Talbots Still Tarnished

Talbots (NYSE: TLB) has been a longtime struggler. Judging by its recent word, the troubles aren't over yet.

The company released a litany of bad news earlier this week. Fourth-quarter sales decreased 8% to $587 million, with neither Talbots nor its J. Jill unit showing strength. Total comps fell 6% in December.

Talbots also cuts its fiscal 2007 guidance drastically. On a GAAP basis, it will report a net loss of $2.43 per share to $2.48 per share, compared to a profit of $0.59 per share last year. That ugliness includes a litany of charges.

The retailer expects to take a non-cash impairment charge of $85 million, or $1.60 per share, in the fourth quarter, in association with J. Jill, which it acquired in 2006 for $517 million, or $24.05 per share, mostly funded with $400 million in debt. (It's kind of ironic to remember Liz Claiborne (NYSE: LIZ) passed on J. Jill, supposedly having found it too pricey.)

About two years later, those of us who doubted the logic of the J. Jill deal have proof that two struggling retailers aren't necessarily better than one. Personally, I think Sears Holdings (Nasdaq: SHLD) has been another such example, although for some, hope sure does spring eternal when Eddie Lampert's around.

Furthermore, Talbots will take an additional non-cash impairment charge of $2 million, or $0.04 per share, for some underperforming Talbots and J. Jill stores.

It's hard to carry off a serious turnaround during a consumer slowdown like we're experiencing right now, and that's definitely being borne out in recent developments. For example, yesterday Chico's (NYSE: CHS) reported a rather mind-blowing 22% decrease in January comps, which also shows how badly a rotten environment can magnify an already struggling retailer's troubles.

Of course, Talbots is doing a little clean-up, so maybe, just maybe, things will look a bit brighter in another year's time, since things look terrible now. However, Talbots shareholders have already waited several years for improvement, and it's been a painful exercise in prolonged malaise and ever-shrinking stock price. Plus, when problems go on this long, you've got to wonder if the brands are simply shot and customers lost (and there's the increasingly popular theory that many of the mature women's retailers are losing their appeal amid a demographic shift anyway). Given the continued uncertainty surrounding Talbots, I still think prudent investors should hold off until there are real signs of life.