UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 25, 2016
 
J.Crew Group, Inc.
(Exact name of registrant as specified in its charter)
 
Commission File Number: 333-175075
 
Delaware	 	22-2894486	
(State or other jurisdiction
of incorporation)	 	(IRS Employer
Identification No.)	
770 Broadway
New York, NY 10003
(Address of principal executive offices, including zip code)
(212) 209-2500
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
 
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:
 	¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	

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

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

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

 

Item 2.02. Results of Operations and Financial Condition.
On May 25, 2016, J.Crew Group, Inc. issued a press release announcing the Company’s financial results for the first quarter ended April 30, 2016. The Company is furnishing a copy of the press release hereto as Exhibit 99.1.
 
Item 9.01. Financial Statements and Exhibits
(a) through (c) Not applicable
(d) Exhibits:
The following exhibit is furnished with this Current Report on Form 8-K:
 
Exhibit
No.	  	Description	
 	 	 	
99.1	  	Press Release issued by J.Crew Group, Inc. on May 25, 2016	
The information in this Current Report is being furnished and shall not be deemed “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 Securities Act of 1933, as amended, or the Exchange Act, except as expressly stated by specific reference in such filing.

 
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SIGNATURE
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.
 
 	 	J.CREW GROUP, INC.	
 	 	 	 	
Date: May 25, 2016	 	By:	 	/s/ MICHAEL J. NICHOLSON	
 	 	 	 	Michael J. Nicholson	
 	 	 	 	President, Chief Operating Officer and
Chief Financial Officer	

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Exhibit 99.1
Contacts:
Vincent Zanna
Vice President, Treasurer
(212) 209-8090
Allison Malkin / Joe Teklits
ICR, Inc.
(203) 682-8200
 
J.CREW GROUP, INC. ANNOUNCES FIRST QUARTER 2016 RESULTS
NEW YORK, May 25, 2016 — J.Crew Group, Inc. (the “Company”) today announced financial results for the three months ended April 30, 2016.
First Quarter highlights:
 	·	Total revenues decreased 3% to $567.5 million. Comparable company sales decreased 7% following a decrease of 8% in the first quarter last year.    	

 	·	J.Crew sales decreased 6% to $480.7 million. J.Crew comparable sales decreased 8% following a decrease of 10% in the first quarter last year.	

 	·	Madewell sales increased 17% to $72.5 million. Madewell comparable sales increased 6% following an increase of 12% in the first quarter last year.      	

 	·	Gross margin was 36.1% compared to 37.2% in the first quarter last year.	

 	·	Selling, general and administrative expenses were $192.2 million, or 33.9% of revenues, compared to $203.8 million, or 35.0% of revenues in the first quarter last year.	

 	·	Operating income was $7.3 million compared with an operating loss of $520.6 million in the first quarter last year. This year and last year reflect the impact of pre-tax, non-cash impairment charges of $5.4 million and $533.4 million, respectively.	

 	·	Net loss was $8.0 million compared to $462.4 million in the first quarter last year. The net losses reflect the impact of the non-cash impairment charges.	

 	·	Adjusted EBITDA increased to $45.4 million from $44.8 million in the first quarter last year. An explanation of the manner in which the Company uses adjusted EBITDA and a reconciliation to GAAP measures are included in Exhibit (3).	
Millard Drexler, Chairman and Chief Executive Officer, commented, “Overall, we have been aggressive in managing all aspects of our business in a challenging retail environment while continuing to focus on delivering the very best product and brand experience for our customers across all channels. We look forward to the contributions from our assortment and merchandising strategies within our J.Crew brand, the continued growth of Madewell and Mercantile and other key operational initiatives including our SG&A, sourcing and supply chain optimization programs.”
Balance Sheet highlights:
 	·	Cash and cash equivalents were $54.7 million compared to $64.5 million at the end of the first quarter last year.	

 	·	Total debt, net of discount and deferred financing costs, was $1,515 million compared to $1,526 million at the end of the first quarter last year. No borrowings were outstanding at April 30, 2016 or May 2, 2015. As of the date of this release, there were outstanding borrowings of $10 million under the ABL Facility with excess availability of approximately $320 million.	

 	·	Inventories were $391.4 million compared to $410.1 million at the end of the first quarter last year. Inventories decreased 5% and inventories per square foot decreased 11% compared to the end of the first quarter last year.  	

 
Related Party
On November 4, 2013, Chinos Intermediate Holdings A, Inc. (the “Issuer”), an indirect parent holding company of the Company, issued $500 million aggregate principal of 7.75/8.50% Senior PIK Toggle Notes due May 1, 2019 (the “PIK Notes”).
The PIK Notes are (i) senior unsecured obligations of the Issuer, (ii) structurally subordinated to all of the liabilities of the Issuer’s subsidiaries, and (iii) not guaranteed by any of the Issuer’s subsidiaries, and therefore are not recorded in the financial statements of the Company.
On April 29, 2016, the Issuer delivered notice to U.S. Bank N.A., as trustee, under the indenture governing the PIK Notes, that with respect to the interest that will be due on such notes on the November 1, 2016 interest payment date, the Issuer will make such interest payment by paying in kind at the PIK interest rate of 8.50% instead of paying in cash. The PIK election will increase the outstanding principal balance of the PIK Notes by $22.2 million to $543.4 million. Therefore, the Company will not pay a dividend to the Issuer in the third quarter of fiscal 2016 to fund a semi-annual interest payment. Pursuant to the terms of the indenture governing the PIK Notes, the Issuer intends to evaluate this option prior to the beginning of each interest period based on relevant factors at that time.
Use of Non-GAAP Financial Measures
This announcement includes certain non-GAAP financial measures. An explanation of the manner in which the Company uses adjusted EBITDA and an associated reconciliation to GAAP measures is included in Exhibit (3).
Conference Call Information
A conference call to discuss first quarter results is scheduled for today, May 25, 2016, at 4:30 PM Eastern Time. Investors and analysts interested in listening to the call are invited to dial (877) 407-3982 approximately ten minutes prior to the start of the call. The conference call will also be simultaneously webcast at www.jcrew.com. A replay of this call will be available until June 1, 2016 and can be accessed by dialing (877) 870-5176 and entering conference ID number 13637855.
About J.Crew Group, Inc.
J.Crew Group, Inc. is an internationally recognized omni-channel retailer of women’s, men’s and children’s apparel, shoes and accessories. As of May 25, 2016, the Company operates 287 J.Crew retail stores, 106 Madewell stores, jcrew.com, jcrewfactory.com, the J.Crew catalog, madewell.com, the Madewell catalog, and 164 factory stores (including 22 J.Crew Mercantile stores). 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, including projected store count and square footage in Exhibit (4) hereof, 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 Company’s substantial indebtedness and the indebtedness of its indirect parent, the retirement, repurchase or exchange of its indebtedness or the indebtedness of its indirect parent, its substantial lease obligations, the strength of the global economy, declines in consumer spending or changes in seasonal consumer spending patterns, competitive market conditions, its ability to anticipate and timely respond to changes in trends and consumer preferences, its ability to successfully develop, launch and grow its newer concepts and execute on strategic initiatives, product offerings, sales channels and businesses, adverse or unseasonable weather, material disruption to its information systems, its ability to implement its real estate strategy, its ability to implement its international expansion strategy, its ability to attract and retain key personnel, interruptions in its foreign sourcing operations, and other factors which are set forth in the section entitled “Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K and in all filings with the SEC made subsequent to the filing of the Form 10-K. The Company does not undertake to publicly update or revise any 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)
 
(in thousands, except percentages)	  	First Quarter
Fiscal 2016	 	 	First Quarter
Fiscal 2015	 	
Net sales:	 	 	 	 	 	 	 	 	
J.Crew	 	$	480,756	 	 	$	508,732	 	
Madewell	 	 	72,463	 	 	 	61,851	 	
 
Other	 	 	14,280	 	 	 	11,221	 	
Total revenues	 	 	567,499	 	 	 	581,804	 	
 
Cost of goods sold, including buying and occupancy costs	 	 	362,545	 	 	 	365,281	 	
Gross profit	 	 	204,954	 	 	 	216,523	 	
As a percent of revenues	 	 	36.1	%	 	 	37.2	%	
 
Selling, general and administrative expenses	 	 	192,235	 	 	 	203,753	 	
As a percent of revenues	 	 	33.9	%	 	 	35.0	%	
 
Impairment losses	 	 	5,396	 	 	 	533,362	 	
 
Operating income (loss)	 	 	7,323	 	 	 	(520,592	)	
As a percent of revenues	 	 	1.3	%	 	 	(89.5	)%	
 
Interest expense, net	 	 	18,215	 	 	 	17,309	 	
 
Loss before income taxes	 	 	(10,892	)	 	 	(537,901	)	
 
Benefit for income taxes	 	 	(2,851	)	 	 	(75,490	)	
 
Net loss	 	$	(8,041	)	 	$	(462,411	)	
 
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Exhibit (2)
J.Crew Group, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
(in thousands)	April 30,
2016	 	 	January 30, 
2016	 	 	May 2, 
2015	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Assets	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	$	54,690	 	 	$	87,812	 	 	$	64,459	 	
Inventories	 	391,360	 	 	 	372,410	 	 	 	410,078	 	
Prepaid expenses and other current assets	 	69,436	 	 	 	65,605	 	 	 	59,358	 	
Refundable and prepaid income taxes	 	—	 	 	 	—	 	 	 	9,450	 	
Total current assets	 	515,486	 	 	 	525,827	 	 	 	543,345	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Property and equipment, net	 	387,836	 	 	 	398,244	 	 	 	396,731	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Intangible assets, net	 	457,720	 	 	 	460,744	 	 	 	642,423	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Goodwill	 	107,900	 	 	 	107,900	 	 	 	783,815	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Other assets	 	8,329	 	 	 	7,261	 	 	 	7,664	 	
Total assets	$	1,477,271	 	 	$	1,499,976	 	 	$	2,373,978	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities and Stockholders’ Equity	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable	$	236,230	 	 	$	248,342	 	 	$	255,728	 	
Other current liabilities	 	156,943	 	 	 	157,765	 	 	 	154,770	 	
Interest payable	 	5,293	 	 	 	5,279	 	 	 	5,564	 	
Income taxes payable	 	9,967	 	 	 	7,086	 	 	 	—	 	
Current portion of long-term debt	 	15,670	 	 	 	15,670	 	 	 	15,670	 	
Total current liabilities	 	424,103	 	 	 	434,142	 	 	 	431,732	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Long-term debt, net	 	1,499,080	 	 	 	1,501,917	 	 	 	1,510,424	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Lease-related deferred credits, net	 	135,086	 	 	 	131,812	 	 	 	115,296	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Deferred income taxes, net	 	142,610	 	 	 	148,819	 	 	 	240,863	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Other liabilities	 	53,068	 	 	 	52,273	 	 	 	39,031	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Stockholders’ equity (deficit)	 	(776,676	)	 	 	(768,987	)	 	 	36,632	 	
Total liabilities and stockholders’ equity	$	1,477,271	 	 	$	1,499,976	 	 	$	2,373,978	 	

 

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Exhibit (3)
J.Crew Group, Inc.
Reconciliation of Adjusted EBITDA
Non-GAAP Financial Measure
(unaudited)
The following table reconciles net loss reflected on the Company’s condensed consolidated statements of operations to: (i) Adjusted EBITDA (a non-GAAP measure), (ii) cash flows from operating activities (measured in accordance with GAAP) and (iii) cash and cash equivalents as reflected on the condensed consolidated balance sheet (measured in accordance with GAAP).
 
(in millions)	  	First Quarter
Fiscal 2016	 	 	First Quarter
Fiscal 2015	 	
Net loss	 	$	(8.0	)	 	$	(462.4	)	
Benefit for income taxes	 	 	(2.9	)	 	 	(75.5	)	
Interest expense	 	 	18.2	 	 	 	17.3	 	
Depreciation and amortization (including intangible assets)	 	 	29.3	 	 	 	29.0	 	
EBITDA	 	 	36.6	 	 	 	(491.6	)	
Impairment losses	 	 	5.4	 	 	 	533.4	 	
Share-based compensation	 	 	0.4	 	 	 	1.3	 	
Amortization of lease commitments	 	 	0.4	 	 	 	(0.9	)	
Sponsor monitoring fees	 	 	2.6	 	 	 	2.6	 	
Adjusted EBITDA	 	 	45.4	 	 	 	44.8	 	
Taxes paid	 	 	(0.1	)	 	 	(0.3	)	
Interest paid	 	 	(18.2	)	 	 	(18.7	)	
Changes in working capital	 	 	(37.7	)	 	 	(30.7	)	
Cash flows from operating activities	 	 	(10.6	)	 	 	(4.9	)	
Cash flows from investing activities	 	 	(19.1	)	 	 	(18.5	)	
Cash flows from financing activities	 	 	(3.9	)	 	 	(23.4	)	
Effect of changes in foreign exchange rates on cash and cash equivalents	 	 	0.5	 	 	 	0.2	 	
Decrease in cash	 	 	(33.1	)	 	 	(46.6	)	
Cash and cash equivalents, beginning	 	 	87.8	 	 	 	111.1	 	
Cash and cash equivalents, ending	 	$	54.7	 	 	$	64.5	 	
 
The Company presents Adjusted EBITDA, a non-GAAP financial measure, because it uses such measure to: (i) monitor the performance of its business, (ii) evaluate its liquidity, and (iii) determine levels of incentive compensation. The Company believes the presentation of this measure will enhance the ability of its investors to analyze trends in its business, evaluate its performance relative to other companies in the industry, and evaluate its ability to service debt.
Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles, and therefore, differences may exist in the manner in which other companies calculate this measure. Adjusted EBITDA should not be considered an alternative to (i) net income, as a measure of operating performance, or (ii) cash flows, as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation to, or as a substitute for, analysis of the Company’s results as measured in accordance with GAAP.

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Exhibit (4)
 
Actual and Projected Store Count and Square Footage(1)
(unaudited)
 
 	  	Fiscal 2016	 	
Quarter	  	Total stores open at
beginning of the
period	 	  	Number of stores
opened during the
period(2)	 	  	Number of stores closed
during the period(2)	 	 	Total stores open at end
of the period	 	
First Quarter (3)	 	 	551	 	 	 	6	 	 	 	—	 	 	 	557	 	
Second Quarter (4)	 	 	557	 	 	 	7	 	 	 	—	 	 	 	564	 	
Third Quarter (4)	 	 	564	 	 	 	10	 	 	 	(2	)	 	 	572	 	
Fourth Quarter (4)	 	 	572	 	 	 	13	 	 	 	(3	)	 	 	582	 	
Fiscal 2016	 	 	551	 	 	 	36	 	 	 	(5	)	 	 	582	 	
 
 	  	Fiscal 2016	 	
Quarter	  	Total gross square feet
at beginning of the
period	 	  	Gross square feet
for stores opened or
expanded during the
period	 	  	Reduction of gross
square feet for stores
closed or downsized
during the period	 	 	Total gross square feet
at end of the period	 	
First Quarter (3)	 	 	3,057,176	 	 	 	25,292	 	 	 	—	 	 	 	3,082,468	 	
Second Quarter (4)	 	 	3,082,468	 	 	 	39,236	 	 	 	(10	)	 	 	3,121,694	 	
Third Quarter (4)	 	 	3,121,694	 	 	 	48,339	 	 	 	(9,294	)	 	 	3,160,739	 	
Fourth Quarter (4)	 	 	3,160,739	 	 	 	67,238	 	 	 	(11,554	)	 	 	3,216,423	 	
Fiscal 2016	 	 	3,057,176	 	 	 	180,105	 	 	 	(20,858	)	 	 	3,216,423	 	

(1)	Store count and square footage summary includes one retail store and one Madewell store that are temporarily closed at the time of this announcement and that are expected to re-open in April 2017.	

(2)	The detail of the number of stores to be opened or closed during fiscal 2016 is as follows:	
 
 	  	Retail	 	 	Factory	 	  	Mercantile	 	  	Madewell	 	  	International	 	  	Total	 	
Open	  	 	2	  	 	 	3	  	  	 	20	  	  	 	10	  	  	 	1	  	  	 	36	  	
Conversion to J.Crew Mercantile	  	 	(1	)  	 	 	(9	)  	  	 	10	  	  	 	—	  	  	 	—	  	  	 	—	 	
Close	  	 	(3	) 	 	 	—	 	  	 	—	 	  	 	(1	) 	  	 	(1	) 	  	 	(5	) 	
Net	  	 	(2	)  	 	 	(6	)  	  	 	30	  	  	 	9	  	  	 	—	  	  	 	31	  	

(3)	Reflects actual activity.	

(4)	Reflects projected activity.	
 
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