The Talbots Inc. Reports Operating Results (10-Q)

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Jun 07, 2012
The Talbots Inc. (TLB, Financial) filed Quarterly Report for the period ended 2012-04-28.

Talbots Inc has a market cap of $168.9 million; its shares were traded at around $2.37 with and P/S ratio of 0.2.

Highlight of Business Operations:

In conjunction with these direct cost reductions, we announced a decrease in the level of planned capital expenditures for fiscal 2012 and are planning reductions in the level of merchandise inventory commitments in fiscal 2012 which should also contribute to lower levels of logistics, handling and shipping costs. Lower levels of merchandise inventory purchases year-to-date, in addition to contributing to improvements in our merchandise margin year-over-year, have allowed us to better manage our investment in working capital, with cash used in operating activities decreasing $18.3 million year-over-year and partially contributing to year-over-year reductions in the amount of cash flows from financing activities. Though we expect to invest less, year-over-year, in our capital expenditures, we have continued to invest in areas of the business that are expected to generate meaningful returns. We continued to invest in the expansion of our upscale outlets which have continued to generate positive comparable sales results in the first quarter of 2012, contributing $2.0 million in capital expenditures and opening four new locations in the first quarter of 2012, ending the period with 47 upscale outlets, compared to 34 upscale outlets at April 30, 2011. We continued to invest in our store re-image initiative, contributing $1.9 million in capital expenditures; and we continued to invest in upgrades to our information technology systems, contributing $1.7 million in capital expenditures and launching our Oracle merchandise financial planning and workforce management systems in the first quarter of 2012.

Our net sales results for the thirteen weeks ended April 28, 2012 reflect a $9.6 million, or 3.8%, decrease in consolidated comparable sales compared to the same periods of the prior year. Consolidated comparable sales include sales of comparable stores as well as direct marketing sales.

Sales metrics for comparable stores for the first quarter of 2012, including the impact of sales transactions recorded via our direct fulfill from stores system, were as follows: customer traffic was flat year-over-year, yet the conversion rate increased 5.8%, contributing to a 5.9% increase in the number of transactions per store. Units per transaction were down 7.9% which, combined with a flat average unit retail, contributed to a 7.7% decrease in dollars per transaction compared to the first quarter of 2011.

Direct marketing sales in the first quarter of 2012 decreased 5.8% compared to the first quarter of 2011, while the percentage of our net sales derived from direct marketing increased to 20.7% from 20.1% in the first quarter of 2011. Our direct marketing sales decrease reflects both declines in red-line phone sales, with a better allocation of merchandise inventories in our store locations reducing red-line phone demand, and the transfer of certain Internet demand to store sales via our direct fulfill from stores system. Year-over-year, Internet sales as a percentage of total direct marketing sales declined from 75.5% in the first quarter of 2011 to 72.1% in the first quarter of 2012 with increased Internet traffic and transaction counts not able to fully offset lower units per order. As a result, Internet average order values were down 3.7% compared to the first quarter of 2011.

Our cash and cash equivalents were $22.4 million and working capital was $41.0 million as of April 28, 2012. Based on our assumptions, including achieving our internal forecast and operating plan for improved net sales, operating results, cost savings and cash flows for the next twelve months, our anticipated borrowing availability under the Amended Credit Facility and our anticipated credit from vendors and our sourcing agent, we anticipate that the Company will have sufficient internal and external sources of liquidity to fund operations and anticipated working capital and other expected cash needs for the next twelve months. This expectation depends upon our future operating performance, the achievement of our operating plan and internal forecast, including the absence of any unforeseen cash requirements, our expected borrowing availability, the continued credit and working capital support of our vendors and our sourcing agent throughout this period and the absence of any significant deterioration in economic conditions.

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