J. Crew Group, Inc. Announces Second Quarter Fiscal 2010 Results

NEW YORK, Aug. 26 /PRNewswire-FirstCall/ -- J. Crew Group, Inc. (NYSE: JCG) today announced financial results for the three months (second quarter) and six months (first six months) ended July 31, 2010.

Second Quarter highlights:

• Revenues increased 14% to $407.5 million.  Store sales increased 14% to $295.0 million, with comparable store sales increasing 11%.  Comparable store sales decreased 5% in the second quarter of fiscal 2009.  Direct sales (Internet and Phone) increased 16% to $102.5 million.  Direct sales increased 6% to $88.2 million in the second quarter of fiscal 2009.  
• Gross margin increased to 44.6% of revenues from 41.2% of revenues in the second quarter of fiscal 2009.
• Operating income increased 83% to $59.0 million, or 14.5% of revenues, compared to $32.2 million, or 9.0% of revenues, in the second quarter of fiscal 2009.  Operating income in the second quarter of fiscal 2010 includes a benefit of $3.2 million in share-based compensation for recognition of forfeited share-based awards resulting primarily from the resignation of our President of Retail and Direct.  Operating income in the second quarter of fiscal 2009 included charges of $2.6 million related to underperforming stores and lease termination actions.  
• Net income was $34.9 million, or $0.53 per diluted share, compared to net income of $18.6 million, or $0.29 per diluted share, in the second quarter of fiscal 2009.  

Millard Drexler, J. Crew's Chairman and CEO stated: "While we are really pleased with the second quarter, it is more critical than ever to continue to move forward and invest in our business for quality, long term, earnings growth.  It's about moving, doing, creating – it never stops."

First Six Months highlights:

• Revenues increased 17% to $821.4 million.  Store sales increased 17% to $585.0 million, with comparable store sales increasing 13%.  Comparable store sales decreased 5% in the first six months of fiscal 2009.  Direct sales increased 18% to $216.9 million.  Direct sales decreased 0.3% to $183.5 million in the first six months of fiscal 2009.  
• Gross margin increased to 46.8% of revenues from 41.7% of revenues in the first six months of fiscal 2009.
• Operating income increased 99% to $134.4 million, or 16.4% of revenues, compared to $67.5 million, or 9.6% of revenues, in the first six months of fiscal 2009.  Operating income in the first six months of fiscal 2010 includes a benefit of $3.2 million in share-based compensation for recognition of forfeited share-based awards resulting primarily from the resignation of our President of Retail and Direct. Operating income in the first six months of fiscal 2009 included charges of $4.9 million related to our workforce reduction, underperforming stores and lease termination actions.
• Net income was $79.6 million, or $1.21 per diluted share, compared to net income of $39.1 million, or $0.61 per diluted share, in the first six months of fiscal 2009.  

Balance Sheet highlights as of July 31, 2010:

• Cash and cash equivalents were $340.5 million at the end of the second quarter compared to $204.3 million at the end of the second quarter in the prior year.  
• Inventories at the end of the second quarter were $219.5 million compared to $195.3 million at the end of the second quarter of fiscal 2009.  Inventory per square foot increased 10% as compared to the end of the second quarter of fiscal 2009.  
• Debt was $49.2 million at the end of the second quarter compared to $99.7 million at the end of the second quarter in the prior year.  On August 24, 2010 the Company provided notice under its credit agreement of its intent to make a voluntary prepayment on August 31, 2010 of the remaining outstanding loan balance.  

Guidance

For fiscal 2010 the Company currently expects diluted earnings per share in the range of $2.25 to $2.35, which includes a benefit of $0.03 for recognition of forfeited share-based awards from the resignation of our President of Retail and Direct, as compared to its previous guidance range of $2.35 to $2.45 and fiscal 2009 diluted earnings per share of $1.91.  For the third quarter of fiscal 2010 the Company expects diluted earnings per share in the range of $0.55 to $0.60.  

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, August 26, 2010, at 4:30 PM Eastern Time.  Investors and analysts interested in participating in the call are invited to dial (877) 407-0784 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 September 2, 2010 and can be accessed by dialing (877) 660-6853 and entering account number 3055 and conference ID number 354793.

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 August 26, 2010, the Company operates 247 retail stores (including 220 J.Crew retail stores, 9 crewcuts stores and 18 Madewell stores), the J. Crew catalog business, jcrew.com, madewell.com and 81 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.  

ForwardLooking 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, systems upgrades, 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.

Note A – On August 24, 2010, the Company notified its lenders that it would make a voluntary prepayment of the remaining outstanding balance on its credit agreement on August 31, 2010.  As a result, debt amounts have been classified as current portion of long-term debt as of July 31, 2010.  

Note 1 – Store count and square footage summary excludes three clearance store locations.  Above summary also includes one factory store that is temporarily closed at the time of this announcement due to flooding.

Note 2 – Actual and Projected number of stores opened during Fiscal 2010 by quarter:

1st Quarter - two retail and two factory stores (Actual).

2nd Quarter - one retail, one factory and one Madewell store (Actual).

3rd Quarter - two retail, one factory and one Madewell store (Projected).

4th Quarter - two factory, one factory crewcuts and one Madewell stores (Projected).

SOURCE J. Crew Group, Inc.