NEWS RELEASES

Back
Click here for a printer-friendly version

News Release

J. Crew Group, Inc. Announces Second Quarter Fiscal 2007 Results

                Second Quarter Operating Income Increases 38%

                 First Six Months Operating Income Rises 48%

                     Second Quarter Diluted EPS of $0.32

NEW YORK, Sept. 5 /PRNewswire-FirstCall/ -- J. Crew Group, Inc. (NYSE: JCG) today announced financial results for the three months (second quarter) and six months (first six months) ended August 4, 2007.

    Second Quarter highlights:
    -- Revenues increased 13% to $304.7 million.  Store sales (Retail and
       Factory) increased 11% to $219.6 million, with comparable store sales
       increasing 4%.  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 the second quarter of fiscal
       2007.  Comparable store sales increased 16% in the second quarter of
       fiscal 2006.  Direct sales (Internet and Catalog) rose by 19% to $74.5
       million.  Direct sales increased 7% in the second quarter of fiscal
       2006.
    -- Gross margin increased 160 basis points to 43.7% of revenues from 42.1%
       of revenues in the second quarter of fiscal 2006.
    -- Operating income increased 38% to $37.1 million, or 12.2% of revenues,
       compared to $26.8 million, or 10.0% of revenues, in the second quarter
       of fiscal 2006.
    -- Net income available to common stockholders was $20.6 million, or $0.32
       per diluted share, compared with a net loss of $2.8 million, or loss of
       $0.08 per diluted share, in the second quarter of fiscal 2006.
    -- Adjusted net income for the second quarter of fiscal 2006 totaled $13.3
       million, or $0.21 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 are pleased with our second quarter and first six months results. Our team continues to be focused on the level of design, quality, style and detail that our customers have come to expect from us."

    First Six Months highlights:
    -- Revenues increased 18% to $602.0 million.  Store sales (Retail and
       Factory) increased 15% to $420.6 million, with comparable store sales
       increasing 8%.  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 7% in the first six months of fiscal
       2007.  Comparable store sales increased 14% in the first six months of
       fiscal 2006.  Direct sales (Internet and Catalog) rose by 25% to $161.1
       million.  Direct sales increased 9% in the first half of fiscal 2006.
    -- Gross margin increased 140 basis points to 45.1% of revenues from 43.7%
       of revenues in the first six months of fiscal 2006.
    -- Operating income increased 48% to $81.5 million, or 13.5% of revenues,
       compared to $55.1 million, or 10.8% of revenues, in the first six
       months of fiscal 2006.
    -- Net income available to common stockholders was $45.3 million, or $0.71
       per diluted share, compared to a net income of $1.7 million, or $0.05
       per diluted share, in the first six months of fiscal 2006.
    -- Adjusted net income for the first six months of fiscal 2006 totaled
       $27.5 million, or $0.43 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.

    Guidance

The Company's long-term annual 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 and six months ended July 29, 2006 in this release. This information reflects, on a non-GAAP adjusted basis, the Company's adjusted interest expense, income taxes, net income, preferred stock dividends, weighted average shares outstanding and earnings per share after considering 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 adjusting the items discussed above that the Company believes are not indicative of 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 and six months ended July 29, 2006 are included in Exhibit (3).

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, September 5, 2007, at 4:30 PM Eastern Time. Investors and analysts interested in participating in the call are invited to dial (888) 802-8577 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 September 12, 2007 and can be accessed by dialing (877) 519- 4471 and entering code 9133043.

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 31, 2007, the Company operates 189 retail stores, the J. Crew catalog business, jcrew.com, and 55 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, our ability to compete with other retailers, the performance of the Company's products within the prevailing retail environment, our strategy and expansion plans, 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)

    (Amounts in
    thousands,
    except           Three Months   Three Months     Six Months    Six Months
    percentages         Ended          Ended           Ended         Ended
    and per            August 4,      July 29,       August 4,      July 29,
    share amounts)       2007           2006           2007           2006

    Net sales
      Stores           $219,586      $197,410        $420,595      $364,535
      Direct             74,538        62,823         161,108       129,033
                        294,124       260,233         581,703       493,568
    Other                10,607         8,936          20,340        16,288
    Total Revenues      304,731       269,169         602,043       509,856

    Costs of goods
     sold, buying
     and occupancy
     costs              171,554       155,951         330,303       287,244
    Gross Profit        133,177       113,218         271,740       222,612
      As a percent
       of revenues         43.7%         42.1%           45.1%         43.7%

    Selling, general
     administrative
     expenses            96,054        86,399         190,244       167,498
      As a percent
       of revenues         31.5%         32.1%           31.6%         32.9%
    Operating income     37,123        26,819          81,496        55,114
      As a percent
       of revenues         12.2%         10.0%           13.5%         10.8%

    Interest expense,
     net                  2,858        15,660           6,300        34,856

    Loss on
     refinancing of
     debt                  ----        10,039            ----        10,039

    Income before
     income taxes        34,265         1,120          75,196        10,219

    Provision for
     income taxes        13,630         1,100          29,912         2,400

    Net income           20,635            20          45,284         7,819

    Preferred stock
     dividends             ----        (2,777)           ----        (6,141)

    Net income
     (loss) applicable
     to common
     stockholders       $20,635       ($2,757)        $45,284        $1,678

    Income (loss)
     per share:
      Basic               $0.34        ($0.08)          $0.75         $0.05
      Diluted             $0.32        ($0.08)          $0.71         $0.05

    Weighted average
     shares
     outstanding:
      Basic              60,316        36,433          60,024        30,934
      Diluted            63,806        36,433          63,698        34,670



                                 Exhibit (2)
                             J. Crew Group, Inc.
                    Condensed Consolidated Balance Sheets
                                 (Unaudited)


    (In thousands)                          August 4, 2007    February 3, 2007

    Assets
    Current assets:
      Cash and cash equivalents                   $119,672             $88,900
      Inventories                                  158,560             140,670
      Prepaid expenses and other current
       assets                                       52,633              47,528

    Total current assets                           330,865             277,098

    Property and equipment, net                    138,031             121,814

    Other assets                                    31,248              29,154

    Total assets                                  $500,144            $428,066


    Liabilities and Stockholders' equity
    Current liabilities:
      Accounts payable                             $92,350             $77,836
      Other current liabilities                     71,579              76,666
      Income taxes payable                           7,756               5,496

    Total current liabilities                      171,685             159,998

    Long-term debt                                 175,000             200,000

    Deferred credits                                67,159              62,448

    Other liabilities                                6,603                   -

    Stockholders' equity                            79,697               5,620

    Total liabilities and stockholders' equity    $500,144            $428,066



                                 Exhibit (3)
    Reconciliation of net income on a GAAP basis to "Adjusted net income"

                                          Three Months Ended July 29, 2006
    (Amounts in thousands,
    except percentages
    and per share amounts)          GAAP Basis     Adjustments     As Adjusted

    Total Revenues                    $269,169           ----        $269,169

    Cost of goods sold, buying
     and occupancy costs               155,951           ----         155,951

    Gross profit                       113,218           ----         113,218

    Selling, general
     administrative expenses            86,399           ----          86,399

    Operating income                    26,819           ----          26,819

    Interest expense, net               15,660        (10,460) (a)      5,200

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

    Income before income taxes           1,120         20,499          21,619

    Provision for income taxes           1,100          7,245  (c)      8,345

    Net income                              20         13,254          13,274

    Preferred stock dividends           (2,777)         2,777  (d)       ----

    Net income (loss) applicable
     to common stockholders            ($2,757)       $16,031         $13,274

    Earnings per share:
      Basic                             ($0.08)         $0.31           $0.23
      Diluted                           ($0.08)         $0.29           $0.21

    Weighted average shares
     outstanding:
      Basic                             36,433         21,367  (e)     57,800
      Diluted                           36,433         27,667  (e)     64,100


                                         Six Months Ended July 29, 2006
    (Amounts in thousands,
    except percentages
    and per share amounts)          GAAP Basis     Adjustments     As Adjusted

    Total Revenues                    $509,856           ----        $509,856

    Cost of goods sold, buying
     and occupancy costs               287,244           ----         287,244

    Gross profit                       222,612           ----         222,612

    Selling, general
     administrative expenses           167,498           ----         167,498

    Operating income                    55,114           ----          55,114

    Interest expense, net               34,856        (24,556) (a)     10,300

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

    Income before income taxes          10,219         34,595          44,814

    Provision for income taxes           2,400         14,898  (c)     17,298

    Net income                           7,819         19,697          27,516

    Preferred stock dividends           (6,141)         6,141  (d)       ----

    Net income (loss) applicable
     to common stockholders             $1,678        $25,838         $27,516

    Earnings per share:
      Basic                              $0.05          $0.43           $0.48
      Diluted                            $0.05          $0.38           $0.43

    Weighted average shares
     outstanding:
      Basic                             30,934         26,866  (e)     57,800
      Diluted                           34,670         29,430  (e)     64,100

    (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 for income taxes to reflect the Company's
        estimated future ongoing effective tax rate of 38.6%, as the effective
        tax rate in the three and six months ended July 29, 2006 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

    Fiscal 2007
    Quarter        Total stores     Number of       Number of    Total stores
                     open at         stores          stores         open at
                    beginning     opened during   closed during   end of the
                  of the quarter   the quarter     the quarter      quarter
    1st Quarter
     (Actual)          227              6               0             233
    2nd Quarter
     (Actual)          233              7               2             238
    3rd Quarter
     (Projected)       238             13               1             250
    4th Quarter
     (Projected)       250             11               0             261


    Fiscal 2007
    Quarter      Total gross      Gross square     Reduction of    Total gross
                 square feet     feet for stores   gross square    square feet
                 at beginning      opened or      feet for stores   at end of
                 of the quarter  expanded during     closed or     the quarter
                                   the quarter    downsized during
                                                    the quarter
    1st Quarter
     (Actual)      1,543,904          22,615             0          1,566,519
    2nd Quarter
     (Actual)      1,566,519          33,961       (20,939)         1,579,541
    3rd Quarter
     (Projected)   1,579,541          59,352        (6,700)         1,632,193
    4th Quarter
     (Projected)   1,632,193          66,137             0          1,698,330

SOURCE J. Crew Group, Inc.

CONTACT: Company Contact, James S. Scully, Chief Financial Officer of J.
Crew Group, Inc., +1-212-209-8040; or Investor Contact, Allison Malkin, or
Chad Jacobs, or Joe Teklits, all of Integrated Corporate Relations,
+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.