The Talbots Inc. Reports Operating Results (10-Q)
The Talbots Inc. has a market cap of $801.5 million; its shares were traded at around $11.39 with a P/E ratio of 11.9 and P/S ratio of 0.7. TLB is in the portfolios of Westport Asset Management, Columbia Wanger of Columbia Wanger Asset Management, Steven Cohen of SAC Capital Advisors, Chuck Royce of Royce& Associates, George Soros of Soros Fund Management LLC.
Highlight of Business Operations:As of April 7, 2010, as a result of these transactions, we reduced our outstanding debt by approximately $361.5 million and increased stockholders equity by approximately $327.7 million. Since the close of these transactions, we have sought to translate our operating results into a further improved financial position, reducing debt by an additional $56.2 million through October 30, 2010 and ending the quarter with a positive equity balance and positive net working capital.
Direct marketing sales in the third quarter of 2010 increased 6.5% compared to the third quarter of 2009 while the percentage of our net sales derived from direct marketing increased to 19.1% from 17.3% in the third quarter of 2009. This increase can be primarily attributed to increased Internet sales which were $38.0 million in the third quarter of 2010 compared to $31.5 million in the third quarter of 2009. In the third quarter of 2010, we launched limited-time promotional web events as part of our enhanced, targeted marketing campaign, which increased Internet traffic and the number of Internet orders. Further increases in Internet sales are due to changing trends in consumer purchasing behavior, with declines in catalog sales partially off-setting the increase in Internet sales.
Year-to-date direct marketing sales have increased 11.0% compared to the same period of the prior year with the percentage of our net sales derived from direct marketing increasing to 18.5% from 16.6% in the same period of the prior year. These increases can be primarily attributed to a $9.9 million comparative increase in red-line phone sales, which are sales resulting from direct lines in our stores to our telemarketing center, as well as increased Internet sales. Year-to-date, Internet sales were $117.4 million compared to $101.1 million in the same period of the prior year. This increase is primarily due to changing trends in consumer purchasing behavior, with declines in catalog sales partially off-setting the increase in Internet sales.
In the third quarter of 2010, net sales declines of $9.8 million were offset by cost of sales, buying and occupancy declines of $14.2 million, resulting in a 280 basis point improvement in gross profit margin to 42.7% from 39.9% in the third quarter of 2009. The improvement in gross profit margin was primarily driven by gains in merchandise margin, which was up 160 basis
Following the success of our annual expense reduction program, initiated in early 2009, we were able to reinstate and enhance operational performance-based and certain other employee compensation programs in 2010 that were suspended in the prior year under the expense reduction initiative, recording related incremental compensation expense of $3.0 million and $16.9 million in the thirteen and thirty-nine weeks ended October 30, 2010 as compared to the same periods of the prior year. Further, in 2010, we were able to increase our investment in marketing, including expanded national and regional advertising, e-commerce advertising and increased in-store visual, recording related incremental marketing expense of $8.1 million and $10.9 million in the thirteen and thirty-nine weeks ended October 30, 2010, respectively.
In the thirteen and thirty-nine weeks ended October 30, 2010, we incurred $0.8 million and $27.7 million of merger-related costs, respectively, in connection with our acquisition of BPW. These costs primarily consist of investment banking, professional services fees and an incentive award given to certain executives and members of senior management as a result of the closing of this transaction. Approximately $1.2 million of additional merger-related costs are expected to be incurred in future periods related to the incentive award. In addition, we expect to continue to incur merger-related legal expenses as a result of the legal proceedings discussed in Part II Item 1. Legal Proceedings.
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