Talbots Inc. (TLB) Wednesday reported higher first-quarter profit, meeting its increased forecast, as its growing chain of plus-size apparel stores helped boost women's clothing sales.

But gross margin (search) fell as the retailer cut prices to clear out merchandise and inventory levels rose, prompting some analysts to question whether Talbots was relying too much on markdowns to attract customers. The stock fell 1.7 percent.

Talbots said it expects to meet its second-quarter eal store sale set for June should help boost sales.

On a conference call with analysts, the retailer said about two-thirds of its sales come from full-price items, and it expected inventory levels to come down following the June clearance sale.

Hingham, Mass.-based Talbots earned $34.5 million, or 63 cents per share, in the fiscal first quarter ended April 30, compared with $33.5 million, or 58 cents per share, in the same period a year earlier.

Talbots said on May 5 that earnings would likely reach the high end of a range of 59 cents to 63 cents, not the lower end it had previously forecast. At the time, analysts had expected 60 cents per share, but the average estimate has since climbed to 63 cents, according to Reuters Estimates.

Quarterly sales rose 8 percent to $378.1 million, while sales at stores open at least a year -- a key retail measure known as same-store sales -- rose 4.3 percent.

Talbots said its Talbots Woman stores for sizes 12W to 24W reported strong growth in the quarter, and it was slowly expanding its chain of men's clothing stores. Kids clothing sales were weak, although they did improve in the last three weeks of the quarter.

The retailer said women's suits and jeans both sold particularly well, but sweaters were weak.

The retailer opened seven new stores in the quarter, and said it plans to open 50 in 2005, which would bring the total to 1,088 stores.

Talbots said it was "comfortable" with its forecast for a second-quarter profit in the range of 32 cents per share. Analysts, on average, expect a profit of 33 cents, according to Reuters Estimates.

Shares of Talbots were down 49 cents to $28.33 in NYSE (search) trading.