Key questions and answers from the second quarter fiscal 2008 earnings call conducted by The Talbots Inc. on August 27, 2008.

Neely Tamminga (Piper Jaffray): n the past, your balance of earnings has really come a little bit more in Q3 versus Q4. How we should look at the two quarters as it relates to your opportunity from an earnings perspective?

Edward L. Larsen: We would have a strong improvement in gross margin for the fall season, around 700 basis points. We really see that improving even more than that in the fourth quarter. The breakout would be about 500 basis points in the third quarter and about 900 basis points in the fourth quarter. By going to our monthly markdowns now, it spreads out those earnings. The fourth quarter will be a stronger earnings performance than the third quarter.

Marni Shapiro (The Retail Tracker): Could you provide more detail around circulation for the two brands on the direct side, the catalogs, from the first half and then talk about your plans for the back half?

Edward L. Larsen: The first quarter we were up 16%, second quarter down 10%, third quarter will be about flat and the fourth quarter will be up 25%, with the full year up 12% at a total circulation of 54.1 million.
For the J. Jill brand, the first quarter was down 19%, second quarter plus 4%, third quarter plus 7%, fourth quarter down 6%, full year down 5% for a total circulation of about 75 million.

Trudy F. Sullivan: When we talk about contact strategy, it goes beyond just the circulation numbers for our catalogs. We really stepped up the contact through our Internet and so our e-mail contract strategy is significantly up in the back half of the year versus the first half and last year and we also have a very aggressive, what we call a grassroots campaign in inviting customers back into our stores, especially at the time of our September floor set when we are really full-blown in one of our biggest deliveries for the back half.

Tracy Kogan (Credit Suisse): Could you talk about what you are seeing in the sourcing environment in terms of increased costs and your ability to offset those increases?

Trudy F. Sullivan: Everyone is talking about some of the pressures on the supply chain; foreign exchange, oil prices, trade policies, political uncertainty and raw material issues. However, despite all of that, we at Talbots really have sizable upside in our ability to source our product. We really are at the tip of the iceberg in terms of rationalizing our countries where we are producing, our agent office structure, our vendor management, our DC network reconfiguration, our speed to market. We’ve got a number of initiatives that we feel more than mitigate some of the macro factors.

Richard Jaffe (Stifel Nicolaus): With circulation up, are you going deeper into your existing lists and finding that productive? Are you prospecting and finding that a positive

Trudy F. Sullivan: Our number one target is our own lapsed customer. Over the last several years, the ratio of lapsed to core customer has not been going in a favorable direction. We feel we’ve got the product and the aesthetic right, based on our own customer research and certainly the feedback we are getting from Communispace and so now we are actually penetrating into our own lapsed customer file.

Paula Bennett: At J. Jill, we have an increase of 3.1 million prospecting books this year over last year.

Kimberly Greenberger (Citigroup): The press release mentions strong sell-through of new product in August with July comparable store sales positive. Are comps still positive in August? Is that what that implies in the press release?

Edward L. Larsen: Through last weekend, our comps in August at both brands, total company are down 3%. The big shortfall in the second quarter was the third, fourth, and fifth week of June, which were down huge for both brands.

Kimberly Greenberger (Citigroup): In July and in the first 10 days of June you had positive comp and so almost half of the second quarter you were posting positive comps. The problem came when it was time to anniversary the sale in the last two-thirds of June, where your comps were down in the 30s and 40s. How should we understand your approach to anniversarying the sale in September? Do you expect that your comps will again be down in that sort of range but the rest of the quarter will be sufficiently positive that you will be able to deliver on your plan?

Edward L. Larsen: We have a lot of things going for September. We are actually moving the start of our mid-season sale up a week. Last year we started it in week four. This year we started it in week three. We have a big best customer promotion going on during September. We are excited about what we can do in September and we are planning on positive comps for the month of September.

Kimberly Greenberger (Citigroup): Do you have a plan for October given that since you are moving your sales forward, that would benefit September to the deficit of October?

Edward L. Larsen: October is also planned about flat versus last year and we have a lot of marketing events planned for October.

Trudy F. Sullivan: First of all, the sale overlaps and we are actually able to get consistently much higher AUR in our markdown sale and that helps mitigate some of the comp that we are going against. We also have a very aggressive marketing calendar for October and a very different flow of product. One of the most significant things that will affect the October, November and December period is that we have a much higher penetration of fresh product delivering into those months than we did prior.

Edward L. Larsen: We do have this third quarter monthly markdowns which we did not have last year. We only had the mid-season sale. Now we’ve had August monthly markdowns, we will have October monthly markdowns.

Trudy F. Sullivan: We go into the month of August with our comp store inventory in the Talbots brand down 19% and running a comp of negative 3. That’s good productivity on that inventory.