NEW YORK — Talbots Inc. has its work cut out for it with the company’s purchase of the J. Jill Group Inc.
The retailer, which outbid Liz Claiborne Inc., bought its competitor for $24.05 per share, or $517 million in cash. Talbots is getting a brand in need of a turnaround but with potential to grow and bolster Talbots’ share of the 35-and-older women’s market.
Net income at J. Jill, which specializes in sophisticated casual sportswear while Talbots emphasizes updated modern classics, career and more tailored clothing, has been slipping since 2002. In the first nine months of last year, J. Jill lost $1.5 million. Product misses and a store base that has been eating away at catalogue sales are part of the problem. Talbots’ 39-week net income was $73.4 million.
“It is a challenge,” Arnold Zetcher, chairman, chief executive officer and president of Talbots, said in an interview on Monday. However, he added that Talbots is familiar with J. Jill’s issues, considering internal discussions about buying the brand have spanned years, and that the nuts and bolts of assimilating the business are lessened because J. Jill is based in Quincy, Mass., seven miles from Talbots in Hingham, Mass. The plan, for now at least, is to maintain both headquarters. “We understand the company,” Zetcher said. “This just didn’t happen so quickly.”
He said there is only a 20 percent overlap in customers, and that J. Jill, with its stores, catalogue and Internet businesses, skews to a slightly younger shopper. “The multichannel business model is something we can leverage,” he said. Talbots also sells via the same channels.
J. Jill stock rose 23 percent, or $4.37, on the announcement to close at $23.57 in New York Stock Exchange trading, while Talbots stock slipped 4.1 percent, or $1.12, to $26.15.
“We are disappointed that we were unable to acquire J. Jill at a price that makes sense for our shareholders,” Paul Charron, Claiborne’s chairman and ceo, said in a statement. “However, we are financially disciplined and will not overpay.”
Zetcher countered, “We paid what we thought was the appropriate amount. It’s clearly a number that works out financially and strategically. The similarities give us a lot of synergies.”
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He emphasized that merchandising, marketing, stores, visual, catalogue, Web and store design teams will remain separate, while synergies will be found in back office areas, sourcing and distribution. Talbots expects the deal to generate about $25 million in costs savings in 2007 and more in subsequent years.
The $1.8 billion Talbots operates 1,100 stores and is considered a mature business, though the chain this year plans to open 15 to 20 misses’ stores, 15 petite units and 20 large-size units. The 12-unit Talbots men’s chain is being examined to determine future growth. Zetcher said that the $450 million, 200-unit J. Jill had plans to open 40 stores this year and he was certain the acquisition could accelerate the expansion, particularly in lifestyle centers and street locations, considering 70 percent of the stores are in malls.
The deal should be completed in the second quarter, when the fate of Gordon Cooke, J. Jill’s chairman and ceo, will be determined. J. Jill’s chief merchant slot has been vacant since December.
Cooke said there has already been some progress in J. Jill’s “transition” to greater profitability, noting “major improvements” in sourcing and product development. “But we are still somewhat unhappy with actual product.”