Talbots Attempts a Turnaround (TLB)

Talbots Inc. (NYSE: TLB) announced yesterday that it lost money in the fourth quarter due to a drop in same store sales and charges from the acquisition of J. Jill stores in an 8-K filing with the SEC. For the fourth quarter, Talbots lost over $171 million or $3.23 per share compared to a basically break-even fourth quarter in 2006. Of the $3.23 loss per share, $2.71 was due to a write-down of intangible assets of J. Jill which was purchased in May 2006.

Talbot is specialty retailer and cataloger clothing, specifically children’s and women’s clothing through Talbots Kids and Talbots Misses. The company runs 25 separate catalogs, 140 superstores and 23 outlet stores. Unfortunately for the company, the May 2006 J. Jill acquisition has been less profitable than hoped and necessitated greater write downs because of lower growth and earnings for the brand.

The J. Jill acquisition was designed to update Talbots more traditional lines and drive growth; however, the brand has proved a money drain – not only is growth slower in that line rather than faster than Talbots other brands, but the women’s retail industry as a whole is experience a significant downturn.

The overall health of Talbot stores seem to be in decline with quarterly sales down 8% to $587 million from $638 million. Talbots President and CEO Trudy Sullivan said, “2007 was a difficult year for Talbots, However, we feel very good about the progress we have made, and believe we are well-positioned to succeed in 2008. Despite the challenges of a weak economic environment, we identified and implemented a number of key initiatives to drive improved short- and long-term performance.”

These key initiatives include closing its 78 men’s and children’s stores to focus on its core customer- middle-aged women.
Looking forward, Talbots forecasts 3% revenue growth for 2008 – even assuming “slightly negative” same-store sales growth. To turn the company around, management is going to have to continue closing under performing stores as well as reinvigorate its product offering.

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