The Talbots, Inc. (NYSE:TLB) today reported results for the
quarter ended April 30, 2011.
First quarter income from continuing operations was $0.9
million, or $0.01 per share, compared to last year’s loss from
continuing operations of $7.1 million, or $0.12 per share.
Adjusted first quarter income from continuing operations was
$5.3 million, or $0.08 per share, excluding special items of $4.4
million, or $0.07 per share, compared to last year’s adjusted
income from continuing operations of $21.7 million, or $0.38 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, commented, “Our first quarter performance reflects an
inconsistent customer response to our merchandise assortments, a
challenging competitive environment and high levels of promotional
activity. Although we did see a positive customer reaction to our
March brand moment, our February and April brand moments
underperformed and sales in each month of the quarter decreased
year over year.”
“We have been vigorously addressing our challenges, while
continuing with the implementation of our key long-term
initiatives. Our focus has been on directing our merchandise
strategies to deliver a stronger balance of classic versus fashion
forward styles in our assortments and implementing broader based
marketing initiatives that better connect with our core and target
customers to drive top-line growth.”
First Quarter 2011 Operating Results:
- Operating income was approximately $3.2
million, compared to prior year’s operating income of $2.9
million.
- Adjusted operating income, excluding
special items of $4.4 million, was $7.6 million, a decrease of
$24.1 million, compared to prior year’s adjusted operating income
of $31.7 million.
- Net sales decreased 6.0% to $301.3
million, compared to $320.7 million in the same period last
year.
- Consolidated comparable sales decreased
7.7%. Beginning with the first quarter 2011, the Company will
report consolidated comparable sales inclusive of its direct
marketing channel, which includes Internet, catalog and red-line
sales. Consolidated comparable sales exclude stores scheduled to
close under the Company’s store rationalization plan. Two years of
comparable prior year periods have been prepared and are available
on the Company’s website under “Investor Relations/Financial
Highlights.”
- Store sales decreased 6.5% to $240.8
million, compared to $257.6 million in the same period last year.
Comparable store sales decreased 8.2% in the first 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 4.0% in the quarter to
$60.5 million, compared to $63.1 million in the same period last
year.
- Cost of sales, buying and occupancy as
a percent of net sales increased 800 basis points to 64.4% compared
to 56.4% last year. This increase is primarily due to an 880 basis
point deterioration in merchandise margin, resulting from higher
levels of markdowns and promotional activity. The increase was
partially offset by an 80 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 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 activity as 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.”
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 or financial
condition.
Conference Call Details
As previously announced, Talbots will host a conference call
today June 7, 2011, at 10:00 a.m. local time to discuss first
quarter 2011 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 June 09, 2011. This
archived call may be accessed by dialing (800) 642-1687; passcode
72340294.
The Talbots, Inc. is a leading specialty retailer and direct
marketer of women’s apparel, shoes and accessories. At the end of
the first quarter 2011, 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, promotional 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 customer traffic and the success and customer acceptance of our
merchandise offerings in our stores, on our website and in our
catalogs;
- the risks associated with our efforts
to successfully implement, adjust as appropriate and achieve the
benefits of our current strategic initiatives including store
segmentation, store re-imaging, store rationalization, enhanced
marketing, information technology reinvestments and any other
future initiatives that we may undertake;
- the risks associated with our efforts
to maintain our traditional customer and expand to attract new
customers;
- the risks associated with competitive
pricing pressures and the current increased promotional
environment;
- the risks associated with our on-going
efforts to adequately manage the increase in various input costs,
including increases in the price of raw materials, higher labor
costs in countries of manufacture and significant increases in the
price of fuel, which impacts our freight costs;
- the risks associated with our ability
to access on satisfactory terms, or at all, adequate financing and
sources of liquidity as and when necessary to fund our continuing
operations, working capital needs and strategic initiatives and to
obtain further increases in our Credit Facility or obtain other or
additional credit facilities as may be needed if cash flows from
operations or other capital resources are not sufficient at any
time or times;
- the satisfaction of all borrowing
conditions at all times under our Credit Facility including
accuracy of all representations and warranties, no defaults or
events of default, absence of material adverse effect or change and
all other borrowing conditions;
- 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 and continued high unemployment levels;
- the ability to attract and retain
talented and experienced executives that are necessary to execute
our strategic initiatives;
- the ability to accurately estimate and
forecast future regular-price, promotional and markdown selling and
other future financial results and financial position;
- 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 other countries;
- the ability to successfully execute,
fund and achieve the expected benefits of our supply chain
initiatives;
- any significant interruption or
disruption in the operation of our distribution facility or the
domestic and international transportation infrastructure;
- 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 financial
plan and 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 public disclosures or our other periodic reports or other
documents or filings filed with or furnished to 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 press 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 press release which
modify or impact any of the forward-looking statements contained in
this press release will be deemed to modify or supersede such
statements in this press 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 Annual Report on Form 10-K for the
fiscal year ended January 29, 2011 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 April 30, May 1, 2011
2010 Net sales $ 301,310 $ 320,661 Costs and
expenses Cost of sales, buying and occupancy 193,965 180,845
Selling, general and administrative 99,811 108,139 Restructuring
charges 2,265 4,959 Impairment of store assets 1,217 6
Merger-related costs 885 23,813
Operating income 3,167 2,899 Interest Interest expense 2,044
8,435 Interest income 16 21
Interest expense, net 2,028 8,414
Income (loss) before taxes 1,139 (5,515 ) Income tax
expense 231 1,581 Income (loss)
from continuing operations 908 (7,096 ) (Loss) income from
discontinued operations, net of tax (169 ) 2,728
Net income (loss) $ 739 $ (4,368 )
Basic earnings (loss) per share: Continuing operations $ 0.01 $
(0.12 ) Discontinued operations - 0.04
Net earnings (loss) $ 0.01 $ (0.08 ) Diluted earnings
(loss) per share: Continuing operations $ 0.01 $ (0.12 )
Discontinued operations - 0.04 Net
earnings (loss) $ 0.01 $ (0.08 ) Weighted
average shares outstanding: Basic 68,709
57,873 Diluted 69,276
57,873
THE TALBOTS, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) Amounts in thousands
April 30, January 29, May 1,
2011 2011 2010 Cash and cash
equivalents $ 8,569 $ 10,181 $ 14,675 Customer accounts receivable,
net 164,282 145,472 184,611 Merchandise inventories 177,134 158,040
156,661 Other current assets 53,828 37,419
53,466 Total current assets 403,813 351,112 409,413 Property
and equipment, net 181,595 186,658 205,413 Goodwill 35,513 35,513
35,513 Trademarks 75,884 75,884 75,884 Other assets 18,970
19,349 20,280 Total Assets $ 715,775 $ 668,516
$ 746,503 Accounts payable $ 97,790 $ 91,855 $ 77,012
Accrued liabilities 122,314 137,824 146,163 Revolving credit
facility 86,800 25,516 94,144 Total current
liabilities 306,904 255,195 317,319 Deferred rent under
lease commitments 88,742 93,440 109,968 Deferred income taxes
28,456 28,456 28,456 Other liabilities 105,512 107,839 131,155
Stockholders' equity 186,161 183,586 159,605
Total Liabilities and Stockholders' Equity $ 715,775 $
668,516 $ 746,503
THE TALBOTS, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) Amounts in thousands
Thirteen Weeks Ended April 30, May 1,
2011 2010 CASH FLOWS FROM OPERATING
ACTIVITIES: Net income (loss) $ 739 $ (4,368 ) (Loss) income from
discontinued operations, net of tax (169 ) 2,728
Income (loss) from continuing operations 908 (7,096 )
Depreciation and amortization 13,893 16,143 Stock-based
compensation 2,894 4,152 Amortization of debt issuance costs 549
1,563 Impairment of store assets 1,217 6 Gift card breakage income
(165 ) - Deferred and other items (4,165 ) (576 ) Changes in:
Customer accounts receivable (18,759 ) (20,956 ) Merchandise
inventories (18,921 ) (13,764 ) Accounts payable 5,417 (26,532 )
Accrued liabilities (14,478 ) 161 All other working capital
(18,993 ) 2,460 Net cash used in operating activities
(50,603 ) (44,439 ) CASH FLOWS FROM INVESTING
ACTIVITIES: Additions to property and equipment (9,697 ) (1,417 )
Cash acquired in merger with BPW Acquisition Corp. -
332,999 Net cash (used in) provided by investing
activities (9,697 ) 331,582 CASH FLOWS
FROM FINANCING ACTIVITIES: Borrowings on revolving credit facility
507,200 260,000 Payments on revolving credit facility (445,916 )
(165,856 ) Payments on related party borrowings - (486,494 )
Payment of debt issuance costs - (5,755 ) Payment of equity
issuance costs - (1,482 ) Proceeds from warrants exercised - 19,042
Proceeds from options exercised 1 200 Excess tax benefit from
options exercised and stock units vested - 189 Purchase of treasury
stock (2,174 ) (1,698 ) Net cash provided by (used
in) financing activities 59,111 (381,854 )
EFFECT OF EXCHANGE RATE CHANGES ON CASH 368 246 CASH
FLOWS FROM DISCONTINUED OPERATIONS: Operating activities (791 )
(3,622 ) Effect of exchange rate changes on cash -
(13 ) (791 ) (3,635 ) NET DECREASE IN CASH AND CASH
EQUIVALENTS (1,612 ) (98,100 ) CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 10,181 112,775 CASH AND CASH
EQUIVALENTS, END OF PERIOD $ 8,569 $ 14,675
SEC Regulation G THE
TALBOTS, INC. AND SUBSIDIARIES Reconciliation of GAAP
income (loss) from continuing operations to
non-GAAP ("adjusted") income from
continuing operations (unaudited)
Amounts in thousands except per share amounts
For the 13 weeks ended For
the 13 weeks ended April 30, 2011 May 1, 2010
Income (loss) from continuing operations $ 908 $ 0.01 $
(7,096 ) $ (0.12 ) Restructuring charges 2,265 0.04 4,959 0.09
Impairment of store assets 1,217 0.02 6 - Merger-related costs 885
0.01 23,813 0.41 Store re-image initiative
(a) 73
- - - Adjusted income from
continuing operations $ 5,348 $ 0.08 $ 21,682 $ 0.38
Reconciliation of GAAP operating income to
non-GAAP ("adjusted") operating income (unaudited) Amounts
in thousands For
the 13 weeks ended For the 13 weeks ended April 30,
2011 May 1, 2010 Operating income $ 3,167 $ 2,899
Restructuring charges 2,265 4,959 Impairment of store assets 1,217
6 Merger-related costs 885 23,813 Store re-image initiative
(a) 73 - Adjusted operating income $ 7,607 $
31,677
(a) Costs incurred related to the store
re-image initiative include accelerated depreciation of leasehold
improvements and other costs associated with property disposed of
under the program.
THE TALBOTS, INC. AND SUBSIDIARIES Additional
Store Metrics Store Count (unaudited)
May 1, January 29, April 30, 2010
Openings Closings 2011
Openings Closings 2011 Retail 540 - (19
) 521 - (6 ) 515 Upscale Outlets 18 11 (1 ) 28 6 - 34 Surplus
Outlets 21 - (2 ) 19 - - 19 Total 579 11 (22 ) 568 6 (6 )
568
Total Store Selling Square Footage
(unaudited) Amounts in thousands May 1,
January 29, April 30, 2010 2011
2011 Retail 2,964 2,870 2,834 Upscale Outlets
67 101 118 Surplus Outlets 165 149 149 Total 3,196 3,120
3,101
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