Exhibit 10.1

     
CONTACT:
  Julie Lorigan
Vice President, Investor Relations
(781) 741-7775
 
   
 
  Margery B. Myers
Vice President, Corporate Communications and Public Relations
(781) 741-4019
 
   
 
  Stacy Berns/Melissa Jaffin — Investor/Media Relations
Berns Communications Group
(212) 994-4660

TALBOTS REPORTS SECOND QUARTER RESULTS
-Earnings Per Share Exceed Expectations
-Strong Sales Trends in Core Talbots Brand
-Company Pleased with Merger Integration Progress
     Hingham, MA, August 16, 2006— The Talbots, Inc. (NYSE:TLB) today announced
a net loss of $3.9 million or $0.07 per share on a GAAP basis for the second
quarter ended July 29, 2006. This loss includes acquisition related costs and
adjustments of approximately $0.14 per share and $0.03 per share of stock option
expense. Excluding these costs, earnings per diluted share were positive $0.10
for the combined Company, compared to the $0.35 reported last year for the
Talbots brand only.
     Total consolidated Company sales for the thirteen-week period were
$571 million. By brand, retail sales increased to $404 million for Talbots
compared to $389 million last year, and were $73 million for J. Jill.
Consolidated direct marketing sales for the thirteen-week period were $95
million, including catalog and Internet.
     Sales for the J. Jill brand represent approximately 20% of the total
combined company sales volume.
     Total Company comparable store sales rose 1.3% for the second quarter. By
brand, comparable store sales for Talbots increased 3.0% and were negative 8.2%
for the J. Jill brand.

 

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2
     Arnold B. Zetcher, Chairman, President and Chief Executive Officer,
commented, “Our second quarter results were positively driven by strong sales of
our core Talbots brand apparel, which started to gain traction in early April.
We saw particularly strong selling trends across all Talbots brand channels
throughout June and July, which offset much of the softness in sales of our J.
Jill brand merchandise during the quarter.”
     “This is the first period we are reporting operating results as a combined
multi-brand specialty retailer, and we are very pleased that second quarter
performance exceeded our recent expectations and was better than First Call
consensus estimate.”
     During the quarter, the Company opened 3 Talbots stores and 5 J. Jill
stores. At the end of the period, the Company had a total of 1,297 stores, which
included 1,087 Talbots stores and 210 J. Jill stores. The Company currently
plans to open a net of 69 stores in the second half, with 40 net new Talbots
locations and 29 new J. Jill locations. By the end of fiscal 2006, the Company
expects to operate a total of approximately 1,366 stores.
Operating Results for the Six-Month Period
     Total Company operating performance for the six-month period ending
July 29, 2006 includes J. Jill brand results for the period beginning May 3,
2006, which was the effective date of the acquisition.
     For the six-month period, total consolidated Company net income was
$23.5 million or $0.44 per diluted share on a GAAP basis and includes
acquisition related costs and adjustments of approximately $0.16 per share and
$0.07 per share of stock option expense. Excluding these costs, consolidated
earnings per diluted share were $0.67, compared to the $0.98 reported last year
for the Talbots brand only.
     Total consolidated Company sales were $1,024 million for the first half of
the year. By brand, retail sales increased to $789 million for Talbots compared
to $767 million last year, and were $73 million for J. Jill. Consolidated direct
marketing sales for the six-month period were $163 million, including catalog
and Internet.

 

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3
     Total Company comparable store sales rose 1.1% for the six-month period. By
brand, comparable store sales for Talbots increased 1.9%. J. Jill’s comparable
store sales were negative 8.2% for the period beginning May 3, 2006 through
July 29, 2006.
     Mr. Zetcher added, “We have made significant progress with our merger
integration efforts with J. Jill, and identified various synergy opportunities
in sourcing, distribution, store operations and back-office functions. We’ve
moved forward with our initiatives necessary to achieve these cost savings, and
continue to be quite confident in our ability to deliver in excess of
$30 million in cost savings in fiscal 2007, up from our original estimate of
$25 million.”
Second Half of 2006 Outlook
     “We are looking ahead to the second half of the year with optimism. For the
Talbots brand, we are hopeful for continued momentum in our selling trends as we
enter the fall season, driven by three key initiatives: a broader selection of
styles, a better balance of entry-level priced merchandise, and strategic
adjustments to our product flow in the third quarter. We are excited about our
new merchandise assortments and believe we are on the right track to deliver
stronger sales and earnings in the back half.”
     “As for our newly acquired J. Jill brand, we will continue with our
initiatives to stabilize long term performance. This includes better execution
of the retail and direct businesses, such as the unification of the J. Jill
promotional calendar and sharper pricing across key product categories. In
addition, as we get deeper into the fall season, we feel that our merchandise is
more versatile and brand appropriate, offering our customer a sophisticated,
feminine color palette and a more flattering fit.”
     “As previously stated, we continue to expect a positive low single digit
comparable store sales increase for the combined Company in the second half,
which would yield earnings per share on a GAAP basis approximately in the range
of $0.50 — $0.55. Excluding anticipated acquisition related costs and
adjustments of approximately $0.24 per share and approximately $0.07 in stock
option expense, earnings per share would be in the range of $0.81 to $0.86 for
the combined Company. This compares to the $0.74 reported last year for the
Talbots only brand.”

 

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4
     “In closing, we remain committed to building shareholder value. We are
pleased with the progress we have made in effectively integrating J. Jill and
are focused on delivering stronger top and bottom line results, beginning with
the fall season,” concluded Mr. Zetcher.
Additional Disclosures
     As previously announced, Talbots will host a conference call today,
August 16, 2006 at 10:00 am local time to discuss second quarter results. To
listen to the live web cast please log on to
http://www.talbots.com/about/investor.asp. The call will be archived on its web
site www.talbots.com for a period of twelve months. In addition, an audio replay
of the call will be available shortly after its conclusion and archived until
August 18, 2006. This call may be accessed by dialing (877) 519-4471, passcode
7718239.
     The Talbots, Inc. is a leading international specialty retailer and
cataloger of women’s, children’s and men’s apparel, shoes and accessories. The
Company currently operates a total of 1,300 stores in 47 states, the District of
Columbia, Canada and the U.K., with 1,090 stores under the Talbots brand name
and 210 stores under the J. Jill brand name. Both brands target the age 35 plus
customer population. Talbots brand on-line shopping site is located at
www.talbots.com and the J. Jill brand on-line shopping site is located at
www.jjill.com.

 

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5
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     The foregoing 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,” “look,” “believe,”
“anticipate,” “outlook,” “will,” “would,” “would yield,” or similar statements
or variations of such terms. All of the “outlook” information (including future
revenues, future comparable sales, future earnings, future EPS, and other future
financial performance or operating measures) constitutes forward-looking
information.
     Our outlook and other forward-looking statements are based on a series of
expectations, assumptions, estimates and projections about our Company which
involve risks and uncertainty, including assumptions and projections concerning
integration costs, acquisition-related costs and other adjustments, acquisition
synergies, store traffic, levels of store sales including regular-price selling
and markdown selling, and customer preferences. All of our outlook information
and other forward-looking statements are as of the date of this release only.
The Company can give no assurance that such outlook or expectations will prove
to be correct and does not undertake to update or revise any “outlook”
information or any other forward-looking statements to reflect actual results,
changes in 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 projected results will not be realized.
     Our forward-looking statements involve substantial known and unknown risks
and uncertainties as to future events which may or may not occur, including the
risk that the J. Jill business will not be successfully integrated, the risk
that the cost savings and other synergies from the transaction may not be fully
realized or may take longer to realize than expected, the risk that the
acquisition will disrupt Talbots or J. Jill’s core business, transaction and
integration costs, the reaction of Talbots and J. Jill customers and suppliers
to the transaction, diversion of management time on merger-related issues,
effectiveness of the Company’s brand awareness and marketing programs, any
different or any increased negative trends in its regular-price or markdown
selling, effectiveness of its Internet site, acceptance of the Company’s
fashions including the Company’s 2006 seasonal fashions, the Company’s ability
to anticipate and successfully respond to changing customer tastes and
preferences and to produce the appropriate balance of merchandise offerings, the
Company’s ability to sell its merchandise at regular prices as well as its
ability to successfully execute its major sale events including the timing and
levels of markdowns and appropriate balance of available markdown inventory, any
difference between estimated and actual stock option expense, and retail
economic conditions including consumer spending, In each case, actual results
may differ materially from such forward-looking information.
     Certain other factors that may cause actual results to differ from such
forward-looking statements are included in the Company’s Form 10-K (under “Risk
Factors”) and in other periodic reports filed with the Securities and Exchange
Commission and available on the Talbots website under “Investor Relations” and
you are urged to carefully consider all such factors.
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###

 

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THE TALBOTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 29, 2006 AND JULY 30, 2005
Amounts in thousands except per share data

                                      Thirteen Weeks Ended     Twenty-Six Weeks
Ended       July 29,     July 30,     July 29,     July 30,       2006     2005
    2006     2005  
 
                               
Net Sales
  $ 571,377     $ 449,577     $ 1,024,389     $ 896,108  
 
                               
Costs and Expenses
                               
Cost of sales, buying and occupancy
    399,249       298,560       671,449       562,839  
Selling, general and administrative
    171,586       120,281       307,185       246,499  
 
                       
 
                               
Operating Income
    542       30,736       45,755       86,770  
 
                               
Interest
                               
Interest expense
    7,629       983       14,381       1,963  
Interest income
    914       448       6,222       625  
 
                       
 
                               
Interest Expense — net
    6,715       535       8,159       1,338  
 
                       
 
                               
Income (Loss) Before Taxes
    (6,173 )     30,201       37,596       85,432  
 
                               
Income Tax Expense (Benefit)
    (2,315 )     11,325       14,098       32,037  
 
                       
 
                               
Net Income (Loss)
  $ (3,858 )   $ 18,876     $ 23,498     $ 53,395  
 
                       
 
                               
Net Income (Loss) Per Share:
                               
 
                               
Basic
  $ (0.07 )   $ 0.36     $ 0.45     $ 1.00  
 
                       
 
                               
Diluted
  $ (0.07 )   $ 0.35     $ 0.44     $ 0.98  
 
                       
 
                               
Weighted Average Number of Shares of Common Stock Outstanding:
                               
 
                               
Basic
    52,222       52,714       52,420       53,178  
 
                       
 
                               
Diluted
    52,222       54,034       53,382       54,459  
 
                       
 
                               
Cash Dividends Paid Per Share
  $ 0.13     $ 0.12     $ 0.25     $ 0.23  
 
                       

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THE TALBOTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JULY 29, 2006, JANUARY 28, 2006, AND JULY 30, 2005
Amounts in thousands

                              July 29,     January 28,     July 30,       2006  
  2006     2005  
 
                       
Cash and cash equivalents
  $ 48,981     $ 103,020     $ 80,856  
Marketable securities
    12,434       —       —  
Customer accounts receivable — net
    194,923       209,749       187,750  
Merchandise inventories
    301,982       246,707       225,887  
Other current assets
    86,566       61,185       59,748  
 
                 
Total current assets
    644,886       620,661       554,241  
 
                       
Property and equipment — net
    522,788       387,536       391,768  
Goodwill — net
    256,684       35,513       35,513  
Trademarks — net
    155,884       75,884       75,884  
Other intangible assets — net
    90,528       —       —  
Deferred income taxes
    —       6,407       —  
Other assets
    28,101       20,143       18,914  
 
                 
 
                       
TOTAL ASSETS
  $ 1,698,871     $ 1,146,144     $ 1,076,320  
 
                 
 
                       
Accounts payable
  $ 97,905     $ 85,343     $ 59,492  
Income taxes payable
    26,986       37,909       37,194  
Accrued liabilities
    136,759       121,205       102,932  
Current portion of long-term debt
    80,449       —       —  
 
                 
Total current liabilities
    342,099       244,457       199,618  
 
                       
Long-term debt less current portion
    429,127       100,000       100,000  
Deferred rent under lease commitments
    110,496       110,864       108,778  
Deferred income taxes
    84,837       —       1,761  
Other liabilities
    83,665       63,855       65,587  
Stockholders’ equity
    648,647       626,968       600,576  
 
                 
 
                       
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 1,698,871     $ 1,146,144     $ 1,076,320  
 
                 

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THE TALBOTS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE TWENTY-SIX WEEKS ENDED JULY 29, 2006 AND JULY 30, 2005
Amounts in thousands

                      Twenty-Six Weeks Ended       July 29,     July 30,      
2006     2005  
 
               
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net income
  $ 23,498     $ 53,395  
Depreciation and amortization
    54,230       45,340  
Deferred and other items
    16,559       12,544  
Changes in:
               
Customer accounts receivable
    14,845       11,494  
Merchandise inventories
    (7,689 )     12,609  
Accounts payable
    5,690       (5,154 )
Income taxes payable
    (828 )     9,989  
All other working capital
    (26,031 )     (10,897 )
 
           
 
               
 
    80,274       129,320  
 
           
 
               
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Acquisition of The J. Jill Group, Inc., net of cash acquired
    (493,842 )     —  
Additions to property and equipment
    (32,088 )     (32,001 )
Maturities of marketable securities
    4,291       —  
 
             
 
               
 
    (521,639 )     (32,001 )
 
           
 
               
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Borrowings under notes payable
    445,000       —  
Payment of notes payable
    (45,104 )     —  
Proceeds from options exercised
    2,442       5,052  
Excess tax benefit from options exercised
    464       —  
Debt issuance costs
    (1,308 )     —  
Cash dividends
    (13,459 )     (12,515 )
Purchase of treasury stock
    (1,113 )     (40,607 )
 
           
 
               
 
    386,922       (48,070 )
 
           
 
               
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    404       (204 )
 
               
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    (54,039 )     49,045  
 
               
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    103,020       31,811  
 
           
 
               
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 48,981     $ 80,856