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News Release

J.Crew Group, Inc. Announces Third Quarter Fiscal 2011 Results

NEW YORK, Dec. 1, 2011 /PRNewswire/ -- J.Crew Group, Inc. today announced financial results for the three months (third quarter) and nine months (first nine months) ended October 29, 2011. 

The results below reflect the Company's performance for the "combined period" which consists of the period prior to its acquisition on March 7, 2011 ("predecessor period") by affiliates of TPG Capital, L.P. and Leonard Green & Partners, L.P. and the period after the acquisition ("successor period").  

The combination of the predecessor and successor periods to present combined totals is not consistent with GAAP and may yield results that are not comparable on a period-to-period basis.  For purposes of comparing results of operations for the first nine months of fiscal 2011 to the comparable period last year, the Company believes that the combined presentation provides a meaningful comparison.  Combined operating results (i) have not been prepared on a pro forma basis as if the acquisition occurred on the first day of the period, (ii) may not reflect the actual results we would have achieved absent the acquisition and (iii) may not be predictive of future results of operations. 

Third Quarter highlights:

  • Revenues increased 12% to $479.6 million, with comparable company sales increasing 5%.  Comparable company sales increased 2% in the third quarter last year.  Store sales increased 10% to $334.5 million, with comparable store sales increasing 2%. Comparable store sales decreased 1% in the third quarter last year.  Direct sales increased 18% to $138.5 million on top of increasing 12% in the third quarter last year.  
  • Gross margin decreased to 42.1% from 43.5% in the third quarter last year.  The decrease includes the impact of purchase accounting of $6.8 million.    
  • Selling, general and administrative expenses increased to $143.9 million from $122.6 million in the third quarter last year.  The increase includes transaction-related costs and the impact of purchase accounting of $4.0 million.    
  • Operating income was $57.9 million, or 12.1% of revenues, compared to $64.1 million, or 14.9% of revenues, in the third quarter last year.  Operating income includes transaction-related costs and the impact of purchase accounting of $10.8 million.    
  • Net income was $21.6 million compared to $37.8 million in the third quarter last year.  Net income 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.  
  • Adjusted EBITDA was $83.8 million compared to $78.2 million in the third quarter last year.  Last year included income of $5.9 million resulting from a bonus accrual reversal.  An explanation of how we use Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are included in Exhibit (3). 

First Nine Months highlights:

  • Revenues increased 6% to $1,324.0 million, with comparable company sales increasing 2.0%.  Comparable company sales increased 9% in the first nine months last year.  Store sales increased 4% to $926.7 million, with comparable store sales decreasing 1%.  Comparable store sales increased 8% in the first nine months last year.  Direct sales increased 12.0% to $374.8 million on top of increasing 16% in the first nine months last year.    
  • Gross margin decreased to 40.9% from 45.6% in the first nine months last year.  The decrease includes the impact of purchase accounting of $33.4 million.      
  • Selling, general and administrative expenses increased to $495.4 million from $372.3 million in the first nine months last year.  The increase includes transaction-related costs and the impact of purchase accounting of $99.5 million.     
  • Operating income was $46.2 million, or 3.5% of revenues, compared to $198.5 million, or 15.9% of revenues, in the first nine months last year.  Operating income includes transaction-related costs and the impact of purchase accounting of $132.9 million.   
  • Net loss was $18.8 million compared with net income of $117.5 million in the first nine months last year.  Net loss 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. 
  • Adjusted EBITDA was $222.7 million compared to $236.6 million in the first nine months last year. 

Balance Sheet highlights as of October 29, 2011: 

  • Cash and cash equivalents were $142.7 million at the end of the third quarter compared to $311.7 million at the end of the third quarter last year. 
  • Total debt was $1,597 million at the end of the third quarter, including the seven-year senior secured term loan of $1,197 million and the eight-year senior unsecured notes of $400 million, incurred in connection with the acquisition, compared with no debt outstanding at the end of the third quarter last year. 
  • Inventories at the end of the third quarter were $291.7 million (including $1.7 million of inventory step-up from purchase accounting), compared to $261.0 million at the end of the third quarter last year.  Inventory per square foot (excluding inventory step-up) increased 4% compared to the third quarter last year.

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 Exhibit (3). 

Conference Call Information

A conference call to discuss third quarter results is scheduled for today, December 1, 2011, 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 http://www.jcrew.com/.  A replay of this call will be available until December 8, 2011 and can be accessed by dialing (877) 870-5176 and entering conference ID number 382545.  

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 November 30, 2011, the Company operates 269 retail stores (including 226 J.Crew retail stores, 10 crewcuts stores and 33 Madewell stores), the J.Crew catalog business, jcrew.com, madewell.com and 96 factory outlet stores.  Additionally, certain product, press release and SEC filing information concerning the Company are available at the Company's website http://www.jcrew.com/

Forward‑Looking Statements:

Certain statements herein, including the information 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 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

(Unaudited)

 

(In thousands, except percentages)

 

Three Months

Ended

October 29, 2011

 

 

Three Months

Ended

October 30, 2010

 

 

Nine Months

Ended

October 29, 2011

 

Nine Months

Ended

October 30, 2010

 

 

 

 

(Successor)

 

(Predecessor)

 

(Combined)

 

(Predecessor)

Net sales

 

 

 

 

 

 

 

 

     Stores

 

$334,483

 

$303,252

 

$926,706

 

$888,231

     Direct

 

138,544

 

117,940

 

374,860

 

334,806

 

 

473,027

 

421,192

 

1,301,566

 

1,223,037

Other

 

6,548

 

8,137

 

22,480

 

27,690

Total Revenues

 

479,575

 

429,329

 

1,324,046

 

1,250,727

 

 

 

 

 

 

 

 

 

Costs of goods sold, buying and occupancy costs

 

277,806

 

242,708

 

782,350

 

679,955

Gross profit

 

201,769

 

186,621

 

541,696

 

570,772

     As a percent of revenues

 

42.1%

 

43.5%

 

40.9%

 

45.6%

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

143,876

 

122,566

 

495,484

 

372,286

     As a percent of revenues

 

30.0%

 

28.5%

 

37.4%

 

29.8%

Operating income

 

57,893

 

64,055

 

46,212

 

198,486

     As a percent of revenues

 

12.1%

 

14.9%

 

3.5%

 

15.9%

 

 

 

 

 

 

 

 

 

Interest expense, net

 

25,349

 

2,127

 

67,754

 

3,386

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

32,544

 

61,928

 

(21,542)

 

195,100

 

 

 

 

 

 

 

 

 

Provision (benefit) for income taxes

 

10,944

 

24,095

 

(2,654)

 

77,632

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$21,600

 

$37,833

 

$(18,888)

 

$117,468

 

 

 

 

 

 

 

 

 

 


 

Exhibit (2)

 

J.Crew Group, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

(In thousands)

 

October 29, 2011

 

January 29, 2011

 

October 30, 2010

 

 

(Successor)

 

(Predecessor)

 

(Predecessor)

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

   Cash and cash equivalents

 

$142,714

 

$381,360

 

$311,702

   Inventories

 

291,737

 

214,431

 

260,969

   Prepaid expenses and other current assets

 

53,258

 

39,104

 

35,543

   Prepaid income taxes

 

3,880

 

-

 

1,930

Total current assets

 

491,589

 

634,895

 

610,144

 

 

 

 

 

 

 

Property and equipment, net

 

258,815

 

197,210

 

195,873

 

 

 

 

 

 

 

Favorable lease commitments, net

 

52,271

 

-

 

-

 

 

 

 

 

 

 

Deferred financing costs, net

 

61,129

 

970

 

1,078

 

 

 

 

 

 

 

Deferred income taxes, net

 

-

 

20,171

 

14,851

 

 

 

 

 

 

 

Intangible assets, net

 

987,773

 

4,343

 

4,287

 

 

 

 

 

 

 

Goodwill

 

1,686,429

 

-

 

-

 

 

 

 

 

 

 

Other assets

 

2,473

 

2,577

 

2,564

Total assets

 

$3,540,479

 

$860,166

 

$828,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

   Accounts payable

 

$157,222

 

$147,083

 

$144,610

   Other current liabilities

 

123,096

 

117,642

 

99,026

   Current portion of long-term debt

 

12,000

 

-

 

-

   Income taxes payable

 

-

 

1,673

 

-

   Deferred income taxes, net

 

5,678

 

4,277

 

958

Total current liabilities

 

297,996

 

270,675

 

244,594

 

 

 

 

 

 

 

Long-term debt

 

1,585,000

 

-

 

-

 

 

 

 

 

 

 

Unfavorable lease commitments and deferred credits, net

 

46,839

 

67,665

 

67,058

 

 

 

 

 

 

 

Deferred income taxes, net

 

409,704

 

-

 

-

 

 

 

 

 

 

 

Other liabilities

 

33,264

 

10,705

 

9,521

 

 

 

 

 

 

 

Stockholders' equity

 

1,167,676

 

511,121

 

507,624

Total liabilities and stockholders' equity

 

$3,540,479

 

$860,166

 

$828,797

 

 

Exhibit (3)

 

J.Crew Group, Inc.

Non-GAAP Financial Measure

(Unaudited)

 

The following table reconciles net income (loss) reflected on the Company's condensed consolidated statements of operations (prepared in accordance with GAAP) to Adjusted EBITDA (a non-GAAP measure), to cash provided by operating activities (prepared in accordance with GAAP) and then to cash and cash equivalents as reflected on the condensed consolidated balance sheet (prepared in accordance with GAAP). 

 

(in millions)

 

Three Months

Ended

October 29, 2011

 

Three Months

Ended

October 30, 2010

 

Nine Months

Ended

October 29, 2011

 

Nine Months

Ended

October 30, 2010

 

 

(Successor)

 

(Predecessor)

 

(Combined)

 

(Predecessor)

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$              21.6

 

$              37.8

 

$             (18.9 )

 

$             117.5

Provision (benefit) for income taxes

 

10.9

 

24.1

 

(2.7 )

 

77.6

Interest expense, net

 

25.3

 

2.1

 

67.8

 

3.4

Depreciation and amortization

 

18.4

 

12.5

 

52.3

 

36.7

EBITDA

 

76.2

 

76.5

 

98.5

 

235.2

Adjustments:

 

 

 

 

 

 

 

 

Share-based compensation

 

1.0

 

3.3

 

48.1

 

6.8

Inventory step-up amortization

 

5.8

 

 

30.8

 

Amortization of favorable leases

 

3.3

 

 

8.7

 

Amortization of unfavorable leases, deferred rent and landlord contributions

 

(1.1 )

 

(1.7 )

 

(3.9)

 

(5.5 )

Transaction costs

 

 

 

32.2

 

Transaction-related litigation

 

(3.6 )

 

 

2.9

 

Other

 

2.2

 

0.1

 

5.4

 

0.1

Adjusted EBITDA

 

83.8

 

78.2

 

222.7

 

236.6

Taxes paid

 

(9.1 )

 

(18.3 )

 

(18.1 )

 

(73.7 )

Interest paid

 

(30.6 )

 

(0.4 )

 

(48.4 )

 

(1.0 )

Changes in operating assets and liabilities

 

36.9

 

(21.4 )

 

(120.2 )

 

(68.5 )

Net cash provided by operating activities

 

81.0

 

38.1

 

36.0

 

93.4

Net cash used in investing activities

 

(25.0 )

 

(19.9 )

 

(3,053.4 )

 

(38.0 )

Net cash provided by (used in) financing activities

 

(1.6 )

 

(47.0 )

 

2,778.8

 

(41.8 )

Increase (decrease) in cash

 

54.4

 

(28.8 )

 

(238.6 )

 

13.6

Cash and cash equivalents, beginning balance

 

88.3

 

340.5

 

381.3

 

298.1

Cash and cash equivalents, ending balance

 

$             142.7

 

$             311.7

 

$             142.7

 

$             311.7

 

 

 

 

 

 

 

 

 

We present the non-GAAP financial measure Adjusted EBITDA because we use this measure to monitor and evaluate both the performance of our business and our liquidity, and we believe the presentation of this measure will enhance investors' ability to analyze trends in our business, evaluate our performance relative to other companies in our industry and evaluate our ability to service our debt. 

Adjusted EBITDA does not reflect 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 by affiliates of TPG Capital, L.P. and Leonard Green & Partners, L.P.

Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles in the U.S. (GAAP) and this computation may vary from others in the industry.  Adjusted EBITDA should not be considered as an alternative to net income or other GAAP measures as a measure of operating performance or 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 reported under GAAP. 

The addition of the predecessor and successor period amounts to present combined totals is not consistent with GAAP and may yield results that are not comparable on a period-to-period basis due to the changes of accounting basis during these periods.

 

 

Exhibit (4)

 

 

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

 

 

Projected Fiscal 2011

 

 

 

(Note 2)

 

 

(Note 2)

 

 

 

Quarter

 

 

 

Total stores open

at beginning of the

 quarter

 

Number of stores

 opened during

the quarter

 

 

Number of stores

closed during

the quarter

 

Total stores

open at end of

the quarter

 

1st Quarter (Actual)

 

 

333

 

 

 

5

 

 

 

 

1

 

 

 

337

 

 

2nd Quarter (Actual)

 

 

337

 

 

 

6

 

 

 

 

0

 

 

 

343

 

 

3rd Quarter (Actual)

 

 

343

 

 

 

17

 

 

 

 

0

 

 

 

360

 

 

4th Quarter (Projected)

 

 

360

 

 

 

5

 

 

 

 

3

 

 

 

362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Projected Fiscal 2011

 

 

 

 

 

 

 

 

 

 

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 (Actual)

 

 

2,006,999

 

 

 

31,039

 

 

 

 

(6,461)

 

 

 

2,031,577

 

 

2nd Quarter (Actual)

 

 

2,031,577

 

 

 

21,454

 

 

 

 

0

 

 

 

2,053,031

 

 

3rd Quarter (Actual)

 

 

2,053,031

 

 

 

83,726

 

 

 

 

0

 

 

 

2,136,757

 

 

4th Quarter (Projected)

 

 

2,136,757

 

 

 

16,522

 

 

 

 

(14,616)

 

 

 

2,138,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 to be opened and closed during Fiscal 2011 by quarter:

               1st Quarter – one retail, one factory, one retail crewcuts and two Madewell stores.  We closed one retail store (actual).

               2nd Quarter – three factory, one crewcuts factory and two Madewell stores (actual).

               3rd Quarter – six retail, four factory and seven Madewell stores (actual)

               4th Quarterone retail, one factory, one crewcuts factory and two Madewell stores. 

               We anticipate closing two retail and one Madewell store (projected).

 

 

 

 

Exhibit (5)

 

 

 

Historical Comparable Sales

(Unaudited)

 

Fiscal 2010

Quarter

 

 

(a)

Comparable

Company Sales

Comparable

Store Sales

 

Direct Sales

1st Quarter

 

 

16%

 

 

15%

 

 

 

 

20%

 

2nd Quarter

 

 

12%

 

 

11%

 

 

 

 

16%

 

3rd Quarter

 

 

2%

 

 

(1%)

 

 

 

 

12%

 

4th Quarter

 

 

0%

 

 

(5%)

 

 

 

 

12%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

1st Quarter

 

 

(3%)

 

 

(6%)

 

 

 

5%

 

2nd Quarter

 

 

3%

 

 

1%

 

 

 

13%

 

3rd Quarter

 

 

5%

 

 

2%

 

 

 

18%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)    Comparable company sales include comparable store sales, direct sales and shipping and handling fees.

 

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.