NEW YORK, June 9, 2011 /PRNewswire/ -- J.Crew Group, Inc. today announced financial results for the three months ended April 30, 2011 (first quarter fiscal 2011).

The results below reflect the Company's performance for the "combined period" consisting of the period prior to its acquisition ("predecessor period") by affiliates of TPG Capital, L.P. and Leonard Green & Partners, L.P. in the first quarter of fiscal 2011, as well as the period after completion of the acquisition ("successor period").  The acquisition was completed on March 7, 2011.

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.  For purposes of comparing results of operations to prior periods, however, the Company believes that it is a meaningful way to present the results of operations for the quarter ended April 30, 2011.  

First quarter highlights:

  • Revenues decreased 1% to $409.5 million.  Comparable company sales decreased 3% as compared to an increase of 16% in the first quarter of fiscal 2010.  Comparable company sales include comparable store sales, direct sales and shipping and handling revenues.  Store sales decreased 3% to $281.2 million, with comparable store sales decreasing 6%.  Comparable store sales increased by 15% in the first quarter of fiscal 2010.  Direct sales (Internet and Phone) increased 5% to $120.4 million.  Direct sales increased by 20% to $114.4 million in the first quarter of fiscal 2010.  
  • Gross margin decreased to 44.3% of revenues from 49.0% of revenues in the first quarter of fiscal 2010.  The decrease in gross margin was impacted on an operating basis by increased markdowns and promotional selling compared to the first quarter of fiscal 2010 and by amortization of step-up in inventory value and the net impact of favorable/unfavorable store lease amortization which totaled $3.7 million that were recorded in connection with the acquisition.  
  • Selling, general and administrative expenses increased to $205.2 million from $127.2 million in the first quarter of fiscal 2010.  The first fiscal quarter of 2011 includes $32.2 million of transaction expenses, $44.7 million of acquisition related share-based compensation and a $3.4 million increase in depreciation and amortization related to purchase accounting.  
  • Operating loss was ($24.0) million, or (5.9%) of revenues, compared with operating income of $75.4 million, or 18.2% of revenues, in the first quarter of fiscal 2010.  Operating loss in the first quarter of fiscal 2011 was impacted by costs incurred in connection with the acquisition and related purchase accounting.  
  • Net loss was ($29.9) million compared with net income of $44.7 million in the first quarter of fiscal 2010.  The first quarter of fiscal 2011 was impacted by costs incurred in connection with the acquisition, including increased interest expense and related purchase accounting.
  • Adjusted EBITDA in the first quarter of fiscal 2011 was $74.7 million compared to $88.9 million in the first quarter of fiscal 2010.  A reconciliation of net income (loss) to adjusted EBITDA is included in Exhibit (3).

Balance Sheet highlights as of April 30, 2011

  • Cash and cash equivalents were $280.5 million (including $209 million for equity purchase price related to dissenting shareholders that was not distributed at the closing of the transaction, but was paid out subsequent to the first fiscal quarter in May 2011) at the end of the first fiscal quarter compared to $332.3 million at the end of the first fiscal quarter in the prior year.
  • Total debt was $1,600 million at the end of the first fiscal quarter, comprised of a $1,200 million seven-year senior secured term loan and $400 million in senior unsecured notes maturing in eight years, incurred in connection with the acquisition, compared to $49.2 million at the end of the first fiscal quarter in the prior year.  
  • Inventories at the end of the first fiscal quarter were $265.6 million (including $29.4 million of inventory step-up value recorded related to the transaction), compared to $193.1 million at the end of the first quarter of fiscal 2010.  Inventory per square foot (excluding step-up value related to the transaction) increased 19.1% as compared to the end of the first quarter of fiscal 2010.  

Use of Non-GAAP Financial Measures

This announcement contains non-GAAP financial measures.  An explanation of this information and a reconciliation of this information to the most directly comparable GAAP financial measures are included in Exhibit (3).

Conference Call Information

A conference call to discuss first quarter results is scheduled for June 9, 2011, at 11:00 AM Eastern Time.  Investors and analysts interested in participating in the call are invited to dial (877) 407-0784 begin_of_the_skype_highlighting(877) 407-0784end_of_the_skype_highlighting 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 June 16, 2011 and can be accessed by dialing (877) 870-5176 begin_of_the_skype_highlighting(877) 870-5176end_of_the_skype_highlighting and entering conference ID number 373615.

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 June 9, 2011, the Company operates 251 retail stores (including 219 J.Crew retail stores, 10 crewcuts and 22 Madewell stores), the J.Crew catalog business, jcrew.com, madewell.com, and 87 factory outlet stores.  Additionally, certain product, press release and financial information concerning the Company is available at the Company's website www.jcrew.com.

ForwardLooking 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)

For the Period January 30, 2011 to

March 7, 2011

For the Period March 8, 2011 to

April 30, 2011

Three Months Ended

April 30, 2011

Three Months Ended

May 1, 2010

(Predecessor)

(Successor)

(Combined)

(Predecessor)

Net sales

    Stores

$86,474

$194,703

$281,177

$289,981

    Direct

43,642

76,719

120,361

114,355

130,116

271,422

401,538

404,336

Other

3,122

4,796

7,918

9,543

Total Revenues

133,238

276,218

409,456

413,879

Costs of goods sold, buying and occupancy costs

70,284

157,910

228,194

211,281

Gross profit

62,954

118,308

181,262

202,598

    As a percent of revenues

47.2%

42.8%

44.3%

49.0%

Selling, general and administrative expenses

79,736

125,487

205,223

127,179

    As a percent of revenues

59.8%

45.4%

50.1%

30.7%

Operating income (loss)

(16,782)

(7,179)

(23,961)

75,419

    As a percent of revenues

(12.6%)

(2.6%)

(5.9%)

18.2%

Interest expense, net

1,166

15,526

16,692

627

Income (loss) before income taxes

(17,948)

(22,705)

(40,653)

74,792

Provision (benefit) for income taxes

(1,798)

(8,911)

(10,709)

30,066

Net income (loss)

$(16,150)

$(13,794)

$(29,944)

$44,726

Exhibit (2)

J.Crew Group, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)

April 30, 2011

January 29, 2011

May 1, 2010

(Successor)

(Predecessor)

(Predecessor)

Assets

Current assets:

  Cash and cash equivalents

$280,473

$381,360

$332,302

  Inventories

265,560

214,431

193,081

  Prepaid expenses and other current assets

31,860

39,104

27,578

  Prepaid income taxes

65,702

-

-

Total current assets

643,595

634,895

552,961

Property and equipment, net

237,965

197,210

189,986

Favorable lease commitments, net

58,954

-

-

Deferred financing costs, net

65,930

970

2,802

Deferred income taxes, net

-

20,171

14,851

Intangible assets, net

997,282

4,343

4,151

Goodwill

1,681,996

-

-

Other assets

3,122

2,577

3,016

Total assets

$3,688,844

$860,166

$767,767

Liabilities and Stockholders' Equity

Current liabilities:

  Accounts payable

$137,292

$147,083

$105,354

  Due to dissenting shareholders

209,018

-

-

  Other current liabilities

94,577

117,642

90,793

  Current portion of long-term debt

12,000

-

-

  Income taxes payable

-

1,673

17,699

  Deferred income taxes, net

7,625

4,277

958

Total current liabilities

460,512

270,675

214,804

Long-term debt

1,588,000

-

49,229

Unfavorable lease commitments and deferred credits, net

40,490

67,665

66,508

Deferred income taxes, net

416,429

-

-

Other liabilities

18,106

10,705

10,474

Stockholders' equity

1,165,307

511,121

426,752

Total liabilities and stockholders' equity

$3,688,844

$860,166

$767,767

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), and then to cash and cash equivalents as reflected on the condensed consolidated balance sheet (prepared in accordance with GAAP).      

(in millions)

For the Period

January 30, 2011 to

March 7, 2011

For the Period

March 8, 2011 to

April 30, 2011

Three Months Ended

April 30, 2011

Three Months Ended

May 1, 2010

(Predecessor)

(Successor)

(Combined)

(Predecessor)

Net income (loss)

$  (16.2)

$  (13.8)

$  (30.0)

$  44.7

Provision (benefit) for income taxes

(1.8)

(8.9)

(10.7)

30.1

Interest expense, net

1.2

15.5

16.7

0.6

Depreciation and amortization

3.9

11.8

15.7

11.7

EBITDA

(12.9)

4.6

(8.3)

87.1

Adjustments:

Share-based compensation

1.1

44.9

46.0

3.6

Inventory step-up amortization

3.1

3.1

Amortization of favorable leases

2.1

2.1

Amortization of unfavorable leases, deferred rent and landlord contributions

(0.6)

(1.0)

(1.6)

(1.8)

Transaction costs

32.2

32.2

Sponsor monitoring fee

1.2

1.2

Adjusted EBITDA

19.8

54.9

74.7

88.9

Taxes paid

(3.9)

(3.9)

(6.9)

Interest paid

(0.2)

(0.2)

(0.2)

Changes in assets and liabilities(1)

(122.5)

168.4

45.9

(43.1)

Capital expenditures

(2.6)

(16.9)

(19.5)

(7.1)

Acquisition of J.Crew Group, Inc.

(2,981.4)

(2,981.4)

Financing activities

77.1

2,706.4

2,783.5

2.6

Increase (decrease) in cash

(28.2)

(72.7)

(100.9)

34.2

Cash and cash equivalents, beginning balance

381.4

353.2

381.4

298.1

Cash and cash equivalents, ending balance

$  353.2

$  280.5

$  280.5

$  332.3

(1) Includes acquisition consideration due to dissenting shareholders in successor and combined periods.

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 includes the impact of other items such as non-cash share-based compensation, transaction 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

Quarter

Total stores open at beginning of the quarter

(Note 2)

Number of stores opened during the quarter

(Note 2)

Number of stores closed during the quarter

Total stores open at end of the quarter

1st Quarter (Actual)

333

5

1

337

2nd Quarter (Projected)

337

6

0

343

3rd Quarter (Projected)

343

17

0

360

4th Quarter (Projected)

360

5

2

363

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 (Projected)

2,031,577

21,454

0

2,053,031

3rd Quarter (Projected)

2,053,031

85,950

0

2,138,981

4th Quarter (Projected)

2,138,981

16,508

(7,225)

2,148,264

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 (projected).

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

              4th Quarter – one retail, one factory, one crewcuts factory and two Madewell stores.  We anticipate closing one

              retail and one Madewell store (projected).

Exhibit (5)

Historical Comparable Sales

(Unaudited)

Fiscal 2010

(A)

Comparable

Company Sales

Comparable

Store Sales

Direct Sales

Quarter

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%

(A)  Comparable company sales include comparable store sales, direct sales and shipping and handling revenues.

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.