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Talbots implementing broader based marketing initiatives

08 Jun '11

5 min read

• Selling, general & administrative (SG&A) expenses as a percent of net sales decreased 60 basis points to 33.1%, reflecting an $8.3 million decrease in SG&A expenses over the prior year period. This dollar decrease was due primarily to the reduction of certain components of performance-based management incentive compensation.
• Total inventory increased 13.1% to $177.1 million, compared to $156.7 million in the same period last year, due to lower than anticipated sales volume in the quarter and a planned increase in spring receipts.
• Total outstanding debt was $86.8 million, a decrease of $7.3 million compared to $94.1 million in the same period last year.
• In the first quarter, the Company opened 6 Talbots upscale outlets, closed 6 Talbots stores and ended the period with 568 stores, including 34 Talbots upscale outlet stores.

In line with its previously announced plans to close approximately 90 to 100 stores and to consolidate and/or downsize approximately 15 to 20 stores over two years, the Company announced that it plans to close approximately 110 stores in total, including 13 consolidations. Approximately 83 stores are expected to close in fiscal 2011, approximately 25 stores are planned for closure in fiscal 2012 and approximately 2 stores are planned to close in fiscal 2013.

The 110 stores that are planned for closure contributed approximately $21.0 million in sales and $4.0 million in operating loss in the first quarter of 2011, including $2.0 million in restructuring charges and $1.2 million in impairment of store assets. This compares to last year's first quarter contribution of approximately $22.9 million in sales and approximately $2.5 million in operating income. There were no restructuring and impairment charges attributable to these stores in the first quarter of 2010.

For its first group of stores that are scheduled to close by the end of August, the Company has commenced its enhanced targeted marketing program designed to support the transfer of customer spend to other stores in the same markets or to its direct channel.

Second Quarter 2011 Comments

Second quarter-to-date sales and customer traffic continue to trend negative, with top-line sales to date down approximately low-teens compared to the same period last year. The Company expects high levels of promotional and markdown activity to continue throughout the second quarter, resulting in an expected increase in cost of sales, buying and occupancy as a percent of net sales of approximately 1,000 basis points compared to the same period last year. Selling, general and administrative expenses on a dollar basis are expected to increase slightly from the prior year second quarter, due in-part to continued incremental marketing investments.

Ms. Sullivan concluded, "We expect second quarter sales and gross margin will be significantly below last year, resulting from high promotional and markdown activityas we work to clear slower moving goods and better position ourselves for fall. As previously stated, fiscal 2011 will be a transition year and as we move forward in our turnaround efforts this year, our financial flexibility and liquidity are expected to fully enable us to support our anticipated working capital needs and the implementation of our strategic initiatives."

Talbots Inc

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