Talbots cutbacks favor direct marketing

The Talbots Inc. will reduce costs by $100 million over the next two years, including reducing its marketing budget by eliminating TV and national print advertising and redirecting half of the money from these areas to direct marketing.

“Talbots will make strategic investments in areas that it believes will have the highest potential benefits to rebuilding its brand,” said Trudy F. Sullivan, president/CEO at Talbots, during a conference call for analysts. “For example, eliminating TV and national print advertising this year will enable Talbots to fund greater customer outreach through increased catalog prospecting and Web-based marketing.”

The news was announced as part of Talbots financial results release, which also reported that sales for the 13 weeks ended February 2 totaled $587 million vs. sales of $638 million for the 14-week fourth quarter last year. Consolidated comparable-store sales declined 6%.

Consolidated direct marketing sales during the same period were $113 million compared to $114 million a year ago.

The company expects to report a net loss for the fourth quarter in the range of $2.10 to $2.15 per share compared to last year’s breakeven per share for the same period.

Talbots said it also expects to take a non-cash write-off of approximately $85 million in relation to its acquisition of the J. Jill brand.

“To date, the J. Jill brand has underperformed to our original expectations,” said Ed Larson, Talbots CFO, during the conference call. Talbots acquired J. Jill in May 2006 for approximately $518 million. 

Also in relation to the J. Jill brand, Talbots said it is considering either buying the J. Jill credit card business or simply taking over the portfolio when an arrangement with Citibank to manage the business expires at the end of September.

“Talbots has always had a credit card business” that’s managed in house and is “extremely profitable,” Larson said. Taking over the J. Jill credit card business would require a small incremental cost increase to manage, he added.

Other strategies announced by Talbots include scaling back store expansion plans to approximately 46 new store openings, down from 75 new stores in 2007, closing 22 stores in addition to the 78 Talbots Kids and Mens stores that the company said it would close earlier this month, improving inventory management with leaner inventories and the implementation of a price optimization software tool in the second and third quarters.

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