J. Crew Group, Inc. Announces Fourth Quarter and Fiscal 2006 Results
Fourth Quarter Revenues Rise 27% to $366.7 million Fourth Quarter Operating Income Increases by $22.9 million to $37.3 million
NEW YORK, March 13 /PRNewswire-FirstCall/ -- J. Crew Group, Inc. (NYSE: JCG) today announced financial results for the fourth quarter and fiscal year ended February 3, 2007 (fiscal 2006). The Company noted that fiscal 2006 consisted of 53 weeks, resulting in a 14-week fiscal fourth quarter. The 53rd week is not included in comparable store sales calculations.
For the three months ended February 3, 2007:
- Revenues increased 27% to $366.7 million. Store sales (Retail and Factory) increased 20% to $241.8 million, with comparable store sales increasing 7%. Comparable store sales rose 8% in the fourth quarter of fiscal 2005. Direct sales (Internet and Catalog) rose by 43% to $113.2 million. The impact of the 53rd week of fiscal 2006 on Store and Direct sales was $8.2 million and $4.0 million, respectively.
- Gross margin increased 400 basis points to 40.8% of revenues from 36.8% of revenues in the fourth quarter of fiscal 2005.
- Operating income increased 160% to $37.3 million, or 10.2% of revenues, compared to $14.4 million, or 5.0% of revenues, in the fourth quarter of fiscal 2005.
- Net income applicable to common stockholders was $44.0 million, or $0.71 per diluted share, compared to net loss of $9.2 million, or $(0.37) per diluted share, in the fourth quarter of fiscal 2005. Net income in the fourth quarter of fiscal 2006 includes $1.4 million of stock based compensation expense related to the adoption of SFAS 123(R), which was not applicable in fiscal 2005. Net income in the fourth quarter of fiscal 2006 also includes a non-recurring tax benefit of $10.9 million related to the recognition of deferred tax assets that were previously reserved.
- Adjusted net income for the fourth quarter of fiscal 2006 totaled $20.5 million or $0.33 per diluted share. A reconciliation of net income on a GAAP basis to adjusted net income is included in Exhibit (3) of this press release.
Millard Drexler, J.Crew's Chairman and CEO stated: "We're very pleased with our fourth quarter results. We continue to re-define the designer business in America through our continued focus on quality, style and design along with endless attention to our customers' needs. This has translated into strong topline growth and significant improvements in profitability, with our operating margin more than doubling to 10.2% in the fourth quarter."
For the fiscal year ended February 3, 2007 (fiscal 2006):
- Revenues increased 21% to $1,152.1 million. Store sales (Retail and Factory) increased 21% to $808.5 million, with comparable store sales increasing 13%. Comparable store sales rose 13% in fiscal 2005. Direct sales (Internet and Catalog) increased 22% to $308.6 million. As previously noted, the impact of the 53rd week of fiscal 2006 on Store and Direct sales was $8.2 million and $4.0 million, respectively.
- Gross margin increased 160 basis points to 43.4% from 41.8% in fiscal 2005.
- Operating income increased 58% to $125.6 million, or 10.9% of revenues, compared to $79.5 million, or 8.3% of revenues, in fiscal 2005.
- Net income applicable to common stockholders was $71.6 million, or $1.49 per diluted share, compared to a net loss of $9.7 million, or $(0.39) per diluted share, in fiscal 2005. Net income for fiscal 2006 includes pre-tax charges of $10.0 million related to the refinancing of debt and $2.9 million of stock based compensation expense related to the adoption of SFAS 123(R), which was not applicable in fiscal 2005. Net income for fiscal 2006 also includes a non-recurring tax benefit of $10.9 million related to the recognition of deferred tax assets that were previously reserved.
- Adjusted net income for fiscal 2006 totaled $65.2 million, or $1.05 per diluted share. A reconciliation of net income on a GAAP basis to adjusted net income is included in Exhibit (3) of this press release.
"I am also pleased with our full year results," Mr. Drexler continued. "We increased sales productivity as evidenced by our comparable store sales gain of 13% with sales per square foot improving to $526 from $457 last year on a 52 week basis. We accelerated our store expansion, opening 24 net new stores and introducing two new concepts, Crewcuts and Madewell. Importantly, we strengthened our financial flexibility by successfully completing our initial public offering. This provides us with a strong capital base for the continued execution of our growth plans."
Guidance
The Company's long-term financial targets include comparable store sales growth in the mid single digit range, Direct sales growth in the high single digits, net square footage expansion in the 7% to 9% range, and diluted EPS growth in excess of 20%.
Use of Non-GAAP Financial Measures
In addition to providing financial results in accordance with GAAP, the Company has provided non-GAAP adjusted interest expense, loss on refinancing of debt, income taxes, net income, preferred stock dividends and earnings per share information for the three months and fiscal year ended February 3, 2007 in this release. This information reflects, on a non-GAAP adjusted basis, the Company's adjusted interest expense, loss on refinancing of debt, income taxes, net income, preferred stock dividends and earnings per share after excluding the effects of transactions which resulted from the Company's initial public offering, refinancings and adjusted tax rates. This non-GAAP financial information is provided to enhance the user's overall understanding of the Company's current financial performance. Specifically, the Company believes the non-GAAP adjusted results provide useful information to both management and investors by excluding expenses that the Company believes are not indicative of the Company's future results. The non-GAAP financial information should be considered in addition to, not as a substitute for or as being superior to, net income, earnings per share or other measures of financial performance prepared in accordance with GAAP. This non-GAAP information and a reconciliation of this information to GAAP amounts for the three months and fiscal year ended February 3, 2007 are included in Exhibit (3).
Conference Call Information
A conference call to discuss fourth quarter results is scheduled for today, March 13, 2007, at 4:30 PM Eastern Time. Investors and analysts interested in participating in the call are invited to dial (800) 418-7236 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 20, 2007 and can be accessed by dialing (877) 519-4471 and entering code 8448564.
About J. Crew Group Inc.
J. Crew Group, Inc. is a nationally recognized multi-channel retailer of women's and men's apparel, shoes and accessories. As of March 13, 2007, the Company operates 178 retail stores, the J. Crew catalog business, jcrew.com, and 51 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.
Forward-Looking 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, the performance of the Company's products within the prevailing retail environment, 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.
Exhibit (1)
J. Crew Group, Inc. and Subsidiaries
Condensed Statements of Operations
(Unaudited)
(In thousands, except Three Months Three Months Fiscal Year Fiscal Year
percentages and per Ended Ended Ended Ended
share amounts) February 3, January 28, February 3, January 28,
2007 2006 2007 2006
(14 weeks) (13 weeks) (53 weeks) (52 weeks)
Net sales
Stores $241,832 $201,792 $808,542 $670,447
Direct 113,233 79,226 308,611 253,682
355,065 281,018 1,117,153 924,129
Other 11,605 8,908 34,947 29,059
Total Revenues 366,670 289,926 1,152,100 953,188
Costs of goods sold,
buying and occupancy
costs 216,886 183,245 651,748 555,192
Gross Profit 149,784 106,681 500,352 397,996
As a percent of
revenues 40.8% 36.8% 43.4% 41.8%
Selling, general and
administrative expenses 112,463 92,319 374,738 318,499
As a percent of revenues 30.7% 31.8% 32.5% 33.4%
Operating income 37,321 14,362 125,614 79,497
As a percent of revenues 10.2% 5.0% 10.9% 8.3%
Interest expense, net 3,965 19,025 43,993 72,903
Loss on refinancing of
debt - - 10,039 -
Income (loss) before
income taxes 33,356 (4,663) 71,582 6,594
Provision (benefit) for
income taxes (10,600) 1,200 (6,200) 2,800
Net income (loss) 43,956 (5,863) 77,782 3,794
Preferred stock dividends - (3,364) (6,141) (13,456)
Net income (loss)
applicable to common
shareholders $43,956 ($9,227) $71,641 ($9,662)
Income (loss) per share:
Basic $0.75 ($0.37) $1.61 ($0.39)
Diluted $0.71 ($0.37) $1.49 ($0.39)
Weighted average shares
outstanding:
Basic 58,328 24,856 44,558 24,472
Diluted 62,144 24,856 48,039 24,472
Exhibit (2)
J. Crew Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands) February 3, January 28,
2007 2006
Assets
Current assets:
Cash and cash equivalents $88,900 $61,275
Inventories 140,670 116,191
Prepaid expenses and other currents assets 39,328 37,732
Deferred income taxes, net 8,200 -
Total current assets 277,098 215,198
Property and equipment, net 121,814 109,408
Deferred income taxes, net 15,600 -
Other assets 13,554 12,715
Total assets $428,066 $337,321
Liabilities and Stockholders' equity (deficit)
Current liabilities:
Accounts payable $77,836 $75,833
Other current liabilities 76,666 64,031
Income taxes payable 5,496 2,677
Total current liabilities 159,998 142,541
Long-term debt 200,000 631,867
Deferred credits 62,448 57,956
Preferred stock - 92,800
Stockholders' equity (deficit) 5,620 (587,843)
Total liabilities and stockholders' equity
(deficit) $428,066 $337,321
Exhibit (3)
Reconciliation of net income on a GAAP basis to "Adjusted net income"
Three Months Ended
(In thousands, except February 3, 2007
percentages and per GAAP Adjust- As
share amounts) Basis ments Adjusted
Total Revenues $366,670 - $366,670
Cost of goods sold, buying and
occupancy costs 216,886 - 216,886
Gross Profit 149,784 - 149,784
Selling, general administrative
expenses 112,463 - 112,463
Operating income 37,321 - 37,321
Interest expense, net 3,965 - 3,965
Loss on refinancing of debt - - -
Income before income taxes 33,356 - 33,356
Provision (benefit) for income taxes (10,600) 23,475(c) 12,875
Net income 43,956 (23,475) 20,481
Preferred stock dividends - - -
Net income applicable to common
shareholders $43,956 ($23,475) $20,481
Earnings per share:
Basic $0.75 $(0.40) $0.35
Diluted $0.71 $(0.38) $0.33
Weighted average shares outstanding:
Basic 58,328 - 58,328
Diluted 62,144 - 62,144
Fiscal Year Ended
(In thousands, except February 3, 2007
percentages and per GAAP Adjust- As
share amounts) Basis ments Adjusted
Total Revenues $1,152,100 - $1,152,100
Cost of goods sold, buying and
occupancy costs 651,748 - 651,748
Gross profit 500,352 - 500,352
Selling, general administrative
expenses 374,738 - 374,738
Operating income 125,614 - 125,614
Interest expense, net 43,993 (24,556)(a) 19,437
Loss on refinancing of debt 10,039 (10,039)(b) -
Income before income taxes 71,582 34,595 106,177
Provision (benefit) for income taxes (6,200) 47,184(c) 40,984
Net income 77,782 (12,589) 65,193
Preferred stock dividends (6,141) 6,141(d) -
Net income applicable to common
shareholders $71,641 ($6,448) $65,193
Earnings per share:
Basic $1.61 $(0.48) $1.13
Diluted $1.49 $(0.44) $1.05
Weighted average shares outstanding:
Basic 44,558 13,339(e) 57,897
Diluted 48,039 14,242(e) 62,281
(a) to adjust interest expense for (i) the redemption of all outstanding
preferred stock, (ii) the conversion of the 5% notes payable into
common stock, (iii) the redemption of $21.7 million of the 13 1/8%
debentures, (iv) the repayment of $275.0 million aggregate principal
amount of 9 3/4% notes with the proceeds of the $285.0 million senior
term loan, (v) the repayment of $35.0 million of the senior term loan
with the proceeds of the IPO completed in July 2006 and (vi) the
amortization of deferred financing costs related to the term loan
entered into in May 2006, assuming each of these transactions had been
completed at the beginning of the fiscal year.
(b) to eliminate the loss on refinancing of debt.
(c) to adjust the provision (benefit) for income taxes which includes a
one-time benefit related to the recognition of deferred tax assets
that were previously reserved for and to reflect the Company's
estimated future ongoing effective tax rate of 38.6% as the effective
tax rate in the three months and fiscal year ended February 3, 2007 is
not representative of the Company's ongoing effective tax rate.
(d) to reflect the redemption of $92.8 million of Series A preferred
stock.
(e) to reflect the number of common shares outstanding after the IPO on a
basic and diluted basis.
Exhibit (4)
Actual and Projected Store Count and Square Footage
Actual Fiscal 2006
Total stores open Number of stores Number of stores Total stores
at beginning of opened during closed during open at end of
the quarter the quarter the quarter the quarter
Quarter
1st
Quarter 203 5 2 206
2nd
Quarter 206 10 0 216
3rd
Quarter 216 11 1 226
4th
Quarter 226 3 2 227
Actual Fiscal 2006
Reduction
of gross
Gross square
Total square feet for
gross feet for stores Total
square stores closed or gross
feet at opened downsized square
beginning during during feet at
of the the the end of the
quarter quarter quarter quarter
Quarter
1st Quarter 1,478,384 25,474 (14,500) 1,489,358
2nd Quarter 1,489,358 42,147 (2,137) 1,529,368
3rd Quarter 1,529,368 43,280 (10,768) 1,561,880
4th Quarter 1,561,880 11,481 (29,457) 1,543,904
Projected Fiscal 2007
Total
stores Number of Number of Total
open at stores stores stores
beginning opened closed open at end
of the during the during the of the
quarter quarter quarter quarter
Quarter
1st Quarter 227 7 0 234
2nd Quarter 234 11 2 243
3rd Quarter 243 15 1 257
4th Quarter 257 4 0 261
Projected Fiscal 2007
Reduction
of gross
Gross square
Total square feet for
gross feet for stores Total
square stores closed or gross
feet at opened downsized square
beginning during during feet at
of the the the end of the
quarter quarter quarter quarter
Quarter
1st Quarter 1,543,904 27,188 0 1,571,092
2nd Quarter 1,571,092 52,057 (14,191) 1,608,958
3rd Quarter 1,608,958 70,418 (3,991) 1,675,385
4th Quarter 1,675,385 19,605 (1,303) 1,693,687
SOURCE J. Crew Group, Inc.
CONTACT:
James Scully, Chief Financial Officer
J. Crew Group, Inc.
1-212-209-8040
Investors:
Allison Malkin
or
Chad Jacobs
or
Joe Teklits
all of Integrated Corporate Relations for J. Crew Group, Inc.
1-203-682-8200