By  on December 1, 2011

Divestitures and cutbacks are the name of the game at The Talbots Inc. and Charming Shoppes Inc.

As both chains reported losses for the third quarter, Talbots unveiled a cost-reduction plan to shave $50 million in annualized savings for fiscal-year 2012. The initiative, which includes a 9 percent head-count reduction at headquarters, is across all areas of the business. The plan includes a reduction in marketing spend, which incorporates a suspension of national advertising and television campaigns in the near term. It also includes payroll adjustments impacting the composition of its store workforce and the reduction of store payroll hours, as well as logistics expense rationalization that will align with the expected reduction in planned inventory commitments for 2012.

The cost savings plan excludes “four-wall expense savings” from the company’s store rationalization plan. Talbots will continue investments in areas that it says are proven to generate returns. It expects to spend $30 million next year to expand its upscale outlet business and on its store reimage initiative.

The firm has closed 35 locations in the first nine months, with 18 in the third quarter. A total of 83 stores, including consolidations, are planned for closure in 2011, with another 25 sites in 2012. Talbots said it is on track to complete 50 refreshes in the current fiscal year as part of its store reimage initiative.

Trudy F. Sullivan, president and chief executive officer, told Wall Street analysts in a conference call that the upscale outlet business “continues to be an important profitable growth vehicle for us.” The company ended the quarter with 39 outlets and expects to open four more in the fourth quarter. “Over the long term, we believe this business has the potential to grow to approximately 80 to 100 stores,” the ceo told analysts.

For the third quarter ended Oct. 29, Talbots lost $22 million, or 32 cents a share, against income of $17 million, or 24 cents, a year ago. Excluding special items of $6.6 million for costs such as restructuring charges and impairment of store assets, the adjusted loss from continuing operations was $15.5 million, or 22 cents a share, against income of $18.7 million, or 27 cents, last year. Sales fell 6.6 percent to $279.5 million from $299.1 million, with consolidated comparable-store sales falling 4 percent.

“While we are clearly not satisfied with our performance, we believe the modifications we have made and continue to make to our merchandise assortment is resonating with our core customer,” Sullivan said.

Mike Scarpa, chief operating officer and chief financial officer, told analysts that the retailer ended the quarter with inventory up 13 percent, an improvement from the end of the second quarter, where inventory was up 26 percent. “We are sitting with around $10 million to $12 million of excess goods that we’ll hopefully move through the majority of in the fourth quarter to get our inventories more in line. As we look at next year, at least from a buy perspective, we’re looking at units down about 10 percent overall,” he said.

Scarpa also noted that Talbots’ agreement with Li & Fung, which provides for up to $50 million in trade payables, ends in February and is renewable. Scarpa said the agreement, in which Li & Fung also opens letters of credit for Talbots, gives the specialty chain additional liquidity and allows the retailer to maintain certain minimums and maximums on its financing revolver.

Charming Shoppes has hired Barclays Capital as its financial adviser to help it “explore a full range of strategic alternatives.” The company said it has decided to divest its Fashion Bug business because it “doesn’t fit within our future strategic plan.”

Anthony M. Romano, president and chief executive officer, told analysts during the chain’s conference call that there is “no assurance that this review will result in any specific course of action beyond the planned divestiture of Fashion Bug and that we do not intend to comment further on this review until completed.”

The company said there is no set time frame for either the divestiture of Fashion Bug or the completion of the strategic review. Fashion Bug’s same-store sales in the quarter fell 11 percent, the retailer said.

Romano explained on the call that the company’s financial and operational resources are better spent on growing its Lane Bryant business. The plan is to make Lane Bryant the premier brand for women’s apparel in the plus-size arena.

For the third quarter, Charming narrowed its loss to $13 million, or 11 cents a share, from a loss of $18.8 million, or 16 cents, last year. Sales fell 7.3 percent to $429.7 million from $463.6 million, while comps decreased 4 percent.

Charming also operates the Catherines Plus Sizes nameplate.

Shares of Talbots dropped 18.6 percent, or 37 cents, to close at $1.62 in Big Board trading, while Charming’s shares rose 9 percent, or 35 cents, to close at $4.23 in over-the-counter trading.

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