Women's wear retailer The Talbots Inc is in the midst of a major turnaround aimed at slashing costs by $100m by the end of next year and restoring its business to profitable growth. Earlier this month the retailer said it is already seeing an improvement in sales trends at both its namesake and J Jill brands, but industry watchers believe its makeover still has some way to go.

The good news coming from women's wear retailer The Talbots Inc in recent weeks is that it has managed to secure a $50m credit facility for its turnaround initiatives and reconfirmed its earnings outlook for the year.

The bad news, though, is that experts believe its latest strategy to stem slumping sales still has some way to go, amid a general slowdown in consumer spending and concerns over its evolution toward a more design driven enterprise.

The struggling retailer, which operates 595 Talbots stores and 276 J Jill locations is pinning its hopes on women aged 35 plus to drag it out of the doldrums.

Under new CEO Trudy Sullivan, who was hired from Liz Claiborne last summer to stem a loss of $189m in the company's last financial year, the retailer is acting on the recommendations of a strategic review of its business.

It aims to shutter 100 underperforming stores by September, including the Kids and Mens concepts, and in a first wave of job cuts earlier this year said it would axe 5% of its total workforce, or around 800 positions.

A second wave of cuts followed earlier this month when the Hingham, Massachusetts based firm decided to eliminate 129 jobs, or 9% of its corporate staff, in the wake of a 69% drop in first quarter profit.

Included in the cuts was the position of chief operating officer, which will not be refilled when current COO Philip Kowalczyk leaves his post in early July.

Talbots expects the latest cuts to lead to annual savings of nearly $30m, and says they are part of its overall goal to slash costs by a minimum of $100m by the end of next year.

Strategic vision
With 35 years of retail and merchandising experience behind her, analysts believe Sullivan brings much needed strategic vision to the table and is taking the right steps to put the firm back on track.

She believes the age 35 plus female market offers "significant opportunity for profitable growth" in both the Talbots and J Jill brands, and in April revealed the retailer's blueprint for the future.

The multifaceted strategy focuses on design, merchandising and marketing strategies across its stores, catalogue and online ventures.

Included in this are tighter inventory management, regular clearance of slow-selling merchandise, and a move towards monthly flows of new products into its stores - which should lead to a higher turnover of stock and better margins.

The company will also cut its national advertising campaign and reinvest some of this budget into boosting its catalogue circulation.

And it intends to align its catalogue drops with the flow of merchandise to its stores and online channels.

Brian Tunick, an analyst at JP Morgan, says executing this will be "no small feat."

And he adds that some near-term pain is likely as the company "continues to evaluate the fundamental question of who their core customer is, evolves the merchandise, and creates a 360 degree selling plan across its stores, internet, and catalogue."

The company has also pledged to limit expansion at J Jill, the under-performing retail brand it bought in 2006 for US$517m, and tighten the footwear assortment at Talbots Accessories & Shoes.

But it plans to add about 35 new Talbots Womans stores in the next five years, as well as a new "Boutique" concept to offer a fuller range within Talbots Misses outlets, and up to 40 new Talbots Premium Outlets.

Too much, too late?
However, some industry observers wonder whether the retailer has already missed the boat, adding that it will take time for these changes to have a material impact on results.

They also point out that Talbots is hampered by high levels of debt, and that large quarterly interest payments mean an improvement in performance is imperative.

Also impacting its recovery is the fact that a number of other women's apparel chains and department stores have increased their focus on the boomer demographic over the past decade, making for a more competitive sector while Talbots struggled to keep up with the ever-changing fashion needs of its core customer.

And now, of course, shoppers have to juggle their income between new fashions and higher food and gas prices.

Tunick wonders whether "one could question whether or not its core demographic has moved on over the years while the brand has struggled to evolve or fulfil a white space.

"In other words, is Talbot's the store that her mom shopped in?"

In its first quarter results for the 13 weeks to 3 May, total sales were down 5.4% to $521m, with same-store sales down 7.4% at Talbots and tumbling 20.2% at J Jill.

But stripping out restructuring charges and the cost of closing its Talbots Kids, Mens and UK non-core businesses, profit from ongoing core operations was $11.0m or $0.21 per share. This is above last year's $0.14 per share on a comparable basis.

And gross margin from ongoing operations improved to 38.8% from 38.2% in the same period last year.

Improved sales trends
Speaking earlier this month, Sullivan hit back at the doubters with news that the retailer is already seeing an improvement in sales trends at both its namesake and J Jill brands.

She also reaffirmed full year earnings guidance of $0.47 to $0.52 per share, excluding restructuring costs.

Another positive development is the $50m credit line announced last week by Japanese retail conglomerate, and Talbots majority shareholder, Aeon Co.

This increases its total borrowing capacity from $165m to $215m and provides some much-needed reassurance about the retailer's liquidity after two major banks in April decided to cancel lines of credit worth $165m.

Without the letters of credit, in which lenders guarantee payment for merchandise, it was doubtful major suppliers - most of which are in Asia - would ship goods to Talbots without up-front cash payments.

The new $50m credit line is now expected to cover purchases from smaller vendors

Aeon Co, which has a 53.8% stake in the retailer, says the new credit facility "underscores our confidence in Talbots management team and the company's turnaround plan."

A plethora of key executive appointments has also pleased industry observers.

Former Calvin Klein designer Chris Jackson is to lead design direction of the Talbots brand; Paula Bennett, a former COO of Eileen Fisher, is the new president of the J Jill brand; ex-Nike executive Lori Wagner is taking on the new post of chief marketing officer for the Talbots brand; and Gregory Poole is the firm's new executive vice president and chief supply chain officer, joining from Ann Taylor Stores.

There's no doubt they've got their work cut out, but the turnaround has moved at quite a pace this year already.

And clearer signs of the direction it's taking should be apparent when first half results are released at the end of August.

By Leonie Barrie.