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): November 22, 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 November 22, 2016, J.Crew Group, Inc. issued a press release announcing the Company’s financial results for the third quarter ended October 29, 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 November 22, 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.

 
2

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: November 22, 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 THIRD QUARTER FISCAL 2016 RESULTS
NEW YORK, November 22, 2016 — J.Crew Group, Inc. (the “Company”) today announced financial results for the third quarter and first nine months of fiscal 2016.
Third Quarter highlights:
 	•	Total revenues decreased 4% to $593.2 million. Comparable company sales decreased 8% following a decrease of 11% in the third quarter last year.    	

 	•	J.Crew sales decreased 7% to $488.0 million. J.Crew comparable sales decreased 9% following a decrease of 12% in the third quarter last year.	

 	•	Madewell sales increased 12% to $88.0 million. Madewell comparable sales increased 4% following an increase of 1% in the third quarter last year.      	

 	•	Gross margin was 38.1% compared to 38.6% in the third quarter last year.	

 	•	Selling, general and administrative expenses were $204.5 million, or 34.5% of revenues, compared to $201.8 million, or 32.6% of revenues in the third quarter last year.	

 	•	Operating income was $20.0 million compared with an operating loss of $808.5 million in the third quarter last year. Operating income this year includes pre-tax, non-cash impairment charges of $1.3 million. The operating loss in the third quarter last year reflects the impact of pre-tax, non-cash impairment charges of $845.9 million.	

 	•	Net loss was $7.9 million compared to $759.7 million in the third quarter last year. The net loss this year reflects the impact of (i) a non-cash charge to income tax expense of $6.8 million to record a valuation allowance related to the Company’s deferred tax assets and (ii) non-cash impairment charges. The net loss last year reflects the impact of non-cash impairment charges.	

 	•	Adjusted EBITDA was $53.3 million compared to $73.6 million in the third 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, “Our third quarter results reflect ongoing traffic challenges and a highly promotional retail environment. While we expect these trends to persist through the fourth quarter, we continue to remain focused on driving sales productivity and carefully managing inventory and expenses. In addition, we have several key operational initiatives underway that we believe position us to regain momentum and deliver long term growth.”  
First Nine Months highlights:
 	•	Total revenues decreased 4% to $1,730.5 million. Comparable company sales decreased 7% following a decrease of 10% in the first nine months last year.    	

 	•	J.Crew sales decreased 6% to $1,445.5 million. J.Crew comparable sales decreased 9% following a decrease of 12% in the first nine months last year.	

 	•	Madewell sales increased 15% to $238.7 million. Madewell comparable sales increased 4% following an increase of 6% in the first nine months last year.      	

 	•	Gross margin was 36.6% compared to 36.7% in the first nine months last year.	

 	•	Selling, general and administrative expenses were $593.3 million, or 34.3% of revenues, compared to $605.3 million, or 33.7% of revenues in the first nine months last year.	

 
 	•	Operating income was $34.0 million compared with an operating loss of $1,326.5 million in the first nine months last year. Operating income this year includes pre-tax, non-cash impairment charges of $6.7 million. The operating loss last year includes pre-tax, non-cash impairment charges of $1,380.3 million and a charge of $4.8 million for severance and related costs associated with the Company’s workforce reduction.	

 	•	Net loss was $24.6 million compared to $1,235.6 million in the first nine months last year. The net loss this year reflects the impact of (i) a non-cash charge to income tax expense of $6.8 million to record a valuation allowance related to the Company’s deferred tax assets and (ii) non-cash impairment charges. The net loss last year reflects the impact of non-cash impairment charges.	

 	•	Adjusted EBITDA was $137.0 million compared to $159.4 million in the first nine months 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).	
Balance Sheet highlights:
 	•	Cash and cash equivalents were $38.4 million compared to $47.5 million at the end of the third quarter last year.	

 	•	Total debt, net of discount and deferred financing costs, was $1,513 million compared to $1,520 million at the end of the third quarter last year.	

 	•	Inventories were $446.3 million compared to $483.0 million at the end of the third quarter last year. Inventories decreased 8% and inventories per square foot decreased 13% compared to the end of the third quarter last year.  	
ABL Refinancing
In the fourth quarter of fiscal 2016, the Company amended its ABL Facility to, among other things, extend the scheduled maturity date from December 10, 2019 to November 17, 2021. Average short-term borrowings under the ABL Facility were $11.3 million and $18.1 million in the first nine months of fiscal 2016 and fiscal 2015, respectively. There were no outstanding borrowings under the ABL Facility at October 29, 2016 compared to $20 million outstanding at October 31, 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.
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 October 28, 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 May 1, 2017 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 $23.1 million to $566.5 million. Therefore, the Company will not pay a dividend to the Issuer in the first quarter of fiscal 2017 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 third quarter results is scheduled for today, November 22, 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 November 29, 2016 and can be accessed by dialing (877) 870-5176 and entering conference ID number 13650049.
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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 November 22, 2016, the Company operates 287 J.Crew retail stores, 110 Madewell stores, jcrew.com, jcrewfactory.com, the J.Crew catalog, madewell.com, the Madewell catalog, and 181 factory stores (including 37 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.

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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.
 
4

 
Exhibit (1)
J.Crew Group, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
(in thousands, except percentages)	  	Third Quarter
Fiscal 2016	 	 	Third Quarter
Fiscal 2015	 	 	First Nine Months
Fiscal 2016	 	 	First Nine Months
Fiscal 2015	 	
Net sales:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
J.Crew	  	$	487,974	  	 	$	526,975	  	 	$	1,445,453	  	 	$	1,542,246	  	
Madewell	  	 	87,968	  	 	 	78,683	  	 	 	238,705	  	 	 	208,470	  	
 
Other	  	 	17,213	  	 	 	13,757	  	 	 	46,316	  	 	 	44,151	  	
Total revenues	  	 	593,155	  	 	 	619,415	  	 	 	1,730,474	  	 	 	1,794,867	  	
 
Cost of goods sold, including buying and occupancy costs	  	 	367,299	  	 	 	380,199	  	 	 	1,096,466	  	 	 	1,135,745	  	
Gross profit	  	 	225,856	  	 	 	239,216	  	 	 	634,008	  	 	 	659,122	  	
As a percent of revenues	  	 	38.1	% 	 	 	38.6	% 	 	 	36.6	% 	 	 	36.7	% 	
 
Selling, general and administrative expenses	  	 	204,547	  	 	 	201,823	  	 	 	593,303	  	 	 	605,336	  	
As a percent of revenues	  	 	34.5	% 	 	 	32.6	% 	 	 	34.3	% 	 	 	33.7	% 	
Impairment losses	 	 	1,333	 	 	 	845,915	 	 	 	6,729	 	 	 	1,380,324	 	
 
Operating income (loss)	  	 	19,976	  	 	 	(808,522	)  	 	 	33,976	  	 	 	(1,326,538	)  	
As a percent of revenues	  	 	3.4	% 	 	 	NM	% 	 	 	2.0	% 	 	 	(73.9	)% 	
 
Interest expense, net	  	 	20,675	  	 	 	17,581	  	 	 	59,511	  	 	 	52,344	  	
 
Loss before income taxes	  	 	(699	)  	 	 	(826,103	)  	 	 	(25,535	)  	 	 	(1,378,882	)  	
 
Provision (benefit) for income taxes	  	 	7,201	  	 	 	(66,440	)  	 	 	(967	)  	 	 	(143,238	)  	
 
Net loss	  	$	(7,900	)  	 	$	(759,663	)  	 	$	(24,568	)  	 	$	(1,235,644	)  	
 
5

 
Exhibit (2)
J.Crew Group, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
(in thousands)	October 29,
2016	 	 	January 30, 
2016	 	 	October 31, 
2015	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Assets	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	$	38,416	 	 	$	87,812	 	 	$	47,474	 	
Inventories	 	446,320	 	 	 	372,410	 	 	 	482,999	 	
Prepaid expenses and other current assets	 	76,872	 	 	 	65,605	 	 	 	70,809	 	
Total current assets	 	561,608	 	 	 	525,827	 	 	 	601,282	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Property and equipment, net	 	371,292	 	 	 	398,244	 	 	 	403,066	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Intangible assets, net	 	452,700	 	 	 	460,744	 	 	 	464,663	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Goodwill	 	107,900	 	 	 	107,900	 	 	 	107,900	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Other assets	 	5,806	 	 	 	7,261	 	 	 	7,833	 	
Total assets	$	1,499,306	 	 	$	1,499,976	 	 	$	1,584,744	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities and Stockholders’ Deficit	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	 	 	
Accounts payable	$	255,358	 	 	$	248,342	 	 	$	299,253	 	
Other current liabilities	 	177,346	 	 	 	157,765	 	 	 	157,138	 	
Interest payable	 	8,307	 	 	 	5,279	 	 	 	5,372	 	
Income taxes-related payable	 	4,092	 	 	 	7,086	 	 	 	17,369	 	
Borrowings under the ABL Facility	 	—	 	 	 	—	 	 	 	20,000	 	
Current portion of long-term debt	 	15,670	 	 	 	15,670	 	 	 	15,670	 	
Total current liabilities	 	460,773	 	 	 	434,142	 	 	 	514,802	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Long-term debt, net	 	1,497,326	 	 	 	1,501,917	 	 	 	1,504,752	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Lease-related deferred credits, net	 	132,755	 	 	 	131,812	 	 	 	131,462	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Deferred income taxes, net	 	149,236	 	 	 	148,819	 	 	 	145,678	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Other liabilities	 	51,817	 	 	 	52,273	 	 	 	47,051	 	
 	 	 	 	 	 	 	 	 	 	 	 	
Stockholders’ deficit	 	(792,601	)	 	 	(768,987	)	 	 	(759,001	)	
Total liabilities and stockholders’ deficit	$	1,499,306	 	 	$	1,499,976	 	 	$	1,584,744	 	

 

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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)	  	Third Quarter
Fiscal 2016	 	 	Third Quarter
Fiscal 2015	 	 	First Nine Months
Fiscal 2016	 	 	First Nine Months
Fiscal 2015	 	
Net loss	  	$	(7.9	)  	 	$	(759.7	)  	 	$	(24.6	)  	 	$	(1,235.6	)  	
Provision (benefit) for income taxes	  	 	7.2	  	 	 	(66.4	)  	 	 	(1.0	)  	 	 	(143.2	)  	
Interest expense	  	 	20.7	  	 	 	17.6	  	 	 	59.5	  	 	 	52.3	  	
Depreciation and amortization (including intangible assets)	  	 	29.9	  	 	 	30.4	  	 	 	88.4	  	 	 	88.5	  	
EBITDA	  	 	49.9	  	 	 	(778.1	)  	 	 	122.3	  	 	 	(1,238.0	)  	
Sponsor monitoring fees	  	 	2.5	  	 	 	2.4	  	 	 	7.5	  	 	 	7.6	  	
Impairment losses	 	 	1.3	 	 	 	845.9	 	 	 	6.7	 	 	 	1,380.3	 	
Share-based compensation	  	 	0.2	  	 	 	0.4	  	 	 	0.8	  	 	 	2.1	  	
Amortization of lease commitments	  	 	(0.6	)  	 	 	2.7	  	 	 	(0.3	)  	 	 	2.6	  	
Charges related to a workforce reduction	  	 	—	  	 	 	0.3	  	 	 	—	  	 	 	4.8	  	
Adjusted EBITDA	  	 	53.3	  	 	 	73.6	  	 	 	137.0	  	 	 	159.4	  	
Taxes paid	  	 	(0.5	) 	 	 	(0.2	) 	 	 	(1.0	) 	 	 	(1.0	) 	
Interest paid	  	 	(16.1	) 	 	 	(18.5	) 	 	 	(53.3	) 	 	 	(55.6	) 	
Changes in working capital	  	 	(23.7	) 	 	 	(21.7	) 	 	 	(64.2	) 	 	 	(57.5	) 	
Cash flows from operating activities	  	 	13.0	  	 	 	33.2	  	 	 	18.5	  	 	 	45.3	  	
Cash flows from investing activities	  	 	(23.2	) 	 	 	(33.1	) 	 	 	(59.3	) 	 	 	(78.6	) 	
Cash flows from financing activities	  	 	—	 	 	 	6.1	 	 	 	(7.8	) 	 	 	(29.9	) 	
Effect of changes in foreign exchange rates on cash and cash equivalents	  	 	(0.6	)  	 	 	(0.1	)  	 	 	(0.8	) 	 	 	(0.4	) 	
Increase (decrease) in cash	  	 	(10.8	)	 	 	6.1	 	 	 	(49.4	)  	 	 	(63.6	)  	
Cash and cash equivalents, beginning	  	 	49.2	  	 	 	41.4	  	 	 	87.8	  	 	 	111.1	  	
Cash and cash equivalents, ending	  	$	38.4	  	 	$	47.5	  	 	$	38.4	  	 	$	47.5	  	
 
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.

7

 
Exhibit (4)
 
Actual and Projected Store Count and Square Footage(1)
(unaudited)
 
 	  	Fiscal 2016	 	
Period	  	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 (3)	 	 	557	 	 	 	7	 	 	 	—	 	 	 	564	 	
Third Quarter (3)	 	 	564	 	 	 	9	 	 	 	(2	)	 	 	571	 	
Fourth Quarter (4)	 	 	571	 	 	 	12	 	 	 	(13	)	 	 	570	 	
Fiscal 2016	 	 	551	 	 	 	34	 	 	 	(15	)	 	 	570	 	
 
 	  	Fiscal 2016	 	
Period	  	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 (3)	 	 	3,082,468	 	 	 	39,236	 	 	 	(10	)	 	 	3,121,694	 	
Third Quarter (3)	 	 	3,121,694	 	 	 	42,352	 	 	 	(10,764	)	 	 	3,153,282	 	
Fourth Quarter (4)	 	 	3,153,282	 	 	 	61,324	 	 	 	(76,211	)	 	 	3,138,395	 	
Fiscal 2016	 	 	3,057,176	 	 	 	168,204	 	 	 	(86,985	)	 	 	3,138,395	 	

(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	  	 	 	2	  	  	 	19	  	  	 	10	  	  	 	1	  	  	 	34	  	
Conversion to J.Crew Mercantile	  	 	(1	)  	 	 	(9	)  	  	 	10	  	  	 	—	  	  	 	—	  	  	 	—	 	
Close	  	 	(10	) 	 	 	(4	) 	  	 	—	 	  	 	—	 	  	 	(1	) 	  	 	(15	) 	
Net	  	 	(9	)  	 	 	(11	)  	  	 	29	  	  	 	10	  	  	 	—	  	  	 	19	  	

(3)	Reflects actual activity.	

(4)	Reflects projected activity.	
 
8