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Talbots Is Likely to Wind Up a Fashion Victim

Even before the terrorist attacks, women's apparel chain Talbots (TLB) was showing signs that its star was dimming.

Once a darling of the apparel world, its shares slipped this year, along with its same-store sales growth. While the entire retail sector faces the same situation -- an economy in the fourth quarter that likely will be the worst in more than a decade -- there are several reasons why Talbots could fare worse than most in the near term.

Retail stocks often move on monthly same-store sales comparisons, which measures sales activity in shops open at least a year, and Hingham, Mass.-based Talbots faces some of the toughest comps in the industry in the fourth quarter. The company reported an 8.3% decline in same-store sales in September, compared with a 24.8% gain in the year-ago period. And it doesn't get much easier in the coming months: Last October the company's comparable store sales rose 19%; in November they rose 21.9%; and in December, they jumped 12.9%.

As the months of disappointing comps add up, look for the stock to be weak. (Shares recently traded at $30.25 and are down about 7% since the terrorist attacks.)

In addition, the apparel industry has been whacked harder than other retail sectors, as there has been little newness in fashion this year. While some areas of apparel seem to be doing fairly well -- most notably teen-oriented clothing -- the demand for Talbots' career-oriented duds is on the wane and could weaken further as layoffs mount, some analysts warn. This could result in inventory build-ups into early next year, with higher-than-anticipated promotional activity crunching margins.

As the economy continues to weaken, the company could delay its plans to launch a men's division, which many analysts had praised as an attractive growth opportunity. The company has said the earliest it would launch a men's line would be the fall of 2002, but with so much uncertainty about when an economic rebound will occur, this timing is probably optimistic.

With this cloudy an outlook, investors would be better off putting their money elsewhere. Talbots is simply not a good bet right now.

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

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