Talbots: Just Don't Do It

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

I've complained in the past about Talbots' (NYSE: TLB  ) beleaguered business and its stock's trading volatility. Yesterday, the shares closed up 33% on word that the company had secured more credit. Don't be fooled, folks: Talbots is still a great stock to avoid.

The company said it has entered agreements with three banks to convert uncommitted working capital lines of credit into committed lines, for a total of $150 million in available credit. It's also negotiating with a fourth bank to convert the remaining $15 million credit facility to a committed line as well.

On a related note, investors flipped last spring, when HSBC and Bank of America (NYSE: BAC  ) pulled $265 million in letters of credit from Talbots, with major shareholder Aeon riding in to save the day. The freak-out made sense: In our constricted credit market, it's frightening for any company to desperately need credit but not be able to obtain it.

Talbots already has a heck of a lot of debt piled up, and it hasn't posted a profit in the last 12 months; if anybody's getting bullish about its ability to secure more credit, that just flummoxes me. Granted, when a stock is trading as low as Talbots is -- now around $2 a share -- big percentage pops are pretty easy to achieve, and such low prices sometimes encourage a lottery-ticket mentality among investors.

Still, it's no secret that the holiday shopping season stunk for most retailers. Analysts expect a 1% drop in December retail comps overall, and the extreme frenzy of markdowns that marked the holiday season will hit retailers' margins right where it hurts. Borders (NYSE: BGP  ) , another debt-laden retailer, reported lackluster holiday sales data and executed a management shakeup. If a retailer's not Wal-Mart (NYSE: WMT  ) , its holiday sales were probably pretty bad, and retailers that were already weak are really going to be struggling to survive in the coming months.

Talbots' long-term debt-to-equity ratio stands at 89.4%. Its quick ratio is 0.4. (Read more about the debt-to-equity ratio and the quick ratio.) Access to additional credit may help Talbots' near-term survival, but I'm sorry, I just can't see how long-term investors could possibly believe the idea of piling on more debt would be a good thing for this company.

There are far healthier stocks out there in the retail universe -- my Foolish colleague Kristin Graham recently took an in-depth look at The Buckle (NYSE: BKE  ) as a solid stock idea, for example. Investors should stay away from debt-heavy retailers like Talbots now more than ever, especially when the news really isn't that good.

Stock news, financial commentary, and your daily dose of Foolishness: Get plugged in to The Motley Fool on Twitter!

Bank of America is a Motley Fool Income Investor selection. Wal-Mart Stores is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (21)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 805445, ~/Articles/ArticleHandler.aspx, 10/27/2016 4:58:54 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,169.68 -29.65 -0.16%
S&P 500 2,133.04 -6.39 -0.30%
NASD 5,215.97 -34.29 -0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
TLB.DL $0.00 Down +0.00 +0.00%
The Talbots, Inc. CAPS Rating: *
BAC $16.91 Up +0.04 +0.24%
Bank of America CAPS Rating: ****
BGPIQ.DL $0.00 Down +0.00 +0.00%
Borders Group CAPS Rating: *
BKE $21.00 Down -0.40 -1.87%
The Buckle CAPS Rating: *****
WMT $69.83 Up +0.24 +0.34%
Wal-Mart Stores CAPS Rating: ***