Markdown & promotions hurt Talbots

08 Sep '11

3 min read

The Talbots Inc.eported results for the quarter ended July 30, 2011 and commented on key initiatives and actions as well as third quarter 2011.

Second quarter loss from continuing operations was $37.4 million, or $0.54 per share, compared to last year's income from continuing operations of $0.5 million or $0.01 per share.

Adjusted second quarter loss from continuing operations was $35.5 million, or $0.51 per share, excluding special items of $1.9 million, or $0.03 per share, compared to last year's adjusted income from continuing operations of $9.8 million, or $0.14 per share.

Trudy F. Sullivan, Talbots President and Chief Executive Officer, commented, “As expected, our second quarter results reflect high levels of promotional and markdown activity. While we remain confident in our long-term strategic direction, in the near-term we are focused on delivering a more compelling, balanced merchandise assortment and driving improved top-line sales. We announced separately this morning that we have made a change in our leadership team with respect to the oversight of creative and design which we believe will facilitate improvements to the direction of our merchandise and our overall brand positioning.”

Second Quarter 2011 Operating Results:
• Operating loss was approximately $34.0 million, compared to prior year's operating income of $8.7 million.
• Adjusted operating loss, excluding special items of $1.9 million, was $32.1 million, a decrease of $44.6 million, compared to prior year's adjusted operating income of $12.5 million.
• Net sales decreased 9.9% to $271.1 million, compared to $300.7 million in the same period last year.
• Consolidated comparable sales decreased 10.4%, which includes Internet, catalog and red-line sales. Consolidated comparable sales exclude stores scheduled to close under the Company's store rationalization plan.
• Store sales decreased 9.1% to $228.0 million, compared to $250.8 million in the same period last year. Comparable store sales decreased 11.1% in the second quarter of 2011, excluding stores scheduled to close under the Company's store rationalization plan.
• Direct marketing sales, including Internet, catalog and red-line, decreased 13.6% in the quarter to $43.1 million, compared to $49.9 million in the same period last year.
• Cost of sales, buying and occupancy as a percent of net sales increased 1,150 basis points to 76.6% compared to 65.1% last year. This increase was due to a 950 basis point deterioration in merchandise margin, resulting from higher levels of markdown and promotional activity, as well as a 200 basis point deterioration in buying and occupancy costs as a percent of net sales.
• Selling, general & administrative (SG&A) expenses as a percent of net sales increased 460 basis points to 35.6%, reflecting a $3.3 million increase in SG&A expenses over the prior year period. This dollar increase was due primarily to an increasein marketing spend over last year and a decrease in finance charge income from Talbots credit card compared to the prior year period.

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