Specialty retailer Talbots ( TLB) said Wednesday that fourth-quarter earnings dropped from a year ago and missed Wall Street's expectations by 2 cents a share, citing reduced inventory levels. The company earned $22 million, or 38 cents a share, compared with a profit of $28.3 million, or 48 cents a share, a year ago. Analysts, meanwhile, had been calling for 40 cents a share in the current quarter. As previously reported, net sales in the quarter were flat with the prior year at $431.5 million, while same-store sales fell 4.7%. By division, the company said retail sales increased 2% to $371.3 million, while catalogue sales fell 12% to $60.2 million. The company cited low inventory and a decline in circulation. Talbots said, however, that it is optimistic going into the first quarter, citing a 7.7% increase in February same-store sales at its core misses, petites, woman and accessories and shoes business, reported last week. "We feel our product is on track, and as planned, we are increasing our inventory levels and greatly expanding our marketing program in anticipation of continued strong demand," the company said in a statement. In addition, the company said it expects net income to increase 10% in 2004 and to open 75 new stores in the year. Analysts are calling for $2.10 a share in full-year 2004, which compares with earnings of $1.81 a share in 2003. Shares of Hingham, Mass.-based Talbots closed at $36.30 Tuesday in New York Stock Exchange trading.