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News Release

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


Second Quarter Revenues Rise 14% to $407.5 million
Second Quarter Diluted Earnings Per Share of $0.53

NEW YORK, Aug 26, 2010 /PRNewswire via COMTEX/ --

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.

                                                     Exhibit (1)
                   J. Crew Group, Inc.
     Condensed Consolidated Statements of Operations
                       (Unaudited)

    (Amounts in thousands,
     except percentages and per
     share amounts)                    Three Months     Three Months
    ---------------------------            Ended            Ended
                                          July 31,        August 1,
                                            2010             2009
                                         ---------       ----------

    Net sales
         Stores                            $294,999         $259,080
         Direct                             102,511           88,171
                                            -------           ------
                                            397,510          347,251
    Other                                    10,009           10,304
                                             ------           ------
    Total Revenues                          407,519          357,555

    Costs of goods sold, buying
     and occupancy costs                    225,967          210,327
                                            -------          -------
    Gross Profit                            181,552          147,228
         As a percent of revenues              44.6%            41.2%
                                               ----             ----

    Selling, general
     administrative expenses                122,540          115,016
         As a percent of revenues              30.1%            32.2%
                                               ----             ----
    Operating income                         59,012           32,212
         As a percent of revenues              14.5%             9.0%
                                               ----              ---

    Interest expense, net                       632            1,078
                                                               -----

    Income before income taxes               58,380           31,134

    Provision for income taxes               23,471           12,524
                                             ------           ------

    Net income                              $34,909          $18,610
                                                             =======

    Income per share:
         Basic                                $0.55            $0.30
         Diluted                              $0.53            $0.29

    Weighted average shares
     outstanding:
         Basic                               63,242           62,323
         Diluted                             65,917           64,326



    (Amounts in thousands,
     except percentages and per
     share amounts)                    Six Months     Six Months
    ---------------------------           Ended          Ended
                                        July 31,       August 1,
                                           2010           2009
                                       ---------      ----------

    Net sales
         Stores                          $584,980        $499,806
         Direct                           216,866         183,531
                                          -------         -------
                                          801,846         683,337
    Other                                  19,552          19,988
                                           ------          ------
    Total Revenues                        821,398         703,325

    Costs of goods sold, buying
     and occupancy costs                  437,248         410,160
                                          -------         -------
    Gross Profit                          384,150         293,165
         As a percent of revenues            46.8%           41.7%
                                             ----            ----

    Selling, general
     administrative expenses              249,719         225,685
         As a percent of revenues            30.4%           32.1%
                                             ----            ----
    Operating income                      134,431          67,480
         As a percent of revenues            16.4%            9.6%
                                             ----             ---

    Interest expense, net                   1,259           2,155
                                                            -----

    Income before income taxes            133,172          65,325

    Provision for income taxes             53,537          26,270
                                           ------          ------

    Net income                            $79,635         $39,055
                                                          =======

    Income per share:
         Basic                              $1.26           $0.63
         Diluted                            $1.21           $0.61

    Weighted average shares
     outstanding:
         Basic                             63,240          62,227
         Diluted                           65,993          63,864


                                                               Exhibit (2)
                              J. Crew Group, Inc.
                     Condensed Consolidated Balance Sheets
                                  (Unaudited)


                                   July 31,   January 30,   August 1,
    (In thousands)                    2010        2010         2009
    --------------                ---------  ------------  ----------

    Assets
    Current assets:
       Cash and cash equivalents    $340,489      $298,107    $204,274
       Inventories                   219,526       190,231     195,295
       Prepaid expenses and other
        current assets                29,203        29,522      32,158
       Prepaid Income taxes            7,876         1,455         963
                                       -----         -----         ---
    Total current assets             597,094       519,315     432,690

    Property and equipment, net      188,476       194,615     203,223

    Other assets                      24,428        24,628      19,857
                                      ------        ------      ------
    Total assets                    $809,998      $738,558    $655,770
                                    ========      ========    ========



    Liabilities and
     Stockholders' equity
    Current liabilities:
       Accounts payable             $131,311      $127,733    $116,110
       Other current liabilities      89,204       106,652      82,207
       Current portion of long-
        term debt (Note A)            49,229             -       1,028
       Deferred income taxes, net        958           958       4,049
                                         ---           ---       -----
    Total current liabilities        270,702       235,343     203,394

    Long-term debt (Note A)                -        49,229      98,715

    Deferred credits                  64,548        67,646      72,185

    Other liabilities                 10,486        10,462       7,001

    Stockholders' equity             464,262       375,878     274,475
                                     -------       -------     -------
    Total liabilities and
     stockholders' equity           $809,998      $738,558    $655,770
                                    ========      ========    ========




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.


                                                                 (Exhibit (3)

    Actual and Projected Store Count and Square Footage (Note 1)


    Fiscal 2010
                                 (Note 2)
                 Total stores    Number of     Number of
    Quarter          open         stores        stores      Total stores
                 at beginning     opened        closed         open at
    -------         of the        during        during         end of
                    quarter     the quarter   the quarter   the quarter
                    -------     -----------    -----------  -----------
    1st Quarter
     (Actual)         321            4              0            325
    2nd Quarter
     (Actual)         325            3              1            327
    3rd Quarter
     (Projected)      327            4              0            331
    4th Quarter
     (Projected)      331            4              0            335
    ------------      ---           ---            ---           ---




    Fiscal 2010
                 Total gross      Gross square   Reduction of    Total gross
    Quarter         square      feet for stores  gross square    square feet
                    feet at        opened or    feet for stores   at end of
    -------      beginning of   expanded during    closed or     the quarter
                 the quarter      the quarter      downsized
                                                  during the
                                                    quarter
                 -----------      -----------     -----------    -----------
    1st Quarter
     (Actual)          1,958,140        20,168        (615)        1,977,693
    2nd Quarter
     (Actual)          1,977,693        12,631      (7,822)        1,982,502
    3rd Quarter
     (Projected)       1,982,502        14,257           0         1,996,759
    4th Quarter
     (Projected)       1,996,759        25,102           0         2,021,861


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.

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.