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, Nov. 29 /PRNewswire-FirstCall/ -- 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:
- 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.
- 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.
- 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.
- 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."
First Nine Months highlights:
- 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.
- 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.
- 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.
- 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:
- 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.
- 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.
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 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.
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) Three Three Nine Nine (Amounts in Months Months Months Months thousands, except Ended Ended Ended Ended percentages and November October November October per share amounts) 3, 2007 28, 2006 3, 2007 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 Exhibit(2) J.Crew Group, Inc. Condensed Consolidated Balance Sheets (Unaudited) November 3, February 3, October 28, (In thousands) 2007 2007 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 Exhibit (3) Reconciliation of net income on a GAAP basis to "Adjusted net income" (Amounts in thousands, except percentages Three Months Ended Nine Months Ended and per October 28, 2006 October 28, 2006 share GAAP Adjust- As GAAP Adjust- As amounts) Basis ments Adjusted Basis ments 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 administ- rative 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 stockhold- ers $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 ( 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. Exhibit(4) Actual and Projected Store Count and Square Footage Fiscal 2007 Total stores Number of Number of Total stores open at stores stores open at beginning of opened during closed during end of Quarter the quarter the quarter the quarter 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 Gross square Reduction of Total gross feet for gross square square stores feet for stores Total gross feet at opened or closed or square beginning expanded downsized feet at end Quarter of the during the during the of the quarter quarter quarter 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
SOURCE J.Crew Group, Inc.
CONTACT: James Scully, Chief Financial Officer of J.Crew Group, Inc.,
+1-212-209-8040; or Investors, Allison Malkin, or Chad Jacobs, or Joe Teklits,
all of Integrated Corporate Relations, +1-203-682-8200, for J.Crew Group, Inc.
Web site: http://www.jcrew.com