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Mail Stop 3561
October 7, 2005
Arlene S. Hong, Esq.
General Counsel
J. Crew Group, Inc.
770 Broadway
New York, New York 10003
Re: J. Crew Group, Inc.
Amendment No. 1 to Registration Statement on Form S-1
Filed September 23, 2005
File No. 333-127628
Dear Ms. Hong:
We have reviewed your amendment and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. We note your response to comment 6 in our letter dated August
17,
2005 indicating you have requested confidential treatment under
Freedom of Information Act Rule 83 for the source materials of NPD
Fashionworld. Please file an electronic version of the letter on
EDGAR and ensure that the redacted information covered by the
confidential treatment request is clearly marked to indicate the
location of the omitted information.
Prospectus Summary, page 1
2. Please refer to comment 5 in our letter dated August 17, 2005.
Please delete the promotional terms and phrases appearing in this
section. For example, we note the statement that your limited
edition luxury items "create excitement and a sense of urgency in
our
customers." Please revise your disclosure as appropriate.
3. We note your response to comment 6 in our letter dated August
17,
2005 indicating you have obtained consent from NPD Fashionworld to
include the statistical information in your registration
statement.
Please file the consent.
Risk Factors, page 9
Fluctuations in our comparable store sales..., page 12
4. As currently drafted, this risk factor subheading does not
concisely state the material risk to investors and the
consequences
should that risk occur. Please revise accordingly.
We are subject to advertising, consumer protection and zoning and
occupancy laws..., page 15
5. Please revise this risk factor to identify and fully discuss
the
"other regulations and regulatory changes" that could require you
to
modify your current business practices and incur increased costs.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 32
Net Sales, page 34
6. We have reviewed your response to comment 16 in our letter
dated
August 17, 2005 and the revisions to your disclosure. We assume
that
you use your internal merchandising systems to maintain sales
information for significant product categories within the product
lines you disclosed. If not, please advise. If so, please
present a
more detailed presentation and discussion of sales by product
category, particularly the significant categories within your
apparel
product lines, or tell us why a more detailed presentation is not
material to an understanding of your business. Please also see
the
comment below regarding results of operations.
Results of Operations, page 35
7. We have reviewed your response to comment 16 in our letter
dated
August 17, 2005 and the revisions to your disclosure. Please
quantify in dollars the amounts of merchandise costs and buying
and
occupancy costs in your analysis and discussions of gross profit
and
provide an analysis of the underlying reasons for significant
changes
in cost of goods sold for each period presented. In addition, in
your discussions of revenues, please identify and address the
significant changes in your product line and merchandise
assortment
that are necessary for an understanding and evaluation of your
results during the periods presented. Please refer to SEC Release
No. 33-8350.
Shares Eligible for Future Sale, page 91
Lock-up Agreements, page 92
8. Please refer to comment 29 in our letter dated August 17, 2005.
We note your response outlining the "certain exceptions" you refer
to
relating to the disposition or hedging of securities under the
lock-
up agreements. Please revise your disclosure in this section to
discuss the exceptions. In addition, we note your response
indicating any release of shares prior to expiration of the lock-
up
will depend on the "facts and circumstances" existing at the time
and
will be subject to the sole discretion of Goldman Sachs and Bear
Stearns. With a view towards disclosure, please explain the facts
and circumstances that may cause a release of securities prior to
expiration of the lock-up.
Financial Statements
Notes to Unaudited Condensed Consolidated Financial Statements,
page
F-5
9. We note your response to comment 16 in our letter dated August
17,
2005 and the revisions to your disclosure. Please disclose the
information required by paragraph 40 of SFAS 128 in your interim
financial statements.
Consolidated Statements of Changes in Stockholders` Deficit, page
F-
10
10. We note your response to comment 37 in our letter dated August
17, 2005. It does not appear that your accounting treatment for
preferred stock dividends is supported by authoritative guidance.
Please restate your financial statement to record dividends on
preferred stock as a reduction of additional paid-in capital to
the
extent of the balance thereof. Please refer to SAB Topic 3:C and
EITF Topic D-98.
Note 1. Nature of Business and Summary of Significant Accounting
Policies, page F-12
Segment Information, page F-12
11. We note your response to comments 38 and 39 in our letter
dated
August 17, 2005. It does not appear that the segments you
aggregate
are economically similar. We note that the historical gross
margin
percentage of your direct segment has exceeded the gross margin
percentage of your stores segment by 7.2% to 10.6% over the last
three fiscal years. We also note that the segments have not had
similar sales trends. For example, while sales for your stores
segment increased slightly from fiscal year 2002 to 2003, sales
for
your direct segment decreased by 30% over the same time period.
In
addition, it does not appear the segments use similar distribution
methods. Consequently, aggregation of your operating segments
does
not appear to be consistent with the objective and basic
principles
of SFAS 131 - to provide information about the different types of
business activities in which an enterprise engages and the
different
economic environments in which it operates in order to help users
of
financial statements better understand the enterprise`s
performance,
better assess its prospects for future net cash flows, and make
more
informed judgments about the enterprise as a whole. Please
provide
to us additional information that supports your position that the
distribution methods of the segments are similar and explain why
long-term average gross margins and sales trends for the operating
segments are expected to be similar in the future in light of
historical results. Alternatively, please present the segment
information and related disclosures required by SFAS 131.
12. We note that production and import expenses are not allocated
to
your operating segments. Please explain to us why these costs are
not capitalized in inventory.
Revenue Recognition, page F-14
13. We note your response to comment 40 in our letter dated August
17, 2005. We do not believe that estimated breakage on gift cards
should be recognized at the point of purchase. Rather, in
circumstances where you are able to demonstrate that the demand
for
future performance is remote and the estimate of breakage is based
on
a large population of homogeneous transactions, the breakage
should
either be recognized ratably over a period that is representative
of
the period of time the breakage estimate is expected to be
realized
or at the end of the estimated breakage period, whichever is
appropriate in the circumstances. Consequently, we believe you
should revise your accounting policy and restate your financial
statements. Please advise. In doing so, tell us how you
determined
the estimated breakage period and provide to us a schedule that
reflects, for each of the years included in Exhibit B to your
response dated September 23, 2005:
* the number and dollar amount of gift cards purchased in the
year;
* the number, dollar amount and percentage of gift cards redeemed
in
the year of purchase and in each subsequent year; and
* the number, dollar amount and percentage of gift cards
outstanding
at the end of the year of purchase and each subsequent year.
If available, provide this information for previous years to the
extent relevant to your estimated breakage period.
In addition, it appears that breakage is material to income (loss)
from operations and that you should revise your financial
statements
to present breakage as a separate line item in your statements of
operations in accordance with paragraph 20 of APB 26. Please
advise.
Further, please tell us whether the reduction in other income
related
to the error in determining the escheatable portion of unredeemed
gift cards was recognized in the first quarter of fiscal 2005 or
2004
and, if necessary, revise your disclosure in the fourth paragraph
on
page 36. In addition, please tell us the effect on your operating
income (loss) for the quarter that includes the error correction
and,
if material, disclose the effect of the adjustment on net income
(loss) disclosed in Note 18 to your financial statements.
Finally, please explain to us how your accounting policy for
promotional certificates complies with the guidance in Issue 4 of
EITF 01-9. In doing so, tell us your basis for recognizing the
value
of the promotional certificates as a reduction of revenue at the
date
of issuance as opposed to the date of redemption. Please also
tell
us the amount of your liability for promotional certificates at
the
end of each period presented in your statements of operations.
16. Stock Compensation Plans, page F-26
14. We note your response to comment 45 in our letter dated August
17, 2005. Please provide to us objective support for the amount
of
the marketability discounts used in your valuations including,
among
others, the prospects for liquidity, restrictions on
transferability
and risk or volatility and describe the factors that support the
changes in the marketability discount used in each of the
valuations.
Please tell us the effect of changes in the marketability
discount,
your debt structure and your EBITDA projections on each valuation
used to determine the fair value of your common stock. Please
also
tell us the method you used to allocate enterprise value to your
preferred stock and why you believe that the allocation method you
used is the most appropriate method for your circumstances. As
indicated, please continue to update your response to reflect
transactions through the effective date. We will not conclude on
any
response you provide until you have filed an amendment that
includes
your anticipated initial public offering price range and describe
the
intervening events which occurred during the year preceding the
date
you filed your registration statement that significantly increased
the fair value of your common stock.
Schedule II Valuation and Qualifying Accounts, page F-29
15. We note your response to comment 47 in our letter dated August
17, 2005. When goods have been written down below cost at the
close
of a fiscal period, this reduced amount is to be considered the
cost
for subsequent accounting purposes. See footnote 2 to Chapter 4
of
ARB 43. It appears that your methodology may result in an
increase
in cost of inventory previously written down. Please confirm to
us
that your inventory reserves are established against specific
inventory items and that you do not reduce reserves related to
items
previously written down unless the items are sold or consumed.
* * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
You may contact Andrew Blume at (202) 551-3254 or William
Choi,
Accounting Branch Chief, at (202) 551-3716 if you have questions
regarding comments on the financial statements and related
matters.
Please contact Matthew Benson at (202) 551-3335 or Ellie Quarles,
Special Counsel, at (202) 551-3238 with any other questions you
may
have.
Sincerely,
H. Christopher Owings
Assistant Director
cc: Jeffrey D. Karpf, Esq.
Cleary Gottlieb Steen & Hamilton LLP
Fax: (212) 225-3999
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Arlene S. Hong
J. Crew Group, Inc.
October 7, 2005
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