Equity

Research

L O S A N G E L E S | S A N F R A N C I S C O | N E W Y O R K | B O S T O N | S E A T T L E | M I N N E A P O L I S | D A L L A S

Wedbush Securities does and seeks to do business with companies covered in its research reports. Thus, 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. Please see page 8 of this report for analyst certification and important disclosure information.

Retail Market Research

Retail Market Research

February 19, 2013

Gabriella Santaniello (213) 688-4557 gabriella.santaniello@wedbush.com

The Retail Detail:

EXPR Fashion Sells & Promos Low, COH New Product Resembles KORS, Higher Prices WSM Positive Feedback From PB Stores

This weekly report summarizes our findings with corresponding rankings on the state of retail fundamentals in the mall. We have checkers in five markets generating store checks in a consistent, structured and repetitive manner in order to optimize the consistency and value of the information as well as more effectively identify inflection points (see Appendix for a description of the process). General Traffic Trends President’s Day weekend saw a welcome pick-up in traffic across the malls we check with retailers increasing promotional activity on both regular price and clearance in an effort to make up for a slow start to the season. Of the regions we check Philadelphia and Chicago saw the greatest increase as those markets were impacted by weather the weekend prior, followed by Seattle and Dallas. Top 10 Bags Carried by Shoppers: Forever 21, Nordstrom, Old Navy, Macy’s, PINK, Francesca’s Collections, Hollister & Co., Sephora, Zara and American Eagle Outfitters. Specialty Retail Softlines…Key Takeaways Express (EXPR): Point ∆; +3, in line with last year, the retailer ran the “5 Days To Save” promotion (2/14 – 2/18) but offered an “Additional 30% Off Everything” as opposed to “BOGO 50% Off Everything” last year. Feedback from the stores associates is positive citing that the straightforward messaging of a flat discount continues to resonate with the consumer. With no clear “must have” item this spring similar to colored denim last year, we believe the retailer has achieved a good balance by covering the trends with key spring silhouettes.

American Eagle Outfitters (AEO): Point ∆; +2, in addition to the 25% off coupon, the retailer issued an incremental promotion on denim offering “All AE Jeans $10 Off” across all stores for discounts from 20-22% off as well as select styles “Under $30” that was in line with last year. While the promotion was incremental, we believe it is part of a strategy to offset strong regular price conversion in colored denim last year. It is also important to note that denim prices are still 10% higher than last year ($49.95 vs. $44.50) and the retailer has raised prices in other categories.

lululemon athletica (LULU): Point ∆; +2, feedback on new women’s merchandise is positive with strong initial sell-throughs in leggings, in crop and long lengths, an expanded assortment that includes SKUs with color detail (stripe) on the leg (Pace Crop at $86). Fortunately, while other retailers experienced a slowdown late January and early February, feedback from the lululemon stores is particularly positive with product that is less seasonal and typically stronger at the beginning of the year when customers add to their workout wardrobe. See pictures in body of report.

Aéropostale (ARO): Point ∆; -2, promotional activity increased this weekend as the retailer made an effort to drive through leftover seasonal merchandise, offering SKUs from the holiday key item sweats program at an additional 70% off. It appears as through the retailer is taking swift action to cycle through unproductive merchandise with markdowns on select SKUs of the most recent delivery already at 70% off due to the fabric being see through.

Guess? (GES): Point ∆; -2, stores took markdowns prior to the weekend, including them in an “Additional 50% Off” promotion, deeper than last year’s “Additional 40% Off” on higher inventory levels. The second weekend of the “buy more, save more” coupon offering up to 30% off (e.g. $100 off $300, $50 off $200 and $25 off $125) was met with lackluster response by consumers with one store manager commenting that sales people were “on the phones and in the mall” trying to get customers in the stores”.

Retail Market Research| 2

Footwear, Apparel & Accessories…Key Takeaways Coach full-price stores (COH): Point ∆; -2, introduced a new silhouette in a new type of leather, the “Saffiano Large City Tote” that is eerily similar in style and measurement to the “Saffiano Multifunction Medium Tote” at Michael Kors (KORS), but at $358 is 17% more expensive than Kors’ at $298. While the product is an improvement for Coach, we are surprised at the lack of authenticity and believe that most consumers will push back on price and styling assuming the reason the consumer still shops at Coach is for authentic styling. See pictures in body of report. Kate Spade Saturday (FNP): Kate Spade launched the Kate Spade Saturday line as a preview in an “Exclusive Pop-Up Shop” on Fab.com on Valentine’s Day. The line is a lifestyle launch comprised of nine categories of more “utilitarian” product ranging from handbags to footwear to home décor, at price points up to 50% lower than that of Kate Spade. Initial reads on sell-throughs are positive with several SKUs selling out of sizes, the patterned and graphic items being the first to go followed by solids. We believe the line addresses the void in the market for contemporary merchandise that is casual and affordable. Favorites include the sneaker collaboration with PF Flyers ($65), the “Half Circle Bag” ($160) and “Jump Around” jumpsuit in “Zig Zag” ($150).

Specialty Retail Hardlines…Key Takeaways Pottery Barn (WSM): Point ∆; +2, stores saw a pick-up in traffic this weekend as customers turned out to shop the President’s Day Sale offering items “Up To 60% Off” (in line with last year) as well as “Over 40 Best Sellers” up to 40% off. While the promotion was incremental to last year, the discounts are not and it seems like a better way to draw attention to the in-store discounts. For the most part, the best selling items at 40% off include home décor and accessories, items that carry a higher merchandise margin, with only a few high-ticket items at 20% off.

Weekly Store Ratings … Details Available Upon Request SOURCE: WEDBUSH SECURITIES ESTIMATES

1. “Product design” ranks a company’s merchandise based on fashion for the target customer as well as fit. Product design and fit are compared against trends within the industry segment and competition. 2. “Pricing strategy” ranks a company’s pricing relative to the historical and current competitive landscape. Key merchandise categories have been identified by retail space (e.g. t-shirts in the teen space) and are evaluated against last year’s ticket retail amounts and the competition. 3. “Traffic” ranks traffic levels in comparison to last week. Retail Specialists count total customers in the store as well as customers in line at the registers and dressing rooms and discuss traffic trends with sales associates / managers. 4. “Conversion” ranks customer conversion in comparison to last week. Retail Specialists count customers in line at the registers, those making purchases and / or returns and discuss conversion trends with sales associates / managers. 5. “Regular price inventory levels” ranks regular price inventory positions relative to last year and current business trends. Regular price inventory positions are ranked by category against promotional, traffic and conversion trends while taking into consideration the retail calendar. 6. “Promotional cadence” ranks promotional activity relative to last year and the competition. Promotional activity includes but is not limited to; hard markdowns, point-of-sale promotions, coupon e-mail and mailers and loyalty program discounts and point accruals. 7. “Clearance inventory” levels ranks the level of clearance inventory relative to regular price inventory. Clearance fixtures are measured against regular price fixtures and estimated as a percentage of the selling floor.

Francesca's Collections FRAN A 34 5 5 5 5 4 5 5Express EXPR A 33 5 4 5 5 4 5 5Michael Kors KORS A 33 5 5 5 5 5 4 4Footlocker FL A 31 4 4 5 5 4 4 5Kate Spade FNP A 31 5 5 4 5 4 4 4Old Navy GPS A 30 5 4 5 5 3 4 4Pier One Imports PIR A 30 5 5 4 4 3 4 5Pottery Barn WSM A 30 4 4 5 5 3 4 5Urban Outfitters URBN A 30 5 4 5 5 4 3 4Abercrombie & Fitch ANF B 28 4 4 4 4 4 4 4Anthropologie URBN B 28 5 5 4 4 3 3 4Lululemon LULU B 28 5 2 5 5 4 3 4Victoria's Secret LTD B 28 5 4 3 4 4 4 4West Elm WSM B 28 4 4 4 4 4 4 4Banana Republic GPS B 27 5 3 4 4 3 4 4Chico's CHS B 27 5 3 4 4 4 3 4Gap GPS B 27 5 4 4 4 3 4 3Steve Madden SHOO B 27 5 4 3 3 4 4 4Children's Place PLCE B 26 4 3 4 4 3 4 4Free People URBN B 26 4 3 5 5 3 3 3White House | Black Market CHS B 26 5 4 4 4 3 3 3American Eagle Outfitters AEO B 25 4 5 4 4 2 2 4Hollister ANF B 25 4 4 4 4 3 3 3Skechers SKX B 25 4 3 4 4 3 3 4Soma Intimates CHS B 25 4 3 4 4 4 3 3UGG Australia DECK B 25 4 2 4 4 4 3 4Hot Topic HOTT B 24 4 3 4 4 3 3 3Lucky Brand Jeans FNP B 24 5 3 3 3 3 4 3Williams-Sonoma WSM B 24 4 3 3 3 4 3 4Finish Line FINL B 23 4 4 3 3 2 3 4Buckle BKE B 22 3 3 3 3 3 4 3Crocs CROX B 22 5 4 3 3 2 2 3PacSun PSUN B 22 4 3 4 4 2 2 3Torrid HOTT B 22 4 3 4 4 2 3 2Marciano by Guess GES B 21 3 3 3 3 3 3 3Zumiez ZUMZ B 21 4 4 3 3 1 2 4Ann Taylor LOFT ANN B 20 5 3 3 3 3 1 2Men's Wearhouse MW B 20 3 3 4 4 2 2 2Quiksilver ZQK B 20 3 3 3 3 3 3 2Aerie AEO B 19 3 3 3 3 2 3 2Ann Taylor ANN B 19 4 3 3 3 2 2 2Coach COH B 19 3 3 2 2 3 3 3PB Kids WSM B 19 3 3 3 3 3 2 2Gilly Hicks ANF B 18 3 3 3 3 2 2 2Juicy Couture FNP B 18 4 3 3 3 2 1 2G by Guess GES C 17 3 3 3 3 2 1 2Guess? GES C 17 3 2 3 3 2 2 2Tilly's TLYS C 17 4 3 2 3 3 1 1True Religion Jeans TRLG C 17 2 3 3 3 2 1 3bebe BEBE C 16 3 3 2 2 3 2 1Aeropostale ARO C 14 2 2 2 2 2 2 2

Clearance 7 Store TickerReg-Price Inv. Levels 5

Promotional Cadence 6Grade Conversion 4Consolidated

Product Design 1

Pricing Strategy 2 Traffic 3

Retail Market Research| 3

Details – Specialty Retail Softlines

Express (EXPR) Grade; A Point ∆; +3 Express stores were busy this weekend with strong conversion levels. In line with last year, the retailer ran the “5 Days To Save” promotion (2/14 – 2/18) but offered an “Additional 30% Off Everything” as opposed to “BOGO 50% Off Everything” last year. Feedback from the stores associates is positive citing that the straightforward messaging of a flat discount continues to resonate with the consumer. With no clear “must have” item this spring similar to colored denim last year, we believe the retailer has achieved a good balance by covering the trends with key spring silhouettes, multiple SKUs with a peplum (Peplum Shell Top at $39.90), the fit and flare dress (Fit-And-Flare and Skater from $39.90 to $79.90), and the work shirt (Portofino at $49.90). Overall inventory levels appear well managed with little to no heavy seasonal carryover and markdowns comprised of broken sizes of early spring SKUs that would fall in line with the typical markdown cadence. Feedback from store associates indicates renewed interest in vintage washed in jeans and strong initial sell-throughs in the featured “Ankle Jean” ($79.90) that customers can wear in warm weather with sandals and in colder weather paired with boots. Of note, the retailer did not anniversary a “buy more, save more” coupon issued last year offering customers 25% off in increments of $60 ($15 off $60, $30 off $120, etc.) that was able to be combined with other offers.

American Eagle Outfitters (AEO) Grade; B Point ∆; +2 American Eagle Outfitters stores drove strong traffic and conversion this weekend. In line with last year, the retailer issued a “25% Off Everything” coupon (excludes clearance, 2/15 – 2/18) online and via the social media outlets that customers were using on denim in new washes and fashion tops. In addition to the coupon, the retailer issued an incremental promotion on denim offering “All AE Jeans $10 Off” across all stores for discounts from 20-22% off as well as select styles “Under $30” that was in line with last year. While the promotion was incremental, we believe it is part of a strategy to offset strong regular price conversion in colored denim last year. It is also important to note that denim prices are still 10% higher than last year ($49.95 vs. $44.50) and the retailer has raised prices in other categories. For example, “Tees & Tanks” are priced 20% higher than last year at “$12.50 & Up” vs. “$10”. Clearance inventory levels are extremely lean, with only two fixtures per gender, and clearance is included in an additional 40% off, an improvement over last year’s additional 50% off.

lululemon athletica (LULU) Grade; B Point ∆; +2 lululemon athletica stores were busy this weekend with strong conversion. The retailer delivered a new floor set that transforms the stores for spring with a color palette comprised of “blrached coral”, “frond green” and “mellow lemon” in solids, stripe and buffalo check patterns. Feedback on new women’s merchandise is positive with strong initial sell-throughs in leggings, in crop and long lengths, an expanded assortment that includes SKUs with color detail (stripe) on the leg (Pace Crop at $86). Fortunately, while other retailers experienced a slowdown late January and early February, feedback from the lululemon stores is particularly positive with product that is less seasonal and typically stronger at the beginning of the year when customers add to their workout wardrobe. Our checkers noted that the stores within our regions finally delivered new men’s merchandise with an expanded assortment that includes a much needed pop of color, frond green and surge blue, and stripes in silver and blue surge, SKUs in which are already broken in sizes in some locations we check.

Men’s New Product Women’s Colorful Tops New Fashion Capsule (Mellow Lemon & Frond Green) Source: Wedbush Securities

2/17/2013 B 25 4 5 4 4 2 2 42/10/2013 B 23 4 4 4 4 2 2 3

Grade Conversion 4ConsolidatedProduct Design 1

Pricing Strategy 2 Traffic 3

Week Ending Clearance 7

Reg-Price Inv. Levels 5

Promotional Cadence 6

2/17/2013 A 33 5 4 5 5 4 5 52/10/2013 A 30 5 4 4 4 4 4 5

Grade Conversion 4ConsolidatedProduct Design 1

Pricing Strategy 2 Traffic 3

Week Ending Clearance 7

Reg-Price Inv. Levels 5

Promotional Cadence 6

2/17/2013 B 28 5 2 5 5 4 3 42/10/2013 B 26 5 3 4 4 3 3 4

Grade Conversion 4ConsolidatedProduct Design 1

Pricing Strategy 2 Traffic 3

Week Ending Clearance 7

Reg-Price Inv. Levels 5

Promotional Cadence 6

Retail Market Research| 4

Aéropostale (ARO) Grade; C Point ∆; -2 Aéropostale stores were moderately busy this weekend as customers searched for deals. In-store signage features the “10th Anniversary Of Teen Vogue” and special items picked by celebrity brand ambassador Chloe Grace Moretz, highlighting the newest fashion delivery. Overall, the delivery lack newness with no cohesive story and is comprised of colors that seem bright for the sake of being bright and floral prints that were recycled from last year. The best category is tees where the retailer moved away from typical logo to photo realistic prints on solids and stripes. Promotional activity increased this weekend as the retailer made an effort to drive through leftover seasonal merchandise, offering SKUs from the holiday key item sweats program at an additional 70% off. It appears as through the retailer is taking swift action to cycle through unproductive merchandise with markdowns on select SKUs of the most recent delivery already at 70% off due to the fabric being see through. Customers in the stores were spotted redeeming a coupon offering “$10 off $40” (2/4 – 2/24) that was in line with last year. Guess? (GES) Grade; C Point ∆; -2 Traffic at Guess? stores continued to be challenging this weekend despite increasing promotional activity. The stores took markdowns prior to the weekend, including them in an “Additional 50% Off” promotion, deeper than last year’s “Additional 40% Off” on higher inventory levels. The second weekend of the “buy more, save more” coupon offering up to 30% off (e.g. $100 off $300, $50 off $200 and $25 off $125) was met with lackluster response by consumers with one store manager commenting that sales people were “on the phones and in the mall” trying to get customers in the stores. While the stores we check have all transitioned to a more impactful accessories presentation, adding fixtures and consolidating handbags, footwear and jewelry in a centralized location in the store, it did not appear to be enough of a driver this weekend. The apparel category presents well in the window displays but is less impactful in the stores where our checkers are noting low sell-throughs. Furthermore, the “Essentials” initiative, thus far identified as “Sexy Basics” in-store is still a significantly small portion of the apparel assortment, with only 18 SKUs on the floor. Conversations with associates and managers indicate that the stores will not receive an additional delivery of product or in-store signage to highlight the existing group. That said, when asked about current performance, associates seemed indifferent and focused on selling higher ticket fashion items. In line with last year, stores within our regions were also offering an “Additional 40% Off” select regular price styles.

Details – Footwear, Apparel & Accessories

Coach (COH) Grade; B Point ∆; -2 Coach full price stores were relatively quiet this weekend despite offering a 25% off coupon via Facebook and while traffic did increase slightly from previous weeks, it was still lower than that of the mall. The retailer introduced a new silhouette in a new type of leather, the “Saffiano Large City Tote” that is eerily similar in style and measurement to the “Saffiano Multifunction Medium Tote” at Michael Kors (KORS), but at $358 is 17% more expensive than Kors’ at $298. While the product is an improvement for Coach, we are surprised at the lack of authenticity and believe that most consumers will push back on price and styling assuming the reason the consumer still shops at Coach is for authentic styling. That said, aside from the fact that the SKU is a Prada replica and copied by many other brands, Michael Kors has been the most successful in taking the style mainstream making it one of their best selling SKUs. The Coach Saffiano line includes five styles that range in price from $228 to $358.

Product Examples:

Coach Saffiano Medium City Tote ($358) Michael Kors Saffiano Multifunction Medium Tote ($298) Source: www.coach.com Source: www.michaelkors.com

Details – Specialty Retail Hardlines

2/17/2013 C 14 2 2 2 2 2 2 22/10/2013 C 16 2 2 3 3 2 2 2

Grade Conversion 4ConsolidatedProduct Design 1

Pricing Strategy 2 Traffic 3

Week Ending Clearance 7

Reg-Price Inv. Levels 5

Promotional Cadence 6

2/17/2013 C 17 3 2 3 3 2 2 22/10/2013 B 19 4 2 3 3 2 2 3

Grade Conversion 4ConsolidatedProduct Design 1

Pricing Strategy 2 Traffic 3

Week Ending Clearance 7

Reg-Price Inv. Levels 5

Promotional Cadence 6

2/17/2013 B 19 3 3 2 2 3 3 32/10/2013 B 21 4 3 2 2 3 4 3

Grade Conversion 4ConsolidatedProduct Design 1

Pricing Strategy 2 Traffic 3

Week Ending Clearance 7

Reg-Price Inv. Levels 5

Promotional Cadence 6

Retail Market Research| 5

Pottery Barn (WSM) Grade; A Point ∆; +2 Pottery Barn stores saw a pick-up in traffic this weekend as customers turned out to shop the President’s Day Sale offering items “Up To 60% Off” (in line with last year) as well as “Over 40 Best Sellers” up to 40% off. While the promotion was incremental to last year, the discounts are not and it seems like a better way to draw attention to the in-store discounts. For the most part, the best selling items at 40% off include home décor and accessories, items that carry a higher merchandise margin, with only a few high-ticket items at 20% off. That said, customers were in the store shopping and our checkers reported a consistent flow of traffic throughout the weekend and positive feedback from sales associates on month-to-date trends. As we mentioned a few weeks ago, the introduction of lower price point tabletop items such as the “Café Glassware” with prices starting at $24, has been gaining momentum as customers look to add to their collections but remain price conscious. In line with last year, clearance is at 60% off however inventory levels are lean with some stores reporting only on fixtures of hard markdowns. Appendix - Channel Check Process

2/17/2013 A 30 4 4 5 5 3 4 52/10/2013 B 28 4 4 5 5 3 3 4

Grade Conversion 4ConsolidatedProduct Design 1

Pricing Strategy 2 Traffic 3

Week Ending Clearance 7

Reg-Price Inv. Levels 5

Promotional Cadence 6

Retail Market Research| 6

Markets for the Retail Research Program were chosen based on current retail performance and geographical differences. Malls within those markets were chosen according to the amount of stores and brands represented on the coverage list as well as demographic differences within each trade area. Current markets are; Chicago, IL, Dallas, TX, Philadelphia, PA, Seattle, WA, and Orange County, CA. The Specialists visit three malls on typically the busiest days of the week; Thursday, Friday and Saturday. Each mall visit requires the Specialist to visit all specialty retail stores and brands within department stores on the WS stock coverage list plus some stores and brands not on the coverage list but within the competitive space. The advantage to the current mall rotation schedule is consistency. Through repetitive visits we are able to see important week-over-week changes, build relationships with sales associates and store managers and become familiar with the mall, its customers and traffic patterns. Week-over-week data points include but are not limited to; inventory levels and cycles, markdowns, in-store and mall traffic, product placement and promotional activity. The data is then analyzed and interpreted for this report. Ranking System Explanation The ranking system is comprised of seven merchandising components that are assigned a point value on a scale of one to five. The points are then added to achieve a total ranking of the company. Each ranking falls into a designated range that is assigned a grade. The ranges and corresponding grades are as follows; A = 29 to 35 points, B = 18 to 28 points, C = less than 18 points. The seven components are; product design, pricing strategy, traffic, conversion, regular price inventory levels, promotional cadence and clearance inventory levels (details below). “Product design” ranks a company’s merchandise based on fashion for the target customer as well as fit. Product design and fit are compared against trends within the industry segment and competition. “Pricing strategy” ranks a company’s pricing relative to the historical and current competitive landscape. Key merchandise categories have been identified by retail space (e.g., t-shirts in the teen space) and are evaluated against last year’s ticket retail amounts and the competition. “Traffic” ranks traffic levels in comparison to last week. Retail Specialists count total customers in the store as well as customers in line at the registers and dressing rooms and discuss traffic trends with sales associates / managers. “Conversion” ranks customer conversion in comparison to last week. Retail Specialists count customers in line at the registers, those making purchases and / or returns and discuss conversion trends with sales associates / managers. “Regular price inventory levels” ranks regular price inventory positions relative to last year and current business trends. Regular price inventory positions are ranked by category against promotional, traffic and conversion trends while taking into consideration the retail calendar. “Promotional cadence” ranks promotional activity relative to last year and the competition. Promotional activity includes but is not limited to; hard markdowns, point-of-sale promotions, coupon e-mail and mailers and loyalty program discounts and point accruals. “Clearance inventory” levels ranks the level of clearance inventory relative to regular price inventory. Clearance fixtures are measured against regular price fixtures and estimated as a percentage of the selling floor. Covered companies mentioned in this report (priced as of close 2/15/13):

Retail Market Research| 7

Analyst Biography

Company Ticker Rating Current Price Price TargetAéropostale ARO OUTPERFORM $13.20 $15.00American Eagle Outfitters AEO OUTPERFORM $20.44 $26.00Coach COH NEUTRAL $48.40 $54.00Express Inc. EXPR OUTPERFORM $18.51 $17.00Fifth & Pacific Companies FNP OUTPERFORM $17.08 $17.00Guess? GES OUTPERFORM $28.14 $34.00lululemon athletica LULU OUTPERFORM $67.85 $85.00Michael Kors Holdings KORS OUTPERFORM $63.27 $75.00Williams-Sonoma WSM NEUTRAL $47.14 $44.00

Retail Market Research| 8

Gabriella Santaniello is a Senior Vice President, Retail Market Research and manages the Retail Research Program, a comprehensive channel-checking program that includes softlines, footwear, apparel and hardlines companies. Before joining Wedbush Securities, Gabriella was an independent consultant on brand, distribution and wholesale sales strategy specializing in department store and specialty chain retailers. As a Gerson Lehrman Group Councils Member Scholar, she provided consultative advice to Wall Street analysts on the retail/apparel industry regarding; industry insight, consumer buying trends and attitudes, and product assortment and promotional initiatives. In addition, she consulted for !iT Jeans on department store strategy, distribution and flagship store development. She was also a co-owner of Linear Fashion, a men’s denim line, where she managed sourcing, costing and merchandising. Gabriella received an M.B.A from the UCLA Anderson School of Management and a Bachelor of Science degree in Italian from Georgetown University. Gabriella’s Edge: Gabriella brings more than 15 years of experience in the fashion industry that includes major department store strategy for Ralph Lauren Childrenswear, Nautica Jeans Company, and Mossimo. At Ralph Lauren, Gabriella ran a team of coordinators that conducted weekly channel checks, so she understands the nuances of strategies employed by retailers and the importance of capturing data from various mall demographics. Her checks are more methodical and consistent than competitors.

Analyst Certification

I, Gabriella Santaniello, certify that the views expressed in this report accurately reflect my personal opinion and that I have not and will not, directly or indirectly, receive compensation or other payments in connection with my specific recommendations or views contained in this report. Disclosure information regarding historical ratings and price targets is available at http://www.wedbush.com/ResearchDisclosure/DisclosureQ412.pdf Investment Rating System: Outperform: Expect the total return of the stock to outperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. Neutral: Expect the total return of the stock to perform in-line with the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. Underperform: Expect the total return of the stock to underperform relative to the median total return of the analyst’s (or the analyst’s team) coverage universe over the next 6-12 months. The Investment Ratings are based on the expected performance of a stock (based on anticipated total return to price target) relative to the other stocks in the analyst’s coverage universe (or the analyst’s team coverage).* Rating Distribution (as of December 31, 2012)

Investment Banking Relationships (as of December 31, 2012)

Outperform:53% Neutral: 42% Underperform: 5%

Outperform:14% Neutral: 2% Underperform: 0%

The Distribution of Ratings is required by FINRA rules; however, WS’ stock ratings of Outperform, Neutral, and Underperform most closely conform to Buy, Hold, and Sell, respectively. Please note, however, the definitions are not the same as WS’ stock ratings are on a relative basis. The analysts responsible for preparing research reports do not receive compensation based on specific investment banking activity. The analysts receive compensation that is based upon various factors including WS’ total revenues, a portion of which are generated by WS’ investment banking activities. Wedbush Equity Research Disclosures as of February 19, 2013

Company Disclosure

American Eagle Outfitters 1 Aéropostale 1 Guess? 1 Express Inc. 1 Coach 1 Williams-Sonoma 1 Fifth & Pacific Companies 1

Retail Market Research| 9

Michael Kors Holdings 1 lululemon athletica 1

Research Disclosure Legend

1. WS makes a market in the securities of the subject company. 2. WS managed a public offering of securities within the last 12 months. 3. WS co-managed a public offering of securities within the last 12 months. 4. WS has received compensation for investment banking services within the last 12 months. 5. WS provided investment banking services within the last 12 months. 6. WS is acting as financial advisor. 7. WS expects to receive compensation for investment banking services within the next 3 months. 8. WS provided non-investment banking securities-related services within the past 12 months. 9. WS has received compensation for products and services other than investment banking services within the past 12 months. 10. The research analyst, a member of the research analyst’s household, any associate of the research analyst, or any individual

directly involved in the preparation of this report has a long position in the common stocks. 11. WS or one of its affiliates beneficially own 1% or more of the common equity securities. 12. The analyst maintains Contingent Value Rights that enables him/her to receive payments of cash upon the company’s meeting

certain clinical and regulatory milestones.

Price Charts Wedbush disclosure price charts are updated within the first fifteen days of each new calendar quarter per FINRA regulations. Price charts for companies initiated upon in the current quarter, and rating and target price changes occurring in the current quarter, will not be displayed until the following quarter. Additional information on recommended securities is available on request.

* WS changed its rating system from (Strong Buy/Buy/Hold/Sell) to (Outperform/ Neutral/Underperform) on July 14, 2009. Please access the attached hyperlink for WS’ Coverage Universe: http://www.wedbush.com/services/cmg/equities-division/research/equity-research Applicable disclosure information is also available upon request by contacting Ellen Kang in the Research Department at (213) 688-4529, by email to ellen.kang@wedbush.com, or the Business Conduct Department at (213) 688-8090. You may also submit a written request to the following: Business Conduct Department, 1000 Wilshire Blvd., Los Angeles, CA 90017.

OTHER DISCLOSURES

RESEARCH DEPT. * (213) 688-4505 * www.wedbush.com EQUITY TRADING Los Angeles (213) 688-4470 / (800) 421-0178 * EQUITY SALES Los Angeles (800) 444-8076

CORPORATE HEADQUARTERS (213) 688-8000 The information herein is based on sources that we consider reliable, but its accuracy is not guaranteed. The information contained herein is not a representation by this corporation, nor is any recommendation made herein based on any privileged information. This information is not intended to be nor should it be relied upon as a complete record or analysis; neither is it an offer nor a solicitation of an offer to sell or buy any security mentioned herein. This firm, Wedbush Securities, its officers, employees, and members of their families, or any one or more of them, and its discretionary and advisory accounts, may have a position in any security discussed herein or in related securities and may make, from time to time, purchases or sales thereof in the open market or otherwise. The information and expressions of opinion contained herein are subject to change without further notice. The herein mentioned securities may be sold to or bought from customers on a principal basis by this firm. Additional information with respect to the information contained herein may be obtained upon request.

RETAIL AND CONSUMER TECHNOLOGY, INTERNET, MEDIA & SOCIAL MEDIA LIFE SCIENCES

Consumer Products Communications Equipment Biotechnology/Biopharmaceuticals/BioDefenseRommel T. Dionisio (212) 938-9934 Rohit Chopra (212) 668-9871 Gregory R. Wade, Ph.D. (415) 274-6863Kurt M. Frederick, CFA CPA (415) 274-6822 Sanjit Singh (212) 938-9922 David M. Nierengarten, Ph.D. (415) 274-6862

Ryan Flanagan (212) 938-9942 Christopher N. Marai, Ph.D. (415) 274-6861Footwear, Apparel and AccessoriesCorinna Freedman (212) 668-9876 Computer Services: Financial Technology Cardiovascular, Hepatic and Devices

Gil B. Luria (213) 688-4501 Akiva Felt (415) 263-6648Healthy Lifestyles Aaron Turner (213) 688-4429Kurt M. Frederick, CFA CPA (415) 274-6822 Emerging Pharmaceuticals

Enterprise Software Liana Moussatos, Ph.D. (415) 263-6626Restaurants Steve Koenig (415) 274-6801 Richard Lau (415) 274-6851Nick Setyan (213) 688-4519 Christopher N. Marai, Ph.D. (415) 274-6861Colin Radke (213) 688-6624 Entertainment: Retail

Michael Pachter (213) 688-4474 Healthcare Services - Managed CareSpecialty Retail: Hardlines Nick McKay (213) 688-4343 Sarah James (213) 688-4503Joan L. Storms, CFA (213) 688-4537 Alicia Reese (212) 938-9927 Daniel Patt (212) 938-9937John Garrett, CFA (213) 688-4523

Entertainment: Software Medical Diagnostics and Life Sciences ToolsSpecialty Retail: Softlines Michael Pachter (213) 688-4474 Zarak Khurshid (415) 274-6823Betty Chen (415) 273-7328 Nick McKay (213) 688-4343Alex Pham (415) 273-7315

Internet and E-CommerceRETAIL/CONSUMER MARKET RESEARCH Michael Pachter (213) 688-4474

Nick McKay (213) 688-4343Gabriella Santaniello (213) 688-4557 Alicia Reese (212) 938-9927

INDUSTRIAL GROWTH TECHNOLOGY MediaJames Dix, CFA (213) 688-4315

Clean Technology Alicia Reese (212) 938-9927Craig Irwin (212) 938-9926

Movies and EntertainmentEnvironmental Services Michael Pachter (213) 688-4474Al Kaschalk (213) 688-4539 Nick McKay (213) 688-4343Scott Buck (213) 688-4303 Alicia Reese (212) 938-9927

Industrial Biotechnology SemiconductorsLiana Moussatos, Ph.D. (415) 263-6626 Betsy Van Hees (415) 274-6869Christopher N. Marai, Ph.D. (415) 274-6861 Ryan Jue, CFA (415) 263-6669

Water and Renewable Energy SolutionsDavid Rose, CFA (213) 688-4319

MANAGER, RESEARCH OPERATIONSEllen Kang (213) 688-4529

EQUITY RESEARCH DEPARTMENT(213) 688-4529

DIRECTOR OF RESEARCHMark D. Benson (213) 688-4435

EQUITY SALES EQUITY TRADINGLos Angeles (213) 688-4470 / (800) 444-8076 Los Angeles (213) 688-4470 / (800) 421-0178San Francisco (415) 274-6800 San Francisco (415) 274-6811New York (212) 938-9931 New York (212) 344-2382Boston (617) 832-3700 Boston (617) 832-3700

CORPORATE HEADQUARTERS1000 Wilshire Blvd., Los Angeles, CA 90017-2465

Tel: (213) 688-8000 www.wedbush.com