The Talbots, Inc. (TLB)
Q2 2010 Earnings Call Transcript
September 8, 2010 10:00 am ET
Julie Lorigan – SVP, Investor and Media Relations
Trudy Sullivan – President and CEO
Mike Scarpa – COO and CFO
Adrienne Tennant – Janney Capital Markets
Steven Gregory [ph] – Mandalay Research [ph]
Jennifer Black – Jennifer Black & Associates
Richard Jaffe – Stifel Nicolaus
Stacy Pak – SP Research
Janet Kloppenburg – JJK Research
Betty Chen – Wedbush Securities
Marni Shapiro – The Retail Tracker
Dana Telsey – Telsey Advisory Group
Roxanne Meyer – UBS
Alex Fuhrman – Piper Jaffray
Susan Sansbury – Miller Tabak
Randy Konik – Jefferies
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Good morning, ladies and gentlemen. On behalf of Talbots, we would like to welcome you to the Talbots, Incorporated conference call covering its second 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.
Thank you. Good morning, everyone. And welcome to Talbots' second quarter 2010 earnings conference call. Today, we have with us Trudy Sullivan, president and CEO; and, Mike Scarpa, Talbots' 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 Web site.
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 at our Web site at www.thetalbotsinc.com.
A replay will be available from approximately one hour after the conclusion of the call until end of day September 10th, 2010. The webcast will also be available on the Investor Relations page of our Web site.
With that, I would like to turn it now to 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 26-week periods ended July 31st, 2010. Mike will cover our financial performance and comment on our outlook for the third quarter and full year. After that, I will make some closing remarks and we will be happy to take your questions.
Overall, we're pleased with our second quarter and year-to-date performance. We have maintained the momentum that began last September and again achieved strong operating results as we continue to implement our strategic initiatives aimed at continuous improvement in profitability.
Throughout the quarter, we remained focused on achieving our goal of maximizing margins, with an emphasis on full price sales. We successfully managed expenses and inventory, and achieved better than expected year-over-year adjusted earnings per share. Our performance for the quarter and year-to-date demonstrates the steady progress we are making. And we are pleased with our team to continue the sound execution.
A few important highlights from the quarter include a strong year-over-year improvement in adjusted operating income, which, excluding special items, was $12.5 million or 4.1% of net sales versus an adjusted operating loss last year of $10.5 million. While we were able to drive improvement in a number of our key selling metrics to last year, top line sales decreased 1.3%, reflecting our decision to stay true to our original promotional event calendar and not react to what became an aggressive promotional environment. We were in a very healthy inventory position and did not feel the need to overreact to the environment. We ended the quarter with a 14.4% increase in full price selling, with markdown sales declining 21%, compared to a year ago.
Comparable store sales decreased by 1.4%. However, as incremental red-line in store sales were included, comparable store sales would have been flat in the quarter. Our second quarter direct marketing sales were flat compared to last year, reflecting the shift of a "Best Customer" event out of Q2 and into Q1.
In the second quarter of 2010, we saw increased customer traffic on a sequential basis. And while the number of transactions was down mid single digits, the rate of conversion was up in the mid 20% range. Units for transaction were up mid single digits, which, combined with essentially flat unit retail, drove a low single-digit increase in dollars per transaction, reflecting the favorable mix in full price to markdown selling.
From a merchandise perspective, we maintained the strong (inaudible) path that we have seen in the first quarter, again driven by key items, including the super (inaudible). We saw good performance from tops, driven by knits and sweaters, where we have strong response to our new and updated feminine knits as well as our core sweater assortments. Our accessory business increased in the high 20s in comparable sales, and was one of the strongest categories in the quarter driven by belts, fashion accessories, and jewelry.