Talbots cuts staff 9%, gets credit

Women’s apparel merchant The Talbots announced in early June it is reducing its corporate headcount by about 9%.

The cataloger/retailer expects the layoffs — across multiple locations and at all levels — to result in estimated annualized cost savings of approximately $14 million. This is part of Talbots’ goal to reduce its cost structure by at least $100 million by the end of fiscal 2009.

“It was clearly a difficult strategic decision to reduce our corporate staffing levels, but it was an important and necessary step toward strengthening our organization for the long term,” said Talbots president/CEO Trudy F. Sullivan in a statement. “We are making every effort to assist the affected employees in making a successful career transition.”

Chris Shannon, managing director for investment bank Berkery, Noyes & Co., says: “You have to give Talbots credit for not taking the typical route of cost cutting at the rank-and-file level, but instead trimming at the senior corporate level, which is always more difficult. We’ll see if this will be enough to bring their numbers to the targets they need to hit.”

At least Talbots has just scored some capital to fund its turnaround. Aeon Co., which through its wholly owned subsidiary is the majority shareholder of Talbots, announced June 11 that it has agreed to provide Talbots with a $50 million unsecured subordinated working capital term loan credit facility to support its turnaround plan, maturing Jan. 28, 2012.

This proposed new $50 million credit facility would supplement Talbots’ existing working capital lines of credit of $165 million — and increase the company’s total working capital borrowing capacity to $215 million.

The retailer had disclosed in an April Securities and Exchange Commission filing that two large lenders are cutting off its access to credit. Talbots officials said The Hongkong and Shanghai Banking Corp. Ltd. (HSBC) won’t renew a $135 million letter-of-credit facility that the company had used to import merchandise.

Also, Bank of America let lapse a $130 million letter-of-credit agreement that Talbots had used mostly for the same reason. But Talbots said an $18 million revolving credit agreement with Mizuho was extended through April 2010.

Talbots, which also includes women’s apparel brand J. Jill, earlier this year said it’s dropping its Kids and Mens lines; in March it announced it would close 20 stores.

The company is having a challenging year. First-quarter sales at Talbots slipped 5.6%, to $542 million, compared to $574 million last year. For the period ended May 3, direct sales increased 2%, to $108 million, up from $106 million. Same-store sales declined 9.8%.

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