The Talbots, Inc. (NYSE:TLB) today announced results for the
fourteen-week and fifty-three week periods ended February 3, 2007,
compared to the thirteen-week and fifty-two week periods ended
January 28, 2006. Net income for the fourth quarter was breakeven
per diluted share on a reported basis and includes acquisition
related costs and adjustments of approximately $0.15 per share and
$0.04 per share of stock option expense. Excluding these
acquisition related costs and stock option expense, earnings per
diluted share were $0.19 for the combined company. This combined
Company result includes a fourth quarter loss for the J. Jill brand
of $0.07 per share, and a fourth quarter profit for the Talbots
brand of $0.26 per share, compared to $0.37 reported last year for
the Talbots only brand. Total consolidated Company sales in the
fourth quarter were $638 million. By brand, retail store sales
increased to $433 million for Talbots compared to $414 million last
year, and were $91 million for J. Jill. Consolidated direct
marketing sales were $114 million including catalog and Internet.
Total Company comparable store sales declined 1.6% for the
thirteen-week period ended January 27, 2007 compared to the
thirteen-week period ended January 28, 2006. By brand, comparable
store sales for Talbots decreased 2.1%. For the J. Jill brand,
comparable store sales increased 1.5% in the period. Arnold B.
Zetcher, Chairman, President and Chief Executive Officer,
commented, �Our consolidated fourth quarter results were in line
with our previously revised expectations, and that of the First
Call consensus estimate; however, we were still disappointed in the
Company�s performance during this period. As we previously
announced, after experiencing a six month period of healthy
positive comps beginning in April and a particularly strong
September for the Talbots brand, we anticipated a strong fourth
quarter and increased our inventory commitment. Unfortunately,
these strong sales trends were not sustained, which resulted in
higher levels of markdown merchandise available for our
post-Christmas semi-annual clearance event and deeper discounts.�
�For J. Jill, we saw a continued trend of improving business
performance throughout the fourth quarter, with comps turning
positive for the first time in over a year. However, we did not
achieve our overall sales expectations for the period due to weaker
than anticipated performance across all channels. This also
resulted in heavier markdowns during the period, which impacted the
bottom line.� �As a result, we will be taking a more conservative
approach to inventory management, particularly for the Talbots
brand, and believe the heavy markdowns that impacted the fourth
quarter are confined to that period.� Operating Results for the
Fifty-Three Week Period Total Company operating performance for the
53-week period ending February 3, 2007 includes J. Jill brand
results for the period beginning May 3, 2006, which was the
effective date of the acquisition. For the 53-week period, total
consolidated Company net income was $31.6 million or $0.59 per
diluted share on a reported basis and includes acquisition related
costs and adjustments of approximately $0.46 per share and $0.15
per share of stock option expense. Excluding these costs, earnings
per diluted share were $1.20 for the combined Company. This
combined Company result includes a loss from the date of
acquisition of $0.16 per share for the J.Jill brand, and a full
year profit for the Talbots brand of $1.36 per share, compared to
$1.72 reported last year for the Talbots only brand. Total
consolidated Company sales were $2,231 million for the 53-week
period. By brand, retail store sales increased to $1,604 million
for Talbots compared to $1,544 million last year, and were $242
million for J. Jill from the date of acquisition. Consolidated
direct marketing sales, including catalog and Internet, were $385
million. Total Company comparable store sales rose 0.7% for the
fifty-two week period ended January 27, 2007 compared to the
fifty-two week period ended January 28, 2006. By brand, comparable
store sales for Talbots increased 1.3%. For the J. Jill brand,
comparable store sales decreased 4.4% since the date of
acquisition. Fiscal 2006 Highlights J. Jill Integration Better than
Expected - enabled acceleration of certain key actions. Company
Increased Expected Cost Saving Synergies to Greater than $36
million in 2007 versus original expectation of $25 million in the
areas of sourcing, distribution, store operations and back-office
functions. Store Expansion - Opened 50 New Talbots Stores and 34 J.
Jill Stores since Acquisition; Ended year with a total of 1,125
Talbots and 239 J. Jill stores for a grand total of 1,364 combined
stores. Talbots Brand Initiatives Drove Six-Month String of Healthy
Positive Comps, peaking in September, with regular-price sales in
the month up double-digits compared to prior year. J. Jill
Turnaround Underway � improved execution of retail channel led to
positive 4th quarter comparable store sales growth. New Talbots
Brand Transitional 3rd Quarter Clearance Event maximized
regular-price selling and minimized markdown exposure. Mr. Zetcher
continued, �2006 represented a successful year of transition as we
focused on integrating J. Jill. We believe we are well positioned
to maximize the long-term synergies of the two brands, enabling us
to capture the growth potential of this advantageous market.� �Most
importantly, we focused on putting the necessary infrastructure and
initiatives in place to achieve the long-term growth that we
anticipate from the acquisition. And I am pleased to report that we
have made solid progress in stabilizing the J. Jill business since
the close of our acquisition last May. With continuing adjustments
to our merchandise, a unified promotional calendar and a one-price
policy across channels, we are starting to see some ongoing
customer traction.� First Quarter and Full Year 2007 Outlook The
Company reconfirmed its previously announced outlook for
consolidated first quarter 2007 earnings per diluted share to be in
the range of $0.36 - $0.43 on a reported basis and includes
approximately $0.12 of acquisition related costs and adjustments.
This total Company expectation assumes Talbots brand first quarter
earnings per share to be in the range of approximately $0.53 -
$0.58, compared to the $0.51 reported last year in the first
quarter, and a loss for the J. Jill brand in the range of
approximately $0.03 - $0.05. The Company also reconfirmed its
previously announced outlook for consolidated full year 2007
earnings per diluted share to be in the range of $1.05 - $1.15 on a
reported basis and includes approximately $0.40 of acquisition
related costs and adjustments. This total Company expectation
assumes Talbots brand full year earnings per share to be in the
range of approximately $1.43 - $1.48, compared to the $1.21
reported for the Talbots brand last year, and the J. Jill brand in
the range of approximately $0.02 - $0.07 per share. Mr. Zetcher
continued, �Looking specifically at the first quarter, while we
remain comfortable with our previously announced outlook for
earnings per share, our Talbots brand February comparable store
sales trends were somewhat softer than anticipated. However, our
major Spring 3 catalog, which was mailed to customers in the
beginning of March, has so far received positive customer response
and is off to a strong start. For the J. Jill brand, February comps
were below our expectations, but we did see a pickup in trends
during the latter part of the month, as we set our stores with new
spring merchandise. We are hopeful for a continuation of improved
selling trends in both of our brands throughout the remainder of
the period and the year.� �In closing, we are entering 2007 with
the bulk of our merger related issues behind us, and a strong
leadership team in place that combines the talents and market
expertise of Talbots and J. Jill management. We feel very good
about our ability to achieve our fiscal 2007 plan, which calls for
solid improvement in both brands, and would generate the highest
level of operating cash flow in our Company�s history. We�re on
track to achieve greater than $36 million in cost synergies, and
look forward to a year of much stronger performance across both
brands,� concluded Mr. Zetcher. As previously announced, Talbots
will host a conference call today, March 7, 2007 at 10:00 am local
time to discuss fourth quarter and year-end results. To listen to
the live web cast please log on to www.thetalbotsinc.com/ir/ir.asp.
The call will be archived on its web site www.thetalbotsinc.com for
a period of twelve months. In addition, an audio replay of the call
will be available shortly after its conclusion and archived until
March 9, 2007. This call may be accessed by dialing (877) 519-4471,
passcode 8509652. The Talbots, Inc. is a leading international
specialty retailer and cataloger of women�s, children�s and men�s
apparel, shoes and accessories. The Company currently operates a
total of 1,368 stores in 47 states, the District of Columbia,
Canada and the U.K., with 1,128 stores under the Talbots brand name
and 240 stores under the J. Jill brand name. Both brands target the
age 35 plus customer population. Talbots brand on-line shopping
site is located at www.talbots.com and the J. Jill brand on-line
shopping site is located at www.jjill.com. The foregoing contains
forward-looking information within the meaning of The Private
Securities Litigation Reform Act of 1995. These statements may be
identified by such forward-looking terminology as �expect,� �look,�
�believe,� �anticipate,� �outlook,� �will,� �would,� �would yield,�
or similar statements or variations of such terms. All of the
�outlook� information (including future revenues, future comparable
sales, future earnings, future EPS, and other future financial
performance or operating measures) constitutes forward-looking
information. Our outlook and other forward-looking statements are
based on a series of expectations, assumptions, estimates and
projections about our Company which involve substantial risks and
uncertainty, including assumptions and projections concerning
integration costs, purchase-related accounting adjustments,
acquisition synergies and, for each of our brands, store traffic,
levels of store sales including meeting our internal plan and
budget for regular-price selling and markdown selling for the
indicated forward periods, and customer preferences. All of our
outlook information and other forward-looking statements are as of
the date of this release only. The Company can give no assurance
that such outlook or expectations will prove to be correct and does
not undertake or plan to update or revise any �outlook� information
or any other forward-looking statements to reflect actual results,
changes in assumptions, estimates or projections, or other
circumstances occurring after the date of this release, even if
such results, changes or circumstances make it clear that any
projected results will not be realized. Any public statements or
disclosures by us following this release which modify or impact any
of the outlook or other forward-looking statements contained in or
accompanying this release will be deemed to modify or supersede
such outlook, or statements in or accompanying this release. Our
forward-looking statements involve substantial known and unknown
risks and uncertainties as to future events which may or may not
occur, including acceptance of the Company�s fashions including its
seasonal fashions, the risk that the J. Jill business will not be
successfully integrated, the risk that the J. Jill merchandise
changes will not be well accepted, the risk that the cost savings,
operational efficiencies, and other synergies from the transaction
may not be fully realized or may take longer to realize than
expected, the risk associated with integrating and operating
profitably and successfully as a multi-brand chain for the first
time, the risk that the acquisition will disrupt Talbots or J.
Jill�s core business, the reaction of Talbots and J. Jill customers
and suppliers to the changes being made within the organization as
a result of the transaction, diversion of management time on
acquisition-related issues, effectiveness of the Company�s brand
awareness and marketing programs, any different or any increased
negative trends in its regular-price or markdown selling,
effectiveness and profitability of new concepts, success of our
expected marketing events in driving sales, success of our catalogs
in driving both our direct marketing sales and in driving store
traffic, the Company�s ability to anticipate and successfully
respond to constantly changing customer tastes and preferences and
to produce the appropriate balance of merchandise offerings, the
Company�s ability to sell its merchandise at regular prices as well
as its ability to successfully execute its sale events including
the timing and levels of markdowns and appropriate balance of
available markdown inventory, any difference between estimated and
actual stock option expense, and retail economic conditions
including consumer spending. In each case, actual results may
differ materially from such forward-looking information. Certain
other factors that may cause actual results to differ from such
forward-looking statements are included in the Company�s periodic
reports filed with the Securities and Exchange Commission and
available on the Talbots website under �Investor Relations� and you
are urged to carefully consider all such factors. (tables to
follow) THE TALBOTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS Amounts in thousands except per share data �
February 3, January 28, February 3, January 28, 2007� 2006� 2007�
2006� (14 weeks) (13 weeks) (53 weeks) (52 weeks) � Net Sales $
638,004� $ 486,168� $ 2,231,033� $ 1,808,606� � Costs and Expenses
Cost of sales, buying and occupancy 440,438� 326,436� 1,470,554�
1,153,734� Selling, general and administrative � 189,190� �
127,262� � 685,438� � 502,724� � Operating Income 8,376� 32,470�
75,041� 152,148� � Interest Interest expense 8,709� 1,310� 31,542�
4,480� Interest income � 361� � 483� � 7,023� � 1,374� � Interest
Expense - net � 8,348� � 827� � 24,519� � 3,106� � Income Before
Taxes 28� 31,643� 50,522� 149,042� � Income Tax Expense � 11� �
11,866� � 18,946� � 55,891� � Net Income $ 17� $ 19,777� $ 31,576�
$ 93,151� � Net Income Per Share � Basic $ -� $ 0.38� $ 0.60� $
1.76� � Diluted $ -� $ 0.37� $ 0.59� $ 1.72� � � Weighted Average
Number of Shares of Common Stock Outstanding � Basic � 52,892� �
52,447� � 52,651� � 52,882� � Diluted � 53,820� � 53,598� � 53,485�
� 54,103� � Cash Dividends Paid Per Share $ 0.13� $ 0.12� $ 0.51� $
0.47� THE TALBOTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
BALANCE SHEETS Amounts in thousands � February 3, January 28, 2007�
2006� � Cash and cash equivalents $ 35,923� $ 103,020� Customer
accounts receivable - net 204,619� 209,749� Merchandise inventories
352,652� 246,707� Other current assets � 99,215� � 61,185� Total
current assets 692,409� 620,661� � Property and equipment - net
533,216� 387,536� Goodwill 247,490� 35,513� Trademarks 154,984�
75,884� Other intangible assets - net 92,038� -� Deferred income
taxes -� 6,407� Other assets � 28,551� � 20,143� � TOTAL ASSETS $
1,748,688� $ 1,146,144� � Accounts payable $ 113,884� $ 85,343�
Income taxes payable 31,684� 37,909� Accrued liabilities 158,763�
121,205� Notes payable to banks 45,000� -� Current portion of
long-term debt � 80,469� � -� Total current liabilities 429,800�
244,457� � Long-term debt less current portion 389,174� 100,000�
Deferred rent under lease commitments 133,025� 110,864� Deferred
income taxes 61,537� -� Other liabilities 91,841� 63,855�
Stockholders' equity � 643,311� � 626,968� � TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,748,688� $ 1,146,144� THE TALBOTS, INC.
AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in thousands � February 3, January 28, 2007� 2006� (53
Weeks) (52 weeks) � CASH FLOWS FROM OPERATING ACTIVITIES: Net
income $ 31,576� $ 93,151� Depreciation and amortization 121,528�
90,127� Deferred and other items 24,800� 1,423� Changes in:
Customer accounts receivable 5,124� (10,494) Merchandise
inventories (58,491) (8,167) Accounts payable 20,074� 20,685�
Income taxes payable 3,083� 10,717� All other working capital �
(13,302) � 13,996� � 134,392� � 211,438� � CASH FLOWS FROM
INVESTING ACTIVITIES: Acquisition of The J. Jill Group, Inc., net
of cash acquired (493,946) -� Additions to property and equipment
(104,208) (72,684) Proceeds from disposal of property and equipment
612� -� Maturities of marketable securities � 16,729� � -� �
(580,813) � (72,684) � CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under notes payable 490,000� -� Payment of notes payable
(85,358) -� Proceeds from options exercised 3,785� 7,731� Excess
tax benefit from options exercised 1,156� -� Debt issuance costs
(1,414) -� Cash dividends (27,490) (25,334) Purchase of treasury
stock � (1,113) � (49,993) � 379,566� � (67,596) � EFFECT OF
EXCHANGE RATE CHANGES ON CASH (242) 51� � NET (DECREASE) INCREASE
IN CASH AND CASH EQUIVALENTS (67,097) 71,209� � CASH AND CASH
EQUIVALENTS, BEGINNING OF PERIOD � 103,020� � 31,811� � CASH AND
CASH EQUIVALENTS, END OF PERIOD $ 35,923� $ 103,020�
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