exv10w1



 







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 FIRST QUARTER RESULTS IN LINE WITH

COMPANY EXPECTATIONS




Provides Second Quarter Outlook




     Hingham, MA, May 17, 2006— The Talbots, Inc. (NYSE:TLB) today announced results for the
thirteen-week period ended April 29, 2006 compared to the thirteen-week period ended April 30,
2005. Net sales for the quarter increased 1% to $453.0 million from $446.5 million reported for
the thirteen weeks ended April 30, 2005. Retail store sales increased 2% to $384.9 million this
year compared to $378.1 million last year. Included in retail sales was a 0.9% increase in
comparable store sales. Direct marketing sales of $68.1 million were approximately even with the
$68.4 million reported in the prior year period. The Company’s first quarter results do not
include the acquisition of the J. Jill Group, which was completed on May 3, 2006.



     Talbots net income for the first quarter was $27.4 million, compared to $34.5 million for the
first quarter last year. Earnings per diluted share, including $0.03 in stock option expense, were
$0.51. Excluding stock option expense, earnings per share were $0.54, compared to last year’s
record first quarter earnings per diluted share of $0.63.



     Arnold B. Zetcher, Chairman, President and Chief Executive Officer, commented “We reported
first quarter earnings per share in line with our recently updated outlook and the First Call
consensus estimate. Total Company comparable store sales increased modestly in the period and our
direct marketing business, including catalog and Internet, was approximately even with last year.
Sales trends in our Talbots Woman large size



 









 




2


concept continued to be very strong throughout the entire quarter, with comparable store sales
rising 10%. In addition, our Talbots Kids performance was healthy, with a combined March/April comp
store gain of 9%.”




     “Regarding our store expansion plan, during the quarter, we opened three new Talbots Misses
stores and ended the period with a total of 1,086 stores. Our plan is to open approximately 50 new
Talbots brand stores in 2006, which would bring us to approximately 1,128 Talbots stores at the end
of the year. For the J. Jill brand, we currently plan to open approximately 42 new stores in fiscal
2006, ending the year with approximately 241 J. Jill stores. In total, The Talbots, Inc. will end
the fiscal year 2006 with approximately 1,369 stores in operation.”



     “As announced earlier this month, we have completed the J. Jill merger and are excited about
the opportunity to serve a larger share of the 35+ women’s market with a broader range of
merchandise. We have a strong leadership team in place that combines the talents and market
expertise of Talbots and J. Jill management, and are focused on maximizing the synergies of the two
brands while capturing the growth potential of this advantageous market position,” continued Mr.
Zetcher.



Second Quarter Outlook




     Commenting on the outlook for the second quarter of fiscal 2006, Mr. Zetcher noted, “We are
still in the early stages of our integration, and have entered into a period of significant change.
Given this, it is very difficult to predict our second quarter earnings due to a number of unusual
factors, including costs associated with the acquisition of J. Jill, purchase-related accounting
adjustments, as well as the learning curve for both organizations. Nevertheless, we are currently
targeting a second quarter loss per diluted share on a GAAP basis to be in the range of ($0.15) to
($0.05). This estimate includes acquisition-related costs and adjustments of approximately $0.20
per share. Excluding the estimate for costs and adjustments as outlined above, earnings per diluted
share would be in the range of $0.05 to $0.15. Further, earnings per diluted share excluding
approximately $0.03 in stock option expense for the period would be in the range of $0.08 to $0.18
per share, compared to the $0.35 reported last year.”



 









 




3



     “This range of earnings per share reflects the impact of J. Jill’s weak second quarter sales,
which will result in a significant loss in the period and represents a continuation of their first
quarter trends. In addition, we expect incremental Talbots brand markdowns in the second quarter,
resulting from softer than anticipated first quarter sales and the shift of a promotional event
from the second quarter into the first.”



     “As we have previously stated, this J. Jill acquisition will be dilutive to earnings in fiscal
2006. However, in fiscal 2007 we currently anticipate that the transaction will be accretive to
earnings, with synergies and after acquisition-related costs and adjustments. We are confident in
our ability to achieve the $25 million in synergies that we initially identified and are making
solid progress in that regard.”



     “Turning to the second half of this year, for the Talbots brand, we believe we are
well-positioned to benefit particularly from the new merchandising initiatives we established late
last year. On the J. Jill side, we anticipate improvement in its business performance in fiscal
2007, when any initiatives by our new leadership team begin to take effect.”



     “In
closing, we are delighted to now be moving ahead with this J. Jill
merger. We have confidence in the brand’s potential for the
future and its ability to enhance The Talbots, Inc. position in the
marketplace. Given our strong company fundamentals and significant opportunities for growth,
we are optimistic about our ability to enhance shareholder value for the long term,” concluded Mr.
Zetcher.



     As previously announced, Talbots will host a conference call today, May 17, 2006 at 10:00 am
local time to discuss first 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 May 19, 2006. This call may be accessed
by dialing (877) 519-4471, passcode 7379533.



     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
1,291 stores in 47 states, the District of Columbia, Canada and the U.K., with 1,086 stores under
the Talbots brand name and 205 stores under the J. Jill brand name. Both brands target the age 35+
female 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.



 









 




4



	 
	
****************************************************************************************************************







     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, purchase-related accounting
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 spring and summer 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.



	 	 	 
	
*****************************************************************************************************************







###




(tables to follow)





 










 







THE TALBOTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

FOR THE THIRTEEN WEEKS ENDED APRIL 29, 2006 AND APRIL 30, 2005

Amounts in thousands except per share data




	 	 	 	 	 	 	 	 	 
	 	 	Thirteen Weeks Ended	 
	 	 	April 29,	 	 	April 30,	 
	 	 	2006	 	 	2005	 
	 
	 	 	 	 	 	 	 	 
	NET SALES
	 	$	453,012	 	 	$	446,531	 
	 
	 	 	 	 	 	 	 	 
	COSTS AND EXPENSES
	 	 	 	 	 	 	 	 
	Cost of sales, buying and occupancy (includes non-cash
compensation

expense of $394 relating to stock options in 2006)
	 	 	272,200	 	 	 	264,279	 
	Selling, general and administrative (includes non-cash
compensation

expense of $2,549 relating to stock options in 2006)
	 	 	135,599	 	 	 	126,218	 
	 
	 	 	 	 	 	 
	OPERATING INCOME
	 	 	45,213	 	 	 	56,034	 
	 
	 	 	 	 	 	 	 	 
	INTEREST
	 	 	 	 	 	 	 	 
	Interest expense
	 	 	6,752	 	 	 	980	 
	Interest income
	 	 	5,308	 	 	 	177	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	INTEREST EXPENSE — net
	 	 	1,444	 	 	 	803	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	INCOME BEFORE TAXES
	 	 	43,769	 	 	 	55,231	 
	 
	 	 	 	 	 	 	 	 
	INCOME TAXES
	 	 	16,413	 	 	 	20,712	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	NET INCOME
	 	$	27,356	 	 	$	34,519	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	NET INCOME PER SHARE:
	 	 	 	 	 	 	 	 
	BASIC
	 	$	0.52	 	 	$	0.64	 
	 
	 	 	 	 	 	 
	DILUTED
	 	$	0.51	 	 	$	0.63	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	WEIGHTED
AVERAGE NUMBER OF SHARES OF

COMMON STOCK OUTSTANDING:
	 	 	 	 	 	 	 	 
	BASIC
	 	 	52,620	 	 	 	53,647	 
	 
	 	 	 	 	 	 
	DILUTED
	 	 	53,669	 	 	 	54,881	 
	 
	 	 	 	 	 	 
	Cash Dividends Paid Per Share
	 	$	0.12	 	 	$	0.11	 
	 
	 	 	 	 	 	 






 









 






THE TALBOTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

APRIL 29, 2006, JANUARY 28, 2006, AND APRIL 30, 2005

Amounts in thousands except share data




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	April 29,	 	 	January 28,	 	 	April 30,	 
	 	 	2006	 	 	2006	 	 	2005	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents
	 	$	139,116	 	 	$	103,020	 	 	$	49,307	 
	Restricted cash
	 	 	400,000	 	 	 	—	 	 	 	—	 
	Customer accounts receivable — net
	 	 	221,380	 	 	 	209,749	 	 	 	211,180	 
	Merchandise inventories
	 	 	271,693	 	 	 	246,707	 	 	 	253,241	 
	Other current assets
	 	 	57,946	 	 	 	61,185	 	 	 	59,809	 
	 
	 	 	 	 	 	 	 	 	 
	Total current assets
	 	 	1,090,135	 	 	 	620,661	 	 	 	573,537	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Property and equipment — net
	 	 	378,516	 	 	 	387,536	 	 	 	396,212	 
	Deferred income taxes
	 	 	8,124	 	 	 	6,407	 	 	 	—	 
	Intangibles — net
	 	 	111,397	 	 	 	111,397	 	 	 	111,397	 
	Other assets
	 	 	27,956	 	 	 	20,143	 	 	 	18,569	 
	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	TOTAL ASSETS
	 	$	1,616,128	 	 	$	1,146,144	 	 	$	1,099,715	 
	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Notes payable to banks
	 	$	45,000	 	 	$	—	 	 	$	—	 
	Bridge loan relating to acquisition
	 	 	400,000	 	 	 	—	 	 	 	—	 
	Accounts payable
	 	 	65,516	 	 	 	85,343	 	 	 	51,215	 
	Income taxes payable
	 	 	43,094	 	 	 	37,909	 	 	 	42,296	 
	Accrued liabilities
	 	 	121,240	 	 	 	121,205	 	 	 	114,970	 
	 
	 	 	 	 	 	 	 	 	 
	Total current liabilities
	 	 	674,850	 	 	 	244,457	 	 	 	208,481	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Long-term debt
	 	 	100,000	 	 	 	100,000	 	 	 	100,000	 
	Deferred rent under lease commitments
	 	 	110,184	 	 	 	110,864	 	 	 	109,375	 
	Deferred income taxes
	 	 	—	 	 	 	—	 	 	 	1,308	 
	Other liabilities
	 	 	76,642	 	 	 	63,855	 	 	 	59,734	 
	Stockholders’ equity
	 	 	654,452	 	 	 	626,968	 	 	 	620,817	 
	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
	 	$	1,616,128	 	 	$	1,146,144	 	 	$	1,099,715	 
	 
	 	 	 	 	 	 	 	 	 






 









 






THE TALBOTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE THIRTEEN WEEKS ENDED APRIL 29, 2006 AND APRIL 30, 2005

Amounts in thousands




	 	 	 	 	 	 	 	 	 
	 	 	Thirteen Weeks Ended	 
	 	 	April 29,	 	 	April 30,	 
	 	 	2006	 	 	2005	 
	 
	 	 	 	 	 	 	 	 
	CASH FLOWS FROM OPERATING ACTIVITIES:
	 	 	 	 	 	 	 	 
	Net income
	 	$	27,356	 	 	$	34,519	 
	Depreciation and amortization
	 	 	22,605	 	 	 	22,559	 
	Deferred and other items
	 	 	7,553	 	 	 	1,938	 
	Changes in:
	 	 	 	 	 	 	 	 
	Customer accounts receivable
	 	 	(11,606	)	 	 	(11,940	)
	Merchandise inventories
	 	 	(24,864	)	 	 	(14,771	)
	Accounts payable
	 	 	(19,073	)	 	 	(13,850	)
	Income taxes payable
	 	 	5,206	 	 	 	15,050	 
	All other working capital
	 	 	3,532	 	 	 	2,534	 
	 
	 	 	 	 	 	 
	 
	 	 	10,709	 	 	 	36,039	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	CASH FLOWS FROM INVESTING ACTIVITIES:
	 	 	 	 	 	 	 	 
	Additions to property and equipment
	 	 	(14,435	)	 	 	(13,808	)
	Increase in restricted cash
	 	 	(400,000	)	 	 	—	 
	 
	 	 	 	 	 	 
	 
	 	 	(414,435	)	 	 	(13,808	)
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	CASH FLOWS FROM FINANCING ACTIVITIES:
	 	 	 	 	 	 	 	 
	Borrowings under notes payable from banks
	 	 	45,000	 	 	 	—	 
	Borrowings under bridge loan relating to acquisition
	 	 	400,000	 	 	 	—	 
	Proceeds from options exercised
	 	 	2,293	 	 	 	1,293	 
	Excess tax benefit from options exercised
	 	 	94	 	 	 	—	 
	Debt issuance costs
	 	 	(115	)	 	 	—	 
	Cash dividends
	 	 	(6,452	)	 	 	(5,999	)
	Purchase of treasury stock
	 	 	(1,090	)	 	 	—	 
	 
	 	 	 	 	 	 
	 
	 	 	439,730	 	 	 	(4,706	)
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	EFFECT OF EXCHANGE RATE CHANGES ON CASH
	 	 	92	 	 	 	(29	)
	 
	 	 	 	 	 	 	 	 
	NET INCREASE IN CASH AND CASH EQUIVALENTS
	 	 	36,096	 	 	 	17,496	 
	 
	 	 	 	 	 	 	 	 
	CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
	 	 	103,020	 	 	 	31,811	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	CASH AND CASH EQUIVALENTS, END OF PERIOD
	 	$	139,116	 	 	$	49,307