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Markdowns Weigh on Talbots

NEW YORK — Despite an 11.4 percent jump in sales, fourth-quarter profits at specialty retailer Talbots Inc. plummeted 27 percent due to higher markdowns during a semiannual, post-Christmas clearance event. Similar results were seen in the full...

NEW YORK — Despite an 11.4 percent jump in sales, fourth-quarter profits at specialty retailer Talbots Inc. plummeted 27 percent due to higher markdowns during a semiannual, post-Christmas clearance event. Similar results were seen in the full year.

“Fiscal 2004 was a year of highs and lows,” said Arnold Zetcher, president and chief executive officer, on a conference call with analysts and investors. “Due to a sluggish start to the fall season, we were left with much higher-than-planned levels of inventory, and consequently, lower-than-anticipated earnings in both the third and fourth quarters.”

In the three months ended Jan. 31, the Hingham, Mass.-based company earned $16 million, or 29 cents a diluted share, matching Wall Street’s estimates. Comparatively, Talbots posted a profit of $22 million, or 38 cents, in the same period last year.

The retailer said it plans to restate its financial results for previous periods due to changes in the way it accounts expenses on store leases. Earnings results in the prior periods, however, are not expected to be materially affected.

Sales for the fourth quarter came in at $470.7 million, up from $422.7 million in the prior year. Same-store sales showed a 4.4 percent gain. Sales at retail stores were up 10 percent to $401 million while catalogue sales rose 20.2 percent to $69.7 million. The company said that, due to a change in the way it reports its customer loyalty program, revenue was reduced during the quarter, while earnings were not affected.

For 2005, Talbots expects earnings per share in the range of $1.71 to $1.73, which includes a charge of 6 cents for stock option expenses. On a pro forma basis, which adds back the stock options expense, the company predicts profits in the range of $1.77 to $1.79, which is below analysts’ consensus estimate of $1.84.

Regarding sales in 2005, Talbots chief financial officer, Edward Larsen, said the company expects top-line growth of 5 to 7 percent with same-store sales showing a gain of 2 to 3 percent.

In the current first quarter, the company confirmed prior earnings guidance of 59 to 63 cents, based on February’s 8.1 percent rise in same-store sales. Analysts have the retailer pegged to earn 63 cents.

This story first appeared in the March 10, 2005 issue of WWD.  Subscribe Today.

At least one analyst was cautious on Talbots, however. “For the past year, the company has posted strong early reads at the beginning of its seasons, only to see that strength disappear due to poor performance,” wrote Wells Fargo Securities analyst Mark Montagna in a March 4 research report discussing February’s same-store sales.

Talbots plans to open 50 new stores in 2005, many of which will be single-concept locations, such as its existing Talbots Petites, Talbots Womans and Talbot Collection stores.

Results for full-year 2004 showed earnings that dropped 7.9 percent to $96.4 million, or $1.71 a diluted share, matching Wall Street estimates, versus $104.7 million, or $1.81, in 2003. Revenues increased 6.5 percent to $1.7 billion.