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The Talbots Inc. Q1 2010 Earnings Call Transcript

The Talbots Inc. Q1 2010 Earnings Call Transcript

The Talbots Inc. (TLB)

Q1 2010 Earnings Call

June 8, 2010 10:00 AM ET


Julie Lorigan – SVP, Investor and Media Relations

Trudy Sullivan – President and CEO

Michael Scarpa – COO and CFO


Jennifer Black – Jennifer Black and Associates

Kimberly Greenberger – Citi

Todd Slater – Lazard Capital Markets

Barbara Wyckoff – Jesup & Lamont

Roxanne Meyer – UBS

Marni Shapiro – The Retail Tracker

Stacy Pak – SP Research

Richard Jaffe – Stifel Nicolaus

Susan Sansbury – Miller Tabak

Tracy Kogan – Credit Suisse

Dana Telsey – Telsey Advisory Group

Janet Kloppenburg – JJK Research

Betty Chen – Wedbush Securities



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Good morning, Ladies and Gentlemen. On behalf of Talbots, we would like to welcome you to the Talbots Inc. Conference Call covering its First 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, at which time instructions will follow.

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

Julie Lorigan

Thank you. Good morning, everyone. And welcome to the Talbots Inc. first quarter 2010 earnings conference call. Today we have with us Trudy Sullivan, President and CEO; and Michael Scarpa, Talbots Chief Operating Officer and Chief Financial Officer.

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, initiatives, 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 website at

A replay will be available from approximately one hour after the conclusion of the call until end of day June 10, 2010. The webcast will also be available on the Investor Relations website.

With that, I would like to now turn it 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 weeks ending May 1, 2010. Mike will cover our financial performance and comment on our outlook for the second quarter and full year. After that I will make some closing remarks and then we’ll be happy to take your questions.

Our first quarter results exceeded our expectations. We are pleased with our performance, especially with our sales growth and strong profitability, as the momentum that began in our business last fall continues to gain traction. After 11 quarters of year-over-year sales declines, we have turned the corner to positive sales growth.

Top-line sales grew 4.7% in the quarter driven by a 2.4% comp increase while direct marketing sales increased 26.7% from last year. Total full price selling increased 21% in the quarter and markdown selling declined 31% compared to a year ago.

A few of our other important highlights in the quarter included a strong year-over-year improvement in operating income, which excluding special items was $31.7 million or just shy of 10% of net sales. We also saw a solid improvement in gross margins of 1260 basis points, which resulted from strong IMU, improved full price selling and disciplined inventory management.

We experienced a positive reaction to each of our merchandise deliveries during the quarter. Our customers responded well to our brand appropriate aesthetics, which we refer to as tradition transformed.

Further, in April, we completed our spring 2010 best customer intent to purchase survey, which measures our customer’s perception of our merchandise and creative direction. As such, our net better merchandise score is at a historical high of plus 35%, a very strong improvement over spring 2009.

In the first quarter 2010, customers traffic while sequentially stable decreased 11.3% due in part to a highly promotional first quarter last year. The number of transactions however was only down 5.9% as the rate of conversion increased 6.1%.

Units per transaction were up 3.4%, which when combined with a 5.3% increase in average unit retail drove an approximate 9% increase in dollars per transaction, again reflecting strong full price selling. Our key sales metrics continued to improve throughout the first quarter of 2010 and have sustained thus far in the second quarter.

Further, we are making progress in improving our store sales productivity and believe that we’re starting to benefit from the evolution of our store selling skills program.

In the first quarter, we saw strong sales increases in Style by Design, our personal shopping appointment program, which was up greater than 60% compared to last year, and our large value transaction sales, those greater than $1000 grew over 20% to the prior year. These are encouraging trends in the improvement in our first quarter conversions, UPT, VPT and red line phone orders are proof of our progress.

From a merchandise perspective we saw continued momentum in tops both sweaters and wovens, with novelty across the board particularly strong. Within sports where jackets performed well as did pants due to a healthy key item selling and successful March promotion, which was a spring repeat of the successful pant fit initiative program we launched last fall.

Our accessory business remains strong in the quarter driven by our customers growing enthusiasm for jewelry, scarves, belts and fashion accessories. We continue to believe that accessories represent one of our significant growth opportunities and are planning for further expansion.

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