By  on October 25, 2007

Investors on Wednesday walked away from shares of The Talbots Inc. after the retailer's revised fall outlook, which forecasts a second-half loss due to weaker than anticipated quarter to date sales results.

On Tuesday, Coach Inc. warned investors that U.S. retail sales were slowing. Talbots said quarterly sales results to date, combined with an increasingly conservative consumer spending mind-set and a weaker industry outlook for holiday, means that the retailer is operating against a backdrop of an uncertain economic environment.

Shares of Talbots fell 7.98 percent to $14.07 in trading Wednesday on the New York Stock Exchange. Trading volume was 2.7 million. The stock's 52-week high is $29.85, and the low was set today at $13.97.

Trudy F. Sullivan, president and chief executive officer, said on a conference call to Wall Street analysts that Talbots is "anticipating a fall season loss in the range of 25 cents to 35 cents per share, which includes approximately 16 cents per share of onetime expense related to executive compensation and professional consulting fees."

The company recently said it hired a global consulting firm to help it strategically review its business from operations to growth profitability and distribution channels.

Sullivan added that the revised outlook compares with the retailer's prior forecast of fall season "earnings per share of 42 to 48 cents, which we announced in August when we reported our second-quarter results, and that included a onetime compensation expense of 8 to 10 cents per share." She said then the company believed its fall offerings for its Talbots and J. Jill brands were stronger than the spring-summer assortment. However, the ceo explained that September has proved to be a particularly difficult sales month for the Talbots brand.

"Our midseason sale events that began in late September [for the Talbots brand] were very disappointing. However, the J. Jill brand negative sales trends began to level off during the period as their midseason events for them proved stronger. Our total company direct business has been performing better but this is not enough to offset the significant weakness in our October sales," she told Wall Street analysts.

Edward Larsen, chief financial officer, said the company "expected a pretty good September, but we lost about $10 million of full-price sales in Talbots brand stores before the midseason sale broke, and when the midseason sales broke [at the] Talbots brand stores, we lost another $10 million in sales, and from our original August plan for October we have lost $10 million in sales. So, in our third quarter, we have lost $30 million in sales. So we had to figure it very hard looking at our fourth quarter."Consolidated fall season comparable store sales will be negative mid- to high-single digits, compared to its previous plan announced in August of approximately flat with the prior year period, according to the company. It also expects total company sales for the fall season will be approximately $65 million to $75 million below its prior August plan, resulting in the forecast of a fall season loss for the six-month period ending Feb. 2, 2008, the company said.

Richard Jaffe, analyst at Stifel Nicolaus, wrote in a research note, "The midseason sale is the core earnings and sales driver for Talbots' third quarter, which precipitated the large second-half earnings guidance decrease. We believe that Talbots' weak sales are the result of (1) most importantly, not getting the merchandise right and not understanding the Baby Boomer woman; (2) warmer weather slowing fall and winter merchandise buying; and (3) the uncertain economic environment."

For the third quarter, the company anticipates a loss per share in the range of 20 cents to 25 cents, which includes 7 cents a share of onetime expense related to executive compensation and professional consulting fees. It said that forecast presumes total company third-quarter comps to be in the negative high-single-digit range, with the Talbots brand down high-single digits, and the J. Jill brand down midsingle digits.

For the fourth quarter, Talbots expects a loss per share in the range of 5 cents to 10 cents, including 9 cents a share of onetime expense related to executive compensation and professional consulting fees. It presumes total company fourth-quarter comps to be in the negative midsingle-digit range, with Talbots down midsingle digits, and J. Jill flat to slightly up.

Based on the current outlook, the company also said that at the end of the third quarter, Talbots will be out of compliance with its acquisition loan financial covenants. However, the specialty chain has initiated the process to obtain an amendment to the financial covenants and said it will provide an update on its progress no later than Nov. 27, when it posts third-quarter results.

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