CEO: Talbots' solid Q1 driven by lean investory, lower costs
The Talbots, Inc. (NYSE:TLB) CEO Trudy Sullivan said the women’s apparel retailer’s solid first-quarter results were driven by better management of leaner inventory and tight expense controls. Sullivan made the comments during a morning conference call.
“As we look ahead, we feel well-positioned to achieve our 2008 financial goals,” Sullivan said.
The firm is making progress in its cost cutting and expense control initiatives, and is on track to achieve at least $50 million in cost reductions in 2008, she said. Sullivan said the firm is lowering expenses through layoffs, productivity improvements and the relocation of the headquarters of its J. Jill brand. The company closed 11 Talbots kids stores and two Talbots mens stores during the first quarter.
Before Wednesday’s opening, Talbots said in a statement it will keep its annual profit forecast, excluding restructuring costs, to range from $0.47 to $0.52 per share, which compares with a loss of $0.61 per share during 2007. Wall Street analysts, on average, project a 2008 profit of $0.29 per share. Talbots expects a loss for non-core operations of between $0.59 and $0.64 per share during 2008, compared with a loss of $0.24 per share a year ago. Most of the charges related to restructuring discontinued operations should be behind the company by the end of the third quarter, CFO Edward Larsen said.
Larsen said the company is also in discussions to increase its capital line of credit. The firm is in compliance with all covenants of its acquisition term loan agreements for the first quarter of fiscal 2008.
Talbots also reported early Wednesday that its first-quarter earnings slipped 69% to $1.6 million, or $0.03 per share, versus $5.2 million, or $0.10 per share, a year earlier. Excluding a loss of $0.11 per share for closing men’s and kids’ stores and non-core stores in the United Kingdom, Talbots said it earned $11 million, or $0.21 per share. Wall Street analysts anticipated earnings of $0.13 per share.
“Overall, we are encouraged with our solid first-quarter results and we are committed to driving stronger performance throughout the balance of the year,” Sullivan said. “With the positive indicators we are seeing early in the year, we believe we are on the right track. We remain comfortable with our previously announced outlook for fiscal 2008 and we are pleased to see improving business fundamentals.”
Optimizing merchandise gross margins was Talbots’ plan going into the first quarter, Sullivan said. The firm used targeted incentives to drive traffic and regular-price selling, rather than holding a storewide sale similar to the one held in 2007. The company’s inventories are lean, Sullivan said, and Talbots did not have to make higher-than-planned discounts in order to sell products. The change in promotional strategy to monthly markdowns was a “clear contributor” to merchandise margins, Sullivan said.
Consolidated sales for the quarter edged down 6% to $542 million from $573.6 million during the same period of 2007.Wall Street analysts expected $752.6 million.
Sales at stores open at least a year fell 9.8% compared with the same 13-week period a year ago. The store saw positive improvement in the mid-single digits in sales at stores open at least a year during April, Sullivan said. The positive improvement was driven by a positive response to new merchandise and successful “best customer” events, she said.
“While our sales were softer in the quarter, in part due to the difficult macro environment, we almost completely offset the sales shortfall with the 260 basis point improvement in merchandise gross margins,” Sullivan said.
Sales at Talbots-branded stores tumbled 7.4% while J. Jill-branded stores plunged 20.2%. The firm “continues to feel strongly” about its J. Jill brand, the CEO said.
“We had a very challenging quarter at J. Jill with [sales at stores open at least a year] well off our expectations,” Paula Bennett, president of Talbots’ J. Jill brand, said. “That said, we did see a significantly better performance in our direct business with a marked improvement in merchandise gross margins.”
J. Jill’s inventory was higher than planned coming into the first quarter, Bennett said, which resulted in deeper discounts than originally anticipated. J. Jill plans to have a “much leaner” inventory in the fall, she said.
In midday trading, TLB shares are up 5.51%, or $0.41, to $7.85.
