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Talbots Is Still Tricky

Talbots (NYSE: TLB  ) is working hard on a turnaround, but its efforts haven't quite paid off yet. Nonetheless, investors seem happy; the stock has risen nearly 25% in the past two days. Wondering why? So am I.

The day before yesterday, Talbots released some details of its restructuring plan, and yesterday, several analysts voiced guarded optimism about its plans and new management additions. However, both analysts still kept their ratings on Talbots at "neutral" or "hold."

Although the retailer touted its turnaround initiatives, it also revealed its expectations for a net loss of $0.17 per share to $0.07 per share in 2008. In addition, the company foresees a 3% sales increase, and a slight decrease in same-store sales. (Its outlook for earnings from continuing operations for the year remained the same as the figures it disclosed when it reported its latest quarterly results.)  Not surprisingly, cutting costs is part of its plan, along with rejuvenating the Talbots brand.

After Talbots' recent history of underperformance, I'm struggling to justify investors' optimism. The retailer still has a lot of work ahead of it. According to a Wall Street Journal article, the company recently conducted a survey of its customers. All of them, even women older than 65, thought its merchandise was aimed at someone older than they were. That's downright daunting. Even rivals like Chico's (NYSE: CHS  ) and Coldwater Creek (Nasdaq: CWTR  ) face similar problems in luring customers these days.

Talbots shares also enjoyed an 8% jump after the company said it was able to double its credit line. Sure, it's good that the company won't run out of capital. All the same, in these troubled economic times, I'd think investors might be a little more wary of a company with so much to prove in rebuilding its growth and profitability.

Like Gap (NYSE: GPS  ) and Hot Topic (Nasdaq: HOTT  ) , an investment in Talbots continues to look anything but tempting, even though its shares have been on fire lately. it's doubled since it hit a 52-week low of $6.48 back in Janaury. While it's good that management admitted Talbots had descended into "dowdy" territory, its turnaround seems far from over, and the current macroeconomic environment isn't exactly friendly. Despite the market's jubilance over management's outlook, I think Talbots is one of Wall Street's riskier retail turnaround ideas right now. 

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