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Markdowns Take Toll on Specialty Retailers in Fourth Quarter

Markdowns in the fourth quarter weakened the bottom lines of specialty retailers Talbots Inc. and American Eagle Outfitters Inc., while Hot Topic Inc....

Markdowns in the fourth quarter weakened the bottom lines of specialty retailers Talbots Inc. and American Eagle Outfitters Inc., while Hot Topic Inc. posted a hefty profit on improved cost controls.

This story first appeared in the March 13, 2008 issue of WWD.  Subscribe Today.

Talbots Inc. on Wednesday posted both fourth-quarter and full-year losses. For the quarter ended Feb. 2, the loss was $171.4 million, or $3.23 a diluted share, against income of $17,000, or breakeven a diluted share, in the same year-ago quarter. Sales were down 7.9 percent to $587.4 million from $638 million.

By brand, retail store sales for the quarter fell 10.4 percent to $388 million for Talbots from $433 million, and were down 5.5 percent for J. Jill Group Inc. to $86 million from $91 million. Consolidated direct marketing sales, including catalogue and the Internet, dipped by 0.9 percent to $113 million from $114 million. Total company retail same-store sales fell by 6 percent, with comps at Talbots down 6 percent and at J. Jill decreasing by 6.3 percent.

For the year, the loss was $188.8 million, or $3.56 a diluted share, against income of $31.6 million, or 59 cents, last year. Sales were up 2.6 percent to $2.29 billion from $2.23 billion.

“It was a difficult year for Talbots. However, we feel very good about the progress we have made, and believe we are well-positioned to succeed in 2008,” said Trudy Sullivan, president and chief executive officer.

Sullivan said 2008 will be a year of transition as the company launches a three-year initiative to strengthen and grow the business. The company plans to roll-out a more compelling merchandise assortment for Talbots and build greater brand awareness of the J. Jill brand.

American Eagle Outfitters’ fourth-quarter earnings slid as lower product costs were not enough to compensate for markdown-driven margin declines.

Profits fell 6.4 percent to $140.5 million, or 66 cents, for the three months ended Feb. 2, as sales rose 2.3 percent to $995.4 million. Comparable-stores sales dipped 2 percent.

“We are prudently investing in the development of our brands and continuing to build long-term profitability,” chief executive officer Jim O’Donnell said.

First-quarter earnings are slated for 25 to 27 cents a share, down from 35 cents a year ago.

Hot Topic posted a 34 percent net income gain in the fourth quarter to $11.9 million, or 27 cents, from $8.9 million, or 20 cents, in the same period last year as sales fell 8.2 percent to $220.7 million. Same-store sales declined 6.3 percent during the quarter.

For the year-end period, net income grew 18 percent to $16 million, or 36 cents, from $13.6 million, or 30 cents, in the prior year on sales that fell 3 percent to $728.1 million.