By and  on April 14, 2009

The Talbots Inc. on Monday posted sharp fourth-quarter declines, including a net loss of $366.5 million and a comp-store sales drop of 24.6 percent.

 While the figures indicate turnaround efforts still have a long way to go, the retailer was able to soften the bad news somewhat by revealing progress on several fronts, including signing a nonbinding letter of intent with Li & Fung Ltd. to possibly become Talbots’ primary global sourcing agent. Talbots works with other sourcing companies and has its own sourcing arm, but a pact with Li & Fung would streamline sourcing efforts and free up the retailer to concentrate more on product design.

On efforts to sell the J. Jill division, “There are several interested parties diligently at work. We continue to move forward,” said Trudy Sullivan, Talbots’ president and chief executive officer, during a conference call. She did not identify the parties.

And the company disclosed that Aeon Co. Ltd., the firm’s majority shareholder, has provided a new $150 million secured revolving loan facility to be used for general corporate and working capital purposes, including vendor payments. It supplements the existing $215 million committed to working capital facilities.

On the results overall, Sullivan commented: “It was a challenging year to say the least, but we are proud of what we accomplished in a very challenging macro environment. We are still in the early stages of transforming our brand and improving our operating performance, but we are encouraged.”

She believes Talbots has made progress in modernizing the merchandise under the internal platform of “tradition transformed” even if the numbers are down, and cited company research indicating “consumer intent to purchase showed an increase last fall for the first time since 2004. When the world rights itself, we will emerge as a stronger brand.” She also said consumers are writing in, telling Talbots to hang in until the economy turns and that they will be there to spend. “All channels are now in sync with a consistent brand message to the customer….Customers are spending less, but not shifting what they spend to other retailers as much as before,” said Sullivan.

In addition to merchandise improvements, which several analysts acknowledged during the call, Sullivan said the company is “particularly focused on our measures to improve liquidity and cut expenses.” The $366.5 million, or $6.85 a diluted share, loss in the quarter compared with a loss of $171.4 million, or $3.22 a share, in the year-ago period.

The net loss for continuing operations was $136.3 million, or $2.55 a share, compared with a loss of $10.3 million, or 19 cents a share, in last year’s quarter. Excluding nonrecurring items, the net loss for continuing operations was $128.4 million, or $2.40, up from a loss of $7.1 million, or 13 cents a share, in the 2007 quarter.

Revenue contracted 23.3 percent to $327.9 million, versus $427.7 million a year earlier.

For the full year, Talbots’ net loss expanded to $560.7 million, or $10.49 a share, versus $188.9 million, or $3.56, last year. Excluding discontinued operations, the loss was $144.5 million, or $2.70 a share, versus net income of $43 million, or breakeven on an earnings per share basis.

Net sales slid 12.5 percent, to $1.5 billion from $1.71 billion, and same-store sales were off 14.2 percent.

Due to the “substantial volatility and continued uncertainty in the U.S. economic conditions,” Talbots said it would not provide fiscal 2009 guidance. However, the company did forecast a first-quarter loss from continuing operations of between 47 and 52 cents a share.

Prior to the release of Monday’s fourth-quarter results, the retailer’s stock closed at $4.57, up 16.9 percent.

In the past year, the company also refinanced a $200 million term loan to a semiannual interest-only loan with Aeon Co. Ltd., maturing in 2012, and paid off the J. Jill acquisition debt in full and significantly reduced payroll and benefits.

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