The Talbots Inc. Earnings Cheat Sheet: Margins Shrink as Costs Rise

The Talbots Inc. (NYSE:TLB) reported its results for the third quarter. Talbots, together with its wholly-owned subsidiaries, is a retailer and direct marketer of women’s apparel, shoes and accessories.

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The Talbots Earnings Cheat Sheet for the Third Quarter

Results: Reported a loss of $22.1 million (32 cents per diluted share) in the quarter. The Talbots Inc. had a net income of $17 million or 24 cents per share in the year earlier quarter.

Revenue: Fell 6.6% to $279.5 million from the year earlier quarter.

Actual vs. Wall St. Expectations: TLB reported an adjusted net loss of 22 cents per share. By that measure, the company fell short of the mean analyst estimate of a loss of 15 cents per share. It beat the average revenue estimate of $271.5 million.

Quoting Management: Trudy F. Sullivan, Talbots President and Chief Executive Officer, commented, “While we are not satisfied with our performance, we believe the modifications we are making to our merchandise assortment are better resonating with our core customer, which is consistent with the results of our most recent consumer research studies. Stronger product combined with a more aggressive promotional strategy, including the acceleration of a fall seasonal sale, drove improved customer traffic, conversion and sales trends in each month of the quarter, generating positive comparable store sales and consolidated comparable sales in October.”

Key Stats:

Gross margin shrank 9.3 percentage points to 33.4%. The contraction appeared to be driven by increased costs, which rose 8.7% from the year earlier quarter while revenue fell 6.6%.

Revenue has fallen in the past four quarters. Revenue declined 9.9% to $271.1 million in the second quarter. The figure fell 6% in the first quarter from the year earlier and dropped 7.4% in the fourth quarter of the last fiscal year from the year-ago quarter.

The company has now fallen short of estimates in the last two quarters. In the second quarter, it missed expectations by 7 cents with a loss of 51 cents versus a mean estimate of a loss of 44 cents per share.

Looking Forward: For the next quarter, analysts are increasingly pessimistic about the company’s performance. The average estimates for the fourth quarter is at a loss of 18 cents per share, down from 9 cents ninety days ago. For the fiscal year, the average estimate has moved from a loss of 44 cents a share to a loss of 80 cents over the last ninety days.

Competitors to Watch: Coldwater Creek Inc. (NASDAQ:CWTR), Christopher & Banks Corp. (NYSE:CBK), New York & Company, Inc. (NYSE:NWY), Ann Inc (NYSE:ANN), Ascena Retail Group Inc (NASDAQ:ASNA), Charming Shoppes, Inc. (NASDAQ:CHRS), Limited Brands, Inc. (NYSE:LTD), Chico’s FAS, Inc. (NYSE:CHS), The Cato Corporation (NYSE:CATO), and Destination Maternity Corp. (NASDAQ:DEST).

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)