Results Presentation Spring 2009 · • Retail technology and inventory discipline mitigate...

Taking Stock With TeensResults Presentation

Spring 2009

2

Analyst DisclosuresKlinefelter, Tamminga, Gikas, Olson, Miller Regan

1. I or a household member have a financial interest in the securities of the following companies: none

2. I or a household member is an officer, director, or advisory board member of the following companies: none

3. I have received compensation within the past 12 months from the following companies : none

4. Piper Jaffray or its affiliates beneficially own 1% or more of any class of common equities of the following: none

5. The following companies have been investment banking clients of Piper Jaffray during the past 12 months: (Klinefelter) KSS, TGT; (Tamminga) JWN; (Gikas) GA, JAKK, SCSS; (Miller Regan) none; (Olson) none

6. Piper Jaffray expects to have the following companies as investment banking clients within the next 3 months: (Gikas) JAKK

7. Other material conflicts of interest for Klinefelter, Tamminga, Gikas, Kaiser, Miller-Regan or Piper Jaffray regarding companies in my universe for which I am (we are) aware include: none

8. Piper Jaffray received non-investment banking securities-related compensation from the following companies during the past 12 months: (Tamminga) CACH; (Gikas) NCTY, SNDA

9. Piper Jaffray makes a market in the securities of the following companies, and will buy and sell the securities of these companies on a principal basis: (Klinefelter) ANF, ARO, AEO, CROX, CTRN, DECK, GCO, GES, GPS, HOTT, ICON, JCP, KSS, PSUN, PVH, RL, ROST, TGT, UA, VLCM, WRC, WTSLA, ZQK, ZUMZ, [Tamminga] ANN, BARE, BBBY, CACH, CHS, COH, EL, FACE, FOSL, IPAR, JWN, KIRK, LTD, NWY, TLB, ULTA, URBN, WSM, [Gikas] ATVID, CLUB, ERTS, GA, GME, HAS, HOG, JAKK, LF, LTM, MAT, NCTY, NTES, PWRD, RCRC, SCSS, SNDA, THQI, TPX, TTWO, ZZ, [Miller Regan] BAGL, BJRI, BKC, BWLD, CAKE, CMG, COSI, CPKI, DAVE, GMCR, JMBA, MRT, MSSR, PEET, PFCB, PNRA, ROX, RRGB, RUTH, SBUX, SONC, WFMI, [Olson] AAPL, ADBE, ADSK, AKAM, AVID, CREL, CTRP, DLB, DTSI, KONG, LLNW, MVSN, NFLX, OWW, PCLN, PMTC, RNWK, SFLY, STV

3

Speaking Order

Jeff Klinefelter• Survey Detail• Spending Highlights• Apparel Brands & Teen Retailers, Footwear

Neely Tamminga• Parent Survey Detail• Beauty/Personal Care, Home Furnishings

Tony Gikas• Video Games

Mike Olson (Andrew Murphy)• Digital Media, Music

Nicole Miller Regan• Restaurants

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Consumer Sector Investment Risks

Risks include, but are not limited to:

• Reliance on key top management

• Changing consumer preferences

• Changes in input costs and raw materials

• Markdown risks

• Product flow and inventory disruptions

• Competition

• Lack of pricing power

• Deleveraging of fixed expenses

• Potential Auction Rate Securities exposure

• Foreign exchange rate risk

• General macroeconomic uncertainty

Source: Piper Jaffray & Co.

5

Survey Detail

Surveyed teens and parents nationally to measure:

Brand Preferences Spending Trends Shopping Characteristics

3 UNIQUE SURVEYS:

1) National School Survey

• Classroom visit & electronic surveys of nearly 600 teens; average age 16.3 years

• Average HH Income $73K represents top 30% of U.S. household units

2) National Online Survey

• On-line feedback from nearly 7,500 students; average age 16.7 years

• Average HH Income $52K aligns more closely with U.S. median ($42K)

3) Parent Survey

• Mail-in feedback; parent response rate of 9%; average age 47 years

• Approx. 57% respondents with average HH Income >$100k


6

Changes To Ratings/Price Targets/Estimates

Klinefelter

• ANF: raising PT from $28 to $30 on higher multiple (14x to 15x)

• DECK: raising PT from $63 to $70 on higher multiple (9x to 10x)

• GCO: raising PT from $13 to $19 on higher multiple (8x to 12x)

• GPS: raising PT from $11 to $13 on higher multiple (10x to 12x)

• HOTT: raising estimates & PT from $8 to $10 on higher multiple (15x to 17x)

• TGT: raising estimates & PT from $27 to $34 on higher multiple (13x to 15x)

• VLCM: raising estimates & PT from $7 to $10 on higher multiple (10x to 14x)

• ZQK: lowering estimates; PT unchanged at $1

Olson

• NFLX: raising PT from $45 to $53; same multiple; moving from FY09E to FY10E support


7

Apparel Brands & Retailers

Investment Highlights

• Spending metrics indicate we are still in “transition” phase of the fashion cycle

• Footwear cycle echo providing category opportunity for select retailers & brands

• Shopping behaviors in flux; frequency/traffic declines persist; shift continues toward value

• Teen employment hits low mark; parents step up and contribute

• Pricing dynamics, fashion perception, and preference to purchase ratio are key considerations

• Valuations subject to market volatility; fundamentals remain weak in near term

• Retail technology and inventory discipline mitigate earnings collapse; Y/Y declines expected

• Domestic capacity rationalization underway; International expansion key to driving LT growth


8

Spending Highlights

Key Takeaways

• Teens spend $20B/year on fashion; National School Survey $7B-$8B, Online Survey $12B-$13B

• Fall survey (Sept-08) ahead of credit crisis; Spring-09 results evidence spending cuts

• School survey points to a 14% fashion decrease Y/Y; females (11%), males (3%)

• Online survey points to a 13% fashion decline Y/Y; females (14%); males (9%)

• Footwear remains compelling growth area; spending up 4% Y/Y; inc. as percentage of wallet

• Music/movies also capturing incremental share; spending less on car & food (commodities)

• Spending expectations on fashion point to “less” vs. “more;” fashion stable at 41% of budget

• Budgets are contracting; parent contribution increasing to partially offset employment declines

• Specialty channel still preferred at 35% but ceding share; Internet & discount growing

• Fast Fashion preferred for females (18% share); West Coast Brands for males (18% share)


9

Fashion Spending – National School Survey

FASHION SPENDING - NATIONAL SCHOOL SURVEY - ALL STUDENTS

Fashion Spending Spring-09 Seq Chg Y/Y Chg Fall-08 Y/Y Chg Spring-08 Y/Y Chg Fall-07 Y/Y ChgApparel $620 -14% -22% $721 1% $795 -21% $715 -20%Shoes $263 21% 4% $217 2% $254 -6% $211 -12%Accessories $135 8% 0% $125 0% $134 -24% $125 -20%Total - All $1,018 -4% -14% $1,062 1% $1,183 -19% $1,052 -18%

Apparel $911 -15% -19% $1,074 7% $1,129 -13% $1,002 -19%Shoes $333 30% 9% $256 1% $305 -3% $253 -9%Accessories $223 15% 8% $193 3% $206 -12% $188 -10%Total - Female $1,467 -4% -11% $1,524 6% $1,640 -11% $1,444 -17%

Apparel $370 -5% -8% $389 -8% $404 -18% $421 -17%Shoes $202 12% 4% $180 6% $195 2% $169 -17%Accessories $59 -2% 17% $60 0% $50 -34% $61 -38%Total - Male $631 0% -3% $629 -3% $651 $762 $651 $807


10

Channel Preference – National School Survey

SHOPPING CHANNEL TIME ALLOCATION

0%

5%

10%

15%

20%

25%

30%

35%

40%

Spec

ialty

Maj

or C

hain

Dep

artm

ent

Dis

coun

t

Out

let

Mai

l ord

er

Inte

rnet

Spring-09 Fall-08 Spring-08 Fall-07


11

Spending By Category – National School Survey

SPENDING BY PRODUCT CATEGORY

0%

5%

10%

15%

20%

25%

Clothing

Food

Music/

Movies

Acces

sorie

s/Pers

onal

Care

Shoes

Video G

ames Car

Electro

nics

Conce

rts/M

ovies/E

vents

Other

Books

/Mag

s

Furnitu

re/Roo

m Acces

s.

Spring-09 Fall-08 Spring-08

Fashion Categories = 41%


12

Frequency By Gender & Product Category – National School Survey

SHOPPING FREQUENCY BY GENDER & PRODUCT CATEGORY

0

5

10

15

20

25

30

35

40

Vide

o ga

mes

/ sy

stem

s

Mus

ic /

mov

ies

(DVD

/CD

)

Elec

tron

ics

/ gad

gets

* Clo

thin

g

* Acc

esso

ries/

pers

onal

care

/cos

met

ics

* Sho

es

Food

Con

cert

s/M

ovie

s/Sp

ortin

gev

ents

Car

Boo

ks/m

agaz

ines

Furn

iture

/ ro

omac

cess

orie

s Oth

er

F M


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Apparel Brands & Teen Retailers

Brand Preferences – National School Survey

• West Coast Lifestyle Brands at No. 1, 12% mindshare (v. 18% Fall’08, 11% Spring ’08)

• Hollister regains seq. share losses; gains driven by females

• Nike moves higher at expense of Forever 21; fast fashion as group still steady for girls

• Aeropostale returns to top ten at No. 7; AE continues to cede share

• Brand concentration further reduced; evidence of maturation in cycle

• Females prefer Hollister, Forever 21, West Coast Brands

• Males prefer West Coast Brands, Nike, Hollister

• Pacific Sunwear tops West Coast Brands list with 43% share; strong fashion perception rank

• Volcom top boardsport brand with 37% category share; LRG & RVCA emerging in rank

• Nike recaptures share from Under Armour; esp. among football & soccer players


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Apparel Brands & Teen Retailers – National School Survey

TOP CLOTHING BRAND PREFERENCES - NATIONAL SCHOOL SURVEY - ALL STUDENTS

Rank Spring 2009 % Total Fall 2008 % Total Spring 2008 % Total1 West Coast Brands 12% West Coast Brands 18% Hollister 13%2 Hollister 12% Hollister 10% West Coast Brands 11%3 Nike 6% Forever 21 8% American Eagle 9%4 Forever 21 5% American Eagle 7% Abercrombie & Fitch 5%5 American Eagle 5% Abercrombie & Fitch 4% Forever 21 5%

TOP CLOTHING BRAND PREFERENCES - NATIONAL SCHOOL SURVEY - FEMALE

Rank Spring 2009 % Total Fall 2008 % Total Spring 2008 % Total1 Hollister 14% Forever 21 15% Hollister 14%2 Forever 21 10% Hollister 10% Forever 21 9%3 West Coast Brands 7% West Coast Brands 8% American Eagle 8%4 American Eagle 5% American Eagle 7% Nordstrom 8%5 Nordstrom 5% Urban Outf itters 7% Abercrombie & Fitch 5%

TOP CLOTHING BRAND PREFERENCES - NATIONAL SCHOOL SURVEY - MALE

Rank Spring 2009 % Total Fall 2008 % Total Spring 2008 % Total1 West Coast Brands 18% West Coast Brands 28% West Coast Brands 17%2 Nike 11% Hollister 11% Hollister 13%3 Hollister 9% American Eagle 8% American Eagle 10%4 American Eagle 5% Nike 7% Nike 7%5 Abercrombie & Fitch 4% Abercrombie & Fitch 3% Abercrombie & Fitch 6%


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Apparel Brands & Teen Retailers – National Online Survey

Brand Preferences – National Online Survey

• American Eagle top for ninth survey at 10% share; steady share losses since 16% Fall’07 peak

• West Coast Brands solid No. 2 at 10%; Hollister at No. 3 with 7%

• Aeropostale at No. 6 (v. No. 5 in Fall’08) but purchase share beginning to exceed preference

• Brand concentration waning; top five at 40% vs. 42%-43% in 2008

• Females pick AE, Forever 21, and Hollister; all lose share to prior period; F21 gains to PY

• Nike top ranked for males at 14% share; West Coast Brands close No. 2; collective 28% share

• Males pick PacSun (20%), LRG (8%), and Volcom (7%) within West Coast Brands

• Nike cedes share among athletic brands; UA consistent to prior year & seq. period


16

Apparel Brands & Teen Retailers – National Online Survey

TOP CLOTHING BRAND PREFERENCES - NATIONAL ONLINE SURVEY - ALL STUDENTS

Rank Spring 2009 % Total Fall 2008 % Total Spring 2008 % Total1 American Eagle 10% American Eagle 11% American Eagle 13%2 West Coast Brands 10% West Coast Brands 11% West Coast Brands 10%3 Hollister 7% Hollister 10% Hollister 9%4 Nike 7% Nike 6% Nike 6%5 Forever 21 5% Aeropostale 5% Abercrombie & Fitch 4%

TOP CLOTHING BRAND PREFERENCES - NATIONAL ONLINE SURVEY - FEMALE

Rank Spring 2009 % Total Fall 2008 % Total Spring 2008 % Total1 American Eagle 11% Hollister 12% American Eagle 13%2 Forever 21 9% American Eagle 12% Hollister 11%3 Hollister 9% Forever 21 8% Forever 21 6%4 West Coast Brands 7% West Coast Brands 6% West Coast Brands 6%5 Aeropostale 6% Aeropostale 6% Abercrombie & Fitch 5%

TOP CLOTHING BRAND PREFERENCES - NATIONAL ONLINE SURVEY - MALE

Rank Spring 2009 % Total Fall 2008 % Total Spring 2008 % Total1 Nike 14% West Coast Brands 17% West Coast Brands 14%2 West Coast Brands 14% Nike 12% American Eagle 13%3 American Eagle 10% American Eagle 10% Nike 12%4 Hollister 6% Hollister 7% Hollister 6%5 Polo Ralph Lauren 5% Polo Ralph Lauren 4% Polo Ralph Lauren 5%


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Footwear Brands & Retailers

School Survey

• Nike tops charts for seventeenth survey; 33% share (1 in 3!)

• Ugg at No. 2 with 7% share; up from No. 8 (3%) in Fall’08

• Vans at No. 3; Puma & Steve Madden follow; Converse cedes share; Journeys at No. 9

• Males No. 1 is Nike with 44% share; Vans, Foot Locker, Puma follow; asics into top 10

• Girls favor Nike (22%) and Ugg (14%); Ugg’s highest share capture to-date

• Low-pro casual & skate still dominant themes (Vans, Puma, Converse, Nike, DC)

• Journeys, Foot Locker, Nordstrom, and Payless preferred retailers

Online Survey

• Nike tops total vote with 40% share vs. 42% Fall’08 and 37% Spring’08; No. 1 male & female

• Vans, Converse, Adidas, DC round out top 5; strong casual/skate trend; Sperry micro-trend

• Ugg at No. 6, highest rank to-date; females rank brand No. 4 (5% share); expanding demo

• Girls favor Nike, Converse, Vans in top three; top 5 concentration up to PY (45% vs. 40% LY)

• Males pick Nike (56%), Vans, Adidas, DC, Converse; fashion athletic ties to West Coast Brands

• Journeys, Payless, Foot Locker preferred specialty retailers


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Footwear Brands & Retailers – National School Survey

TOP FOOTWEAR BRAND PREFERENCES - NATIONAL SCHOOL SURVEY - ALL STUDENTS

Rank Brand % Total Rank Brand % Total Rank Brand % Total1 Nike 33% 1 Nike 28% 1 Nike 31%2 Ugg Australia 7% 2 Vans 6% 2 Ugg Australia 5%3 Vans 7% 3 Steve Madden 6% 3 Steve Madden 5%4 Puma 5% 4 Converse 5% 4 Adidas 5%5 Steve Madden 4% 5 Adidas 4% 5 Puma 4%6 Foot Locker 4% 6 Puma 4% 6 Vans 3%7 Converse 4% 7 Rainbow 3% 7 Foot Locker 3%8 Adidas 3% 8 Ugg Australia 3% 8 Converse 2%

Journeys 3% 9 Journeys 2% 9 DSW 2%10 Payless Shoes 2% 10 Payless Shoes 2% 10 New Balance 2%

Payless Shoes 2%

Fall 2008Spring 2009 Spring 2008


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Footwear Brands & Retailers – National Online Survey

TOP FOOTWEAR BRAND PREFERENCES - NATIONAL ONLINE SURVEY - ALL STUDENTS

Rank Brand % Total Rank Brand % Total Rank Brand % Total1 Nike 40% 1 Nike 42% 1 Nike 37%2 Vans 5% 2 Vans 5% 2 Vans 4%3 Converse 4% 3 Adidas 4% 3 Adidas 4%4 Adidas 3% 4 Converse 3% 4 Converse 4%5 DC 2% 5 Puma 3% 5 Puma 3%6 Ugg Australia 2% 6 Journeys 2% 6 Journeys 2%7 Puma 2% 7 Foot Locker 2% 7 Payless Shoes 2%8 Journeys 2% 8 DC Shoes 2% 8 DC Shoes 2%

Payless 2% 9 Payless 2% 9 Steve Madden 2%10 Sperry Top Sider 2% 10 Old Navy 2% 10 New Balance 2%

Spring 2008Fall 2008Spring 2009


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Parent Survey

Key Takeaways

Lower number of responses from parents vs. fall; 57% reporting HH Income > $100KParents spending for teen up 4% to Fall ’08 and down 16% to Spring ‘08Parents spending for self down 20% to Fall ’08 and down 6% to Spring ’08

Parents increasing time spent in department and discount stores when shopping for apparel.• Value and discount stores occupy 32% of total parent shopping time• Time in dept. stores increases to 27% vs. 23% in Fall ’08 and 17% in Spring ’08

Shopping frequency increases on a monthly and 4x per year basis• Believe retailers have opportunity to convert on increased interest in time spent in

malls

Nordstrom moves to No. 1 spot when shopping for self Hollister, Nordstrom and West Coast brands share No. 1 spot when shopping for teen


21

Parent Survey

PARENT SPENDING ON APPAREL FOR SELF

$1,224

$974

$1,203

$1,398

$1,592

$1,306$1,249

$968 $952

$1,115

$896

$1,157

$1,526

$1,194

$826

$1,571

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Fall 2001 Spring2002








Source: Piper Jaf f ray & Co.


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Parent Survey


Changes In Parent Spending On Self

0%

10%

20%

30%

40%

50%

60%

70%








SAMEINCREASEDECREASE


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Parent Survey

PARENT SPENDING ON TEEN APPAREL

$1,413 $1,391

$1,230

$1,487

$995

$883

$1,085

$915

$1,015

$1,089

$1,379

$1,048$1,075

$1,142

$643

$935

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600











24

Beauty & Personal Care

Gen Y (Teen Girls) Snapshot:• Beauty spending down y/y—down 12% in both National School & Online Survey• Preferred cosmetics brand: MAC (in line with Fall & Spring ‘08)• Preferred fragrance brand: Victoria’s Secret (in line with Fall ‘08)• She prefers to purchase skin care and cosmetics in specialty, drug and discount stores• Ulta not yet in top ten, but gaining significant traction (No. 16 vs. No. 22 in Spring ’08)• Loyalty in foundation makeup is waning and “price” remains key factor

Baby Boomers (Female Parents) Snapshot:• Beauty spending up 12% y/y and up 2% sequentially• Skin care remains top of mind and top priority in her “beauty wallet”• Preferred cosmetics brand: Bare Escentuals (up from No. 8 position in Fall ‘08)• Preferred fragrance brand: Calvin Klein (vs. Bath & Body Works in Fall ‘08)• Specialty stores preferred when purchasing cosmetics, dept. stores cede share• Discount stores remain preferred channel when purchasing skin care


25


Favorite Cosm etics Brand For Teen Girls - National School Survey

Rank Favorite Cosm etics Brand % Total Rank Favorite Cosm etics Brand % Total1 MAC 19% 1 MAC 23%2 Cover Girl 18% 2 Cover Girl 15%3 Maybelline 13% 3 Maybelline 11%4 Clinique 8% 4 Clinique 8%5 Bare Escentuals 7% 5 Bare Escentuals 7%6 L'Oreal 4% 6 L'Oreal 4%

Sephora 4% 7 Sephora 3%8 Mary-Kay 3% 8 Neutrogena 3%

Urban Decay 3% 9 Urban Decay 3%10 Lancome 2% 10 Bobbi Brow n 2%

Neutrogena 2%

Rank Favorite Cosm etics Brand % Total Rank Favorite Cosm etics Brand % Total1 MAC 25% 1 MAC 25%2 Cover Girl 17% 2 Cover Girl 17%3 Bare Escentuals 10% 3 Maybelline 8%4 Clinique 8% 4 Clinique 8%5 Maybelline 6% 5 Bare Escentuals 5%6 Lancome 3% 6 L'Oreal 4%7 Chanel 3% 7 Revlon 4%8 Sephora 2% Chanel 4%9 Mary-Kay 2% 9 Sephora 3%

Urban Decay 2% Mary-Kay 3%

Rank Favorite Cosm etics Brand % Total Rank Favorite Cosm etics Brand % Total1 MAC 23% 1 MAC 26%2 Cover Girl 14% 2 Maybelline 10%3 Clinique 12% 3 Clinique 9%4 Maybelline 7% 4 Cover Girl 8%5 Bare Escentuals 6% 5 Mary-Kay 5%6 Chanel 5% 6 Chanel 4%7 Mary-Kay 4% 7 Revlon 3%8 Estee Lauder 4% 8 Bare Escentuals 3%9 L'Oreal 3% Estee Lauder 3%

10 Sephora 3% Lancome 3%Source: Piper Jaf f ray & Co.

Spring 2007

Fall 2007Spring 2008

Fall 2008

Fall 2006

Spring 2009


26

Beauty & Personal CareFavorite Cosmetics Brand For Teen Girls - National Online Survey

Rank Favorite Cosmetics Brand % Total Rank Favorite Cosmetics Brand % Total1 Cover Girl 23% 1 Cover Girl 23%2 MAC 15% 2 MAC 14%3 Maybelline 13% 3 Maybelline 12%4 Bare Escentuals 7% 4 Clinique 7%5 Mary-Kay 7% 5 Bare Escentuals 6%6 Clinique 6% 6 Mary-Kay 5%7 Avon 4% 7 L'Oreal 3%8 L'Oreal 3% 8 Avon 3%9 Revlon 2% 9 Revlon 3%

10 Sephora 2% 10 Sephora 2%

Rank Favorite Cosmetics Brand % Total Rank Favorite Cosmetics Brand % Total1 Cover Girl 22% 1 Cover Girl 22%2 MAC 18% 2 MAC 16%3 Maybelline 10% 3 Maybelline 11%4 Bare Escentuals 7% 4 Clinique 9%5 Clinique 6% 5 Mary-Kay 7%6 Mary-Kay 5% 6 Revlon 3%7 L'Oreal 5% 7 Avon 3%8 Revlon 2% 8 L'Oreal 3%9 Avon 2% 9 Bare Escentuals 3%

10 Almay 2% 10 Lancome 2%

Rank Favorite Cosmetics Brand % Total Rank Favorite Cosmetics Brand % Total1 Cover Girl 19% 1 Cover Girl 20%2 Maybelline 12% 2 MAC 16%3 MAC 11% 3 Maybelline 11%4 Mary-Kay 10% 4 Clinique 8%5 Clinique 9% 5 Mary-Kay 8%6 Bare Escentuals 5% 6 Revlon 4%7 Avon 3% 7 L'Oreal 3%8 L'Oreal 3% 8 Avon 3%9 Sephora 2% 9 Bare Escentuals 2%

10 Revlon 2% 10 Estee Lauder 2%Source: Piper Jaffray & Co.

Fall 2006

Fall 2007

Spring 2007

Spring 2008



27

Beauty & Personal CareFavorite Cosmetics Brand - Parent Survey

Rank Favorite Cosmetics Brand % Total Rank Favorite Cosmetics Brand % Total1 Bare Escentuals 20% 1 Maybelline 15%2 L'Oreal 15% 2 Clinique 12%3 Clinique 10% 3 Cover Girl 11%4 Bobbi Brow n 7% 4 Mary Kay 7%

Lancome 7% 5 Estee Lauder 7%Maybelline 7% L'Oreal 7%

7 Chanel 5% 7 MAC 6%Mary-Kay 5% 8 Bare Escentuals 5%Trish McEvoy 5% Lancome 5%

10 8 brands tied for 8th 2% 10 Almay 4%

Rank Favorite Cosmetics Brand % Total Rank Favorite Cosmetics Brand % Total1 Cover Girl 12% 1 Clinique 12%2 Clinique 11% 2 Mary Kay 11%

L'Oreal 11% 3 Cover Girl 10%4 Lancome 8% 4 Lancome 10%

Mary Kay 8% 5 Maybelline 9%Maybelline 8% 6 MAC 7%

7 Bare Escentuals 6% 7 Revlon 6%MAC 6% 8 Estee Lauder 5%

9 Avon 5% 9 L'Oreal 5%10 Estee Lauder 3% 10 Almay 3%

Merle Norman 3% Bare Escentuals 3%Sephora 3%

Rank Favorite Cosmetics Brand % Total Rank Favorite Cosmetics Brand % Total1 Mary Kay 18% 1 Clinique 14%2 Clinique 12% 2 Lancome 8%3 Estee Lauder 10% 3 Mary Kay 7%4 L'Oreal 8% 4 Cover Girl 6%5 Bare Escentuals 6% Estee Lauder 6%

Revlon 6% MAC 6%7 Almay 4% Revlon 6%

Arbonne 4% 8 Chanel 5%Maybelline 4% L'Oreal 5%Neutrogena 4% Maybelline 5%



Spring 2008

Spring 2007 Fall 2006

Fall 2007


28


Mineral-Based Makeup Survey Results:

• Awareness of mineral-based makeup: 93% vs. 95% in Fall ‘08

• Percentage of respondents who have tried it: 53% vs. 52% in Fall ‘08

• Percentage of respondents who have tried it and prefer it to non-mineral makeup: 71%

• Preferred mineral makeup brand: Bare Escentuals (63% mindshare consistent with Fall ‘08)

Favorite M ineral Brand - National School Survey

Rank Brand % Total Rank Brand % Total Rank Brand % Total1 Bare Escentuals 63% 1 Bare Escentuals 63% 1 Bare Escentuals 76%2 Cover Girl 5% 2 Maybelline 5% 2 Physicians Formula 8%3 Physicians Formula 4% 3 L'Oreal 4% 3 Maybelline 3%

Sephora 4% 4 Cover Girl 4% 4 Clinique 2%4 Maybelline 4% MAC 4% 5 MAC 2%5 MAC 2% 6 Neutrogena 2% Sheer Cover 2%

Neutrogena 2% Physicians Formula 2% 7 Arbonne 1%6 Laura Mercier 2% 8 Mary Kay 2% Avon 1%

L'Oreal 2% Sheer Cover 2% Chanel 1%Mary-Kay 1% 10 Prescriptives 1% Mary Kay 1%Origins 1% Pur Minerals 1%Pur Minerals 1% True 1%


Spring 2008Fall 2008Spring 2009


29

Video Games

Key Takeaways:

Console penetration remains high, interest is solid, and spending in the category is increasing.

• We estimate teens represent approximately 35% of video game players

• Video games as a percentage of teen spending has increased from 3% to 8% over last five years

• 80% own/intend to purchase a next-gen console – up from 71% during Fall-08 survey• 49% own/intend to purchase Microsoft XBX360 (flat with 50% last fall)

• 48% intend to purchase Sony PS3 (up from with 41% last Fall)

• 38% intend to purchase Nintendo Wii (down from 52% last Fall)

• Demand for used games is high; GameStop leads retail share among teens with 31%.

• Used video games represent 36% of purchases; 42% during Fall-08, 35% during Spring-08

• New findings: 49% of game trade-ins used to buy another game, 65% of those are used games

• Teen gamers are NOT price sensitive; 54% of all purchases are $50 or greater

• While stats are not stellar, interest remains solid given maturing game cycle:• 24% plan to spend more time playing video games (vs. 29% last Fall)

• 73% play games at least monthly (71% last Fall)

• Console is king: 63% of teens unwilling to buy cell phone games, 71% unwilling to buy PC games


30

Digital Media

Key Takeaway

iTunes market share among teens rose to 97% from 81% y/y.

• Apple saturating portable media player market

• iPod has 86% market share (flat y/y)

• 19% of teens intend to buy an MP3 player in the next 12 months (all-time low, down from 34% 6 months ago)– 100% of those teens intend to buy an iPod (vs. 80% in Spring ’08)

• iPhone remains popular, data plans may be limiting

• 16% of teens plan on buying an iPhone in the next six months (vs. 22% six months ago following the iPhone 3G launch)

• In the last six months, market share among teens has remained flat at 8%

• Expensive data plans may be causing the discrepancy in teens’ interest in the phone and actual market share gains


31

Digital Music – Online Services

Key Takeaway

60% of students download music illegally via P2P sharing sites, 40% legally purchase music – this shift toward legal stores is slowing

• 34% listen to music on a cell phone (mobile music is a key opportunity)

• iTunes continues to gain share; RealNetworks maintaining share

• iTunes’ market share reached an all-time high at 97% (vs. 81% one year ago)

• RealNetworks holds the No. 2 position with 2% (vs. 2% one year ago)


32

Online Movie Rentals

Key Takeaway

Netflix is well-positioned in the two growing segments of movie rentals: DVD-by-Mail & Downloads

• DVD-By-Mail: 25% of teens currently use DVD-by-Mail (up from 19% 6 mos. ago)• 40% expect to use DVD-by-Mail in two years

• Downloads: 17% currently download movie rentals (down from 22% 6 mos. ago)• 26% expect to download movie rentals in two years

• Netflix does not participate in the market segments that are losing mindshare

• Retail Stores: 83% of teens currently rent movies at retail stores, but just 68% expect to rent at retail stores in 2 years.

• Kiosks: 12% currently use kiosks, and 11% expect to use kiosks in 2 years.


33

Restaurants

Key Takeaways

• Spending: Teens < $ versus Previous Surveys• Continued four-survey decline (Fall 2007- Spring 2009) since the beginning of the recession

• Approximate 20% decline in restaurant spend to $12.62/week

• May be result of mix shift

• Sources of Influence:• Value ranks higher and higher: rank 3 (of 6) versus 5 (of 6)

• Value more relevant than even convenience

• Daypart: Lunch Gaining Share at Expense of Dinner

• Parents: Inflection Point• Majority of parents (~49%) perceive less meal away from home spending

• Validates thesis of transition from aspirational to affordable

• Market Share: • QSR and premium-convenience chains continue to rank as the most preferred teen brands

• Starbucks, Chipotle and McDonald’s

Top Three Preferred Brands

• Starbucks (15% School; 9% Online)

• Chipotle (6% School); Olive Garden (6% Online)

• Cheesecake Factory & McDonalds (4% School); Applebee’s (4% Online)


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