This summary is based on the third quarter fiscal 2006 earnings call conducted by The Talbots, Inc. (TLB: chart) on November 15, 2006.

Key Investors Issues

- Earnings per share fell to 15 cents from 37 cents in the year ago quarter.
- Quarterly revenue rose to $568.6 million from $426.3 million a year ago.
- Year to date, total consolidated income was $36.1 million, on sales of $1.59 billion.

Third Quarter Fiscal 2006 Financial Highlights

For the quarter, the firm reported earnings of $8.1 million or 15 cents per share, on a reported basis, which is at the high end of the firm’s expectations and in line with the current first call consensus estimate.

This result includes 16 cents in acquisition related costs and adjustments and 4 cents in stock option expense. Excluding these costs, earnings per share in the quarter were 35 cents for the combined company compared to the 37 cents reported last year for the Talbots-only brand. If the firm had not accelerated certain integration activities into the third quarter, the earnings per share would have been approximately 4 cents higher, exceeding the previously announced expectations.

Net sales for the third quarter were $569 million.

The firm’s brand retail sales were up 5.6% to $383 million for Talbots compared to $363 million last year and $77 million for J. Jill in this year''s third quarter. Sales for the J. Jill brand represent approximately 20% of the total combined company sales. Total company comparable store sales for the thirteen week period increased 2.3%. By brand, Talbots same store sales grew 4% and J. Jill comparable store sales declined 6.6%.

During the quarter, a major Talbots’ brand growth vehicle, Talbots’ Woman large size concept, continues to be the strongest performer with same store sales increasing 5% in the quarter and 8.2% for the year-to-date. In addition, the Talbots Kids business continues to gain momentum, ending the period with a 6.1% increase in comparable store sales, driven by strong regular price selling. Kids year-to-date same store sales increased almost 5%.

The J. Jill brand sales trends were negative throughout the third quarter. However, since the firm closed the acquisition in May, it has experienced a modest improvement in the quarterly sales results.

The combined company direct marketing business, which includes catalogue and Internet, had sales of $109 million. Internet currently represents 48% of the total direct business and continues to be strong across both brands.

During the quarter, cost of sales buying in occupancy was 63.1% of net sales versus 62% last year for the Talbots brand only.

This decrease is due primarily to lower mark on resulting from sharper pricing.

Selling, general and administrative expenses in the third quarter were $189.1 million, at 33.2% of net sales.

This is an increase of 300 basis points. Of this, 130 basis points of this increase represents acquisition-related costs and expenses. The balance reflects J. Jill’s SG&A spending, which is at a higher level than Talbots.

- During the third quarter, operating income was $20.9 million.
- Net interest expense for the quarter was $8 million versus $900,000 last year for the Talbots-only brand. This increase is due to a combination of higher borrowing rates and greater average borrowings including the $400 million of acquisition debt.
- Income taxes for the quarter were $4.8 million and reflect the 37.5% effective tax rate.

- Weighted average shares outstanding for the third quarter were approximately 53.7 million.
- The firm ended the third quarter with accounts receivable of $228 million comprised entirely of Talbots Charge. Talbots’ charge penetration remains stable at 44% and bad debts are running at a historic low.

- Total consolidated inventories at the end of the quarter were $367 million. Inventories per square foot in the U.S. women’s apparel stores, including J. Jill, was flat at the end of the quarter. This was finally above plan due to the firm’s strong inventory commitment going into the holiday season.
- Talbots has paid a cash dividend of 13 cents per share in the quarter, which reflects an increase in the dividend rate announced earlier this year.
- The firm paid its first $20 million installment of the $400 million term loan during the period.

During the third quarter, the firm opened 49 new stores, including 31 Talbots’ stores and 18 J. Jill stores.

Specifically, by concept, the firm added 15 Talbots’ Missy, four Talbots’ Petites, 12 Talbots’ Woman, and 18 J. Jill Missy Stores. The company ended the quarter with 1346 stores and the gross and selling square footage totaled approximately 5.3 million and 4.1 million feet respectively on a consolidated basis.