Talbots Takes Off

Is it really time to try on Talbots (NYSE: TLB  ) ? Some investors seem to think so, judging by the stock's 11% jump in stock price yesterday.

Of course, Talbots has been working through its continued difficulties. It reported a fourth-quarter loss in its preliminary, unaudited financial results yesterday. But anybody who follows this company expected the loss already, since Talbots revealed details in February, but yesterday it said non-GAAP results were better than previously expected.

On a GAAP basis, though, I think it's fair to say Talbots' fourth-quarter loss was massive, clocking in at $171 million, or $3.23 per share. (It broke even this time last year.) The company said it hasn't finished impairment testing of the intangible assets related to its J. Jill unit, but it has recorded a charge of $144 million, or approximately $2.71 per share, in the fourth quarter. It also said this is a heftier charge than it previously disclosed, thanks to more conservative growth and earnings projections for the J. Jill brand.

The better-than-expected operating results for the fourth quarter consisted of a loss of $12 million, or $0.22 per share, on a non-GAAP basis. Total sales dropped 8% to $587 million, although the fourth quarter in 2007 included an extra week. Same-store sales in the quarter fell 6%.

If investors responded positively to the quarter, it's probably because Talbots said it expects 2008 earnings from continuing operations, in other words, a profit of $0.47 per share to $0.52 per share, with revenue growth of 3%. The retailer said it has built into its conservative guidance elements like slightly negative comps for the year and a mid-single-digit decline in transactions.

From my way of thinking, though, there are still huge challenges, not the least of which is the uncertainty of the consumer climate and the difficulties Talbots and many of its peers have had in enticing strapped consumers to shop. Chico's (Nasdaq: CHS  ) and Coldwater Creek (Nasdaq: CWTR  ) have also faced difficulties in that arena.

Many investors seem to be looking past the losses and hanging on to hope. While I think there are some real bargains in the retail universe at the moment, Talbots' turnaround still strikes me as one of the riskier stock ideas.

Shop around for related Foolishness:

• In October, it was clear Talbots tries and tries again (to no avail).