Market Comments 5/9/2008

U.S. retailers moving into clearance mode as higher oil and food prices reduce middle class luxury demand. U.S. consumers are being conditioned not to buy until items are significantly discounted. Heavy clearance drive at Zale pushes fiscal 3Q sales +6% to $477 mil., same-store +6%. Signet 1Q sales in U.S. -0.2% to $631 mil., same-store -5%, but sales in U.K. +5% to $192 mil. Department stores weak with Neiman Marcus 3Q -1% to $1 bil.; Nordstrom 1Q -4% to $1.9 bil.; JCPenney 1Q -5% to $4.1 bil. Big clearance at Saks drove 1Q sales +9% to $853 mil. Blue Nile 1Q sales +4% to $71 mil. due to 120% international growth and price increases. Profits -19% to $2.6 mil. with fair demand restricted to price points under $5k. Lender notifies House of Taylor of $4 mil. default. ALROSA 1Q08 profits -36% to $49 mil. due to weak dollar and lower rough demand. De Beers latest price increases for commercial qualities appear ill timed, exploitative and unsustainable as India and China not yet strong enough to replace rapidly declining U.S. market.