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Talbots says Q1 losses are part of ongoing transition

The Talbots Inc. today announced a year-over-year net income loss of $3.6 million for the first quarter.

During the 13-week period ended May 3, the company suffered a net loss of $5.9 million in relation to the operations of Talbots Kids, Mens and UK non-core businesses and an additional $3.5 million ($5.2 million pre-tax) in restructuring charges associated with strategic initiatives related to its ongoing core operations.

Despite this, Talbots is on-track to achieve its 2008 financial outlook in regards to building the merchandising around its core business.

“It was a solid quarter and we are encouraged with our progress, particularly in the Talbots brand, where we have seen a dramatic improvement in our merchandising gross margin,” said Trudy Sullivan, Talbots president and CEO, in a statement.

Last January, the company announced plans to discontinue its men’s and kids concepts, and cease mailing separate catalogs for these categories. Therefore its financial reports focused heavily on the potential of the core brands. Retail store sales were $363 million for Talbots compared to $387 million last year, and $71 million for J. Jill compared to $81 million last year. Noting the poorer performance of the J. Jill brand, in the statement Sullivan repeated the commitment to investing in its growth.

The release also noted Talbots Inc. is in discussions with financial institutions to increase its working capital line of credit and will provide an update on its progress when appropriate.

In a filing with the Securities and Exchange Commission on April 15, Talbots reported that its existing $135 million letter of credit facility with HSBC would be reduced in increments and would not be renewed after August 8. In addition, another letter of credit for $130 million was not replaced. 

In response, Talbots negotiated revised payment terms with its major vendors, extending the settlement period to 45 days from approximately 22 days on letter of credit purchases. By moving to the newly negotiated “open account” terms, Talbots expects the need for credit will be significantly reduced and to add approximately $40 million to the company’s operating cash flow. In recent years, the company had letter of credit facilities totaling approximately $300 million. The company had expected the arrangements would be sufficient to fund the company’s working capital needs under its 2008 operating plan.

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