Welcome!

News Feed Item

J.Crew Group, Inc. Announces Second Quarter Fiscal 2014 Results

NEW YORK, Sept. 4, 2014 /PRNewswire/ -- J.Crew Group, Inc. (the "Company") today announced financial results for the second quarter and first half of fiscal 2014.

Second Quarter highlights:

  • Revenues increased 12% to $627.2 million, with comparable company sales increasing 4%. Comparable company sales decreased 1% in the second quarter last year. Store sales increased 11% to $443.5 million on top of an increase of 4% in the second quarter last year. Direct sales increased 14% to $173.6 million following an increase of 13% in the second quarter last year.
  • Gross margin was 37.7% compared to 41.1% in the second quarter last year.
  • Selling, general and administrative expenses were $200.7 million, or 32.0% of revenues, compared to $174.2 million, or 31.2% of revenues in the second quarter last year.
  • Operating income was $36.0 million, or 5.7% of revenues, compared to $55.8 million, or 10.0% of revenues, in the second quarter last year.
  • Net income was $10.8 million compared to $17.5 million in the second quarter last year.
  • Adjusted EBITDA was $67.6 million compared to $83.0 million in the second quarter last year. An explanation of the manner in which the Company uses adjusted EBITDA and an associated reconciliation to GAAP measures are included in Exhibit (3).

First Half highlights:

  • Revenues increased 9% to $1,219.2 million, with comparable company sales increasing 1%. Comparable company sales increased 2% in the first half last year. Store sales increased 7% to $829.9 million on top of an increase of 6% in the first half last year. Direct sales increased 13% to $370.6 million following an increase of 18% in the first half last year.
  • Gross margin was 38.2% compared to 42.9% in the first half last year.
  • Selling, general and administrative expenses were $395.8 million, or 32.5% of revenues, compared to $352.6 million, or 31.4% of revenues in the first half last year.
  • Operating income was $70.0 million, or 5.7% of revenues, compared to $129.4 million, or 11.5% of revenues, in the first half last year.
  • Net loss was $19.3 million compared with net income of $46.8 million in the first half last year. This year reflects a loss of $36 million, net of tax, incurred in connection with the refinancing of our term loan facility and the redemption of our senior notes.
  • Adjusted EBITDA was $132.3 million compared to $184.0 million in the first half last year. An explanation of the manner in which the Company uses adjusted EBITDA and an associated reconciliation to GAAP measures are included in Exhibit (3).

Balance Sheet highlights:

  • Cash and cash equivalents were $74 million compared to $99 million at the end of the second quarter last year, reflecting (i) costs of $29 million paid in connection with the refinancing of the Company's senior secured term loan and the redemption of its senior unsecured notes, which were refinanced and redeemed, respectively, in the first quarter of fiscal 2014 and (ii) a dividend to service debt of $19 million in the first quarter of fiscal 2014 discussed in the related party section below.
  • Total debt was $1,556 million reflecting the new senior secured term loan which matures in 2021. Total debt of $1,573 million in the second quarter last year consisted of (i) the former senior secured term loan of $1,173 million and (ii) senior unsecured notes of $400 million
  • Inventories were $395 million compared to $321 million at the end of the second quarter last year. Inventories and inventories per square foot increased 23% and 12%, respectively.

Refinancing

On March 5, 2014, the Company refinanced its term loan facility, the proceeds of which were used to (i) refinance amounts outstanding under the former senior secured term loan of $1,167 million and (ii) together with cash on hand, redeem in full the outstanding senior notes of $400 million, and to pay fees, call premiums and accrued interest.  The maturity date of the new term loan facility is March 5, 2021.  The refinancing is expected to result in an annual savings of $16 million in interest expense.         

Related Party

On November 4, 2013, Chinos Intermediate Holdings A, Inc. (the "Issuer"), an indirect parent holding company of J.Crew Group, Inc., issued $500 million aggregate principal of 7.75/8.50% Senior PIK Toggle Notes due May 1, 2019 (the "PIK Notes"). The PIK Notes are (i) senior unsecured obligations of the Issuer, (ii) structurally subordinated to all of the liabilities of the Issuers' subsidiaries, and (iii) not guaranteed by any of the Issuers' subsidiaries, and therefore are not recorded in the Company's financial statements. The Company paid a dividend of $19 million to the Issuer in the first quarter of fiscal 2014 to fund the initial semi-annual interest payment on May 1, 2014. Additionally, while not required, we intend to pay dividends to fund future interest payments, which would aggregate to $194 million through the remainder of the term if all interest on the PIK Notes is paid in cash.

Subsequent Event

In August 2014, the Company entered into new interest rate cap and swap agreements, which together with existing interest rate swaps, limit exposure to interest rate increases on a portion of the Company's floating rate indebtedness. These new agreements cover notional amounts of $400 million from March 2015 to March 2016 and $800 million from March 2016 to March 2019.

The Company designated the interest rate cap and swap agreements as cash flow hedges. As cash flow hedges, unrealized gains will be recognized as assets while unrealized losses will be recognized as liabilities. The effective portion of such gains or losses will be recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses will be recorded as a component of interest expense. Future realized gains and losses in connection with each required interest payment will be reclassified from accumulated other comprehensive income or loss to interest expense.

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. We also consider gross profit and selling, general and administrative expenses in assessing the performance of our business.

As a result of the performance of the Company in the first quarter of fiscal 2014, along with our outlook of future operating results, the Company determined that there was a substantial deterioration in the excess of fair value over the carrying value of the Stores reporting unit. To the extent that the operating results continue to decline, the Company may record a non-cash goodwill or intangible asset impairment charge. The goodwill allocated to the Stores reporting unit is $942 million. The intangible asset for the J.Crew brand is $885 million. A future impairment charge, if any, would not have an effect on the Company's operations, liquidity or financial covenants, and would not change management's long-term business outlook or strategy.

Use of Non-GAAP Financial Measures

This announcement includes certain non-GAAP financial measures. An explanation of the manner in which the Company uses 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 today, September 4, 2014, at 4:30 PM 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 11, 2014 and can be accessed by dialing (877) 870-5176 and entering conference ID number 13589558.

About J.Crew Group, Inc.

J.Crew Group, Inc. is an internationally recognized multi-brand retailer of women's, men's and children's apparel, shoes and accessories. As of September 4, 2014, the Company operates 271 J.Crew retail stores, 76 Madewell stores, jcrew.com, jcrewfactory.com, the J.Crew catalog, madewell.com, the Madewell catalog, and 131 factory stores. 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 the indebtedness of our indirect parent, for which we intend to pay a dividend to service such debt, and our substantial 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, adverse or unseasonable weather, material disruption to our information systems, our ability to implement our real estate strategy, our ability to implement our international expansion 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 2014



Second Quarter
Fiscal 2013



First Half

Fiscal 2014



First Half

Fiscal 2013


Net sales:

















Stores


$

443,507



$

399,117



$

829,874



$

779,310


Direct



173,623




151,829




370,641




327,990


Other



10,099




8,156




18,683




15,913


Total revenues



627,229




559,102




1,219,198




1,123,213


Cost of goods sold, including buying and occupancy costs


390,549




329,110




753,335




641,206


Gross profit



236,680




229,992




465,863




482,007


As a percent of revenues



37.7

%



41.1

%



38.2

%



42.9

%

Selling, general and administrative expenses



200,667




174,226




395,831




352,622


As a percent of revenues



32.0

%



31.2

%



32.5

%



31.4

%

Operating income



36,013




55,766




70,032




129,385


As a percent of revenues



5.7

%



10.0

%



5.7

%



11.5

%

Interest expense, net



17,757




26,239




39,418




51,920


Loss on refinancing









58,786





Income (loss) before income taxes



18,256




29,527




(28,172)




77,465


Provision (benefit) for income taxes



7,471




12,069




(8,840)




30,686


Net income (loss)


$

10,785



$

17,458



$

(19,332)



$

46,779


 

 







Exhibit (2)

J.Crew Group, Inc.

Condensed Consolidated Balance Sheets

(unaudited)







(in thousands)

August 2, 2014


February 1, 2014


August 3, 2013

Assets









Current assets:









Cash and cash equivalents

$

73,506


$

156,649


$

98,836

Inventories


394,677



353,976



321,194

Prepaid expenses and other current assets


61,838



56,434



73,234

Prepaid income taxes




2,782



5,455

Deferred income taxes, net


12,075



11,831



Total current assets


542,096



581,672



498,719










Property and equipment, net


393,847



375,092



348,142










Favorable lease commitments, net


23,421



26,560



30,646










Deferred financing costs, net


24,345



41,911



46,881










Intangible assets, net


961,525



966,175



970,825










Goodwill


1,686,915



1,686,915



1,686,915










Other assets


4,776



3,895



3,318

Total assets

$

3,636,925


$

3,682,220


$

3,585,446










Liabilities and Stockholders' Equity









Current liabilities:









Accounts payable

$

246,870


$

237,019


$

214,304

Other current liabilities


139,875



154,796



124,519

Interest payable


5,636



18,065



18,353

Income taxes payable


567





Current portion of long-term debt


15,670



12,000



12,000

Total current liabilities


408,618



421,880



369,176










Long-term debt, net


1,540,044



1,555,000



1,561,000










Unfavorable lease commitments and deferred credits


108,143



93,788



82,425










Deferred income taxes, net


383,214



389,403



395,190










Other liabilities


27,141



31,729



35,074










Stockholders' equity


1,169,765



1,190,420



1,142,581

Total liabilities and stockholders' equity

$

3,636,925


$

3,682,220


$

3,585,446

 








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 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 2014


Second Quarter
Fiscal 2013


First Half

Fiscal 2014


First Half

Fiscal 2013

Net income (loss)

$

10.8


$

17.5


$

(19.3)


$

46.8

Provision (benefit) for income taxes


7.5



12.1



(8.8)



30.7

Interest expense, net


17.8



26.2



98.2



51.9

Depreciation and amortization


24.8



21.4



48.8



43.2

EBITDA


60.9



77.2



118.9



172.6

Share-based compensation


1.4



1.6



3.0



2.8

Amortization of lease commitments


2.7



1.9



5.3



3.7

Sponsor monitoring fees


2.6



2.3



5.1



4.9

Adjusted EBITDA


67.6



83.0



132.3



184.0

Taxes paid


(0.5)



(26.7)



(1.9)



(27.4)

Interest paid


(19.1)



(15.7)



(54.8)



(44.3)

Changes in working capital


5.2



4.0



(45.1)



(12.0)

Cash flows from operating activities


53.2



44.6



30.5



100.3

Cash flows from investing activities


(35.0)



(34.1)



(61.6)



(63.0)

Cash flows from financing activities


(3.9)



(3.3)



(52.2)



(6.5)

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


(0.2)



(0.3)



0.2



(0.4)

Increase (decrease) in cash


14.1



6.9



(83.1)



30.4

Cash and cash equivalents, beginning


59.4



91.9



156.6



68.4

Cash and cash equivalents, ending

$

73.5


$

98.8


$

73.5


$

98.8

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 2014

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)


451



7





458

2nd Quarter (2)


458



10



(1)



467

3rd Quarter (3)


467



28





495

4th Quarter (3)


495



10



(1)



504




























Fiscal 2014

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)


2,585,539



34,229



(147)



2,619,621

2nd Quarter (2)


2,619,621



54,303



(7,524)



2,666,400

3rd Quarter (3)


2,666,400



136,929





2,803,329

4th Quarter (3)


2,803,329



44,712



(5,972)



2,842,069

 

(1)

Actual and projected number of stores opened or closed during fiscal 2014 by channel are as follows:


Q1 – One international retail, one factory, and five Madewell stores.


Q2 – Four international retail, four factory, one international factory, and one Madewell store. Close one retail store.


Q3 – Nine retail, two international retail, seven factory, one international factory, and nine Madewell stores.


Q4 One retail, four factory, and five Madewell stores. Close one retail store.

(2)

Reflects actual activity.

(3)

Reflects projected activity.

SOURCE J.Crew Group, Inc.

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
Internet-of-Things discussions can end up either going down the consumer gadget rabbit hole or focused on the sort of data logging that industrial manufacturers have been doing forever. However, in fact, companies today are already using IoT data both to optimize their operational technology and to improve the experience of customer interactions in novel ways. In his session at @ThingsExpo, Gordon Haff, Red Hat Technology Evangelist, will share examples from a wide range of industries – includin...
"We build IoT infrastructure products - when you have to integrate different devices, different systems and cloud you have to build an application to do that but we eliminate the need to build an application. Our products can integrate any device, any system, any cloud regardless of protocol," explained Peter Jung, Chief Product Officer at Pulzze Systems, in this SYS-CON.tv interview at @ThingsExpo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
With major technology companies and startups seriously embracing IoT strategies, now is the perfect time to attend @ThingsExpo 2016 in New York. Learn what is going on, contribute to the discussions, and ensure that your enterprise is as "IoT-Ready" as it can be! Internet of @ThingsExpo, taking place June 6-8, 2017, at the Javits Center in New York City, New York, is co-located with 20th Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry p...
@DevOpsSummit at Cloud taking place June 6-8, 2017, at Javits Center, New York City, is co-located with the 20th International Cloud Expo and will feature technical sessions from a rock star conference faculty and the leading industry players in the world. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long developm...
"We are an all-flash array storage provider but our focus has been on VM-aware storage specifically for virtualized applications," stated Dhiraj Sehgal of Tintri in this SYS-CON.tv interview at 19th Cloud Expo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
Between 2005 and 2020, data volumes will grow by a factor of 300 – enough data to stack CDs from the earth to the moon 162 times. This has come to be known as the ‘big data’ phenomenon. Unfortunately, traditional approaches to handling, storing and analyzing data aren’t adequate at this scale: they’re too costly, slow and physically cumbersome to keep up. Fortunately, in response a new breed of technology has emerged that is cheaper, faster and more scalable. Yet, in meeting these new needs they...
"We're a cybersecurity firm that specializes in engineering security solutions both at the software and hardware level. Security cannot be an after-the-fact afterthought, which is what it's become," stated Richard Blech, Chief Executive Officer at Secure Channels, in this SYS-CON.tv interview at @ThingsExpo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
The IoT is changing the way enterprises conduct business. In his session at @ThingsExpo, Eric Hoffman, Vice President at EastBanc Technologies, discussed how businesses can gain an edge over competitors by empowering consumers to take control through IoT. He cited examples such as a Washington, D.C.-based sports club that leveraged IoT and the cloud to develop a comprehensive booking system. He also highlighted how IoT can revitalize and restore outdated business models, making them profitable ...
When it comes to cloud computing, the ability to turn massive amounts of compute cores on and off on demand sounds attractive to IT staff, who need to manage peaks and valleys in user activity. With cloud bursting, the majority of the data can stay on premises while tapping into compute from public cloud providers, reducing risk and minimizing need to move large files. In his session at 18th Cloud Expo, Scott Jeschonek, Director of Product Management at Avere Systems, discussed the IT and busin...
According to Forrester Research, every business will become either a digital predator or digital prey by 2020. To avoid demise, organizations must rapidly create new sources of value in their end-to-end customer experiences. True digital predators also must break down information and process silos and extend digital transformation initiatives to empower employees with the digital resources needed to win, serve, and retain customers.
In his general session at 19th Cloud Expo, Manish Dixit, VP of Product and Engineering at Dice, discussed how Dice leverages data insights and tools to help both tech professionals and recruiters better understand how skills relate to each other and which skills are in high demand using interactive visualizations and salary indicator tools to maximize earning potential. Manish Dixit is VP of Product and Engineering at Dice. As the leader of the Product, Engineering and Data Sciences team at D...
SaaS companies can greatly expand revenue potential by pushing beyond their own borders. The challenge is how to do this without degrading service quality. In his session at 18th Cloud Expo, Adam Rogers, Managing Director at Anexia, discussed how IaaS providers with a global presence and both virtual and dedicated infrastructure can help companies expand their service footprint with low “go-to-market” costs.
Get deep visibility into the performance of your databases and expert advice for performance optimization and tuning. You can't get application performance without database performance. Give everyone on the team a comprehensive view of how every aspect of the system affects performance across SQL database operations, host server and OS, virtualization resources and storage I/O. Quickly find bottlenecks and troubleshoot complex problems.
"Once customers get a year into their IoT deployments, they start to realize that they may have been shortsighted in the ways they built out their deployment and the key thing I see a lot of people looking at is - how can I take equipment data, pull it back in an IoT solution and show it in a dashboard," stated Dave McCarthy, Director of Products at Bsquare Corporation, in this SYS-CON.tv interview at @ThingsExpo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.
"We are the public cloud providers. We are currently providing 50% of the resources they need for doing e-commerce business in China and we are hosting about 60% of mobile gaming in China," explained Yi Zheng, CPO and VP of Engineering at CDS Global Cloud, in this SYS-CON.tv interview at 19th Cloud Expo, held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA.