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News Release

J. Crew Group, Inc. Announces Fourth Quarter and Fiscal 2007 Results

Fourth Quarter Diluted EPS of $0.39, including impact of severance charge of $0.02

Introduces Guidance for Fiscal 2008 Diluted EPS Range of $1.85 to $1.87

NEW YORK, March 11 /PRNewswire-FirstCall/ -- J. Crew Group, Inc. (NYSE: JCG) today announced financial results for the fourth quarter and fiscal year ended February 2, 2008 (fiscal 2007). The Company noted that the prior year, fiscal 2006, consisted of 53 weeks, resulting in a 14-week fiscal fourth quarter in the prior year. The 53rd week is not included in comparable store sales calculations for fiscal 2006 periods.

For the three months ended February 2, 2008 (fourth quarter):

  • Revenues increased 9% to $399.9 million. Store sales (Retail and Factory) increased 8% to $260.6 million, with comparable store sales remaining flat. Realigning last year's calendar weeks to be consistent with the current year retail calendar weeks would result in a comparable store sales increase of 4% in the fourth quarter of fiscal 2007. Comparable store sales rose 7% in the fourth quarter of fiscal 2006. Direct sales (Internet and Catalog) rose by 11% to $126.0 million. Direct sales increased 43% in the fourth quarter of fiscal 2006. 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 to 41.3% of revenues from 40.8% of revenues in the fourth quarter of fiscal 2006.


  • Operating income increased 16% to $43.3 million, or 10.8% of revenues, compared to $37.3 million, or 10.2% of revenues, in the fourth quarter of fiscal 2006. Operating income in the fourth quarter of the current period includes the impact of the recognition of severance costs of $2.3 million. Operating income adjusted for severance costs increased 22% to $45.6 million, or 11.4% of revenues.


  • Net income available to common stockholders in the fourth quarter of fiscal 2007 was $25.0 million, or $0.39 per diluted share and includes the impact of the recognition of severance costs of approximately $0.02 per diluted share. The current year period reflects an effective tax rate of 39.8%.


  • Net income available to common stockholders in the fourth quarter of fiscal 2006 was $44.0 million, or $0.71 per diluted share, and 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 2007 totaled $26.3 million, or $0.41 per diluted share (see Exhibit 3), as compared to adjusted net income of $20.5 million, or $0.33 per diluted share for the fourth quarter of fiscal 2006 (see Exhibit 4).


  • A reconciliation of net income on a GAAP basis to adjusted net income is included in Exhibits (3) and (4) of this press release.

Millard Drexler, J. Crew's Chairman and CEO stated: "We are very pleased with our fourth quarter and fiscal year results. It's our mission that every single customer who shops with us knows the lengths we are willing to go in order to satisfy them. We couldn't be happier with what our customers are saying about our quality, our design and their experience with us. At the end of the day, when they are happy we see the results."

For the fiscal year ended February 2, 2008 (fiscal 2007):

  • Revenues increased 16% to $1,334.7 million. Store sales (Retail and Factory) increased 13% to $914.8 million, with comparable store sales increasing 6%. Realigning last year's calendar weeks to be consistent with the current year retail calendar weeks would result in a comparable store sales increase of 6% in fiscal 2007. Comparable store sales rose 13% in fiscal 2006. Direct sales (Internet and Catalog) increased 22% to $377.4 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 to 44.1% of revenues from 43.4% of revenues in fiscal 2006.


  • Operating income increased 37% to $172.5 million, or 12.9% of revenues, compared to $125.6 million, or 10.9% of revenues, in fiscal 2006. Operating income in fiscal 2007 includes the impact of the recognition of severance costs of $2.3 million. Operating income adjusted for severance costs increased 39% to $174.7 million, or 13.1% of revenues.


  • Net income available to common stockholders for fiscal 2007 was $97.1 million, or $1.52 per diluted share, and includes the impact of the recognition of severance costs of approximately $0.02 per diluted share. The current year period reflects an effective tax rate of 39.8%.


  • Net income available to common stockholders for fiscal 2006 was $71.6 million, or $1.49 per diluted share and includes pre-tax charges of $10.0 million related to the refinancing of debt and 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 2007 totaled $98.5 million, or $1.54 per diluted share (see Exhibit 3), as compared to adjusted net income of $65.2 million, or $1.05 per diluted share, for fiscal 2006 (see Exhibit 4).


  • A reconciliation of net income on a GAAP basis to adjusted net income is included in Exhibits (3) and (4) of this press release.

Balance Sheet highlights as of February 2, 2008:

  • Inventories were $158.5 million, reflecting the impact of 33 net stores opened since the end of fiscal 2006.


  • Long-term debt was reduced to $125 million, which reflects the Company's voluntary principal prepayments of $75 million made during fiscal 2007.

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%.

The Company currently expects fiscal 2008 diluted earnings per share in the range of $1.85 to $1.87.

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. The Company has provided non-GAAP adjusted selling, general and administrative expenses, operating income, income taxes, net income and earnings per share information for the three months and fiscal year ended February 2, 2008. This information reflects, on a non-GAAP adjusted basis, the Company's adjusted SG&A, operating income, income taxes, net income and earnings per share after excluding the severance costs recorded in connection with the departure of a senior executive. 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 2, 2008 and the three months and fiscal year ended February 3, 2007 are included in Exhibits (3) and (4), respectively.

Conference Call Information

A conference call to discuss fourth quarter results is scheduled for today, March 11, 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 www.jcrew.com. A replay of this call will be available until March 26, 2008 and can be accessed by dialing (877) 660-6853 and entering account number 3055 and conference ID number 276618.

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 8, 2008, the Company operates 203 retail stores (including four Crewcuts and seven Madewell stores), the J. Crew catalog business, jcrew.com, and 63 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.
               Condensed Consolidated Statements of Operations
                                 (Unaudited)

    (In thousands,   Three Months    Three Months   Fiscal Year    Fiscal Year
     except            Ended           Ended          Ended          Ended
     percentages     February 2,     February 3,    February 2,    February 3
     and per share      2008            2007           2008 ,         2007
     amounts)        (13 weeks)      (14 weeks)     (52 weeks)     (53 weeks)



    Net sales
      Stores         $260,627        $241,832       $914,810       $808,542
      Direct          126,020         113,233        377,444        308,611
                      386,647         355,065      1,292,254      1,117,153
    Other              13,288          11,605         42,469         34,947
    Total Revenues    399,935         366,670      1,334,723      1,152,100

    Costs of goods
     sold, buying
     and occupancy
     costs            234,956         216,886        746,180        651,748
    Gross Profit      164,979         149,784        588,543        500,352
      As a percent
       of revenues      41.3%           40.8%          44.1%          43.4%

    Selling,
     general
     and
     administrative
     expenses         121,678         112,463         416,064       374,738
      As a percent
       of revenues      30.4%           30.7%           31.2%         32.5%
    Operating
     income            43,301          37,321         172,479       125,614
      As a percent
       of revenues      10.8%           10.2%           12.9%         10.9%

    Interest
     expense, net       1,847           3,965          11,224         43,993

    Loss on
     refinancing
     of debt                -               -               -         10,039

    Income before
     income taxes      41,454          33,356         161,255         71,582

    Provision
     (benefit) for
     income taxes      16,497         (10,600)         64,180         (6,200)

    Net income         24,957          43,956          97,075         77,782

    Preferred
     stock
     dividends              -               -               -         (6,141)

    Net income
     applicable to
     common
     shareholders     $24,957         $43,956          $97,075       $71,641

    Income per
     share:
       Basic            $0.41           $0.75            $1.61         $1.61
       Diluted          $0.39           $0.71            $1.52         $1.49

    Weighted
     average
     shares
     outstanding:
       Basic           60,752          58,328            60,346       44,558
       Diluted         64,003          62,144            63,748       48,039



                                                                   Exhibit (2)

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


    (In thousands)                 February 2, 2008    February 3, 2007

    Assets
    Current assets:
      Cash and cash equivalents           $131,510             $88,900
      Inventories                          158,525             140,670
      Prepaid expenses
      and other currents assets             33,293              30,728
      Refundable income taxes                9,794               8,600
      Deferred income taxes, net                 -               8,200
    Total current assets                   333,122             277,098

    Property and equipment, net            168,292             121,814

    Deferred income taxes, net              20,188              15,600

    Other assets                            13,994              13,554
    Total assets                          $535,596            $428,066


    Liabilities and Stockholders' equity
    Current liabilities:
      Accounts payable                     $101,277            $77,836
      Other current liabilities              91,414             76,666
      Income taxes payable                        -              5,496
      Deferred income taxes, net              2,382                  -

    Total current liabilities               195,073            159,998

    Long-term debt                          125,000            200,000

    Deferred credits                         67,600             62,448

    Other liabilities                         7,601                  -

    Stockholders' equity                    140,322              5,620
    Total liabilities and
     stockholders' equity                  $535,596            $428,066



                                                                   Exhibit (3)

               Reconciliation of net income on a GAAP basis to
                     "Adjusted net income" -- Fiscal 2007

    (In thousands,
     except             Three Months Ended             Fiscal Year Ended
     percentages         February 2, 2008               February 2, 2008
     and per share  GAAP      Adjust-    As      GAAP        Adjust-      As
     amounts)       Basis     ments    Adjusted  Basis       ments    Adjusted
    Total Revenues $399,935       -    $399,935  $1,334,723      -  $1,334,723

    Cost of goods
     sold, buying
     and occupancy
     costs          234,956       -     234,956     746,180      -     746,180

    Gross profit    164,979       -     164,979     588,543      -     588,543

    Selling,
    general
    and
    administrative
    expenses        121,678  (2,300)(a) 119,378     416,064 (2,300)(a) 413,764

    As a percent
     of revenues      30.4%               29.8%       31.2%              31.0%

    Operating
     income          43,301   2,300      45,601     172,479  2,300     174,779

    As a percent
     of revenues      10.8%               11.4%       12.9%              13.1%

    Interest
     expense, net     1,847       -       1,847      11,224      -      11,224

    Income before
     income taxes    41,454   2,300      43,754     161,255  2,300     163,555

    Provision for
     income taxes    16,497     916(b)   17,413      64,180    916(b)   65,096

    Net income       24,957   1,384      26,341      97,075  1,384      98,459

    Preferred
     stock
     dividends            -       -           -           -      -           -
    Net income
     applicable to
     common
     shareholders   $24,957  $1,384     $26,341     $97,075  $1,384    $98,459

    Earnings
     per share:
    Basic             $0.41   $0.02       $0.43       $1.61   $0.02      $1.63
    Diluted           $0.39   $0.02       $0.41       $1.52   $0.02      $1.54

    Weighted
     average
     shares
     outstanding:
    Basic            60,752       -      60,752      60,346      -      60,346
    Diluted          64,003       -      64,003      63,748      -      63,748


     (a) to adjust selling, general and administrative expenses for severance
         costs recorded in connection with the departure of a senior
         executive.
     (b) to adjust provision for income taxes to reflect the tax impact of the
         adjustment described in (a) above.



                                                                   Exhibit (4)

               Reconciliation of net income on a GAAP basis to
                     "Adjusted net income" -- Fiscal 2006


    (In thousands,
     except             Three Months Ended             Fiscal Year Ended
     percentages         February 3, 2007               February 3, 2007
     and per share     GAAP   Adjust-  As           GAAP    Adjust-   As
     amounts)          Basis  ments    Adjusted     Basis    ments    Adjusted
    Total
     Revenues      $366,670        -   $366,670 $1,152,100        - $1,152,100

    Cost of
     goods sold,
     buying and
     occupancy
     costs          216,886        -     216,886   651,748        -    651,748

    Gross
    profit          149,784        -     149,784   500,352        -    500,352

    Selling,
     general
     and
     administrative
     expenses       112,463        -     112,463   374,738        -    374,738

    Operating
     income          37,321        -      37,321   125,614        -    125,614

    Interest
     expense, net     3,965        -       3,965    43,993  (24,556)(a) 19,437

    Loss on
     refinancing
     of debt              -        -           -    10,039  (10,039)(b)      -
    Income before
     income taxes    33,356        -      33,356    71,582   34,595    106,177


    Provision
     (benefit)
     for income
     taxes          (10,600)  23,475(c)   12,875    (6,200)  47,184 (c) 40,984

    Net income       43,956  (23,475)     20,481    77,782  (12,589)    65,193


    Preferred
     stock
     dividends            -        -           -    (6,141)   6,141(d)       -
    Net income
     applicable to
     common
     shareholders   $43,956 ($23,475)    $20,481   $71,641  ($6,448)   $65,193

    Earnings per share:
    Basic             $0.75   $(0.40)      $0.35     $1.61   $(0.48)     $1.13
    Diluted           $0.71   $(0.38)      $0.33     $1.49   $(0.44)     $1.05

    Weighted average
     shares
     outstanding:
    Basic            58,328        -      58,328    44,558   13,339(e)  57,897
    Diluted          62,144        -      62,144    48,039   14,242(c)  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 (5)

        Actual and Projected Store Count and Square Footage
    Actual Fiscal
    2007
                 Total stores
                 open at       Number of     Number of      Total stores
                 beginning     stores opened stores closed  open at
                 of the        during the    during the     end of
    Quarter      quarter       quarter       quarter        the quarter
    1st Quarter     227            6              0              233
    2nd Quarter     233            7              2              238
    3rd Quarter     238            18             1              255
    4th Quarter     255            6              1              260






    Actual Fiscal
    2007                                        Reduction of
                                 Gross square   gross square
                    Total gross  feet for       feet for        Total gross
                    square feet  stores opened  stores closed   square feet
                    at beginning or expanded    or downsized    at end
                    of the       during the     during the      of the
    Quarter         quarter      quarter        quarter         quarter
    1st Quarter     1,543,904      22,615              0         1,566,519
    2nd Quarter     1,566,519      33,961        (20,939)        1,579,541
    3rd Quarter     1,579,541      87,645         (6,662)        1,660,524
    4th Quarter     1,660,524      36,399         (8,907)        1,688,016




    Projected
    Fiscal 2008  Total stores
                 open at       Number of     Number of      Total stores
                 beginning     stores opened stores closed  open at
                 of the        during the    during the     end of
    Quarter      quarter       quarter       quarter        the quarter
    1st Quarter     260                 8         0                   268
    2nd Quarter     268                 8         1                   275
    3rd Quarter     275                14         0                   289
    4th Quarter     289                13         0                   302


    Projected
    Fiscal 2008                                 Reduction of
                                 Gross square   gross square
                    Total gross  feet for       feet for        Total gross
                    square feet  stores opened  stores closed   square feet
                    at beginning or expanded    or downsized    at end
                    of the       during the     during the      of the
    Quarter         quarter      quarter        quarter         quarter
    Quarter
    1st Quarter     1,688,016           43,712    (2,261)        1,729,467
    2nd Quarter     1,729,467           28,340   (16,368)        1,741,439
    3rd Quarter     1,741,439           69,271         0         1,810,710
    4th Quarter     1,810,710           69,307         0         1,880,017

SOURCE J. Crew Group, Inc.

CONTACT: Company: James Scully, J. Crew Group, Inc., Chief Financial
Officer, +1-212-209-8040; Investors: Allison Malkin, Chad Jacobs or Joe
Teklits, all of Integrated Corporate Relations for J. Crew Group, Inc.,
+1-203-682-8200
Web site: http://www.jcrew.com
(JCG)

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.