Direct sales soar at J. Crew Group

06 Sep '11

5 min read

J. Crew Group Inc. announced financial results for the three months (second quarter) and six months (first six months) ended July 30, 2011.

Second Quarter highlights:
• Revenues increased 7% to $435.0 million. Comparable company sales increased 3% in the second quarter. Comparable company sales increased 12% in the second quarter of fiscal 2010. Comparable company sales include comparable store sales, direct sales and shipping and handling revenues. Store sales increased 5% to $311.0 million, with comparable store sales increasing 1%. Comparable store sales increased 11% in the second quarter of fiscal 2010. Direct sales (Internet and Phone) increased 13% to $116.0 million. Direct sales increased 16% to $102.5 million in the second quarter of fiscal 2010.
• Gross margin was 36.5% compared to 44.6% in the second quarter of fiscal 2010. The decrease in gross margin was impacted by amortization of step-up in inventory value and the net impact of favorable/unfavorable store lease amortization which totaled $23.0 million that were recorded in connection with the acquisition.
• Selling, general and administrative expenses increased to $146.4 million from $122.5 million in the second quarter of fiscal 2010. The second fiscal quarter includes $14.0 million of incremental expenses as a result of purchase accounting and related transaction impact which includes: $5.5 million increase in depreciation and amortization related to purchase accounting and a $6.5 million charge in connection with the August 30, 2011 settlement of the shareholder litigation and certain legal costs.
• Operating income was $12.3 million, or 2.8% of revenues, compared to $59.0 million, or 14.5% of revenues, in the second quarter of fiscal 2010. Operating income in the second quarter of fiscal 2011 includes $37.0 million of incremental costs and amortization incurred with the acquisition and related to purchase accounting. Operating income in the second quarter of fiscal 2010 included a benefit of $3.2 million in share-based compensation for recognition of forfeited share-based awards.
• Net loss was $10.5 million compared with net income of $34.9 million in the second quarter of fiscal 2010. The second quarter of fiscal 2011 was impacted by costs and amortization incurred with the acquisition and related to purchase accounting as noted above and increased interest expense as a result of debt incurred in connection with the acquisition.
• Adjusted EBITDA in the second quarter of fiscal 2011 was $64.2 million compared to $69.5 million in the second quarter of fiscal 2010. An explanation of how we use Adjusted EBITDA and a reconciliation of net income (loss) to Adjusted EBITDA are included in Exhibit (3).

First Six Months highlights:
• Revenues increased 3% to $844.4 million. Comparable company sales were flat in the first six months of fiscal 2011. Comparable company sales increased 14% in the first six months of fiscal 2010. Store sales increased 1% to $592.2 million, with comparable store sales decreasing 3%. Comparable store sales increased 13% in the first six months of fiscal 2010. Direct sales increased 9% to $236.3 million. Direct sales increased 18% to $216.9 million in the first six months of fiscal 2010.

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