Strong Margins Boost J. Crew

J. Crew Group delivered first-quarter earnings Thursday that surged on robust gross margins and strong same-store sales.

J. Crew Group delivered first-quarter earnings Thursday that surged on robust gross margins and strong same-store sales.

For the three months ended May 5, net income more than tripled to $24.6 million, or 39 cents a diluted share, from $7.8 million, or 12 cents, in the year-ago period. Analysts expected earnings at about 30 cents per share.

Sales for the quarter rose 20 percent to $201 million from $167.1 million, while same-store sales jumped 13 percent. Total revenue rose 24 percent to $297 million. Adjusting for shifts in the retail calendar, comps increased 8 percent.

Millard “Mickey” Drexler, chairman and chief executive officer, said in an interview that in “the macro sense, what we are seeing is that our customers want to buy things that will stay in their closet for a long time. They want to upgrade their wardrobe and replenish, and turn to us for our classics. So we look to play long term.

“Another big trend we are seeing is people are starting to use us as an alternative for their designer needs, coming to us for their high-end specialty store and designer store merchandise,” Drexler explained.

On a conference call with analysts, Drexler said, “As we move into the second quarter, we continue to drive productivity through executing our store, direct and new concept growth plans as well as maximizing our inventory investments. Our number one focus is and will always be meeting our customer’s needs. When it comes to satisfying our customers, there are no layers of management here to get through, and we don’t sleep at night until they have all been satisfied. Also importantly, as we have said before, we plan the business conservatively with midsingle-digit comps and commensurate inventory and maintain our focus on productive real estate.”

During the quarter, the gross margin rate increased to 46.6 percent from 45.5 percent in the first quarter of 2006. Direct sales gained 31 percent to $86.6 million.

The preppy apparel retailer said on a conference call to Wall Street that it expects second-quarter earnings in the range of 26 cents to 28 cents a diluted share. Full-year earnings are expected to be in the range of $1.37 to $1.41 a diluted share from previous guidance of $1.27 to $1.31 a diluted share.

This story first appeared in the June 1, 2007 issue of WWD.  Subscribe Today.

During the quarter the company opened six new J. Crew stores and plans on rolling out 37 stores this year. With Crewcuts, more stores are also planned.

“We expanded distribution of Crewcuts during the quarter, opening 12 new shopping shops and one new stand-alone store in Palm Beach Gardens, Fla.,” Drexler said on the call. “We now operate 24 shopping shops and three stand-alone Crewcut stores, and plan to open additional five to 10 shopping shops and one stand-alone for the balance of the year.”

In an interview, Drexler said the company sees Crewcuts as being no different than J. Crew. “We started it because we found parents wanted a better alternative for their children,” he said. “If you look at the market, there are not many better alternatives out there. We don’t want to be the biggest children’s retailer. We want to be the best.”

Shares of J. Crew rose $1.88 to $46.75 in after-market trading after closing up 7.7 percent to $44.87.