The Talbots Inc Q1 Earnings Call Transcript

123jump.com Staff
22 Jun, 2009
New York City

The apparel retailer first quarter sales declined 25% to $306.2 million on same-store sales decline of 26.9%. Net loss was $23.6 million or 44 cents per share against net income of $1.6 million or earnings of 3 cents per share in the prior year quarter.

The Talbots Inc. ((TLB))
Q1 2009 Earnings Call Transcript
June 9, 2009 10:00 a.m. ET

Executives

Julie Lorigan - Senior Vice President, Investor and Media Relations
Trudy F. Sullivan – President and Chief Executive Officer
Michael Scarpa - Chief Financial Officer and Chief Operating Officer
Greg Poole - Chief Supply Chain Officer

Analysts

Todd Slater – Lazard Capital Markets
Jennifer Black - Jennifer Black & Associates
Kimberley Greenberger -- Citigroup
Betty Chen - Wedbush Morgan
Richard Jaffe – Stifel Nicolaus
Stacy Pak - SP Research
Marni Shapiro - The Retail Tracker
Roxanne Meyer - UBS
Adrienne Tennant -- FBR

Presentation

Operator

Good morning ladies and gentlemen. On behalf of The Talbots, we would like to welcome you to the Talbots Incorporated conference call covering its first quarter 2009 earnings results. Today’s call is being recorded and at this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. I would now like to hand the call over to Julie Lorigan, Senior Vice President of Investor and Media Relations.

Julie Lorigan – Vice President of Investor and Media Relations

Thank you and good morning everyone and welcome to the Talbots Inc. first quarter earnings conference call. Today we have with us Trudy Sullivan, President and CEO; and Michael Scarpa, Talbot’s Chief Operating Officer and Chief Financial Officer. As a reminder, certain statements to be made today are forward-looking. These are based on assumptions and expectations of future events, which may not prove to be accurate. They involve substantial risks and uncertainties. Actual results may differ materially from those expected or implied. These forward-looking statements may be identified by such terms as will, expect, believe, anticipate, outlook, target, plan, initiative, estimated, strategy and other similar terms or variations. All of our outlook and financial expectations and plans constitute forward-looking statements. We direct you to the cautionary statement being read at the end of this presentation and in our earnings release issued today, as well as in our recent SEC filings, all of which are available under the Investor Relations section at our website at www.thetalbotsinc.com. A replay will be available from approximately one hour after the conclusion of the call until end of day June 11, 2009. The webcast will also be available on the Investor Relations page of our website.

With that, I would like to turn it over to Trudy Sullivan.

Trudy F. Sullivan – Chief Executive Officer

Thank you, Julie. Good morning everyone and thanks for joining us. In a moment I will discuss Talbots’ results for the quarter 13-week ending May 2, 2009. Mike will cover our financial performance, and then we will make some closing remarks and take your questions. Our most recent consumer studies indicate shopping patterns have not returned to normal. Our customer continues to be judicious in her spending and is prioritizing money to savings and children’s education. She plans to spend less, not as a shift to other retailers, just spend less. The reaction to our merchandise and our catalog presentation continues to be more positive than a year ago. We are encouraged by these data points, which reaffirms that we are headed in the right direction. Taking a longer-term view we are making solid progress in repositioning our business by divesting J Jill, launching the upscale outlook program and working through other strategic sourcing relationship with Li and Fung. A balanced product mix and a colorful key item strategy, better inventory management and relentless cost control will drive near term results. So, with that let’s begin.

Excluding the tax benefit that Mike will explain shortly, our first quarter results came in better than our previously announced expectations. We narrowed the loss from continuing operations, driven by improved merchandise gross margins compared to the fourth quarter and the early benefit of our cost reduction program implemented in February. As anticipated our top line sales remain difficult and are not to our satisfaction. With customer traffic down high teens our transactions decreased high teens as well with conversions essentially flat. Our units per transaction declined 6%. In addition we also see our customer shopping at the opening price points of our assortment and as a result the average transaction value has also declined. While these statistics are disappointing they do reflect our customer’s current shopping pattern with price a critical factor in her purchasing decisions. Let me explain. Our casual bottoms, mid top and cardigan sweaters performed very well during the quarter. These categories are driven by key items under $100 and reflect opening price points where customers are most engaged. Conversely the higher price sportswear underperformed and needed to be more aggressively promoted. This was the case with certain aspects of our February and March deliveries which also included some elements of color that did not resonate well with the customer. In order to clear this merchandise we were more promotional than originally planned. But we quickly incorporated our learnings and made adjustments to our merchandise mix. We saw improved selling trends in our April and May deliveries which were focused on a casual based key item strategy. We are gratified by the numerous acknowledgements of the perceptible improvements in our product content. Our product merchant and creative teams are beginning to hit their strides. And importantly overall in the quarter, we were tight on inventory to timely markdowns and improved our IMU. As we look ahead this summer, we are well positioned in our key item investments with attractive price points and correspondingly strong IMU. Our assortments have a season appropriate fashion attitude and include our favorite colors of pinks and blues, which are proven winners. We also offer strong mix of novelties featuring mechanical prints, multi colored florals and favorites.

Operationally we are out if front of our best control initiatives and hope that a substantial dollar decline in the SG&A this quarter versus a year ago. We are also firmly committed to right sizing the business and as such announced additional headcount reductions this morning. Our identified cost reduction goal for 2009 is significant. Currently at $125 million out of the $150 million expense reduction program we targeted in February. We are committed to realizing the full benefit of this program and will continue to rationalize all aspects of our business throughout the year. While it remains tough to get the first consumer in the door, we continue with rigorous outreach efforts to connect with her. In January we launched a three tier expanded loyalty program with great success. At the end of the first quarter we had nearly 2 million classic awards members, a 12% increase since the re-launch. Overall we have found that our classic award members tend to spend approximately 80% more than non members and shop twice as frequently. At the end of the quarter for the first time in our company’s history we had more than 50% of our sales generated through our Talbot’s charge. In other corporate initiatives we launched our Talbots upscale outlook concept in May, a key growth initiative outlined in the April 2008 strategic plan. We are on track with the store openings and have successfully opened our first eight of 12 upscale outlook stores across the country. In our upscale outlook concept we offer broad mix of casual sportswear and accessories across the midi, petite and women sizes with average opening price points, 30% to 40% below that of our core. The customer has responded well to all categories especially bottoms, including shorts, skirts and pants and knit tops where sales have exceeded our expectation. It is early in the roll out of this new concept and there is much to learn about the customer but we are very pleased with the initial response.

Also announced yesterday we just signed a definitive agreement to sell substantially all of the J Jill brand business to Jill acquisition LLC, an affiliate of Golden Gate Capital. This is another major step forward for our company enabling us to focus exclusively on the Talbots brand and return our company to profitable growth and deliver increased shareholder value over the long-term. We anticipate that the sale will close in the second quarter. With the close of this sale we will be able to focus our time, energy and full resources on the ongoing rejuvenation of our Talbots brand.

The final corporate initiative I’d like to update you on is our progress in forming a strategic relationship with Li & Fung. As previously disclosed we signed a non-binding letter on intent with Li & Fung to mutually explore a potential primary sourcing relationship. We’ve made solid progress in those discussions and are in mid stream in our due diligence efforts. We intend to maintain complete control of all product designs and ensure that our quality remains the very highest. A relationship such as this should improve our kind of market while further streamlining our cost structure. We anticipate that an agreement could be reached by September of 2009. So, we have stayed the course of our strategy. We are executing to our plan and making steady progress. We continue to believe that we will emerge a stronger and definitely more viable brand as our economy recovers. With that I’ll turn it over to Mike to review the financials and then I’ll be back with some closing comments.

Michael Scarpa - Chief Financial Officer and Chief Operating Officer

Thank you, Trudy. Turning to details of our first quarter sales remained difficult but in line with our expectations. Total sales from continuing operations were $306 million compared to $415 million last year. Retail sales were $256 million compared to $345 million last year. This decrease was driven by a 26.9% decline in consular sales in the 13 week period. Direct marketing sales in the first quarter which include catalog and Internet were $50 million compared to $70 million last year. First quarter cost of sales, buying and occupancy was 69% of net sales versus 59.5% last year. This deterioration was primarily due to a 420 basis point decline in merchandise gross margins resulting from increased markdowns and promotions taken to ensure our inventory was well positioned as we entered Q2.

Additionally there was a 410 basis point erosion, attributable to the de-leveraging of occupancy cost. Although gross margins were down year-over-year in the first quarter, we have seen a significant improvement in trend for the fourth quarter. Selling, general and administrative expenses in the first quarter were $111 million, at 36.2% of net sales versus $130 million at 31.4% of net sales last year. This decrease in dollars was largely due to the implementation of our expense reduction program.

Net interest expense for the quarter was $7.2 million versus $5.6 million last year. The increase reflects changes in our new tax structure. On a GAAP basis first quarter net loss from continuing operations was $18.8 million or $0.35 per share compared to last year’s net income of $18.5 million or $0.35 per share. In accordance with FAS 109 paragraph 140, our results from continuing operations on both a GAAP and adjusted basis reflect a tax benefit of $10.6 million or $0.20 per share. This tax benefit is the result of a gain in other comprehensive income recorded in the first quarter based on the company revaluing its pension plan assets and liability. On an adjusted basis our first quarter net loss from continuing operations excluding restructuring charges and store asset impairment was $12.4 million or $0.23 per share as compared to last year’s net income of $22.3 million or $0.42 per share. Attached to this morning’s press release financials is a spreadsheet table which details the reconciliation of GAAP to non-GAAP or adjusted results from continuing operations for the first quarter of 2009. In discontinued operations the net loss of $4.8 million or $0.09 per share compared to last year’s net loss of $16.9 million or $0.32 per share.

Moving to the balance sheet we ended the first quarter with total accounts receivable of $187 million versus $227 million last year. Our receivables remain in excellent condition. As a result of our ongoing focus on managing inventory levels we ended the quarter with $191 million of inventory down 24.5% to last year. We ended the quarter with $475 million of total net debt outstanding compared to $436.4 million of total debt outstanding in the same period last year. With the addition of our new $150 million revolving loan facility announced earlier this year, we believe we have excess capacity to fund our working capital needs. Currently we are un-drawn on this facility.

Capital expenditure from continuing operations was $8 million compared to $10 million last year. Our capital expenditure plans for 2009 are currently forecasted at $27 million compared to $45 million last year. Before detailing our second quarter outlook I’d like to touch on an important point. This continues to be an uncertain environment and predictability on consumer spending behavior remains difficult. Therefore we are taking additional actions to improve our operating efficiency and reduce our costs. Today we announced additional corporate workforce reductions of approximately 20% for annualized savings of approximately $21 million. We now have identified approximately $125 million of our $150 million cost reduction program. Aggressive cost control is an ongoing initiative and we will continue to refine our cost structure in line with our sales.

Looking ahead, we are projecting a second quarter loss per share from continuing operations net of any special items to be in the range of $0.50 to $0.58 compared to an adjusted loss per share of $0.18 reported last year. We are currently planning for sales to be down in the low 20% range compared to last year’s second quarter. Cost of sales, buying and occupancy rate is expected to increase by approximately 300 to 400 basis points compared to last year as a result of expense de-leveraging offset by improved merchandise margins. SG&A expenses for the second quarter are expected to be up approximately 100 to 150 basis points compared to last year as a result of expense de-leveraging. In absolute dollars SG&A would be reduced by approximately 20%. Our task remains conservative we look for slow but steady progress given the environment. Our priorities include expense management, liquidity and cash flow, closing the J Jill sale and finalizing an agreement with Li & Fung. Thank you. Now I’ll turn it back to Trudy.

Trudy F. Sullivan

Thanks Mike. In summary we are in a stronger position today. We are clearly not underestimating the effects of the economy or the work that lies ahead of us but we do feel good about our progress and our long-term prospects. So, with that we’ll be very happy to take your questions.

Operator

(Operator instructions) Ladies and gentlemen at this time we will be opening up the call for question-and-answer session. Please press “*1” on your touchtone phone if you’d like to ask a question. In order to allow time for everyone’s queries to be answered please limit your questions to one. Your first question is from the line of Todd Slater with Lazard Capital Markets.

Todd Slater – Lazard Capital Markets

Thanks very much and congrats guys. We’ve obviously seen a nice improvement in the assortment although it has not necessarily translated obviously in the first quarter but I’m really curious to hear about the sort of inflexions you saw in April and May. I was hoping you could elaborate and I’m just wondering if you can generate enough top line in the mix shift to more key items under $100 to get enough excitement if the product begins to look a little more basic and my segue to that question is number 2, you’ve done an impressive job on the cost side as well and obviously lowering your leverage break point although it is still projecting some deterioration on the de-leverage. I’m just wondering what type of revenue level you need to reverse the de-leverage to get some leverage? Thank you.

Trudy F. Sullivan

Thanks Todd. Let me take the first part of your question and then I’ll pass it to Mike for the second. I think we have seen as the season has progressed we have seen momentum build against our deliveries in April and May and certainly although we are seeing her buy in the key item side of the assortment I would not describe this as basic product. These are more Talbot iconic products, great T-shirts, great polos, great cardigans, great casual pants and so I think we can add I’ve seen both categories build momentum as the season progresses. We do have a customer on the upper end of the assortment but that’s where we have seen a little bit even more judicious in her spending. I think the strength of her buying pattern actually plays to our strength in the second quarter because we are focused on this kind of casual relaxed key items business. Essentially we learnt a lot about what we did in first quarter. I mean there was some…we are still learning. There was some misstep in our March assortment I think on some of the color that we put out there. So, we live and learn. We reacted very quickly to the color preferences, the style preferences and we feel good about…our assortments I believe get stronger and stronger as our team is able to incorporate these learnings. You have to remember that this team is just hitting its stride. They are here about a year together now and so I’m really proud of how dynamic they are in terms of taking what’s good and optimizing it and taking what’s not working and change it. So, but as a long answer to your question as the season progressed in April and May, we are certainly seeing good response and June is just at the post and so it is really too early to give a comment there.

Todd Slater – Lazard Capital Markets

Okay on the color, on the missteps in March you said were mostly due to color. What were the missteps? Was it related to product, style or what have you?

Trudy F. Sullivan

We started the season as you’ll probably remember with a group called Marrakesh in February. It was all done in tonal, in peach and lavender and very pretty palettes. She loved it, reacted well there. We stayed on this kind of ethnic sensor that we got in March but the palettes got much harder. It was on in lime green and she wasn’t able to accept it. A bad palette issue was the prettier pink palette. We changed the palette to much of the black and white group which actually came in and did quite well and I’d say April and May deliveries are what I call iconic Talbot color palette offers and she reacted extremely well in the casual side. Well the fact is she doesn’t seem to have as much interest in the refined side of the assortment for whatever reason and finally it is truly important that we do our own pretty aggressive internal research on just where the consumer’s head is. We just finished the third panel of this research and we are seeing that she is still in a very conservative mode. She is liking the product. Our net promoter scores are improving but she is still very cautious about shopping. And what she tells us is it is not that she is taking her spend some place else. She is just still in a cautious mood from an overall desire to be purchasing. So, we are watching this very closely and hopefully it will start to ease up. The good news is it hasn’t gotten worse. It has started to ease up very slightly. So, we are watching it through the second quarter but it is what leads us to stay in a very conservative operating frame of mind. Now, Mike if you want to…

Todd Slater – Lazard Capital Markets

Right thanks and Mike?

Michael Scarpa

I think you are going to start to see the change in the ratios this year to last year start to moderate. We are seeing in Q2 as across the sales, buying and occupancy rose from 950 to 300 to 400 basis points difference. When we look at SG&A we were up 480 in Q1. We are now projecting 100 to 150. I think when we start to enter the second half of the year obviously our comps get a little easier. We have put into place now 125 of the 150 cost reduction program so that will kick in full force in the second half of the year and you are also going to see continued improved IMUs as we continue to push that lever and our inventory will be in much better position that when we were in Q1. So, overall I think we will see a very moderate difference as we go through Q2 and in Q3 and Q4 I think you are going to start to see it turn around. Our last year Q4, was a disaster for us. Our margins were not where we needed them to be. Our cost of sales, buying and occupancy was almost 85%. Our overhead was almost 43%, so much easier comparisons as we move to the second half of the year.

Todd Slater – Lazard Capital Markets

Okay. I wish you guys all the best. Thanks.

Trudy F. Sullivan

Thanks Todd.

Operator

Your next question is from the line of Jennifer Black with Jennifer Black & Associates.

Jennifer Black - Jennifer Black & Associates

Let me add my congrats as well. I have a couple of questions. First I wondered how you feel about your products for the back half. What changes have you made? And the red book is fantastic and I wondered how you get your story out as it is told in the red? That’s my first question.

Trudy F. Sullivan

Well thanks Jennifer. Obviously we are feeling really great about our products for the back half. We have taken learnings from the front, from the beginning of the year. We’ve very much felt really, really put great ownership behind the key item side of the line and I think we’ll be in great position, a really strong position as we open the season. We have some wonderful new key items that we were able to move forward into the back half. So, that’s very encouraging. I think the items for the sports side of the line also look extremely appropriate and is done in a way that we have already seen her respond to in terms of the proper type of related effort. We felt very good about our sweater presentation. So, well we are pleased. I think we’ve been able to have some learnings together that have really influenced how we put the third and fourth quarter together. And as Mike said we are up against a really horrendous comp period in the fourth quarter. So, we are very optimistic that we can really produce some good result.

Tell me what you like about the red book.

Jennifer Black - Jennifer Black & Associates

Everything.

Trudy F. Sullivan

Well, we continue to work on that as well Jennifer and we are talking to having ideas in making that more broadly available.

Jennifer Black - Jennifer Black & Associates

Okay because I don’t think most people know that there is a story and I think it is just an awareness.

Trudy F. Sullivan

Yeah.

Jennifer Black - Jennifer Black & Associates

As well as a topic product and then my second question is that if you could talk about your productivity, you talk about sales, your metrics like circulation, productivity per page, and can we expect to see improvements in your Internet side? Thanks a lot.

Trudy F. Sullivan

Well we are launching a new Internet platform which you will see by the end of the summer, early fall, which gives us tremendous upgrading capability on our web. We are actually planning our circulation down for the back half but really because we are going against some prospecting circulation in the base period that we do not feel is necessary to repeat but certainly I have some mail that is going to be mailed as aggressively as we have always mailed it. I think we have done that and internally you have got some sensitivity in some key books in the back half of the year. I feel that we are in really a strong position.

Jennifer Black - Jennifer Black & Associates

Fantastic. Thanks a lot. Good luck.

Trudy F. Sullivan

Thanks Jennifer.

Operator

Our next question comes from the line of Kimberley Greenberger with Citigroup.

Kimberley Greenberger – Citigroup

Right thank you good morning.

Trudy F. Sullivan

Hi Kimberley.

Kimberley Greenberger – Citigroup

Trudy the stores look I think really quite improved over the last 6 to 9 months and I know it is probably frustrating we are not seeing it translating through the top line. I’m wondering what can you do in this kind of environment to drive that top line a little bit more. Are there any marketing strategies that you are looking at or maybe you can just talk about how you are thinking about the business? If a good product in not enough to get the top line going what else is there?

Trudy F. Sullivan

Kimberley our reaction has been to be extremely conservative first of all and season our ownership so our inventory levels are extremely conservative. I think what we’ll see as we wrap around the back half of the year is we will take some additional steps on proven products like the some of these core key items. It is difficult and our own research does tell us that she has not eased up on herself much in the first half of the year. But it is critical that we continue to get the kind of comments that we have got from her in terms of we like the direction of the product. We like what you are doing. Successive groups have been…the May June groups have been even more productive than the March February group. So, we are seeing that. We do have this new to file because of our new marketing program which will start to we hope generate additional sales for us as we start to wrap through the back half of the year. Because our inventories are in good shape we are not as religiously promotional. We don’t want to run the brand that way. So, she does love a deal, she loves a sale. We give her our strategic promotions throughout the season but I believe because of her appetite shopping right now, too much of that will actually devalue the transaction more than we need to. So, we are slogging through this environment and I don’t have a perfect answer other than we need to continue to deliver really great products that she loves and we have aggressive outreach to her through e-mail and through our own proprietary mailing and we continue to focus on our best customers who are still purchasing and hopefully as we wrap the year we will start to see that pay off. But it is encouraging for us in our own research that she continues to tell us she likes the track that we are on. So, we feel that when she eases up on her desire to shop we will be in the right position.

Kimberley Greenberger – Citigroup

Great thanks Trudy.

Trudy F. Sullivan

Thanks Kimberley.

Operator

Our next question is from the line of Betty Chen with Wedbush Morgan.

Betty Chen – Wedbush Morgan

Thank you good morning and my congratulations as well. I was curious Mike if you can maybe give us a sense of current run rate. It would appear that if we were to extrapolate from here it looks as if the second quarter that comps have not significantly improved over the first quarter’s comp rate. And I was wondering if you can kind of elaborate a little bit on that and perhaps sort of what are we seeing, even though I think Trudy you have mentioned we have seen some better reactions to some of the May goods and then also the floral set for June I know has yet to hear anything from that but any clarity will be very helpful.

Michael Scarpa

Well there is not much I could say. We were down 26.9% from a comp perspective in Q1 and we are projecting our sales base to be down in the low 20s. So there is some improvement. We have seen that improvement as Trudy talked about as we moved from month to month. But we are taking a conservative look at our sales numbers and making sure that we right size the organization for those conservative sales and that’s the way we are going to run it on a go forward basis. Our inventories are in line. And if we need to go out and chase, we have a supply chain that’s flexible enough to get us back into product but we are looking at it as if there is no improvement in the economy right now and that’s an operating discipline that we need in this company.

Betty Chen – Wedbush Morgan

And then in terms of that by the end of the second quarter where should we expect inventories to be and then any idea regarding tax rate? What should we be using going forward?

Michael Scarpa

Well, the inventory level we were very aggressive in terms of promotions in the first quarter to move through the inventory. As you may remember we weren’t really in a position to cut that significantly in first quarter purchasing but we have done that for Q2. We feel good that our inventory levels should be again in the mid 20 range for the end of Q2 which is where we want them to be based on our sales line. And from a tax perspective we got the benefit of…we got pension freeze that we implemented. In the first quarter we had the opportunity to revalue our go forward obligations and it generated $25 million in additional comprehensive income and that generated the tax benefit. I wouldn’t be anticipating any of those tax benefits in Q2 to Q4. As you remember in Q4 we put up a full tax valuation and so we are not anticipating any. There will be a small tax expense in each of the next three quarters.

Betty Chen – Wedbush Morgan

Okay thank you very much and the stores do look wonderful. Best of luck in the second quarter.

Trudy F. Sullivan

Thank you.

Operator

Our next question is from the line of Richard Jaffe with Stifel Nicolaus.

Richard Jaffe – Stifel Nicolaus

Thanks very much guys. Couple of quick questions, one is a question on payables and the dramatic increase year-over-year and then I guess a more broad question given some of the success of key items. Is there a thought about chasing those or building the inventory somewhat? You have had a dramatic decline in inventories last year and now again this year in the first go forward basis. Is there an opportunity to use some of your successes to drive the top line by building inventories on the success stories?

Trudy F. Sullivan

Absolutely, within the works.

Richard Jaffe – Stifel Nicolaus

So, should we expect inventories to decline less in the second, third, fourth quarter?

Trudy F. Sullivan

You can expect that we will try and determine if it was a proven winner and if we have not already done that in the first quarter.

Richard Jaffe – Stifel Nicolaus

And the change in payable?

Michael Scarpa

There wasn’t a dramatic change in payables from year end to the end of Q1.

Richard Jaffe – Stifel Nicolaus

I am looking year-over-year May to May.

Michael Scarpa

Yes dramatic increase. We are managing payables in a little different manner as we watch our cash and liquidity as we go forward.

Richard Jaffe – Stifel Nicolaus

Can you just describe that difference more a little bit or give it a sense of what you are doing?

Michael Scarpa

We are watching payables, we are watching how we pay our bills and we are also looking at different vendor terms year-on-year that we had at the end of May last year compared to where we are this year.

Richard Jaffe – Stifel Nicolaus

Are you achieving dating from your suppliers, is that what we should attribute that to? Is that the biggest…?

Michael Scarpa

We have moved perceptibly I believe we were on L.C last year at this point of time to open account with 98% of our vendors and we’ve met with them and talked to them about payment terms that are essential than when we were a year down.

Richard Jaffe – Stifel Nicolaus

And that should be a benefit for the next three quarters if you shift over to open account and 30 to 45 days dating?

Michael Scarpa

We would see that benefit if we can get.

Richard Jaffe – Stifel Nicolaus

Right thanks very much.

Michael Scarpa

Yeah it does catch up in the fourth quarter

Richard Jaffe – Stifel Nicolaus

Yeah exactly, that’s what you have got three to go right. Thank you.

Operator

Your next question is form the line of Stacy Pak with SP Research

Stacy Pak - SP Research

Thanks. I guess one follow up just to Betty’s. Should we assume that the April comps were in line with the Q2 guidance and then Trudy I was hoping you could discuss refined a little bit more because I guess I am not quite clear. I thought I heard you say you saw some improvement in refines but also that it wasn’t working well and so I’m a little confused kind of what’s wrong there and I’m wondering what do you do with the refines side going forward. Do you shrink it? I know casual is a much more important piece of your business in summer. So, that’s great and then also I was hoping Mike you could talk about the potential level of IMU improvement sort of Q2 forward and then also maybe give us SG&A dollars for Q3, Q4. Thanks.

Trudy F. Sullivan

First of all Stacy refined actually we don’t really use the term. We really use the term sportswear and that sportswear goes from being denim casual to being more polished and on the polished side we are really looking at some more targeted price points which she has reacted to for example jacket strategies just under $200 things like that that we have built into the assortment. We have a great pant finish in that. We will kick off in August. Then there is really great polished pieces there. So, we feel it is a fresh approach to that, the polished side of the line but it is not overly…we are never going to be serious. It is not just a strictly pseudo replenishment kind of thing because there is very little demand for that. Iconic Talbots pieces in more polished fabric strategies and at price points that she really reacts to are where we stake the claims of as we wrap into the third quarter. Well obviously brand that intends to offer this broad spectrum but we are not certainly ever going to be just a casual brand. So, I think that we have a very good strategy as we fill into third quarter and I agree with you second quarter is really is about exercising the casual side of the spectrum. So, we feel we are in good shape there.

Stacy Pak - SP Research

Trudy can you comment a little on the casual side like what kind of improvement you saw in that end of the business from the start of the quarter, February to the end in April or even if you want to discuss May.

Trudy F. Sullivan

It was exciting to watch on the casual side as well as in what we call the key item side. These are very refreshed styles. We do sell T-shirts but we are selling really what we think are freshening exciting new looks for us. We have a wonderful sleeveless T-shirt with almost a small polo neck that’s very, very new in selling. We have great printed T-shirts that are selling. She is loving tunic. Our casual pants have been really terrific in that all range whether it was crafter, ankle or fall, so a lot of new fabrication that we put into the line. It is very encouraging and interestingly on the casual side some of the really what we call the push beyond the real fun thing she has reacted so beautifully. So, she is certainly not looking for us to feel really conservative. She likes the reinvention of our whole T-shirts and sweater and knit classifications. So, we’ve been very encouraged there and the other thing I should mention is we have had a really terrific season in the non-apparel categories especially scarves. Scarves have been a real strong part of that offer. So, we are encouraged and that’s something that we can run through the rest of the year well. So, there are a lot of bright spots and the charming cardigan for example is something that’s again Talbots iconic but that has been strong in every delivery that we brought it in.

Stacy Pak - SP Research

So it is sort of a more dressy stuff that is causing you to still look for negative low 20s on the top line?

Trudy F. Sullivan

No I think it is just overall that our traffic declines are in the high teens. And our own research shows us that she is still very cautious in her shopping pattern.

Stacy Pak - SP Research

And that traffic was still that bad with that better product at the end of the quarter.

Trudy F. Sullivan

Traffic is still running in the mid to high teens negative. The only thing is the conversions aren’t falling. The conversions are holding steady. In fact where she is purchasing she is purchasing at a slightly lower price point than she has before.

Stacy Pak - SP Research

Right, right okay and Mike? Thank you, Trudy.

Michael Scarpa

Well from a sales perspective for Q2 obviously with the May already in the bank we have incorporated that into our guidance of negative low 20s.

Stacy Pak - SP Research

Right.

Michael Scarpa

When we look at IMU we are projecting anywhere between 350 and 400 basis points improvement as we look at the assortments between casual and we find when we look at where we are now in calendar adherence to where we were a year ago, we are doing a much better job of bringing goods here on a vessel. We are being much more strategic in terms of where we are placing our production from a country perspective and then we are doing much better job in terms of negotiations with our vendor community.

Stacy Pak - SP Research

And that 350 to 400 that’s for what period?

Michael Scarpa

That would be from Q2 to Q4.

Stacy Pak - SP Research

Okay, okay and any sense on the SG&A dollar?

Michael Scarpa

Well, SG&A as I mentioned for Q2 we are expecting SG&A to be down about 20% which is about $25 million.

Stacy Pak - SP Research

Right that’s half anything?

Michael Scarpa

Excuse me?

Stacy Pak - SP Research

I was asking about Q3 and Q4.

Michael Scarpa

If you just take that in looking where we were in Q1 we were down about a little under $20 million, Q2 was $25 million and obviously we have just announced another cost reduction program today. So my anticipation is we should stay pretty steady on that pace and maybe even accelerate as we go into the second half of the year.

Stacy Pak - SP Research

Okay. Okay great. Well good luck guys.

Michael Scarpa

Thank you.

Operator

Again to ask a question please press “*1”. Your next question is form the line of Marni Shapiro with the Retail tracker.

Marni Shapiro - The Retail Tracker

Hey guys!

Trudy F. Sullivan

Hey Marni.

Marni Shapiro - The Retail Tracker

Congrats. The stores look really good.

Trudy F. Sullivan

Thank you. Thank you.

Marni Shapiro - The Retail Tracker

I have one complaint. It is that you make me feel old. Your press release the font is just so small. I feel like I’m losing my vision, might have to go buy my reading glasses at your stores, so I can read it.

Trudy F. Sullivan

You have the guarantee that they are great.

Marni Shapiro - The Retail Tracker

Yeah exactly. So, can you talk a little bit about what’s happening at the stores? You have a new head of stores and I’ve seen some changes which I’m guessing are not coming from him but the windows have looked phenomenal. Your marketing has been very clear. What I see in the windows leads me into the stores there has been lots of consistency there. And I’m sure it has been pretty seamless with the sales associates or are you making any changes there? Any that has been implemented for creating that?

Trudy F. Sullivan

I think that Marni thank you first of all for the complement on the stores. I think our stores have really got us to speed in terms of starting to handle our new visuals requirements and we do have a great visual team that works for our head of marketing that is really making adjustments. So, thank you on behalf of them. You will see changes as John Fiske who has taken over the stores just recently after Michele Mandell’s retirement. You will start to see I think some significant changes and we’ll talk about this maybe on a further conference call as John has had some time to really get oriented to some of the critical issues at the store level. What I would tell you first and foremost is that we have a new energy and a new buzz and they really are very robust internal dialog about productivity and the selling force and those are going to be the things that we will really talk to. 80% of our business is done in our stores. We need the stores to focus on productivity and we are going to have a very stepped up dialog in terms of them being accountable to produce the kind of sales productivity that we expect. We started first with the product and I think we’ve made great strides on understanding who the consumer is and understanding the kind of products that she wants from us and we’ve done it in a very difficult environment. But the fact is we are getting enough positive stack from our consumers that it is in the right direction. We now need the stores to really take it home for us and it all revolves around the dialog of productivity, accountability, sales measurement, enthusiasm, new spirit, new energy and that we are very confident that John will bring that to bear.

Marni Shapiro - The Retail Tracker

Great.

Trudy F. Sullivan

So, I would put that under the heading of ‘Stay Tuned’.

Marni Shapiro - The Retail Tracker

Stay tuned. I can do that. And then you touched very briefly on the non-apparel part which you described. Could you just touch on what we could expect? You had some jewelry that has been here and there, the bags seem to have not been in the stores as much but I’m curious if the assortment has been updated?

Trudy F. Sullivan

I’ll tell you that certainly the winning category for us has been scarves and it is where we have put a lot of emphasis. Second close has been jewelry and we continue to work on strategies to get those two categories out in grater depth in the stores. We are working through handbags. Handbags have not been not been as successful. We actually have a new strategy there which we are feeling pretty good about but again we will see how that works as we wrap the third quarter. But the big ones are the scarves and jewelry and then obviously shoes. Our customer loves her shoes. So, we can do some work about work on the best way to distribute shoes to give more weight to the direct business because it is hard to do at store level. So, we are looking at all of that. And I think we are making good headway.

Marni Shapiro - The Retail Tracker

It is good. Great. Good luck to you guys for the summer.

Trudy F. Sullivan

Thanks.

Operator

Your next question is form the line of Roxanne Meyer with UBS.

Roxanne Meyer – UBS

Hi good morning. This is Jennifer on behalf of Roxanne. Just had a couple of quick questions, first I was wondering for the headcount reduction that you are making, what areas is that primarily coming from? And then second any update on real estate or source strategy? I know previously you had talked about closing 16 public stores for ’09 and I wanted to see if that was still going to be the number for the year?

Michael Scarpa

From a headcount perspective, it basically is across all corporate areas. Every area was…we have used their operation in line of top line and reviewed where they could get some exigencies in terms of process changes. So, it is a broad-based change. And as far as real estate goes, we had announced that we were closing I think that might have been 14 not 16 but, obviously this store fleet is large and we are currently looking at, we are doing really a complete portfolio review at this point to analyze where we are in all these given stores. We think that the number will be higher than the 16 but we haven’t completed all portfolio review. With John coming on board as new head of stores the focus that we put in terms of the J. Jill sales, we are really just getting to that as we speak. So, stay tuned for that in terms of an update probably in the next quarter release.

Roxanne Meyer – UBS

Thank you.

Operator

Your next question is form the line of Adrianne Tennant with FBR.

Adrienne Tennant – FBR

Good morning. Hi, congratulations on the sale of J. Jill. I know that it took some mile work from the entire management team. Trudy, can you talk about some of the categories that you are going to stand behind in fall? I have been noticing some e-mails about kind of the shirt shop in Texas, categorical product things in the back half. If you can talk about when we should start to see those? How much penetration should we see and what type of weaver ware will be coming out of, if it is coming out of a different product category and then secondly if you can talk about the public credit card, how much was the finance charge revenue for the quarter and are you seeing any changes in trends with that customer or the size of their transaction? Thank you.

Trudy F. Sullivan

Well Adrienne obviously our big killer categories are pants, sweaters miffs, jackets and we have I think out to a fantastic approach to the whole pant category as we wrap into the third quarter. Again I would put that under I don’t want to say too much because of competitors but I think it looks really sensational. We have a pant set, a fit that I should say our customers truly love and we have been able to give her a couple of new variations that have tested extremely well. So, we are really excited about that category. I think we have a tremendous approach on miffs and sweaters as we go into third quarter and we are extremely excited there as well. We believe we have also have a fresh approach on the more polished side of our sportswear assortment. So, those are some of the things that we are looking for. To Mike’s earlier point we are going in a much better position with key items as we go into third quarter. We have great ability to chase as we see the consumer reaction there. So, we have a really good range of price points. We are very much in our historic lane in terms of the price range of offers. We have a fresh approach to kind of the top end of our line. We no longer will be using the collection label but we will have products in the price points that ties into the entire store where the brand is in at any given moment. So, listen the merchant have started to believe this is very exciting. I think this is particularly exciting because this has been done by a team that’s already been together for about a year and has incorporated a lot of the early learnings into both the third and fourth quarter assortment and I’ve to say I think our marketing messaging and creative just gets, keeps getting stronger. We are very excited with some of these events that we have lined up for the fall and which we will talk about later but really we will continue with the whole emphasis on our hostess event. We are partnering with more magazines on reinvention convention. That’s right in our target demographics. So, we just have a lot of terrific things on deck as we wrap the back half of the year and it will be great if she eases up on herself a bit and wants to shop and so we will be ready willing and able to help her.

Adrienne Tennant – FBR

Okay great. Then on the finance charge?

Michael Scarpa

Yeah as I said before receivables are in excellent condition. We saw the penetration of our staunch customer increase to 51% this quarter up from about 48% and we actually saw our finance income up slightly about $0.5 million to slightly over $10 million for the quarter.

Adrienne Tennant – FBR

Okay great. Thank you so much. Good luck.

Trudy F. Sullivan

Thanks.

Michael Scarpa

Thank you.

Operator

Our next question is from the line of Todd Slater with Lazard Capital Markets.

Todd Slater – Lazard Capital Markets

Mike as you said Talbots has productivity. Historically Talbots has operated in an area in our estimation of about peak of about $600 per selling square foot. That was about nine years ago. Today that number is sort of near about half of that level. Obviously you have a major downturn economically but in a more normalized environment are there any structural impediments that you see to getting the sales square foot to at least half way back to historic levels? I’m just curious if you have any sort of internal goal or specific goal that you’d think that you should at least achieve at a minimum? Thanks.

Michael Scarpa

Obviously your observation is correct. Our productivity has been down significantly. We are estimating productivity in the 360 range this year. Obviously for next year we’d like to start to see double digit increases against that and from a structural perspective I don’t believe there is anything that inhibits us from doing that but like I said before we are in the midst of a portfolio review and we’ll see if there is some nuances around some of the stores that we have that maybe holding that back a little bit. But regardless of those nuances our productivity should be…we would goal ourselves to be in the force next year.

Todd Slater – Lazard Capital Markets

Okay great. Thanks. That’s helpful.

Operator

At this time we don’t have time for any more questions. Ms Sullivan please continue with any closing remarks.

Trudy F. Sullivan

Thanks for being with us this morning. I’m sure you can tell we are staying the course here. We’ve made some very good headway with all of our initiatives and we’ve accomplished a lot and we are very excited about our prospects for the future. That said we will continue to run this business in this environment in a very conservative fashion and as we see things to ease up we are in a great position to chase that business. So, thank you and have a great day.

Operator

This concludes the Talbots Inc conference call. We’ll now proceed with the full forward-looking statement.

In addition to the information set forth in this press release, you should carefully consider the risk factors and risks and uncertainties included in the company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, as well as in this press release below. This press release contains forward-looking information within the meaning of The Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as expect, achieve, plan, look, believe, anticipate, outlook, will, would, should, guidance, or similar statements or variations of such terms.. Our forward-looking statements are based on a series of expectations, assumptions, estimates, and projections about our company, and are not guarantees of future results or performance, and involve substantial risks and uncertainties, including assumptions and projections concerning our regular-price and markdown selling, operating cash flows, liquidity, and funds available under our credit facilities for all forward-looking periods.

All of our forward-looking statements are as of the date of this release only. The company can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. The company does not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this release, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this press release or included in our periodic reports filed with the Securities and Exchange Commission could materially and adversely affect our continuing operations and our future financial results, cash flows, prospects, and liquidity.

Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the following risks and uncertainties: The material impact on our business, continuing operations, and financial results of the significant deterioration of the U.S. economic environment, including continued substantial negative impact on customer discretionary spending and, if such economic conditions continue or worsen, can be expected to continue and have an increasing impact on our business, continuing operations, liquidity, and results of operations.

The risks and uncertainties associated with the sale of J. Jill brand of business including timing and confirmation, the risks and estimated or anticipated costs, charges and liabilities to settle and complete the exit of the firm and disposal of the J. Jill brand business including both retained obligations and contentious risks of the obligations of from or be greater than anticipated.

Confirmation of any sourcing transaction, risk of ability to purchase the merchandize on open account of the firm at existing payment terms and expected levels and risks and uncertainties in connection with any need to source merchandize from alternate vendors, risks and impairments of goodwill and other intangible and long lived asset, any disruption in our supply of merchandize, ability to reduce funding as needed, ability to achieve our 2009 financial plan for operating results, working capital and cash flows.

The risk of continued compliance with NYSE continued listing conditions, including thirty day average $1 trading price and $75.0 million market capitalization and stockholders’ equity, and other continued listing conditions. Future store closings and success of and necessary funding for closing nonperforming stores, ability to successfully execute, fund and achieve the benefits from our strategic initiatives and restructuring and cost savings initiatives, ability to accurately forecast future sales, cash flows, and other future financial results, customer acceptance of our new merchandise offerings including our spring, summer and other seasonal fashions.

In each case, actual results may differ materially from such forward-looking information. Any future publications, statements or disclosures by us which modify or impact any of the forward-looking statements contained in or accompanied by this release will be deemed to modify or supersede such statements in or accompanying this release. Certain other factors which may impact our continuing operations, prospects, financial results, and liquidity, or which may cause actual results to differ from such forward-looking statements, are also discussed or included in the company''s periodic reports filed with the Securities and Exchange Commission and available on the Talbots website at www.thetalbotsinc.com under ""Investor Relations”. You are urged carefully to consider all such factors.