Some investors have stubbornly believed for years that there's some value left in Talbots (NYSE: TLB), but the developments in 2011 have proven more than ever that this retailer's a lost cause.
Earlier this year, a majority of Talbots' shareholders rejected CEO Trudy Sullivan's outrageous pay package at the long-struggling retailer. Recently, word of Sullivan's coming retirement may have come as a relief to investors, but no successor has been named yet, and Sullivan will receive a $5-million golden parachute this company can ill afford, despite her failure to turn the retailer around.
Major shareholder Sycamore Partners apparently believes there's hope left for Talbots' future, given its recent offer to buy this perennial struggler for $3 per share. Talbots' board believes that's a lowball offer and has rejected Sycamore's offer.
Are they kidding? Sycamore previously said it might offer a higher price if it was allowed to look at Talbots' information more closely, but I have to wonder if, should the folks at Sycamore happen to catch a fuller glimpse of Talbots' financial picture, they might instead be tempted to offer far less. (Talbots' board rebuffed this overture.) The market had valued Talbots at $1.46 per share at one point, after all. The market's not always that rational, but there's no doubt that Talbots has serious operational problems.
Let's compare Talbots' financials in the last 12 months to the metrics of several close retail rivals.
| Company | Revenue Gain (Loss) Percentage | Earnings (Loss) Per Share | Gross Profit Margin | Total Debt-to-Capital Ratio |
|---|---|---|---|---|
| Talbots | (7.4%) | ($0.89) | 30.5% | 55.8% |
| Chico's (NYSE: CHS) | 12.7% | $0.77 | 56.2% | N/A |
| Ann Taylor (NYSE: ANN) | 11.7% | $1.70 | 55.4% | 1.0% |
| Coldwater Creek (Nasdaq: CWTR) | (23.5%) | ($1.33) | 27.1% | 24.6% |
Source: S&P Capital IQ, last 12 months.
The fact that Coldwater Creek is performing worse than Talbots isn't really a consolation prize for Talbots' shareholders. Although peddling apparel to the mature female demographic isn't an easy sell right now, clearly Chico's and Ann Taylor are faring far better than Talbots and Coldwater Creek, both of which are great stocks to avoid.
Talbots' board is putting Talbots on the block following the Sycamore situation, but investors who speculate on the retailer being purchased for a premium price are signing on for a foolish gamble. Talbots' stock remains a bad bet for investors, and 2011 has proven the point in myriad ways.
There are plenty of stronger, more stable retail stocks to invest in; some even include opportunities for ample future growth. Our analysts recently identified a retail company that can be described as the Costco of Latin America; you can access that report completely free: "The Motley Fool's Top Stock for 2012." The report is free, but it won't be forever, so click here to access your copy today.
When it comes to troubled retailers like Talbots, though, the coming new year is a great opportunity to boot the bum stocks from one's portfolio and seek out the strong retailers that are far more likely to survive.
