The Talbots' CEO Discusses Q2 2011 Results - Earnings Call Transcript

Sep. 7.11 | About: The Talbots, (TLB)

The Talbots (NYSE:TLB)

Q2 2011 Earnings Call

September 07, 2011 10:00 am ET

Executives

Trudy Sullivan - Chief Executive Officer, President and Director

Michael Scarpa - Chief Operating Officer, Chief Financial Officer, Principal Accounting Officer and Treasurer

Julie Lorigan - Senior Vice President of Investor and Media Relations

Analysts

Dana Telsey - Telsey Advisory Group

Stacy Pak - Barclays Capital

Randal Konik - Jefferies & Company, Inc.

Paul Lejuez - Nomura Securities Co. Ltd.

Betty Chen - Wedbush Securities Inc.

Adrienne Tennant - Janney Montgomery Scott LLC

Jennifer Davis - Lazard Capital Markets LLC

Laura Ross - Morgan Stanley

Pamela Quintiliano - Oppenheimer & Co. Inc.

Marni Shapiro - The Retail Tracker

Jennifer Black - Jennifer Black & Associates

Neely Tamminga - Piper Jaffray Companies

Operator

Good morning, ladies and gentlemen. On behalf of Talbots, we would like to welcome you to the Talbots, Inc. conference call covering its second quarter 2011 earnings results. Today's call is being recorded. [Operator Instructions] I would now like to turn the call over to Julie Lorigan, Senior Vice President of Investors and Media Relations.

Julie Lorigan

Thank you. Good morning, everyone, and welcome to the Talbots Inc.'s Second Quarter 2011 Conference Call. Today, we have with us Trudy Sullivan, President and CEO; and Mike Scarpa, Talbots' Chief Operating Officer and Chief Financial Officer.

We will be disclosing non-GAAP financial measures in this presentation. For a reconciliation of these non-GAAP measures to the corresponding GAAP measures, please see the table attached to this morning's earnings release available under the Investor Relations section of our website.

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 similar terms or variations. All of our outlook and financial expectations and plans, as well as our assumptions underlying this information, constitute forward-looking information.

We direct you to the cautionary statement being read at the end of this presentation and included in our earnings release issued today, as well as in our recent SEC filings, all of which are available under the Investor Relations section of our website at www.thetalbotsinc.com. A replay will be available from approximately one hour after the conclusion of the call until the end of the day, September 9, 2011. The webcast will also be available on the Investor Relations page of our website.

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

Trudy Sullivan

Thank you, Julie. Good morning, everyone, and thanks for joining us. In a moment, I will discuss Talbots, Inc. results for the 13-week period ended July 30, 2011, as well as provide an update on our key strategic initiative. Mike will cover our financial results and provide our thoughts on third quarter. After that, I will make some closing comments before opening the call for questions.

First, as we announced today, I have decided to make a change in our Chief Creative Officer position. As I have noted previously, in recent months, I have spent additional time with our design and merchandising team. During this time, while we have made progress in executing our brand division and making necessary changes to our product design, I realized the need for new creative leadership.

We believe that taking this action will position us for better execution of our critical brand and merchandise initiatives, both near- and longer-term. Importantly, making this leadership change will not only have an impact on our merchandise but also other initiatives as we continue to evolve our catalog, website, marketing program and the look and feel of our stores. We've already begun the search to fill this role. In the meantime, I will assume the chief creative responsibilities, and during the transition, our Senior Vice President of Design will report directly to me.

The creative process is a team effort, and I am highly confident in the abilities of our designers and merchants. We have a strong, experienced and talented bench that will enable us to continue to move things forward during this transitional period.

Now turning to our second quarter performance. We reported a second quarter net sales decline of 9.9%, an adjusted loss per share from continuing operations of $0.51. We are not pleased with our results in the second quarter and are taking additional steps and working with urgency to address areas needing improvement within our business.

Despite planning for higher promotional activity and markdowns, during what is typically a clearance period, the second quarter was more difficult than expected. We were more aggressive in our promotions given the challenging environment and assortments that clearly did not resonate with our customer. We were challenged in all merchandise categories in the second quarter.

As previously discussed, we identified key areas to make quick corrections late in the first quarter, which would enhance our assortment in third and fourth quarters. Specifically, we focused our effort on sweaters, pants and sportswear where we felt we could have the largest impact on our overall sales, while at the same time, we increased our balance of classic styles and added increased options in print and pattern.

Our flexible design and merchant team, enabled by our supply chain capabilities and strong partnership with Li & Fung, resulted in quick response to these enhancements, a portion of which have already reached our selling floors and web. Specifically, we modified our sweater assortment to include new styles, adding more novelty and variety to the mix.

We are already seeing positive results in our sweater category, which is encouraging as the contribution of sweaters builds as we move through the third and fourth quarter. With respect to pants, our 2 new fits, curvy and modern have performed well based on early read and encouraging reaction by our customers. Again, due to our supply chain efficiencies, we are able to better balance our future deliveries according to the actual sales results.

In knits, we have increased the penetration of print, pattern and fabric weights based on customer feedback. We have also expanded dresses, skirts, suiting and woven tops where we have seen increasing customer demand.

Additionally, within special sizes, we have updated the Petite mix to better align with our Missy offering, and we continue to intensify our Women's focus with an improved product offering, targeted communication to this customer and more recently, the hiring of a new Vice President of Women's.

Although our top line sales are down quarter-to-date, thus far, in September, our total sales are much stronger compared to August. We are seeing marked improvement in performance in those categories where we have made adjustments. Supporting this more favorable trend, we have recently conducted an early fall purchase plan study with our best customers, and note that reaction to our fall product line is trending more positive compared to our spring and summer merchandise assortments, yet still below our 2010 fall trend line. This data reflects a point in time. However, we see encouraging signs and we still have the majority of the third quarter ahead of us.

Now let me comment on our Upscale Outlet Business, an important, profitable growth vehicle for Talbots. We continue to be pleased with the performance of this business with second quarter comps up mid-single digits. We are seeing strength in important categories, particularly knit tops, dresses and accessories. Productivity remains strong with sales per selling square feet of approximately $440 on a trailing 12-month basis at the end of the second quarter, significantly above our core stores. Our goal is to continue to drive traffic and conversion through an enhanced marketing effort here and to leverage key holiday weekends to drive increased momentum.

We ended the quarter with 39 upscale outlet stores and expect to end the year with approximately 40 to 45 stores as we continue to pursue additional locations. We believe, long term, this business has the potential to be in the range of 80 to 100 stores.

Let me address the status of our open positions now. In addition to the hiring of the new Vice President of Women's, we filled 2 other key roles during the second quarter: Senior Vice President of Stores and Senior Vice President of Strategic Marketing and Consumer Insights. Both of these individuals have hit the ground running. Our Senior Vice President of Stores has spent much of her time out in the field since joining the company and has already focused our field organization on talent assessment to ensure we have the proper talent in place to achieve comp sales growth and enhance productivity.

Our Vice President of Strategic Marketing and Consumer Insights has begun a deep dive into our current and target customer base to reconfirm our brand target. We believe the additions we are making to our leadership team will enable better execution across all of our key strategic initiatives.

Looking at other key strategic initiatives beyond merchandise, with respect to our segmentation strategy, we have re-segmented stores to address key opportunities, particularly moving always to classic and classic to premium. We have also enhanced our segmentation strategy by implementing a tiered assortment to better manage volume groups within segments to ensure appropriate depth and breadth of merchandise.

For the fall, we have shifted our marketing spend to a more diverse strategy. We will pilot a TV spot on national and cable networks in 6 top markets, which we believe will garner wide viewership and reach a significant portion of our target audience in those markets. In addition, our national ad campaign featuring Julianne Moore has a broader reach as we participate in additional additions and deliveries compared to our past approach.

And finally for the back half of the year, we have added circulation, both in catalogs and postcards to drive her into stores. We will also utilize select newspaper in key markets to increase our frequency and reach.

Despite what we believe is a stronger merchandise assortment relative to the first half of the year, we have planned for a promotional fall and holiday season to help drive traffic in what we believe will be a continuing uncertain consumer environment, and we want to encourage a return visit from customers we disappointed over the last season.

With respect to our store reimage initiative, we completed 2 full rebuilds in the second quarter and completed interior paint and fixture refreshes at an additional 32 locations, with exterior refreshes at these stores expected to be completed in the third quarter. We anticipate completing an additional 12 refreshes associated with consolidations and/or downsizings by the end of September. And we continue to target a total of approximately 65 refreshes by the end of this fiscal year, which includes the refreshes completed in 2010. Life-to-date, our full refresh stores overall have continued to outperform the non-refresh stores.

So we continue to make progress in our turnaround efforts. We acknowledge we are not seeing results materialize as quickly as we would have liked. We believe we are taking the necessary actions to achieve our long-term goals and are working with great urgency to accelerate change in our business and organization.

I will now turn the call over to Mike to review our financials, and then I'll be back for some closing remarks.

Michael Scarpa

Thank you, Trudy, and good morning, everyone. I will now cover the details of our second quarter financial performance, as well as comment on our cash and expense management actions and the third quarter.

Total net sales were $271 million compared to $301 million last year, down 9.9%. Store sales were $228 million compared to $251 million last year. Comp store sales in the quarter decreased 11.1%, due primarily to a 5.3% decrease in customer traffic and a 9.4% decrease in average unit retail.

Direct Marketing sales in the second quarter, which include catalog, Internet and red line, were down 13.6% from last year at $43 million, driven by a decrease in customer demand and higher levels of promotional and markdown activity. Through the first 6 months of this year, Internet sales represented approximately 78% of our total direct business.

Consolidated comp sales, including direct and red line and excluding the stores planned for closure, decreased 10.4% for the 13-week period.

Second quarter cost of sales, buying and occupancy as a percent of net sales, increased 1,150 basis points over last year at 76.6% of net sales versus 65.1% of net sales in the prior period. This increase was due to a 950 basis point deterioration in our merchandise margin due to increased markdown and promotional activity as we work to clear slow-moving spring and summer merchandise.

Occupancy expenses, although lower year-on-year resulting from a decline in depreciation expense, increased 100 basis points as a percent of net sales due to negative leverage from lower sales. Buying expenses as a percentage of net sales also increased 100 basis points.

SG&A expenses in the second quarter were $96 million at 35.6% of net sales versus $93 million at 31% of net sales last year. This $3 million increase was due to increased marketing spend and a decrease in finance charge income.

Adjusted operating loss for the second quarter was $32 million, a decrease of $45 million compared to the same period last year. Our adjusted loss per share from continuing operations was $0.51 versus adjusted income of $0.14 per share last year.

Moving to the balance sheet. We ended the second quarter with total accounts receivable of $137 million, down 12% versus $156 million last year. Our receivables remain in excellent condition, and year-to-date Talbots charge penetration represents approximately 44% of our net sales volume.

Merchandise inventories at the end of the quarter were $164 million, up approximately 26% to last year's $130 million, primarily due to lower-than-anticipated sales volume and the earlier timing of fall receipts compared to a year ago.

Capital expenditures in the second quarter were $10 million, primarily related to investments in store refresh, opening of upscale outlet stores and IT initiatives.

Total debt outstanding at the end of the quarter was approximately $84 million, up $47 million from last year's balance of $37 million.

Cash used in operating activities was $39 million compared to cash provided by operating activities of $11 million last year. The reduction in cash flow was primarily due to a loss in earnings, along with changes in working capital.

Before I comment on the third quarter, let me address our store rationalization, as well as our capital and expense management actions. Out of the 110 stores planned for closure as part of our store rationalization plan, we have closed a total of 15 stores through the end of the second quarter. In August, we closed another 15 stores for a total of 30 stores closed to-date.

As previously discussed, beginning in the first quarter and moving forward, we are providing the sales and operating income contribution of the 110 stores that have been or are planned to be closed. In the second quarter, the 110 stores contributed approximately $24 million in sales and $1.4 million in operating loss, including $1 million in restructuring charges comprised of lease exit, severance and other related costs. This compares to last year's second quarter contribution of approximately $23 million in sales and approximately $1.6 million in operating income. There were no restructuring charges or impairment of store assets attributable to these stores in the second quarter of 2010.

For the 26 weeks ended July 30, 2011, these stores contributed approximately $46 million in sales and $5 million in operating loss, including $3 million in restructuring charges and $1 million in impairment of store assets. This compares to $46 million in sales and approximately $4 million in operating income for the 26 weeks ended July 31, 2010. There were no restructuring charges or impairment of store assets attributable to these stores in the first half of 2010.

Associated with our store closing plan, we now expect to record restructuring charges of approximately $14 million through fiscal 2012, down from our previous estimate of approximately $15 million.

Now turning to our capital and expense management initiatives. First, as you know, we have had a strategic partnership with Li & Fung in place for the last 2 years, which has continued to evolve and mature, and proven to be very beneficial to us. Leveraging this partnership, we have significantly improved our supply chain with better product quality, increased on-time deliveries and ongoing IMU improvement as we work to control rising sourcing costs.

As noted in our earnings release this morning, we have extended this existing partnership through an arrangement that will further increase our financial flexibility while at the same time, support our efforts to expand our vendor base and broaden our sourcing into new geographies.

As of September 1 and moving forward, we have the ability to extend payment terms for an additional 30 days for merchandise purchases sourced by Li & Fung up to $50 million at any time. We anticipate this arrangement will remain in effect through February 2012, with an option to renew for an additional 6 months subject to the approval of both parties. In addition, Li & Fung will also open letters of credit on behalf of Talbots for certain of its future merchandise purchases.

Further, we have reduced our capital expense plan for fiscal 2011 to approximately $47 million versus our previously planned $60 million. We were able to do this by delaying the start of some IT initiatives and moving approximately 15 store renovations out of late 2011 into early 2012.

Lastly, we remain committed to closely scrutinizing our operating expenses and will continue to pursue opportunities to lower expenses through the remainder of the year. All of these actions, in combination with each other, strengthen our financial position.

Now let me comment on the third quarter of fiscal 2011. While we are not providing specific guidance, it would be helpful for you to consider the following: as Trudy said, at this point in time, we are seeing improvement in our September-to-date top line sales compared to August. However, it's still early in the quarter, and we have seen continued uncertainty in the marketplace, with third quarter to-date

top line sales down approximately 8% to last year.

We anticipate that high levels of promotional and markdown activity will continue throughout the third quarter, resulting in an increase in cost of sales, buying and occupancy as a percent of net sales approximately 600 to 800 basis points compared to the same period last year. Back-half IMU is expected to be down approximately 75 to 125 basis points compared to the prior year. SG&A expenses on a dollar basis are expected to decrease slightly compared to prior year third quarter, including incremental marketing expense, offset by cost reductions in other areas.

For the third quarter, we expect interest expense of approximately $3.2 million and taxes of approximately $0.5 million. Diluted shares outstanding for the third quarter will be approximately 70 million.

In closing, although we are faced with a challenging macro environment, we continue to expect that our enhanced working capital and increased financial flexibility and liquidity will enable us to support our working capital needs and the implementation of our strategic initiatives going forward.

Further, we will maintain our focus on closely managing our inventory and expenses. With that, let me turn it back over to Trudy.

Trudy Sullivan

Thanks, Mike. Our first half performance is not acceptable, and we are taking corrective actions to address the challenges in our business. We believe that the changes we have made to our fall and holiday assortment address a number of the issues that we faced during the first half of the year from a merchandising perspective and reflect a better balance of our "Tradition Transformed" platform. We believe that these actions, combined with the strengthening of our leadership team, expanded marketing strategies and continued progress on our store reimaging and store closure initiative will help us to meet our near- and long-term goals.

We are pushing forward with our turnaround. And while the timing is not what we had originally anticipated, we have the building blocks in place and our strategies are sound.

Before I open the call up for questions, I just want to briefly comment on the shareholder rights plan that our Board of Directors unanimously adopted last month. The Board of Directors adopted the rights plan to promote fair and equal treatment of the company's stockholders in light of a recent rapid accumulation of a significant percentage of the company's outstanding common stock. Other than what we have already stated, we don't plan to comment further on this topic during Q&A.

And with that, we'll now turn the call over for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Adrienne Tennant with Janney Capital Markets.

Adrienne Tennant - Janney Montgomery Scott LLC

Trudy, can you talk about what changes you want to make with the creative? Was it an issue of not seeing the right target market? Was it stylistically the blend of products? If you can talk a little bit about what changes we should be seeing over the course of the fall and then into the spring season, I guess that will where most of the impact will be, it's on the first. And then Mike, can you just -- a couple of this is just clarification. So it looks like the 110 stores are not included in the comp, they are included in the sales. And then I'm just trying to figure out why the comp, including DTC when DTC was lower, actually improved and I'm assuming that it had to do with the 110 stores. So if you can just help us out with that. And the CapEx for 2012, have you been able to make any adjustments to your store opening pattern for 2012 to help enhance the cash flow in 2012?

Trudy Sullivan

Let me take your first question first, Adrienne. We really talk about restoring a better balance of classic merchandise to our total merchandise. What we would have called more appropriate color palettes that we know she resonates and was what we refer to as true color, color representing over 50% of the assortment in the offer. An improvement in print and pattern, she loves pattern from us. We have gotten to some historical lows in the spring, summer 2011, we've gone back up to an appropriate penetration of prints and pattern. I've worked very closely with the merchant and design teams from the fall assortments, all the way through really next summer, which we're working on right now, and I feel we've brought it back to a better execution of "Tradition Transformed". And our target customer has always been the target customer, the 45- to 65-year-old. We are very focused on that age segments. We simply -- we have a good understanding of what it is she wants from Talbots and how she wants it presented both in the stores and the catalog and the web. And the addition of a Senior Vice President of Consumer Insights and Marketing and the addition of a Senior Vice President driving our store effort will just enhance all of the execution against the "Tradition Transformed" platform. I'm going to hand it to Mike.

Michael Scarpa

So as far as the comp goes, it definitely has the impact of the excluded stores in it and that's really the impact. As far as 2012 capital, we are reassessing our 2012 plans. We originally had called for $60 million of capital being spent but that is all under review as we move forward with our initiatives.

Adrienne Tennant - Janney Montgomery Scott LLC

Okay. And then really quickly, Mike, can you give any comment on the four-wall of the existing call it 468 stores outside of the 110 that you're closing? I'm just trying -- the reason I'm asking is I'm trying to get an understanding, it looks like the 110 are worth approximately $100 million in annual sales, approximately $10 million in operating loss. And I'm trying to figure out in order to recapture the sales, the sales list of the existing store base has to be up, call it 14%. And I'm just trying to understand the off margin dynamics of how much better the existing store base needs to be because if it is losing $10 million, you still have stores that are losing more than that in some...

Michael Scarpa

Just a point on the four-wall. The losses also include some of the restructuring charges and the impairments which was $4 million of the $5 million of losses. So when we look at adjusted operating income, we're really looking at the $1 million associated with those store closures. If you look at it, compare it to where they were a year ago, it's really over a 6-month period, it's about $2.5 million flux in terms of profitability.

Operator

Our next question comes from the line of Pamela Quintiliano with Oppenheimer.

Pamela Quintiliano - Oppenheimer & Co. Inc.

Just a few things. I was wondering if you could talk a bit more about the marketing spend year-over-year, and you mentioned some TV spots and also with the campaign with Julianne Moore having a broader reach just in terms of what you're doing differently there, and also if there's any change to the timing of the flows, reflecting the shift in the marketing. And then just 2 follow-up questions to that. Were you able to cut product that you were going to flow into the stores as well as update the product to get it more in line with the customer and just a reminder on the lead times again.

Trudy Sullivan

So let me take your last question first. Yes, we were able to cut products as well, so we really rebalanced our assortments in third and fourth quarter, which was a combination of adding print and pattern, cutting into more classic styles from perhaps styles that were a little bit edgier and also cutting. And we were able to do this, thanks to our, as I said in my prepared remarks, because of our strong relationship not only with Li & Fung but also the flexibility of our design and merchant teams, we were able to do this in a relatively short period of time. We were able to affect flow as early as end of August on print and pattern. Turning to your marketing question, it's a very different marketing approach we're taking in its diversity this fall versus last fall. On Julianne Moore, when we shot her, the first time we really shot her for one edition of the fashion publications and one delivery. This time, we've used her over 4 different deliveries, and so we'll have a much broader use of our imaging as we go through the third and fourth quarter. And a side note to that, what is in the fashion publications now has resonated quite nicely with the consumers and that product is selling. We're also doing a TV pilot in 6 markets. This is a test for us, it's a combination of national and cable TV spots. It will have a penetration of about 84% of the target consumers in those 6 markets, and it starts relatively shortly, the end of this week. So we'll learn from that. And we've also diversified, we will use newspaper in 15 markets in a more diverse way than we've done in the past. That again is to increase reach and frequency into reaching new to a new consumer. We will employ outdoor advertising in key markets. And finally, we have increased our circulation both in for postcards and in our catalog for the back half of the year. And we continue to have an aggressive email campaign and dialogue with our consumers and we're very aggressive in our whole collection of email and use of social media. So I think you could really sum up all of the marketing initiatives as very much evolved from where we have been in the past.

Pamela Quintiliano - Oppenheimer & Co. Inc.

And were you able to chase some of that product that you've seen working thus far with the September flows for 4Q and holiday?

Trudy Sullivan

Yes. We actually started delivery in the end of August so that was our first September flows.

Pamela Quintiliano - Oppenheimer & Co. Inc.

And so you've been able to build on it?

Trudy Sullivan

We've been able to build on it, correct.

Operator

Our next question comes from the line of Betty Chen with Wedbush Securities.

Betty Chen - Wedbush Securities Inc.

I was wondering, Trudy, if you can talk a little bit, or Mike, a little bit about the inventory position. I know you mentioned that coming out of the second quarter, was at the level partly due to lower sales and also earlier timing of fall receipts. Is there any way you can give us a sense of how much of it was fall receipt? And also, where we should expect inventory position to be at the end of the third quarter. And then I was curious, can you share with us just the specific markets where we should be looking for the TV marketing, Trudy, so we can keep an eye out for that?

Michael Scarpa

So I'll take the inventory question. Obviously, we're not happy with our inventory position at the end of the second quarter. We feel it's quite manageable. Approximately 70% or about $24 million of the increase represents current inventory consisting of our July, August and September brand moments, along with an increase in our upscale inventory as we continue to expand that concept. Of the remaining 30%, or about $10 million, approximately $7 million was our June brand moment, which didn't really perform up to expectations. This June brand moment has subsequently been marked down and is in the process of being transferred to our surplus outlet stores. We have a fair degree of confidence that based on the level of inventory in our surplus channel right now, that these goods can be absorbed and liquidated over the next few months. And then I guess finally, I'll just comment on our fall buy because that kind of sets the stage, I'm not going to comment on specific ending inventory for Q3 but our buy for the fall season was basically down about 9% in units, and costs are approximately flat when we compare it to last year. So a much more conservative buy from where we were in the spring 6-month season.

Trudy Sullivan

And Betty on the TV markets, we are going to be in Atlanta, Dallas, Chicago, D.C., Philly and Boston. It's a combination of cable and national network. And it's also a combination of refresh and non-refresh markets for us.

Betty Chen - Wedbush Securities Inc.

And can you share with us what is the increase in the marketing budget year-over-year, Mike?

Michael Scarpa

For the full year, it's approximately $7 million. And the back half will be about a little over $3.5 million.

Betty Chen - Wedbush Securities Inc.

And how much increase in catalog and postcard circulation should we be looking for, planned for the third quarter?

Michael Scarpa

Hold on just a second, I can pull that out. Circulation for third quarter is actually flattish. It's really in the fourth quarter where we will start to see some increases in catalog as we increase prospecting.

Operator

Our next question comes from the line of Stacy Pak with Barclays Capital.

Stacy Pak - Barclays Capital

A couple of questions. I mean, first just sort of broad one, Trudy, I hope you can help me understand more your vision for the change in look in product and marketing. And I heard what you said about color and print, but I'm hoping you [indiscernible] a little bit more detail on your vision. And then second of all, just on the improvement you're seeing in September. I'm imagining you had quite a hit from the hurricane in August. So how much did that hit August? And I'm obviously asking to understand how much of that is impacting the improvement from September. I also thought the animal print looked quite good, and I'm not surprised to see that sell. So I'm wondering sort of what you -- how that impacts, how you think about products going forward and I guess those really are the questions.

Trudy Sullivan

So Stacy, on your first question, our mission has always been first and foremost, to focus on our core customer and deliver product that she asked us to deliver, which was updated and more relevant to her needs. She had found the brand have gotten staid and dowdy. So first and foremost, I want to return and focus all of us on the fact that she is our core, she is the one who is visiting our stores and that certainly in the 55- to 65-year age segment, she stayed with us, she's even growing slightly. So my focus is really on enhancing her needs, and I believe if we fill her needs in a more appropriate way and that's both product content and how we actually present it to her both on our catalog and in our web and in our stores, it will also be appropriate for attracting a new customer in that 45- to 65-year segment. So that is clearly the focus, it has been the mission from day one. Clearly, our execution against that mission has taken a hit in the last 6 months, and we are absolutely refocusing on returning to the mission that we all started on day one, which is take care of our core and enhance and bring in a new customer. I can repeat the fact that I believe that what we've done better in the back half is we have a better balance of classic merchandise, I believe we have an enhanced presentation in our catalog even down to our model selects, the diversity of the models that we're using from a size and age prospective. We are certainly more appropriate in our assortment on color, print and pattern. We're encouraged by the early fall tracking study that we fielded very recently, which really shows that customers who have browsed our stores or have looked at the catalog or web have a better net promoter score, especially having seen the September product than anything we've experienced so far this year. It's not back to our historic highs but our mission is to get back there, but it's decidedly better than what we experienced in the first half of the year.

Stacy Pak - Barclays Capital

Trudy, just as a follow-up to that, I mean, where does the sort of Vogue look fit in? And I mean, it seemed to me that sort of positioned so high and that's what I'm trying to understand.

Trudy Sullivan

Justify what you mean by Vogue look. You mean advertising in Vogue?

Stacy Pak - Barclays Capital

Yes. And very sort of high-end model looking to me.

Trudy Sullivan

Well, I think, if you really look at the fall campaign with Julianne Moore, where she's much more relaxed and smiling, and she's wearing wonderful [indiscernible] tweed suit or a beautiful jacket with a Merino mock neck and a pencil skirt, this is right in our lane and I think it's much more user-friendly than what we perhaps did in our previous national ad campaigns. And Vogue is only one of the publications that we go into. We're in Oprah. We're in a number of magazines that might be –- might feel a little bit more accessible than Vogue but the actual images themselves, I believe, are much more appropriate to our core customer. And as I said earlier, we are selling that product. So that to me is -- that's the ultimate measure of does the customer react to it.

Stacy Pak - Barclays Capital

Do you feel like where you want to be, you're there now in terms of the imaging?

Trudy Sullivan

I believe we're on the right track, and we're making -- and we continue to make enhancements. As you see, subsequent -- when you see that the TV spot, when you see subsequent catalogs, when you see subsequent outdoor print, I think you'll see a much more approachable but still very much in the "Tradition Transformed" vein.

Operator

Our next question comes from the line of Randy Konik with Jefferies.

Randal Konik - Jefferies & Company, Inc.

Great. Just a couple of questions. Just on the store rationalization plan first. It looks like you gave some color obviously in the press release. Longer term, where again are we thinking the store base should go? In terms of the capital expense guidance you guys gave, I think last quarter look was looking like $60 million a year over the last couple of years. You pulled that CapEx down a little bit in maybe temporary but. What -- if we were to think about just maintenance level CapEx, what are those levels? And then lastly, Trudy, how are you thinking about this new Chief Creative Officer role? What kind of differences in that particular individual would you want either from process or perspective or what have you that would be different or unique versus the departing Chief Creative Officer?

Michael Scarpa

So let me start first with the store rationalization. From a core perspective, we started the year with about 520, and we'd see that number going down to about 400. Ideally, we can get it maybe down at 375 in the next couple of years but we think that's a comfortable spot for us. And offsetting that decline would be an increase in our upscale outlets, which we think can be anywhere from 80 to 100 doors. We're -- as Trudy mentioned, we're quite pleased with the sales per square foot, and the four-wall profitability is coming in quite nicely also. So we feel very good about that concept. We did cut capital back from $60 million to $47 million. We do continue to see the need to refresh our stores. We think that's a priority. We continue to see a better performance in refresh than we do with the rest of the fleet. And we -- our plan was to allocate between outlet openings and refreshes about $40 million of the $60 million. We've cut that back a little bit but I would assume that next year, the focus again will be on refreshes and upscale outlet expansion. From an IT perspective, we've made good progress with our JDA Allocation and our planning tools around product. We've gotten the financial systems almost complete so I would expect maybe in the next 2 years to look anywhere between a $5 million and $10 million spend in IT.

Trudy Sullivan

Randy, to your question on the Chief Creative Officer, we're looking for a seasoned, in-depth executive in creative and design capabilities. So obviously, an individual who has the appreciation for our core customer, as well as helps us to find the correct approach for the targeted new customer and a willingness to articulate our brand vision in a way that is approachable for our core and this new customer. With that said, I just have to say that we have a tremendous bench in our design capability here. We have a very talented Senior Vice President of Women's Designs who has done very, very strong things for us. We have a very talented Senior Vice President of Merchandising. We have a very talented production and supply chain executive. And this team, I believe, will continue to execute and make the necessary changes as we go forward and has a tremendous appreciation and responsibility to our core customer.

Randal Konik - Jefferies & Company, Inc.

That's really helpful. Can you guys still hear me? Can I ask a follow-up?

Trudy Sullivan

Sure.

Trudy Sullivan

All right. Great. Just on -- just back on the differential, the outlet versus the regular stores. Is there any color you can give, maybe not exact numbers but just how big the differential is from a sales productivity per foot and four-wall margin standpoint of the upscale outlet channel distribution versus the stores?

Michael Scarpa

Sure. From an outlet perspective, Trudy had mentioned that we were up to $440 on a selling square footage basis. And we have seen or at least our first 6 months of the year and what we're planning for the rest of the year from a four-wall perspective to be in the low 20s, 23 and change. Obviously, from a core perspective, we're down in the $290 range in terms of sales per square foot on selling. And obviously, based on our results, they're nowhere near as high as the four-wall profitability outlet. So that's why we see a tremendous opportunity.

Randal Konik - Jefferies & Company, Inc.

So could you get, I mean, just last, last question. Can you get the outlet channel distribution to be -- are you targeting to somewhere near 25% of the company's sales and then you can get the benefit of higher profit because the profitability is better? How should we thinking about that from a longer-term perspective?

Michael Scarpa

Between our core shrinkage and our direct business, which we continue to think that, that can continue to grow, we could see outlet sales and if we had 80 to 100 doors, probably in the $160 million to $175 million range.

Operator

Our next question comes from the line of Kimberly Greenberger with Morgan Stanley Smith Barney.

Laura Ross - Morgan Stanley

This is Laura Ross for Kimberly. I was hoping you could provide some of the metrics. I think you tend to give regarding the customer file and how may be by age category that performed this quarter?

Trudy Sullivan

We actually provide this information on a trailing 12-month basis, and it's very little change from the last time we talked about it. The file's down about 2%. The core age segment is 55 to 65 is up slightly. The largest defector is on the 65 to 75 age group, and the 45 to 55 segment is down mid-single digits. It's relatively unchanged from the last time we reported them.

Operator

Our next question comes on the line of Paul Lejuez with Nomura.

Paul Lejuez - Nomura Securities Co. Ltd.

Just big picture for Trudy. If you could do things all over again, I'm just wondering what you'd do different. And then perhaps a little bit more specifically for Mike, you mentioned a decline in finance charge income during the quarter. Just wondering if you could frame that for us. And last, just wondering if you've been able to measure any sales transfer from the closed stores? Have you been spending more money on marketing dollars to try to get customers to transfer over to existing stores and what have you seen there?

Michael Scarpa

Well, from a finance charge income perspective, on an annual basis, we run close to $38 million, it was last year's number. For the quarter, it trended down about $1 million so that should give you a sense of where we are. From a marketing perspective, we are spending dollars to help transfer our customer from closed doors into existing doors within the marketplace or to our direct business. But we closed 15 doors at the end of July and another 15 in the first week of August. So we'll have more information on how that's working at the next call.

Trudy Sullivan

So Paul, obviously, I would wish to have products that have a much higher resonance with our core customer if we could do things differently and that's what we really are focused on. So as we have a lot of consumer insight, I think our consumer insight was again with the addition of a new senior executive who can really help provide even greater insight, will enable our execution against the core customer. So we aim to want to really please her, and we're on our mission for her, and we believe that a number of the enhancements we've made in the back half of the year are on the right track.

Operator

Your next question comes from the line of Neely Tamminga with Piper Jaffray.

Neely Tamminga - Piper Jaffray Companies

Just kind of following a little bit here on what Paul was asking. So at a very high level, it seems to me from going back to your notes that traffic has been down mid- to high-single digits in each of the last, call it 6 quarters, and conversion has been maybe down low singles. So I'm just wondering here, where a change in the creative officer, where that's going to bring improvement? Is it better product that drives the conversion? Or is it better marketing and or real estate and something to that effect that drives traffic?

Trudy Sullivan

It's really, Neely, we have to look at the entire package. It's certainly better product that drives conversion, and it's a more appropriate marketing and visualization of the brand in our catalog and in our web and in our stores. And that will be the unlock to increase conversion and comp.

Neely Tamminga - Piper Jaffray Companies

Okay, and then just 2 related questions. Would there be any consideration to changing maybe your internal org structure now that you have an opportunity to change like a chief role? And then a tangential question here, on the background of your strategic marketing and consumer insights person, I know you guys put out our release on your asepia [ph] stores but I don't think I saw a release out on your VP in Strategic Marketing and Consumer Insights. Can you give us a sense of where that person's from and her background?

Trudy Sullivan

She has 20-plus years’ experience in this kind of work, both at a -- predominantly in consulting so but she's worked with a number of retailers across a number of different segments, has a deep background in the apparel and also on CPG. So she's really a seasoned executive, and we're extremely pleased to have her and she's making a difference as I said already.

Neely Tamminga - Piper Jaffray Companies

In terms of your org structure, any change?

Trudy Sullivan

Of course, you're absolutely right. At times of change like this does allow us to evaluate what the org structure appropriately is and we would take the [indiscernible] part of the consideration. I do have to go back to say that our SVP level is extremely strong here. We have a very deep bench so this allows us time for thoughtful reflection on what the org structure really should be.

Operator

Our next question comes from the line of Marni Shapiro with Retail Tracker.

Marni Shapiro - The Retail Tracker

I have a couple of questions, Trudy. I guess the first on the product, and you know I'm in your store all the time. And I guess in the first half of the year, you talked a little bit about color, and I'm starting to see it come in the stores, pops of pink and red and colors around. When you talk about color going forward, are you talking about real clear color or are we going to see more of shades of brown and gray? And I guess the other thing is, is the merchant team that's in the organization today, the same merchant team that's been there? Or is this the team that was brought on with the departed creative person? So will we see a shakeup in the merchant structure underneath since he departed? And then can you just address one more thing? The shoes and accessories, half [ph] was okay in the stores and they've looked phenomenal online. And I'm hearing across-the-board from department stores to specialty stores that when she's crossing the lease [ph] line, the first place she's buying is shoes and accessories. So why not, while you're in this apparel flux, beef up the shoes and accessories assortment in the store in the interim until you feel really comfortable about the apparel? I'm sorry for so many questions.

Trudy Sullivan

So your first question, we're talking real clear color, and you'll start -- you're starting to see it now. It just increases as we go through the quarter. I think we have an appropriate approach on our shoe and accessory business. We have enhanced assortments in the stores in which we carry shoes, which is about 120 stores. And we believe that, that is the right approach from a number of different angles, not the least of which is inventory efficiency. We do have the ability to showcase our full shoe assortment in catalog, and we have the ability seamlessly between stores and catalog to fulfill orders to our red line. So we think our approach to shoes is appropriate. Accessories is an important category for us, continues to be. We actually have a new merchant heading that up. I would tell you that our merchant team, like a number of our other teams, is a good combination of seasoned Talbots executives who have a long history with the brand and new talent that we've brought in. And I believe that fusion of new and old is where we would really hit a good stride in this...

Marni Shapiro - The Retail Tracker

Can I just follow up on one -- I have one last one on, on the customer. If we're targeting that same customer, I mean, I think there's a huge void in the market actually for her. And I'm constantly shopping around, I'm trying to find something, someone who fills that void. I guess when you think about her lifestyle, I feel like right now in your stores, a lot of your suiting Talbots [ph] look very good, the underpinning. But is that this customer's lifestyle? Did the assortment get a little too -- I don't want to say, fussy but too dressy for her? How do you understand how to strike that right balance?

Trudy Sullivan

I think that obviously that's the quest, to strike the right balance. We believe and third and fourth quarter, we have a much more appropriate balance of classic. Suiting is an example of that. Our suiting business happens to be one of the businesses that's reacting very nicely to the third and fourth quarter assortment. So yes, it is part of her lifestyle. I mean, that is something -- we've increased our categories such as suiting, dresses, jackets, pants, this [indiscernible] "sportswear" category is based on the demand that we're seeing. So and I think that as our SVP of Marketing and Consumer Insights gets deeper and deeper into the research, we'll have more insights to share with you.

Operator

Our next question comes from the line of Dana Telsey with Telsey Advisory Group.

Dana Telsey - Telsey Advisory Group

Can you talk a little bit about your finance income trends there? What you've been seeing and how you're budgeting that going forward? And then as you think about during this time period, SG&A, any buckets of SG&A that could come less during this time period as you go through the back half of the year and how you're planning?

Michael Scarpa

Look, I think we've taken some pretty significant steps during the quarter to enhance our liquidity. Obviously, the agreement with Li & Fung as an extension of our strategic partnership, with the ability to extend terms 30 days up to $50 million at any time is great for us. The opportunity to open LCs through Li & Fung, as opposed to tying up our credit line, is also another great opportunity for us. And on a given season, we can open anywhere between $10 million and $15 million worth of LCs. So again, not to have that count against the credit line is a wonderful thing for us. Bringing our capital down to $47 million from $60 million is also going to enhance our liquidity. And then we continue to scrutinize our operating expense. We made major reductions over the past 2 years. We're still scrutinizing though today, and even with the increase in our marketing expense and the decrease in our finance charge income that is planned for the third quarter, we still hope to bring our SG&A expenses in under where we were a year ago. So it continues to be under scrutiny.

Operator

Our next question comes from the line of Jennifer Davis with Lazard Capital Markets.

Jennifer Davis - Lazard Capital Markets LLC

Mike, first a clarification. Did you say that fall buys are down 9% in dollars? And then Trudy, you mentioned a talented SVP of Merchandising. Are you still looking for a Chief Merchandising Officer or not? And then I was wondering if you could talk a little bit more about what your focus groups were saying. I'd kind of agree with Marni. I think that the new September assortment looks better in terms of more novelty and fashion but I kind of have the same impression that it might be a little too career-focused for your core 55- to 70-year-old customer. And also the stores still do seem to lack prints and patterns so just wondering when we'll see more of that. And then lastly, if you can just kind of justify your decision maybe to advertise on TV. If you still have July and August merchandise in the store, I'm wondering if clearance might be a little high, and products probably not exactly where you think it should be yet so is this the right time to increase advertising?

Michael Scarpa

So let me just clarify the inventory buy question for the fall season. Units are down 9% and costs are virtually flat. And that's...

Jennifer Davis - Lazard Capital Markets LLC

So then dollars are down 9% also?

Michael Scarpa

No, costs are flat. Dollars are down, units are down 9%. And the cost differential between the units is based on rising commodity costs, also mix of product.

Trudy Sullivan

So as I've said, Jennifer, the print and pattern flow is happening now. It started toward the end of August and builds through September. In terms of the TV advertising, the July and August deliveries have actually performed stronger than last year. The whole animal print August delivery has actually been a good delivery for us. And so and again September was just new to the floor but has tested positively, we feel this is really is the right time, where we timed our TV advertising to be in mid to late September because our assortments are really at their peak and for the third quarter flow. So we believe it's justified to hit this timing now. As I said earlier, our sweater trend is good, it's one of the key categories that we invested in. It continues to build. So I think the alignment of July, which is transitional, August, September and the increase in sweaters makes it a very appropriate time for us to be fielding television. In terms of -- I think you should kind of check out the recent floor set because we've actually done a floor set where some of our key casual programs come forward like corduroy pants, corduroy jackets, great casual sweaters. So we do actually have a balance, especially with the completion of the September flow of casual for suiting. And as I said earlier, an interesting thing that's happening in our business, some of these refined categories which have been under-invested in, in the last certainly the last 6 months such as suiting, pants, jackets, dresses, we've actually gone back and increased the penetration of those categories based on their performance. But there is a balance of casual to career, and I would encourage you to check out the floor set that goes in this week.

Michael Scarpa

And I would just add from a buy perspective, July is the smallest brand moment in the summer season, represents approximately 20% of the overall buy and August is the smallest in the fall season and it represents about 23%. So September and October are big flows for us and we feel it's the right time to go out and advertise.

Trudy Sullivan

Right.

Jennifer Davis - Lazard Capital Markets LLC

Okay. And then what about the Chief Merchandising Officer and...

Trudy Sullivan

At this stage, Jennifer, we are not pursuing a Chief Merchandising Officer position on the outside. We're quite pleased with the performance of the team that's in place. This team has worked diligently on the corrections that we've put in place the third and fourth quarter, and so we're going to focus on that for right now.

Jennifer Davis - Lazard Capital Markets LLC

Okay. And then any more color from the focus groups?

Trudy Sullivan

Well, it's just what I've shared earlier on the call, we fielded research in the last couple of weeks, and customers who have been in the store or browsed the catalog including the September deliveries have -- we've seen a very good uptick in our net promoter scores, significantly better than we've seen in the first half of the year.

Operator

Our next question comes from the line of Jennifer Black with Jennifer Black & Associates.

Jennifer Black - Jennifer Black & Associates

I have a couple of questions. I was curious to know [indiscernible] that -- what was the last floor set that Michael designed? Was it summer? And as far as changing the color, I mean, is the design going to be -- is it set in stone as far as -- you said you're changing the color. But what about the silhouettes? And if you could talk about denim as a category? And then also you're promoting pants, and you're being pretty aggressive and your pants really fit well and the core is especially much better than last year. I was curious as to your thinking as to why you're being so aggressive in promoting pants?

Trudy Sullivan

So Jennifer, the team in place, we've actually designed -- we're working on summer 2012 now but a lot of the corrections that we've put in place for third and fourth quarter, we've already baked into our thinking for first and second quarter next year. So it's a team, it's no one person that's designs it single-handedly. And so the design team that is in place has worked on everything through summer 2012. And as I've said, I've been extremely close to that process so I believe that the number of the enhancements that we're talking about, clear color, elevation of print pattern. It's not just a question -- it's certainly a question of styling that is it better balance of classic to forward styles. So we continue to make merchandise and product enhancements, and it continues to be a team effort. So I think I'm pleased with the evolution of our thinking there. I do believe that the insights from our new SVP of Consumer Insights will only help us to refine these assortments as we go forward. We've proven that we have a very dynamic and quick capability to react, both on our own team here and with our relationship with Li & Fung. So we continue to take our learnings incorporate [ph] and changes appropriately as required. Denim is penetrating or penetration pants. Pants is a leading category. She loves pants for us. Our typical pattern has been to give her pant promotion at critical times in a quarter, especially to encourage her to try our new fit. The curvy and modern fits have done really quite well. So it has been our practice to give her a pant promotion at this time of year as she's really engaging in her fall wardrobe and really encourage her to get into the new sets and frankly to encourage our core customer to come back and give us a try on a category that we know she loves from us. And so that's why we're promoting pants.

Jennifer Black - Jennifer Black & Associates

It seems like you're going a bit deeper than you did last year but...

Trudy Sullivan

We have -- we've added fits this year over last year. And I would say that we typically we've kind of shaken up the message but it's pretty much the same promotion at the end of the day.

Jennifer Black - Jennifer Black & Associates

Just trying to [indiscernible] loyalty for the pant set announced and get her back in that sense?

Trudy Sullivan

And to try the new fits as well. So we think we have enough fit options that -- and we've proven to us that if we can get her to a pant, she'll buy 2 tops, so it's a very -- it's usually a very productive promotion for us.

Jennifer Black - Jennifer Black & Associates

Okay. One last question. Your 40% off one item, is that exactly the same as the year ago, the one that's coming up on the 15th?

Trudy Sullivan

That was tied to a $25 off purchase...

Jennifer Black - Jennifer Black & Associates

[indiscernible] last year?

Trudy Sullivan

It's aligned to a similar promotion a year ago.

Operator

We don't have time for any more questions. Ms. Sullivan, please continue with any closing comments.

Trudy Sullivan

So first of all, thank you again for joining us on this call today. I hope you can take away the fact that we have taken very quick action on the issues that we confronted in the first half of the year. We are pushing forward with the turnaround that we are now poised to effect. I will say that we're pleased to start to see our product resonate. We're closing underperforming stores. Our refresh stores are outperforming. Our Upscale Outlet Business is clearly working and enhancing our consumer insight capability can only help our execution against these strategies. I believe also that the new leadership in our stores is another critical factor to us accelerating our performance. So I want to thank you again. I especially want to thank the entire Talbots team, not only for their hard work and resilience but for their ongoing passion for the bright future for our brand. Thank you, and we'll talk to you soon.

Operator

This concludes the Talbots, Inc. conference call. We will now proceed with our forward-looking statement.

Cautionary Statement and Certain Risk Factors to Consider. This press release on Form 10-Q contains forward-looking information within the meanings of the Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as expect, achieve, plan, look, projected, believe, anticipate, outlook, will, would, should, intend, potential or similar statements of various or such terms. All of the information concerning our future liquidity, future net sales, margins and other future financial performances and results, achievement of operating or financial plan or forecast or future periods; sources and availability of credit and liquidity, future cash flows and cash needs, success and results of strategic incentives and other future financial performance or financial positions, as well as our assumptions underlying such information, constitute forward-looking information. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about the company, are not guarantees of future results or performance and involve substantial risks and uncertainties, including assumptions and projections concerning our internal operating or financial plans, regular price, promotional or and markdown selling, operating cash flows, liquidity and sources of availability of credit for all forward periods.

Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the following risks and uncertainties: the ability to successfully increase our customer traffic and the success and customer acceptance of our merchandise offering in our stores, on our website and in our catalogs; the risks associated with our efforts to successfully implement, adjust as appropriate and achieve the benefits of our current strategic incentives, including store segmentation, store reimaging, store rationalization, enhanced marketing, information technology, reinvestments, upscale outlet expansion and any other future initiatives that we may undertake; the ability to achieve our operating or financial plan and strategic plan for operating results, working capital and cash flows; the ability to access on satisfactory terms or at all, adequate financing and other sources of liquidity as and when necessary to fund our continuing operating working capital needs, strategic initiatives [ph] and other cash needs and to obtain further increases in our credit facility or obtain other or additional credit facilities or other internal or external liquidity sources if cash flow from operations or other capital resources are not sufficient for our cash requirements at any time or time; the satisfaction of all borrowing conditions under our credit facility including accuracy of all representation and warranties, no defaults or events or defaults absence of material adverse effect or change all other borrowing conditions; the risks associated with our efforts to maintain our traditional customer and expand to attract new customers; the risks associated with competitive pricing pressures and the current increased promotional environment; the risks associated with our ongoing efforts to adequately manage the increase in various input costs including increases in the price of raw materials, higher labor, costs in countries and manufacturing any significant increases in the price of fuel, which impacts our freights costs; the continuing material impacts of the U.S. economic environment on our business, continuing operations, liquidity and financial results including any negative impact on consumer discretionary, spending substantial loss of household wealth and savings and continued high unemployment levels; the ability to continue purchase merchandise on open account purchase terms at exiting (sic) [existing] or future expected levels with acceptable payment terms and the rights that suppliers could require earlier or immediate payment or other security due to any payment concerns; the ability to attract and retain talented and experienced executives that are necessary to execute our strategic incentives; the ability to accurately estimate and forecast future regular price, promotional and markdown selling and other future financial results and financial position; the risks associated with our appointment of an exclusive global merchandise buying agent, including that the anticipated benefits and cost savings from this arrangement may not be realized or may take longer to realize than expected and the risk that upon any cessation of the relationship, for any reason, we would be unable to successfully transition to an internal or other external sourcing function; the risks and uncertainties in connection with any need to source merchandise from alternate vendors; any impact to or disruption in our supply of merchandise; the ability to successfully execute, fund and achieve the expected benefits of our supply chain incentives; anything that signet [ph] interpentation (sic) [significant interruption] or disruption in the operation of our distribution facility or the domestic and internal transportation fracture (sic) [infrastructure]; the risk that estimated or anticipated costs, charges and liability to settle and complete the transition and exit from and disposal of the J. Jill business, including both retained obligations and condinent (sic) [contingent] risk for assigned obligations, may materially differ from or be materially greater than anticipated; any future store closings and the success of necessary funding for closing underperforming stores; the ability to reduce spending as needed; any negative publicity concerning the specialty retail business in general or our business in particular; the risk of impairment or of goodwill and other intangible or long-lived assets; the risk associated with our efforts in transforming our information technology systems to meet our changing business systems and operations; the risk associated with any future decline in our stock price, including satisfaction of NYSE continued listing criteria which requires the average closing price of our common stock to be greater than $1 over 30 consecutive trading days and minimum levels of market capitalization; and the risk and uncertainties associated with the outcome of current and future litigations, claims, tax audit and tax and other proceedings and the risk that actual liabilities, assessments or other financial impact will exceed any estimated, accrued or expected amounts or outcomes.

All of our forward-looking statements are as of the date of this press release only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An 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 public disclosure or our other periodic reports or other documents of filing filed with or furnished to the SEC could materially and adversely affect our continuing operations and our future financial results, cash flows, available credit, prospects and liquidity. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statement to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this press release, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this press release which modify or impact any of the forward-looking statements contained in this release will be deemed to modify or subside (sic) [supersede] such statements in this release. In addition to the information set forth in the press release, you should carefully consider the risk factors and risks and uncertainties included in our annual report on Form 10-K for the fiscal year ended January 29, 2011 and other periodic reports filed with SEC.

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