Talbots' fourth-quarter numbers are sobering to read. The company reported breakeven earnings per share and net income of a mere $17,000, compared to $19.8 million in the year-ago period. Although sales increased 31.2%, heavy discounting and continued effects from the J. Jill acquisition eroded Talbots' profit, even as its inventory expanded by 42.9%.
You'll find more alarming items in our fourth-quarter rundown of Talbots' numbers. Long-term debt increased 289.2%, while cash dropped by 65.1%. Free cash flow, not surprisingly, dropped by 78.2% to $30.2 million.
Of course, the numbers weren't exactly surprising; in January, Talbots warned it would report a breakeven quarter.
Talbots has had its work cut out for it, both in digesting the J. Jill acquisition and trying to compete with hungry rivals like Chico's
There's one ray of hope, perhaps: would-be rival Gap's
Talbots reconfirmed its previous guidance for the first quarter, and it reminded shareholders that it should resolve most of its merger-related issues in 2007. As a result, the company expects to realize $36 million in cost savings, and generate what it believes will be the highest operating cash flow in its history. Talbots also said it's making progress in stabilizing J. Jill's business.
Of course, Talbots also said in January that it planned to slow down store expansion, which seemed like a prudent move to save on capital expenditures. Although 2007 may have some easy comparisons, it's still looking like a transitional year for the retailer. Furthermore, longtime CEO Arnold Zetcher plans to retire in February 2008. He's been at the helm for 20 years, and his departure might leave the company's future even more uncertain.
I still don't think Talbots' stock seems tantalizing at the moment. A multiple of 22 times this year's expected earnings is a high price to pay for a company still struggling to improve its brands' performance.
For more on Talbots, see the following articles:
- Dig down into Talbots' fourth quarter with Fool by Numbers.
- In January, things were still tough for Talbots.
- Check out Talbots' third-quarter performance.
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