Ahead of the Bell: Talbots may cut dividend

Last week, Talbots said that fiscal third-quarter same-store sales fell 13.9 percent, hurt by declining customer traffic. Same-store sales measures sales at stores open at least one year.

Talbots also said it will sell its J. Jill brand and pulled its forecast for the second half of fiscal 2008 due to the planned sale.

Friedman, Billings, Ramsey analyst Adrienne Tennant, who rates the stock "Market Perform," said she is skeptical about the prospects of selling J. Jill in the current environment.

"We note that private equity and strategic investors have not been terribly active in the specialty apparel space of late, and we believe there could be limited buyers for a struggling retailer," Tennant wrote in a client note.

Tennant expects Talbots will try and preserve cash through fiscal 2009 until it can stabilize sales, which may include a dividend cut.

"We believe that Talbots is likely to cut capital expenditures for fiscal 2009, and we also believe that investors should be prepared for the company to reduce or possibly eliminate the dividend," Tennant wrote.

Tennant cut her price target to $4.50 from $8, implying 18.2 percent downside to Monday's close of $5.50.