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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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FORM 8-K

 

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CURRENT REPORT

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 29, 2007

 

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Commission File Number		Registrant, State of Incorporation Address and Telephone Number				I.R.S. Employer Identification No.
333-42427		J.CREW GROUP, INC. (Incorporated in Delaware) 770 Broadway New York, New York 10003 Telephone: (212) 209-2500				22-2894486

 

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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

q	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

q	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

q	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

q	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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Item 2.02.

Results of Operations and Financial Condition.

On November 29, 2007, J.Crew Group, Inc. issued a press release announcing the Company’s financial results for the third quarter ended November 3, 2007. The Company is furnishing a copy of the press release hereto as Exhibit 99.1.

 

Item 9.01.

Financial Statements and Exhibits.

 

(d)

Press Release issued by J.Crew Group, Inc. on November 29, 2007.

The information in this Current Report is being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), nor shall such information be deemed incorporated by reference into any filing under the Act, or the Exchange Act, except as expressly stated by specific reference in such filing.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: November 29, 2007

 

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EXHIBIT 99.1

 

						Company Contact:
						James Scully
						Chief Financial Officer
						(212) 209-8040
						Investor Contact:
						Allison Malkin/Chad Jacobs/Joe Teklits
						Integrated Corporate Relations
						(203) 682-8200

J. CREW GROUP, INC. ANNOUNCES THIRD QUARTER FISCAL 2007 RESULTS

Third Quarter Operating Income Increases 44%

Third Quarter Diluted EPS of $0.42

Raises Fiscal 2007 Guidance

New York, NY – November 29, 2007 – J. Crew Group, Inc. [NYSE:JCG] today announced financial results for the three months (Third Quarter) and nine months (First Nine Months) ended November 3, 2007.

Third Quarter highlights:

 

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Revenues increased 21% to $332.7 million. Store sales (Retail and Factory) increased 16% to $233.6 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 5% in the third quarter of fiscal 2007. Comparable store sales increased 19% in the third quarter of fiscal 2006. Direct sales (Internet and Catalog) rose by 36% to $90.3 million. Direct sales increased 18% in the third quarter of fiscal 2006.

 

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Operating income increased 44% to $47.7 million, or 14.3% of revenues, compared to $33.2 million, or 12.0% of revenues, in the third quarter of fiscal 2006.

 

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Net income available to common stockholders was $26.8 million, or $0.42 per diluted share, compared to $26.0 million, or $0.40 per diluted share, in the third quarter of fiscal 2006. The current year period reflects an effective tax rate of 39.8% as compared to an effective tax rate of 7.1% in the third quarter of fiscal 2006.

 

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Adjusted net income for the third quarter of fiscal 2006 totaled $17.2 million, or $0.27 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 third quarter results, which reflect the strength of both our Store and Direct businesses and our ongoing commitment to great style, quality and design. Our focus continues to be on driving high quality earnings growth by investing in the areas where we get superior returns – improving quality and design, differentiating our assortments and expanding our Store and Direct businesses.”

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First Nine Months highlights:

 

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Revenues increased 19% to $934.8 million. Store sales (Retail and Factory) increased 15% to $654.2 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 6% in the first nine months of fiscal 2007. Comparable store sales increased 16% in the first nine months of fiscal 2006. Direct sales (Internet and Catalog) rose by 29% to $251.4 million in the first nine months of fiscal 2007. Direct sales increased 12% in the first nine months of fiscal 2006.

 

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Operating income increased 46% to $129.2 million, or 13.8% of revenues, compared to $88.3 million, or 11.2% of revenues, in the first nine months of fiscal 2006.

 

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Net income available to common stockholders was $72.1 million, or $1.13 per diluted share, compared to $27.7 million, or $0.62 per diluted share, in the first nine months of fiscal 2006.

 

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Adjusted net income for the first nine months of fiscal 2006 totaled $44.7 million, or $0.70 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.

Balance Sheet highlights as of November 3, 2007:

 

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Inventories at the end of the quarter were $210.8 million, reflecting the impact of 29 net stores opened since the end of the third quarter of fiscal 2006. Additionally, the 53rd week in fiscal 2006 causes each quarter in 2007 to begin and end one week later, resulting in non-comparable point in time inventory increases. The impact of the calendar shift increased inventory by approximately $15 million at the end of the quarter.

 

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Long-term debt was reduced to $125 million, which reflects the Company’s voluntary principal prepayments of $75 million and $50 million made during the first nine months of fiscal 2007 and the fourth quarter of fiscal 2006, respectively.

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%.

Based on better than anticipated third quarter results, the Company currently expects fiscal 2007 diluted earnings per share in the range of $1.50 to $1.52, as compared to its previous guidance range of $1.42 to $1.46.

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, income taxes, net income, preferred stock dividends and earnings per share information for the three and nine months ended October 28, 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

 

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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 nine months ended October 28, 2006 are included in Exhibit (3).

Conference Call Information

A conference call to discuss third quarter results is scheduled for today, November 29, 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 December 5, 2007 and can be accessed by dialing (877) 519-4471 and entering code 9473389.

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 November 24, 2007, the Company operates 198 retail stores (including four crewcuts and six Madewell stores), the J. Crew catalog business, jcrew.com, and 61 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.

 

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Exhibit (1)

J. Crew Group, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

(Amounts in thousands, except percentages and per share amounts)		Three Months Ended November 3, 2007				Three Months Ended October 28, 2006				Nine Months Ended November 3, 2007				Nine Months Ended October 28, 2006
Net sales
Stores		$	233,588			$	202,174			$	654,182			$	566,708
Direct			90,315				66,346				251,424				195,379
			323,903				268,520				905,606				762,087
Other			8,841				7,055				29,181				23,343
Total Revenues			332,744				275,575				934,787				785,430
Costs of goods sold, buying and occupancy costs			180,909				147,703				511,224				434,944
Gross profit			151,835				127,872				423,563				350,486
As a percent of revenues			45.6	%			46.4	%			45.3	%			44.6	%
Selling, general and administrative expenses			104,150				94,690				294,385				262,188
As a percent of revenues			31.3	%			34.4	%			31.5	%			33.4	%
Operating income			47,685				33,182				129,178				88,298
As a percent of revenues			14.3	%			12.0	%			13.8	%			11.2	%
Interest expense, net			3,077				5,172				9,377				40,028
Loss on refinancing of debt			—				—				—				10,039
Income before income taxes			44,608				28,010				119,801				38,231
Provision for income taxes			17,771				2,000				47,683				4,400
Net income			26,837				26,010				72,118				33,831
Preferred stock dividends			—				—				—				(6,141	)
Net income applicable to common shareholders		$	26,837			$	26,010			$	72,118			$	27,690
Income per share:
Basic		$	0.44			$	0.45			$	1.20			$	0.69
Diluted		$	0.42			$	0.40			$	1.13			$	0.62
Weighted average shares outstanding:
Basic			60,725				58,036				60,257				39,968
Diluted			64,195				64,657				63,923				44,846

 

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Exhibit (2)

J. Crew Group, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

(In thousands)		November 3, 2007			February 3, 2007			October 28, 2006
Assets
Current assets:
Cash and cash equivalents		$	63,760		$	88,900		$	72,475
Inventories			210,774			140,670			174,687
Prepaid expenses and other current assets			50,721			47,528			38,744
Total current assets			325,255			277,098			285,906
Property and equipment, net			156,524			121,814			113,925
Other assets			29,941			29,154			14,074
Total assets		$	511,720		$	428,066		$	413,905
Liabilities and Stockholders’ equity
Current liabilities:
Accounts payable		$	106,811		$	77,836		$	85,335
Other current liabilities			80,310			76,666			64,341
Income taxes payable			13,401			5,496			5,087
Current portion of long-term debt			—			—			2,850
Total current liabilities			200,522			159,998			157,613
Long-term debt			125,000			200,000			247,150
Deferred credits			69,140			62,448			64,278
Other liabilities			6,689			—			—
Stockholders’ equity (deficit)			110,369			5,620			(55,136	)
Total liabilities and stockholders’ equity (deficit)		$	511,720		$	428,066		$	413,905

 

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Exhibit (3)

Reconciliation of net income on a GAAP basis to “Adjusted net income”

 

		Three Months Ended October 28, 2006										Nine Months Ended October 28, 2006
(Amounts in thousands, except percentages and per share amounts)		GAAP Basis			Adjustments				As Adjusted			GAAP Basis				Adjustments				As Adjusted
Total Revenues		$	275,575			—			$	275,575		$	785,430				—			$	785,430
Cost of goods sold, buying and occupancy costs			147,703			—				147,703			434,944				—				434,944
Gross profit			127,872			—				127,872			350,486				—				350,486
Selling, general and administrative expenses			94,690			—				94,690			262,188				—				262,188
Operating income			33,182			—				33,182			88,298				—				88,298
Interest expense, net			5,172			—				5,172			40,028				(24,556	) (a)			15,472
Loss on refinancing of debt			—			—				—			10,039				(10,039	) (b)			—
Income before income taxes			28,010			—				28,010			38,231				34,595				72,826
Provision for income taxes			2,000			8,812	(c)			10,812			4,400				23,711	(c)			28,111
Net income			26,010			(8,812	)			17,198			33,831				10,884				44,715
Preferred stock dividends			—			—				—			(6,141	)			6,141	(d)			—
Net income applicable to common stockholders		$	26,010		$	(8,812	)		$	17,198		$	27,690			$	17,025			$	44,715
Earnings per share:
Basic		$	0.45		$	(0.15	)		$	0.30		$	0.69			$	0.08			$	0.77
Diluted		$	0.40		$	(0.13	)		$	0.27		$	0.62			$	0.08			$	0.70
Weighted average shares outstanding:
Basic			58,036			—				58,036			39,968				17,911	(e)			57,879
Diluted			64,657			—				64,657			44,846				19,439	(e)			64,285

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(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 nine months ended October 28, 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.

 

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Exhibit (4)

Actual and Projected Store Count and Square Footage

 

Fiscal 2007
Quarter		Total stores open at beginning of the quarter		Number of stores opened during the quarter		Number of stores closed during the quarter		Total stores open at end of the quarter
1st Quarter (Actual)		227		6		0		233
2nd Quarter (Actual)		233		7		2		238
3rd Quarter (Actual)		238		18		1		255
4th Quarter (Projected)		255		7		1		261

 

Fiscal 2007
Quarter		Total gross square feet at beginning of the quarter		Gross square feet for stores opened or expanded during the quarter		Reduction of gross square feet for stores closed or downsized during the quarter			Total gross square feet at end of 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 (Actual)		1,579,541		87,645		(6,662	)		1,660,524
4th Quarter (Projected)		1,660,524		42,459		(7,290	)		1,695,693

 

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