What Happened To Talbots?

Oct.27.11 | About: The Talbots, (TLB)

Talbots (NYSE:TLB) used to be the darling of the conservative crowd, right up there with Ralph Lauren (NYSE:RL). Then suddenly, according to numerous people, the quality wasn't there, the clothes were dowdy and sales dropped. This summer there was an article on a Barron's Blog saying that a new owner - Sycamore Partners - just bought 9.9 percent of the company with the goal of turning the company around. The new target price was $4 a share, which it hit immediately.

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52wk high: 11.84
52wk low: 2.25
EPS: -0.32
PE: N/A
Div Rate: N/A
Yield: N/A
Market Cap: 173.25 M
Volume: 1.18 M
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Talbots answered with a type of "poison pill" consumers rights deal that would give current stockholders (which I was) a common stock purchase dividend. The "poison pill" would be administered if anyone bought more than 10% of the company - obviously to avoid a takeover. Most analysts said "get out now - fast"! I never found anyone that could explain this "Pill." So I sold and took a huge loss. I watched as the stock crashed to $2.25. New articles came out saying that the company would tighten up, close stores, get rid of a creative director, and run a new ad campaign. The stock began to recover. So I got back in and rode it up to over $3.00 a share. Then last month the stock dipped below $3.00 and has been trending downward.

The stock has made numerous rebounds, only to be followed by steep declines. And now the television ads have stopped (at least I haven't seen any) and the price per share is trending down. It is ranging from under $2.40 to $2.60 a share. On September 14, Zacks downgraded the stock to underperform and then a few days later added it to their 'stocks to sell now' list at a price of $2.45 per share.

I went into my local store here in the Dallas, Texas area to see business as usual. They had an adorable new sportswear line which included very classic cords and matching tops. I expected to see a fire sale - but no - the prices were $50 to $90 for most things. When I asked the employees if their store would be closing, they said, "Gosh no, we are doing well here". They had stopped carrying shoes at that store, but were quick to point out that their North Park store had "really cute" boots that were flying out the door at a $200+ price tag.

I noticed the store was plump with new inventory - totally ready for the holidays. Then I looked on their Web site and found their new Black and White Collection. Very sophisticated! It looks like a collection from Nordstroms (NYSE:JWN) rather than Talbots. Does this mean that they are going to have a big Golden Quarter? One thing is certain - fabulous sales will cover a multitude of sins.

Barron's shows a book value of $2.61 per share, more than the $2.43 which it closed at last Tuesday. To put this in perspective, Apple (NASDAQ:AAPL) has a book value of under $75.00 per share, according to an article in Investor's Business Daily earlier this summer, while the stock was selling for $393.3 Obviously, in a bear market facts and figures are tossed out the window and fear takes over. But over the last week there are very strong signals showing the return of the bull.

Compare the chart for Ann Taylor (NYSE:ANN). The patterns are the same as Talbots up until the beginning of October, when it began a steep increase returning to August numbers.


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52wk high: 32.49
52wk low: 19.00
EPS: 1.53
PE: 16.90
Div Rate: N/A
Yield: N/A
Market Cap: 1.35 B
Volume: 1.26 M
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There is a similar pattern at Nordstroms. A steep rise in October hitting a little bit above August prices.


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52wk high: 52.61
52wk low: 36.96
EPS: 3.02
PE: 17.10
Div Rate: 0.92
Yield: 1.7833
Market Cap: 10.97 B
Volume: 2.82 M
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Could the fact that Talbots missed this October increase that other retailers enjoyed be due to Zacks' recommendation? Talbots should be soaring at about $3.70 per share right now - what happened?

Disclosure: I am long TLB.