[Letterhead of Cleary Gottlieb Steen & Hamilton LLP]
Writers Direct Dial: (212) 225-2336 E-Mail: jmcmullin@cgsh.com |
October 17, 2005
Mr. Andrew Blume Mail Stop 3561 Division of Corporation Finance Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 |
Re: J. Crew Group, Inc.
Amendment No. 2 to the Registration Statement on Form S-1 (File No. 333-127628),
Filed with the Securities and Exchange Commission on October 11, 2005
Dear Mr. Blume:
On behalf of J. Crew Group, Inc. (the Company), we enclose herewith the information requested by the Staff during our October 12, 2005 conference call regarding the comments in the Staffs letter dated October 7, 2005. Except as otherwise noted in this letter, the information provided in this letter has been supplied by the Company, which is solely responsible for it. Capitalized terms used but not defined herein are used as defined in the Registration Statement.
With respect to Comment 13, the Company believes that the historical trends, as outlined in Exhibit A to this letter, justify its position of recording breakage at the time of issuance of a gift card. In addition, the Company does not believe that any other method (e.g., recognizing breakage ratably over time or at the end of the breakage period) would have produced a materially different result, as outlined in Exhibits B and C to this letter.
With respect to Comment 15, the inventory reserves were, as indicated in Exhibit D to this letter, increased to $12.4 million at February 1, 2003 based on the Companys decision to modify its strategy to clear inventory at the end of each season.
Andrew Blume
Securities and Exchange Commission
Page 2 of 3
These reserves were reduced in fiscal 2003 (primarily during the first three quarters) as the inventories to which the reserve related were disposed of. The impact of this disposition of inventories on the Companys financial results was discussed in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of the Companys Annual Report on Form 10-K for the Fiscal Year Ended January 31, 2004 and each of the Companys Quarterly Reports on Form 10-Q filed during fiscal 2003. Since January 31, 2004, the dollar amount of the inventory reserves has not significantly changed as the Company has adhered to its strategy of clearing the predominant amount of its inventories at the end of each season. Exhibit D to this letter summarizes the effect of the increasing recovery rates during fiscal 2003 and fiscal 2004 and fiscal 2005 to date.
Please direct any comments or questions regarding this filing to Jeffrey D. Karpf at (212) 225-2864 or James McMullin at (212) 225-2336.
Very truly yours,
/s/ James McMullin
Enclosure
cc: William Thompson
Ellie Quarles
(Securities and Exchange Commission)
Arlene Hong
(J. Crew Group, Inc.)
Jeffrey D. Karpf
(Cleary Gottlieb Steen & Hamilton LLP)
Exhibit A
Issuances/Redemptions by Year
Dollars |
Issuances |
Redemptions |
Unredeemed at 1/29/05 | |||||||||||
Fiscal |
2000 |
2001 |
2002 |
2003 |
2004 |
|||||||||
2000 | 23,540 | 13,788 | 6,860 | 783 | 254 | 204 | 1,651 | |||||||
2001 | 26,144 | | 16,109 | 6,926 | 669 | 258 | 2,182 | |||||||
2002 | 23,465 | | | 14,776 | 6,030 | 733 | 1,926 | |||||||
2003 | 22,333 | | | | 13,253 | 6,585 | 2,495 | |||||||
2004 | 26,433 | | | | | 15,430 | 11,003 |
Percentage |
|||||||||||||||||
Year of Issuance |
Year 2 |
Year 3 |
Year 4 |
Year 5 |
Year 6 | ||||||||||||
2000 | 59 | % | 29 | % | 3 | % | 1 | % | 1 | % | |||||||
2001 | 62 | % | 26 | % | 3 | % | |||||||||||
2002 | 63 | % | 26 | % | 3 | % | |||||||||||
2003 | 59 | % | 29 | % | |||||||||||||
2004 | 58 | % | |||||||||||||||
Average | 60 | % | 28 | % | 3 | % | 1 | % | 1 | % |
Exhibit B
Recognition of breakage income (historical by quarter)
2002 |
2003 |
2004 | |||||||
Q1 |
$ | 0.3 | $ | 0.2 | $ | 0.2 | |||
Q2 |
0.3 | 0.3 | 0.3 | ||||||
Q3 |
0.3 | 0.2 | 0.3 | ||||||
Q4 |
1.1 | 1.0 | 0.6 | ||||||
Fiscal Year |
$ | 2.0 | $ | 1.7 | $ | 1.4 | |||
Exhibit C
Effect on prior years (See note)
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
2007 | ||||||||||||||||
1999 | (1.2 | ) | 0.7 | 0.4 | 0.1 | |||||||||||||||||||
2000 | (1.6 | ) | 1.0 | 0.5 | 0.1 | |||||||||||||||||||
2001 | (1.8 | ) | 1.1 | 0.5 | 0.2 | |||||||||||||||||||
2002 | (2.0 | ) | 1.2 | 0.6 | 0.2 | |||||||||||||||||||
2003 | (1.7 | ) | 1.0 | 0.5 | 0.2 | |||||||||||||||||||
2004 | | | (1.4 | ) | 0.8 | 0.4 | 0.2 | |||||||||||||||||
(0.3 | ) | 0.1 | 0.4 | |||||||||||||||||||||
Note: | The above table summarizes the fiscal year effect of recognizing breakage on a ratable basis over a period of 3 years (60% - 28% - 5%). |
Exhibit D
J. Crew Group, Inc.
Inventory Overstock Reserve
Historical Analysis of Increased Recovery Rates
($ in thousands)
Q205 |
Q105 |
Q404 |
Q304 |
Q204 |
Q104 |
Q403 |
Q303 |
Q203 |
Q103 |
Q402 |
||||||||||||||||||||||||
7/30/2005 |
4/30/2005 |
1/29/2005 |
10/31/2004 |
7/31/2004 |
5/1/2004 |
1/31/2004 |
11/1/2003 |
8/2/2003 |
5/3/2003 |
2/1/2003 |
||||||||||||||||||||||||
Total Inventory |
$ | 110,569 | 104,503 | 88,093 | 137,315 | 94,377 | 84,721 | 66,028 | 118,938 | 84,810 | 100,254 | 107,318 | ||||||||||||||||||||||
Overstock Reserve |
$ | (3,999 | ) | (3,724 | ) | (4,483 | ) | (4,996 | ) | (5,372 | ) | (5,146 | ) | (5,040 | ) | (4,845 | ) | (7,959 | ) | (9,791 | ) | (12,420 | ) | |||||||||||
Impact of Increased Recovery Rates |
$ | | 80 | 200 | | | 56 | 153 | 104 | | 150 | |||||||||||||||||||||||
Income (Loss) from Operations |
20,143 | 22,986 | 19,013 | 13,106 | 8,348 | (2,825 | ) | 722 | (6,358 | ) | (14,644 | ) | (10,495 | ) | ||||||||||||||||||||
Net Income (Loss) |
$ | 1,732 | 4,897 | (52,822 | ) | (9,938 | ) | (13,762 | ) | (23,787 | ) | (20,404 | ) | (24,536 | ) | 15,013 | (20,257 | ) | ||||||||||||||||
Impact as % Net Income |
0.00 | % | 1.64 | % | 0.38 | % | 0.00 | % | 0.00 | % | 0.24 | % | 0.75 | % | 0.42 | % | 0.00 | % | 0.74 | % | ||||||||||||||
Impact as % Income (Loss) from Operations |
0.00 | % | 0.35 | % | 1.05 | % | 0.00 | % | 0.00 | % | 2.00 | % | 21.16 | % | 1.63 | % | 0.00 | % | 1.43 | % | ||||||||||||||