Talbots (NYSE:TLB) has enjoyed a lot of investor optimism -- but not from me. I've been down on its prospects for well more than a year, and Talbots' second-quarter financial results gave me little reason to change my mind.
The retailer widened its net loss to $13.3 million, or $0.25 per share, in the second quarter, including acquisition-related costs of $0.10 per share. That compares to a net loss of $3.9 million, or $0.07 per share, this time last year. Sales for the quarter were basically flat at $572.3 million.
Same-store sales also failed to impress, with overall comps down 4.8% in the quarter. That includes a 4.9% decrease for Talbots and a 4.3% decline for its J. Jill unit. Inventories also increased faster than sales, at 10%, which makes a natural segue into the company's earnings-release admission that its merchandise has been less than popular lately.
Last quarter, Talbots didn't include its balance sheet or cash-flow statement with its press release. This quarter, it resumed its habit of including all three of the financials that investors want to see. Unfortunately, that means we can see how much its cash supply has dwindled over the last year. Cash dropped 83% to a mere $8.2 million, compared to $61.4 million in cash and securities this time last year. While Talbots pared down its debt just a tad, that still doesn't explain the excessive use of cash.
I can't say I've changed my sour tune on this retailer. As if competing with retailers like Ann Taylor (NYSE:ANN), Chico's (NYSE:CHS), and Coldwater Creek (NASDAQ:CWTR) isn't bad enough, I still don't see its acquisition of J. Jill doing a darn thing for shareholders thus far.
I thought J. Jill was a stinker when it was still publicly traded. Talbots apparently disagreed, since it snapped it up in early 2006. Acquisitive brand collector Liz Claiborne (NYSE:LIZ) looked into buying J. Jill, but eventually said it couldn't get it at an appropriate price. Now here we are, a year and a half after Talbots bought J. Jill, and the companies have yet to show any real success -- or even progress.
In an AP story, Talbots' Chairman Arnold Zetcher expressed optimism about the second half of the year. But that's old news -- he said it last quarter, too. And now he's tempering that enthusiasm, admitting that the company is cautious given macroeconomic concerns.
That's a pretty common excuse in the retail world these days. I'm still wondering how the housing and credit situations will impact consumer spending industrywide. If the economy does turn south, the strongest retailers will likely survive. Those like Talbots, struggling with turnarounds, may fare considerably worse.
Talbots currently trades at 23 times forward earnings. Maybe that sounds "cheap," considering that the company expects to report a huge earnings increase in fiscal 2008. But remember, that's only mangement's guess, and it follows several years of lackluster and shrinking profits, dwindling cash, and increased debt. Of course, from a longer-term perspective, Talbots' PEG ratio of 5.69 looks incredibly pricey. Is it really likely to completely blow out its current five-year growth expectations? This quarter makes me think not. Any optimism still clinging to Talbots just doesn't seem warranted to me.
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Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.
