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In another sign of continued tough times, Talbots (NYSE: TLB ) said yesterday it plans to sell its J. Jill unit. For those of us who know this stock's corporate history over the years, and for any long-time Talbots shareholders out there, I'd venture to guess that a common response might be, "Good riddance."
Last week, I nominated Talbots as one of the World's Scariest Stocks and also took a trip down memory lane. In 2005, when J. Jill was still a stand-alone, publicly traded company, I nominated it as a Halloween Trick, only to be later shocked when Talbots agreed to buy it. Needless to say, that acquisition just hasn't done much of anything for shareholders or the company since, other than add a lot of debt to Talbots' balance sheet. (And at the time of the acquisition, both brands needed a makeover.)
I could call this the week of my "Thanks for Nothing" articles on acquisitions. Yesterday I found myself wishing Whole Foods Market (Nasdaq: WFMI ) hadn't decided to buy out organic rival Wild Oats. Seriously, although they can be helpful, maybe investors should look at mergers and acquisitions with more skepticism than euphoria at the get-go.
After all, history often belies any rose-colored glasses regarding such hook-ups; as much as they often excite investors in the short term, it's not uncommon that these deals disappoint in terms of future growth, and sometimes are serious drags instead. Look no further than, say, Time Warner's (NYSE: TWX ) join-up with AOL, or how about eBay's (Nasdaq: EBAY ) pricey yet arguably fairly pointless acquisition of Skype, at least in terms of driving new revenue.
Shareholders might breathe a sigh of relief that Talbots plans to try to sell the J. Jill brand and stop distracting itself by trying to reinvigorate it. But here's the question, and it's a big one: Who's going to buy it? The brand needed help even before the consumer spending slowdown, and October retail comps in general made it clear that all of our worst conjectures about holiday spending look likely. The credit crunch won't help this, either.
Last but not least, Talbots withdrew its previous guidance for the second half of the year. When it comes to pulling its outlook, Talbots certainly isn't alone given the terrible macroeconomic environment, but since it's long been struggling to turn its business around and has an onerous amount of debt, I still consider Talbots one of the riskiest stocks in retail. Investors, beware.