Highlights from Talbots (TLB) Q1 Conference Call: Announces Plan to Close 110 Stores, Accessories Missed Expectations, Shoe Sales Strong

Talbots, Inc. (NYSE: TLB) reported its Q1 earnings Tuesday: EPS of $0.08, $0.05 better than the analyst estimate of $0.03, on sales of $301.3 million versus the consensus estimate of $306.26 million.

Shares are currently down a whopping 38 percent or $1.74 to $2.70.

Below are some highlights from the conference call:

• Comp stores sales excluding the stores planned for closure, decreased 8.2% due primarily to a 6% decrease in customer traffic and a 3.5% decline in conversion.
  
• achieved profitability in the quarter reporting adjusted operating income of $7.6 million and adjusted earnings per share of $0.08, but nonetheless results we are not satisfied with.
  
• Direct marketing sales were down 4% from last year at $60.5 million driven by a decrease in customer demand.
  
• Internet sales represented approximately 76% of our total direct business.
  
• First quarter cost of sales as a percent of net sales increased 800 basis points over last year at 64.4% of net sales versus 56.4% of net sales last year.
  
• SG&A expenses in the first quarter were $100 million at 33.1% of net sales versus $108 million at 33.7% of net sales last year.
  
• Ended the quarter with total accounts receivable of $164 million, down 11%.
  
• Merchandise inventories for the end of the quarter were $177 million, up 13.1%.
  
• Capital expenditures in the first quarter were $10 million. 2011 capital plan remains at approximately $60 million
  
• "Although we did see a positive reaction to our March brand moments, our February and April brand moments underperformed and sales in each month of the quarter declined year-over-year."
  
• Accessories business, primarily socks and jewelry, did not meet expectations, while shoes were strong.
  
• Beginning in the third quarter, sweater assortment has been modified to include new styles, adding more novelty and variety to the mix. In knits, the company has increased the penetration of print, pattern and addressed fabric weights. And have added breadth to some of our smaller categories including dresses, skirts, suiting and woven tops where we have seen increased customer demand and have room for expansion.
  
• Added two new fits to its pant assortment, modern and curvy. Has also enhanced the fit of its pants for its petite and women customers, all to be introduced this fall.
  
• During the first quarter, the company upgraded 31 always stores to classic stores and plans to upgrade a handful more of its classic stores to premium stores.
  
• Customer biofile in the quarter was down 2% year-over-yrear.
  
• Remain on track to complete approximately 60 to 70 refreshes in fiscal 2011.
  
• Approximately 32 stores are expected to be fully refreshed by the end of September in their existing locations and within their current square footage. And an additional 10 to 15 consolidations and or downsizings will be completed by the end of September as well.
  
• Plan to close approximately 83 stores in fiscal 2011, 25 stores in fiscal 2012 and 2 stores in fiscal 2013 for a total of approximately 110 store closings.
  
• In the first quarter 110 stores contributed approximately $21 million in sales and $4 million in operating losses, including $3.2 million in restructuring charges and impairment of store assets.
  
• Expecting Q2 cost of sales, buying and occupancy as a percentage of net sales in the second quarter to be up roughly 1,000 basis points compared to a year ago period.
  
• Due in part to continued incremental investment in marketing, Q2 SG&A expenses on a dollar basis are expected to increase slightly.
  
• Q2 interest expense of approximately $2.5 million and taxes of approximately $1.5 million in the second quarter.

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