Revamped Talbots Posts Quarterly Profit

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Hingham, MA–Talbots, which had been fighting with sales drops for several quarters and a heavy debt load and is adjusting its styles to cater to younger shoppers, posted a quarterly profit this morning.

The women’s clothing specialty retailer (TLB.N) posted a quarterly profit versus a year-ago loss and forecast higher sales as its turnaround takes hold, sending its shares up 7%. The company on April 7 completed purchase of special purpose acquisition company BPW to reduce its debt and increase its liquidity. It also has a new line of credit—as much as $200 million—from GC Capital Markets.

Analysts say this debt reduction combined with a revamped merchandise point of view is spurring the retailer ahead. “Talbots’ turn is well under way,” UBS analyst Roxanne Meyer wrote in a research note. “Yet the impact of rebranding is just beginning to impact sales and benefits from sourcing have yet to occur.”

Talbots forecast that sales would trend upward between 4% and 5% in the first quarter of its fiscal year 2010, continuing the trend it saw in January, when sales at its stores open at least year rose in the high single digits. The 580-store chain anticipates full-year sales up 3% to 5%.

Chief Executive Trudy Sullivan said in a statement that Talbots’ efforts to refresh its brands, modernize merchandise and streamline the company had set the stage for future growth. As part of that refreshment, the company unveiled a new ad campaign, offered more fitted styles and updated materials and looks aimed at a mid-30s or older.

Talbots reported net income of $4.1 million, or 7 cents per share in its fourth quarter that ended January 30, compared with a loss of $361.5 million, or $6.75 a year earlier. Excluding items, the company earned 13 cents per share from continuing operations.

Sales at stores open at least a year fell 7.2% in the fourth quarter. Markdown selling declined 21% while sales of full-price merchandise rose 10%. Talbots reportedly also cut its inventory by some 31%. Aside from improvements in merchandise, Talbots’ leaner inventories helped it sell more clothes at full price, in contrast with the big discounts it had to offer in previous quarters to move merchandise

In a sign that Talbots results prove that women are shopping again, shares of rival clothing chains Ann Taylor Stores (ANN.N) and Chico’s (CHS.N) rose about 1.6% and 0.14% respectively, in morning trading.

Sales from Talbots’ continuing operations fell 3.7% to $315.9 million. Analysts on average forecast sales of $314.4 million, according to Thomson Reuters I/B/E/S.