Talbots Reports Second Quarter 2008 Results

Business Wire, August 27, 2008

-Company Reconfirms 2008 EPS Outlook for Ongoing Core Operations and Raises 2008 EPS Outlook for Total Company Performance

-Positive Early Response to New Merchandise at Both Brands

HINGHAM, Mass. -- The Talbots, Inc. (NYSE:TLB) today announced results for the second quarter ended August 2, 2008.

Reported (GAAP) Results

On a reported (GAAP) basis, net loss for the second quarter was $25.0 million or $0.47 per share, compared to reported net loss of $13.3 million or $0.25 per share for the second quarter ended August 4, 2007.

Results from Ongoing Core Operations

Second quarter net loss from ongoing core operations was $18.3 million or $0.34 per share, excluding a net loss of $4.4 million or approximately $0.08 per share related to the operations of Talbots Kids, Mens and U.K. non-core businesses, and excluding approximately $2.3 million ($4.2 million pre-tax) or $0.04 per share in restructuring charges associated with strategic initiatives related to its ongoing core operations. This result compares to last year's net loss of $0.18 per share on a comparable basis.

The Company believes that results from ongoing core operations are a more meaningful measure of its performance, versus its non-core operations which reflect businesses that will be closed in early September. See the attached tables for a reconciliation of GAAP and non-GAAP and comparison to prior year.

Second Quarter Highlights

* Total Company inventory down 22% at end of second quarter;

* Lean inventory position, improved IMU and strategic change to monthly markdown cadence drive increase of 380 basis points in Talbots brand second quarter merchandise gross margin from ongoing core operations versus last year;

* Total Company merchandise gross margin from ongoing core operations improved 190 basis points over prior year;

* Obtained $50 million unsecured subordinated term loan credit facility from Aeon (U.S.A.), Inc., a wholly owned subsidiary of Aeon Co., Ltd. and the majority shareholder of The Talbots Inc., increasing the Company's total working capital borrowing capacity to $215 million;

* Completed closing of 30 Talbots Kids/Mens/U.K. stores, with remaining 35 to be closed by mid-September. Close down costs for these non-core operations much lower than expected;

* Streamlined organization and reduced corporate staff by approximately 9%, with annualized cost savings of approximately $14 million;

* On-track to reduce Company's cost structure by $100 million by end of 2009, with $50 million in 2008;

* July comparable store sales positive low single digits, with strong sell-through on new product deliveries in August.

Results from Ongoing Core Operations/Non Core Operations

Trudy F. Sullivan, Talbots President and Chief Executive Officer, commented, "This was a challenging quarter to drive top line sales, predominantly due to the change in our Talbots brand annual June clearance strategy, coupled with a difficult macro environment. While a year-over-year shortfall in retail sales impacted the quarter, results were largely offset by the Talbots brand merchandise gross margin expansion. However, given the heavy inventory position of the J. Jill brand, we took aggressive markdowns during the quarter, which hurt gross margin and our second quarter total Company operating performance. As a result, we began the fall season with an appropriately lean inventory position."

"Also during the quarter, we made significant progress in all activities related to the closing of Talbots Kids, Mens and U.K. non-core businesses. As a result, we will complete the closing of these businesses by mid-September at a greatly reduced cost versus our original expectation. We currently anticipate that total close down costs of these non-core businesses to be a net loss of $0.27 to $0.32 per share, compared to our original estimate for a net loss of $0.59 to $0.64 per share."

Sales Results

Total consolidated Company sales for the thirteen week period ended August 2, 2008 were $528 million. By brand, retail store sales were $352 million for Talbots compared to $392 million last year, and $74 million for J. Jill compared to $80 million last year.

Consolidated direct marketing sales, including catalog and Internet, for the thirteen-week period were $102 million, compared to $100 million last year.

Total Company comparable store sales declined 12.0% for the thirteen-week period. By brand, comparable store sales for Talbots and J. Jill decreased 11.7% and 13.2% respectively.

Brand Commentary

Ms. Sullivan added, "We continued to see strong improvement in our Talbots brand ongoing core operations merchandise gross margin, which increased 380 basis points over the prior year, driven by a combination of lean inventories, a monthly markdown cadence and improved IMU. We cleared through the vast majority of our spring and summer merchandise and have focused our attention on the fall selling season."

"Looking ahead, we are encouraged by the significantly improved sell-through rates we are seeing versus the prior year from our new merchandise assortment across all channels."