Talbots Inc. posted lower-than-expected sales as tight inventories failed to keep up with demand, and the women's clothing retailer gave a disappointing forecast for the current quarter, sending its shares down as much as 12 percent.
The company, which is staging a turnaround after struggling with declining sales and a heavy debt burden, has revamped its merchandise and boosted margins by reining in inventory.
Analysts have feared that retailers, in their push to create demand, could be stocking too little merchandise, risking shortages when consumers come back to shop.
Wedbush Securities analyst Betty Chen said that scenario came true at Talbots, which cut inventories 17.9 percent in its latest quarter.
"When you have inventory levels go down so much," Chen said, "managing sales is a problem."
Investors also were probably expecting a stronger forecast, given that profit came in much higher than expected in Talbots' first quarter, which ended on May 1.
Talbots, which is popular with women in their 50s and 60s, said it expected second-quarter profit at break-even to 5 cents a share. The analysts' average estimate was at the high end of that range, according to Thomson Reuters I/B/E/S.
First-quarter sales rose 4.7 percent to $320.7 million, while analysts were expecting $323.1 million.
Same-store sales, a key measure of retail performance, rose 2.4 percent, missing a Wall Street forecast for 3.2 percent growth and well below the double-digit increases reported by rivals like Ann Taylor and Chico's, Credit Suisse analyst Paul Lejuez wrote in a note.
Shares of the company were down 9 percent at $12.27 on the New York Stock Exchange on Tuesday afternoon after falling as low as $11.83. But they are still priced at more than three times their low of $3.61 set last July.
Talbots' net loss from continuing operations narrowed to $7.1 million, or 12 cents per share, from $18 million, or 35 cents per share, a year earlier.
Excluding special items, the company earned 38 cents a share, while analysts were expecting 16 cents.
Talbots, which is trying to appeal more to women in their 30s and 40s, said full-price sales rose 21 percent, while sales of discounted merchandise fell 31 percent.
While this trend helped boost gross margins by 12.60 percentage points, customer traffic fell 11.3 percent from a year earlier.
Although the company started the year on a strong note with gross margins rising, Lejuez said, expectations are high, and sales will need to accelerate for the stock to outperform.
In April, the company completed a financing deal that cut its ties with Aeon Co. Ltd., Japan's second-largest retailer. The move boosted liquidity and gave Talbots the means to fund an overhaul of its stores.
During the first quarter, Talbots reduced its outstanding debt by more than 80 percent, to $94.1 million.
The company also stuck to its forecast for a full-year sales rise of 3 percent to 5 percent. It said it expected earnings of 75 cents to 83 cents a share before special items, compared with analysts' expectations of 73 cents.
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