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    MARKET EDGES

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At the close on Friday I noticed a common thread among several of the days’ top outperformers (i.e. TLB, CHRS, LIZ, & DDS) – we had highlighted them a month ago (“Bill Critical for Ailing Retailers” on 11/08) as key beneficiaries of the Business Assistance Act of 2009. While talk of the benefit has crept into late 3Q earnings calls (e.g. CHRS last week), the benefit of this legislation is still flying under the radar of most investors and will provide meaningful relief to some of the smaller undercapitalized retailers.

After speaking with several companies on the topic, there are a few considerations helpful in trying to quantify the materiality of this benefit:

1)      The bill only applies to domestic losses

2)      Re timing of cash receipt:

  • if claiming ’08 losses, process can be underway now but can take 2-3 months to get paperwork in order from start to finish.
  • if claiming ’09 losses, have to wait until taxes are filed for the year (some companies could realize in Q1, but not until 2Q for most).

3)      There are restrictions re eligibility of losses

  • Has to be a valid deduction (e.g. a pure reserve on the books that has not been realized is NOT valid).

4)      A company can recoup up to ~35% of eligible losses

So why revisit this topic now? With TLB reporting tomorrow morning, it’s worth noting given that short interest is at 38% second only to October 15th when it had reached 42% and the stock was 60% higher. While this legislation is hardly the catalyst to send shares back to recent peak levels, it’s important to note the cash infusion – particularly with TLB’s revolver expiring in the 1Q of 2010 that could result in a near-term reprieve.

Casey Flavin

Director