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Talbots, Charming Shoppes Report Losses

The Talbots Inc. and Charming Shoppes Inc. landed in the red in the second quarter.

The Talbots Inc. managed to cut the cost of downsizing, prompting higher year-end guidance and a dramatic increase in its stock price.

This story first appeared in the August 28, 2008 issue of WWD.  Subscribe Today.

Shares jumped 28.2 percent in trading Wednesday despite a wider second-quarter loss. Shares of Talbots closed at $12.82, up $2.82, in trading on the New York Stock Exchange.

The company said it now expects earnings per share of between 15 cents and 25 cents, versus its previous forecast of a loss per share of as much as 17 cents. The loss in fiscal 2007 was $3.56 a share.

The change is due to lower-than-expected costs for the closure of its men’s, kids’ and U.K. operations. The shutdown costs are expected to come in between 27 cents to 32 cents a share, 32 cents below initial estimates of between 59 cents to 64 cents a share.

The company still expects 2008 earnings for core operations in the range of 47 cents to 52 cents a diluted share.

In the second quarter ended Aug. 2, the women’s specialty retailer saw losses widen to $25 million, or 47 cents a share, from a loss of $13.3 million, or 25 cents, in the year-ago period. Excluding noncore operations and a $2.3 million restructuring charge, the loss was $18.3 million, or 34 cents a share. Sales fell by 7.7 percent to $528 million from $572.3 million, while total company comparable-store sales were down by 12 percent. By brand, comps decreased 11.7 percent at Talbots and declined 13.2 percent at J. Jill.

For the six months, the loss was $23.4 million, or 44 cents, compared with an $8.1 million loss, or 15 cents, in the prior-year period. Sales fell by 6.6 percent to $1.07 billion from $1.15 billion.

The company has completed the closure of 30 Talbots kids’, men’s and U.K. stores, and expects the remaining 35 units to be shuttered by mid-September.

“This was a challenging quarter to drive top-line sales, predominantly due to the change in our Talbots brand annual June clearance strategy, coupled with a difficult macroenvironment,” said Trudy F. Sullivan, Talbots president and chief executive officer.

She noted that, while the year-over-year shortfall in retail sales impacted the quarter, the results were offset by gross margin expansion for Talbots brand merchandise. Aggressive markdowns were taken at the J. Jill brand, which contributed negatively to the retailer’s second-quarter performance.

“Looking ahead, we are encouraged by the significantly improved sell-through rates we are seeing versus the prior year of our new merchandise assortment across all channels,” Sullivan said, noting, too, that the company sees strong improvement in its Talbots brand operations.

“More and more customers are taking advantage of online shopping, and we want to facilitate use of this channel while increasing the number of customers that shop across all three channels,” Sullivan told Wall Street analysts in a conference call. “On average, our Talbots brand multichannel customer spends seven times more than a single-channel shopper. We have greatly enhanced the creative in both our Talbots and J. Jill brand catalogue, [and later] this fall, we will completely revamp our Talbots brand Web site, as well, offering greater ease of use and expanded functionality.”

Ed Larsen, senior vice president and chief financial officer, told analysts that the company ended the quarter with total outstanding debt of $383 million versus $442 million last year, a decrease of $59 million. In addition, the retailer said it is in compliance with all of its debt covenants at the end of the second quarter.