Stick a Fork in This Stock, It's Done!

Back in March I postulated that Pacific Sunwear's (NAS: PSUN) best days were behind it and it was just a matter time before the company folded up shop. While that has yet to happen, it does appear that misery loves company in the apparel sector.

In the second round of "Stick a Fork in This Stock, It's Done!" I would like to nominate Talbots (NYS: TLB) to take its place in the captain's chair.

The retailer of mature women's clothing has been battling a myriad of issues ever since the economic bubble popped in 2007.

First, it has been unable to control its excessive inventory levels or get a handle on what its customers want. Honestly, that alone is enough to send this stock straight to the doghouse. If you can't figure out in four-plus years what your customers want, then that's the red flag of all red flags.

Second, mature women simply don't have the same spending habits that they did prior to 2007. These women are instead choosing to spend less on apparel and are diligently saving their money, which is resulting in a more fickle consumer base and far fewer sales.

Finally, competition among retailers is fierce, and Talbots simply doesn't stand out. This is one reason that Coldwater Creek (NAS: CWTR) has struggled so mightily and even Chico's (NYS: CHS) has run into snags. Rather than spending precious cash on remodeling its stores or perhaps finding out what consumers want, Talbots is forced to attempt unsuccessfully to differentiate itself from the competition.

So it came as no surprise when, as fellow Fool Alyce Lomax pointed out, Talbots once again fell flat on its face. The company's third-quarter loss was almost completely devoid of something to be positive about other than the fact that it's aiming to reduce costs by $50 million annually. The remainder of the report was highlighted by a loss that was double what analysts had been anticipating and a 6.6% drop in revenue. Same-store sales also fell by 2.4% relative to the year-ago period.

What I found even more confusing was that despite management's continued commitment to reducing inventory levels, they rose by 13.4% over last year. So just to recap, Talbots is closing stores, its total sales have fallen in four consecutive years, yet the company feels comfortable adding to already excessive inventory levels. Confused much?

I'm sorry to do this to those of you who love Talbots, but stick a fork in this stock, it's done! I've already placed my bet to the downside on CAPS -- perhaps it's your turn to enter your pick?

What do you think the future holds for Talbots? Share your thoughts in the comments section below and consider adding these retailers to your free and personalized watchlist to keep up on the latest news in the apparel sector.

At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLongTry any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that believes free is the right price for the truth.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

What Is Your Risk Tolerance?

Answer the question "What type of investor am I?".

View Course »

Understanding Stock Market Indexes

What does it mean when people say "the market is up 2%"?

View Course »

Add a Comment

*0 / 3000 Character Maximum

1 Comment

Filter by:
ccusic

The customer and what she wants is exactly what they are missing in the stores.Talbots has almost totally forced out older sales associates so the customer has no one to relate to in the store. They have reduced benefits while Trudy reeceves $6 million or more. And she has received bonuses??? Their previous creative director put himself in the catalogs. How strange is that? And since the sales are so poor, everyone waits a few weeks and what they do want goes on sale. This is not rocket science work.

December 02 2011 at 3:04 PM Report abuse rate up rate down Reply