The company, which operates the J. Jill and Talbots chains, said it earned just $17,000 in the fourth quarter, compared with a profit of $19.8 million, or 37 cents a share, a year ago.
Analysts, on average, expected a loss of 1 cent a share according to Reuters Estimates.
"Strong sales trends were not sustained, which resulted in higher levels of markdown merchandise ... and deeper discounts," Chief Executive Arnold Zetcher said in a statement.
Fourth-quarter sales were $638 million, and included sales of $433 million at its Talbots stores and $91 million at the J. Jill stores, as well as Internet and catalog sales.
Talbots said it expects to earn between 36 cents and 43 cents a share in the first quarter of fiscal 2007. For fiscal 2007, the company expects to earn between $1.05 and $1.15 a share.
The outlook matched analysts' estimates of 38 cents a share for the quarter and $1.13 a share for fiscal 2007, according to Reuters Estimates.
The apparel retailer's new spring merchandise was selling well and was expected to boost sales in the quarter, Zetcher said.