Talbot Sees Net Shrink As Comps Decline 6%

Its base of loyal shoppers couldn’t offset declines among fringe customers, cutting into Talbots’ fourth-quarter earnings, sales and comp-store sales.

NEW YORK — Its base of loyal shoppers couldn’t offset declines among fringe customers, cutting into Talbots’ fourth-quarter earnings, sales and comparable-store sales.

This story first appeared in the March 13, 2003 issue of WWD.  Subscribe Today.

The Hingham, Mass.-based women’s specialty retailer said income for the three months ended Feb. 1 dwindled 12.9 percent to $28.3 million, or 48 cents a diluted share, 1 cent above consensus estimates. Talbots reported earnings of $32.5 million, or 53 cents, in the year-ago period. Overall sales for the quarter dipped 0.3 percent to $431.8 million over $433.2 million. Retail store sales increased 0.2 percent to $363.5 million from $362.7 million in last year’s quarter, but withered 6 percent on a comparable-store sales basis. Catalog sales fell 3 percent to $68.3 million from $70.5 million in the year-ago period.

“Although sales levels were not quite what we hoped for, we are pleased with our ability to maintain this level of earnings per share in 2002 after four consecutive years of healthy earnings,” Talbots’ chairman, president and chief executive Arnold B. Zetcher told investors on a morning conference call. “This performance demonstrates our ability to manage the business during such difficult times.”

To get a better understanding of its customers’ shopping patterns, Talbots after the fourth quarter conducted a sales analysis as a follow-up to a similar study done in September and found a continuation of the same trend: the purchasing levels of its best customers were essentially flat with last year’s, but less loyal customers continued to buy at reduced levels.

With its fashion focus rooted in the traditional, Harold?Bosworth, the firm’s new chief merchandising officer, on the call advocated “an evolution, not a revolution” in Talbots styling. “Our strategy is to continue to move the product forward to make sure it is modern and new, but always classic.

“We will further differentiate our lifestyle businesses with our sportswear, being more refined and dressy in feel, as compared to our casual product offering,” the merchant said, also noting that the retailer will elevate its special-occasion apparel and build its wear-to-work assortment of dresses.

Core sportswear business apparel will be 31 to 32 percent of inventory this year, versus 34 percent last year; occasional apparel is planned at 8 to 10 percent, up from 5 to 6 percent last year.

Marketing will be used to create a great sense of urgency about product. “Both our print advertisement and our new television spot will focus more directly on merchandise, and less on lifestyle as they used to,” Zetcher said. “In this way, we hope to attract both our core and less-frequent customer.”

Todd Slater, an analyst with Lazard Frères, said: “Talbots is throwing a lot of ideas at the wall without changing the complexion of the brand. The key is the brand is strong, it is managing inventory in a disciplined way and they are tweaking their assortment to become more focused.”

Still, he acknowledged, Talbots must do more innovating to attract noncore customers to its “investment brand,” but do so without alienating the core customer.

As reported, on April 3, Talbots will open its first men’s store, in Westport, Conn., with five more men’s units — including one adjacent to its Madison Avenue flagship here —slated by yearend. The company said it is encouraged based on demand from its first catalog, which was mailed in early October to 750,000 customers and exceeded expectations. In 2004, nine stores are planned to open and if all goes well, the company plans a full rollout in 2005 of 20 to 25 stores.

Like many specialty retailers, Talbots said the last month’s snowstorms caused comps to fall below expectations. With an 11.7 percent drop in February comps, the firm doesn’t anticipate it will be able to recapture lost sales and warned first-quarter earnings should fall below last year’s levels. It also said it was unable to confirm its prior spring guidance until it gets a better reading of spring sales this month.

For 2002, income tapered off 4.9 percent to $120.8 million, or $2.01 a diluted share, versus income of $127 million last year. Overall sales for the 12 months notched down 1.1 percent to $1.59 billion from $1.61 billion. Retail store sales were about flat at $1.34 billion versus $1.35 billion, while comps withered 6.6 percent. Catalog sales were down 7 percent to $247.4 million from $266.5 million.

“Overall, fiscal 2002 ended up to be a challenging year from both a sales and earning perspective, but despite a slight decrease in sales this year compared to last year, we remained firmly profitable with net income at 7.6 percent of sales,” Zetcher said. “This performance was driven by a combination of continued expense and inventory control, significant mark on gains through better sourcing and a firm adherence to our traditional promotional calendar and price strategy.”