Revises Guidance for Fiscal 2008
NEW YORK, Aug. 26 /-/ -- J. Crew Group, Inc. (NYSE: JCG) today announced financial results for the three months (second quarter) and six months (first six months) ended August 2, 2008.
Second Quarter highlights:
-- Revenues increased 10% to $336.3 million. Store sales (Retail and Factory) increased 10% to $242.3 million, with comparable store sales decreasing 0.4%. Comparable store sales increased 6% in the second quarter of fiscal 2007. Direct sales (Internet and Phone) rose by 12% to $83.2 million. Direct sales increased 19% in the second quarter of fiscal 2007.
-- Gross margin decreased to 41.0% of revenues from 43.7% of revenues in the second quarter of fiscal 2007.
-- Operating income decreased 15% to $31.5 million, or 9.4% of revenues, compared to $37.1 million, or 12.2% of revenues, in the second quarter of fiscal 2007. Operating income in the second quarter of fiscal 2008 includes approximately $3.0 million of unanticipated costs related to our Direct channel systems upgrades.
-- Net income was $18.1 million, or $0.28 per diluted share, compared to a net income of $20.6 million, or $0.32 per diluted share, in the second quarter of fiscal 2007.
Millard Drexler, J. Crew's Chairman and CEO stated: "We are pleased with the fundamentals of our business and how we are positioned in this very challenging environment. That said, we are clearly disappointed by the impact that the transition to our new systems had on our business. We view this as a short term and temporary issue in continuing to build our long term success."
First Six Months highlights:
-- Revenues increased 12% to $676.9 million. Store sales (Retail and Factory) increased 12% to $471.4 million, with comparable store sales increasing 1%. Comparable store sales increased 7% in the first six months of fiscal 2007. Direct sales (Internet and Phone) rose by 14% to $184.1 million. Direct sales increased 25% in the first six months of fiscal 2007.
-- Gross margin decreased to 44.0% of revenues from 45.1% of revenues in the first six months of fiscal 2007.
-- Operating income increased 4% to $84.6 million, or 12.5% of revenues, compared to $81.5 million, or 13.5% of revenues, in the first six months of fiscal 2007.
-- Net income was $48.6 million, or $0.76 per diluted share, compared to a net income of $45.3 million, or $0.71 per diluted share, in the first six months of fiscal 2007.
Balance Sheet highlights as of August 2, 2008:
-- Cash and cash equivalents were $113.4 million at the end of the second quarter and include the impact of income taxes paid of $61.0 million and voluntary principal payments of debt of $75.0 million during the last 12 months.
-- Inventories at the end of the quarter were $197.8 million, reflecting the impact of 38 net stores opened since the second quarter of fiscal 2007 and 16 stores opened since the end of fiscal 2007. Inventory levels were also impacted by our Direct channel systems upgrade.
Guidance
Based upon the disruption to our Direct business, as well as the continued softness in our Stores business due to the macro economic environment, we are revising our guidance for fiscal 2008. The Direct systems upgrades impacted our Direct sales trend, limited our ability to leverage our multi-channel platform and resulted in incremental expenses. The Company is also introducing guidance for the third quarter of fiscal 2008. The Company currently expects third quarter diluted earnings per share in the range of $0.28 to $0.33. For fiscal 2008, the Company currently expects diluted earnings per share in the range of $1.44 to $1.54, as compared to its previous guidance range of $1.70 to $1.75 and fiscal 2007 diluted earnings per share of $1.52. The Company's revised expectations for the second half of fiscal 2008 include comparable store sales growth in the range of flat to slightly negative, Direct sales growth in the high single-digits and net square footage expansion of approximately 10% to 11%.
Conference Call Information
A conference call to discuss second quarter results is scheduled for today, August 26, 2008, at 4:30 PM Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-0784 approximately ten minutes prior to the start of the call. The conference call will also be webcast live at http://www.jcrew.com. A replay of this call will be available until September 2, 2008 and can be accessed by dialing (877) 660- 6853 and entering account number 3055 and conference ID number 294898.
About J. Crew Group, Inc.
J. Crew Group, Inc. is a nationally recognized multi-channel retailer of women's and men's apparel, shoes and accessories. As of August 26, 2008, the Company operates 212 retail stores (including 4 crewcuts and 10 Madewell stores), the J. Crew catalog business, jcrew.com, and 68 factory outlet stores. Additionally, certain product, press release and SEC filing information concerning the Company are available at the Company's website http://www.jcrew.com.
Forward-Looking Statements:
Certain statements herein are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the Company's current expectations or beliefs concerning future events and actual results of operations may differ materially from historical results or current expectations. Any such forward-looking statements are subject to various risks and uncertainties, including the strength of the economy, changes in the overall level of consumer spending or preferences in apparel, our ability to compete with other retailers, the performance of the Company's products within the prevailing retail environment, our strategy and expansion plans, systems upgrades, reliance on key personnel, trade restrictions, political or financial instability in countries where the Company's goods are manufactured, postal rate increases, paper and printing costs, availability of suitable store locations at appropriate terms and other factors which are set forth in the Company's Form 10-K and in all filings with the SEC made by the Company subsequent to the filing of the Form 10-K. The Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.
Exhibit (1)
J. Crew Group, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Three Months Six Months Six Months
(Amounts in thousands, Ended Ended Ended Ended
except percentages and August 2, August 4, August 2, August 4,
per share amounts) 2008 2007 2008 2007
Net sales
Stores $242,280 $219,586 $471,389 $420,595
Direct 83,213 74,538 184,146 161,108
325,493 294,124 655,535 581,703
Other 10,782 10,607 21,318 20,340
Total Revenues 336,275 304,731 676,853 602,043
Costs of goods sold,
buying and occupancy
costs 198,543 171,554 379,234 330,303
Gross Profit 137,732 133,177 297,619 271,740
As a percent of revenues 41.0% 43.7% 44.0% 45.1%
Selling, general
administrative expenses 106,199 96,054 213,040 190,244
As a percent of revenues 31.6% 31.5% 31.5% 31.6%
Operating income 31,533 37,123 84,579 81,496
As a percent of revenues 9.4% 12.2% 12.5% 13.5%
Interest expense, net 1,430 2,858 3,800 6,300
Income before income taxes 30,103 34,265 80,779 75,196
Provision for income taxes 11,980 13,630 32,155 29,912
Net income $18,123 $20,635 $48,624 $45,284
Income per share:
Basic $0.29 $0.34 $0.79 $0.75
Diluted $0.28 $0.32 $0.76 $0.71
Weighted average shares
outstanding:
Basic 61,693 60,316 61,443 60,024
Diluted 64,346 63,806 64,171 63,698
Exhibit (2)
J. Crew Group, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands) August 2, February 2, August 4,
2008 2008 2007
Assets
Current assets:
Cash and cash equivalents $113,438 $131,510 $119,672
Inventories 197,833 158,525 158,560
Prepaid expenses and other
current assets 39,086 33,293 44,033
Prepaid income taxes 12,025 1,194 -
Refundable income taxes 8,600 8,600 8,600
Total current assets 370,982 333,122 330,865
Property and equipment, net 183,892 168,292 138,031
Other assets 32,798 34,182 31,248
Total assets $587,672 $535,596 $500,144
Liabilities and Stockholders' equity
Current liabilities:
Accounts payable $117,009 $101,277 $92,350
Other current liabilities 75,994 93,796 71,579
Income taxes payable - - 7,756
Total current liabilities 193,003 195,073 171,685
Long-term debt 100,000 125,000 175,000
Deferred credits 73,484 67,600 67,159
Other liabilities 7,829 7,601 6,603
Stockholders' equity 213,356 140,322 79,697
Total liabilities and
stockholders' equity $587,672 $535,596 $500,144
Exhibit (3)
Actual and Projected Store Count and Square Footage
Fiscal 2008
Total Number of Number of Total
stores stores stores stores
open at opened closed open
beginning during during at end
of the the the of the
quarter quarter quarter quarter
Quarter
1st Quarter (Actual) 260 7 0 267
2nd Quarter (Actual) 267 9 0 276
3rd Quarter (Projected) 276 13 0 289
4th Quarter (Projected) 289 13 2 300
Fiscal 2008
Total Gross Reduction Total
gross square of gross gross
square feet for square square
feet at stores feet for feet at
beginning opened or stores end of the
of the expanded closed or quarter
quarter during the downsized
quarter during the
quarter
Quarter
1st Quarter (Actual) 1,688,016 38,685 (2,261) 1,724,440
2nd Quarter (Actual) 1,724,440 41,949 (7,899) 1,758,490
3rd Quarter (Projected) 1,758,490 56,424 (4,304) 1,810,610
4th Quarter (Projected) 1,810,610 65,780 (12,181) 1,864,209
