This summary is based on the third quarter fiscal 2008 earnings call conducted by The Talbots Inc. (TLB) on November 25, 2008.
Management:
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President, Chief Executive Officer, Director: Trudy Sullivan
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Chief Financial Officer, Treasurer: Ed Larsen
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Senior Vice President, Investor and Media Relations: Julie Lorigan
Key Investors Issues
- Total sales were $357 million, down 18.9% from $440 million in 2007.
The firm had a net loss of $14.8 million or 28 cents per share, down 64%.
-The firm paid a quarterly cash dividend of 13 cents per share.
Year to Date Highlights:
- Sales were down 9% to $1.2 billion from $1.3 billion in 2007.
- The firm realized a loss of $191 million or 15 cents a share.
Third Quarter Highlights
Total sales were $357 million, down 18.9% from $440 million last year on a comparable basis as retail store sales were down 12% to $303 million compared to $345 million last year.
- Comp store sales declined 13.9% driven primarily by a decline in transactions.
- Direct marketing sales, which include catalog and Internet were $54 million compared to $69 million last year, with the decline primarily due to a shift in catalog mailing strategy.
- Cost of sales, buying and occupancy was 68.4% of net sales versus 64.4% last year.
- Operating gross margin improved 100 basis points over last year, but it was fully offset by de-leverage of buying and occupancy cost with a negative 13.9% comp.
Selling, general and administrative expenses were $127 million and 35.6% of net sales versus $139 million and 33.5% of net sales last year, again reflecting de-leverage from negative comps of 13.9%.
- The firm has made progress towards streamlining the cost structure with important improvements in markdown optimization, increased IMU, reduced and reallocated marketing spend, closure of Mens, Kids and U.K. organization and headcount reductions.
- Net interest expense was $4.9 million versus $8.7 million last year reflecting both long-term and short-term interest cost.
- Average borrowings were reduced to $415 million down from $551 million last year and average interest rate for the quarter was 3.8% versus 5.8% last year.
- The firm had a net loss of $14.8 million or 28 cents per share, down 64% from a loss of $9 million or 2 cents a share in 2007 on weaker revenue performance.
Total accounts receivable dropped to $207 million versus $225 million last year, comprised entirely of Talbots charged receivables.
- Talbots charge penetration increased to 48% of sales this year versus 45% last year and finance charge revenue increased to $11.7 million, compared to $10.2 million last year or a gain of 15%.
- Credit card portfolio performance remained solid and stable reflecting the overall quality of the customer base and new accounts increased 8% year-to-date.
- Total merchandise inventories were $226 million, down 23% compared to last year’s $294 million.
- Accounts payable to vendors were $144 million versus $98 million last year, which is 45% due to the shift in open account terms with vendors.
- The firm paid a quarterly cash dividend of 13 cents per share.
Operational Insights:
- On November 6, the firm announced its intention to sell the J. Jill Brand, hence operating results for the J. Jill Brand have been reclassified as discontinued operations.
- The firm also completed the close down of the non-core Talbots men’s, kids and U.K. business and those operations have also been reclassified to discontinued operations.
- Talbots’ realised an improvement in operating gross margin of approximately 100 basis points over last year driven by effective inventory management including tight control of the inventory levels, timely markdown and improved IMU.
- The company increased total catalog circulation by 15% to strengthen relations with existing customers and drive reactivation of the last customer.
- Mizuho Hold Bank and Sumitomo Mitsui Banking Corporation SMBC, have agreed to convert their existing uncommitted $75 million and $50 million working capital lines of credit to committed lines; subject to the completion of due diligence and documentation.
Key questions and answers from the third quarter earnings call conducted by The Talbots Inc. (TLB) on November 25, 2008.
Jennifer Black (Jennifer Black & Associates):
Can you comment on your lapse customer returning and your current customer not lapsed coming back more frequently as well?
Trudy Sullivan: We know our current customer is an intense loyalist, so she shops very frequently with us. Our own study shows she’s virtually in the store multiple times a month, but we are really encouraged by the lapsed customer.
We have reached out to her through the catalog and the response rate on the catalog from the lapsed customers actually surprised us. It is almost as the same response rate that we would get in our current house file, so that’s really encouraging.
