Key questions and answers from the third quarter fiscal 2007 earnings conference call conducted by Talbots, Inc. (TLB: chart) on November 27, 2007.

Neely Tamminga (Piper Jaffray): Do you think the weakness over the last weekend had something to do with changing the promotional cadence that the J. Jill customer is certainly used to? It’s usually a $20-off promotion, not 25% off. What was your thought process about why you changed it?

Philip H. Kowalczyk: The difference between $20 off sweaters versus 25% off was a very intentional strategy. It was also combined with a free cammie with a purchase of over $50. The concept behind the strategy was two-fold. One, many of our sweater offers includes some pricing, a full range of pricing, from opening all the way to the upper end. And if you offer just a dollar off promotion, the value of that decreases as you are buying a more expensive sweater. So we wanted to be a little more democratic in the offer and provide 25% off whatever sweater you choose, whether it be at the high end or the low end.

The free cammie was a strategy which was two-fold. One, it’s probably one of the best cammies in the market place and the more guests, particularly over Thanksgiving where we would have more occasional J. Jill shoppers, we want to have them in the cammie because we think that’s a real loyalty driver.

If you look at the market place and look at everybody else who was promoting sweaters, I think the only mistake is if we’re offering 25% off and the rest of the market is at 30% to 70% off sweaters, yeah, I’d probably have that one back. But the idea going to the percent from the dollar, no, I’m perfectly happy with that.

Tracy Kogan (Credit Suisse, N.A.): Could you tell us what your leverage and fixed charge ratios were at the end of the quarter, since we don’t have all of the adjustments that the banks made? Secondly, you said the bad debt on the credit card was low, but have you seen any pick up in the bad debts?

Edward L. Larsen: We have seen a very slight pick up on our bad debt. We are still below one half of 1%, but we have seen a very slight pickup. Our leverage ratio, the admitted leverage ratio is 4.0 and at the end of the third quarter we were at 3.3. And the fixed charge ratio was at 1.25, we were at 1.95.

Lauren Cooks Levitan (Cowen and Company, LLC): When you look at those core customers who are spending a higher percentage of their wallet than before, what else are you hearing from them? Are they spending less overall? Are they feeling particularly strained and behaving more conservatively? And within that core versus the occasional and the lapsed, any difference in the age groups that fall into those buckets?

Trudy F. Sullivan: First, just to start off with the core, they aren’t spending any less. They actually are the most affluent of the three consumer types that are tested. They’re very satisfied with the brand. But on the other hand they are so extraordinarily loyal and to have that share of wallet is pretty impressive. So in this tremendous brand house sale we didn’t really expect to see that core quite as settled as she is with the brand.

The next group, the occasional customer is slightly younger, slightly less affluent, but all of these segmentations are affluent. So it’s degrees, but it would be considered affluent across all three buckets.

Lauren Cooks Levitan (Cowen and Company, LLC): Do you see any incompatibility between the things that that occasional and lapse customer is asking for in terms of the rate of change and injecting more novelty and fun?

Trudy F. Sullivan: I actually think the core customer would not at all react poorly to the assortment being, having a higher frequency of newness and having a bit more fun. What we certainly have here is one customer that focused on what we call great classic clothing or refined clothing. And so it’s not just the core customer wants us to be serious and the lapse customer wants us to be somebody else. They all want us to be Talbots. Our own self-diagnosis of our issues has been that we’ve aimed our refined sportswear to one customer and our casual sportswear to another and the complaint is the one customer coming in the store can’t shop at all walls. It’s confusing to her.

I think there’s a way for us to kind of target a slightly younger age group than the core customer and stick to a very cohesive assortment that’s very well bred, but updated and modern and has a lot of colour and fun. We’ve put together a war room here to reconnect with the DNA of the Talbots brand and it’s really quite exciting and I believe it has characteristics that all of these customer segment groups would respond to positively.

Kimberly Greenberger (Citigroup): It sounds like you’re doing a lot of work on the merchandising, obviously. Could you address the merchandising talent you have working on the product, both at the Talbots brand and at J. Jill, and are you looking to do any key hires in there? Could you give us a breakout in the basis point impact on the deleveraging of occupancy within the gross margin line versus the merchandise margin impact?

Trudy F. Sullivan: We have some very key leadership positions that have not been filled. So first and foremost, my focus has been to find great product talents that we can bring into the picture here to work alongside a very dedicated product and merchant team. Once we secure that talent we’ll announce something imminently. Once we get these critical positions filled then we’ll start to do a deep evaluation of the talent that is here.

These senior leadership positions have been open for almost six months and we have a group of product directors and product people in New York who’ve kept the wheels on the bus here and work very hard to make that happen, and who are really pressing for us to bring leadership in that can help them go in a new direction. I think it’s always great when you have fusion of new and with people who have great institutional capabilities. And that’s what we hope to do here.

Edward L. Larsen: With the spec view cost of sales on buying expenses, and the remainder of 110 is pure cost of goods sold. And that 110 is a of various deleverage there, of our 280 basis point decline in gross margin one half of that or 140 basis points is occupancy deleverage. We have 30 basis points is the deleverage combination of improved mark up by about 100 basis points and then more markdowns of over 200 basis points.

Marni Shapiro (The Retail Tracker): Is there a brand out there that you’ve talked about with her that she likes and that she’s shopping or is there something that she mentioned was missing, a void in the market that she felt like Talbot’s was her place, but maybe hasn’t been living up to her expectations. You talked that refined was better than casual. But could you talk a little bit about your novelty items versus your basic?

Trudy F. Sullivan: On the research there’s no one company that she calls out that is absolutely knocking the cover off the ball for her. She is a broad shopper and she certainly has given us indication of where she shops, but she’s also told us that Talbots, if Talbots would just click on all cylinders on its game that we would be the destination store. I believe that certainly we have the reach between 1400 stores and the strength of our direct businesses and internet. We have the capability to reach a broad consumer here. So if we reach a broad consumer with an improved product offer I think we would be hard to beat. But our research shows that she mentions a lot of other places, and I’m sure a lot of our peer group are doing the same kind of research, that there’s no one clear winner for this consumer’s statement at this stage in the game.

Jennifer Black (Jennifer Black and Associates): I wonder if you could tell us how your petites, missy, and women’s divisions did? And then secondly, in talking about the research that you’ve been doing, are you using actual focus groups? Any thoughts about the internet versus the stores?

Trudy F. Sullivan: We are doing ethnography. Our research is web based. So it’s kind of web-based focus groups. It’s not just focus groups. We’ll chair a lot more as we get into the first quarter of next year. We have done mall intercepts as well.

In terms of the petite, missy, women’s, our women’s business, frankly, has performed slightly better than our missy business and by all accounts, early accounts, it looks to be a huge opportunity for us. The petite business is also a very highly penetrated business and I think where the world has started to walk away from petites and women’s, Talbots' fashions still represents significant opportunity in both places. But missy is still the biggest business and it’s slightly more challenged than the petites and women’s.