HINGHAM, MA-Heavy markdowns and declining sales at its flagship stores sent fourth quarter profits plunging at the Talbots Inc. despite a year-long expansion that added 50 new Talbots locations and 34 J. Jill stores to the company’s holdings.

The Hingham-based women’s apparel retailer, which operates 1,368 stores in 47 states under the Talbots and J. Jill names, earned just $17,000 in the quarter ended January 27, 2007. In the same quarter a year earlier, the company brought in a net profit of $19.8 million, or 37 cents per share.

Chief Executive Arnold Zetcher said in a conference call that customer traffic and sales began to slow in October after six months of positive comparable store sales, but never gained momentum as the quarter progressed.

“We anticipated a strong fourth quarter and increased our inventory commitment,” said Zetcher. “Unfortunately, these strong sales trends were not sustained, which resulted in higher levels of markdown merchandise available for our post-Christmas, semi-annual clearance event and deeper discounts.” Unseasonably warm weather added to the sales slowdown, he noted.

Net sales for the fourth quarter were $638 million, including sales of $433 million at Talbots stores, an increase from the $414 million in sales in last year’s fourth quarter. J. Jill brought in an additional $91 million in sales while internet and catalogue sales added another $114 million.

Overall comparable-store sales declined 1.6% for the 13-week quarter, with comparable store sales for Talbots dropping 2.1%. Same-store sales for the company’s J. Jill brand, which it acquired in May, increased 1.5% during the quarter, showing positive same store sales growth for the first time in more than a year, Zetcher said.

For the full year, total net income was $31.6 million or $0.59 per diluted share, including acquisition and other costs. Excluding those costs, per share earnings were $1.20. Total sales for the year were $2.2 billion.

The company also reaffirmed its outlook for the first quarter and full year, saying it expects first quarter earnings to be in the range of 36 cents to 43 cents per share and full year earnings to be between $1.05 and $1.15 per share.

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