The company continues to be ahead of schedule with the integration of J. Jill.

The firm currently anticipates approximately $36 million in synergies in fiscal 2007, up from the original estimate of $25 million. The management is making considerable progress in all of its key areas including sourcing, distribution, store and catalogue operations and back office. In sourcing, Talbots has approached all of its agents worldwide and have successfully negotiated commission reductions across the board.

In addition, the firm is pursuing additional cost savings as it continues discussions with its large fabric and manufacturing vendors. In back office, in addition to consolidating its call center operations by closing its United Kingdom location, the firm has also been aggressively addressing its one company platform strategy in information technology. Virtually all network and desktop infrastructures has been combined and operational consolidation is on track for early 2007. With over 200 J. Jill systems to migrate to the Talbots’ architecture, the management is pleased with the transition of several important ones including payroll and human resources which will begin processing on January 1, 2007. The management currently anticipates that most major systems will be transitioned by the end of 2007 and looks forward to completing all transition activities by mid-2008.
There''s a lot of work still ahead of the management, but it believes that it is on the right track with its many initiatives. Further, the management will continue to work at a pace that will be beneficial for the company''s performance next year.

Fiscal Year to Date Financial Highlights

The year-to-date consolidated branch performance for the 39-week period ended October 28, 2006 includes J. Jill’s results for the period beginning May 3rd 2006, effective date of the acquisition.

- Total consolidated net income was $36.1 million or 59 cents per share on a reported basis and includes acquisition-related cost and adjustments of approximately 31 cents per share and 11 cents per share of stock option expense. Excluding these costs, consolidated earnings per share were $1.01 compared to $1.35 reported last year for the Talbots-only brand.
- Total consolidated sales were 1.59 billion. By brand, Talbots’ retail store sales increased 4% to 1.17 billion compared to 1.10 billion reported last year, and were $151 million for the J. Jill brand stores. Consolidated same store sales increased 1.5% for the 39-week period. Consolidated direct marketing sales including catalogs and indirects were $271 million.
- In terms of capital expenditures, on a consolidated basis, the firm spent a total of $56 million year-to-date primarily for new store openings, expansions and renovations.

Fourth Quarter Fiscal 2006 Outlook

The management now anticipates that the effect of acquisition related cost and adjustments on earnings per share in the fourth quarter to be approximately 13 cents. In addition, stock option expense should be another 4 cents. For the J. Jill brand, the company continues to anticipate an operating loss in the fourth quarter. Excluding these costs, however, the firm does expect to achieve healthy earnings per share growth in the Talbots’ brand in the fourth quarter.

The firm continues to expect inventories per square foot on a consolidated basis in its Talbots and J. Jill brands, women’s apparel stores, on average to remain flat, slightly positive for the fourth quarter.

Fiscal 2006 Guidance

The firm is currently on track to spend $170 million in capital expenditures for the year, which includes $87 million for Talbots and $30 million for J. Jill.

Key questions and answers from the third quarter fiscal 2006 earnings call conducted by The Talbots, Inc. on November 15, 2006.

In the third quarter, the changes that you were doing started off and seemed like they were generating the returns that you wanted. Has there been any change in the sales philosophy on promotions and markdowns? Can you talk about anything incremental that you are doing this fourth quarter over last year?

In the third quarter, the firm added a smaller clearance event in mid-August to get rid of merchandise instead of waiting until the end of September. The whole quarter together was very successful and the firm learned from it and it may see application as it moves into the first quarter or the second quarter of 2007. The company was so strong in September, it didn''t anticipate that it''d be getting some back in October. There are 4 major sale events a year, but the management is looking at other ways of disposing of merchandise as it feels that it was successful with in the third quarter.

You indicated that you''ve seen positive trends in the Talbots holiday gift book that dropped in mid-October. Is this your primary fourth quarter direct mail vehicle and what correlation is there typically between the catalog Internet and the performance of the product in the stores?

The management hopes that it''s going to be a good signal. It is the firm’s key book for the fourth quarter going into the holiday season, the fact that it is up well into double-digits right now, which is a very strong performance. At the moment, the stores may not have all the product that''s in that book, but they will. There''s about a 70% overlap in the amount of product that the firm has in the stores versus what''s in the catalog. Hence, the management looks that as a good signal and has got a lot ahead in the fourth quarter.

What could be the impact of the marketing up tick or systems spending on your ability to leverage different same store sales rate next year?

On the systems side, the firm has a few initiatives that it is planning, some on the integration and some on new systems for Talbots. But the key things are that the firm is putting DHL on the supply chain management side. That will take a while to get that working, but once it''s up and running it will be very effective and in development of product, in the sourcing of product and in the flow of goods and the allocation of goods. There are a lot of other systems in the area finance, HR, inventory control which will be in place much faster and that also should benefit the efficiencies at Jill.

You talked about the underperformance of the non core customer so far in the first couple of weeks. How important this customer is to the fourth quarter and how that customer performed in the third quarter?

Yes, that customer is important. When the firm talks about its charge base, it talks about around 43% of Talbots’ charge when you put it all together. If you look at the mix, it’s about 50/50, but the core business is right now, with this event is up maybe double digits and the non core is down maybe in high singles. The management has to do something about that and it is reacting to it. At the end of this week, the firm will be trying to address its about 800,000 non core customers with email and other correspondence to let them know that they can participate in this 15% off event. Last year the non core base was strong during this event. This year it is not as strong and hence the firm has to do something to get them to get more interested.