Long-struggling retailer
Talbots (NYSE: TLB) reported a better quarter
yesterday than many investors expected. That still doesn't
mean it was particularly good.
Talbots reported a fiscal second-quarter loss of $24.5
million, or $0.45 per share. That's hardly a vast improvement
over its loss of $25 million this time last year. But its net
loss from continuing operations, excluding charges, was $17.6
million, or $0.33 per share, which bested analysts'
expectations for a net loss of $0.55 per share.
Several Wall Street firms upgraded the stock today, but I
remain unimpressed. Talbots' net sales dropped 23%, to $304.6
million. Of course, last year it still had its J. Jill
concept,
which it recently jettisoned.
More importantly, same-store sales plunged 24.9%.
Management emphasized cost cuts and improved merchandise
margin in the press release, but with sales that ugly, it's
clear the company's challenge is far from over. Talbots'
nasty sales remind me of
Abercrombie & Fitch (NYSE: ANF) and its
nosediving comps.
Talbots still has a formidable debt load to contend with,
too. Its $113 million in cash is dwarfed by its $497 million
in debt outstanding, a figure that's risen from $383 million
this time last year. The company's immediate liquidity issues
aren't dire, since it has a $150 million credit facility. But
why buy a heavily indebted niche retailer when you can get
one with a sterling balance sheet -- and solid sales to boot?
(
I'm looking at you,
Buckle (NYSE: BKE) and
Aeropostale (NYSE: ARO).)
Meanwhile, in a curiously counterintuitive move, Talbots
is opening new "upscale outlet stores." In the conference
call, management said it has opened 10 of these stores, to
positive customer response. Although I'm sure many
shareholders are happy to hear that, will the new venture
truly improve the overall business, or just be one more J.
Jill-style money sink? New investments haven't worked well
for
Gap (NYSE: GPS), after all. The once-mighty
clothier has struggled to revive dwindling sales, although at
least Gap has a cash-rich balance sheet and no debt.
It's a tough time for retail in general, and things will
probably get worse for many retailers
before they get better. I still prefer stocks like
Aeropostale, which has been performing very well
operationally, despite the difficult economic climate. If
even a niche retailer is a bit too risky for your investing
dollars, you might always consider the more
recession-resistant
Wal-Mart Stores (NYSE: WMT) and
Costco (Nasdaq: COST).
Talbots shares were up about 11% in intraday trading,
apparently because of analysts' upgrades. Still, investors
should take a "buyer beware" approach; Talbots' continuing
struggle to operate profitably is no new wrinkle.
This article was originally published as
Don't Try On This Risky Stockon
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