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News Release

J. Crew Group, Inc. Announces Fourth Quarter and Fiscal 2006 Results

Fourth Quarter Revenues Rise 27% to $366.7 million Fourth Quarter Operating Income Increases by $22.9 million to $37.3 million

NEW YORK, March 13 /PRNewswire-FirstCall/ -- J. Crew Group, Inc. (NYSE: JCG) today announced financial results for the fourth quarter and fiscal year ended February 3, 2007 (fiscal 2006). The Company noted that fiscal 2006 consisted of 53 weeks, resulting in a 14-week fiscal fourth quarter. The 53rd week is not included in comparable store sales calculations.

For the three months ended February 3, 2007:

  • Revenues increased 27% to $366.7 million. Store sales (Retail and Factory) increased 20% to $241.8 million, with comparable store sales increasing 7%. Comparable store sales rose 8% in the fourth quarter of fiscal 2005. Direct sales (Internet and Catalog) rose by 43% to $113.2 million. The impact of the 53rd week of fiscal 2006 on Store and Direct sales was $8.2 million and $4.0 million, respectively.
  • Gross margin increased 400 basis points to 40.8% of revenues from 36.8% of revenues in the fourth quarter of fiscal 2005.
  • Operating income increased 160% to $37.3 million, or 10.2% of revenues, compared to $14.4 million, or 5.0% of revenues, in the fourth quarter of fiscal 2005.
  • Net income applicable to common stockholders was $44.0 million, or $0.71 per diluted share, compared to net loss of $9.2 million, or $(0.37) per diluted share, in the fourth quarter of fiscal 2005. Net income in the fourth quarter of fiscal 2006 includes $1.4 million of stock based compensation expense related to the adoption of SFAS 123(R), which was not applicable in fiscal 2005. Net income in the fourth quarter of fiscal 2006 also includes a non-recurring tax benefit of $10.9 million related to the recognition of deferred tax assets that were previously reserved.
  • Adjusted net income for the fourth quarter of fiscal 2006 totaled $20.5 million or $0.33 per diluted share. A reconciliation of net income on a GAAP basis to adjusted net income is included in Exhibit (3) of this press release.

Millard Drexler, J.Crew's Chairman and CEO stated: "We're very pleased with our fourth quarter results. We continue to re-define the designer business in America through our continued focus on quality, style and design along with endless attention to our customers' needs. This has translated into strong topline growth and significant improvements in profitability, with our operating margin more than doubling to 10.2% in the fourth quarter."

For the fiscal year ended February 3, 2007 (fiscal 2006):

  • Revenues increased 21% to $1,152.1 million. Store sales (Retail and Factory) increased 21% to $808.5 million, with comparable store sales increasing 13%. Comparable store sales rose 13% in fiscal 2005. Direct sales (Internet and Catalog) increased 22% to $308.6 million. As previously noted, the impact of the 53rd week of fiscal 2006 on Store and Direct sales was $8.2 million and $4.0 million, respectively.
  • Gross margin increased 160 basis points to 43.4% from 41.8% in fiscal 2005.
  • Operating income increased 58% to $125.6 million, or 10.9% of revenues, compared to $79.5 million, or 8.3% of revenues, in fiscal 2005.
  • Net income applicable to common stockholders was $71.6 million, or $1.49 per diluted share, compared to a net loss of $9.7 million, or $(0.39) per diluted share, in fiscal 2005. Net income for fiscal 2006 includes pre-tax charges of $10.0 million related to the refinancing of debt and $2.9 million of stock based compensation expense related to the adoption of SFAS 123(R), which was not applicable in fiscal 2005. Net income for fiscal 2006 also includes a non-recurring tax benefit of $10.9 million related to the recognition of deferred tax assets that were previously reserved.
  • Adjusted net income for fiscal 2006 totaled $65.2 million, or $1.05 per diluted share. A reconciliation of net income on a GAAP basis to adjusted net income is included in Exhibit (3) of this press release.

"I am also pleased with our full year results," Mr. Drexler continued. "We increased sales productivity as evidenced by our comparable store sales gain of 13% with sales per square foot improving to $526 from $457 last year on a 52 week basis. We accelerated our store expansion, opening 24 net new stores and introducing two new concepts, Crewcuts and Madewell. Importantly, we strengthened our financial flexibility by successfully completing our initial public offering. This provides us with a strong capital base for the continued execution of our growth plans."

Guidance

The Company's long-term financial targets include comparable store sales growth in the mid single digit range, Direct sales growth in the high single digits, net square footage expansion in the 7% to 9% range, and diluted EPS growth in excess of 20%.

Use of Non-GAAP Financial Measures

In addition to providing financial results in accordance with GAAP, the Company has provided non-GAAP adjusted interest expense, loss on refinancing of debt, income taxes, net income, preferred stock dividends and earnings per share information for the three months and fiscal year ended February 3, 2007 in this release. This information reflects, on a non-GAAP adjusted basis, the Company's adjusted interest expense, loss on refinancing of debt, income taxes, net income, preferred stock dividends and earnings per share after excluding the effects of transactions which resulted from the Company's initial public offering, refinancings and adjusted tax rates. This non-GAAP financial information is provided to enhance the user's overall understanding of the Company's current financial performance. Specifically, the Company believes the non-GAAP adjusted results provide useful information to both management and investors by excluding expenses that the Company believes are not indicative of the Company's future results. The non-GAAP financial information should be considered in addition to, not as a substitute for or as being superior to, net income, earnings per share or other measures of financial performance prepared in accordance with GAAP. This non-GAAP information and a reconciliation of this information to GAAP amounts for the three months and fiscal year ended February 3, 2007 are included in Exhibit (3).

Conference Call Information

A conference call to discuss fourth quarter results is scheduled for today, March 13, 2007, at 4:30 PM Eastern Time. Investors and analysts interested in participating in the call are invited to dial (800) 418-7236 approximately ten minutes prior to the start of the call. The conference call will also be webcast live at www.jcrew.com. A replay of this call will be available until March 20, 2007 and can be accessed by dialing (877) 519-4471 and entering code 8448564.

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 March 13, 2007, the Company operates 178 retail stores, the J. Crew catalog business, jcrew.com, and 51 factory outlet stores. Additionally, certain product, press release and SEC filing information concerning the Company are available at the Company's website 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, the performance of the Company's products within the prevailing retail environment, 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. and Subsidiaries
                      Condensed Statements of Operations
                                 (Unaudited)


    (In thousands, except  Three Months Three Months  Fiscal Year  Fiscal Year
    percentages and per        Ended        Ended        Ended        Ended
    share amounts)           February 3,  January 28,  February 3, January 28,
                                2007         2006         2007         2006
                             (14 weeks)   (13 weeks)   (53 weeks)   (52 weeks)
    Net sales
      Stores                  $241,832     $201,792     $808,542     $670,447
      Direct                   113,233       79,226      308,611      253,682
                               355,065      281,018    1,117,153      924,129
    Other                       11,605        8,908       34,947       29,059
    Total Revenues             366,670      289,926    1,152,100      953,188

    Costs of goods sold,
     buying and occupancy
     costs                     216,886      183,245      651,748      555,192
    Gross Profit               149,784      106,681      500,352      397,996
      As a percent of
       revenues                  40.8%        36.8%        43.4%        41.8%

    Selling, general and
     administrative expenses   112,463       92,319      374,738      318,499
      As a percent of revenues   30.7%        31.8%        32.5%        33.4%
    Operating income            37,321       14,362      125,614       79,497
      As a percent of revenues   10.2%         5.0%        10.9%         8.3%

    Interest expense, net        3,965       19,025       43,993       72,903

    Loss on refinancing of
     debt                            -            -       10,039            -

    Income (loss) before
     income taxes               33,356       (4,663)      71,582        6,594

    Provision (benefit) for
     income taxes              (10,600)       1,200      (6,200)        2,800

    Net income (loss)           43,956       (5,863)     77,782         3,794

    Preferred stock dividends        -       (3,364)     (6,141)      (13,456)

    Net income (loss)
     applicable to common
     shareholders              $43,956      ($9,227)    $71,641       ($9,662)

    Income (loss) per share:
      Basic                      $0.75       ($0.37)      $1.61        ($0.39)
      Diluted                    $0.71       ($0.37)      $1.49        ($0.39)

    Weighted average shares
     outstanding:
      Basic                     58,328       24,856      44,558        24,472
      Diluted                   62,144       24,856      48,039        24,472



                                                                   Exhibit (2)

                     J. Crew Group, Inc. and Subsidiaries
                    Condensed Consolidated Balance Sheets
                                 (Unaudited)


    (In thousands)                                 February 3,    January 28,
                                                       2007           2006
    Assets
    Current assets:
      Cash and cash equivalents                      $88,900        $61,275
      Inventories                                    140,670        116,191
      Prepaid expenses and other currents assets      39,328         37,732
      Deferred income taxes, net                       8,200              -
    Total current assets                             277,098        215,198

    Property and equipment, net                      121,814        109,408

    Deferred income taxes, net                        15,600              -

    Other assets                                      13,554         12,715
    Total assets                                    $428,066       $337,321



    Liabilities and Stockholders' equity (deficit)
    Current liabilities:
      Accounts payable                               $77,836        $75,833
      Other current liabilities                       76,666         64,031
      Income taxes payable                             5,496          2,677

    Total current liabilities                        159,998        142,541

    Long-term debt                                   200,000        631,867

    Deferred credits                                  62,448         57,956

    Preferred stock                                        -         92,800

    Stockholders' equity (deficit)                     5,620      (587,843)
    Total liabilities and stockholders' equity
     (deficit)                                      $428,066      $337,321





                                                                   Exhibit (3)

    Reconciliation of net income on a GAAP basis to "Adjusted net income"

                                                    Three Months Ended
    (In thousands, except                            February 3, 2007
     percentages  and per                      GAAP      Adjust-        As
     share amounts)                           Basis       ments      Adjusted

    Total Revenues                           $366,670           -    $366,670

    Cost of goods sold, buying and
     occupancy costs                          216,886           -     216,886

    Gross Profit                              149,784           -     149,784

    Selling, general administrative
     expenses                                 112,463           -     112,463

    Operating income                           37,321           -      37,321

    Interest expense, net                       3,965           -       3,965

    Loss on refinancing of debt                     -           -           -

    Income before income taxes                 33,356           -      33,356

    Provision (benefit) for income taxes      (10,600)     23,475(c)   12,875

    Net income                                 43,956     (23,475)     20,481

    Preferred stock dividends                       -           -           -
    Net income applicable to common
     shareholders                             $43,956    ($23,475)    $20,481

    Earnings per share:
      Basic                                     $0.75      $(0.40)      $0.35
      Diluted                                   $0.71      $(0.38)      $0.33

    Weighted average shares outstanding:
      Basic                                    58,328           -      58,328
      Diluted                                  62,144           -      62,144


                                                   Fiscal Year Ended
    (In thousands, except                           February 3, 2007
     percentages  and per                      GAAP     Adjust-         As
     share amounts)                           Basis       ments     Adjusted

    Total Revenues                         $1,152,100           -  $1,152,100

    Cost of goods sold, buying and
     occupancy costs                          651,748           -     651,748

    Gross profit                              500,352           -     500,352

    Selling, general administrative
     expenses                                 374,738           -     374,738

    Operating income                          125,614           -     125,614

    Interest expense, net                      43,993     (24,556)(a)  19,437

    Loss on refinancing of debt                10,039     (10,039)(b)       -

    Income before income taxes                 71,582      34,595     106,177

    Provision (benefit) for income taxes       (6,200)     47,184(c)   40,984

    Net income                                 77,782     (12,589)     65,193

    Preferred stock dividends                  (6,141)      6,141(d)        -
    Net income applicable to common
     shareholders                             $71,641     ($6,448)    $65,193

    Earnings per share:
      Basic                                     $1.61      $(0.48)      $1.13
      Diluted                                   $1.49      $(0.44)      $1.05

    Weighted average shares outstanding:
      Basic                                    44,558      13,339(e)   57,897
      Diluted                                  48,039      14,242(e)   62,281

    (a) to adjust interest expense for (i) the redemption of all outstanding
        preferred stock, (ii) the conversion of the 5% notes payable into
        common stock, (iii) the redemption of $21.7 million of the 13 1/8%
        debentures, (iv) the repayment of $275.0 million aggregate principal
        amount of 9 3/4% notes with the proceeds of the $285.0 million senior
        term loan, (v) the repayment of $35.0 million of the senior term loan
        with the proceeds of the IPO completed in July 2006 and (vi) the
        amortization of deferred financing costs related to the term loan
        entered into in May 2006, assuming each of these transactions had been
        completed at the beginning of the fiscal year.
    (b) to eliminate the loss on refinancing of debt.
    (c) to adjust the provision (benefit) for income taxes which includes a
        one-time benefit related to the recognition of deferred tax assets
        that were previously reserved for and to reflect the Company's
        estimated future ongoing effective tax rate of 38.6% as the effective
        tax rate in the three months and fiscal year ended February 3, 2007 is
        not representative of the Company's ongoing effective tax rate.
    (d) to reflect the redemption of $92.8 million of Series A preferred
        stock.
    (e) to reflect the number of common shares outstanding after the IPO on a
        basic and diluted basis.



                                                                   Exhibit (4)

    Actual and Projected Store Count and Square Footage

    Actual Fiscal 2006

           Total stores open  Number of stores  Number of stores Total stores
            at beginning of    opened during     closed during  open at end of
             the quarter        the quarter       the quarter    the quarter
    Quarter
    1st
     Quarter     203                 5                 2             206

    2nd
     Quarter     206                10                 0             216

    3rd
     Quarter     216                11                 1             226

    4th
     Quarter     226                 3                 2             227





     Actual Fiscal 2006
                                                  Reduction
                                                  of gross
                                    Gross         square
                      Total         square        feet for
                      gross         feet for      stores        Total
                      square        stores        closed or     gross
                      feet at       opened        downsized     square
                      beginning     during        during        feet at
                      of the        the           the           end of the
                      quarter       quarter       quarter       quarter
    Quarter
    1st Quarter      1,478,384      25,474        (14,500)      1,489,358
    2nd Quarter      1,489,358      42,147         (2,137)      1,529,368
    3rd Quarter      1,529,368      43,280        (10,768)      1,561,880
    4th Quarter      1,561,880      11,481        (29,457)      1,543,904



     Projected Fiscal 2007

                      Total
                      stores        Number of   Number of     Total
                      open at       stores      stores        stores
                      beginning     opened      closed        open at end
                      of the        during the  during the    of the
                      quarter       quarter     quarter       quarter
    Quarter
    1st Quarter          227              7          0          234
    2nd Quarter          234             11          2          243
    3rd Quarter          243             15          1          257
    4th Quarter          257              4          0          261




     Projected Fiscal 2007

                                                  Reduction
                                                  of gross
                                    Gross         square
                      Total         square        feet for
                      gross         feet for      stores        Total
                      square        stores        closed or     gross
                      feet at       opened        downsized     square
                      beginning     during        during        feet at
                      of the        the           the           end of the
                      quarter       quarter       quarter       quarter
    Quarter
    1st Quarter      1,543,904      27,188              0       1,571,092
    2nd Quarter      1,571,092      52,057        (14,191)      1,608,958
    3rd Quarter      1,608,958      70,418         (3,991)      1,675,385
    4th Quarter      1,675,385      19,605         (1,303)      1,693,687

SOURCE J. Crew Group, Inc.

CONTACT:
James Scully, Chief Financial Officer
J. Crew Group, Inc.
1-212-209-8040

Investors:
Allison Malkin
or
Chad Jacobs
or
Joe Teklits
all of Integrated Corporate Relations for J. Crew Group, Inc.
1-203-682-8200

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, the performance of the Company's products within the prevailing retail environment, 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.