Talbots Will Endure on Wardrobe and Financial Fundamentals

To be clear, Talbots'(TLB) upscale merchandise and the physical location of its stores near the areas that were hit hardest by last month's terrorist attacks concerned me. But the company's efforts to trim expenses and better manage its inventory in light of the industrywide slowdown suggest that my initial fears were overblown.

And although some saw the fact that Talbots' September same-store sales number was down 8.3% as possibly a harbinger of bad things to come, I see opportunity. Prior to the Sept. 11 attacks, the prevailing sentiment on Wall Street was that the company had been gaining ground on some of its high-end competitors, and that over the next year the company was poised to turn in double-digit earnings growth despite the economic downturn. My point is that the events of Sept. 11 may have clouded the company's near-term outlook, but they have done little to impact its solid fundamentals.

Also, take a look at some of the results that other big name, long-standing, high-end women's retailers reported in September: AnnTaylor(ANN), same-store sales dropped 13.9%; Nordstrom(JWN), although not specific to women, down 9.4%; The Limited(LTD), down 10%; and Intimate Brands(IBI), down 13%. The bottom line is that despite its high price points and geographic vulnerability, Talbots has actually held up quite well compared with its competitors.

How about the future?

Glad you asked. Going forward, management has quelled fears that the other shoe is about to drop. In fact, just last week, Talbots said that it expects to earn 57 cents a share in its third quarter, and between 52 cents and 54 cents a share in its third and fourth quarters, numbers that are in-line with current sell-side estimates.

While retailers might be going through some tough times, Talbots' management team, merchandise mix, access to capital, lack of leverage and store footprint suggest that the company is here to stay. And frankly, although I wouldn't delve into the sector with blind enthusiasm, at this level Talbots is one of the few companies that's worth a second look.

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Who won today's Face-Off? Glenn Curtis Tim Arango

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