J.Crew Group, Inc. Announces Fourth Quarter and Pro Forma Fiscal 2011 Results

Company to Host Conference Call and Webcast Tomorrow at 11:00 AM Eastern Time

Mar 20, 2012, 09:15 ET from J. Crew Group, Inc.

NEW YORK, March 19, 2012 /PRNewswire/ -- J.Crew Group, Inc. today announced financial results for the three months and the pro forma fiscal year ended January 28, 2012.

On March 7, 2011, J.Crew was acquired by Chinos Holdings, Inc., a company formed by investments funds affiliated with TPG Capital, L.P. and Leonard Green & Partners, L.P.  Although the Company continued as the same legal entity after the acquisition, our financial statements were prepared for the following periods: (i) March 8, 2011 to January 28, 2012 (Successor) and (ii) January 30, 2011 to March 7, 2011 (Predecessor).  To facilitate a meaningful comparison to fiscal 2010, we have also prepared a pro forma statement of operations for fiscal 2011 which reflect the combination of the Successor and Predecessor periods, giving effect to the acquisition and related transactions as if they occurred on the first day of the fiscal year.  Comparisons for the fourth quarter reflect actual results of the Successor this year versus actual results of the Predecessor last year.    

Fourth Quarter highlights:

  • Revenues increased 13% to $530.9 million, with comparable company sales increasing 6%.  Comparable company sales were flat in the fourth quarter last year.  Store sales increased 16% to $354.0 million, with comparable store sales increasing 6%. Comparable store sales decreased 5% in the fourth quarter last year.  Direct sales increased 10% to $170.8 million on top of increasing 12% in the fourth quarter last year.  
  • Gross margin increased to 37.8% from 37.4% in the fourth quarter last year.  Gross profit this year reflects the impact of purchase accounting of $2.7 million.    
  • Selling, general and administrative expenses decreased to $159.1 million from $160.7 million in the fourth quarter last year.  Last year includes transaction costs of $20.0 million.          
  • Operating income was $41.7 million, or 7.9% of revenues, compared to $15.5 million, or 3.3% of revenues, in the fourth quarter last year.  Last year includes transaction costs of $20.0 million.      
  • Net income was $15.1 million compared to $4.0 million in the fourth quarter last year.  This year includes (i) transaction-related costs and the impact of purchase accounting noted above and (ii) increased interest expense as a result of debt incurred in connection with the acquisition.  Last year includes the impact of transaction costs noted above.  
  • Adjusted EBITDA was $59.5 million compared to $51.6 million in the fourth quarter last year.  An explanation of how we use Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are included in Exhibit (4).  

Pro forma fiscal 2011 highlights:

  • Revenues increased 8% to $1,855.0 million, with comparable company sales increasing 3%.  Comparable company sales increased 7% last year.  Store sales increased 7% to $1,280.8 million, with comparable store sales increasing 1%.  Comparable store sales increased 4% last year.  Direct sales increased 11% to $545.7 million on top of increasing 15% last year.    
  • Gross margin decreased to 41.7% from 43.4% last year.  Gross profit this year reflects the impact of purchase accounting of $4.0 million.      
  • Selling, general and administrative expenses increased to $587.4 million from $533.0 million last year.  This year includes the impact of purchase accounting of $21.7 million.  Last year includes transaction costs of $20.0 million.          
  • Operating income was $185.8 million, or 10.0% of revenues, compared to $214.0 million, or 12.4% of revenues, last year.  This year includes the impact of purchase accounting of $25.7 million.  Last year includes transaction costs of $20.0 million.      
  • Net income was $51.5 million compared to $121.5 million last year.  This year reflects increased interest expense incurred in connection with the acquisition.  
  • Adjusted EBITDA was $282.2 million compared to $288.2 million last year.  An explanation of how we use Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are included in Exhibit (5).    

Balance Sheet highlights as of January 28, 2012:  

  • Cash and cash equivalents were $221.8 million compared to $381.4 million last year.  
  • Total debt was $1,594 million, including the seven-year senior secured term loan of $1,194 million and the eight-year senior unsecured notes of $400 million, incurred in connection with the acquisition, compared with no debt outstanding last year.  
  • Inventories were $242.7 million compared to $214.4 million last year.  Inventory per square foot increased 6%.

Use of Non-GAAP Financial Measures

This announcement contains non-GAAP financial measures.  An explanation of these measures and a reconciliation to the most directly comparable GAAP financial measures are included in Exhibits (4) and (5).  

Conference Call Information

A conference call to discuss fourth quarter results is scheduled for tomorrow, March 20, 2012, 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 27, 2012 and can be accessed by dialing (877) 870-5176 and entering conference ID number 389713.  

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 March 9, 2012, the Company operates 267 retail stores (including 225 J.Crew retail stores, 10 crewcuts stores and 32 Madewell stores), jcrew.com, the J.Crew catalog, madewell.com, the Madewell catalog, and 96 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, including the information in Exhibit (6) 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.

Exhibit (1)

J.Crew Group, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except percentages)

(unaudited)



Fourth Quarter of
Fiscal 2011


Fourth Quarter of
Fiscal 2010



(Successor)

(Predecessor)




Net sales:



Stores       

$  354,044

$  304,645

Direct       

170,815

155,788




Other           

6,083

11,067




Total revenues      

530,942

471,500




Cost of goods sold, including buying and occupancy costs

330,131

295,275




Gross profit         

200,811

176,225

As a percent of revenues  

37.8%

37.4%




Selling, general and administrative expenses 

159,129

160,743

As a percent of revenues 

30.0%

34.1%







Operating income       

41,682

15,482

As a percent of revenues     

7.9%

3.3%




Interest expense, net         

25,095

528







Income before income taxes     

16,587

14,954




Provision for income taxes     

1,440

10,917







Net income                

$  15,147

$  4,037







Exhibit (2)

J.Crew Group, Inc.

Condensed Consolidated Pro Forma Statement of Operations

(in thousands, except percentages)

(unaudited)



For the Period

March 8, 2011
to January 28,
2012


For the Period
January 30,
2011 to March
7, 2011


Adjustments


Pro forma

Fiscal 2011


Fiscal 2010



(Successor)

(Predecessor)



(Predecessor)







Net sales:






Stores    

$  1,194,276

$  86,474

$  —

$  1,280,750

$  1,192,876

Direct     

502,033

43,642

545,675

490,594







Other      

25,441

3,122

 —

28,563

38,757







Total revenues   

1,721,750

133,238

1,854,988

1,722,227







Cost of goods sold, including buying and occupancy costs

1,042,197

70,284

(a)   (30,689)

1,081,792

975,230







Gross profit       

679,553

62,954

30,689

773,196

746,997

As a percent of revenues 

39.5%

47.2%


41.7%

43.4%







Selling, general and administrative expenses 

574,877

79,736

(a)   (67,214)

587,399

533,029

As a percent of revenues 

33.4%

59.8%


31.7%

30.9%













Operating income (loss)   

104,676

(16,782)

97,903

185,797

213,968

As a percent of revenues   

6.1%

(12.6)%


10.0%

12.4%







Interest expense, net   

91,683

1,166

(b)     8,498

101,347

3,914













Income before income taxes     

12,993

(17,948)

89,405

84,450

210,054







Provision (benefit) for income taxes

584

(1,798)

(c)    34,150

32,936

88,549













Net income (loss)   

$  12,409

$  (16,150)

$  55,255

$  51,514

$  121,505








See notes to pro forma statement of operations



Notes to Pro Forma Statement of Operations

(a)  To give effect to the following adjustments:



(in thousands)



Adjustments




Amortization expense(1)        

$  813

Depreciation expense(2)         

880

Sponsor monitoring fees(3)        

649

Amortization of lease commitments, net(4) 

2,199

Elimination of non-recurring charges(5)   

(102,444)



Total pro forma adjustment           

$  (97,903)



Pro forma adjustment:


Recorded in cost of goods sold     

$  (30,689)

Recorded in selling, general and administrative expenses       

(67,214)



Total pro forma adjustment

$  (97,903)




(1)  To record five weeks of additional amortization expense to reflect a full year of amortization of intangible assets for our Madewell brand name, loyalty program and customer lists amortized on a straight-line basis over their respective useful lives.

(2)  To record five weeks of additional depreciation expense to reflect a full year of depreciation of the step-up of property and equipment allocated on a straight-line basis over a weighted average remaining useful life of 8.2 years.  

(3)  To record five weeks of additional expense to reflect a full year of an annual monitoring fee (calculated as the greater of 40 basis points of annual revenues or $8 million) to be paid to the Sponsors in accordance with a management services agreement.

(4)  To record five weeks of additional amortization expense to reflect a full year of amortization of favorable and unfavorable lease commitments amortized on a straight-line basis over the remaining lease life, offset by the elimination of the amortization of historical deferred rent credits.

(5)  To eliminate non-recurring charges that were incurred in connection with the acquisition and related transactions, including acquisition-related share based compensation, transaction costs, transaction-related litigation recoveries, and amortization of the step-up in the carrying value of inventory.



(b)  To give effect to the following adjustments:



(in thousands)



Adjustments




Pro forma annual cash interest expense(1)

$  91,729

Pro forma annual amortization of deferred financing costs(1)

9,602

Less recorded interest expense, net

(92,833)



Total pro forma adjustment to interest expense, net

$  8,498




(1)  To record a full year of interest expense associated with borrowings under the term loan facility and notes, and the amortization of deferred financing costs.  Pro forma cash interest expense reflects a weighted-average interest rate of 5.6%.    



(c)  To reflect our expected annual effective tax rate of approximately 39%.



Exhibit (3)

J.Crew Group, Inc.

Condensed Consolidated Balance Sheets


(in thousands)

January 28,
2012


January 29,
2011



(Successor)

(Predecessor)

Assets



Current assets:



Cash and cash equivalents

$  221,852

$  381,360

Inventories

242,659

214,431

Prepaid expenses and other current assets

48,052

39,104

Deferred income taxes, net

9,971

Prepaid income taxes

4,087

 —




Total current assets

526,621

634,895




Property and equipment, net

264,572

197,210




Favorable lease commitments, net

48,930




Deferred financing costs, net

58,729

970




Deferred income taxes, net

20,171




Intangible assets, net

985,322

4,343




Goodwill

1,686,915




Other assets

2,433

2,577




Total assets

$  3,573,522

$  860,166







Liabilities and Stockholders' Equity



Current liabilities:



Accounts payable

$  158,116

$  147,083

Other current liabilities

116,339

117,642

Interest payable

26,735

Income taxes payable

1,673

Deferred income taxes, net

4,277

Current portion of long-term debt

15,000

 —




Total current liabilities

316,190

270,675




Long-term debt

1,579,000




Unfavorable lease commitments and deferred credits

53,700

67,665




Deferred income taxes, net

410,515




Other liabilities

37,065

10,705




Stockholders' equity

1,177,052

511,121




Total liabilities and stockholders' equity

$  3,573,522

$  860,166







Exhibit (4)

J.Crew Group, Inc.

Reconciliation of Adjusted EBITDA

Non-GAAP Financial Measure

(unaudited)


The following table reconciles net income reflected on the Company's condensed consolidated statements of operations for the fourth quarter 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 of
Fiscal 2011


Fourth Quarter of
Fiscal 2010





Net income

$  15.1

$  4.0

Provision for income taxes

1.4

10.9

Interest expense, net

25.1

0.5

Depreciation and amortization

20.3

13.1




EBITDA

61.9

28.5




Share-based compensation

1.0

3.8

Amortization of inventory step-up

1.7

Amortization of lease commitments

2.7

(0.7)

Sponsor monitoring fees

2.0

Transaction costs

10.0

Transaction-related litigation

(9.8)

10.0




Adjusted EBITDA

59.5

51.6




Taxes paid

(17.4)

(13.4)

Interest paid

(7.6)

(0.1)

Changes in working capital

74.7

50.4




Cash flows from operating activities

109.2

88.5

Cash flows from investing activities

(24.0)

(14.4)

Cash flows from financing activities

(6.1)

(4.4)




Increase in cash

79.1

69.7

Cash and cash equivalents, beginning

142.7

311.7




Cash and cash equivalents, ending

$  221.8

$  381.4







Exhibit (5)

J.Crew Group, Inc.

Reconciliation of Adjusted EBITDA

Non-GAAP Financial Measure

(unaudited)


The following table reconciles net income reflected on the Company's condensed consolidated pro forma 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)

Pro forma

Fiscal 2011


Fiscal 2010





Net income

$  51.5

$  121.5

Provision for income taxes

32.9

88.6

Interest expense, net

101.4

3.9

Depreciation and amortization

74.2

49.8




EBITDA

260.0

263.8




Transaction costs

20.0

Share-based compensation

4.4

10.6

Amortization of lease commitments

9.8

(6.2)

Sponsor monitoring fees

8.0

 —




Adjusted EBITDA

282.2

288.2




Taxes paid

(35.5)

(87.2)

Interest paid

(56.0)

(1.1)

Changes in working capital

(45.5)

(18.1)




Cash flows from operating activities

145.2

181.8

Cash flows from investing activities

(3,077.5)

(52.3)

Cash flows from financing activities

2,772.7

(46.2)




Increase (decrease) in cash

(159.6)

83.3

Cash and cash equivalents, beginning

381.4

298.1




Cash and cash equivalents, ending

$  221.8

$  381.4








We present Adjusted EBITDA, a non-GAAP financial measure, because we use such measure to monitor and evaluate both the performance of our business and our liquidity. 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 eliminates the impact of items such as non-cash share-based compensation, transaction costs, litigation costs, sponsor monitoring fees, as well as the impact of purchase accounting adjustments resulting from the acquisition of the Company.

Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles and this computation may vary from others in the industry.  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 (6)


Actual and Projected Store Count and Square Footage(a)



Fiscal 2011 (Actual)


Quarter


Total stores open at
beginning of the
quarter


Number of stores
opened during the
quarter(b)


Number of stores
closed during the
quarter(b)


Total stores open at
end of the quarter


1st Quarter

333

5

(1)

337

2nd Quarter

337

6

343

3rd Quarter

343

17

360

4th Quarter

360

5

(3)

362






Fiscal 2011 (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

2,006,999

31,039

(6,461)

2,031,577

2nd Quarter

2,031,577

25,529

(4,075)

2,053,031

3rd Quarter

2,053,031

83,726

2,136,757

4th Quarter

2,136,757

16,522

(14,616)

2,138,663






Fiscal 2012 (Projected)


Quarter


Total stores open at
beginning of the
quarter


Number of stores
opened during the
quarter(c)


Number of stores
closed during the
quarter(c)


Total stores open at
end of the quarter


1st Quarter

362

10

372

2nd Quarter

372

7

(1)

378

3rd Quarter

378

19

(1)

396

4th Quarter

396

6

402






Fiscal 2012 (Projected)


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

2,138,663

42,057

(1,811)

2,178,909

2nd Quarter

2,178,909

42,382

(2,576)

2,218,715

3rd Quarter

2,218,715

100,687

(14,156)

2,305,246

4th Quarter

2,305,246

30,417

2,335,663




(a)  Excludes three clearance stores and includes one factory store that is temporarily closed due to flooding.


(b)  Stores opened or closed during fiscal 2011 by channel are as follows:


Q1 – One retail, one factory, one retail crewcuts, and two Madewell stores. Closed one retail store.

Q2 – Three factory, one crewcuts factory, and two Madewell stores.

Q3 – Six retail, four factory and seven Madewell stores.

Q4 One retail, one factory, one crewcuts factory, and two Madewell stores.  Closed two retail stores and one Madewell store.


(c)  Stores projected to be opened or closed during fiscal 2012 by channel are as follows:


Q1 – Three retail and seven Madewell stores.

Q2 – Five retail, one factory, and one Madewell stores.  Close one Madewell store.

Q3 – Six retail, seven factory, one crewcuts, and five Madewell stores.  Close one retail store.

Q4 Two retail, two factory, and two Madewell stores.



Exhibit (7)


Historical Comparable Sales

(Unaudited)



Increase (decrease) in


Fiscal 2011


Comparable

company sales(a)


Comparable

store sales


Direct sales


1st Quarter

(2.8)%

(5.8)%

5.3%

2nd Quarter

3.5%

0.8%

13.1%

3rd Quarter

5.4%

1.5%

17.5%

4th Quarter

6.4%

6.3%

9.6%






Increase (decrease) in


Fiscal 2010


Comparable

company sales(a)


Comparable

store sales


Direct sales


1st Quarter

15.9%

15.1%

19.9%

2nd Quarter

11.6%

10.6%

16.3%

3rd Quarter

2.0%

(1.4)%

11.8%

4th Quarter

0.1%

(5.2)%

11.9%




(a)  Comparable company sales include (i) comparable store sales, (ii) direct sales, and (iii) shipping and handling fees, which are reported as other revenues.  



SOURCE J. Crew Group, Inc.



RELATED LINKS

http://www.jcrew.com