TALBOTS TEETERING
Contact The Author
Women’s clothier Talbots said two big banks will no longer finance its apparel imports, sparking fears the credit crisis is poised to extend deeper into the retail industry.
The Hingham, Mass.-based retailer’s shares plunged $3.69, or 29 percent, to $9.16 after the company said letters of credit to finance its inventory-supply chain weren’t being renewed by HSBC and Bank of America.
Talbots said other sources of financing, including remaining credit lines and easier payment terms from suppliers, will be enough for the company, “assuming it achieves its 2008 operating plan.”
The retailer made its announcement after weeks of fruitless negotiations with the banks.
Wall Street insiders speculated the company’s stock plunge could pave the way for a takeover by Aeon Co. – a Japanese retail conglomerate that already owns more than half of Talbots’ shares.
But more significantly, the news raised worries that Wall Street is “now balking at much more conventional and ordinary types of credit facilities,” said Richard Hastings, economic adviser to the Federation of Credit, a trade group that tracks business risk in consumer goods and construction.
“This is a huge development that needs to be watched very carefully,” Hastings said. Especially at risk, he said, are longer-term financing deals to retailers with “less-than-perfect credit quality.”
For Talbots, steeper borrowing costs will likely spur “a big hit to cash and earnings,” Oppenheimer analyst Roxanne Meyer said in a research note.
While Talbots retains about $125 million in credit facilities, that’s less than the $143 million it borrowed during last year’s first quarter.
Talbots will “clearly” need new sources of financing, she said, but “it won’t be easy and financing will not be cheap.”
In another sign of uncertainty, JC Penney yesterday slashed its store-growth plans and declined to give a full-year earnings forecast at its annual analysts meeting.