The Talbots, Inc. (NYSE:TLB) today reported results for the
fourth quarter and fiscal year ended January 29, 2011.
Fourth quarter loss from continuing operations was $2.8 million,
or $0.04 per share, compared to last year’s loss from continuing
operations of $1.5 million, or $0.03 per share. Adjusted fourth
quarter loss from continuing operations was $9.6 million, or $0.14
per share, excluding net income from special items of $6.8 million,
or $0.10 per share, compared to last year’s adjusted income from
continuing operations of $7.4 million, or $0.13 per share.
Fiscal year 2010 income from continuing operations was $7.6
million, or $0.11 per share, compared to last year’s loss from
continuing operations of $25.3 million, or $0.47 per share.
Adjusted full year 2010 income from continuing operations was $40.6
million, or $0.61 per share, excluding special items of $33.0
million, or $0.50 per share, compared to last year’s adjusted loss
from continuing operations of $5.5 million, or a loss of $0.10 per
share.
A full reconciliation of GAAP to non-GAAP (“adjusted”) items is
included with this release.
Trudy F. Sullivan, Talbots President and Chief Executive
Officer, said, “We achieved fourth quarter and full year results
that were slightly better than our revised expectations. For the
full year, we significantly improved our profitability and
considerably deleveraged our balance sheet; however, we remain
disappointed in our fourth quarter performance. As we previously
reported, our results during the fourth quarter reflected weaker
than anticipated customer response to our product, high levels of
competitive promotional activity and weather related issues. We
believe merchandise styling in our catalog that was pushed too far
forward for our core customer, and the initial allocation of
product in the early implementation of our store segmentation
strategy, were additional factors impacting store traffic. We have
already begun to take steps to address these challenges.”
Fourth Quarter 2010 Operating
Results:
- Operating income was approximately
break-even, compared to prior year’s operating income of $4.5
million.
- Adjusted operating loss, excluding
special items of $6.8 million, was $6.8 million, a decrease of
$20.1 million, compared to prior year’s adjusted operating income
of $13.3 million.
- Net sales decreased 7.4% to $292.6
million, compared to $315.9 million in the same period last
year.
- Store sales decreased 7.8% to $240.8
million, compared to $261.2 million in the same period last year.
Comparable store sales decreased 7.3%.
- Direct marketing sales, including
catalog, Internet and red-line, decreased 5.3% in the quarter to
$51.8 million, compared to $54.7 million in the same period last
year.
- Cost of sales, buying and occupancy as
a percent of net sales increased 610 basis points compared to last
year, primarily due to higher levels of markdowns resulting from
lower than anticipated sales and higher levels of promotional
activity.
- Selling, general & administrative
(SG&A) expenses as a percent of net sales decreased 170 basis
points from the prior year to 29.4%. This decrease was due
primarily to continued strong expense management and a one-time
cumulative adjustment to gift card breakage income.
Full Year 2010 Results:
- Operating income was $31.4 million, an
increase of $40.1 million, compared to the prior year’s operating
loss of $8.7 million.
- Adjusted operating income, excluding
special items of $27.5 million, was $58.9 million, or 4.9% of net
sales, an increase of $47.7 million, or 428.2%, compared to the
prior year.
- Net sales were $1,213.1 million for the
fifty-two week period, compared to $1,235.6 million in the prior
year.
- Store sales were $991.4 million,
compared to $1,027.9 million in the prior year. Comparable store
sales declined 3.4%.
- Direct marketing sales, including
catalog, Internet and red-line, increased 6.7% to $221.7 million,
compared to $207.7 million last year.
- Cost of sales, buying and occupancy as
a percent of net sales declined 420 basis points compared to last
year, primarily due to a 310 basis point improvement in merchandise
margin and a 110 basis point improvement in buying and occupancy
expenses as a percent of net sales.
- Selling, general & administrative
(SG&A) expenses as a percent of net sales decreased 20 basis
points from the prior year to 32.4%. This decrease was due
primarily to continued tight expense management and a one-time
cumulative adjustment to gift card breakage income recognized in
the fourth quarter, which offset incremental marketing investment
and the reinstatement of certain employee related benefits.
- Total inventory increased 10.8% to
$158.0 million, compared to $142.7 million at the end of fiscal
2009, due to planned increases in receipts and lower than
anticipated sales volume in the fourth quarter. The timing of
spring receipts also had an impact on year-end inventory
levels.
- Total outstanding debt was $25.5
million, a decrease of $461.0 million, or 94.8%, compared to $486.5
million at the end of last year.
- During 2010, the Company opened 11
Talbots upscale outlets, closed 23 Talbots stores and ended the
year with 568 stores.
Outlook
The Company commented on the first quarter and full year 2011 as
follows:
While first quarter-to-date sales trends and customer traffic
have improved sequentially from the fourth quarter of 2010, top
line sales are currently down approximately 4% compared to the same
period last year, despite the Company’s increased levels of
promotional activity. The Company also indicated that the shift in
Easter from March to April this year has a significant impact on
first quarter sales to date as key promotional events have shifted
accordingly.
As the Company maintains a higher level of promotional activity,
first quarter cost of sales, buying and occupancy as a percent of
net sales is expected to increase approximately 600 basis points
from the prior year period. Selling, general and administrative
expenses on a dollar basis are expected to be up slightly from the
prior year first quarter, due primarily to the continuation of
incremental marketing investments.
For the full year, the Company plans to expand its store
re-image program and expects to refresh and renovate approximately
70 stores by fiscal year-end. In conjunction with the expanded
store re-image initiative, Talbots also expects to accelerate the
implementation of its previously announced long-range plan to
reduce the Company’s store base and square footage. The Company
expects to close approximately 90 to 100 stores and consolidate
and/or downsize approximately 15 to 20 stores over two years, with
a majority of those expected to be completed in 2011. The plan is
being finalized; however, the Company anticipates recording
associated costs of approximately $18 million over the two years.
Additionally, the Company expects to open approximately 20 upscale
outlets in 2011.
Capital expenditures for 2011 are expected to be approximately
$60 million, relating to investments in refreshing and renovating
stores, upscale outlet openings and IT initiatives.
Ms. Sullivan concluded, “At this stage in our turnaround, we are
continuing to put building blocks in place that we believe will
position the Company for long term sustainable, profitable growth.
As we move forward in 2011, we believe that higher commodity costs
and our increased promotional activity will affect our near-term
profitability. We remain keenly focused on merchandise initiatives
as well as branding and marketing strategies that we believe will
drive increased customer traffic and sales.
“Further, we are pleased to expand the store re-image program
this year to additional stores and believe the accelerated
rationalization of our store portfolio and implementation of IT
initiatives will also allow us to make progress toward improved
productivity.”
The above outlook is based on the Company’s internal assumptions
and estimates, is subject to its accompanying forward-looking
statement and is not a guarantee of future performance.
Conference Call Details
As previously announced, Talbots will host a conference call
today March 24, 2011, at 10:00 a.m. local time to discuss fourth
quarter and full year 2010 results and comments on first quarter
and full year fiscal 2011. 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 March 29, 2011. This
archived call may be accessed by dialing (800) 642-1687; passcode
28735033.
The Talbots, Inc. is a leading specialty retailer and direct
marketer of women’s apparel, shoes and accessories. At the end of
the fourth quarter 2010, the Company operated 568 Talbots stores in
46 states and Canada. Talbots brand on-line shopping site is
located at www.talbots.com.
Cautionary Statement and Certain Risk Factors to
Consider
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,” “projected,”
“believe,” “anticipate,” “outlook,” “will,” “would,” “should,”
“potential” or similar statements or variations of such terms. All
of the information concerning our future liquidity, future
financial performance and results, future credit facilities and
availability, future cash flows and cash needs, strategic
initiatives and other future financial performance or financial
position, as well as our assumptions underlying such information,
constitute forward-looking information. Our forward-looking
statements are based on a series of expectations, assumptions,
estimates and projections about the Company, are not guarantees of
future results or performance, and involve substantial risks and
uncertainty, including assumptions and projections concerning our
internal plan, regular-price and markdown selling, operating cash
flows, liquidity and credit availability for all forward periods.
Our business and our forward-looking statements involve substantial
known and unknown risks and uncertainties, including the following
risks and uncertainties:
- the ability to successfully increase
our store customer traffic and the success and customer acceptance
of our merchandise offerings in our stores, on our website and in
our catalogs;
- the continuing material impact of the
U.S. economic environment on our business, continuing operations,
liquidity and financial results, including any negative impact on
consumer discretionary spending, substantial loss of household
wealth and savings, significant tightening of the U.S. credit
markets and continued high unemployment levels;
- the risks associated with our efforts
to successfully implement and achieve the benefits of our current
strategic initiatives including store segmentation, store
re-imaging, store rationalization and the reduction of the
Company’s store base and square footage, , enhanced marketing,
information technology reinvestments and any other future
initiatives that we may undertake;
- the risks associated with competitive
pricing pressures and the current increased promotional
environment;
- the risks associated with our on-going
efforts to adequately manage rising raw material and freight
costs;
- the ability to attract and retain
talented and experienced executives that are necessary to execute
our strategic initiatives;
- the risks associated with maintaining
our traditional customer and expanding to attract new
customers;
- the ability to accurately estimate and
forecast future regular-price and markdown selling and other future
financial results and financial position;
- the satisfaction of all borrowing
conditions under our credit facility including accuracy of all
representations and warranties, no events of default, absence of
material adverse effect or change and all other borrowing
conditions;
- the ability to access on satisfactory
terms, or at all, adequate financing and sources of liquidity
necessary to fund our continuing operations and strategic
initiatives and to obtain further increases in our credit facility
as may be needed from time to time;
- the risks associated with our
appointment of an exclusive global merchandise buying agent,
including that the anticipated benefits and cost savings from this
arrangement may not be realized or may take longer to realize than
expected and the risk that upon any cessation of the relationship,
for any reason, we would be unable to successfully transition to an
internal or other external sourcing function;
- the ability to continue to purchase
merchandise on open account purchase terms at existing or future
expected levels and with acceptable payment terms and the risk that
suppliers could require earlier or immediate payment or other
security due to any payment concerns;
- the risks and uncertainties in
connection with any need to source merchandise from alternate
vendors;
- any impact to or disruption in our
supply of merchandise including from any current or any future
increased political, social or other unrest or future labor
shortages in various Asian countries;
- the ability to successfully execute,
fund and achieve the expected benefits of supply chain
initiatives;
- any significant interruption or
disruption in the operation of our distribution facility or the
domestic and international transportation infrastructure;
- the impact of the current regulatory
environment and financial systems reforms on our business,
including new consumer credit rules;
- the risk that estimated or anticipated
costs, charges and liabilities to settle and complete the
transition and exit from and disposal of the J. Jill business,
including both retained obligations and contingent risk for
assigned obligations, may materially differ from or be materially
greater than anticipated;
- any future store closings and the
success of and necessary funding for closing underperforming
stores;
- the risks associated with our upscale
outlet expansion;
- the ability to reduce spending as
needed;
- the ability to achieve our 2011
financial plan and three-year strategic plan for operating results,
working capital and cash flows;
- any negative publicity concerning the
specialty retail business in general or our business in
particular;
- the risk of impairment of goodwill and
other intangible or long-lived assets;
- the risk associated with our efforts in
transforming our information technology systems to meet our
changing business systems and operations;
- any lack of sufficiency of available
cash flows and other internal cash resources to satisfy all future
operating needs and other cash requirements; and
- the risks and uncertainties associated
with the outcome of current and future litigation, claims, tax
audits and tax and other proceedings and the risk that actual
liabilities, assessments or other financial impact will exceed any
estimated, accrued or expected amounts or outcomes.
All of our forward-looking statements are as of the date of this
press release only. In each case, actual results may differ
materially from such forward-looking information. We can give no
assurance that such expectations or forward-looking statements will
prove to be correct. 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
other periodic reports filed with the SEC could materially and
adversely affect our continuing operations and our future financial
results, cash flows, prospects and liquidity. Except as required by
law, we do 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
affecting such forward-looking statements 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. Any public statements or disclosures by us following this
release which modify or impact any of the forward-looking
statements contained in this release will be deemed to modify or
supersede such statements in this release.
In addition to the information set forth in this press release,
you should carefully consider the risk factors and risks and
uncertainties included in our 2009 Annual Report on Form 10-K and
other periodic reports filed with the SEC.
THE TALBOTS, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED) Amounts in thousands
except per share data
Thirteen Weeks Ended Fifty-Two Weeks Ended January
29, January 30, January 29, January 30,
2011 2010
2011 2010 Net sales $ 292,558 $
315,925 $ 1,213,060 $ 1,235,632 Costs and expenses Cost of
sales, buying and occupancy 207,215 204,292 755,232 821,278
Selling, general and administrative 85,969 98,285 393,477 403,204
Merger-related costs (1,795 ) 8,216 25,855 8,216 Restructuring
charges 324 613 5,640 10,273 Impairment of store assets 869
- 1,420 1,351
Operating (loss) income (24 ) 4,519 31,436 (8,690 ) Interest
Interest expense 1,726 6,558 18,902 28,394 Interest income
11 18 75 271
Interest expense, net 1,715 6,540
18,827 28,123 (Loss) income before
taxes (1,739 ) (2,021 ) 12,609 (36,813 ) Income tax
(benefit) expense 1,090 (548 ) 5,039
(11,505 ) (Loss) income from continuing operations
(2,829 ) (1,473 ) 7,570 (25,308 ) Income (loss) from
discontinued operations 23 5,563
3,245 (4,104 ) Net (loss) income $ (2,806 ) $ 4,090
$ 10,815 $ (29,412 ) Basic (loss) earnings per share:
Continuing operations $ (0.04 ) $ (0.03 ) $ 0.11 $ (0.47 )
Discontinued operations - 0.10
0.05 (0.08 ) Net (loss) earnings $ (0.04 ) $ 0.07 $
0.16 $ (0.55 ) Diluted (loss) earnings per share: Continuing
operations $ (0.04 ) $ (0.03 ) $ 0.11 $ (0.47 ) Discontinued
operations - 0.10 0.05
(0.08 ) Net (loss) earnings $ (0.04 ) $ 0.07 $ 0.16 $ (0.55
) Weighted average shares outstanding: Basic
68,527 53,884 65,790
53,797 Diluted 68,527 54,497
66,844 53,797
THE
TALBOTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED
BALANCE SHEETS (UNAUDITED) Amounts in thousands
January 29, January 30, 2011
2010
Cash and cash equivalents $ 10,181 $ 112,775 Customer
accounts receivable, net 145,472 163,587 Merchandise inventories
158,040 142,696 Other current assets 37,419 57,789
Total current assets 351,112 476,847 Property and
equipment, net 186,658 220,404 Goodwill 35,513 35,513 Trademarks
75,884 75,884 Other assets 19,349 17,170
Total Assets $ 668,516 $ 825,818
Accounts payable $ 91,855 $ 104,118 Accrued liabilities 137,824
148,177 Revolving credit facility 25,516 - Related party debt
- 486,494 Total current liabilities 255,195
738,789 Deferred rent under lease commitments 93,440 111,137
Deferred income taxes 28,456 28,456 Other liabilities 107,839
133,072 Stockholders' equity (deficit) 183,586
(185,636 ) Total Liabilities and Stockholders' Equity
(Deficit) $ 668,516 $ 825,818
THE TALBOTS, INC.
AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (UNAUDITED) Amounts in thousands
Fifty-Two Weeks Ended January 29, January 30,
2011 2010 CASH
FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 10,815 $
(29,412 ) Income (loss) from discontinued operations, net of tax
3,245 (4,104 ) Income (loss) from continuing
operations 7,570 (25,308 ) Depreciation and amortization 61,501
74,309 Stock-based compensation 14,461 6,423 Amortization of debt
issuance costs 3,118 2,335 Impairment of store assets 1,420 1,351
Gift card breakage income (6,940 ) - Non-cash gain on settlement of
shareholder litigation (1,045 ) - Deferred and other items (13,370
) (23,452 ) Changes in: Customer accounts receivable 18,187 5,950
Merchandise inventories (15,116 ) 64,311 Accounts payable (12,317 )
(17,275 ) Accrued liabilities 4,245 (14,016 ) All other working
capital (7,576 ) 6,559 Net cash provided by
operating activities 54,138 81,187
CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property
and equipment (28,805 ) (20,980 ) Proceeds from disposal of
property and equipment 15 61 Cash acquired in merger with BPW
Acquisition Corp. 332,999 - Net cash
provided by (used in) investing activities 304,209
(20,919 ) CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit facility 1,651,638 - Payments on
revolving credit facility (1,626,122 ) - Proceeds from related
party borrowings - 475,000 Payments on related party borrowings
(486,494 ) (8,506 ) Payments on long-term borrowings - (308,351 )
Proceeds from working capital notes payable - 8,000 Payments on
working capital notes payable - (156,500 ) Payment of debt issuance
costs (6,163 ) (4,760 ) Payment of equity issuance costs (3,594 ) -
Proceeds from warrants exercised 19,042 - Proceeds from options
exercised 752 - Purchase of treasury stock (2,030 )
(556 ) Net cash (used in) provided by financing activities
(452,971 ) 4,327 EFFECT OF EXCHANGE RATE
CHANGES ON CASH 607 503 CASH FLOWS FROM DISCONTINUED
OPERATIONS: Operating activities (8,577 ) (34,110 ) Investing
activities - 63,827 Effect of exchange rate changes on cash
- 23 (8,577 ) 29,740 NET (DECREASE)
INCREASE IN CASH AND CASH EQUIVALENTS (102,594 ) 94,838 CASH AND
CASH EQUIVALENTS, BEGINNING OF PERIOD 112,775 16,551 INCREASE IN
CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS -
1,386 CASH AND CASH EQUIVALENTS, END OF PERIOD
$ 10,181 $ 112,775
SEC Regulation G
THE TALBOTS, INC. AND
SUBSIDIARIES Reconciliation of GAAP (loss) income
from continuing operations to non-GAAP ("adjusted") (loss)
income from continuing operations (unaudited) Amounts in
thousands except per share amounts
For the 13 weeks ended
January 29, 2011
For the 13 weeks ended
January 30, 2010
Loss from continuing operations $ (2,829 ) $ (0.04 ) $
(1,473 ) $ (0.03 ) Merger-related costs (1,795 ) (0.02 ) 8,216 0.15
Restructuring charges 324 - 613 0.01 Impairment of store assets 869
0.01 - - Cumulative effect of change in estimate, gift card
breakage
(a) (6,285 ) (0.09 ) - - Store re-image initiative
(b) 141 - -
- Adjusted (loss) income from continuing operations $ (9,575
) $ (0.14 ) $ 7,356 $ 0.13
For the 52 weeks ended
January 29, 2011
For the 52 weeks ended
January 30, 2010
Income (loss) from continuing operations $ 7,570 $ 0.11 $
(25,308 ) $ (0.47 ) Merger-related costs 25,855 0.39 8,216 0.15
Restructuring charges 5,640 0.09 10,273 0.19 Impairment of store
assets 1,420 0.02 1,351 0.03 Cumulative effect of change in
estimate, gift card breakage
(a) (6,285 ) (0.09 ) - - Change
in tax estimate
(c) 5,546 0.08 - - Store re-image initiative
(b) 833 0.01 -
- Adjusted income (loss) from continuing operations $
40,579 $ 0.61 $ (5,468 ) $ (0.10 )
Reconciliation of GAAP operating (loss) income to non-GAAP
("adjusted") operating (loss) income (unaudited) Amounts in
thousands For the
13 weeks ended
January 29, 2011
For the 13 weeks ended
January 30, 2010
Operating (loss) income $ (24 ) $ 4,519 Merger-related costs
(1,795 ) 8,216 Restructuring charges 324 613 Impairment of store
assets 869 - Cumulative effect of change in estimate, gift card
breakage
(a) (6,285 ) - Store re-image initiative
(b)
141 -
Adjusted operating (loss) income $ (6,770 ) $ 13,348
For the 52 weeks ended
January 29, 2011
For the 52 weeks ended
January 30, 2010
Operating income (loss) $ 31,436 $ (8,690 ) Merger-related
costs 25,855 8,216 Restructuring charges 5,640 10,273 Impairment of
store assets 1,420 1,351 Cumulative effect of change in estimate,
gift card breakage
(a) (6,285 ) - Store re-image initiative
(b) 833 -
Adjusted operating income $ 58,899 $
11,150
(a) In the fourth quarter
of 2010, the Company began to recognize income from the breakage of
gift cards when the likelihood of redemption of the gift card is
considered remote. Related to this change in estimate, the Company
recorded a cumulative adjustment of $6.3 million for estimated gift
card breakage from prior years' gift card issuances.
(b) In
the second quarter of 2010, the Company began its store re-image
initiative. Costs incurred related to the initiative include
accelerated depreciation of leasehold improvements and other costs
associated with property disposed of under the program.
(c)
During the second quarter of 2010, the Company changed its estimate
related to certain previously existing uncertain tax positions (FIN
48 liabilities), based on new information. The tax and interest
expense recorded represents the Company's best estimate of
potential exposure.
THE TALBOTS, INC. AND
SUBSIDIARIES Additional Store Metrics
Store Count (unaudited)
January 30,
January 29, 2010
Openings
Closings
Conversions
2011 Retail 541 - (20) - 521 Upscale Outlets 18 11
(1) - 28 Surplus Outlets 21 - (2) - 19 Total 580 11 (23) - 568
Total Store Selling Square Footage
(unaudited) Amounts in thousands January
30, January 29, 2010 2011 Retail
2,984 2,870 Upscale Outlets 67 101 Surplus Outlets 165 149 Total
3,216 3,120
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