NEW YORK, June 9, 2011 /PRNewswire/ -- J.Crew Group, Inc. today announced financial results for the three months ended April 30, 2011 (first quarter fiscal 2011).

The results below reflect the Company's performance for the "combined period" consisting of the period prior to its acquisition ("predecessor period") by affiliates of TPG Capital, L.P. and Leonard Green & Partners, L.P. in the first quarter of fiscal 2011, as well as the period after completion of the acquisition ("successor period").  The acquisition was completed on March 7, 2011.

The addition of the predecessor and successor period amounts to present ("combined") totals is not consistent with GAAP and may yield results that are not comparable on a period-to-period basis due to the changes of accounting basis during these periods.  For purposes of comparing results of operations to prior periods, however, the Company believes that it is a meaningful way to present the results of operations for the quarter ended April 30, 2011.  

First quarter highlights:

• Revenues decreased 1% to $409.5 million.  Comparable company sales decreased 3% as compared to an increase of 16% in the first quarter of fiscal 2010.  Comparable company sales include comparable store sales, direct sales and shipping and handling revenues.  Store sales decreased 3% to $281.2 million, with comparable store sales decreasing 6%.  Comparable store sales increased by 15% in the first quarter of fiscal 2010.  Direct sales (Internet and Phone) increased 5% to $120.4 million.  Direct sales increased by 20% to $114.4 million in the first quarter of fiscal 2010.  
• Gross margin decreased to 44.3% of revenues from 49.0% of revenues in the first quarter of fiscal 2010.  The decrease in gross margin was impacted on an operating basis by increased markdowns and promotional selling compared to the first quarter of fiscal 2010 and by amortization of step-up in inventory value and the net impact of favorable/unfavorable store lease amortization which totaled $3.7 million that were recorded in connection with the acquisition.  
• Selling, general and administrative expenses increased to $205.2 million from $127.2 million in the first quarter of fiscal 2010.  The first fiscal quarter of 2011 includes $32.2 million of transaction expenses, $44.7 million of acquisition related share-based compensation and a $3.4 million increase in depreciation and amortization related to purchase accounting.  
• Operating loss was ($24.0) million, or (5.9%) of revenues, compared with operating income of $75.4 million, or 18.2% of revenues, in the first quarter of fiscal 2010.  Operating loss in the first quarter of fiscal 2011 was impacted by costs incurred in connection with the acquisition and related purchase accounting.  
• Net loss was ($29.9) million compared with net income of $44.7 million in the first quarter of fiscal 2010.  The first quarter of fiscal 2011 was impacted by costs incurred in connection with the acquisition, including increased interest expense and related purchase accounting.
• Adjusted EBITDA in the first quarter of fiscal 2011 was $74.7 million compared to $88.9 million in the first quarter of fiscal 2010.  A reconciliation of net income (loss) to adjusted EBITDA is included in Exhibit (3).

Balance Sheet highlights as of April 30, 2011

• Cash and cash equivalents were $280.5 million (including $209 million for equity purchase price related to dissenting shareholders that was not distributed at the closing of the transaction, but was paid out subsequent to the first fiscal quarter in May 2011) at the end of the first fiscal quarter compared to $332.3 million at the end of the first fiscal quarter in the prior year.
• Total debt was $1,600 million at the end of the first fiscal quarter, comprised of a $1,200 million seven-year senior secured term loan and $400 million in senior unsecured notes maturing in eight years, incurred in connection with the acquisition, compared to $49.2 million at the end of the first fiscal quarter in the prior year.  
• Inventories at the end of the first fiscal quarter were $265.6 million (including $29.4 million of inventory step-up value recorded related to the transaction), compared to $193.1 million at the end of the first quarter of fiscal 2010.  Inventory per square foot (excluding step-up value related to the transaction) increased 19.1% as compared to the end of the first quarter of fiscal 2010.  

Use of Non-GAAP Financial Measures

This announcement contains non-GAAP financial measures.  An explanation of this information and a reconciliation of this information to the most directly comparable GAAP financial measures are included in Exhibit (3).

Conference Call Information

A conference call to discuss first quarter results is scheduled for June 9, 2011, at 11:00 AM Eastern Time.  Investors and analysts interested in participating in the call are invited to dial (877) 407-0784 begin_of_the_skype_highlighting            (877) 407-0784      end_of_the_skype_highlighting 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 June 16, 2011 and can be accessed by dialing (877) 870-5176 begin_of_the_skype_highlighting            (877) 870-5176      end_of_the_skype_highlighting and entering conference ID number 373615.

About J.Crew Group, Inc.

J.Crew Group, Inc. is a nationally recognized multi-channel retailer of women's, men's and children's apparel, shoes and accessories.  As of June 9, 2011, the Company operates 251 retail stores (including 219 J.Crew retail stores, 10 crewcuts and 22 Madewell stores), the J.Crew catalog business, jcrew.com, madewell.com, and 87 factory outlet stores.  Additionally, certain product, press release and financial information concerning the Company is available at the Company's website www.jcrew.com.

ForwardLooking Statements:

Certain statements herein, including the information 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 our substantial indebtedness and lease obligations, the strength of the economy, declines in consumer spending or changes in seasonal consumer spending patterns, competitive market conditions, our ability to anticipate and timely respond to changes in trends and consumer preferences, our ability to successfully develop, launch and grow our newer concepts, products offerings, sales channels and businesses, material disruption to our information systems, our ability to implement our real estate strategy, our ability to attract and retain  key personnel,  interruptions in our foreign sourcing operations, impact of costs of mailing, paper and printing,  and other factors which are set forth in the Company's Annual Report on 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.

We present the non-GAAP financial measure Adjusted EBITDA because we use this measure to monitor and evaluate both the performance of our business and our liquidity, and we believe the presentation of this measure will enhance investors' ability to analyze trends in our business, evaluate our performance relative to other companies in our industry and evaluate our ability to service our debt.  

Adjusted EBITDA includes the impact of other items such as non-cash share-based compensation, transaction costs, sponsor monitoring fees, as well as the impact of purchase accounting adjustments resulting from the acquisition of the Company by affiliates of TPG Capital, L.P. and Leonard Green & Partners, L.P.

Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles in the U.S. (GAAP) and this computation may vary from others in the industry.  Adjusted EBITDA should not be considered as an alternative to net income or other GAAP measures as a measure of operating performance or 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 reported under GAAP.  

The addition of the predecessor and successor period amounts to present combined totals is not consistent with GAAP and may yield results that are not comparable on a period-to-period basis due to the changes of accounting basis during these periods.

(A)  Comparable company sales include comparable store sales, direct sales and shipping and handling revenues.

SOURCE J.Crew Group, Inc.