J.Crew Group, Inc. Announces Fourth Quarter And Fiscal Year 2014 Results

Mar 18, 2015, 06:00 ET from J.Crew Group, Inc.

NEW YORK, March 18, 2015 /PRNewswire/ -- J.Crew Group, Inc. (the "Company") today announced financial results for the three months and fiscal year ended January 31, 2015.

Fourth Quarter highlights:

  • Total revenues increased 3% to $705.3 million. Comparable company sales decreased 3% following an increase of 3% in the fourth quarter last year. Total e-commerce sales increased 4% to $247.8 million following an increase of 10% in the fourth quarter last year.    
  • J.Crew sales decreased 0.1% to $620.7 million. J.Crew comparable sales decreased 5% following an increase of 3% in the fourth quarter last year.  Madewell sales increased 33% to $73.7 million. Madewell comparable sales increased 14% following an increase of 10% in the fourth quarter last year.      
  • Gross margin was 34.5% compared to 36.8% in the fourth quarter last year.
  • Selling, general and administrative expenses were $236.2 million, or 33.5% of revenues, compared to $213.8 million, or 31.2% of revenues in the fourth quarter last year.
  • Operating loss was $18.7 million compared with operating income of $37.6 million in the fourth quarter last year. The operating loss includes a non-cash charge of $26.0 million related to the finalization of the third quarter goodwill impairment.
  • Net loss was $30.6 million compared with net income of $5.9 million in the fourth quarter last year. The net loss reflects the impact of the finalization of the third quarter goodwill impairment.
  • Adjusted EBITDA was $42.1 million compared to $75.7 million in the fourth 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).

Fiscal 2014 highlights:

  • Total revenues increased 6% to $2,579.7 million. Comparable company sales decreased 1% following an increase of 3% last year. Total e-commerce sales increased 9% to $826.2 million following an increase of 16% last year.    
  • J.Crew sales increased 4% to $2,295.1 million. J.Crew comparable sales decreased 2% following an increase of 3% last year.  Madewell sales increased 35% to $245.3 million. Madewell comparable sales increased 14% following an increase of 9% last year.       
  • Gross margin was 37.6% compared to 41.4% last year.
  • Selling, general and administrative expenses were $846.0 million, or 32.8% of revenues, compared to $754.3 million, or 31.1% of revenues, last year.
  • Operating loss was $585.0 million compared with operating income of $249.9 million last year. The operating loss includes non-cash impairment charges of $710 million
  • Net loss was $657.8 million compared with net income of $88.1 million last year. The net loss reflects the impact of (i) non-cash impairment charges and (ii) the loss on refinancings incurred in connection with the refinancing of our term loan facility, the redemption of our senior notes and refinancing of our ABL facility.
  • Adjusted EBITDA was $255.2 million compared to $370.2 million 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 $111.1 million compared to $156.6 million at the end of the fourth quarter last year.
  • Total debt, net of discount, was $1,548 million reflecting the new senior secured term loan which matures in 2021. Total debt of $1,567 million in the fourth quarter last year consisted of (i) the former senior secured term loan of $1,167 million and (ii) senior unsecured notes of $400 million, which were refinanced and redeemed in the first quarter of fiscal 2014. 
  • Inventories were $367.9 million compared to $354.0 million at the end of the fourth quarter last year. Inventories increased 4% and inventories per square foot decreased 6% compared to the end of the fourth quarter last year.   

Impairment

During the first half of fiscal 2014, the Company determined that there was substantial deterioration in the excess of fair value over the carrying value of its Stores reporting unit.   During the third quarter, the Company saw a further significant reduction in the profitability of its Stores reporting unit, primarily driven by performance of women's apparel and accessories in stores. As a result of current and expected future operating results, the Company concluded that the carrying value of the Stores reporting unit exceeded its fair value and recorded a non-cash goodwill impairment charge of $562 million, of which $26 million was recorded in the fourth quarter.  Additionally, the Company recorded a non-cash impairment charge of $145 million to write down the intangible asset related to the J.Crew trade name.

These impairment charges do not have an effect on the Company's operations, liquidity or financial covenants, and do not change management's long-term strategy, which includes its plans to drive disciplined growth across its brands. If operating results continue to decline below the Company's expectations, additional impairment charges may be recorded in the future.

Operating Segments

In the fourth quarter of fiscal 2014, the Company changed its operating segments and reporting units to align with its omni-channel strategy, which focuses on a seamless approach to the customer experience through all available sales channels. Prior to such change, as a multi-channel retailer, the Company allocated resources to its channels, Stores and Direct. As an omni-channel retailer, the Company now allocates resources to its brands. Therefore, the Company has determined its operating segments to be J.Crew and Madewell, which have been aggregated into one reportable segment.  The goodwill allocated to the J.Crew and Madewell reporting units is $1,017 million and $108 million, respectively. 

Refinancings

On March 5, 2014, the Company refinanced its term loan facility, the proceeds of which were used to (i) refinance amounts outstanding under the former senior secured term loan of $1,167 million and (ii) together with cash on hand, redeem in full the outstanding senior notes of $400 million, and to pay fees, call premiums and accrued interest.  The maturity date of the new term loan facility is March 5, 2021.  The refinancing will result in an annual savings of $16 million in interest expense. 

On December 10, 2014, the ABL Facility was amended to among other things, (i) increase the revolving credit commitments from $250 million to $300 million, (ii) extend the maturity, and (iii) reduce the pricing on loans and letters of credit. Any amounts outstanding under the ABL Facility are due and payable in full on December 10, 2019. 

Related Party

On November 4, 2013, Chinos Intermediate Holdings A, Inc. (the "Issuer"), an indirect parent holding company of J.Crew Group, Inc., 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 Issuers' subsidiaries, and (iii) not guaranteed by any of the Issuers' subsidiaries, and therefore are not recorded in the Company's financial statements. The Company declared dividends to the Issuer in the first and third quarters of fiscal 2014 to fund the semi-annual interest payments due May 1, 2014 and November 3, 2014. Additionally, while not required, the Company intends to pay dividends to the Issuer to fund future interest payments, which would aggregate to $174 million through the remainder of the term if all interest on the PIK Notes is paid in cash.

How the Company Assesses the Performance of its Business

In assessing the performance of its business, the Company considers a variety of performance and financial measures. A key measure used in its evaluation is comparable company sales, which includes (i) net sales from stores that have been open for at least twelve months, (ii) e-commerce net sales, and (iii) shipping and handling fees. The Company also considers gross profit and selling, general and administrative expenses in assessing the performance of our business.

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 fourth quarter results is scheduled for today, March 18, 2015, at 11:00 AM Eastern Time. Investors and analysts interested in participating in 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 webcast live at www.jcrew.com. A replay of this call will be available until March 25, 2015 and can be accessed by dialing (877) 870-5176 and entering conference ID number 13602345.

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 March 18, 2015, the Company operates 282 J.Crew retail stores, 85 Madewell stores, jcrew.com, jcrewfactory.com, the J.Crew catalog, madewell.com, the Madewell catalog, and 139 factory 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 our 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 the indebtedness of our indirect parent, for which we pay and intend to continue to pay dividends to service such debt, and our substantial lease obligations, the strength of the global 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 and execute on strategic initiatives, products offerings, sales channels and businesses, adverse or unseasonable weather, material disruption to our information systems, our ability to implement our real estate strategy, our ability to implement our international expansion strategy, our ability to attract and retain key personnel, interruptions in our foreign sourcing operations, and other factors which are set forth in the section entitled "Risk Factors" and elsewhere in our Annual Report on Form 10-K and in all filings with the SEC made subsequent to the filing of the Form 10-K. We do not undertake to publicly update or revise any 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)














(in thousands, except percentages)


Fourth Quarter
Fiscal 2014



Fourth Quarter
Fiscal 2013



Fiscal 2014



Fiscal 2013


Net sales:

















J.Crew


$

620,685



$

621,579



$

2,295,109



$

2,212,684


Madewell



73,657




55,177




245,340




181,401


 

Other



10,998




9,461




39,246




34,172


Total revenues



705,340




686,217




2,579,695




2,428,257


 

Cost of goods sold, including buying and occupancy costs



461,820




433,606




1,608,777




1,422,143


Gross profit



243,520




252,611




970,918




1,006,114


As a percent of revenues



34.5

%



36.8

%



37.6

%



41.4

%

 

Selling, general and administrative expenses



236,229




213,812




845,953




754,345


As a percent of revenues



33.5

%



31.2

%



32.8

%



31.1

%

 

Impairment losses



26,000




1,201




709,985




1,874


 

Operating income (loss)



(18,709)




37,598




(585,020)




249,895


As a percent of revenues



(2.7)

%



5.5

%



(22.7)%




10.3

%

 

Interest expense, net



17,210




25,834




74,352




104,221


 

Loss on refinancings



174







58,960





 

Income (loss) before income taxes



(36,093)




11,764




(718,332)




145,674


 

Provision (benefit) for income taxes



(5,502)




5,847




(60,559)




57,550


 

Net income (loss)


$

(30,591)



$

5,917



$

(657,773)



$

88,124


 

 

Exhibit (2)

J.Crew Group, Inc.

Condensed Consolidated Balance Sheets

(unaudited)







(in thousands)

January 31, 

2015



February 1, 

2014


Assets








Current assets:








Cash and cash equivalents

$

111,097



$

156,649


Inventories


367,851




353,976


Prepaid expenses and other current assets


60,734




56,434


Deferred income taxes, net


19,280




11,831


Prepaid income taxes





2,782


Total current assets


558,962




581,672










Property and equipment, net


404,452




375,092










Deferred financing costs, net


22,883




41,911










Intangible assets, net


836,608




992,735










Goodwill


1,124,715




1,686,915










Other assets


3,993




3,895


Total assets

$

2,951,613



$

3,682,220










Liabilities and Stockholders' Equity








Current liabilities:








Accounts payable

$

244,367



$

237,019


Other current liabilities


155,697




154,796


Interest payable


5,408




18,065


Income taxes payable


3,192





Current portion of long-term debt


15,670




12,000


Total current liabilities


424,334




421,880










Long-term debt, net


1,532,769




1,555,000










Lease-related deferred credits, net


112,153




93,788










Deferred income taxes, net


323,767




389,403










Other liabilities


42,566




31,729










Stockholders' equity


516,024




1,190,420


Total liabilities and stockholders' equity

$

2,951,613



$

3,682,220


 

 

Exhibit (3)

J.Crew Group, Inc.

Reconciliation of Adjusted EBITDA

Non-GAAP Financial Measure

(unaudited)


The following table reconciles net income (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 (prepared in accordance with GAAP) and (iii) cash and cash equivalents as reflected on the condensed consolidated balance sheet (prepared in accordance with GAAP).

 

(in millions)


Fourth Quarter
Fiscal 2014



Fourth Quarter
Fiscal 2013



Fiscal 2014



Fiscal 2013


Net income (loss)


$

(30.6)



$

5.9



$

(657.8)



$

88.1


Provision (benefit) for income taxes



(5.5)




5.9




(60.6)




57.6


Interest expense (including the loss on refinancings)



17.4




25.8




133.3




104.2


Depreciation and amortization (including intangible assets)



29.5




25.1




109.4




95.4


EBITDA



10.8




62.7




(475.7)




345.3


Impairment losses



26.0




1.2




710.0




1.9


Share-based compensation



1.5




1.4




6.0




5.8


Amortization of lease commitments



1.1




1.8




4.5




1.2


Sponsor monitoring fees



2.7




2.5




10.4




9.9


Dividend equivalent






6.1







6.1


Adjusted EBITDA



42.1




75.7




255.2




370.2


Taxes paid



(0.1)




(14.6)




(4.0)




(53.4)


Interest paid



(19.0)




(15.6)




(93.0)




(92.2)


Changes in working capital



52.9




65.2




(0.1)




7.9


Cash flows from operating activities



75.9




110.7




158.1




232.5


Cash flows from investing activities



(28.4)




(28.8)




(132.7)




(131.4)


Cash flows from financing activities



(13.3)




(2.4)




(69.5)




(12.0)


Effect of changes in foreign exchange rates on cash and cash equivalents



(2.6)




(0.8)




(1.4)




(0.9)


Increase (decrease) in cash



31.6




78.7




(45.5)




88.2


Cash and cash equivalents, beginning



79.5




77.9




156.6




68.4


Cash and cash equivalents, ending


$

111.1



$

156.6



$

111.1




156.6


We present Adjusted EBITDA, a non-GAAP financial measure, because we use such measure to: (i) monitor the performance of our business, (ii) evaluate our liquidity, and (iii) determine levels of incentive compensation. We believe the presentation of this measure will enhance the ability of our investors to analyze trends in our business, evaluate our performance relative to other companies in the industry, and evaluate our 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.

 

 

Exhibit (4)

Actual and Projected Store Count and Square Footage

(unaudited)







Fiscal 2014 (Actual)


Quarter


Total stores open at
beginning of the
quarter



Number of stores
opened during the
quarter(1)



Number of stores closed
during the quarter(1)



Total stores open at end
of the quarter


1st Quarter



451




7







458


2nd Quarter



458




10




(1)




467


3rd Quarter



467




28







495


4th Quarter



495




10




(1)




504


 



Fiscal 2014 (Actual)


Quarter


Total gross square feet
at beginning of the
quarter



Gross square feet
for stores opened or

expanded during the
quarter



Reduction of gross
square feet for stores
closed or downsized
during the quarter



Total gross square feet
at end of the quarter


1st Quarter



2,585,539




34,229




(147)




2,619,621


2nd Quarter



2,619,621




54,303




(7,524)




2,666,400


3rd Quarter



2,666,400




136,975







2,803,375


4th Quarter



2,803,375




50,919




(5,972)




2,848,322


 



Fiscal 2015 (Projected)




Total stores open at
beginning of the year



Number of stores
opened during the
year(2)



Number of stores closed
during the year(2)



Total stores open at end
of the year


Fiscal year



504




52




(3)




553



















 



Fiscal 2015 (Projected)




Total gross square feet
at beginning of the year



Gross square feet for
stores opened or
expanded during the
year



Reduction of gross
square feet for stores
closed or downsized
during the year



Total gross square feet
at end of the year


Fiscal year



2,848,322




234,447




(26,121)




3,056,648



















(1)      Actual number of stores opened or closed during fiscal 2014 by channel are as follows:

Q1 – One international retail, one factory, and five Madewell stores.

Q2 – Four international retail, four factory, one international factory, and one Madewell store. Close one retail store.

Q3 – Nine retail, two international retail, seven factory, one international factory, and nine Madewell stores.

Q4 One retail, four factory, and five Madewell stores. Close one retail store.

(2)      The detail of projected number of stores to be opened or closed during fiscal 2015 is as follows:

 



Retail



Factory



Madewell



International

Retail



International

Factory



Total


Open



5




20




20




6




1




52


Close



(3)
















(3)


Net



2




20




20




6




1




49


 

SOURCE J.Crew Group, Inc.



RELATED LINKS

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