* Q2 adjusted loss 33 cents/shr; Street view loss 52 cents
* Says improved trends continuing into September
* Sees Q3 loss from continuing ops 24-30 cents/shr
* Shares down 2.8 percent after rising nearly 10 pct (Adds CEO comment, updates shares)
By Jessica Wohl
CHICAGO, Sept 9 (Reuters) - Talbots Inc TLB.N posted a narrower-than-expected second-quarter loss and gave a third-quarter outlook that beat Wall Street forecasts, signaling that the retailer’s cost cuts and improved merchandising were paying off.
But Talbots’ Chief Executive Trudy Sullivan cautioned on a conference call with analysts, “We are not projecting a sustainable turn in our sales trends as the economic environment remains uncertain.” Talbots’ shares fell 2.8 percent after rising as much as 10 percent after the results were released.
Talbots, which has been cutting staff and streamlining operations as it tries to bring back shoppers over the age of 35, said it was encouraged by customers’ response to its fall merchandise.
While Talbots still expects sales to drop in the current third quarter, it said the decline should not be as steep as in the first two quarters of the year.
Second-quarter sales were mainly driven by items under $100, and novel items sold well, Talbots said.
UBS analyst Roxanne Meyer said it appeared customers were responding positively to new products, which she said looked “much better.”
Talbots, which sells traditional styles to women and is majority-owned by Japan’s Aeon Co Ltd (8267.T), is aiming to reduce expenses by $150 million a year. It now expects to realize $135 million in cost cuts this year, up from a prior target of $125 million.
Talbots’ shares were down 21 cents to $6.90 around midday.
Talbots posted a net loss of $24.5 million, or a loss of 45 cents per share, for the quarter ended August 1, compared with a net loss of $25 million, or 47 cents, a year earlier.
Excluding restructuring and impairment charges, the loss was 33 cents per share. On that basis, analysts, on average, had forecast a loss of 52 cents per share. Talbots had forecast a loss of 50 cents to 58 cents per share.
Sales from continuing operations fell 23 percent to $304.6 million. Sales at stores open at least a year plunged 24.9 percent.
Talbots said its deal with global sourcing agent Li & Fung Ltd (0494.HK) was on track to be completed by mid-September. Li & Fung will become the exclusive sourcing agent for nearly all Talbots apparel, which should help Talbots simplify its supply chain, cut costs and bring items to market faster. Rivals like Liz Claiborne Inc LIZ.N have similar deals with Li & Fung.
Talbots competes with retailers like Coldwater Creek Inc CWTR.O and Chico’s FAS Inc (CHS.N), which sell apparel to mature women. Like many retailers, their sales have been affected by a decrease in consumer spending.
For the third quarter, Talbots said it expects an adjusted loss from continuing operations of 24 cents to 30 cents per share. Analysts, on average, have forecast a loss of 31 cents per share. Talbots expects sales to fall 14 percent to 17 percent. Analysts, on average, have forecast a 15 percent decline.
This summer, Talbots completed the sale of its J. Jill brand to Golden Gate Capital for about $75 million. It paid $517 million for the women’s fashion chain three years earlier. (Reporting by Jessica Wohl, additional reporting by Alexandria Sage in San Francisco; editing by John Wallace, Dave Zimmerman)