Talbots Records Half-Billion Dollar Loss In 2008
The Talbots Inc. reported a $560.7 million net loss during its 2008 fiscal year, a significant deepening of the $188.8 million loss it took during 2007. The apparel marketer’s sales slipped from $1.71 billion a year ago to just under $1.5 billion. Talbots’ most recent fiscal year ended Jan. 31.
For the year, the company recorded an operating loss of $98.4 million, compared with $35.2 million in operating income during fiscal 2007.
The company’s 2008 results include $416.1 million in losses from discontinued operations. During the year the company exited its Talbots Kids, Talbots Mens and Talbots UK operations. It is also attempting to sell its J. Jill brand.
During 2009, the company plans to close 16 retail locations.
“Our fourth quarter results were affected by the steep decline in consumer spending resulting from the deterioration in U.S. economic conditions,” said Trudy F. Sullivan, the company’s president and CEO, in a statement accompanying its results.
Sullivan continued, “Our priority during these difficult times will continue to be addressing those areas within our control, including streamlining our business and tight management of our costs and inventory, while continuing with an acute focus on those measures which improve our cash flow and liquidity.”
The company could use a little cost control: During 2009, its cost of sales, buying and occupancy expense amounted to 70.2% of its net sales. A year ago, it stood at 66.9%. Granted, $17.8 million of that – roughly one-tenth of one percent of its sales – was due to severance and other costs associated with a restructuring.
The company recently secured a $150 million line of credit from Aeon Co. Ltd, its majority shareholder. The $150 million supplements the $215 million “committed working capital facilities”. Talbots will use the money infusion for general corporate and working capital purposes, including vendor payments.
“With the addition of this new $150 million revolving loan facility, we have significantly added to our liquidity, which will help us navigate through these most turbulent times, and to further support the implementation of our long-range plan designed to reinvigorate our brand and return Talbots to profitable growth,” Sullivan said in a statement.
The company also noted efforts to solidify its relationship with its customers. In January, it launched a “three tiered expanded loyalty program.” The program extends the company’s reach to include non-Talbots charge customers. According to a transcript of an earnings conference call, the program is too new to give concrete details, but Sullivan described early results as “very promising”.
What’s not very promising is the company’s catalog activity. “The one part of our [catalog] circulation that wasn’t successful in 2008 was the amount we invested in prospecting,” Sullivan said. “We got much better results with reactivation, so we have rationalized that for 2009. We have brought our circulation down, in terms of not doing as much prospecting circulation. We will use grass roots efforts to attract brand new customers, and we will prioritize our spending with the house file and with reactivation circulation.”
The Eavesdroppers’ Take: Not long ago, I wondered if another firm, Eddie Bauer, had to offer executives’ firstborn children to help secure a loan. But that loan’s terms were still being hammered out. What did it take to make the current $150 million funding happen? Nothing short of “our accounts receivables and mortgages on our Hingham, MA headquarters and Lakeville, MA distribution facilities,” Sullivan said during the earnings conference call. Hmm, default on those and what’s left?
