Seeking to reduce costs, Talbots Inc. is cutting 9 percent of its corporate workforce and eliminating the position of chief operating officer.

The move disclosed Thursday by the Hingham, Mass.-based retailer will trim 129 positions, 104 of which are filled, and produce about $14 million in annual savings. Chief operating officer Philip Kowalczyk will depart in early July and his responsibilities will be picked up by other executives.

Talbots’ goal is to reduce its cost structure by at least $100 million by the end of fiscal 2009.

Severance and other costs related to the job cuts are anticipated to produce pretax expenses of $5.9 million in the first half of 2008, $2.1 million of which were already recorded.

“It was clearly a difficult strategic decision to reduce our corporate staffing levels, but it was an important and necessary step toward strengthening our organization for the long term,” said Trudy F. Sullivan, president and chief executive officer. “We are making every effort to assist the affected employees in making a successful career transition.”

Talbots shares were up 64 cents, or 8.2 percent, to close at $8.45 in New York Stock Exchange trading.

It has been a tough stretch for Talbots, which in April said Bank of America and HSBC were pulling letters of credit.

Talbots said vendors representing about three-fourths of its purchases abroad had agreed to “open account” terms, which gives them 45 days to make payments. The industry has moved away from letters of credit to open accounts in recent years.

Last month, the firm reported that it held discussions with financial institutions to increase its working capital line of credit and it was in compliance with all covenants of a term loan agreement in the first quarter.

The payroll reductions were “somewhat expected” and could be followed by additional cuts as the chain continues to streamline its business, said Betty Chen, equity analyst at Wedbush Morgan Securities Inc.

“They are trying to completely change the merchandising at Talbots, going after a much more updated shape and aesthetic, and we have yet to see how their core customer, who’s 50 years old, will react to those changes,” Chen said. “In this kind of retail environment, it’s hard to attract a new customer base.”

This story first appeared in the June 6, 2008 issue of WWD. Subscribe Today.

The chain’s first-quarter earnings fell 68.7 percent to $1.6 million, or 3 cents a diluted share, as restructuring costs and closure of the kids, men’s and noncore U.K. businesses weighed on the bottom line. Sales for the three months ended May 3 declined 5.4 percent to $542.4 million.

Talbots said Thursday it is affirming its 2008 earnings outlook for core operations of 47 to 52 cents a diluted share. Including losses from noncore operations, Talbots expects losses of 7 to 17 cents a share.

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