Talbots CEO Discusses Q3 2010 Results - Earnings Call Transcript

Talbots CEO Discusses Q3 2010 Results - Earnings Call Transcript
By Seeking Alpha ,

Talbots, Inc. (TLB)

Q3 2010 Earnings Results Conference Call

December 7, 2010 10:00 AM ET

Executives

Julie Lorigan - SVP, Investor and Media Relations

Trudy Sullivan - President and CEO

Michael Scarpa - COO and CFO

Analysts

Adrienne Tennant - Janney Capital

Marni Shapiro - The Retail Tracker

Jennifer Black - Jennifer Black & Associates

Jeff Black [ph] - City Investments [ph]

Janet Kloppenberg - JJK Research

Roxanne Meyer - UBS

Tracy Kogan - Nomura Securities

Betty Chen - Wedbush Securities

Margaret Whitfield - Sterne, Agee

Nelly Tamminga - Piper Jaffray

Todd Slater - Lazard Capital Markets

Richard Jaffe - Stifel Nicolaus

Susan Sansbury - Miller, Tabak and Company

Randy Konik - Jefferies and Company

Kimberly Greenberger - Morgan Stanley

Presentation

Operator

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Good morning, ladies and gentlemen. On behalf of Talbots, we would like you to welcome you to the Talbots Inc. conference call covering its third quarter 2010 earnings results.

Today's call is being recorded. And at this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

I would now like to turn the call over to Julie Lorigan, Senior Vice President of Investor and Media Relations.

Julie Lorigan

Thank you. Good morning everyone and welcome to the Talbots Inc.'s third quarter 2010 earnings conference.

Today we have with us Trudy Sullivan, President and CEO, and Michael Scarpa, Talbot's Chief Operating Officer and Chief Financial Officer.

We will be disclosing non-GAAP financial measures in this presentation. For a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please see the table attached to this morning's earnings release available under the Investor Relations section of our website.

As a reminder, certain statements to be made today are forward-looking. These are based on assumptions and expectations of future events which may not prove to be accurate. They involve substantial risks and uncertainties. Actual results may differ materially from those expected or implied. These forward-looking statements may be identified by such terms as will, expect, believe, anticipate, outlook, target, plan, initiative, estimated, strategy and similar terms or variations. All of our outlook and financial expectations and plans as well as our assumptions underlying this information constitute forward-looking information. We direct you to the cautionary statement being read at the end of this presentation and included in our earnings release issued today as well as in our recent SEC filings, all of which are available under the Investor Relations section of our website.

A replay will be available from approximately one hour after the conclusion of the call until the end of the day December 9, 2011. The webcast will also be available on the Investor Relations page of our website.

With that, I would like to turn it now over to Trudy.

Trudy Sullivan

Thank you, Julie. Good morning everyone and thanks for joining us.

In a moment I will discuss Talbots' results for the 13-week and 39-week periods ended October 30, 2010 as well as provide an update on our key corporate initiatives. Mike will cover our financial performance and comment on our outlook for the fourth quarter and full year. After that I will make some closing remarks and we'll take your questions.

At our investor meeting held in early October, we provided an update to our third quarter top line sales outlook which as reported today are in line with those revised expectations. We did not revise our outlook for adjusted earnings per share results and we were able to hit the high end of our original range due to continued strong growth margin and expense management.

With a healthy balance sheet and improved liquidity, we now have the ability to start to invest in our future growth. And this quarter we initiated both our segmentation and store refresh programs as well as invested in an enhanced marketing program. These programs are geared toward building brand awareness and regard which will result in improved productivity over time.

To briefly review our third quarter results, net sales decreased 3.2% while our comparable store sales were down 7.1%. We did see improvement as moved through the quarter with October being the strongest month down low single digit. Net sales in our direct channel continued to grow, ending the quarter up 6.5%.

From a merchandise perspective, key categories that performed well were knits where we offered new fabrications and embellishments in tees and in woven tops with our biggest success in silk and items with feminine detailing. We also had a great reaction to dresses and suiting. As previously discussed, we were very pleased with our denim program where the customer response was tremendous. We far exceeded our plan and we continue to see positive trends in denim. Our accessory business remains strong, particularly in jewelry as we have improved both the quality and the aesthetics of the product.

Looking at areas where we could have performed better during the quarter, we believe we would have benefited from deeper penetration in lighter-weight sweaters in both our September and our October deliveries, and in jackets where we launched our fit initiative. The customer response was not as strong as we anticipated. Core pants which excludes denim and novelty performed below our expectations and did not anniversary last year the very successful launch of our new pant fit program.

Overall it is the novelty and fashion items that continue to be in strong demand and where we saw softness was in basics. Looking forward, we believe our assortments are better balanced to reflect the greater penetration of fashion and novelty as well as more compelling updated basics.

To briefly discuss our performance to date in the holiday season, we saw sequential improvement in our comp store sales for the month of November. Our direct business was strong on Thanksgiving Day driven by a successful accessories promotion. And both direct and stores performed very well on Black Friday with double-digit comp store sales growth and strong traffic and conversion metrics. So from Thanksgiving through Cyber Monday, customer traffic and sales demand improved greatly. That said, order to date sales are trending in the range of negative low single digits.

We frontloaded our holiday deliveries which place us in a better inventory position going into the holiday selling season in order to drive productivity during peak traffic time. We were pleased with the response to our vest customer and sweater events that were held over the Thanksgiving holiday weekend.

As we look to the remainder of the holiday season, our assortments reflect diverse range that enables the customer to dress from day into evening as well as dress for different degrees of events in her life. We've taken a position on party pants, feminine festive top and dressy skirts. We have also invested in sweaters and cold weather accessories that offer the opportunity for self purchase as well as gift purchases. And finally, we've added a small flow of gift-giving tops that have just arrived in stores designed to stimulate the last-minute gift shopping that takes place mid-month.

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