NEW YORK, Aug. 23, 2017 /PRNewswire/ -- J.Crew Group, Inc. (the "Company") today announced financial results for the second quarter and first half of fiscal 2017.

Second Quarter highlights:

• Total revenues decreased 2% to $560.9 million. Comparable company sales decreased 5% following a decrease of 8% in the second quarter last year.
• J.Crew sales decreased 7% to $443.1 million. J.Crew comparable sales decreased 8% following a decrease of 9% in the second quarter last year.
• Madewell sales increased 19% to $93.1 million. Madewell comparable sales increased 11% following an increase of 3% in the second quarter last year.
• Gross margin increased to 38.6% from 35.7% in the second quarter last year.
• Selling, general and administrative expenses were $210.1 million, or 37.5% of revenues, compared to $196.5 million, or 34.5% of revenues in the second quarter last year. Excluding transformation costs of $14.0 million and transaction costs of $13.7 million (incurred in connection with the Company's debt exchange and refinancing), selling, general and administrative expenses were $182.4 million, or 32.5% of revenues this year.
• Operating income was $2.6 million compared to $6.7 million in the second quarter last year. The second quarter this year includes transformation costs of $14.0 million and transaction costs of $13.7 million.
• Net loss was $20.7 million compared to $8.6 million in the second quarter last year. The second quarter this year includes the impact of transformation and transaction costs.
• Adjusted EBITDA increased $24.8 million, or 65%, to $63.1 million from $38.3 million in the second quarter last year. An explanation of the manner in which the Company uses adjusted EBITDA and a reconciliation to comparable GAAP measures are included in Exhibit (3).

Jim Brett, Chief Executive Officer, remarked, "Since joining J.Crew in July, I've come to a better understanding of how these iconic American brands can be made to play a more meaningful role in our lives. Overall, I am optimistic about the opportunities that lie ahead, particularly when reviewing the strong talent, capabilities and commitment within the organization. The team delivered solid progress on our transformation plan during the second quarter, highlighted by expansion in gross margin and reduced expenses that drove an increase in Adjusted EBITDA. And I am confident about evolving our brand strategy to drive long term profitable growth."

First Half highlights:

• Total revenues decreased 4% to $1,092.9 million. Comparable company sales decreased 7% following a decrease of 7% in the first half last year.
• J.Crew sales decreased 9% to $871.6 million. J.Crew comparable sales decreased 10% following a decrease of 9% in the first half last year.
• Madewell sales increased 18% to $177.8 million. Madewell comparable sales increased 10% following an increase of 4% in the first half last year.
• Gross margin increased to 37.0% from 35.9% in the first half last year.
• Selling, general and administrative expenses were $420.6 million, or 38.5% of revenues, compared to $388.8 million, or 34.2% of revenues in the first half last year. Excluding transformation costs of $19.6 million, transaction costs of $16.2 million and severance costs of $10.7 million, selling, general and administrative expenses were $374.1 million, or 34.2% of revenues this year.
• Operating loss was $150.7 million compared with operating income of $14.0 million in the first half last year. The operating loss includes (i) non-cash impairment charges of $135.1 million, (ii) transformation costs of $19.6 million, (iii) transaction costs of $16.2 million, and (iv) severance costs of $10.7 million. Operating income last year includes non-cash impairment charges of $5.4 million.
• Net loss was $143.9 million compared to $16.7 million in the first half last year. The net loss this year reflects the impact of non-cash impairment charges, transformation costs, transaction costs, and severance costs. The net loss last year reflects the impact of non-cash impairment charges.
• Adjusted EBITDA increased $6.0 million, or 7%, to $89.7 million from $83.7 million in the first half last year. An explanation of the manner in which the Company uses adjusted EBITDA and a reconciliation to comparable GAAP measures are included in Exhibit (3).

Balance Sheet highlights:

• Cash and cash equivalents were $62.4 million compared to $49.2 million at the end of the second quarter last year. The cash balance at the end of the second quarter this year reflects the payment of transaction costs of $33.8 million and debt repayments pursuant to the refinancing of $27.0 million.
• Inventories were $299.8 million compared to $391.6 million at the end of the second quarter last year. Inventories decreased 23% and inventories per square foot decreased 24% compared to the end of the second quarter last year.
• Total debt, net of discount and deferred financing costs, was $1,721 million compared to $1,512 million at the end of the second quarter last year. On July 13, 2017, the Company completed a debt exchange and refinancing. For more information, see the section entitled "Debt Exchange and Refinancing" below. There were no outstanding borrowings under the ABL Facility at July 29, 2017 or July 30, 2016. As of the date of this release, there were outstanding borrowings of $10 million under the ABL Facility, with excess availability of approximately $245 million.

Debt Exchange and Refinancing

On July 13, 2017, the Company completed the following interrelated liability management transactions:

• Private Exchange Offer. An exchange offer in which $565.7 million principal outstanding of 7.75%/8.50% Senior PIK Toggle Notes due 2019 (the "PIK Notes") issued by the Company's parent were exchanged for (i) $249.6 million of 13% Senior Secured Notes due 2021 and (ii) shares of preferred and common stock of the Company's parent.
• Term Loan Amendment. An amendment of the Company's Term Loan Facility to, among other things, facilitate the following related transactions:
  • the repayment of $150.5 million principal amount outstanding under the Term Loan Facility;
  • the transfer of the remaining undivided ownership interest in the U.S. intellectual property rights of the J.Crew brand to a subsidiary of the Company which, together with the undivided ownership interest transferred in December 2016 represent 100% of the U.S. intellectual property rights of the J.Crew brand, and the execution of related license agreements;
  • the issuance of $97.0 million principal amount of an additional series of 13% Senior Secured Notes due 2021, subject to the same terms and conditions as the exchange notes, for cash at a 3% discount, the proceeds of which were loaned to the Company and were applied, in part, to finance the repayment of the $150.5 million principal amount of term loans referenced above; and
  • the raising of additional borrowings under the Term Loan Facility of $30.0 million, for cash at a 2% discount, provided by the Company's sponsors, the net proceeds of which were also applied, in part, to finance the repayment of the $150.5 million principal amount of term loans referenced above.

For more information on the Private Exchange Offer and Term Loan Amendment, see the Company's Form 10-Q for the quarterly period ended July 29, 2017.   

First Quarter Impairment

During the first quarter of fiscal 2017, the Company recorded a non-cash impairment charge of $129.8 million related to the intangible asset for the J.Crew trade name. After recording the impairment charge in the first quarter, the carrying value of the J.Crew trade name was $250.2 million. If revenues or operating results decline below the Company's current expectations, additional impairment charges may be recorded in the future.

This impairment charge does not have an effect on the Company's operations, liquidity or financial covenants, and does not change management's long-term strategy, which includes its plans to drive disciplined growth across its brands.

Related Party

On November 4, 2013, an indirect parent holding company of the Company (the "PIK Notes Issuer") issued $500 million of PIK Notes. On July 13, 2017, the Company completed a private exchange offer pursuant to which $565.7 million principal amount of such PIK Notes were exchanged for $249.6 million of exchange notes and shares of preferred and common stock of the Parent. 

The PIK Notes were not guaranteed by any of the PIK Notes Issuer's subsidiaries, and therefore were not recorded in the Company's financial statements. The exchange notes, however, are guaranteed by the Company's subsidiaries, and therefore are recorded in the Company's financial statements. 

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 comparable GAAP measures is included in Exhibit (3).

Conference Call Information

A conference call to discuss second quarter results is scheduled for today, August 23, 2017, at 4:30 PM Eastern Time. Investors and analysts interested in listening to 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 simultaneously webcast at www.jcrew.com. A replay of this call will be available until August 30, 2017 and can be accessed by dialing (844) 512-2921 and entering conference ID number 13668967.

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 August 23, 2017, the Company operates 274 J.Crew retail stores, 119 Madewell stores, jcrew.com, jcrewfactory.com, the J.Crew catalog, madewell.com, and 182 factory stores (including 42 J.Crew Mercantile 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 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 Company's substantial indebtedness, its substantial lease obligations, its ability to anticipate and timely respond to changes in trends and consumer preferences, the strength of the global economy, declines in consumer spending or changes in seasonal consumer spending patterns, competitive market conditions, its ability to attract and retain key personnel,  its ability to successfully develop, launch and grow its newer concepts and execute on strategic initiatives, product offerings, sales channels and businesses, its ability to implement its growth strategy, material disruption to its information systems, its ability to implement its real estate strategy, adverse or unseasonable weather, interruptions in its foreign sourcing operations, and other factors which are set forth in the section entitled "Risk Factors" and elsewhere in the Company's Annual Report on Form 10-K and in all filings with the SEC made subsequent to the filing of the Form 10-K. Because of the factors described above and the inherent uncertainty of predicting future events, the Company cautions you against relying on forward-looking statements. The Company does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

SOURCE J.Crew Group, Inc.

Related Links

http://www.jcrew.com