J.Crew's Turnaround Continues To Gain Momentum Resulting In Strong Operating Income Improvement In Second Quarter

NEW YORK (September 14, 2004) - J. Crew Group, Inc. announced today that its operating income for the thirteen weeks ended July 31, 2004 increased by $23 million to $8 million, compared to an operating loss of $15 million in the comparable period last year, reflecting continued strong response to new leadership initiatives in creative direction and product assortments.

Millard Drexler, Chairman and CEO, said, "We couldn't be more pleased with the customer's response to our intense focus on improving the quality, fit, design, style, color and fabrication of our merchandise, which is reflected in gains across all of our businesses. It has been very gratifying for our entire team to see the results of their hard work and commitment to improving the customer experience."

Consolidated revenues for the thirteen weeks ended July 31, 2004 increased 13% to $188 million from $167 million for last year. Retail sales (including Factory) increased by 15% to $139 million, compared to $121 million last year. Comparable store sales increased by 12%. Direct channel sales (Internet and catalog) increased by 16% to $44 million, as compared to $38 million last year, with growth in both divisions.

Gross margin increased to 39% in the second quarter, compared to 31% last year. The increase was primarily attributable in all channels to lower markdowns and a reduction in clearance activity compared to the prior year.

Selling, general and administrative expenses during the quarter were $66 million, or 35% of sales vs. 39% of sales in the prior year period. This decrease was driven primarily by fewer catalog editions and planned circulation declines, and operating leverage due to the increase in comparable store sales.

Net loss for the second quarter was $14 million, compared to a prior year loss of $28 million (before other income of $43 million, principally from a $41 million (non-recurring) gain on the exchange of debt). Net loss for the second quarter of 2004 was negatively impacted by additional interest expense of $9 million, primarily due to the inclusion of preferred stock dividends ($8 million) that were recorded as a direct charge to stockholders' deficit in the 2003 quarter.

Consolidated revenues for the twenty-six weeks ended July 31 were $334 million compared to $329 million last year, an increase of 2%. Retail sales increased by 11% to $243 million from $219 million, as comparable store sales increased by 9%. Direct channel sales decreased by 14% to $80 million from $93 million last year, reflecting the first quarter decline from reduced clearance sales and lower catalog circulation.

Gross margin increased to 40% compared to 33% last year, resulting from decreased markdowns and clearance sales. Selling, general and administrative expenses decreased to $130 million, or 39% of sales, from $134 million, or 41% of sales, for the reasons cited above for the second quarter.

Operating income for the twenty-six week period was $5 million compared to an operating loss of $25 million last year, an improvement of $30 million. Net loss for the same period was $38 million, compared to a loss of $48 million (before other income of $43 million, $41 million of which was non-recurring), and was negatively impacted by additional interest expense of $20 million, primarily due to the inclusion of preferred stock dividends ($16 million) that were recorded as a direct charge to stockholders' deficit in 2003.

Inventory at July 31 was $94 million, an increase of 11% over the prior year. The increase was primarily due to higher current season inventories in all channels, commensurate with business trends, offset by a reduction in aged inventory. There were no outstanding borrowings under the Company's working capital facility at the end of the quarter.

As disclosed in the Company's Form 8-K filed with the SEC on September 10th, the Company will restate its financial statements for the fiscal year ended January 31, 2004 and first quarter ended May 1, 2004 to reflect the write-off of prepaid sample costs incurred during these periods.

Second Quarter Conference Call
The Company's second quarter investor conference call will be held today, September 14, 2004 at 11 a.m. eastern time. The event will be available through an audio webcast at www.jcrew.com (click on "Help" and "Investor Relations") and www.companyboardroom.com. A replay of the call will be archived on those websites and will also be available by telephone through September 21, 2004 at (888) 286-8010, reference #59045162.

J. Crew Group, Inc. is a leading multi-channel retailer of women's and men's apparel, shoes and accessories. The Company operates 156 retail stores, the J. Crew catalog business, jcrew.com, and 42 factory outlet stores.