Talbots: Turnaround, Sale, or Bankruptcy?
Jane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Much of its problem started when it migrated from providing “safe” clothing for mid-level female professionals to trendy apparel for younger women. Many of us baby boomers swore by Talbots selections as mistake-proof. The joke was that we were Hillary Clinton pants suit types. As what was in the store and catalog changed, we bailed and the young didn’t come in droves. Then the Great Recession cut our clothes budget. In a sense, consignment stores and even Goodwill and Salvation Army retail became the competition. The cliche is apt: it was the perfect storm.
Talbots has been searching for a Chief Executive Officer to replace Trudy Sullivan. It was bringing in a new CEO Mickey Drexler that repositioned Ann Taylor and J. Crew. Fresh leadership could rebrand Talbots and create excitement. Since the economy is picking up, there would be both interest and the money to spend. The CEO would also have to do the nuts and bolts jobs such as reducing inventory which Motley Fool analyst Sean Williams pointed to as a significant problem last June. That could be what is pulling net profit margin down 5.37 percent. Talbots has already shut down 110 stores.
Income growth has been 129 percent. Some investors still have hope. The stock closed at 3.24, with a 52-week range of 1.46 to 6.78. That price is higher than private equity fund Sycamore Partners' initial bid of $3 for it last December. Sycamore did indicate it could raise that bid if Talbots opened its financial books and it did due diligence. The current stock price is also higher than what the stock was described as "soaring" to - $2.70 – when the offer was made. Talbots turned down the bid.
According to Business Insider, “it is actively soliciting bids for a sale." There could be better quality offers if it puts itself on an upward trajectory that seems sustainable. The right leadership could do that. Investors would fare better. In 2007, the stock was at $25.
Meanwhile, GovernanceMetric’s International (GMI) recently listed Talbots among 17 companies at risk of bankruptcy. As of last June, it had the cash flow to cover the interest on its $25 million debt. On the GMI list is also Barnes & Noble (NYSE: BKS) which has the same options as Tablots. It could rebrand itself as an e-book publisher and distributor, sell its Nook division and then liquidate, or file for bankruptcy.