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 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.



 









 





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.



 









 





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.”



 









 





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.



 









 





5




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




     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.



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




###





 










 







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	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 




















 







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	 
	 
	 	 	 	 	 	 	 	 	 


















 







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