Talbots sales fall, but stands by profit forecast

CHICAGO, May 8 (Reuters) - Talbots Inc on Thursday said first-quarter sales at stores open at least a year tumbled 9.8 percent, but the women's clothing retailer stood by its 2008 profit forecast.

The company also said it is in discussions with financial institutions to increase its working capital line of credit and expects to be in compliance with all covenants of its acquisition term loan agreement for the first quarter.

Talbots, which sells classic clothing to women over 35 at its namesake stores, said it will provide updates on the progress in the credit talks as needed.

Last month, Talbots confirmed its 2008 profit forecast and said meeting that goal would give it sufficient funding to continue turning around its business. That statement came two days after it disclosed that Bank of America and Hongkong Shanghai Banking Corp would stop providing letters of credit, which were used to back financing for merchandise bought overseas.

Talbots shares were down 12 cents to $7.50 in morning trade on the New York Stock Exchange.

SALES DISAPPOINT

Talbots, majority-owned by Japan's Aeon Co Ltd , said sales in the 13 weeks ended May 3 fell 5.6 percent from a year earlier to $542 million, softer than the company had expected.

Sales fell 4.6 percent to $436 million at its namesake stores and were down 9.4 percent to $106 million at its J. Jill stores. Same-store sales dropped 7.4 percent at the Talbots stores and 20.2 percent at J. Jill.

The Hingham, Massachusetts-based company said stronger merchandise gross profit margins were boosted by leaner inventory, which was down 7 percent from last year, and better inventory management that allowed for the sale of markdown items at higher prices than last year.

For the Talbots brand, the company said it saw solid sales in February, a very difficult March, and improvement in April in the mid-single digits. Sales at J. Jill were weak throughout the quarter.

Citing the improved gross margins, Talbots stood by its forecast for 2008 earnings from continuing operations of 47 cents to 52 cents a share.

That forecast excludes Talbots' children's, men's and British businesses, which the company expects to finish closing in the third quarter so it can focus on its core women's business, which has struggled for more than a year.

It expects a 2008 loss from discontinued operations of 59 cents to 64 cents a share, for a net loss of 7 cents to 17 cents a share. (Reporting by Ben Klayman; Editing by Maureen Bavdek and John Wallace)

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