Talbots' (NYSE: TLB) long nightmare as a publicly traded company is finally over. Sycamore Partners has agreed to buy the beleaguered retailer at a cheaper price than it originally offered.
Sycamore Partners had originally wooed Talbots with a $3-per-share acquisition offer, which Talbots rebuffed. Talbots' stance that the offer was too low was fairly bizarre, since this retailer's lost competitive advantage and has few options at this point.
Talbots' quarterly financial results went by with nary a blink last week, implying that most Talbots investors were hinging all hopes on whether this stinker would be acquired instead of on anything close to business viability. The deal, repriced at $3.05 per share, fell through, but now anybody who took a stake at Talbots' lows might be relieved to get the $2.75 per share Sycamore plans to pay now.
Rewind the years and Talbots has staggered for a very long while. It overpaid for J. Jill, overpaid its retiring CEO Trudy Sullivan, and hasn't reported an annual increase in net sales since the fiscal year ended January 2006.
The only positive thing to say is that it somehow survived. In 2008, I predicted that investors could kiss three retailers goodbye: Borders, Circuit City, and Talbots. Oh well; two out of three ain't bad, and I'm frankly shocked that Talbots held on this long.
Anybody who's holding Talbots shares should be grateful this deal went through at all. I recently noticed that the retailer has been loading its balance sheet up with debt once again. It carries about $198 million in debt, and just $22 million in cash. As of the last 12 months, its total debt-to-capital ratio is a dangerous 91.2%.
Stocks like Talbots and Coldwater Creek (Nasdaq: CWTR) haven't been good bets; Coldwater Creek targets a similar customer demographic and just reported yet another disappointing quarter. It hasn't reported an annual profit since the year ended February 2008. But even Coldwater Creek doesn't have the kind of debt load Talbots does.
In the meantime, why didn't investors simply choose a retailer in this retail subsector that had a better shot at survival, like Chico's (NYSE: CHS)? Chico's has hit its share of speed bumps over the years, but it has turned its fortunes around, is profitable, and has $340.5 million in cash on its balance sheet and no debt. ANN (NYSE: ANN) has actually managed to put up an impressive winning streak since bottoming in 2009 as well. Even after the run, they trade for a fair 15.7 P/E. However their dwindling cash position and rising inventory are red flags to watch going forward.
Way back in 2004, Talbots traded at nearly $40 per share. You can see how over the course of recent history, it is a poster child for value destruction over the long term. Investors who bought at its rock-bottom lows may feel lucky today, but such luck should stay in Vegas and at the roulette tables.
Talbots is Sycamore's problem now; Talbots' long survivalist nightmare will become a private matter.
Let's focus on viable companies in the retail space; like The Motley Fool's Top Stock for 2012. It's an emerging-market retailer that our chief investment officer loves, and you will too after reading our analysts' new free report.
