Talbots (NYSE:TLB), a purveyor of wardrobing classics, delivered a quarter that might give some investors reason to believe it's becoming more fashionable. There are signs of returning health after some touch-and-go times over recent years, but other elements should probably give Foolish investors pause.
First-quarter net income at Talbots squeaked 3% higher to $34.5 million, or $0.63 per share; the EPS figure matched analysts' estimates on the button. Same-store sales increased 4.3%, and in the press announcement, management gave itself a pat on the back for five consecutive months of increased same-store sales. Total sales increased 8% to $446.5 million.
Talbots' gross margin fell as it cut prices to bolster sales. That was also the case last quarter, too, and of course, the strongest retailing stocks don't need to consistently red-line their merchandise to get shoppers to open their pocketbooks. Meanwhile, inventories increased 23% compared to this time last year.
You may well know that Talbots competes in an arena that strives to appeal to an older demographic with classic styling. It's a tough environment -- J. Jill (NASDAQ:JILL) and Ann Taylor (NYSE:ANN) have had a hard time appealing to women over 35 (and Boomers). There's fierce competition for these women's discretionary dollars in the form of the ever-fired-upChico's (NYSE:CHS). And Motley Fool Stock Advisor pick Gap (NYSE:GPS) is testing out the waters too, for better or worse.
Granted, Talbots' forward P/E of 14 may sound pretty cheap. Indeed, it may be a stock that investors want to keep an eye on, and the word "turnaround" does get bandied about when considering this company. However, continued proof that Talbots can really appeal to its audience given its formidable competition -- such as strengthening margins and continued gains -- seem in order before trying this stock on for size.
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Alyce Lomax does not own shares of any of the companies mentioned.
