Talbots Inc. (TLB), a specialty retailer of woman's apparel, Tuesday reported a swings to profit in its third quarter helped by lower expenses and cost saving measures, despite a sales decline of 13.5%. Separately, the company said it agreed to purchase BPW Acquisition Corp. (BPW), a publicly held special purpose acquisition company.
For the third quarter, net income from continuing operations of Hingham, Massachusetts-based Talbots was $15.46 million or $0.28 per share, compared to last year's net loss from continuing operations of $14.76 million or $0.28 per share.
Net loss was $14.55 million or $0.26 per share, compared to a loss of $170.76 million or $3.19 per share in the same quarter a year ago.
Results included restructuring and impairment charges of $1.7 million or $0.03 per share, compared to prior year charge of $2.4 million or $0.05 per share.
Adjusted net income from continuing operations was $17.2 million or $0.31 per share, compared to adjusted net loss of $12.4 million or $0.23 per share on a comparable basis in the prior-year quarter.
On average, eight analysts polled by Thomson Reuters expected a loss of $0.14 per share for the quarter. Analysts' estimate typically excludes one-time items.
Total sales decreased 13.5% to $308.89 million from $357.28 million in the year-earlier quarter, still beating Street estimates of $318.53 million.
Retail store sales for the thirteen weeks were $255.4 million, compared to $303.5 million last year. Comparable store sales declined 15.9% for the thirteen week period. Direct marketing sales for the thirteen-week period were $53.5 million, including catalog and Internet, compared to $53.8 million last year.
Sales were negatively impacted by significantly lower levels of markdown merchandise, resulting in an approximate 38% decline in markdown sales versus prior year;
SG&A expenses decreased 350 basis points, reflecting a $28 million or 22% decline in expenses over prior year. Selling, general and administrative expenses dropped to $99.22 million from $127.32 million in the year-ago quarter.
Total cost savings through third quarter was around $94 million. Meanwhile, the company said it expects achieving a goal of $150 million in annualized cost savings by the end of 2009.
Operating income from continuing operations was $22.38 million, compared to operation loss of $18.28 million recorded in the year-ago quarter.
Separately, Talbots said it is undertaking a comprehensive financing solution consisting of three related transactions including an Agreement and Plan of Merger between Talbots and BPW Acquisition Corp., the retirement of all equity currently held by Talbots majority stockholder, Aeon (U.S.A.), Inc., and the repayment of all existing debt and a commitment for a new $200 million senior secured revolving credit facility from GE Capital.
To this end, BPW Acquisition today entered into a definitive merger agreement pursuant to which it will be acquired by Talbots. Upon completion of the merger, Talbots will retain its ticker symbol and will trade on NYSE.
As per the deal, the proceeds of BPW's cash-in-trust of around $350 million, in conjunction with additional financing obtained by Talbots, including a new $200 million revolving credit facility for which a commitment has been received from GE Capital, will be used to retire all of Talbots' existing debt. Talbots will also acquire all of the outstanding shares of Talbots common stock held by AEON (U.S.A.), Inc., which represents more than 54% stake currently. The Talbots, Inc. is a subsidiary of AEON (U.S.A.), Inc.
BPW common shares will be exchanged for the equivalent of $11.25 per BPW share in Talbots' common shares within a floating exchange ratio range of between 0.9000 - 1.3235 Talbots shares per BPW share, based on the trading prices of Talbots common stock prior to the BPW stockholders meeting. Pro forma for the merger, BPW's shareholders will own between approximately 60-69% of Talbots' common shares.
The transaction also contemplates that, following receipt of BPW stockholder approval, Talbots will undertake an exchange offer for existing BPW warrants held by public warrantholders. An aggregate of 1,852,941 shares of BPW common stock will also be surrendered by sponsors and certain directors as part of the transaction for no consideration.
Trudy Sullivan will remain President and Chief Executive Officer of Talbots, and will continue to lead the current management team.
For the nine-month period, Talbots' net loss from continuing operations was $23.84 million or $0.44 per share, compared to net loss of $8.21 million or $0.15 per share in the year-ago period. On an adjusted basis, net loss from continuing operations was $12.8 million or $0.24 per share. Total sales were $919.71 million, compared to $1.17 billion in the year-ago period. Comparable store sales were down 22.8%.
Looking ahead to the fourth quarter, Talbots said it currently anticipates a loss from continuing operations in the range of $0.06 to $0.14 per share, excluding restructuring and impairment charges and other special items. Street currently expects a loss of $0.52 per share for the quarter.
Talbots also said the anticipated result is based on a top-line sales decline planned to be in the range of approximately 6% to 8%. Top line sales are expected to be impacted by reduced levels of markdown merchandise.
TLB closed Tuesday's regular trading at $8.23, up $1.02 or 14.15%, on a volume of 15.49 million shares. In after-hours, the stock dropped $0.03 or 0.36%, to trade at $8.20.
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