As Q3 Slides into Loss, Talbots Announces $50M in Cuts

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Holiday look from Talbots

Hingham, MA—With its turnaround efforts apparently stymied by a highly promotional retail atmosphere, Talbots reported Thursday it had swing into a third quarter loss and is instituting $50 million in cost-cutting measures.

For the quarter ended Oct. 29, the specialty retailer posted a net loss of $22 million, or 32 cents a share, compared with a profit of $17 million, or 24 cents a share a year ago. On an adjusted basis, Talbots lost 22 cents while analysts’ average estimate expected a loss of only 16 cents a share.

Net sales fell 6.6% to $279.5 million compared to $299.1 million in its third quarter last year. Total comparable sales decreased 4.0%, which includes Internet, catalog and red-line sales, dropped 4%

Expenses also took a hit as markdowns and other costs increased. Operating margin turned negative on the sales decline and higher expenses, compared with 6.6% a year earlier. Gross margins have dropped from a five year high of 49% earlier this year to about 34% in third quarter.

CEO in Jeopardy Too?

“While we are not satisfied with our performance, we believe the modifications we are making to our merchandise assortment are better resonating with our core customer, which is consistent with the results of our most recent consumer research studies,” Trudy Sullivan, ceo, said.

As part of a $50 million cost-cutting initiative, Talbots announced it would be laying off about 100 corporate employees, suspending its national print advertising and TV campaigns, reducing store workers’ hours and downsizing inventory. The company also plans to reduce its capital expenditures next year to $30 million from its current spending level of $47 million.

While those measures may help in the long term, Talbots faces a tough fourth quarter, too. Although Sullivan said the company posted “strong sales” for Black Friday and Cyber Monday, comparable store sales for October and November “were approximately flat, which is a significant improvement.”

“We expect the holiday season to remain challenging and highly promotional, and we will continue to respond accordingly,” Sullivan said.

Earlier this year, the company expanded its turnaround efforts by planning to shutter 110 underperforming locations and plans to have 83 closed by the end of its fiscal year.

Meanwhile, The Wall Street Journal reported that Talbots’ board of directors is looking for a chief executive officer to succeed Sullivan, who has been ceo since 2007. However, a spokesperson for Talbots declined comment on the report.

 

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