- Total consolidated merchandise inventories at the end of the quarter were $260 million, down 22% to last year’s $332 million.
- On a per square foot basis, inventories for the Talbots brand women’s apparel stores were down 19% compared to last year and J. Jill brand down 22% on average per square foot.
- As at end of quarter, notes payable to banks were $34 million versus $12.8 million last year.
- The total outstanding debt was $383 million versus $442 million last year, a decrease of $59 million.
- On a consolidated unit basis, CapEx total $32 million year-to-date versus $37 million last year.
- The consolidated 2008 capital plan is at $75 million.
- The company ended the quarter with 869 store locations, 592 Talbots brand, and 277 J. Jill brand.
- The management closed 30 stores from the non-core businesses.
The company obtained $50 million unsecured subordinated term loan credit facility from Aeon (U.S.A.) Inc.
- Aeon is a wholly owned subsidiary of Aeon Co. Limited and the majority shareholder of The Talbots Inc.
- The credit facility increased the company’s total working capital borrowing capacity to $215 million.
- The company completed the closing of 30 Talbots Kids/Mens/U.K. stores, with the remaining 35 to be closed by mid-September.
- The close down costs for the non-core operations will be much lower than expected.
- The management expects that total close down costs to be a net loss of 27 cents to 32 cents per share compared with the original estimate for a net loss of 59 cents to 64 cents per share.
- The management streamlined the organization and educed corporate staff by about 9%, with annualized cost savings of approximately $14 million.
- The company is on track to reduce the cost structure by $100 million by the end of 2009, with $50 million in 2008.
Talbots Brand:
- The brand continued to record strong improvement in ongoing core operations merchandise gross margin.
- This increased 380 basis points versus the same period last year.
- The increase was driven by a combination of lean inventories, a monthly markdown cadence and improved IMU.
- The management cleared the vast majority of the spring and summer merchandise and is now focused on the fall selling season.
J. Jill Brand:
- The aggressive markdown posture during the quarter resulted in a deep decline of 540 basis points in the J. Jill brand merchandise gross margin versus the previous year.
- The decline partially offset the improvement at the Talbots brand.
- However, the initiative was a necessary step towards leveling the inventory to enable full price selling.
Fiscal 2008 Guidance:
- Despite the second half of the year challenges presented by the difficult macro-economic environment, the management is persuaded about driving improved operating performance through a combination of stronger merchandise, comprehensive and focused marketing, customer prospecting and a continued emphasis on enhancing the customers’ overall shopping experience.
- The company is expecting consolidated comparable store sales for the full fall season to be in the range of flat to slightly negative compared with last year.
- By brand, Talbots comparable store sales are forecast to be flat with J. Jill down low to mid single digits.
- The management re-confirmed the outlook for fiscal 2008 earnings from ongoing core operations, excluding Talbots Kids, Mens and U.K. operating results and close down costs, to be in the range of 47 cents to 52 cents per share.
- The company is planning for a net loss from non core businesses in the range of about 27 cents to 32 cents per share.
- The total company’s EPS guidance is expected to be between 15 cents and 25 cents versus the previous forecast for a net loss per share in the range of 17 cents to 7 cents and compares to a net loss of $3.56 per share reported in fiscal 2007.
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.
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