J.Crew Group, Inc. Announces Second Quarter Fiscal 2013 Results

NEW YORK, Sept. 11, 2013 /PRNewswire/ -- J.Crew Group, Inc. today announced financial results for the second quarter and first half of fiscal 2013.

Second Quarter highlights:

• Revenues increased 6% to $559.1 million, with comparable company sales decreasing 1%.  When realigning last year to be consistent with the current year retail calendar, comparable company sales increased 1% on top of an increase of 14% in the second quarter last year.  Store sales increased 4% to $399.1 million on top of an increase of 24% in the second quarter last year.  Direct sales increased 13% to $151.8 million following an increase of 16% in the second quarter last year.  
• Gross margin decreased to 41.1% from 45.1% in the second quarter last year.        
• Selling, general and administrative expenses were $174.2 million, or 31.2% of revenues, compared to $174.7 million, or 33.2% of revenues, in the second quarter last year. This year reflects a decrease of $12 million in share-based and incentive compensation.                    
• Operating income was $55.8 million, or 10.0% of revenues, compared to $62.1 million, or 11.8% of revenues, in the second quarter last year. 
• Net income was $17.5 million compared to $22.0 million in the second quarter last year. 
• Adjusted EBITDA was $83.0 million compared to $88.7 million in the second quarter last year.  An explanation of the manner in which we use adjusted EBITDA and an associated reconciliation to GAAP measures are included in Exhibit (3).    

First Half highlights:

• Revenues increased 9% to $1,123.2 million, with comparable company sales increasing 2% (which was the same on a realigned basis) on top of an increase of 15% in the first half last year.  Store sales increased 6% to $779.3 million on top of an increase of 25% in the first half last year.  Direct sales increased 18% to $328.0 million following an increase of 17% in the first half last year.   
• Gross margin decreased to 42.9% from 46.3% in the first half last year. 
• Selling, general and administrative expenses were $352.6 million, or 31.4% of revenues, compared to $338.8 million, or 32.9% of revenues, in the first half last year.  This year reflects a decrease of $17 million in share-based and incentive compensation. 
• Operating income was $129.4 million, or 11.5% of revenues, compared to $137.7 million, or 13.4% of revenues, in the first half last year.      
• Net income was $46.8 million compared to $52.7 million in the first half last year.    
• Adjusted EBITDA was $184.0 million compared to $190.3 million in the first half last year.  An explanation of the manner in which we use adjusted EBITDA and an associated reconciliation to GAAP measures are included in Exhibit (3).   

Balance Sheet highlights:   

• Cash and cash equivalents decreased to $98.8 million from $213.4 million at the end of the second quarter last year, which reflects a special dividend of $197.5 million that was paid in the fourth quarter last year.
• Total debt was $1,573 million, consisting of the senior secured term loan of $1,173 million, maturing in 2018, and the senior unsecured notes of $400 million, maturing in 2019; compared to $1,588 million at the end of the second quarter last year. 
• Inventories were $321.2 million compared to $282.8 million at the end of the second quarter last year.  Inventories and inventories per square foot increased 14% and 3%, respectively.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures.  A key measure used in our evaluation is comparable company sales, which includes (i) net sales from stores that have been open for at least twelve months, (ii) direct net sales, and (iii) shipping and handling fees.   

Use of Non-GAAP Financial Measures

This announcement includes certain non-GAAP financial measures.  An explanation of the manner in which we use adjusted EBITDA and an associated reconciliation to GAAP measures is included in Exhibit (3). 

Conference Call Information

A conference call to discuss second quarter results is scheduled for tomorrow, September 12, 2013, 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 September 19, 2013 and can be accessed by dialing (877) 870-5176 and entering conference ID number 419935.  

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 September 11, 2013, the Company operates 314 retail stores (including 246 J.Crew retail stores, eight crewcuts stores and 60 Madewell stores), jcrew.com, jcrewfactory.com, the J.Crew catalog, madewell.com, the Madewell catalog, and 114 factory 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, 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 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, 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, 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.

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. 

SOURCE J.Crew Group, Inc.