Talbots announced a complex financial restructuring this week, along with news that the company had returned to profitability. The earnings report provided an unexpected surprise to Wall Street analysts.
What has Talbots accomplished with its recent restructuring? First, the divestiture and shutdown of non-core assets and unsuccessful diversification plays has left Talbots more streamlined and focused on its core women's apparel business. Second, the financial transaction announced this week enabled Japanese retailer Aeon to divest its stake in Talbots, and it reduced Talbots' leverage substantially. As a result, the company finds itself with a stronger balance sheet. Moving forward, it has secured a credit facility from GE Capital to help it finance future growth plans. Third, the earnings report indicates substantial progress toward streamlining the company's cost structure. All these moves position Talbots more securely as they prepare for what is hopefully a stronger economy in the year ahead.
What still troubles us about this once-great company? Well, Talbots reported a same-store sales decline of 15.9%. That's a huge decline. If the company cannot reverse that steep decline, then all these financial maneuvers will be for naught. Ultimately, Talbots has to find a way to walk a tight rope... specifically, it must continue to freshen its image and product line while not alienating its traditional demographic. The company has always faced an interesting question: to what extent should it try to appeal to younger women? In my view, a laser focus on women 35 and older probably has merit. Trying to be all things to all people surely will lead to disaster. Having said that, the company has to find a way to adjust to the fact that the 35 and older demographic looks like quite different than it did a decade ago. That target market's wants and needs have changed, and the company must find a way to adapt to those changes without alienating long-time, loyal customers.