Talbot's (NYSE: TLB) – Fool Me Twice, Shame on Me!

Remember Talbot’s, the company that was one of the first retailers to struggle in the economic downturn, later followed and surpassed by Circuit City, Blockbuster and a few others? Yeah, well, she’s back to stinking up the joint again, the joint being the NYSE (NYSE: NYX) and the stinking being a 39% market capitalization shredding.

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Talbot's (NYSE: TLB) – Fool Me Twice, Shame on Me!

Talbot’s (NYSE: TLB) shares are light 39%, trading at just $2.75 through midday Tuesday after the company disappointed investors with a still soft outlook. It’s a shame too, as its first quarter results exceeded analysts’ consensus EPS expectations for $0.03; the company earned $0.08 in adjusted EPS excluding special items.

Revenue was a bit light in Q1, at $301.3 million, short of last year’s $320.7 million and analysts’ expectations for $306 million, based on FactSet (NYSE: FDS) data. Same-store sales, including internet and catalog sales but excluding stores scheduled to close, fell 8.2% in Q1. The company’s CEO, Trudy Sullivan, said sales were uneven throughout the quarter, with a stronger March than February and April. She blamed an "inconsistent customer response to our merchandise assortments, a challenging competitive environment and high levels of promotional activity." February weather no doubt played a role, but April should have benefited from Easter.

The company’s margins were squeezed, with its cost of sales rising 800 basis points on the retailer’s need to markdown items and on what’s seems like aimless promotional activity. Talbots saved 60 basis points on its SG&A line, but at what cost. It garnered the margin on a reduction to performance based manager incentive compensation. Thanks to weaker than expected quarterly sales, Talbots ended the quarter with 13.1% higher inventory than the prior year, and now it’s got to move that load.

What greatly troubled investors Tuesday was that sales through Q2 were down low-teens against the prior year, so far. Margins are expected to tighten significantly, with gross margin looking to squeeze 1000 basis points. The company indicated that turbulence was to be expected in this transition year, but perhaps its lack of execution in fashion identification and its strategic vision as to its target market were not on par either.

Talbots is going to close 110 stores over the next three fiscal years, with 83 coming this year. It’s trying to further identify itself with Americans as a high end destination that’s also fashion conscious, something that’s been apparently lacking. Yet, maybe the problem is that there’s just no room for The Talbots, and it should close a few hundred more stores. I’ve speculated in the past that the bland brand may have been tarnished beyond repair and should have been left for dead the first time. At the high end, Talbots competes against the stronger brands at Saks (NYSE: SKS), Bloomingdales and Nordstrom (NYSE: JWN). The value conscience high-end shopper is likely spending carefully at the nifty T.J. Maxx (NYSE: TJX), Syms or Filene’s Basement (Nasdaq: SYMS).

The company fumbled once last decade, and is currently looking like it might outdo itself this decade. An analyst at Miller Tabak certainly seems to think so, cutting his recommendation to sell from neutral Tuesday. There’s an old adage that reads, “Fool me once, shame on you; fool me twice, shame on me.” Unfortunately, it seems as though more than a few investors are feeling shame today.



Article interests investors in: S&P Retail ETF (NYSE: XRT), Wal-Mart (NYSE: WMT), Pier 1 Imports (NYSE: PIR), Ethan Allen (NYSE: ETH), Hooker Furniture (Nasdaq: HOFT), Home Depot (NYSE: HD), Lowes (NYSE: LOW), Apple (Nasdaq: AAPL), Best Buy (NYSE: BBY), The Limited (NYSE: LTD), Chicos (NYSE: CHS), Ann Taylor (NYSE: ANN), The Gap (NYSE: GPS), Macy’s (NYSE: M), JC Penney (NYSE: JCP), Nordstrom (NYSE: JWN), TJX Company (NYSE: TJX), Kohls (NYSE: KSS), Costco (Nasdaq: COST), Target (NYSE: TGT), Wet Seal (Nasdaq: WTSLA), Hot Topic (Nasdaq: HOTT), American Eagle Outfitters (NYSE: AEO), Aeropostale (NYSE: ARO), Abercrombie & Fitch (NYSE: ANF), Saks (NYSE: SAK), Tiffany (NYSE: TIF), Talbots (NYSE: TLB), Lumber Liquidators (NYSE: LL), Builders Firstsource (Nasdaq: BLDR), Fortune Brands (NYSE: FO), Leggett & Platt (NYSE: LEG), Tempur-Pedic International (NYSE: TPX), Acuity Brands (NYSE: AYI), La-Z-Boy (NYSE: LZB), Select Comfort (Nasdaq: SCSS), Sleepy’s (NYSE: ZZ), Furniture Brands (NYSE: FBN), Natuzzi (NYSE: NTZ), Sears (Nasdaq: SHLD), Dillard’s (NYSE: DDS), Bon-Ton (Nasdaq: BONT), Cost Plus (Nasdaq: CPWM), Baker’s Footwear (Nasdaq: BKRS.OB), Bebe Stores (Nasdaq: BEBE), The Buckle (NYSE: BKE), Cache (Nasdaq: CACH), Casual Male (Nasdaq: CMRG), Cato (Nasdaq: CATO), Christopher & Banks (NYSE: CBK), Citi Trends (Nasdaq: CTRN), Collective Brands (NYSE: PSS), Destination Maternity (Nasdaq: DEST), Dress Barn (Nasdaq: DBRN), DSW (NYSE: DSW), Finish Line (Nasdaq: FINL), Footlocker (NYSE: FL), Gymboree (Nasdaq: GYMB), Guess (NYSE: GES), J. Crew (NYSE: JCG), Jones New York (NYSE: JNY), Jos. A Banks (Nasdaq: JOSB), New York & Co. (NYSE: NWY), Men’s Wearhouse (NYSE: MW), Syms (Nasdaq: SYMS), The Children’s Place (Nasdaq: PLCE).

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