J.Crew Group, Inc. Announces Second Quarter Fiscal 2013 Results

PR Newswire

NEW YORK, Sept. 11, 2013 /PRNewswire/ -- J.Crew Group, Inc. today announced financial results for the second quarter and first half of fiscal 2013.

Second Quarter highlights:

  • Revenues increased 6% to $559.1 million, with comparable company sales decreasing 1%.  When realigning last year to be consistent with the current year retail calendar, comparable company sales increased 1% on top of an increase of 14% in the second quarter last year.  Store sales increased 4% to $399.1 million on top of an increase of 24% in the second quarter last year.  Direct sales increased 13% to $151.8 million following an increase of 16% in the second quarter last year.  
  • Gross margin decreased to 41.1% from 45.1% in the second quarter last year.        
  • Selling, general and administrative expenses were $174.2 million, or 31.2% of revenues, compared to $174.7 million, or 33.2% of revenues, in the second quarter last year. This year reflects a decrease of $12 million in share-based and incentive compensation.                    
  • Operating income was $55.8 million, or 10.0% of revenues, compared to $62.1 million, or 11.8% of revenues, in the second quarter last year. 
  • Net income was $17.5 million compared to $22.0 million in the second quarter last year. 
  • Adjusted EBITDA was $83.0 million compared to $88.7 million in the second quarter last year.  An explanation of the manner in which we use adjusted EBITDA and an associated reconciliation to GAAP measures are included in Exhibit (3).    

First Half highlights:

  • Revenues increased 9% to $1,123.2 million, with comparable company sales increasing 2% (which was the same on a realigned basis) on top of an increase of 15% in the first half last year.  Store sales increased 6% to $779.3 million on top of an increase of 25% in the first half last year.  Direct sales increased 18% to $328.0 million following an increase of 17% in the first half last year.   
  • Gross margin decreased to 42.9% from 46.3% in the first half last year. 
  • Selling, general and administrative expenses were $352.6 million, or 31.4% of revenues, compared to $338.8 million, or 32.9% of revenues, in the first half last year.  This year reflects a decrease of $17 million in share-based and incentive compensation. 
  • Operating income was $129.4 million, or 11.5% of revenues, compared to $137.7 million, or 13.4% of revenues, in the first half last year.      
  • Net income was $46.8 million compared to $52.7 million in the first half last year.    
  • Adjusted EBITDA was $184.0 million compared to $190.3 million in the first half last year.  An explanation of the manner in which we use adjusted EBITDA and an associated reconciliation to GAAP measures are included in Exhibit (3).   

Balance Sheet highlights:   

  • Cash and cash equivalents decreased to $98.8 million from $213.4 million at the end of the second quarter last year, which reflects a special dividend of $197.5 million that was paid in the fourth quarter last year.
  • Total debt was $1,573 million, consisting of the senior secured term loan of $1,173 million, maturing in 2018, and the senior unsecured notes of $400 million, maturing in 2019; compared to $1,588 million at the end of the second quarter last year. 
  • Inventories were $321.2 million compared to $282.8 million at the end of the second quarter last year.  Inventories and inventories per square foot increased 14% and 3%, respectively.

How We Assess the Performance of Our Business

In assessing the performance of our business, we consider a variety of performance and financial measures.  A key measure used in our evaluation is comparable company sales, which includes (i) net sales from stores that have been open for at least twelve months, (ii) direct net sales, and (iii) shipping and handling fees.   

Use of Non-GAAP Financial Measures

This announcement includes certain non-GAAP financial measures.  An explanation of the manner in which we use adjusted EBITDA and an associated reconciliation to GAAP measures is included in Exhibit (3). 

Conference Call Information

A conference call to discuss second quarter results is scheduled for tomorrow, September 12, 2013, 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 www.jcrew.com.  A replay of this call will be available until September 19, 2013 and can be accessed by dialing (877) 870-5176 and entering conference ID number 419935.  

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 September 11, 2013, the Company operates 314 retail stores (including 246 J.Crew retail stores, eight crewcuts stores and 60 Madewell stores), jcrew.com, jcrewfactory.com, the J.Crew catalog, madewell.com, the Madewell catalog, and 114 factory 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, 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 our 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 global 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 and execute on strategic initiatives, 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, and other factors which are set forth in the section entitled "Risk Factors" and elsewhere in our Annual Report on Form 10-K and in all filings with the SEC made subsequent to the filing of the Form 10-K. We do not undertake to publicly update or revise any 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)

Second Quarter
Fiscal 2013


 

Second Quarter
Fiscal 2012


 

First Half
Fiscal 2013


 

First Half
Fiscal 2012









Net sales:








Stores

$    399,117


$    384,041


$    779,310


$    738,049

Direct

151,829


133,944


327,990


277,381









Other

8,156


7,503


15,913


13,580









Total revenues

559,102


525,488


1,123,213


1,029,010









Cost of goods sold, including buying and occupancy costs

329,110


288,751


641,206


552,485









Gross profit

229,992


236,737


482,007


476,525

As a percent of revenues

41.1%


45.1%


42.9%


46.3%









Selling, general and administrative expenses

174,226


174,669


352,622


338,787

As a percent of revenues

31.2%


33.2%


31.4%


32.9%

















Operating income

55,766


62,068


129,385


137,738

As a percent of revenues

10.0%


11.8%


11.5%


13.4%









Interest expense, net

26,239


25,359


51,920


50,771

















Income before income taxes

29,527


36,709


77,465


86,967









Provision for income taxes

12,069


14,702


30,686


34,263

















Net income

$      17,458


$      22,007


$      46,779


$      52,704









 

Exhibit (2)

J.Crew Group, Inc.

Condensed Consolidated Balance Sheets

(unaudited)


(in thousands)

August 3, 2013


February 2, 2013


July 28, 2012







Assets






Current assets:






Cash and cash equivalents

$         98,836


$         68,399


$       213,466

Inventories

321,194


265,628


282,811

Prepaid expenses and other current assets

73,234


65,791


67,268

Prepaid income taxes

5,455


11,620


8,994







Total current assets

498,719


411,438


572,539







Property and equipment, net

348,142


324,111


306,195







Favorable lease commitments, net

30,646


35,104


42,095







Deferred financing costs, net

46,881


51,851


53,928







Intangible assets, net

970,825


975,517


980,420







Goodwill

1,686,915


1,686,915


1,686,915







Other assets

3,318


1,778


2,234







Total assets

$    3,585,446


$    3,486,714


$    3,644,326













Liabilities and Stockholders' Equity






Current liabilities:






Accounts payable

$       214,304


$       141,119


$       155,532

Other current liabilities

124,519


153,743


134,148

Interest payable

18,353


18,812


22,079

Current portion of long-term debt

12,000


12,000


15,000







Total current liabilities

369,176


325,674


326,759







Long-term debt

1,561,000


1,567,000


1,573,000







Unfavorable lease commitments and deferred credits

82,425


71,146


65,123







Deferred income taxes, net

395,190


392,984


409,712







Other liabilities

35,074


38,419


39,323







Stockholders' equity

1,142,581


1,091,491


1,230,409







Total liabilities and stockholders' equity

$    3,585,446


$    3,486,714


$    3,644,326







 




Exhibit (3)

J.Crew Group, Inc.

Reconciliation of Adjusted EBITDA

Non-GAAP Financial Measure





The following table reconciles net income reflected on the Company's condensed consolidated statements of operations for the second quarter to: (i) Adjusted EBITDA (a non-GAAP measure), (ii) cash flows from operating activities (prepared in accordance with GAAP) and (iii) cash and cash equivalents as reflected on the condensed consolidated balance sheet (prepared in accordance with GAAP).









(in millions)

Second Quarter
Fiscal 2013


Second Quarter
Fiscal 2012


First Half
Fiscal 2013


First Half
Fiscal 2012









Net income

$       17.5


$       22.0


$       46.8


$       52.7

Provision for income taxes

12.1


14.7


30.7


34.2

Interest expense, net

26.2


25.4


51.9


50.8

Depreciation and amortization

21.4


19.7


43.2


38.9









EBITDA

77.2


81.8


172.6


176.6









Share-based compensation

1.6


1.1


2.8


2.2

Amortization of lease commitments

1.9


3.3


3.7


7.0

Sponsor monitoring fees

2.3


2.5


4.9


4.5









Adjusted EBITDA

83.0


88.7


184.0


190.3









Taxes paid

(26.7)


(36.2)


(27.4)


(39.4)

Interest paid

(15.7)


(13.5)


(44.3)


(50.4)

Changes in working capital

4.0


(0.2)


(12.0)


(27.1)









Cash flows from operating activities

44.6


38.8


100.3


73.4

Cash flows from investing activities

(34.1)


(38.2)


(63.0)


(75.6)

Cash flows from financing activities

(3.3)


(3.2)


(6.5)


(6.2)









Effect of changes in foreign exchange rates on cash and cash equivalents

(0.3)



(0.4)










Increase (decrease) in cash

6.9


(2.6)


30.4


(8.4)

Cash and cash equivalents, beginning

91.9


216.1


68.4


221.9









Cash and cash equivalents, ending

$       98.8


$     213.5


$       98.8


$     213.5









We present Adjusted EBITDA, a non-GAAP financial measure, because we use such measure to: (i) monitor the performance of our business, (ii) evaluate our liquidity, and (iii) determine levels of incentive compensation. We believe the presentation of this measure will enhance the ability of our investors to analyze trends in our business, evaluate our performance relative to other companies in the industry, and evaluate our ability to service debt. 

Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles, and therefore, differences may exist in the manner in which other companies calculate this measure. Adjusted EBITDA should not be considered an alternative to (i) net income, as a measure of operating performance, or (ii) 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 measured in accordance with GAAP. 

 




Exhibit (4)





Actual and Projected Store Count and Square Footage








Fiscal 2013

Quarter


Total stores open at
beginning of the
quarter


Number of stores
opened during the
quarter
(1)


Number of stores closed
during the quarter
(1)

Total stores open at end
of the quarter

1st Quarter(2)


401


8


409

2nd Quarter(2)


409


12


421

3rd Quarter(3)


421


17


(1)

437

4th Quarter(3)


437


13


(1)

449

 



Fiscal 2013

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(2)


2,330,687


40,113



2,370,800

2nd Quarter(2)


2,370,800


60,852


(2,019)


2,429,633

3rd Quarter(3)


2,429,633


87,217


(5,012)


2,511,838

4th Quarter(3)


2,511,838


68,106


(7,777)


2,572,167

 

(1)

Actual and projected number of stores opened or closed during fiscal 2013 by channel are as follows:


Q1 - Three retail, one factory, and four Madewell stores.


Q2 - Three international retail, four factory, one international factory, and four Madewell stores.


Q3 - Four retail, two international retail, four factory, and seven Madewell stores. Close one retail store.


Q4 - Four retail, two international retail, five factory, and two Madewell stores. Close one retail store.

(2)

Reflects actual activity.

(3)

Reflects projected activity.

 

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