The Talbots Inc. on Wednesday said a search is under way for a new chief creative officer after the company posted a second-quarter loss of $37.3 million.
Out in the cold is Michael Smaldone, who left his post as creative officer, effective immediately.
Trudy Sullivan, president and chief executive officer, said that while the company has made progress in executing its brand vision, “customer acceptance needs to improve. Therefore I have determined it is necessary for us to bring in new creative leadership.”
She told Wall Street analysts during a conference call on second-quarter results, “We believe that taking this action will position us for better execution of our critical brand and merchandise initiatives, both near and longer term.” She noted that the leadership change will also impact other initiatives as “we continue to evolve our catalogue, Web site, marketing programs and the look and feel of our stores.”
A search for a new creative officer has begun, and Sullivan will take on the additional duties of creative chief until one is found. A spokeswoman said there is no timetable in place for when the retailer hopes to complete its search.
As for the second quarter results, Sullivan attributed the loss to “high levels of promotional and markdown activity.” While there were planned promotions and markdowns during what is typically a clearance period, Sullivan told analysts the second quarter was “more difficult than expected. We were more aggressive in our promotions given the challenging environment and assortments that clearly did not resonate with our customer. We were challenged in all merchandise categories in the second quarter.”
One bright spot was in the firm’s upscale outlet business, which the ceo said posted “second-quarter comps of mid-single digits. We are seeing strength in important categories particularly in tops, dresses and accessories. Productivity remained strong with sales per selling square feet of approximately $440 on a trailing 12-month basis at the end of the second quarter, significantly above our core stores.”
During the quarter the company also adjusted its agreement with sourcing firm Li & Fung to allow an additional 30-day extension for payments on up to $50 million in purchases.
Analyst Randal Konik at Jefferies said in a research note that investors should stay on the sidelines, given product issues and lack of consumer traction.
Konik also noted that cash is becoming a concern, pointing out that Talbots “only carries $7 million on its balance sheet, is extending its payment window with vendor Li & Fung and is cutting back [capital expenditures] to $47 million from $60 million. We view all these factors with great caution, but do recognize pools of liquidity remain so near-term viability is not in question.”
The second-quarter loss for the period ended July 30, which translated to 54 cents a diluted share, was against earnings of $941,000, or 1 cent, a year ago. On an adjusted basis, the loss from continuing operations was $35.5 million, or 51 cents a share, versus income of $9.8 million, or 14 cents, last year.
Sales for the three months decreased 9.9 percent to $271.1 million from $300.7 million, with comparable-store sales falling 10.4 percent.
For the six months, the loss widened to $36.6 million, or 53 cents a diluted share, from $3.4 million, or 5 cents, last year. Sales declined 7.9 percent to $572.4 million from $621.4 million.
The company said it expects high levels of promotional and markdown activity to continue throughout the third quarter.