UPDATE 3-Talbots affirms outlook; sees enough funding

(Adds analyst comment, detail; updates share movement)

CHICAGO, April 18 (Reuters) - Women's clothing retailer Talbots Inc (TLB.N: Quote, Profile, Research, Stock Buzz) stood by its 2008 outlook on Friday and said meeting that goal would give it sufficient funding to continue turning around its business.

The forecast was released after its shares fell almost 40 percent in the two days after the company disclosed that Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) and Hongkong Shanghai Banking Corp (HSBA.L: Quote, Profile, Research, Stock Buzz) would stop providing it letters of credit, which were used to back financing for merchandise bought overseas.

Talbots' shares, which inched higher on Friday, had fallen even though Talbots said it had arranged "open account" payment terms with vendors that account for 75 percent of the company's overseas merchandise purchases.

Those agreements actually improve the company's cash flow because they allow for payment in 45 days, instead of the the 22 days required under letters of credit, the company said.

On Friday, Talbots said there was no additional cost increase on merchandise it purchases under the new agreements, addressing a concern raised by some analysts.

Talbots, which is majority owned by Japan's Aeon Co Ltd (8267.T: Quote, Profile, Research, Stock Buzz), sells classic clothing to women over 35 at its namesake stores, and also operates the J. Jill chain. It is exiting its men and kids lines in a bid to focus on improving its core women's business, which has been struggling for over a year.

The company also said again on Friday that it revised its payment terms with major vendors, giving it enhanced financial flexibility and increased operating cash flow.

Talbots said it has working capital lines of credit totaling $165 million and believes that these lines will be enough to fund its working capital requirements for the current year.