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Talbots' Desperate Drama Drags On

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It's not that logical to be super-picky when one is in desperate straits. Struggling retailer Talbots (NYSE: TLB  ) has now reconsidered its hard-line stance against a possible acquirer, private equity firm Sycamore Partners.

Talbots has agreed to let Sycamore take a peek into its books, which Sycamore requested last month in order to even consider a higher offer than it had in mind. The two entities have also penned a one-year "standstill agreement," which blocks Sycamore from taking certain actions without getting a prior OK from Talbots' management and board.

In December, I pointed out that Talbots' performance last year showed there's little hope for the struggling retailer; that hopelessness made it difficult to imagine exactly why Talbots' board considered Sycamore Partners' $3-per-share offer undervalued. (Incidentally, Sycamore owns about 9.4% of Talbots' shares already.)

It's hard to see how Talbots has any rationale for being hard-edged about interest from any buyer at this point. Not only has its financial performance been utterly disappointing, but the company's still looking for a replacement for CEO Trudy Sullivan, who was unable to turn around its fortunes for years on end.

On a bigger-picture level, the retail niche for Talbots is a difficult one, targeting the female baby boomer demographic. Coldwater Creek (Nasdaq: CWTR  ) suffers from even worse malaise than Talbots does, having recently warned of an uglier-than-expected fourth-quarter loss because of a dismal holiday selling season, and Chico's (NYSE: CHS  ) was recently rumored to have a private equity suitor of its own.

Private equity involvement can often be very beneficial to a retailer. The loan that Golden Gate Capital has arranged with Pacific Sunwear (Nasdaq: PSUN  ) may very well be the life raft the ailing retailer needed. The market agrees, and has sent shares up over 50% in the last three months alone. The private equity group has also worked with Herbalife (NYSE: HLF  ) , a market darling that's up over 70% in the last 12 months alone. Talbots' original apprehension, and their glacial pace for working with Sycamore, indicates they don't realize this potential benefit.

Rumors and innuendo aside, Talbots still looks like a terrible stock idea to me. Anybody who bought in at the stock's lows might luck out by doubling the pennies they plowed into this stock if Sycamore or some other firm acquires it. But that's the problem: At this point, too much has to do with whether this desperate retailer gets lucky or not, and that's no way to invest.

If you're looking for a retailer with a far better prognosis, look no further than the Latin American retailer outlined in our free report "The Motley Fool's Top Stock for 2012." The company is still largely undiscovered by Wall Street, but has huge upside potential. You can get ahead of the curve by accessing our special free report by clicking here today.

Alyce Lomax does not own shares of any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 01, 2012, at 6:39 PM, kamee73 wrote:

    Another useless and misleading article from the FOOL. It looks you do not agree with what you are saying.

    Please stop writing as you are fooling no one but yourself

  • Report this Comment On February 02, 2012, at 1:07 PM, bensonian wrote:

    Talbots has *always* looked like a terrible stock idea to Ms. Lomax, and her entries on them tend to sound like the diary entries of a scorned ex-girlfriend. She certainly dislikes and reports on other poor performers, but never with quite the same venom or penchant for melodrama in her headlines ("desperate drama"? really?).

    Perhaps as some have suggested, Talbots' clothes do not fit her well, and perhaps fit isn't her issue at all, but this useless harping smacks of something personal, either perceived reality-based.

    It would much more interesting to have her turn her attention to a company she can be more objective about -- or at least let someone else at The Fool take this one on. Her writing on Talbots ceased being thoughtful and informative long ago.

  • Report this Comment On February 03, 2012, at 7:57 AM, TMFLomax wrote:

    Thanks for your feedback. I think my current CAPS score on Talbots (+73 points, on an underperform call initially made in '08) actually shows for the record that my views on TLB have actually been quite informative over a substantial period of time. I wish you both luck in your investing, though.


  • Report this Comment On March 14, 2012, at 1:32 PM, Jeffsdate wrote:

    I am not an investment expert, but as a former loyal Talbots customer, I think Ms. Lomax is right on the money. Nobody I know shops there anymore. My local Talbots is always empty, even on eves and weekends. The stuff is overpriced and horrible. The over-40 women I know say, "Talbots is going for the younger customer, and there's nothing there for me." Yet the younger women say, "Talbots is for old ladies." It's impossible to figure out who they think their customer is. I'm surprised Talbots didn't fold a long time ago.

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