The Talbots Inc. on Wednesday reported narrower second-quarter losses than a year ago and positive customer response to fall merchandise, but said it expects a challenging second half.

This story first appeared in the September 10, 2009 issue of WWD. Subscribe Today.

The loss for the three months ended Aug. 1 was $24.5 million, or 45 cents a diluted share, versus a $25 million loss, or 47 cents, in the year-ago quarter. Excluding restructuring and impairment charges, the loss from continuing operations was $17.6 million, or 33 cents a share, better than the 52-cent loss expected by analysts, and higher than the adjusted loss of $9.4 million, or 17 cents, in last year’s quarter.

Sales in the quarter decreased 22.9 percent to $304.6 million from $395.2 million. Retail store sales fell to $254.8 million from $334.3 million, while comparable-store sales were down 24.9 percent. Direct marketing sales, including the catalogue and Internet, dropped to $49.8 million from $60.9 million.

In the quarter, the company sold J. Jill to Jill Acquisition LLC, an affiliate of Golden Gate Capital; entered into a buying agreement with Li & Fung Ltd.; relaunched its Web site, and in May opened an upscale outlet, a move Talbots believes might be a viable concept for 75 to 100 units.

Trudy F. Sullivan, president and chief executive officer, said on a conference call to Wall Street analysts, “Our second-quarter sales results came in as expected and reflect the continuation of lackluster customer shopping behaviors. Although we have seen little evidence that suggests the environment will be materially better as we look to the back half, we are rafting around easier comparisons.”

Sullivan said consumers were buying basics, and fashion items such as dresses, sweaters, scarfs and tops were in demand, as well. Price points around $100 were key during the quarter, she said.

Analyst Betty Chen at Wedbush Morgan Securities said, “While we believe positive reaction to pants, jackets, sweaters and accessories, including scarves and jewelry, and greater prospecting in fall could assist the company in engaging new and lapsed customers, we continue to anticipate the majority of earnings to be driven by lean inventories and expanded cost savings initiatives.”

For the six months, the loss widened to $48.1 million, or 89 cents a diluted share, from $23.4 million, or 44 cents, in the same year-ago period. Sales fell 24.6 percent to $610.8 million from $810 million.

Talbots shares fell 16 cents, or 2.3 percent, to $6.95 on Wednesday.

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