Talbots Reduces 4Q Outlook

BOSTON -- Women's apparel retailer Talbots Inc. said Tuesday it expects to break even in the fourth quarter rather than post a profit because of recent slow sales at its Talbots stores and the J. Jill brand it acquired last year for $517 million.

Talbots said it has resorted to greater-than-expected price markdowns to sell off year-end inventory accumulated after rising spring and summer sales led the company to ramp up its clothing buying. But the sales gains failed to extend into the year's final months, leaving too much inventory.

To offset the slowdown, Hingham-based Talbots plans to hold an additional clearance sale next month, reduce inventory this year and cut the number of new store openings in 2007 from the original target of 90 to 70 _ 40 of them Talbots stores, and 30 J. Jill locations.

"We think this disappointment is isolated to the fourth quarter," Chief Financial Officer Edward Larsen told an investor conference in New York after the company's morning announcement of preliminary expectations for the quarter ending Feb. 3.

Shares of Talbots fell as much as 7 percent in opening trading, but recovered later in mid-day trading to fall 21 cents to $23.25 on the New York Stock Exchange.

The expectation for break-even earnings per share in the fourth quarter compares with Wall Street's forecast for a profit of 30 cents per share, based on the consensus estimate of analysts surveyed by Thomson Financial.

Arnold Zetcher, chairman, president and CEO, said Talbots expects fourth-quarter sales at stores open at least a year to be flat compared with the same period a year ago, with a slight decline in Talbots sales and a slight uptick at J. Jill stores.

"Although in line with other specialty apparel retailers, sales trends for both our brands are significantly below our expectations for the fourth quarter," Zetcher said.

Talbots expects its J. Jill business to post a wider-than-expected fourth-quarter loss of 12 cents per share. Costs from the acquisition are expected to shave another 14 cents per share from earnings, and Talbots also will incur 4 cents per share in stock-option expenses.

The setback comes about eight months after Talbots completed its acquisition of J. Jill, a fellow Massachusetts women's apparel retailer based in Quincy. Both brands target women over the age of 35, though J. Jill offers more casual clothing.

Talbots is the larger of the two brands. The company said it expects to end the new fiscal year with 1,422 stores _ 1,153 Talbots locations and 269 for J. Jill.

Talbots is expected to announce its full fourth-quarter results March 7.

For the fiscal first-quarter, Talbots expects earnings ranging from 36 cents to 43 cents per share, short of analysts' expectations for net income of 56 cents per share.