As a rule, we don't pay much attention to analyst buzz on stocks here at the Fool. Every once in a while, though, I can't help but see a news item and subsequent stock price move that strikes my curiosity. Wednesday, Talbots (NYSE:TLB) stock rose as much as 7% at one point in the day, apparently catalyzed by an analyst's upbeat comments. It's not the first time I've noted what I thought were rather baffling price moves for Talbots shares.
Apparently the analyst in question upgraded Talbots from a "sell/high risk" to "hold/high risk" -- interesting that nobody said anything about a buy rating. (And apparently some investors missed the part where the analyst said that she remains "cautious" on the stock.) I should also mention that Talbots shares have been vacillating around their 52-week low in recent history, of course, and the analyst did predict the shares could rebound soon, which is probably where investors got excited.
Last quarter, Talbots may have reported a nearly 30% increase in profit, but there were some anemic signs regardless. Sales inched up by a mere 3%, while same-store sales increased by just 1.6%. February same-store sales fell 6% (although we must note that many retailers reported a rather lackluster February due to blizzard conditions in the Northeast). Granted, fewer discounts of Talbots' goods did mean an improved gross margin, which is a step in the right direction (especially considering the fact that since 2001, Talbots' gross margin had steadily declined).
Another issue at hand is the fact that Talbots beat out Liz Claiborne (NYSE:LIZ) to acquire another struggler, J. Jill (NASDAQ:JILL) -- and it will take on $400 million in debt to do so. I agreed wholeheartedly with Seth Jayson's critique of the deal -- two unfashionable stocks do not a fashion plate make.
And of course, one of my favorite points of issue with Talbots is the very impressive lineup of rivals -- like Chico's (NYSE:CHS), Coldwater Creek (NASDAQ:CWTR), and Ann Taylor (NYSE:ANN) -- that vie for a similar customer demographic, and in some cases have been doing a much better job than Talbots and J. Jill have been.
I know that sometimes investors get carried away with certain news items, but I can't help but think today's increase in Talbots' share price seems a bit premature, if not illogical. It seems fitting when speaking of a retail stock like this one to remind about the old adage, "Buyer, beware."
Alyce Lomax does not own shares of any of the companies mentioned.
