The Talbots, Inc. (NYSE:TLB) today announced results for the
fourth quarter and fiscal year ended January 31, 2009. Talbots also
announced that Aeon Co., Ltd., which through its wholly owned
subsidiary is the Company�s majority shareholder, has provided
Talbots a new $150 million secured revolving loan facility. This
new loan supplements the Company�s existing $215 million committed
working capital facilities. The Company also announced that it is
in discussions and has signed a non-binding letter of intent with
Li & Fung Limited, the global sourcing and trading firm based
in Hong Kong, to mutually explore a potential relationship for Li
& Fung Limited to become Talbots primary global sourcing
agent.
Fourth quarter net loss from continuing operations was $136.3
million or $2.55 per share, including special items, compared to
last year�s net loss of $10.3 million or $0.19 per share. Special
items include:
- Total restructuring charge of
$7.6 million, or $0.14 per share, the vast majority of which is
severance related to the Company�s recent downsizing;
- Non-cash charge of $0.3 million,
or $0.01 per share, related to asset impairments.
Excluding these special items, the Company�s fourth quarter
adjusted net loss from continuing operations was $128.4 million or
$2.40 per share compared to last year�s adjusted net loss of $7.1
million or $0.13 per share on a comparable basis.
Also included in the Company�s fourth quarter net loss from
continuing operations was a non-cash charge of $66.0 million or
$1.23 per share related to a valuation allowance against net
deferred tax assets as required under SFAS No.109, �Accounting for
Income Taxes.�
Fiscal year 2008 net loss from continuing operations was $144.5
million or $2.70 per share, including special items, compared to
last year�s breakeven net income per share. Special items
include:
- Total restructuring charge of
$17.8 million, or $0.33 per share, including severance and
professional consulting fees;
- Non-cash charge of $2.8 million,
or $0.05 per share, related to asset impairments.
Excluding these special items, the Company�s fiscal year 2008
adjusted net loss from continuing operations was $123.9 million or
$2.32 per share compared to last year�s net income of $0.3 million
or $0.00 per share on a comparable basis.
Also included in the Company�s full year net loss from
continuing operations was a non-cash charge of $66.0 million or
$1.23 per share related to a valuation allowance against net
deferred tax assets as required under SFAS No.109, �Accounting for
Income Taxes.�
Trudy F. Sullivan, Talbots President and Chief Executive
Officer, commented, �Our fourth quarter results were affected by
the steep decline in consumer spending resulting from the
deterioration in U.S. economic conditions. We are, however, proud
of the bold actions we are taking not just to adjust to the
economic downturn, but to do so in a way that positions the Company
to be stronger and better when the recovery occurs. Our priority
during these difficult times will continue to be addressing those
areas within our control, including streamlining our business and
tight management of our costs and inventory, while continuing with
an acute focus on those measures which improve our cash flow and
liquidity.�
�As such, we greatly appreciate Aeon�s ongoing financial support
and confidence in the overall strategic direction of our Company.
With the addition of this new $150 million revolving loan facility,
we have significantly added to our liquidity, which will help us
navigate through these most turbulent times, and to further support
the implementation of our long-range plan designed to reinvigorate
our brand and return Talbots to profitable growth.�
The Company stated that the new $150 million secured revolving
loan facility will be used for general corporate and working
capital purposes, including vendor payments. This new revolving
loan facility is in addition to the Company�s existing $215 million
committed working capital facilities.
Under the new revolving loan facility, interest on the
outstanding principal will be set at one-month LIBOR plus 600 basis
points, with interest payable on the last day of each month in
arrears. The facility is secured by the Company�s charge card
receivables and will be secured by mortgages on its Hingham, MA
headquarters facility and its Lakeville, MA distribution facility.
Amounts under the facility may be borrowed, prepaid and re-borrowed
prior to maturity. An upfront loan facility commitment fee of 1%
will be payable at initial draw down. Funding is subject to lien
and mortgage recordings and certain existing lender waivers, among
other customary conditions. The facility also provides for
prepayment and maturity in the event of certain qualified
transactions, such as certain asset securitizations and asset
collateralization. This new working capital revolving loan facility
matures April 17, 2010 and has no financial covenants.
Key Actions to
Date
Improved liquidity
- Obtained new $150 million
secured working capital revolving loan facility with Aeon Co.,
Ltd., the Company�s indirect majority shareholder;
- Refinanced $200 million term
loan to a semi-annual interest-only loan with Aeon Co., Ltd.,
maturing in 2012, and paid off the J. Jill acquisition debt in
full;
- Eliminated all financial
covenant tests under all credit facilities;
- Converted $165 million working
capital facilities to committed facilities;
- Obtained $50 million
subordinated term loan from Aeon (U.S.A), Inc.;
- Aeon provided guaranty of each
of the Company�s existing working capital facilities and revolving
loan credit facilities;
- Suspended the quarterly dividend
and froze the defined benefit pension plans.
Implemented SG&A savings initiatives
- Implemented new $150 million
Expense Reduction Program with approximately $100 million savings
expected in fiscal 2009.
- Reduced Payroll and benefits by
approximately $50 million through the following initiatives:
- Reduction of corporate headcount
in June 2008 of approximately 9% and an additional 17% reduction of
corporate headcount in February 2009;
- Continued rationalization of
hourly workforce in stores, distribution center and call
center;
- Change in employee related
benefits, including freezing pension plans, suspending matching
contributions to the 401(k) plan, increasing employee healthcare
contributions and eliminating 2009 merit increases across entire
organization;
- Broad-based,
non-employee/overhead actions expected to result in cost savings of
approximately $50 million in fiscal 2009.
Enhanced operating efficiency
- Maintained merchandise gross
margin in fiscal 2008 to essentially flat with last year, even with
the significant decline in the fourth quarter. This was
accomplished through(i) better product flow and content, (ii)
leaner inventory posture, (iii) a strategic change in promotional
cadence to monthly markdowns versus historical four clearance
events, and (iv) adoption of a price optimization tool;
- Talbots ended fiscal 2008 with
total inventory on a continuing operating basis of $207 million,
down 21% compared to prior year;
- Exited non-core concepts,
Talbots Kids, Talbots Mens and Talbots U.K. operations;
- Pursuing the sale of the J. Jill
brand to focus exclusively on the core Talbots brand female
consumer;
- Identified approximately 16
Talbots locations to close in fiscal 2009, with ongoing scrutiny of
the entire store portfolio;
- Started discussions with Li
& Fung Limited to become Talbots primary global sourcing agent
(as further detailed below).
The Company also announced that it is in discussions and has
signed a non-binding letter of intent with Li & Fung Limited,
the global sourcing and trading firm based in Hong Kong, to
mutually explore a potential relationship for Li & Fung Limited
to become Talbots primary global sourcing agent. Talbots believes
that a partnership with Li & Fung could create significant
benefits by simplifying its sourcing processes, reducing operating
expenses and potentially further reducing its cost of goods sold by
leveraging Li & Fung�s extensive and diverse global network of
vendors.
Ms. Sullivan concluded, �The current economic environment is the
most challenging we have faced in the Company�s greater than 60
year history. Nevertheless, throughout 2009 we will remain customer
focused as we continue with the evolution of our brand while
operating in a most conservative manner. We remain firm in our
conviction in Talbots long-term strategic plan and steadfast in our
commitment to reenergize the brand and believe we will be better
positioned for success on the top and bottom line when the
environment improves.�
Other
Disclosures
The Company has completed the impairment testing of the Talbots
brand intangible assets and has determined that no impairment of
Talbots brand intangible assets is required at this time.
The Company has recorded a full valuation allowance of its
deferred tax assets based on SFAS No. 109. As a result, the
Company�s full year�2008 income taxes reflect the establishment of
a valuation allowance for the majority of its net deferred tax
assets.
The establishment of a valuation allowance does not have an
impact on the Company�s cash position and does not preclude the
Company from using its loss carryforwards, tax credits or other
deferred tax assets in the future to reduce future taxable
income.
(See attached tables for reconciliation of reported and adjusted
results and comparison to prior year.)
Sales Results from Continuing
Operations
As previously reported, total sales for the thirteen weeks ended
January 31, 2009 were $327.9 million compared to last year�s sales
of $427.7 million. Retail store sales for the thirteen weeks were
$278.7 million compared to $361.2 million last year. Comparable
store sales declined 24.6% for the thirteen week period.
Direct marketing sales for the thirteen-week period were $49.2
million, including catalog and Internet, compared to $66.5 million
last year.
Net sales for the fifty-two weeks ended January 31, 2009 were
$1,495.2 million compared to $1,708.1 million reported for the
fifty-two weeks ended February 2, 2008. Retail store sales were
$1,261.5 million compared to $1,445.4 million last year. Comparable
store sales declined 14.2% for the fifty-two week period.
Direct marketing sales for the fifty-two week period, including
catalog and Internet, were $233.7 million compared to $262.7
million for the same period reported last year.
Results from Discontinued
Operations
Fourth quarter net loss from discontinued operations was $230.2
million or $4.30 per share, including impairment and restructuring
charges of approximately $136.6 million or $2.55 per share,
compared to last year�s net loss of $161.1 million or $3.03 per
share on a comparable basis, including impairment and restructuring
charges of approximately $142.9 million or $2.69 per share. The
Company established a full valuation allowance for its net deferred
tax assets during the quarter and, as a result, reversed any income
tax benefits we had recorded in the prior three quarters.
Full year 2008 net loss from discontinued operations was $416.1
million or $7.79 per share, including impairment and restructuring
charges of approximately $346.3 million or $6.48 per share and a
deferred tax valuation allowance of $129.5 million or $2.42 per
share, compared to last year�s net loss of $188.9 million or $3.56
per share on a comparable basis, including impairment and
restructuring charges of approximately $134.0 million or $2.53 per
share.
Forward Outlook for Continuing
Operations
The substantial volatility and continued uncertainty in U.S.
economic conditions results in limited visibility and increases the
difficulty in forecasting operating performance. Therefore, the
Company is not providing fiscal 2009 annual guidance. At this time,
Talbots expects the current weakness in consumer traffic and
spending to continue through fiscal 2009, particularly in the first
half of the year, and has planned accordingly with lean inventories
and ongoing disciplined cost management.
However, the Company is providing outlook for first quarter
fiscal 2009 and currently expects a loss per share from continuing
operations to be in the range of $0.47 to $0.52, excluding
restructuring and impairment charges, compared to last year�s
earnings per share of $0.35 on a comparable basis. This range of
expectations assumes a continuation of the negative comparable
store sales trends at approximately the same levels as experienced
in the fourth quarter of fiscal 2008.
Conference Call
Details
As previously announced, Talbots will host a conference call
today, April 13, 2009 at 5:00 p.m. local time to discuss fourth
quarter and fiscal 2008 results. To listen to the live call, please
dial 866-336-2423, passcode �TLB� or 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 through April 15, 2009. This
archived call may be accessed by dialing (800) 642-1687; passcode
94186840.
The Talbots, Inc. is a leading specialty retailer and direct
marketer of women�s apparel, shoes and accessories. At the end of
fiscal 2008, the Company operated stores in 870 locations in 47
states, the District of Columbia, and Canada, with 587 locations
under the Talbots brand name and 283 locations under the J. Jill
brand name. 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.
Cautionary Statement and Certain Risk Factors to
Consider
In addition to the information set forth in this press release,
you should carefully consider the risk factors and risks and
uncertainties included in the Company�s Annual Report on Form 10-K
and Quarterly Reports on Form 10-Q, as well as in this press
release below.
This press release 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," "achieve," "plan," "look," "believe,"
"anticipate," "outlook," "will," "would," "should," "guidance," or
similar statements or variations of such terms.
All of the information concerning our financial outlook and
prospects, future access to credit facilities, future cash flows
and cash needs, and other future financial performance or financial
position, constitutes forward-looking information. Our
forward-looking statements are based on a series of expectations,
assumptions, estimates and projections about our Company, are not
guarantees of future results or performance, and involve
substantial risks and uncertainty, including assumptions and
projections concerning our regular-price and markdown selling,
operating cash flows, liquidity, and funds available under our
credit facilities for all forward periods. All of our
forward-looking statements are as of the date of this release
only.
The Company can give no assurance that such expectations or
forward-looking statements will prove to be correct. Actual results
may differ materially. The Company does not undertake or plan to
update or revise any such forward-looking statements to reflect
actual results, changes in plans, 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 forward-looking information will not be
realized.
An occurrence of or any material adverse change in one or more
of the risk factors or risks and uncertainties referred to in this
press release or included in our periodic reports filed with the
Securities and Exchange Commission could materially and adversely
affect our continuing operations and our future financial results,
cash flows, prospects, and liquidity.
Our business and our forward-looking statements involve
substantial known and unknown risks and uncertainties, including
the following risks and uncertainties:
� -- �
the material impact on our
business, continuing operations and financial results of the
significant deterioration in the U.S. economic environment,
including continued substantial negative impact on consumer
discretionary spending and , if such economic conditions continue
or worsen can be expected to continue to have an increasing impact
on our business, continuing operations, liquidity, and results of
operations;
� --
the Company's decision concerning,
and the risks and uncertainties associated with, the decision to
pursue a sale or disposition of the J. Jill brand business,
including the timing, ultimate consummation, consideration which
may be received, and other terms of any such sale or
disposition;
� --
the ability to access, on
satisfactory terms or at all, adequate, additional financing and
sources of liquidity necessary to fund our business and continuing
operations and to obtain further increases in our credit facilities
as may be needed from time to time;
� --
satisfaction of all borrowing
conditions under our working capital credit facilities, including
accuracy of all representations and warranties, no events of
default, absence of material adverse effect or change, and all
other borrowing conditions;
� --
satisfaction of all conditions
under new secured facility;
� --
ability to obtain extensions of
our commitment dates and maturity dates of our existing credit
facilities;
� --
consummation of any sourcing
transactions;
� --
risk of ability to purchase
merchandise on open account purchase terms at existing payment
terms and expected levels, and risks and uncertainties in
connection with any need to source merchandise from alternate
vendors;
� --
risk of impairment of goodwill and
other intangible and long-lived assets;
� --
any disruption in our supply of
merchandise;
� --
ability to reduce spending as
needed;
� --
ability to achieve our 2009
financial plan for operating results, working capital and cash
flows;
� --
the risk of continued compliance
with NYSE continued listing conditions, including thirty day
average $1 trading price and $75 million market capitalization and
stockholders� equity, and other continued listing conditions;
� --
future store closings and success
of and necessary funding for closing underperforming stores;
� --
ability to successfully execute,
fund and achieve the benefits from our strategic initiatives and
restructuring and cost savings initiatives;
� --
ability to accurately forecast
future sales, cash flows and other future financial results;
� --
customer acceptance of our new
merchandise offerings including our spring, summer and other
seasonal fashions.
In each case, actual results may differ materially from such
forward-looking information. Any future public statements or
disclosures by us which modify or impact any of the forward-looking
statements contained in or accompanying this release will be deemed
to modify or supersede such statements in or accompanying this
release.
Certain other factors which may impact our continuing
operations, prospects, financial results and liquidity or which may
cause actual results to differ from such forward-looking statements
are also discussed or included in the Company's periodic reports
filed with the Securities and Exchange Commission and available on
the Talbots website at www.thetalbotsinc.com under "Investor
Relations�. You are urged to carefully consider all such
factors.
THE TALBOTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THIRTEEN AND
FIFTY-TWO WEEKS ENDED JANUARY 31, 2009 AND FEBRUARY 2, 2008
Amounts in thousands except per share data � � � � Thirteen
Weeks Ended Fifty-Two Weeks Ended January 31, February 2, January
31, February 2, 2009 2008 2009 2008 � Net Sales $ 327,912 $ 427,681
$ 1,495,170 $ 1,708,115 � Costs and Expenses Cost of sales, buying
and occupancy 280,068 300,531 1,049,785 1,143,309 Selling, general
and administrative 140,692 128,779 523,136 523,286 Restructuring
charges 7,645 3,710 17,793 3,710 Impairment of store assets 269 689
2,845 2,606 � Operating (Loss) Income (100,762) (6,028) (98,389)
35,204 � Interest Interest expense 5,083 8,332 20,589 35,400
Interest income 53 201 299 1,289 � Interest Expense - net 5,030
8,131 20,290 34,111 � (Loss) Income Before Taxes (105,792) (14,159)
(118,679) 1,093 � Income Tax Expense 30,521 (3,837) 25,842 1,050 �
(Loss) Income from Continuing Operations (136,313) (10,322)
(144,521) 43 � Loss from Discontinued Operations (230,220)
(161,056) (416,138) (188,884) � Net Loss $ (366,533) $ (171,378) $
(560,659) $ (188,841) � Net (Loss) Income Per Share: � Basic (loss)
income per share from continuing operations $ (2.55) $ (0.19) $
(2.70) $ - Basic loss per share from discontinued operations (4.30)
(3.03) (7.79) (3.56) Basic loss per share $ (6.85) $ (3.22) $
(10.49) $ (3.56) � Diluted (loss) income per share from continuing
operations $ (2.55) $ (0.19) $ (2.70) $ - Diluted loss per share
from discontinued operations (4.30) (3.03) (7.79) (3.56) Diluted
loss per share $ (6.85) $ (3.22) $ (10.49) $ (3.56) � Weighted
Average Number of Shares of Common Stock Outstanding: � Basic
53,512 53,085 53,436 53,006 Diluted 53,512 53,085 53,436 53,006
Cash Dividends Paid Per Share $ 0.13 $ 0.13 $ 0.52 $ 0.52
THE
TALBOTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
BALANCE SHEETS (UNAUDITED) JANUARY 31, 2009 AND FEBRUARY 2,
2008 Amounts in thousands � �
January 31,
February 2, 2009 2008 � Cash and cash
equivalents $ 16,718 $ 25,476 Customer accounts receivable - net
169,406 210,853 Merchandise inventories 206,593 262,603 Other
current assets 67,094 68,897 Assets held for sale - current 109,966
84,018 Total current assets 569,777 651,847 � Property and
equipment - net 277,363 329,360 Goodwill 35,513 35,513 Trademarks
75,884 75,884 Other assets 12,756 30,545 Assets held for sale -
long-term - 379,830 � TOTAL ASSETS $ 971,293 $ 1,502,979 � Accounts
payable $ 122,034 $ 143,611 Accrued income taxes - 4,829 Accrued
liabilities 148,356 151,476 Notes payable to banks 148,500 -
Current portion of long-term debt 70,377 80,650 Liabilities held
for sale - current 94,190 62,478 Total current liabilities 583,457
443,044 � Long-term debt less current portion 238,000 308,377
Related party debt 20,000 - Deferred rent under lease commitments
115,282 116,897 Deferred income taxes 28,456 5,646 Other
liabilities 169,195 144,672 Liabilities held for sale - long-term -
29,564 Stockholders' (deficit) equity (183,097) 454,779 � TOTAL
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY $ 971,293 $
1,502,979
THE TALBOTS, INC. AND SUBSIDIARIES CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Amounts in
thousands �
Year Ended January 31, �
February
2, 2009 2008 � CASH FLOWS FROM OPERATING
ACTIVITIES: Net loss $ (560,659) $ (188,841) Loss from discontinued
operations, net of tax (416,138) (188,884) Net (loss) income from
continuing operations (144,521) 43 Depreciation and amortization
84,526 88,940 Impairment of store assets 2,845 2,606 Deferred and
other items 53,536 13,432 Changes in: Customer accounts receivable
41,156 (6,119) Merchandise inventories 41,325 40,469 Accounts
payable (20,898) 38,085 Accrued income taxes (4,308) (655) All
other working capital (37,401) 36,907 16,260 213,708 � CASH FLOWS
FROM INVESTING ACTIVITIES: Additions to property and equipment
(44,698) (57,597) Proceeds from disposal of property and equipment
2,555 - (42,143) (57,597) � CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) from working capital notes payable, net 148,500
(45,000) Proceeds from long-term borrowings 20,000 - Payments on
long-term borrowings (80,502) (80,469) Proceeds from options
exercised 887 1,550 Excess tax benefit from options exercised - 347
Payment of debt issuance costs (865) - Cash dividends (28,752)
(28,363) Purchase of treasury stock (1,505) (521) 57,763 (152,456)
� EFFECT OF EXCHANGE RATE CHANGES ON CASH (464) 1,424 � CASH FLOWS
FROM DISCONTINUED OPERATIONS: Operating activities (20,119) 11,677
Investing activities (18,684) (27,215) Effect of exchange rate
changes on cash (154) 12 (38,957) (15,526) � NET DECREASE IN CASH
AND CASH EQUIVALENTS (7,541) (10,447) CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 24,280 34,819
INCREASE IN CASH AND CASH
EQUIVALENTS OF DISCONTINUED OPERATIONS
(188)
(92) CASH AND CASH EQUIVALENTS, END OF PERIOD
$ 16,551
$ 24,280
THE TALBOTS, INC. AND SUBSIDIARIES
Reconciliation of income tax expense from continuing operations
on a GAAP basis (unaudited) Amounts in thousands except per
share amounts � � � �
�
For the 13 weeks ended
January 31, 2009
For the 52 weeks ended
January 31, 2009
Reconciliation of income tax
expense from continuing operations on a GAAP basis:
Loss from continuing operations before taxes $ (105,792) $ (1.98) $
(118,679) $ (2.22) Less income tax benefit (expense): Tax benefit
from continuing operations 35,454 0.66 40,133 0.75 Deferred tax
valuation allowance from continuing operations (65,975) (1.23)
(65,975) (1.23) Total income tax (expense) (30,521) (0.57) (25,842)
(0.48) Loss from continuing operations after taxes $ (136,313) $
(2.55) $ (144,521) $ (2.70)
SEC Regulation G � � � � �
THE TALBOTS, INC. AND SUBSIDIARIES Reconciliation of GAAP
presentation net (loss) income to non-GAAP net (loss) income from
continuing operations (unaudited) Amounts in thousands
except per share amounts �
For the 13 weeks ended
January 31, 2009
For the 13 weeks ended
February 2, 2008
� Loss from continuing operations after taxes $ (136,313) $ (2.55)
$ (10,322) $ (0.19) Impact of restructuring charges, net of taxes
in fiscal 2007 7,645 0.14 2,705 0.05 Impact of asset impairments,
net of taxes in fiscal 2007 269 0.01 502 0.01
Loss from continuing operations
before restructuring and impairment charges, after taxes
$ (128,399) $ (2.40) $ (7,115) $ (0.13) �
For the 52 weeks
ended
January 31, 2009
For the 52 weeks ended
February 2, 2008
� Loss (income) from continuing operations after taxes $ (144,521)
$ (2.70) $ 43 $ 0.00 Impact of restructuring charges, net of taxes
in fiscal 2007 17,793 0.33 145 0.00 Impact of asset impairments,
net of taxes in fiscal 2007 2,845 0.05 102 0.00
(Loss) income from continuing
operations before restructuring and impairment charges, after
taxes
$ (123,883) $ (2.32) $ 290 $ 0.00
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