By Karen Jacobs
The two companies, which cater to women shoppers over 35, also said they had reached new credit agreements that would help liquidity.
Talbots shares, which had lost 88 percent of their value since a recent high reached on September 19, vaulted 42 percent. Chico's gained 4 percent.
Charming Shoppes <CHRS.O>, a women's plus-size clothing retailer, posted a narrower-than-expected loss on Tuesday and gave an optimistic forecast for the fourth quarter, sending its shares up 30 percent.
Falling U.S. home values and mounting job losses have led consumers to cut back sharply on clothing purchases. Earlier this month, Talbots said it would sell its J. Jill clothing brand and withdrew its earnings outlook.
Chief Executive Trudy Sullivan said on Tuesday Talbots' customers were responding well to the company's overhaul of its merchandise, but that was not enough to counter the steep declines in shopper traffic due to a financial market crisis.
It "has been increasingly more challenging to drive customer traffic," Sullivan said during a conference call.
Talbots posted a wider third-quarter loss as sales fell 14 percent, while Chico's profit fell 92 percent. Both retailers said they increased promotional activity.
Meanwhile, teen retailer American Eagle Outfitters <AEO.N> reported a drop in third-quarter profit on Tuesday that was in line with Wall Street estimates. Its shares rose 5.3 percent.
TALBOTS RESULTS MEET VIEW, CHICO'S BEATS
Talbots, which is majority-owned by Japan's Aeon Co <8267.T> and has been undergoing a restructuring, said its third-quarter net loss came to $167.2 million, or $3.13 a share, compared with a loss of $9.4 million, or 18 cents a share, a year earlier.
Excluding restructuring and impairment charges, the loss at Talbots came to 21 cents a share, in line with what analysts expected on average, according to Reuters Estimates.
Earnings at Chico's were $2 million, or 1 cent a share, down from $23.6 million, or 13 cents a share, a year earlier.
Excluding an income tax benefit, Chico's had nearly nil profit. Wall Street, on average, had been expecting a loss of 2 cents a share, according to Reuters Estimates.
"The women's space is particularly challenged in the current macroeconomic environment," Credit Suisse analyst Paul Lejuez said in a research note.
"However, we believe there is longer-term value in the Chico's portfolio of brands and the slowing of growth and expense initiatives should help enable an eventual recovery in operating margin," she added.
Talbots sales fell to $357.3 million, hurt by the loss of revenue from the Talbots Kids, Mens and British operations, which the company has shuttered. Chico's sales fell 5 percent to $394 million.
Same-store sales fell 13.9 percent at Talbots and 13.4 percent at Chico's.
NEW CREDIT PACTS
Talbots also said it reached agreement with two banks to convert existing uncommitted working capital lines into committed lines, a move it said will stabilize its liquidity.
The company said Mizuho Corporate Bank Ltd and Sumitomo Mitsui Banking Corp agreed to convert their $75 million and $50 million working capital lines of credit to committed lines, pending due diligence.
Earlier this year, lenders stopped providing Talbots with letters of credit used to back financing for overseas merchandise, but Aeon stepped in this summer, agreeing to a $50 million credit facility to aid Talbots' turnaround plan.
On Tuesday, the company said it wouldn't comment on J. Jill until a definitive agreement was reached and declined to discuss the current quarter, citing the difficult economy.
Additionally, Chico's said its capital position was aided by a new $55 million credit facility with SunTrust Banks <STI.N>, $10 million more than a prior facility. The new credit pact will expire in November 2011.
Chico's shares rose 9 cents or 3.8 percent to $2.44 in midday trading on the New York Stock Exchange, off an earlier high at $2.94, while Talbots was up 89 cents or 42 percent at
(Additional reporting by Alexandria Sage in San Francisco; Editing by Steve Orlofsky and Matthew Lewis)