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.