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What: Shares of retailer Talbots (NYSE: TLB) are taking it on the chin today, to the tune of a 20% drop, after the company reported third-quarter results and issued fourth-quarter guidance.

So what: Talbots is attempting to transition into a different retail niche -- one that can draw in a younger customer -- and so far this doesn't appear to be working very well. Although third-quarter profits rose, inventory woes continued, same-store-sales figures showed a sizable 7.1% drop, and guidance badly missed the mark after the company mentioned it'll likely need to increase discounting in order to sell surplus inventory.

Now what: This isn't the first time we've seen inventory problems at Talbots and I suspect it won't be the last. It was low on inventory in September when the weather was unseasonably cold and watched rivals Chico's (NYSE: CHS) and AnnTaylor (NYSE: ANN) reap the benefits, and now it's sitting on considerably too much inventory. I've often said that inventory levels are the sword by which retailers live and die because that's what truly dictates pricing power. Talbots has shown a penchant for being unable to accurately forecast consumer demand, so I'll be looking for its margins, and possibly its stock price, to remain depressed.

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