Based in Eden Prairie, MN, Bluestem Brands (proposed BSTM) scheduled a $150 million IPO with a market capitalization of $525 million at a price range mid-point of $15 for Wednesday, November 16, 2011.

SUMMARY

BSTM is a catalog retailer with an online business that accounted for 44% of revenue during 2010.

VALUATION

At the price range mid-point of $15, BSTM is valued at about the same book value as JC Penney (JCP), 1.6 versus 1.5; valued at a significant price-to-sales premium, 6.6 versus .4; and valued at a higher relative P/E multiple, -50 (this means a loss) versus 45 for JCP. For the last four quarters JCP has been consistently profitable.

In 2010 42% of BSTM’s sales occurred during the fourth fiscal quarter. BSTM targets customers with incomes less than $75,000, and says it is different from competitors by offering customized credit programs, which suggests their accounts receivable may be of lower quality.

Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	Stock
Annualizing July 6 mos	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	YTD
Bluestem Brands BSTM	$525	6.6	-50	1.6	2.0
Sears (SHLD)	$7,810	0.2	-12	1.0	2.2	-3%
J.C. Penney (JCP)	$6,960	0.4	45	1.5	1.5	1%

CONCLUSION

BSTM’s stock may be fully valued at the price range mid-point of $15 for several reasons.

BSTM’s financial results are uneven. Even subtracting out derivative losses (on their own equity) for the years 2008, 2009 and 2009 BSTM’s profit margins were 0%, 3% and 2%. See the metrics and the bottom of this IPOreport.

BSTM’s business is very seasonal, with 42% of 2010’s sales coming in the fourth quarter: so their 12 month profitability depends on the state of the economy. Also, based on their customized credit programs, the quality of sales may not be as high as more traditional retailers.

BUSINESS

BSTM is a leading national multi-brand, multi-channel retailer of a broad selection of name brand and private label general merchandise. BSTM offers an extensive assortment of general merchandise including hundreds of well recognized name brands such as Columbia, Dyson, Fisher-Price, KitchenAid, Skechers and Sony, as well as targeted, high quality private label offerings under our own brands, including Chef’s Mark, LifeMax, Master Craft, McLeland Designs, Outdoor Spirit and Super Chef

BSTM participates in the general merchandise segment of the retailing industry and sells through complementary catalog and e-commerce channels.

Customer repurchase rate was 57% during 2010. Overall, BSTM’s online orders accounted for 44% of total orders during 2010, compared to 25% in 2005.

TARGET MARKET

BSTM’s target market is low to middle income, credit constrained consumers with FICO scores between 500 and 700. Based on an Equifax report provided in March 2011, the estimated size of the U.S. population with FICO scores between 500 and 700 was approximately 100 million.

Within this group, BSTM targets a subset of low to middle income consumers, which it defines as those with an annual household income below $75,000. Consumers with household incomes below $75,000 represented approximately 68% of all U.S. consumers in 2009, according to the U.S. Census Bureau.

CREDIT STRATEGY

Fingerhut FreshStart

During the six months ended July 29, 2010, BSTM continued its rollout of the Fingerhut FreshStart credit offer. Fingerhut FreshStart is a credit product that allows approved applicants to purchase Fingerhut merchandise on an installment loan basis after a $30 down payment has been received.

BSTM added new Fingerhut FreshStart credit accounts from both direct marketing and as a counter offer to applicants who did not qualify for the traditional Fingerhut revolving credit product.

BSTM believes "very few retailers today combine the sale of general merchandise with customized credit products."

The Fingerhut brand has provided customers with extensive branded, non-branded and private label general merchandise selections, and monthly payment plans, for over 60 years.

Historically, catalogs have been the primary source of orders for Fingerhut, although customers are increasingly making purchases online. BSTM launched Gettington.com in 2009 as an alternative e-commerce brand targeting a slightly younger, more e-commerce focused customer

SEASONAL

The seasonality of BSTM’s business increases the strain on its operations and results in fluctuations in quarterly results.

A disproportionate amount of net sales, 42% in 2010, occurs during the fourth fiscal quarter.

COMPETITION

BSTM competes with a wide variety of retailers that offer similar merchandise. Current and potential competitors include brick and mortar retailers such as mass merchandisers, department stores, discounters, home improvement centers, consumer electronics and specialty retailers and other storefront based operations with stores on a national, regional and local level.

Examples include Best Buy (BBY), Home Depot (HD), JCPenney (JCP), Kohl’s (KSS), Lowe’s (LOW), Macy’s (M), Sears (SHLD), Target (TGT) and Walmart (WMT).

A second source of competition arises from e-commerce retailers, examples of which include Amazon (AMZN), Buy.com, JCPenney.com, Overstock.com (OSTK) and Swiss Colony.

Finally, BSTM faces competition from indirect competitors, including web search engines, price comparison websites and television shopping networks, such as QVC and the Home Shopping Network.

PRIVATE EQUITY LEVERAGED BUYOUT

Founded in 1948, the Fingerhut brand stands for offering customers a wide assortment of high quality general merchandise and flexible monthly payment plans. Bluestem Brands, Inc., formerly named Fingerhut Direct Marketing, Inc., was established in 2002 when BSTM acquired certain assets of Fingerhut Companies, Inc., from FAC Acquisition LLC, which had acquired the assets from Federated Department Stores, Inc.

applicants to purchase Fingerhut merchandise on an installment loan basis after a $30 down payment has been received. We added new Fingerhut FreshStart credit accounts from both direct marketing and as a counter offer to applicants who did not qualify for the traditional Fingerhut revolving credit product.

DERIVATIVE LOSSES FROM OWN EQUITY

"Loss from derivatives in our own equity increased to $52.1 million in the 26 weeks ended July 29, 2011 compared to zero in the 26 weeks ended July 30, 2010. The increase was primarily due to the $29.8 million increase in the value of the conversion feature of the Preferred Stock and the $8.5 million increase in the fair value of the common stock warrants. The increase in value of both the conversion feature and the common stock warrants are due to the estimated increase in the value of the company."

Page 64

http://www.sec.gov/Archives/edgar/data/1283384/000095012311093487/c62024a5sv1za.htm#C62024109

USE OF PROCEEDS

$135mm

Repay debt

Bluestem Brands	BSTM,C, 7					Post PO shares: 35mm
Retailer for low income		Jan 31 fiscal		July 6 mos	July 6 mos
Eden Prairie, MN	2009	2010	2011	2010	2011	IPO Mkt
Revenues ($mm)	$423	$438	$521	$193	$232	Cap (mm)
Gross Margin % of revenue	48%	48%	47%	48%	47%	$525
Derivative loss from own equity	----	-$6.5	-$32.6	-$9.0	-$52.1	@$15
Net income (loss) ($mm)	$1.3	$9.2	-$11.5	$4.1	-$34.7
Net excluding derivatives		$13.10	$8.06	$9.50	-$3.44
& applying a 40% tax rate
Net income (loss) % of revenue	.3%	3.0%	1.5%	4.9%	-1%
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	% offered
Annualizing Sept 3 mos	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	in IPO
Bluestem Brands BSTM	$525	1.1	-76	1.6	2.0	29%
Valuation Ratios	IPO Mrkt	Price /	Price /	Price /	Price /	Stock
Annualizing July 6 mos	Cap (mm)	Sales	Earnings	BookValue	TangibleBV	YTD
Bluestem Brands BSTM	$525	6.6	-50	1.6	2.0
Sears (SHLD)	$7,810	0.2	-12	1.0	2.2	-3%
J.C. Penney (JCP)	$6,960	0.4	45	1.5	1.5	1%
SCORECARD		Mgt	Market	Market Do-	Proprie-	Total
1-5, 5 is high			Growth	mination	tary	rating
20 is perfect		2	2	1	2	7