at unloading docks in the U.S. We do expect the

SOLAS disruption to be shorter at a 4-6 weeks delay compared to 2-3 months for

the West Coast port issues, given we believe freight carriers are currently working

on solutions to comply with the new SOLAS rule and help minimize the duration

of port issues ahead of the winter holiday season.

Please see the figure below which details management commentary on the impact of

the West Coast ports disruption for several of our retailers.

www.cowen.com 11

Cowen and Company



atthew.frankel@

cowen.com


Figure 3 . Management Commentary on Impact of West Coast Ports Slowdown in 2015

Source: Cowen and Company, Company Transcripts

Winners & Losers: Translating SOLAS Disruption to OC’s Retail Stock Calls

Off-Price Positioned to Benefit from SOLAS Adoption Issue: Buy TJX & ROST

We believe off-price retailers (TJX/ROST) could have upside benefit on inventory

dislocation. Delays are likely to increase availability of compelling product supply,

given late product could yield excess inventory. Our favorite ideas are TJX and ROST.

Ticker Date Management Commentary

GPS 26-Feb-15

"And now I'd like to share our outlook for 2015. Regarding earnings per share, on a reported basis, we expect earnings per share to be in the

range of $2.75 to $2.80. Included in this guidance is an estimated unfavorable impact from foreign exchange at current spot rates of about $0.16, an

unfavorable impact of about 13 pennies, due to the West Coast port s ituation... "

JCP 13-May-15

"We had a very strong Easter, and despite the West Coast port issues, internal headwinds from last year's elevated clearance business, and

unseasonable weather, we grew the top line, drove profitability and delivered a strong financial performance for the quarter ... In terms of the (sales)

headwinds, I think we managed the West Coast port thing probably as well as anyone. We got ahead of it. It did have an impact, but

we were able to manage through it ."

URBN 18-May-15

"As to the port impact on URBN in general, it was de minimis . We fly an awful lot of our products in, so they come by air, and we

weren't that affec ted by the ports . Probably the greatest area of effect was at Anthropologie, in the Anthropologie home area. And that did impact

us, because most of that comes in by boat. By other than that, I would say the impact was minimal."

WMT 19-May-15

"Within general merchandise, we continue to feel pressure in media and electronics, resulting from industry contraction, the shift from physical to

digital media and lapping last year's release of the movie Frozen. Additionally, in stock positions in categories such as TVs suffered as a

result of the port congestion on the West Coast. That said, we now believe the majority of this disruption is behind us."

AEO 20-May-15"As we mentioned last quarter, the port s lowdown cost approximately $0 .02 in EPS in the first quarter, largely due to increased

fre ight."

ASNA 2-Jun-15

"We continued to use air freight to protect key launches and items featured in direct mail pieces, resulting in incremental expense of approximately $4

million. Combining lost sales and margin and incremental a ir fre ight expense, we estimate West Coast port conditions cost roughly

$0 .04 to $0 .05 in earnings per share for the quarter. "

LULU 9-Jun-15

"Gross profit for the first quarter was $205.9 million or 48.6% of net revenue, compared to $195.7 million or 50.9% of net revenue in Q1 2014. The

factors which contributed to this 230 basis point decline in gross margin were a 100 basis points of deleverage due to higher a irfre ight

costs incurred primarily to mitigate the West Coast port delays ."

KSS 13-Aug-15"In addition, as port operations have returned to normal on the West Coast we have seen early receipt of fall goods as our orders were written during

the period of disruption. The net effect of our receipt pull forward was approximately $120 million at cost."

M 19-Aug-15

"The gross margin rate in the quarter was 40.9%, down 50 basis points from last year. We told you at the end of the first quarter

that gross margin rate would be below last year, due to the impact of the delayed receipts from the port s lowdown earlier in the

year. However, with the weaker sales, we took additional markdowns needed to keep our inventory fresh, and as a result, the gross margin rate was

lower than we had expected. Remember, though, the margin rate was up versus last year in the first quarter, so for this spring season, or the first half

of the year as a whole, the gross margin rate was down 30 basis points."

LULU 10-Sep-15

"Gross profit for the second quarter was $212.0 million, or 46.8% of net revenue, compared to $197.3 million, or 50.5% of net revenue in Q2 2014. The

factors which contributed to this 370 basis point decline in gross margin were: a 110 basis points of product margin decline, of which half was

attributable to the cost variances primarily related to the port slowdown and the balance resulting from selling mix and raw material liabilities actions

taken in the quarter; 30 basis points attributable to higher markdowns, primarily due to the online warehouse sale we held this quarter; 50 basis

points deleverage due to higher a ir fre ight costs ... "

LULU 9-Dec-15

"Gross profit for the third quarter was $224.8 million, or 46.9% of net revenue, compared to $211.1 million, or 50.3% of net revenue in Q3 of 2014. The

factors which contributed to this 340-basis point decline in gross margin were 130 basis points of overall product margin dec line as the port-

re lated product costs and selling mix pressures observed in Q2 continued to be meaningful in Q3, but were offset by improved air

fre ight usage ; 70 basis points attributable to higher markdowns..."

www.cowen.com12

Cowen and Company



atthew.frankel@

cowen.com


TJX: TJX's buying organization is one-of-a-kind in both its depth and breadth.

Their global organization is made up of over 1,000 people across 11 countries and

4 continents, where they can source from 18,000+ vendors in 100+ countries. TJX

keeps high open-to-buy levels given lean inventories (+5%/store @ end of 4Q vs.

comps +6%), and their $23bn+ buying pencil provides ample flexibility to

capitalize on advantageous product opportunities. We rate TJX Outperform with a

price target of $87 based on 22x FY18E EPS.

ROST: ROST’s packaway program could likely benefit from potential port issues

ahead of the back-to-school season, given the nature of the product which is

focused on fashion basic items such as outerwear, boots, T-shirts, sneakers, and

denim. The turnover is high (ROST’s packaway turns about every 3-4 months or

3-4x/year) and the assortments have low fashion risk. We rate ROST Outperform

with a price target of $63 based on ~21x FY17E EPS.

Specialty Retailers Most at Risk: Cautious on ASNA, ANF, GPS & LULU Given

Concerns on Back-to-School Deliveries; URBN Likely an Exception

We believe transportation delays arising from potential SOLAS adoption issues puts

fashion-driven specialty (LULU, GPS, AEO, ANF, ASNA) as most vulnerable given the

timing of back-to-school floor set deliveries.

Teen & Apparel Retailers: Within our coverage universe, we’re especially most

concerned about higher airfreight costs and/or delays driving greater markdown

risks and negatively impact margins at apparel and teen retailers, including: ANF,

AEO, GPS, and LULU as well as tween brand Justice (ASNA). As an exception, we

note URBN previously commented that, in general, the company moves a

substantial amount its product via air freight, and hence, did not encounter any

significant impact from the West Coast port slowdown seen last year (See Figure

1).

Handbag Peers: Compared to apparel retailers, we do believe handbag players

(COH, KORS, KATE) could also face some headwinds from higher airfreight costs,

but likely to a smaller extent given the nature of its higher-value product (vs.

apparel), which should yield smaller negative gross margin impact.

Vendor Lags Could Also Negatively Impact Dept. Stores & Broadlines: Cautious on M,

KSS, & JCP

We believe potential export issues in July could present headwinds for department

stores (M, KSS, JCP), and broadlines (TGT, WMT) as vendor lags could negatively

impact back-to-school product availability at these retailers as well.

Dept. Stores: During the West Coast port slowdown last year, both M and KSS all

called out issues with delayed receipts during the West Coast port slowdown last

year, while JCP indicated that it was able to mitigate the impact. At M, apparel

generates 46% of total annual sales with women’s representing 23% mix and

men’s & children’s accounting for 23%. At KSS, that apparel accounts for 63% of

total annual revenues, with children’s representing 13% mix, women’s 30% mix,

and men’s 20% mix. Juniors is a key category for each dept. store in the 3Q.

Broadlines: We believe the back-to-school season also serves a key driver for

broadlines, particularly at TGT where apparel & accessories account for 19% of

total sales. At WMT, apparel accounts for 7% of sales. In addition to fashion-

driven product, potential transportation delays could negatively impact product

availability in the media & electronics category. In regards to the West Coast port

www.cowen.com 13

Cowen and Company



atthew.frankel@

cowen.com


issues last year, WMT commented that its stock positions in categories such as

TVs suffered as a result of the port congestion on the West Coast. The

entertainment category generates approximate 11% of total sales at WMT.

Branded Apparel & Footwear – John Kernan, CFA

Hoping To Avoid A BTS Shipping Delay That Could Add Further Inventory Overhang

To date, there is not much chatter on the new SOLAS regulation among our branded

apparel and footwear coverage despite the sales volume generated by these

companies (Figure 4). General feedback, at this juncture, is that the new regulation is

1) not expected to affect the flow of their merchandise, and 2) the anticipated impact

will be minimal. Apparel & footwear manufacturers, or purveyors of “soft goods,”

typically already provide net product weight and packing supply weight upon

shipping. Nevertheless, companies are preparing with their carriers/forwarders to

navigate through the latest regulation but concur that there is confusion and a lack of

cohesion among governing bodies as to who is managing and enforcing the issue.

Figure 4 Annual Sales Volumes Among Our Branded Apparel & Footwear Coverage – The Majority Of Sales

Are Generated From Goods Manufactured Outside Of The U.S.

CY15 actuals for ADS.GR, COLM, FIT, HBI, RL, SKX, UA, VFC, BURL, DKS. CY15 estimates for GIII, GES, PVH, FRAN. Adidas sales euros

converted to US$ using FX conversion rate of 1.086653 as of the company’s FYE 12/31/2015. TTM actuals for NKE, FINL through Nov. 2015.

Excludes SQBG and ICON. Source: Cowen and Company; Company reports

The new legislation is expected to go into effect on July 1 which is around the time

that many of our manufacturers are in the process of delivering, and retailers are

taking receipt of, shipments for back-to-school/back-to-college (BTS) (Figure 5).

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

NK

E

AD

S.G

R

VFC

PV

H RL

HB

I

UA

SK

X

GIII

CO

LM

GES

FIT FL

DK

S

BU

RL

TLR

D

FIN

L

FR

AN

Manufacturers Retailers

An

nu

alize

d S

ale

s ($

MM

s)

www.cowen.com14

Cowen and Company



atthew.frankel@

cowen.com


Figure 5 : Key Dates For Back-to-School Ship And Display

Source: Cowen and Company

In a best case scenario, trade is uninterrupted and compliance will reflect added

documentation which is phased in once a single governing body can provide

leadership. In a worst case scenario, which we assign a low probability to, the BTS

shipping process could be slowed, negatively impacting sales and margin as

manufacturers look to other means of delivering freight, at a time when much of our

coverage is planning for a stronger calendar second half 2016 versus first half

calendar 2016 given the events of Fall 2015 (Figure 6).

Category

Manufacturer

Shipping Date

Floor Set at

Retail Date

Sneakers 5/25 June

Backpacks 5/25 June

Kids 6/15-6/25 7/15

Junior Accessories 6/15-6/25 7/15

Junior Footwear 6/15-6/25 7/15

Young Men's 6/15-6/25 7/15

Girls Denim, Buy-now Tops June 7/10

Girls Fashion Tops and Bottoms June 8/10

Other 7/30 Mid-August

www.cowen.com 15

Cowen and Company



atthew.frankel@

cowen.com


Figure 6 Branded Apparel & Footwear EPS Growth Cadence Is Skewing More To 2H 2016 Than 1H 2016 And 2H 2015

NKE, RL and FINL's quarters are the closest quarter to the calendar quarter. ADS.GR figures reflect Euros. Source: Cowen and Company; Company reports; Thomson consensus figures

Fall 2015 was negatively impacted by warmer than expected temperatures across the

U.S. and a sluggish consumer who seemingly directed spending away from apparel

and footwear towards other categories such as technology, travel and services.

Inventory levels were higher than planned heading into Holiday 2015, especially

among cold weather categories, resulting in widespread inventory surplus across the

sector (Figure 7). Colder weather in late December and into January 2016 helped to

alleviate some of the sector inventory surplus but not all. Sector guidance for calendar

2016 is implying sales and margin pressure in the first half, partially due to ongoing FX

pressure, with outlooks sequentially improving for the second half of calendar 2016

due to easier year ago comparisons and prospects for a colder winter.

Mkt. Cap. 2H EPS 2H EPS % change from

Company Ticker Rating $MMs CY 2015 Q1:2016 Q2:2016 Q3:2016 Q4:2016 CY 2016 % of CY16 % of CY15 CY16 to CY15

Nike NKE 1 $100,266 $1.86 $0.49 $0.54 $0.72 $0.51 $2.15 57% 51% 7%

% change (12%) 45% 60% 4% 15%

VF Corp. VFC 2 $27,697 $3.09 $0.59 $0.36 $1.20 $1.10 $3.24 71% 66% 5%

% change (13%) (10%) 12% 16% 5%

adidas ADS.GR 1 € 20,834 € 3.15 € 1.34 € 0.85 € 1.88 € 0.00 € 4.01 47% 43% 4%

% change 24% 16% 21% (100%) 27%

Under Armour UA 1 $17,612 $1.05 $0.05 $0.09 $0.57 $0.60 $1.31 89% 89% 1%

% change (10%) 27% 26% 26% 25%

Hanesbrands HBI 1 $11,257 $1.66 $0.23 $0.55 $0.59 $0.52 $1.89 59% 57% 2%

% change 2% 9% 19% 17% 14%

Foot Locker FL 1 $8,700 $4.29 $1.39 $0.94 $1.11 $1.30 $4.77 51% 50% 0%

% change 8% 12% 11% 12% 11%

Ralph Lauren Corp RL 2 $8,086 $6.90 $0.83 $1.01 $2.07 $2.24 $6.52 66% 64% 2%

% change (41%) (7%) (3%) (1%) (6%)

PVH Corp PVH 1 $7,015 $6.99 $1.33 $1.24 $2.50 $1.50 $6.60 61% 59% 2%

% change (11%) (10%) (6%) 3% (6%)

Dick's Sporting Goods DKS 2 $5,228 $2.88 $0.50 $0.79 $0.41 $1.28 $2.97 57% 55% 2%

% change (6%) 2% (10%) 13% 3%

Skechers SKX 2 $5,026 $1.51 $0.53 $0.59 $0.66 $0.29 $2.07 46% 41% 4%

% change 44% 14% 52% 53% 37%

Columbia Sportswear COLM 2 $4,152 $2.46 $0.33 ($0.13) $1.39 $1.04 $2.63 92% 89% 3%

% change (11%) 40% 9% 15% 7%

Fitbit FIT 2 $4,101 $1.06 $0.02 $0.26 $0.30 $0.54 $1.12 75% 55% 20%

% change N/A 26% 26% 54% 6%

G-III Apparel Group GIII 1 $2,416 $2.70 $0.15 $0.32 $2.10 $0.58 $3.14 77% 90% (13%)

% change (1%) (45%) (83%) 387% 16%

GUESS? GES 2 $1,873 $0.97 ($0.01) $0.15 $0.20 $0.63 $0.97 85% 74% 10%

% change (113%) (30%) 31% 11% 0%

The Finish Line FINL 2 $851 $1.18 $0.30 $0.60 ($0.13) $0.93 $1.71 47% 26% 20%

% change (1%) 4% (73%) 16% 45%

Sequential Brands SQBG 2 $417 $0.46 $0.00 $0.03 $0.13 $0.29 $0.46 92% 73% 19%

% change (97%) (64%) 11% 26% (1%)

Iconix Brands ICON 2 $404 $1.35 $0.41 $0.39 $0.27 $0.33 $1.41 47% 26% 21%

% change (24%) (13%) 200% 21% 4%

Avg. 66% 60% 6%

www.cowen.com16

Cowen and Company



atthew.frankel@

cowen.com


Figure 7 Sector Sales Vs. Inventory Spread

We define sales vs. inventory spread as y/y quarterly sales growth less inventory growth, where a negative result indicates inventory is growing faster than sales. NKE, RL and FINL's quarters are the closest quarter

to the calendar quarter. ADS.GR figures reflect euros. Source: Company reports, Cowen and Company

For context, the most recent historical comparison of trade disruption among our

coverage list was the 2014 U.S. West Coast Port disruption, whereby freight from Asia

was significantly delayed from processing at U.S. West Coast ports due to port labor

disputes. Among our coverage, companies with the wherewithal re-routed goods

through East Coast ports, used air freight or took earlier receipts for Holiday 2014 but

most reported delays in early 2015 for spring goods (Figure 8). The dollar impact per

quarter by company from the West Coast port disruption has not been consistently

quantified however the management of UA estimates that the disruption had a “1% to

2% cumulative impact on overall net revenues” and that “higher air freight costs

primarily tied to…efforts to mitigate the impacts of the West Coast port disruptions

negatively impacted gross margins by approximately 60 bps in the period.”

Sales vs. Inventory Spread Q1:14 Q2:14 Q3:14 Q4:14 Q1:15 Q2:15 Q3:15 Q4:15

Department Stores

Macy's M (6%) 2% (2%) 4% (3%) (6%) (10%) (7%)

Nordstrom JWN (8%) (17%) (15%) (4%) (9%) (2%) (2%) (8%)

Kohl's KSS (4%) (2%) (2%) 5% (3%) (8%) (4%) (5%)

Dillard's DDS (1%) 2% (1%) 3% (3%) (1%) (7%) (3%)

Broadlines

Target TGT (2%) (7%) 4% 7% (1%) 10% (2%) (4%)

Walmart WMT (4%) (3%) (1%) 1% (2%) 1% 0% 0%

Sporting Goods

Dick's Sporting Goods DKS (5%) (1%) (3%) (2%) (1%) (6%) (6%) (6%)

Cabela's CAB (31%) (15%) (10%) (11%) 5% (2%) (9%) 3%

Hibbett Sports HIBB 9% 1% (1%) 4% (10%) (8%) (9%) (15%)

Big 5 Sporting Goods BGFV (14%) (14%) (4%) (2%) 2% 0% (2%) 13%

Footwear

Skechers SKX (2%) 11% 14% (0%) 15% 6% (11%) (10%)

DSW DSW (7%) 2% (9%) (1%) (12%) (15%) (8%) (2%)

Foot Locker FL 6% 11% 6% 4% 5% 5% 3% 2%

Finish Line FINL 15% (4%) (2%) (7%) (1%) (8%) (8%) NA

Off-Price

The TJX Companies TJX 1% 1% (3%) (2%) (4%) (4%) (6%) (7%)

Ross Stores ROST 4% 12% 4% 1% (11%) (11%) (7%) 4%

Burlington Stores BURL 9% 13% 9% 2% (11%) (3%) 3% 4%

Athletic Brands

Nike NKE (2%) 0% 4% (5%) (5%) (4%) (7%) NA

Under Armour UA (10%) (1%) 2% 17% 3% 2% (8%) (15%)

Adidas ADS.GR (12%) (8%) 1% 11% 16% 14% 16% (8%)

Apparel Brands

Columbia Sportswear COLM 33% 8% 8% 10% (12%) (10%) 3% (20%)

Hanesbrands HBI 8% 7% (10%) (1%) (7%) (13%) 5% (25%)

G-III Apparel GIII 1% 8% (13%) (10%) 3% (2%) (2%) NA

PVH PVH (1%) (1%) (7%) 3% (4%) (8%) (10%) NA

Ralph Lauren RL (0%) (9%) (2%) (8%) (1%) (13%) (8%) (9%)

VF Corp VFC (1%) 2% 3% 3% (5%) (3%) (9%) (13%)

www.cowen.com 17

Cowen and Company



atthew.frankel@

cowen.com


Figure 8 U.S. West Coast Port Disruption Was More Than A One-quarter Impact

Source: Company reports and earnings call transcripts; Cowen and Company; Thomson

Company

Fiscal Earnings

Call West Coast Port Disruption Commentary By Company Management Company

Fiscal Earnings

Call West Coast Port Disruption Commentary By Company Management

BURL 4Q14 "The problems at the west coast port did result in additional pack and hold opportunities. But these NKE 3Q15 "First, North America...revenue growth was somewhat lower than expected in the quarter due to challenges

goods mostly impact this coming spring, or the spring we're in, and next fall; not really in 2014" (Feb. 2015) related to the port congestion on the West Coast, which escalated late in our fiscal quarter three."

COLM 4Q14 "One additional variable that is difficult to predict or to factor into our 2015 outlook is the ongoing situation "...we do expect it will take a few quarters to return to fully normalized product flow as there are a

at west coast ports. Some of these ports have been experiencing disruptions for well over a year. We have significant number of containers to be cleared from the ports on the West Coast."

been proactive in taking steps to mitigate the disruptions and continue to work closely with our "While we anticipate the flow of product will soon begin to return to normal, we expect we will have

transportation partners and with our customers to expedite, reroute, and prioritize as necessary to maintain somewhat higher inventory levels and lower margins in North America for the next few quarters as we

an adequate flow of goods. Our outlook assumes that macro and market conditions in key markets and the work to rebalance is supply and demand in the market."

US west coast port issues do not worsen." PVH 1Q15 "Our flow of goods hasn't really been impacted by the port situation. We got ahead of that and really we're

DKS 4Q14 "So, the one thing we know about the weather and the port delay, there's not an awful lot we can do about moving goods to the Northeast and are really now just getting back to our normal balance of how goods

either one of them, although we are trying to expedite product we did -- we obviously knew that the port are coming into the country."

delay was going to be an issue. We rerouted products to other ports as a number of other people did. We've RL 3Q15 "We did have to air freight more product during the quarter. We also wound up routing a lot of product via

flown in some product where necessary, but there are some things that got caught up in the port, and we're (Dec. 2014) all-water routing. So we shipped it around the US, and received it in the East Coast ports."

late on some deliveries. In the categories, it's a little bit of everything." "...it takes more time to ship it to the East Coast. So we then had to accelerate, once the product was unloaded

FINL 4Q15 "Inventories at Finish Line were also up due to some early receipts as well as a planned increase to improve in the East Coast, receipt into our Greensboro distribution center, and staff in our Greensboro distribution

(Feb. 2015) our spring in-stock position in light of West Coast port issues." center, to turn that inventory around faster. So we did see an impact from the West Coast port strike. But I

"...we were able to get stuff through that is for spring for us. And it was part of the reason that we had some would say that, that impact was relatively minor…"

elevated inventories at Finish Line at the end of the year versus where we would have expected them to 4Q15 "This team has done an outstanding job navigating through the extended West Coast port situation and

be otherwise." (March 2015) maintaining business continuity with limited incremental expense."

FL 4Q14 "...we deliberately brought in a significant amount of inventory early before year end to ensure that we SKX 4Q14 "It's slow. We think we're somewhat behind. We could be doing better. "

avoided any major West Coast port delay issues and were well positioned, particularly for NBA All-Star "We try to get as much in early as we can so things are coming in earlier which certainly increases the size

events." but it's slow but certainly workable."

FRAN 4Q14 "So on the issue with port, it's harder for us to really get a good feel of how that potentially impacted our "Barring a catastrophically long-term strike even if there was a closure for two to three weeks, we're still

business. There were a few -- I'll call it departments, where some of the orders we placed were delayed, better off leaving it come through the port right here."

but since we don't really control that supply chain coming into the country, and really rely on our vendors to UA 1Q15 "...our North American business experienced some disruptions from the West Coast port delays and

deliver the merchandise, I would say the impact of the port strike for us in Q4 or in early Q1 is -- I would weather-related store closures during the period, which we estimate had a 1% to 2% cumulative impact on

say not significant, in terms of our results." overall net revenues."

GES 1Q16 "In our North America retail business, the early part of the quarter was impacted by the disruption of the "...higher air freight costs primarily tied to our efforts to mitigate the impacts of the West Coast port

west coast port issue, and extreme weather in all East Coast and Canada." disruptions negatively impacted gross margins by approximately 60 basis points in the period."

HBI 4Q14 "From the standpoint of our business and servicing our business, we haven't felt any significant impact on " We continue to plan for higher air freight expenses in the second quarter as we continue our efforts to

service. There has been -- certainly, the port is a little slower, but we have a constant flow of goods that has mitigate the impacts of the West Coast port disruptions…"

allowed us to continue to service our customers, as we always have." VFC 4Q14 "...the West Coast Port situation really began last summer. Our team has been navigating through that

incredibly effectively so much so that we haven't had any material missed deliveries or incremental costs.

Have we had some missed deliveries? Yes. Have we had some incremental costs? Yes, but nothing that we

need to call to anybody's attention."

"We have diverted stuff to other ports, we have moved part of our truck fleet out there to get our stuff through

the docks and off the platforms."

www.cowen.com18

Cowen and Company



atthew.frankel@

cowen.com


Branded Apparel & Footwear Sensitivity Example Implies Potential Disruption To Sales

And Margin Would Not Be Minimal Before Any Attempts At Mitigation

In the tables below, as an example, we provide an EPS sensitivity analysis around

annual changes to sales and gross margin for the largest manufacturer (NKE) and

largest retailer (FL) among our coverage list. For NKE, every -50bps decrease in our

FY17E (year ending May 2017) sales growth forecast of 10.3% reflects a negative EPS

impact of -$0.04 to -$0.05/share and every -25 bps decrease in our FY17E gross

margin forecast of 46.8% represents a negative EPS impact of -$0.05 to -$0.06/share.

Note, however, this sensitivity analysis is for total NKE sales and margin and that N.

America represents 48% of FY15 Nike Brand sales and 51% of FY15 Nike Brand EBIT

before the inclusion of the Global Brands division, Converse and corporate.

Figure 9 NKE FY17E EPS Sensitivity Analysis To Negative Sales And Margin Headwinds


For FL, every -50bps decrease in our FY16E (year ending January 2017) sales growth

forecast of 5.2% reflects a negative EPS impact of -$0.09 to -$0.10/share and every -25

bps decrease in our FY16E gross margin forecast of 34% represents a negative EPS

impact of -$0.14 to -$0.15/share. We think that FL’s negative impact from a disruption

in merchandise flow is more tied to a potential lost sales opportunity if its vendors are

delayed with shipping in-season goods rather than tied to a freight cost impact as it

does not manufacturer the majority of its merchandise. This sensitivity analysis reflects

total FL sales and margins and U.S. represented ~71% of FY15 sales.

Figure 10 FL FY16E EPS Sensitivity Analysis To Negative Sales And Margin Headwinds


$2.46 10.3% 9.8% 9.3% 8.8% 8.3%

46.8% $2.46 $2.41 $2.37 $2.32 $2.28

46.6% $2.40 $2.36 $2.31 $2.27 $2.23

46.3% $2.35 $2.31 $2.26 $2.22 $2.17

46.1% $2.30 $2.25 $2.21 $2.17 $2.12

45.8% $2.25 $2.20 $2.16 $2.11 $2.07

Sales Growth (in 50 bps increments)

Gro

ss M

arg

in (

in 2

5 b

ps

incre

men

ts)

$4.78 5.2% 4.7% 4.2% 3.7% 3.2%

34.0% $4.78 $4.69 $4.59 $4.50 $4.41

33.8% $4.64 $4.54 $4.45 $4.36 $4.27

33.5% $4.49 $4.40 $4.31 $4.22 $4.13

33.3% $4.35 $4.26 $4.17 $4.08 $3.99

33.0% $4.21 $4.12 $4.03 $3.94 $3.85

Sales Growth (in 50 bps increments)

Gro

ss M

arg

in (

in 2

5

bp

s in

cre

men

ts)

www.cowen.com 19

Cowen and Company



atthew.frankel@

cowen.com


Figure 11 Air Freight and Container Leasing Comp Table


www.cowen.com20

Cowen and Company



atthew.frankel@

cowen.com


Figure 12 Logistics Comparable Analysis


Figure 13 Freight Forwarding Comparable Analysis


Figure 14 Truckload Comparable Analysis


Figure 15 LTL Comparable Analysis


Company Ticker Rating Price Target Market Cap Dividend Implied FY15e FY16e FY17e 15 EPS 16 EPS 17 EPS EV/15 EV/16 EV/17

3/18/2016 Price (millions) Yield Return EPS EPS EPS Growth Growth Growth EBITDA EBITDA EBITDA Low High

Asset-Light Carriers

Landstar System, Inc. LSTR Outperform $67.29 $64.00 $2,809 0.4% -4% $3.43 $3.30 $3.55 11% -4% 8% 19.6 20.4 19.0 10.4 10.8 10.3 $53.03 $73.60

Echo Global Logistics ECHO Outperform $28.04 $26.00 $854 NA -7% $1.11 $1.30 $1.50 37% 17% 15% 25.3 21.6 18.7 11.9 9.3 8.2 $16.56 $34.35

TransForce* TFI-T Outperform $22.34 $25.00 $1,681 2.2% 14% $1.87 $1.75 $2.15 9% NA 23% 11.9 12.8 10.4 8.0 8.2 7.1 $13.68 $24.96

XPO Logistics XPO Outperform $31.77 $36.00 $4,289 NA 13% ($0.49) $0.60 $1.00 NA NA 67% NA 52.9 31.8 16.6 7.2 5.7 $18.04 $50.96

Radiant Logistics¹ RLGT Outperform $3.77 $7.00 $171 NA 86% $0.11 $0.20 $0.30 NA 82% 50% 34.3 18.8 12.6 7.9 7.9 5.4 $2.94 $8.00

Roadrunner Transportation RRTS Not covered $13.52 NA $491 NA NA $1.26 $1.31 $1.46 NA 4% 12% 10.7 10.3 9.3 7.1 6.6 6.1 $6.39 $28.51

Universal Truckload Services UACL Not covered $18.17 NA $504 1.5% NA $1.36 $1.46 $1.63 NA 8% 11% 13.4 12.4 11.2 6.6 6.4 5.9 $11.12 $27.63

Expeditors International EXPD Not covered $48.48 NA $8,877 1.5% NA $2.38 $2.43 $2.63 26% 2% 8% 20.4 19.9 18.5 10.6 10.7 10.1 $40.41 $51.80

J.B. Hunt JBHT Outperform $86.71 $85.00 $9,525 0.9% -1% $3.74 $3.95 $4.60 18% 6% 16% 23.2 22.0 18.8 9.8 9.5 8.6 $63.58 $93.50

Forward Air FWRD Market Perform $45.80 $42.00 $1,348 1.0% -7% $2.11 $2.20 $2.45 8% 4% 11% 21.7 20.8 18.7 11.5 9.3 8.5 $36.00 $57.65

C.H. Robinson CHRW Market Perform $74.34 $69.00 $10,576 2.1% -5% $3.53 $3.65 $3.95 16% 3% 8% 21.1 20.4 18.8 12.4 12.3 11.7 $59.71 $76.18

Average $3,739 18% 14% 21% 20.2x 21.1x 17.1x 10.3x 8.9x 8.0x

17 P/E

52 Week

16 P/E15 P/E

Company Ticker Rating Price Target Market Cap Dividend Implied FY15 FY16e FY17e 15 EPS 16 EPS 17 EPS EV/15 EV/16 EV/17


Freight Forwarding

Expeditors International EXPD Market Perform $48.48 $53.00 $8,877 1.5% 11% $2.38 $2.50 $2.75 26% 5% 10% 20.4 19.4 17.6 12.5 10.6 10.3 $40.41 $51.80

Kuehne + Nagel KNIN-VX Not rated CHF 135.50 NA CHF 16,898 3.7% NA CHF 5.66 CHF 6.04 CHF 6.38 6% 7% 6% 23.9 22.4 21.2 14.9 14.1 13.4 CHF 124.63 CHF 152.43

Panalpina PWTN-EB Not rated CHF 108.00 NA CHF 2,567 3.2% NA CHF 4.01 CHF 4.80 CHF 6.26 8% 20% 30% 26.9 22.5 17.3 11.7 12.1 9.9 CHF 90.76 CHF 151.10

C.H. Robinson CHRW Market Perform $74.34 $69.00 $10,576 2.1% -5% $3.53 $3.65 $3.95 16% 3% 8% 21.1 20.4 18.8 12.4 12.3 11.7 $59.71 $76.18

Deutsche Post DPW-XE Not rated EUR 24.36 NA EUR 32,920 3.8% NA EUR 1.34 EUR 1.93 EUR 2.10 NM 44% 9% 18.2 12.6 11.6 6.9 6.3 5.9 EUR 22.17 EUR 32.97

Average 14,368 14% 16% 13% 22.1x 19.5x 17.3x 11.7x 11.1x 10.2x

16 P/E

52 Week

17 P/E15 P/E



Truckload

Knight Transportation KNX Market Perform $26.86 $26.00 $2,080 0.9% -2% $1.48 $1.35 $1.55 18% -9% 15% 18.1 19.9 17.3 7.6 7.5 6.7 $20.56 $34.73

Werner Enterprises WERN Market Perform $27.64 $26.00 $1,953 0.8% -5% $1.74 $1.75 $1.90 28% 1% 9% 15.9 15.8 14.5 5.1 5.1 4.6 $20.91 $33.41

Swift Transportation SWFT Outperform $18.03 $19.00 $2,421 NM 5% $1.46 $1.50 $1.75 5% 3% 17% 12.3 12.0 10.3 4.9 5.0 4.7 $11.74 $28.90

Celadon Group¹ CGI Outperform $10.75 $15.00 $271 0.7% 40% $1.52 $1.25 $1.35 31% -18% 8% 7.1 8.6 8.0 5.6 5.1 4.7 $6.19 $29.15

Heartland Express HTLD Not Covered $19.75 NA $1,591 0.4% NA $0.84 $0.80 $0.93 -13% -5% 16% 23.5 24.7 21.4 6.8 7.0 6.5 $15.36 $25.15

Covenant Transportation CVTI Outperform $21.60 $32.00 $379 NM 48% $1.92 $1.90 $2.10 37% -1% 11% 11.3 11.4 10.3 4.7 4.5 4.3 $13.60 $35.91

USA Truck USAK Outperform $17.61 $20.00 $170 NM 14% $1.19 $1.20 $1.45 61% 1% 21% 14.8 14.7 12.1 4.4 4.9 4.6 $11.58 $29.24

TL Average $1,266 0.8% 24% -4% 14% 14.7x 15.3x 13.4x 5.6x 5.6x 5.1x

15 P/E

52 Week

16 P/E 17 P/E



Less Than Truckload

ArcBest ARCB Outperform $23.43 $23.00 $587 1.1% -1% $1.76 $1.70 $2.20 -3% -3% 29% 13.3 13.8 10.7 3.5 3.3 2.9 $16.43 $41.32

Old Dominion ODFL Market Perform $69.84 $65.00 $5,825 NM -7% $3.57 $3.80 $4.30 15% 6% 13% 19.6 18.4 16.2 9.0 8.4 7.5 $48.92 $80.96

Saia, Inc. SAIA Market Perform $29.07 $29.00 $728 NM 0% $2.12 $2.05 $2.30 6% -3% 12% 13.7 14.2 12.6 5.1 5.2 4.7 $18.28 $46.30

LTL Average $2,380 1.1% 6% 0% 18% 15.5x 15.4x 13.2x 5.9x 5.6x 5.0x

15 P/E

52 Week

16 P/E 17 P/E

www.cowen.com 21

Cowen and Company



atthew.frankel@

cowen.com


Figure 16 Railroad Comparable Analysis


Company Ticker Rating Price Target Market Cap Dividend Implied 15 EPS 16 EPS 17 EPS EV/15 EV/16 EV/17

3/18/2016 Price (millions) Yield Return Growth Growth Growth EBITDA EBITDA EBITDA Low High

Railroad

Canadian National CNI Outperform $62.92 $61.50 $64,351 1.4% -1% $3.46 $3.31 $3.83 -1% -4% 16% 18.2 19.0 16.4 8.8 8.4 7.7 $46.23 $69.84

Canadian Pacific CP Outperform $130.14 $142.00 $25,878 0.8% 10% $7.90 $7.63 $8.92 1% -3% 17% 16.5 17.1 14.6 8.1 7.7 7.1 $97.09 $198.44

CSX Corp. CSX Market Perform $27.02 $25.00 $25,706 2.6% -5% $1.96 $1.80 $1.95 5% -8% 8% 13.8 15.0 13.9 7.3 7.6 7.2 $24.00 $37.00

Genesee & Wyoming GWR Outperform $64.17 $69.00 $3,677 0.0% 8% $3.69 $3.70 $4.30 -12% 0% 16% 17.4 17.3 14.9 10.6 10.2 9.2 $41.56 $105.45

Kansas City Southern KSU Market Perform $87.51 $88.00 $9,483 1.5% 2% $4.49 $4.55 $5.15 -6% 1% 13% 19.5 19.2 17.0 11.1 10.6 9.8 $62.20 $116.80

Norfolk Southern NSC Outperform $84.02 $89.00 $24,691 2.8% 9% $5.22 $5.45 $6.35 -18% 4% 17% 16.1 15.4 13.2 8.6 8.3 7.5 $64.51 $111.76

Union Pacific UNP Outperform $84.42 $89.00 $70,320 2.6% 8% $5.41 $5.25 $5.95 -6% -3% 13% 15.6 16.1 14.2 8.3 8.5 7.8 $67.06 $118.66

Railroad Average $32,015 1.7% -5% -2% 14% 16.7x 17.0x 14.9x 8.9x 8.8x 8.1x

Class I Average $36,738 2.0% 16.6x 17.0x 14.9x 8.7x 8.5x 7.9x

52 WeekFY15

EPS 15 P/E

FY16e

EPS 16 P/E

FY17e

EPS 17 P/E

www.cowen.com22

Cowen and Company



atthew.frankel@

cowen.com


Figure 17 Branded Apparel And Footwear Valuations

Rating: 1=Outperform; 2=Market Perform; 3=Underperform; and NR=Not Rated. Source: Cowen and Company; Company reports; Thomson prices as of 3/18/2016 close.

Branded Apparel, Textiles and Footwear Valuations

Cap.

Company Ticker Rating Price $MMs FY1 FY2 3 Yr Avg 5 Yr Avg FY1 FY2 3 yr Avg 5 Yr Avg FY1 FY2 3 yr Avg 5 Yr Avg YTD 52 wk

Nike NKE 1 $63.43 $108,015 30x 26x 25x 22x 19.4x 16.6x 11.5x 10.7x 3.1x 2.9x 1.8x 1.6x (1%) 28%

VF Corp. VFC 2 $66.50 $28,228 21x 18x 20x 18x 13.4x 12.2x 11.9x 10.3x 2.3x 2.1x 2.1x 1.7x 6% (10%)

adidas ADS-XE 1 € 100.20 € 20,963 25x 21x 19x 17x 13.2x 11.6x 9.5x 7.5x 1.2x 1.1x 0.9x 0.9x 11% 44%

Under Armour UA 1 $84.02 $18,375 64x 50x 60x 51x 29.6x 23.1x 20.6x 17.4x 3.8x 3.0x 2.8x 2.4x 0% 1%

Hanesbrands HBI 1 $29.52 $11,455 16x 14x 17x 14x 13.3x 12.4x 10.2x 9.0x 2.4x 2.3x 1.6x 1.3x (1%) (15%)

Ralph Lauren Corp RL 2 $98.00 $8,233 15x 15x 18x 19x 7.3x 7.1x 9.6x 9.5x 1.1x 1.1x 1.7x 1.7x (14%) (26%)

Foot Locker FL 1 $65.22 $8,952 14x 12x 14x 14x 6.8x 6.4x 5.5x 5.1x 1.0x 1.0x 0.8x 0.6x (2%) 5%

Michael Kors* KORS 2 $57.02 $10,231 13x 13x 18x N/A 7.1x 7.1x 10.7x N/A 2.0x 2.0x 3.3x N/A 40% (16%)

PVH Corp PVH 1 $89.16 $7,306 13x 14x 15x 15x 9.5x 9.8x 9.8x 8.8x 1.3x 1.3x 1.4x 1.3x 19% (13%)

Gildan Activewear GIL NR $29.86 $7,260 19x 16x N/A N/A 13.6x 12.3x N/A N/A 2.9x 2.7x N/A N/A 3% (2%)

Carter's CRI NR $102.11 $5,284 20x 18x 19x 19x 10.9x 9.9x 9.1x 8.4x 1.7x 1.6x 1.3x 1.2x 15% 12%

Dick's Sporting Goods DKS 2 $47.73 $5,488 16x 14x 16x 17x 7.2x 6.5x 7.5x 7.2x 0.7x 0.6x 0.8x 0.8x 29% (20%)

Skechers SKX 2 $32.94 $5,170 16x 13x 20x 18x 9.0x 7.8x 4.8x 6.2x 1.3x 1.1x 0.5x 0.4x 4% 34%

Columbia Sportswear COLM 2 $61.12 $4,236 23x 21x 23x 21x 11.9x 10.9x 9.3x 8.9x 1.6x 1.5x 1.0x 1.0x 22% 2%

Fitbit FIT 2 $14.38 $4,358 13x 10x N/A N/A 8.6x 6.7x N/A N/A 1.5x 1.2x N/A N/A (52%) N/A

Cabelas CAB NR $47.32 $3,209 15x 13x 17x 16x 15.1x 13.8x 13.0x 12.1x 1.8x 1.7x 1.7x 1.5x 0% (18%)

Kate Spade* KATE 1 $24.99 $3,201 32x 23x NM NM 12.5x 10.2x 19.0x 14.7x 2.3x 2.1x 2.6x 1.8x 36% (24%)

G-III Apparel Group GIII 1 $54.67 $2,490 20x 17x 18x 15x 11.3x 9.9x 7.3x N/A 1.1x 1.0x 0.6x N/A 21% (2%)

DSW DSW NR $26.98 $2,337 17x 15x 18x 18x 7.1x 6.7x 8.4x 6.6x 0.7x 0.7x 1.1x 0.8x 12% (28%)

Decker's DECK NR $60.55 $1,964 13x 13x N/A N/A 7.0x 6.5x N/A N/A 0.9x 0.9x N/A N/A 17% (23%)

Fossil* FOSL 2 $45.35 $2,183 15x 14x 14x 16x 8.3x 8.0x 10.3x 9.4x 0.9x 0.8x 1.7x 1.7x 22% (46%)

GUESS? GES 2 $18.73 $1,569 24x 18x 18x 15x 6.4x 5.3x 6.4x 6.3x 0.5x 0.5x 0.7x 0.8x 13% 33%

The Finish Line FINL 2 $19.66 $896 16x 12x 14x 13x 6.5x 5.1x 5.1x 4.9x 0.4x 0.4x 0.5x 0.5x 1% (22%)

Hibbetts HIBB NR $36.30 $827 12x 11x 16x 18x 6.2x 5.9x 9.2x 9.0x 0.8x 0.8x 1.4x 1.3x 17% (30%)

Sequential Brands SQBG 2 $6.66 $412 15x 10x N/A N/A 8.6x 6.6x N/A N/A 5.0x 4.1x N/A N/A (19%) (35%)

Iconix Brands ICON 2 $8.43 $408 6x 6x 12x 11x 9.6x 9.5x 11.3x 9.9x 4.5x 4.5x 6.4x 5.9x 20% (76%)

S&P 500 Composite .SPX-UT $2,050 17x 16x 16x 15x 0% (1%)

*covered by Oliver Chen Mean $10,502 19x 16x 20x 18x 10.7x 9.5x 10.0x 9.1x 1.8x 1.7x 1.7x 1.5x 8% (10%)

Median $4,764 16x 14x 18x 17x 9.3x 8.7x 9.5x 8.9x 1.4x 1.3x 1.4x 1.3x 12% (15%)

Cap. Weighted Avg. 26x 22x 22x 19x 15.5x 13.4x 10.7x 9.2x 2.4x 2.2x 1.7x 1.4x 4% 10%

P/E P/E (FY1) EV/EBITDA EV/EBITDA (NTM) EV/Sales EV/Sales (NTM)

www.cowen.com 23

Cowen and Company



atthew.frankel@

cowen.com


Figure 18 . OC Retail Trading Comps

Source: Cowen and Company, Share prices as of 3/18 Close.

EBIT

Lcl Performance Price Target Mkt. Cap. 52-Week (lc l) EPS (lc l) EPS Growth P/E PEG 3-Year FY2 P/E EBITDA (lcl mm) EV/EBITDA Margin Free Cash Flow (lcl) Div. Sales (lc l mm) EV/Sales

Company T icker Rating Currency Price (lc l) YTD (%) 2015 $ per share Multiple ETR (US $bn) High Low FY1 FY2 FY1 FY2 FY1 FY2 (FY2) Min. Avg. Max. FY1 FY2 FY1 FY2 (LTM) Yield per share Beta Yield FY1 FY2 FY1 FY2

BROADLINES

Costco Wholesale COST 1 USD 153.15 (4.5)% 18.6% 160.00 26 x 4% 67.5 169.73 117.03 5.32 6.08 (1)% 14% 28.8 x 25.2 x 1.8 20.2 x 23.6 x 27.4 x 4,736 5,165 14.3 x 13.1 x 3.1% 1.4% 2.12 0.79 1.0% 119,913 130,993 0.6 x 0.5 x

Target Corp. TGT 1 USD 82.71 15.1% (0.0)% 88.00 15 x 6% 49.8 85.81 66.46 5.25 5.76 12% 10% 15.8 14.4 1.5 11.7 14.5 20.0 7,361 7,629 8.0 7.7 7.5% 0.7% 0.61 0.71 2.7% 71,946 73,432 0.8 0.8

Wal-Mart Stores WMT 2 USD 66.95 10.8% (0.0)% 64.00 15 x (4)% 216.0 83.90 56.30 4.02 4.25 (12)% 6% 16.7 15.8 2.8 12.2 14.1 17.3 34,491 35,052 7.5 7.4 5.3% 4.6% 3.10 0.61 2.9% 481,419 492,677 0.5 0.5

Broadlines Avg. 7.2% 6.2% (0)% 10% 20.4 x 18.4 x 2.0 14.7 x 17.4 x 21.6 x 9.9 x 9.4 x 5.3% 2.2% 0.70 2.2% 0.6 x 0.6 x

LUXURY & ACCESSORIES

Coach, Inc. COH 1 USD 39.27 21.0% (0.1)% 42.00 19 x 7% 10.9 43.45 27.22 1.92 1.88 (44)% (2)% 20.5 x 20.9 x N.M. 11.3 x 15.5 x 21.7 x 1,020 1,235 10.2 x 8.5 x 13.3% 3.3% 1.30 0.83 4.1% 4,471 4,746 2.3 x 2.2 x

Michael Kors Holdings Ltd KORS 2 USD 56.97 41.8% (46.7)% 56.00 13 x (2)% 10.2 68.82 34.83 4.28 4.42 33% 3% 13.3 12.9 3.9 8.1 16.9 28.4 1,380 1,466 6.9 6.5 25.8% 5.2% 2.95 0.68 0.0% 4,372 4,658 2.2 2.0

Kate Spade & Company KATE 1 USD 24.99 39.9% (44.5)% 28.00 39 x 12% 3.2 35.23 15.10 0.47 0.71 88% 51% 53.2 35.2 0.7 18.7 45.9 N.M. 195 259 16.9 12.7 4.5% 4.5% 1.12 1.43 0.0% 1,262 1,398 2.6 2.4

TUMI Holdings TUMI 2 USD 26.92 61.7% (29.9)% 22.00 23 x (18)% 1.8 27.84 15.01 0.92 0.95 8% 3% 29.3 28.3 8.7 15.1 19.9 26.5 121 14 14.2 119.0 17.7% 3.7% 1.00 1.08 0.0% 544 578 3.2 3.0

lululemon Athletica LULU 1 USD 62.51 19.7% (6.0)% 66.00 30 x 6% 8.1 70.00 43.14 1.81 2.20 (4)% 22% 34.5 28.4 1.3 16.6 25.1 33.1 443 549 17.3 14.0 18.4% 1.5% 0.94 0.75 0.0% 2,074 2,418 3.7 3.2

Tiffany & Co. TIF 2 USD 72.19 (7.6)% (27.1)% 70.00 18 x (3)% 9.0 96.43 59.73 3.78 4.00 (1)% 6% 19.1 18.0 3.1 14.1 19.1 22.3 991 1,021 9.4 9.2 19.2% 5.8% 4.21 1.10 2.2% 4,085 4,292 2.3 2.2

Signet Jewelers SIG 1 USD 117.43 (6.0)% (5.4)% 165.00 19 x 41% 9.2 152.27 93.45 6.86 8.50 22% 24% 17.1 13.8 0.6 N/A N/A N/A 54 54 200.8 198.5 10.0% N.A. N/A 0.83 0.7% 6,593 6,947 1.6 1.5

Movado MOV 2 USD 30.30 17.6% (7.8)% 29.00 14 x (4)% 0.5 32.21 21.18 2.02 2.04 (2)% 1% 15.0 14.9 15.0 8.9 13.9 20.3 88 97 4.0 3.7 11.7% 4.7% 1.42 1.19 1.4% 587 591 0.6 0.6

Fossil Group FOSL 2 USD 45.37 24.0% (67.0)% 41.00 13 x (10)% 2.2 86.50 28.26 4.21 3.10 (41)% (26)% 10.8 14.6 N.M. 5.9 13.3 18.7 461 484 5.9 5.6 9.0% 4.4% 1.99 1.54 0.0% 3,169 3,148 0.9 0.9

Sotheby's BID 2 USD 26.21 1.0% (39.4)% 26.00 13 x (1)% 1.6 47.28 18.86 0.63 2.00 (63)% 217% 41.6 13.1 0.1 8.5 16.0 24.0 223 226 8.6 8.5 21.0% N.A. N.A. 1.44 1.5% 962 920 2.0 2.1

Restoration Hardware RH 2 USD 37.24 (53.9)% (17.2)% 47.00 16 x 26% 1.5 106.49 35.03 2.74 2.87 16% 5% 13.6 13.0 2.7 7.8 25.1 33.1 273 370 6.6 4.9 9.5% N.A. N.M. 0.70 0.0% 2,109 2,324 0.9 0.8

Vera Bradley VRA 2 USD 19.78 27.3% (22.7)% 20.00 21 x 1% 0.8 20.25 9.21 0.82 0.94 (18)% 15% 24.1 21.0 1.4 9.8 15.0 21.1 71 77 9.8 9.1 9.4% 5.6% 1.10 0.63 0.0% 503 518 1.4 1.4

Luxury & Accessories Avg. 15.5% (26.1)% (0)% 27% 24.3 x 19.5 x 3.8 11.3 x 20.5 x 24.9 x 25.9 x 33.3 x 14.1% 4.3% 1.02 0.8% 2.0 x 1.8 x

SPECIALTY RETAIL/ SOFTLINES

Gap, Inc. GPS 2 USD 30.39 22.0% (39.2)% 28.00 13 x (8)% 12.0 43.90 21.57 2.43 2.20 (13)% (9)% 12.5 x 13.8 x N.M. 8.9 x 12.4 x 15.3 x 2,182 850 5.7 x 14.6 x 10.5% 5.7% 1.73 1.09 3.0% 15,797 16,396 0.8 x 0.8 x

L Brands LB 1 USD 87.82 (6.7)% 15.3% 95.00 24 x 8% 25.1 98.67 73.29 3.99 4.00 14% 0% 22.0 22.0 87.6 12.2 18.6 25.0 2,582 2,772 11.1 10.3 17.5% 3.0% 2.60 0.79 2.3% 12,154 12,650 2.4 2.3

Abercrombie & Fitch ANF 2 USD 31.70 18.7% (2.9)% 30.00 26 x (5)% 2.1 32.83 15.42 1.12 1.17 (27)% 4% 28.3 27.1 6.1 8.9 15.7 26.8 348 351 6.0 5.9 1.3% 6.2% 1.98 1.40 2.5% 3,519 3,566 0.6 0.6

American Eagle Outfitters AEO 1 USD 16.90 9.0% 15.3% 20.00 17 x 18% 3.1 18.49 12.78 1.09 1.20 73% 10% 15.5 14.1 1.4 10.2 14.7 20.0 458 484 6.1 5.8 9.1% 7.2% 1.23 1.07 3.0% 3,522 3,593 0.8 0.8

Ascena ASNA 2 USD 10.85 6.0% (21.6)% 10.00 11 x (8)% 2.0 17.59 6.33 0.75 0.88 27% 17% 14.5 12.3 0.7 6.9 12.7 19.3 2,116 2,158 1.6 1.6 (5.9)% N.A. N.M. 1.03 0.0% 7,192 7,350 0.5 0.5

TJX Companies TJX 1 USD 77.92 9.2% 4.6% 87.00 22 x 12% 51.7 77.93 63.53 3.34 3.91 0% 17% 23.3 19.9 1.2 14.3 17.7 20.7 4,333 905 11.7 56.2 12.1% 4.1% 3.19 0.84 1.1% 32,481 34,241 1.6 1.5

Ross Stores, Inc. ROST 1 USD 59.30 9.0% 15.2% 63.00 22 x 6% 23.7 59.68 43.47 2.65 2.93 6% 11% 22.4 20.2 1.9 13.2 17.1 20.8 1,899 1,992 12.3 11.7 13.7% 4.5% 2.65 0.98 0.8% 12,559 13,332 1.9 1.8

Sally Beauty Holdings SBH 1 USD 32.50 16.7% (9.3)% 34.00 17 x 5% 4.8 35.27 21.94 1.53 1.78 0% 16% 21.2 18.3 1.1 12.1 15.5 18.5 0 0 N.A. N.A. 13.2% 4.8% 1.57 0.40 0.0% 3,834 3,962 1.7 1.6

Planet Fitness PLNT 1 USD 15.41 (5.1)% N/A 18.00 25 x 17% 0.5 20.68 13.23 0.60 0.72 15% 20% 25.7 21.4 1.1 N/A N/A N/A 0 0 N.A. N.A. 21.8% 5.0% 0.78 N/A 0.0% 359 377 2.8 2.7

Ulta Salon ULTA 1 USD 191.39 1.6% 44.7% 206.00 35 x 8% 12.0 192.38 120.38 4.98 5.92 25% 19% 38.4 32.3 1.7 17.2 26.1 33.3 542 643 21.2 17.9 12.8% 0.8% 1.45 0.74 0.0% 3,924 4,556 2.9 2.5

Urban Outfitters URBN 2 USD 33.61 43.9% (35.2)% 33.00 19 x (2)% 3.8 47.25 19.26 1.68 1.78 (11)% 6% 20.0 18.9 3.2 9.9 16.1 20.0 495 534 7.5 7.0 10.5% 6.2% 2.09 0.82 0.0% 3,597 3,781 1.0 1.0

Specialty Retail/Softlines Avg. 11.3% (1.3)% 10% 10% 22.2 x 20.0 x 10.6 11.4 x 16.6 x 22.0 x 9.2 x 14.5 x 10.6% 4.8% 0.92 1.2% 1.5 x 1.4 x

DEPARTMENT STORES

Macy's M 2 USD 44.87 26.7% (44.7)% 44.00 11 x (2)% 13.8 73.61 34.05 3.77 4.00 0% 6% 11.9 x 11.2 x 1.8 8.0 x 11.5 x 14.1 x 3,618 522 5.6 x 39.0 x 8.9% 12.7% 5.69 0.88 3.1% 26,477 26,402 0.8 x 0.8 x

Kohl's KSS 2 USD 48.17 2.4% (19.0)% 47.00 11 x (2)% 9.2 79.60 39.23 4.15 4.27 3% 3% 11.6 11.3 3.9 8.6 11.7 15.8 2,596 2,653 5.1 5.0 7.8% 10.0% 4.80 0.93 3.8% 19,141 19,216 0.7 0.7

JC Penney JCP 2 USD 11.57 73.0% 2.8% 11.50 16 x (1)% 3.5 11.99 6.00 0.02 0.72 (102)% 3500% 578.5 16.1 0.0 -28.8 -10.3 38.3 979 1,151 7.6 6.5 (0.8)% 7.4% 0.86 1.19 0.0% 12,939 13,251 0.6 0.6

Nordstrom JWN 1 USD 58.52 17.6% (29.3)% 53.00 15 x (9)% 10.1 77.66 44.49 3.31 3.65 0% 10% 17.7 16.0 1.6 12.4 15.8 19.6 1,972 2,014 6.2 6.1 7.6% 3.9% 2.31 0.92 2.5% 15,150 15,932 0.8 0.8

Dillard's DDS N.R. USD 87.74 30.3% (47.3)% N.R. - - 2.8 N.R. N.R. N.A. N.A. - - - - N.A. 8.2 11.8 14.8 0 0 N.A. N.A. 7.8% 6.2% 5.41 1.03 0.3% N.A. N.A. N.A. N.A.

Hudson's Bay Company HBC.TO 1 CAD 18.44 0.7% (25.5)% 25.00 37 x 36% 3.3 29.52 14.83 0.46 0.68 (16)% 48% 40.1 27.1 0.6 13.4 24.1 36.2 761 794 9.9 9.5 2.5% (2.0)% -0.36 1.09 1.1% 10,790 14,333 0.7 0.5

Department Stores Avg. 25.7% (24.9)% 7.10 (23)% 713% 132.0 x 16.3 x 1.6 3.6 x 10.8 x 23.1 x 6.9 x 13.2 x 5.6% 6.4% 1.01 1.8% 0.7 x 0.7 x

GLOBAL LUXURY & APPAREL RETAILERS

Swatch UHR-VX N.R. CHF 344.80 (1.5)% (19.5)% N.R. - - 12.0 446.20 310.00 22.67 24.78 2% 9% 15.2 x 13.9 x 1.5 11.5 x 14.5 x 16.9 x 1,971 2,118 4.6 x 4.3 x 17.2% 5.3% 18.34 1.22 2.2% 8,812 9,155 1.0 1.0

Richemont CFR VX 2 CHF 64.85 (10.1)% (17.0)% CHF 68 19 x 5% 33.9 87.55 60.10 3.68 3.22 56% (13)% 16.1 18.4 N.M. 13.9 16.9 21.0 3,008 3,349 8.0 7.2 25.5% 5.2% 3.35 1.34 2.6% 11,151 10,957 2.2 2.2

Hugo Boss Group BOSS-FF N.R. EUR 58.12 (24.3)% (21.5)% N.R. - - 4.6 120.01 49.97 4.10 4.40 (16)% 7% 14.2 13.2 1.8 9.8 16.4 20.2 526 564 7.9 7.4 15.9% 5.9% 3.45 0.63 6.2% 2,846 2,954 1.5 1.4

Kering KER-FR N.R. EUR 163.20 4.3% 1.5% N.R. - - 23.3 197.50 136.75 10.10 11.49 16% 14% 16.2 14.2 1.0 11.2 14.1 16.6 2,248 2,477 11.2 10.1 10.8% 4.9% 8.01 0.95 2.5% 12,238 12,958 2.1 1.9

Tod's TOD-MI N.R. EUR 66.15 (9.4)% 4.2% N.R. - - 2.5 98.00 65.10 3.56 3.87 8% 9% 18.6 17.1 1.9 15.4 20.1 25.9 224 241 9.2 8.5 14.3% 7.0% 4.64 0.74 3.0% 1,085 1,137 1.9 1.8

LVMH MC FP 2 EUR 152.35 5.1% 12.1% € 162 19 x 6% 77.2 176.60 130.75 7.08 8.43 (37)% 19% 21.5 18.1 0.9 12.5 16.1 20.3 6,605 8,970 10.9 8.1 17.9% 8.0% 12.17 1.03 2.3% 35,664 37,504 2.0 1.9

Prada 1913-HK N.R. HKD 26.30 9.1% (44.9)% N.R. - - 8.7 52.00 20.20 0.14 0.15 (25)% 3% 21.0 20.2 5.8 14.9 19.7 29.9 836 855 8.9 8.7 19.8% 0.2% 0.05 0.47 3.7% 3,571 3,580 2.1 2.1

Burberry BRBY-LN N.R. GBP 1,354 13.3% (24.8)% N.R. - - 4.2 1,886 1,047 72 73 (6)% 1% 18.9 18.7 14.7 14.1 17.7 22.8 555 565 9.8 9.7 17.4% 5.0% 67.47 1.20 2.6% 2,539 2,665 2.2 2.1

Inditex ITX-MC N.R. EUR 29.75 (6.1)% 35.4% N.R. - - 104.9 35.38 26.00 1.04 1.17 9% 12% 28.6 25.4 2.1 19.3 25.4 32.6 5,266 5,881 16.6 14.9 18.0% 3.2% 0.95 0.85 0.5% 23,192 25,471 3.8 3.4

H&M HM'B-SK N.R. SEK 273.90 (9.3)% (4.2)% N.R. - - 48.9 362.00 259.80 12.93 14.46 1% 12% 21.2 18.9 1.6 17.2 21.8 25.2 35,088 39,461 11.0 9.8 15.8% 3.8% 10.43 0.80 3.6% 198,952 220,462 1.9 1.8

Fast Retailing 9983-TO N.R. JPY 35,120 (17.2)% (2.4)% N.R. - - 33.5 61,970 30,720 1,043 1,246 (22)% 20% 33.7 28.2 1.4 24.1 34.3 43.9 213,225 251,304 15.1 12.8 8.7% 3.0% 1,061 1.00 1.0% 1,824,542 2,050,862 1.8 1.6

Global Luxury & Apparel Retailers Avg. (1)% 9% 20.5 x 18.8 x 3.3 14.9 x 19.7 x 25.0 x 10.3 x 9.2 x 16.5% 4.7% 0.93 2.7% 2.0 x 1.9 x

S&P 500 2,040.59 N/A (0.7)% 2,135 1,810 123 131 16.6 x 15.6 x 13.3 x 15.1 x 16.8 x

XRT Retail 45.77 5.9% (8.8)%

US Sector Average 15.6% (14.9)% 40.6 x 18.8 x 10.0 x 16.7 x 22.7 x 16.0 x 22.0 x 10.8% 4.9% 1.5 x 1.4 x

Global Sector Average (3.8)% (8.9)% 22.1 x 19.5 x 14.8 x 20.1 x 26.0 x 10.3 x 9.3 x 15.3% 4.1% 1.9 x 1.8 x

www.cowen.com24

Cowen and Company



atthew.frankel@

cowen.com



www.cowen.com 25

Cowen and Company



atthew.frankel@

cowen.com



www.cowen.com26

Cowen and Company



atthew.frankel@

cowen.com



www.cowen.com 27

Cowen and Company



atthew.frankel@

cowen.com


AddendumAnalyst CertificationEach author of this research report hereby certifies that (i) the views expressed in the research report accurately reflect his or her personal views about any and all of the subjectsecurities or issuers, and (ii) no part of his or her compensation was, is, or will be related, directly or indirectly, to the specific recommendations or views expressed in this report.

Important DisclosuresThis report constitutes a compendium report (covers six or more subject companies). As such, Cowen and Company, LLC chooses to provide specific disclosures for the companiesmentioned by reference. To access current disclosures for the all companies in this report, clients should refer to https://cowen.bluematrix.com/sellside/Disclosures.action orcontact your Cowen and Company, LLC representative for additional information.Cowen and Company, LLC compensates research analysts for activities and services intended to benefit the firm's investor clients. Individual compensation determinations forresearch analysts, including the author(s) of this report, are based on a variety of factors, including the overall profitability of the firm and the total revenue derived from all sources,including revenues from investment banking. Cowen and Company, LLC does not compensate research analysts based on specific investment banking transactions.

DisclaimerThis research is for our clients only. Our research is disseminated primarily electronically and, in some cases, in printed form. Research distributed electronically is availablesimultaneously to all Cowen and Company, LLC clients. All published research can be obtained on the Firm's client website, https://cowenlibrary.bluematrix.com/client/library.jsp.Further information on any of the above securities may be obtained from our offices. This report is published solely for information purposes, and is not to be construed as an offerto sell or the solicitation of an offer to buy any security in any state where such an offer or solicitation would be illegal. Other than disclosures relating to Cowen and Company, LLC,the information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete statement or summary of the available data.Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice.For important disclosures regarding the companies that are the subject of this research report, please contact Compliance Department, Cowen and Company, LLC, 599 LexingtonAvenue, 20th Floor, New York, NY 10022. In addition, the same important disclosures, with the exception of the valuation methods and risks, are available on the Firm's disclosurewebsite at https://cowen.bluematrix.com/sellside/Disclosures.action.

Price Targets: Cowen and Company, LLC assigns price targets on all covered companies unless noted otherwise. The price target for an issuer's stock represents the value thatthe analyst reasonably expects the stock to reach over a performance period of twelve months. The price targets in this report should be considered in the context of all priorpublished Cowen and Company, LLC research reports (including the disclosures in any such report or on the Firm's disclosure website), which may or may not include pricetargets, as well as developments relating to the issuer, its industry and the financial markets. For price target valuation methodology and risks associated with the achievement ofany given price target, please see the analyst's research report publishing such targets.

Notice to UK Investors: This publication is produced by Cowen and Company, LLC which is regulated in the United States by FINRA. It is to be communicated only to personsof a kind described in Articles 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. It must not be further transmitted to any other personwithout our consent.Copyright, User Agreement and other general information related to this report

© 2016 Cowen and Company, LLC. Member NYSE, FINRA and SIPC. All rights reserved. This research report is prepared for the exclusive use of Cowen clients and may not bereproduced, displayed, modified, distributed, transmitted or disclosed, in whole or in part, or in any form or manner, to others outside your organization without the express priorwritten consent of Cowen. Cowen research reports are distributed simultaneously to all clients eligible to receive such research reports. Any unauthorized use or disclosure isprohibited. Receipt and/or review of this research constitutes your agreement not to reproduce, display, modify, distribute, transmit, or disclose to others outside your organizationthe contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets). All Cowen trademarks displayedin this report are owned by Cowen and may not be used without its prior written consent.

Cowen and Company, LLC. New York (646) 562-1000 Boston (617) 946-3700 San Francisco (415) 646-7200 Chicago (312) 577-2240 Cleveland (440) 331-3531 Atlanta(866) 544-7009 London (affiliate) 44-207-071-7500COWEN AND COMPANY RATING DEFINITIONS

Cowen and Company Rating System effective May 25, 2013

Outperform (1): The stock is expected to achieve a total positive return of at least 15% over the next 12 months

Market Perform (2): The stock is expected to have a total return that falls between the parameters of an Outperform and Underperform over the next 12 months

Underperform (3): Stock is expected to achieve a total negative return of at least 10% over the next 12 months

Assumption: The expected total return calculation includes anticipated dividend yield

Cowen and Company Rating System until May 25, 2013

Outperform (1): Stock expected to outperform the S&P 500

Neutral (2): Stock expected to perform in line with the S&P 500

www.cowen.com28

Cowen and Company



atthew.frankel@

cowen.com


https://cowen.bluematrix.com/sellside/Disclosures.action

https://cowenlibrary.bluematrix.com/client/library.jsp

https://cowen.bluematrix.com/sellside/Disclosures.action

Underperform (3): Stock expected to underperform the S&P 500

Assumptions: Time horizon is 12 months; S&P 500 is flat over forecast period

Cowen Securities, formerly known as Dahlman Rose & Company, Rating System until May 25, 2013

Buy – The fundamentals/valuations of the subject company are improving and the investment return is expected to be 5 to 15 percentage points higher than the general marketreturn

Sell – The fundamentals/valuations of the subject company are deteriorating and the investment return is expected to be 5 to 15 percentage points lower than the general marketreturn

Hold – The fundamentals/valuations of the subject company are neither improving nor deteriorating and the investment return is expected to be in line with the general marketreturn

Cowen And Company Rating DefinitionsDistribution of Ratings/Investment Banking Services (IB) as of 12/31/15

Rating Count Ratings Distribution Count IB Services/Past 12 Months

Buy (a) 476 58.40% 113 23.74%

Hold (b) 327 40.12% 13 3.98%

Sell (c) 12 1.47% 0 0.00%

(a) Corresponds to "Outperform" rated stocks as defined in Cowen and Company, LLC's rating definitions. (b) Corresponds to "Market Perform" as defined in Cowen and Company,LLC's ratings definitions. (c) Corresponds to "Underperform" as defined in Cowen and Company, LLC's ratings definitions.

Note: "Buy", "Hold" and "Sell" are not terms that Cowen and Company, LLC uses in its ratings system and should not be construed as investment options. Rather, these ratingsterms are used illustratively to comply with FINRA regulation.

www.cowen.com 29

Cowen and Company



atthew.frankel@

cowen.com


Points Of ContactAnalyst Profiles

Cowen Research

New York

646.562.1330

[email protected]

Helane Becker

New York

646.562.1399

[email protected]

Helane Becker is a senior researchanalyst covering airlines & air-relatedindustries for the past 30+ years. Shehas an MBA from NYU.

Oliver Chen, CFA

New York

646.562.1424

[email protected]

Oliver Chen is an II-ranked analystcovering retailing/specialty, broadlines,department stores, & luxury goods. Hehas an MBA from Wharton.

John Kernan, CFA

New York

646.562.1324

[email protected]

John Kernan is a research analystfocused on apparel, footwear andtextiles. He has spent seven years on thesell side covering the sector.

Jason H. Seidl

New York

646.562.1404

[email protected]

Jason H. Seidl is a senior analystfocused on rail, trucking & logisticsand has over 20 years of transportationindustry experience.

Reaching Cowen

Main U.S. Locations

New York

599 Lexington AvenueNew York, NY 10022646.562.1000800.221.5616

Atlanta

3399 Peachtree Road NESuite 417Atlanta, GA 30326866.544.7009

Boston

Two International PlaceBoston, MA 02110617.946.3700800.343.7068

Chicago

181 West Madison StreetSuite 3135Chicago, IL 60602312.577.2240

Cleveland

20006 Detroit RoadSuite 100Rocky River, OH 44116440.331.3531

San Francisco

One Maritime Plaza, 9th FloorSan Francisco, CA 94111415.646.7200800.858.9316

International Locations

Cowen InternationalLimited

Cowen and Company (Asia)Limited

London

1 Snowden Street - 11th FloorLondon EC2A 2DQUnited Kingdom44.20.7071.7500

Hong Kong

Suite 1401 Henley BuildingNo. 5 Queens Road CentralCentral, Hong Kong852 3752 2333

@CowenResearch Cowen and Company

www.cowen.com30

Cowen and Company



atthew.frankel@

cowen.com


solasting effects; delaying back to...

Documents