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Aug 28, 2008
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Talbots shares up on forecast, Charming view misses

By
Reuters
Published
Aug 28, 2008

NEW YORK (Reuters) - Women's apparel retailer Talbots Inc reassured investors that cost controls and better merchandise would keep its earnings forecast on track this year despite a slowdown in consumer spending, sending its shares up more than 30 percent on Wednesday.

Consumer cutbacks also led plus-sized clothing seller Charming Shoppes to predict a steeper-than-expected loss for the back half of the year, sending its shares down more than 9 percent, while department store operator Dillard's Inc posted a deeper-than-expected quarterly loss.

Retail executives have warned investors of a weak second half of the year as consumers face protracted weakness in the housing marked and higher gasoline and food prices.

Yet analysts say that Talbots is poised for a turnaround. The company has been undergoing a restructuring that includes new management, new merchandise and closing some businesses.

Investors and analysts were expecting Talbots to cut its full-year forecast, so when the company reiterated its previous outlook, some saw it as evidence that the turnaround would succeed and they sent its shares higher.

"Expectations were really low. This is a company that's been in a time-warp and has not done well for years," said retail analyst Jennifer Black of Jennifer Black & Associates, pointing out that Talbots has long sold "classic" clothing to women over 35.

"But now it's a completely changed company. It's like black and white, night and day. I've never seen this kind of opportunity in retail since I've been in the business," said Black, who has seen Talbots' fall merchandise.

Black speculated that some of Wednesday's rally in Talbots' stock was due to short sellers covering their positions. Betting that a stock will fall, short sellers borrow shares and sell them with the hope of paying back the debt with shares purchased at a lower price.

As of August 15, there were 9,859,931 shorted Talbots shares outstanding, or about 18 percent of the total on Aug. 2, the end of the second quarter.

Talbots second-quarter net loss nearly doubled to $25.0 million, or 47 cents per share. Excluding items, the loss was 34 cents per share, in line with analysts' average estimate, according to Reuters Estimates.

Total sales for the quarter fell 7.7 percent to $528.0 million. Sales at stores open at least a year, or same-store sales, fell 12 percent.

Talbots, majority-owned by Japan's Aeon Co Ltd , kept its full-year outlook for earnings from ongoing operations at 47 cents to 52 cents per share, which excludes results and costs associated with Talbots Kids, Mens and British businesses. Those businesses are closing.

Analysts' average forecast was for 19 cents per share, according to Reuters Estimates.

On a net basis, Talbots now expects earnings of 15 cents to 25 cents per share, up from its prior forecast for a net loss of 7 cents to 17 cents per share.

Talbots said it was planning for company-wide same-store sales for the fall season to range from flat to down slightly from last year.

It expects Talbots same-store sales to be about flat and sales at its J. Jill stores to be down at a low to mid-single-digit rate.

CHARMING SEES STEEPER LOSS

Charming Shoppes, which operates the Lane Bryant chain of apparel stores, posted second-quarter results that beat market estimates, helped by leaner inventories and lower expenses.

But the company forecast a third-quarter loss of 9 cents to 11 cents per share from continuing operations, way below analysts' average expectation for a loss of 1 cent per share.

Charming Shoppes said it expects to narrow its loss per share in the fourth quarter from the 19-cent loss it reported a year ago. Analysts on average were expecting a profit of 3 cents per share for the fourth quarter.

Pearl Wang, a retail analyst with Standard & Poor's, said Charming Shoppes was making progress on inventory management and cost cuts. But she was concerned about consumer spending and its impact on second-half sales.

Dillard's, which sells everything from clothes to Cuisinart appliances, posted a net loss of $38.3 million, or 51 cents per share, compared to a loss of $25.2 million, or 31 cents per share, a year ago.

Excluding items, Dillard's posted a loss of 58 cents per share, steeper than analysts' average estimate of 54 cents.

Its gross margin declined 1.7 percentage points due to higher markdowns "in a notably difficult sales environment," the company said.

Talbots shares closed 28 percent at $12.82 on the New York Stock Exchange after trading as high as $13.35, while Dillard's shares closed up 1 percent at $11.50. Charming Shoppes shares closed down 52 cents, or 9.3 percent, at $5.10 on Nasdaq.

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