Wednesday, March 11, 2009

Another Article on J.Crew's Latest Quarter Results :)

A big "thanks!" goes to j'adore couture (check out her great blog: "j'adore couture") who shared with us a fantastic article from WWD (click here), which complements the "J.Crew Announces Latest Quarter Results" post from yesterday...

Despite Fourth-Quarter Loss, J.Crew Sees Room to Grow
NEW YORK — Tightfisted consumers and rising costs may have pushed J.Crew Group Inc. to a $13.5 million loss in the fourth quarter, but the retailer still has cautious expansion in mind.


J.Crew posted a net loss of 22 cents a diluted share for the period ended Jan. 31, compared with net income of $25 million, or 39 cents, in the same year-ago quarter. Revenues declined 3 percent to $388 million from $399.9 million a year earlier and comp-store sales fell 13 percent. Retail sales slid 3.3 percent to $252 million, while direct sales were down 2.4 percent, to $123 million. Gross margins fell to 27.6 percent of sales from 41.3 percent due to increased markdowns and greater promotional activity during the quarter.


For the year, profits fell 44 percent to $54.1 million, or 85 cents a share, from $97.1 million, or $1.52 a share, a year ago. Revenues increased 7 percent to $1.4 billion from $1.3 billion last year.

But while the company is proceeding with store openings slowly, it’s by no means sitting on the sidelines. In an interview after the conference call, Millard “Mickey” Drexler, chairman and chief executive officer, said the retailer is opening stores in select small affluent cities tailored to individual locations. J.Crew is also working to develop a separate identity for its men’s business. The company opened men’s-only stores in TriBeCa here and Westfield Garden State Plaza in Paramus, N.J., and is contemplating more. Drexler also has his eye on the bridal business; the firm already offers gowns, bridesmaids and flower girl dresses in its catalogue and online.

A bridal salon store is something we’re talking about,” he said. “We have such strong demand and to reinforce that with a store in Manhattan would be great. We’re looking uptown and downtown. If the right location came up, we’d do it.”


While Drexler said he was “disappointed by the fourth-quarter operating results,” they beat the expectations of analysts polled by Thomson Reuters, who predicted an average loss of 27 cents a share on revenues of $372.8 million, which sent J. Crew shares up nearly 13 percent in after-hours trading. The stock closed Tuesday at $9.72, up 36 cents, or 3.9 percent, on the New York Stock Exchange.


J.Crew did not provide guidance for the full year, but said it expects first-quarter earnings per share in the range of 7 to 12 cents, excluding severance and other items. The retailer announced plans for layoffs and other cost-cutting measures on Feb. 26.


Drexler said while the economic environment severely affected J.Crew’s results, “there are things we could have done better. We’re micromanaging every aspect of the business with the recent announcement of a cost-reduction program. We’re focused on maintaining a healthy balance sheet.


Inventory management is another initiative. “We began 2009 with less inventory than last year,” Drexler said. “We will have our inventory growth aligned with the trend of the business by the end of the second quarter.”


J.Crew’s assortments are being skewed so there is more merchandise below $100 than before. “We’re responding to customer preference,” Drexler said. “That’s where they’re moving. Our bestsellers are things that are in fact stylish and fashionable and under 80 or 90 bucks. That’s where the action is right now. The knit, woven shirt and accessories businesses are doing well.”


Drexler may have said that “there is a sea change to the business, the customer is hesitant to spend and shopping differently,” but he’s not about to serve up bland merchandise. “The last thing we’d want to own is basics that look like other people’s goods,” he said. “We’ll never be the lowest-priced retailer around. We have not moved off our long-term objective, except that we’re skewing inventory at much more friendly prices and lower opening price points. We’re maintaining our initial margins.”


Collection, higher-priced unique designs produced in limited quantities, is a business J.Crew had been developing prior to the recession. “It’s very viable now,” Drexler insisted. “It has its place in the mix.” The first Collection store opened in October on Madison Avenue. “The store has been incredibly successful,” he said. “Not the least reason is that it’s on Madison Avenue, surrounded by designer shops that are more expensive. We’re incredibly pleased with that business. It’s beyond where we thought it would be.”

While Drexler said he won’t open an identical Collection store anywhere else, “we’d open its variation on a theme. Next month we’re opening a unit in Malibu, Calif. that will reflect more designer [product] but be tailored for Southern California. A shop dubbed J.Crew at the Mountain bowed in Aspen and J.Crew at the Beach in East Hampton is being expanded. These stores are designed to fit in with their communities. A Crewcuts is opening in New Canaan [Conn.] shortly.”

J.Crew plans to open 25 stores in 2009, versus 40 in 2008. Eight of those stores will be Madewell units, J.Crew Group’s lower-priced casual concept. “Madewell is in tune with the times,” Drexler said. “It’s fashion-y, casual, great quality and really well priced. But we’re being cautious. Now’s not the time to get too enthusiastic.”


This article provided a lot of great insights on what J.Crew is doing & plan on doing for the future. First, I am very excited about the So. California and Aspen shops- I think creating a few stores tailored to the community is a great idea. Second, I am not sure if expanding Madewell's is the best idea. It's clear that Drexler is the main drive behind that. ;) Third, I find it interesting that they're trying to create a separate identity for Men in general- is this something that they plan on doing for a few more locations- or nationwide? Incidentally, to read the transcript of yesterday's conference call, click here.

What are your thoughts on the article? Do you disagree or agree with any of the actions they are taking (or planning to take)? What are the reasons behind your position? Drexler was quoted as saying, "We’re responding to customer preference"- do you believe that is the case? :)

37 comments:

  1. Sounds like they have a good game plan in place. Thanks for the great article/post!

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  2. “We began 2009 with less inventory than last year,” Drexler said.

    I have a question: this statement can be made and is true, but what about into 2009, after returns are processed from end of year 2008 sales? Couldn't inventory have increased again since there were (may have been) alot of returns.

    Plus, they sold so much to TJMax, etc., their low inventory isn't really due to true customer interest/purchases, right?

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  3. ComplEments, not complIments.

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  4. Ok, way OT but in case someone's dying for these items - the 5th ave store in NYC had Coralie Suede Heels in yellow and light eucalyptus for $69.99. Vintage Selvage jeans were also 49.99 which is less than online as well.
    Not sure if these markdowns have happened at all B&Ms?
    Happy shopping:)

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  5. Private Sale - 20% off your entire order of $175 or more, through March 13. Code: SECRET

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  6. What a joke of an offer. Let's say I order $175, minus 20% it's $140. Shipping is either $14.50 (if based on amount AFTER % off, or $15.50 if based on price BEFORE % off). So I've saved about $20... big whoops. Yet another example of J.Crew's failure to compete with other retailers' promotions.

    p.s Marietta - this isn't a slam on you, thanks for letting everyone know about the sale. I just wish it was much better :-)

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  7. I have never been into a Madewell but from their internet ads it doesn't seem like they are lower priced than JCrew. Am I correct in this assumption?

    The 20% of $150 is not an incentive to buy. The deals in the fall were better than they are now even with the lowered price points. JCrew needs to work a little harder at getting people in. In these strange economic times it would be wise for them to do a little more to keep their loyal customers buying. Marking down uncomfortable ballet flats to $98 is not going to cut it.

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  8. 20% off is a great promo for those of us who spend on full price merchandise. I have almost $700 worth of items in my cart and I have been waiting for this promo to place the order. It is a significant saving for me.

    Sometimes there is nothing short of giving the goods away for free required to make people happy. If it's free shipping, people want a % off. If it's % off, it's not a good enough deal. And on and on and on. Perhaps some people should not be shopping at Jcrew if they can't afford it without a deep discount. Hey, I love Chanel but there's no way I can afford to shop there. Even if they ever did have a sale.

    Thank you Marietta and Alexis for this wonderful promo.

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  9. some of us are just savvier customers and know J.crew isn't worth full price.

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  10. I'm not an MBA, so I'm not sure I understand this statement: "For the year, profits fell 44 percent to $54.1 million, or 85 cents a share, from $97.1 million, or $1.52 a share, a year ago. Revenues increased 7 percent to $1.4 billion from $1.3 billion last year."

    I think it means that they made more this past year than the year before, but they are spending even more, resulting in a net loss. So they should quite opening the stores.

    I live in a huge city which probably has several J Crews, and guess what, I never go in any of them. I do my J Crew shopping exclusively online. I do almost all of my shopping online now. Even factoring in the hassle and expense of returns, online shopping has proven to be immensely more convenient for me (I can shop an entire store in 15 minutes while eating lunch at my desk!), and probably not any more expensive considering that when I'm out shopping I always buy extra stuff beyond what I'm shopping for, including lunches or snacks, and I often find online promos. Example, that Ann Taylor trench I just bought was full price in the store, but I found a promo code that gave me 25% off online. I think I got free shipping too.

    Anyone else here have J Crews around you but only shop online?

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  11. I also agree that 20% is not so great, but considering that J Crew rarely offers better, and if you know you are going to buy an item whether or not there's a discount, 20% is better than nothing. I'll take it. :)

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  12. I think opening fewer stores right now is a good thing. JCrew needs to focus on improving quality-- clothing, QA and (less so?) customer service. We may disagree on the finer points, but I think we can all admit there has been a decline as over the years as jcrew had cuts costs and corners (thinner sweaters, less durable shoes, etc.), chooses to produce trendier/more disposable items while jacking the price, juggling several different lines at once --jewelry, handbags, collection, etc... no wonder lots of us wait for the sales, which inevitably happen sometimes a week after a new product has been released.

    Bridal salon sounds interesting, would love to see some shorter wedding dresses (like the gwen dress-- loved that!).

    Madewell = trying to compete with urban outfitters/free people. Whatev, that's fine I guess. I don't have much of an opinion because I do not live near a madewell store, and their website makes me dizzy (the images constantly moving is so annoying! plus there's no online shop, yet another reason I don't check the site much). :P

    -H

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  13. oh, and regionally specific stores sounds neat, so long as it's not too gimmicky-- like, deer heads, camera reels, and skis hanging from the walls in Aspen or something. :P But offering items like, say, Bromley boots or shearling earmuffs in exclusive colors would be cool.

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  14. anon 10:26: There is nothing wrong holding out for a discount, it has nothing to do whether a person can afford to spend. Get your head out of the clouds and quit being such a snob!

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  15. @Question 8:46 - Returned 2008 inventory could theoretically be counted in their 2008 inventory - depends on how they do their books. I read that statement to mean that they're producing less inventory, not that their inventory is getting depleted faster.

    @Alexandra 11:22 - You have it pretty much right. J.Crew had increased sales, and most likely costs that increased at an even higher rate, but because more than just basic costs account for the difference in revenue and profit, that's not necessarily the case. Other things to take into account include depreciation, amortization of intangible assets, goodwill, etc.

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  16. OK - let me get this straight. J. Crew is being very careful about inventory and does not have to give the farm away - at least not yet. Instead of this being a smart business move, it is seen as a slam by "loyal" customers and fans. A great many of you often drive me crazy. If you are a sale shopper, wait for something to go on sale, and quit complaining that their discounts are not deep enough. If you really want J. Crew to survive this economy, you would want them to sell as many items as possible at an optimum price. It is called good business.

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  17. ^^ I somewhat agree with you (but you have such a harsh tone...shame shame :) ). I've always thought that if they must, JC should just decrease their inventory and try to keep from dropping to sale prices so quickly. Coming out with an item that goes on sale for $50 less than its original price after only two weeks is not a good sign. I love JC and their sales. But I would understand if they decided to stop pandering to us recessionistas and stay true to their price points. I really should stop buy so many items anyway. Maybe if they stop marking down so many of their items, we all will start shopping for those "got to have" items, rather than buying the "might as well" stuff.

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  18. Lexie, depending on the contracts J.Crew has in place with its manufacturers and material suppliers, it may not make sense or even be possible for them to decrease their inventory.

    Besides, I think lower inventory would make people equally unhappy - less items available increases your chances of missing out on something you want...

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  19. I think the Bridal Salon idea is fantastic!

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  20. I wish we could go back to the old days when things went on sale only at the end of a season. The way merchants are doing it now, putting stuff on sale at so many other times, most people probably just wait til an item goes on sale. Well then merchant should just make that sale price the regular price. I'm not drawn to buying something just because it's on sale, I'm drawn by the actual price.

    Does anyone understand why final sale items drop off the web site and then come back? I thought it might be due to returns, or stores sending their inventory to a main warehouse, but it's been going on so long I think it must be for some other reason. Like why for weeks were there no cambridge cardigans in my size and then suddenly they're there again this morning? I check nearly every day. Yes I do love those cardigans. :)

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  21. The recession is making retailers adjust their prices more often then every before, look what Mickey said about customer buying habits have changed in a big way. Summer stock is a month or 2 away J Crew has to move this inventory, therefore you have alot more sales.

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  22. I agree that Madewell doesn't seem lower priced than J Crew. I was in their new Boston store last week and with jeans and cardigans near $100 and T's in the $40 range that didn't seem cheaper to me.

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  23. Anon 12:24 the other anon was saying she was buying with the discount promo so why are you saying there is nothing wrong with waiting for a discount.

    And it is not being a snob to say that maybe some people can't afford to shop at JCrew, it is reality. The reason we are in this economic pickle is because people are not living within their means. Just because people did not learn budgeting lessons from their parents does not make them any less true. Knowing one's limitations is smart. It's trying to keep up with others who appear to have everything that is unwise.

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  24. anon 4:12: How do you know what people can afford or not afford? You don't, so don't make broad generalizations.

    BTW The economy tanked because of the greedy bast**s on Wall Street.

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  25. anon 4:12: How do you know what people can afford or not afford? You don't, so don't make broad generalizations.

    BTW The economy tanked because of the greedy bast**s on Wall Street.

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  26. anon 4:12 = troll

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  27. Anon @ 4:19 and 4:42 are being quite unreasonable. Anon at 4:12 is using common sense. They never indicate who is or is not able to purchase items, they just indicate that responsible buying is not often practiced these days. Wall Street is not solely responsible for our economic predicament. Irresponsible spending and credit usage is just as big a player and it was done by many irresponsible citizens, not just irresponsible corporations.

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  28. * Separate men's identity: GREAT! You ladies probably can't sympathize because you don't notice, but the men's sections get really short-shrift in the catalog and in-store. Providing men more, and more individualized, attention will be a good thing.

    * Less inventory: Good move. Then won't have to dump on discount retailers. Hope they're doing so in a targeted way and not just cutting across the board, though. Some sizes (S and M in mens) sell out QUICK but there is always a lot of larger sizes available. So probably best to not cut down on smaller sized items but to do so for larger ones.

    * More price points under $100: Nice.

    * Store in Malibu: Awesome. I live here. Can't wait for it to open. The outside looks finished so I'm hopeful it will soon (there's a nice JCrew on the Promenade in Santa Monica though which is only about 20 mins away - which in LA is nothing. Hopefully it won't cannibalize business at that store. Though I imagine what they're really trying to do is capture a celebrity clientèle that wouldn't go to the Promenade store anyway.)

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  29. Anon 4:47 has it right. If you think Wall Street is totally to blame then you should investigate a little further.

    Heck, some people cannot afford to shop at Wal Mart these days. The important thing is to know what you can and cannot afford.

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  30. Anony 6:15 - I buy for my husband and I am disappointed with the lack of promos for men and the way the sizes sell out so quickly. Perhaps the inventory adjustment will cut out some of the larger sizes in favor of the smaller ones. We can only hope.

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  31. Sizewise, I'd hope that J Crew would consider that there are plenty of size 16 and 18 women who would really like to buy *anything* in the catalog - not just a couple items. The average American woman is a size 12, not a size 4, and yet most of the clothes in the catalog only go up to a 12 or 14.

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  32. Thank you for the article, Alexis...very interesting. :)

    As far as the discount goes: it used to be that the extra % off was automatic, so you were able to get the discount AND use a Free Shipping code. The issue now is that they made the extra % off a coupon and won't allow it to be combined with the Free shipping coupon. They changed policy after the website upgrade, and I personally wish they wouldn't have.

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  33. Btw...thank you j'adore couture for sharing the article with Alexis. :)

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  34. “We’ll never be the lowest-priced retailer around. We have not moved off our long-term objective, except that we’re skewing inventory at much more friendly prices and lower opening price points. We’re maintaining our initial margins.”

    What crap....Wonder if he will say the same thing when the doors are shutting for good!!

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  35. anon 7:07 Quit making up posts to support your narrow minded viewpoint.

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  36. I am in HUGE Agreement with Anonymous' comment left on March 11, 1:11pm. And those of you who have made the very childish comments should be ashamed of yourself. What she says is true. It is wonderful that J. Crew has such great prices right now. People should take advantage and stop complaining.

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Dear J.Crew Aficionadas & Aficionados: Please feel free (and encouraged) to share your thoughts and opinions. :) However, please note that this is still a personal blog. So comments that are considered inappropriate (e.g. obscene, racist, homophobic, personal attacks, rude, and just plain mean) will be removed.

And now back to J.Crew! :)