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.
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 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.
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
(JCG)