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The Talbots Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: December 8, 2011 03:54PM

The Talbots Inc. (TLB) filed Quarterly Report for the period ended 2011-10-29. Talbots Inc. has a market cap of $187.4 million; its shares were traded at around $2.65 with and P/S ratio of 0.2.



Highlight of Business Operations:

Our net sales results for the thirteen and thirty-nine weeks ended October 29, 2011 reflect a $9.9 million, or 4.0%, decrease and a $55.1 million, or 7.3%, decrease in consolidated comparable sales compared to the same periods of the prior year, respectively.

Net store sales for the thirteen and thirty-nine weeks ended October 29, 2011 reflect a $4.4 million, or 2.4%, decrease and a $42.7 million, or 7.3%, decrease in comparable store sales compared to the same periods of the prior year, respectively. These decreases are primarily due to weaker than anticipated customer response to our spring, summer and early fall merchandise assortments, with units sold, units per transaction and dollars per transaction trending down year-over-year. Accordingly, these merchandise assortments have been subject to significant promotional activity in order to clear these slower-moving goods. In the third quarter of 2011, we employed a better coordinated approach to our fall promotional activity which drove year-over-year improved conversion rates, resulting in increases in the number of transactions, while increasing our year-over-year average unit retail. These third quarter improvements served to partially mitigate year-over-year deterioration in the number of transactions and average unit retail realized in the thirty-nine weeks ended October 29, 2011.

Direct marketing sales in the third quarter of 2011 decreased 12.9% compared to the third quarter of 2010, and the percentage of our net sales derived from direct marketing decreased slightly from 19.1% in the third quarter of 2010 to 17.8% in the third quarter of 2011. Our direct marketing sales decrease is primarily due to reductions in red-line phone sales year-over-year, with higher levels and a better allocation of merchandise inventories in our store locations reducing red-line phone demand. Internet sales also decreased slightly with promotional activity successfully driving increased orders but lower units per order, with Internet average order values down 9.1% compared to the third quarter of 2010. Internet sales as a percentage of total direct marketing sales increased to 74.5% in the third quarter of 2011 from 67.2% in the third quarter of 2010, driven by increases in traffic and transaction counts, reflecting continued changing trends in consumer purchasing behavior.

In the third quarter of 2011, net sales declines of $19.6 million combined with cost of sales, buying and occupancy increases of $14.8 million, resulting in a 930 basis point decline in gross profit margin to 33.4% from 42.7% in the third quarter of 2010. This decline in gross profit margin was driven by deterioration in our merchandise margin, which was down 890 basis points, due to aggressive and accelerated markdown and promotional pressure on our sales as we sought to increase traffic, re-engage with our core customer, drive sales and clear slower-moving merchandise to better align our inventory levels with sales trends. Occupancy and buying expenses, though reduced year-over-year, primarily due to lower rent expense on a smaller store base, increased 30 basis points and 10 basis points, respectively, as a percentage of net sales due to negative leverage from the decline in net sales.

Year-to-date in 2011, net sales declines of $68.6 million combined with cost of sales, buying and occupancy increases of $39.9 million, resulting in a 950 basis point decline in gross profit margin to 31.0% from 40.5% in the same period of the prior year. Year-to-date declines in gross profit margin are consistent with third quarter of 2011 trends in gross profit margin, with aggressive markdown and promotional pressure on our sales having the greatest impact. The decline was driven by deterioration in merchandise margin, which was down 900 basis points. Occupancy and buying expenses, though reduced year-over-year, primarily due to lower rent and depreciation expense, increased 30 basis points and 20 basis points as a percentage of net sales, respectively, due to negative leverage from the decline in net sales.

Read the The complete Report



Stocks Discussed: TLB,
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