"In 2000,Talbots reached out to existing and new customers in innovative ways and achieved record sales and earnings growth – across every region, every store concept, and every sales channel."

ARNOLD B. ZETCHER

CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER

DEAR SHAREHOLDER:

The year 2000 was an exceptional one for Talbots, marked by unprecedented sales and net income growth. We have now recorded 12 consecutive quarters of comparable store sales growth and 11 consecutive quarters of earnings growth.

Overall, our sales grew by 22% over 1999 – from $1.3 billion to nearly $1.6 billion. Net income grew 97%, from $58.5 million to $115.2 million.

As these results indicate, our growth not only continued in 2000, but also intensified. In fact, we achieved double-digit comparable store growth in every month of the year, except the clearance months of July and January, when we simply had little markdown merchandise left to sell. Moreover, we saw robust sales growth in every concept, every geographic region, every store concept, and every sales channel – stores, catalog, and the Internet.

Our revenue growth was matched by record earnings growth. Earnings per diluted share increased by 96% to $1.80, up from $0.92 last year. And we achieved an all-time record for quarterly earnings – $0.54 per share – in the third quarter of 2000. We also saw record share price growth, leading to our first-ever stock split (two for one) in November.

Our strong performance was driven largely by three key factors. At the top of the list was our outstanding assortment of classic merchandise, supported by effective inventory management. By offering our customer the right mix of perennial favorites and trend-right items – and responding quickly to customer preferences – we were able to keep our assortment fresh, exciting, and on target.

A second factor in our success was a highly successful marketing program, which included our first ever, national network television and newspaper campaign. By building brand awareness through mass media, we were able to attract many new customers to the Talbots brand.

Finally, much of the credit for our strong performance last year goes to the outstanding customer service that our associates provide, whether in stores, through catalog sales, or on the Internet. By managing these three sales channels synergistically (for example, equipping every U.S. store with a "red line" phone so customers can call our catalog to check item availability), we’re able to offer a level of service far above the norm.

		ARNOLD B. ZETCHER CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER	H. JAMES METSCHER EXECUTIVE VICE PRESIDENT AND CHIEF MERCHANDISING OFFICER

 

With these strengths propelling us forward, we were able to accomplish many key business objectives last year:

 

NEW STORES. We opened 55 new stores in 2000 for a total of 722 by the end of the fiscal year. Total stores by concept included, 397 U.S. Talbots Misses stores, 19 Canadian Talbots Misses stores and five Talbots Misses stores in the United Kingdom; 174 U.S. Talbots Petites stores and one Canadian Talbots Petites store; 35 Talbots Accessories & Shoes stores; 57 Talbots Kids stores, 14 Talbots Woman stores

and 20 Talbots Outlet stores.

 

TALBOTS.COM. Our Web business continued to contribute to our profitability, as it has since its launch on November 17, 1999. By year’s end, the site has received over five million visitors since its inception. Customers who shopped on-line generated roughly 10% of our total catalog business in fiscal 2000.

 

TALBOTS WOMAN. In 2000, we accelerated the national rollout of Talbots Woman, our large-size concept, opening nine new stores across the nation. Customer response to this concept has been very strong since its launch in 1998 and continues to gain momentum. We ended the year with 14 stores and 10 departments within existing Misses locations dedicated to this under-served customer, the estimated 40% of women who wear large size clothing. This fall, we will also introduce large size Petites within 15 Woman’s stores.

 

CLASSIC AWARDS. In January 2001, we launched our Classic Awards customer loyalty program on a national basis. This frequent-flyer type program offers Talbots charge customers a $25 "Appreciation  Dividend" for every $500 in purchases charged to the card, among other benefits. Charge card usage increased substantially in many areas where we tested this program.

 

In addition to these achievements, we saw continued strength and productivity in our catalog sales, where net sales per book rose 26% to $4.24 last year.

 

What’s most encouraging about these and other accomplishments is that they demonstrate that there is plenty of room for continued growth at Talbots. Indeed, we believe the strength of the Talbots brand and the flexibility of our classic positioning give us significant opportunities for sustained, long-term growth. Even as our core Misses and Petites businesses mature, our Talbots name serves as a powerful spring-

board from which to launch and develop potential new concepts. In addition, our strong financial resources provide us with the opportunity to consider potential acquisitions, if appropriate.

 

		TALBOTS ANNUAL STORE MANAGERS MEETING

 

To guide our pursuit of these growth opportunities, we developed a strategic plan called "Vision 2005." Unveiled at last spring’s shareholder meeting, Vision 2005 sets a series of ambitious goals for Talbots in the near future. Specifically, by the end of fiscal 2005, our plan is to: increase sales by approximately 8% per year, from $1.6 billion to more than $2.3 billion; and increase the number of Talbots stores in operation from the current 722 to more than 1,100.

 

By the end of the year 2005, our goal is to be operating approximately 500 Misses stores and 280 Petites stores, up from 421 Misses stores and 175 Petites stores at the end of fiscal 2000. We also expect to greatly expand our newer store concepts, more than doubling the number of Talbots Accessories & Shoes stores from 35 in 2000 to approximately 83 in 2005, and nearly doubling our Talbots Kids stores from the current 57 to approximately 107 over the next five years. Following the successful introduction of Talbots Woman over the past two years, we are looking to expand our large-size concept from 14 stores in 2000 to 159 stores by the end of fiscal 2005.

 

Total square footage under the Vision 2005 plan is expected to increase over 50%, from 3.0 million square feet at the end of fiscal 2000 to over 4.6 million.

 

Our long-range plan also calls for continued growth in sales and productivity of our catalog operation, which we plan to achieve through a targeted mailing strategy, as well as expansion of our newest sales channel, talbots.com. Talbots.com has attracted a significant number of new customers to Talbots, and we plan to grow our on-line business through increased marketing and continued site enhancements.

 

Our operating goal under the plan is to achieve a compound annual sales growth rate of at least 8% by continuing to leverage our three, closely integrated sales channels, and supporting them with strong inventory management and effective marketing programs. We believe we are well-positioned to execute our Vision 2005 plan, and we are committed to enhancing shareholder value by achieving consistently strong levels of sales and earnings.

 

Of course, continued growth isn’t our only commitment. As always, community service is an important component of our corporate culture at Talbots. In fiscal 2000, we demonstrated our commitment to the communities in which we live and work in a number of ways, including:

 

		SUSAN  G. KOMEN BREAST CANCER FOUNDATION'S RACE FOR THE CURE

 

 

The Talbots Women’s Scholarship Fund. For the third consecutive year, we awarded five $10,000 scholarships and fifty $1,000 scholarships to women pursuing an undergraduate college degree later in life.

 

The Takuya Okada Global Fellowship. Named in honor of our former Chairman of the Board of Directors and former Chairman of JUSCO, this Talbots-funded fellowship supports the education of students from around the world at Harvard Business School for the next six years.

 

The Susan G. Komen Breast Cancer Foundation. For the second year in a row, Talbots entered the largest corporate team in the Boston-area Komen Race for the Cure^® event. Our retail associates also supported the organization through their participation in Komen Foundation chapters throughout the country.

 

Juvenile Diabetes Foundation. In keeping with our long-standing support of the JDF, we sold a plush toy named Flurry™ the Snowman during the holiday season, donating 10% of each sale to the JDF.

 

Dress for Success^®. In conjunction with the expansion of our Madison Avenue flagship store in November, we held a gala to benefit Dress for Success, a non-profit organization that helps low-income women make tailored transitions into the workforce.

 

In addition to these major programs, Talbots associates participated in more than 1,500 charitable events around the world.

 

Finally, if there’s one overriding factor in our strong performance in fiscal 2000, it’s this: success at Talbots is a team effort. We could not have achieved everything we did last year without flawless execution from each and every department in the Company. I’d like to publicly thank all our associates throughout the Company for making outstanding performance the norm at Talbots.

 

I’d also like to take this opportunity to thank our colleagues at JUSCO Co., Ltd., especially honorary Chairman Takuya Okada, Chairman Toshiji Tokiwa, and President Motoya Okada. These leaders at JUSCO have been instrumental to the success of Talbots for more than 12 years, providing vision, wisdom, and invaluable advice. All of us at Talbots greatly appreciate their support and counsel as long-term shareholders and valued members of our Board of Directors.

 

	SEATED ARNOLD ZETCHER, Chairman, President and Chief Executive Officer JIM METSCHER, Executive Vice President, Chief Merchandising Officer   STANDING MARGIE MYERS, Vice President, Corporate Communications and Public Relations DEBBIE MARTIN, Vice President, Product Development PAUL KASTNER, Senior Vice President, International and Strategic Planning MICHELE MANDELL, Senior Vice President, Stores JUDY O’KEEFE, Vice President, Merchandise Administration CAROL STONE, Vice President, Corporate Controller STU STOLPER, Senior Vice President, Human Resources ANDREA MCKENNA, Senior Vice President, Marketing and Catalog Development CINNY MURRAY, Vice President, General Merchandise Manager OLIVIA ZIEGLER, Vice President, General Merchandise Manager, Talbots Woman SANDY KATZ, Vice President, Audit and Control LUCY MAIN TWEET, Vice President, Manufacturing BRUCE PRESCOTT, Senior Vice President, Direct Marketing DICK O’CONNELL, Senior Vice President, Legal and Real Estate BRUCE SODERHOLM, Senior Vice President, Operations ED LARSEN, Senior Vice President, Finance and Chief Financial Officer HAL BOSWORTH, Senior Vice President, General Manager, Talbots Kids RANDY RICHARDSON, Senior Vice President, Information Services

 

As indicated by our ambitious Vision 2005 plan, Talbots is not content to rest on its laurels. Our exceptional year in fiscal 2000 has only inspired us to reach higher, to pursue the wealth of new opportunities that lie before us, and to continue to enhance shareholder value. We appreciate your confidence in us, and we look forward to earning your continued support.

 

 

 

SINCERELY,

 

ARNOLD B. ZETCHER

CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER