J. Crew Group Inc., which reported a 29 percent drop in third-quarter earnings Tuesday, is poised to capitalize on the quest for value and will intensify its focus on “more friendly price points” for spring.
The company also reduced full-year earnings projections.
“The reset button has been pushed on value in America,” Millard “Mickey” Drexler, chairman and chief executive officer, told analysts on a conference call after the release of third-quarter earnings on Tuesday.
“We see a nice movement [away] from designer,” Drexler added, a trend he said he believes will ultimately benefit J. Crew. “Our core prices are not very high. Eighty-five percent of our goods are under 100 bucks.”
For spring, the company will offer key items such as ballet flats retailing for less than $100 for the first time, as well as T-shirts selling for $18 and up “with good margins,” Drexler said. “When you have better goods at a value price, the customer recognizes that.”
But for the time being, the company is feeling the effects of the consumer pullback in spending. Despite the 29 percent drop in earnings, J. Crew beat consensus estimates.
For the three months ended Nov. 1, net income slid to $19 million, or 30 cents a diluted share, from $26.8 million, or 42 cents, in the year-ago quarter. Analysts on average expected EPS of 27 cents.
Revenues gained 9.1 percent to $363.1 million from $332.7 million. The retail channel grew 7.4 percent, to $250.9 million, despite a 3 percent decline in comparable-store sales. Direct sales were up 12.7 percent to $101.8 million. Gross margin fell to 41.6 percent of sales from 45.6 percent in the year-ago quarter.
The company also pulled back on its store-expansion program and will reduce square footage growth to 4 to 5 percent from the traditional 7 to 8 percent. “Deals have to be done with a very conservative mind-set,” Drexler said. “And if it’s not signed, it’s being revisited.”
The exception is the Madewell division, which will add 10 to 15 stores next year.
Inventory levels were a focus of the call, with analysts pointedly asking the company when it planned to work through its excess stock levels. Management said it would probably take until the second quarter.
The company reduced full-year earnings expectations to a range of $1.11 to $1.16 a diluted share from previous guidance of $1.44 to $1.54. The revised figure translates into fourth-quarter EPS of 5 cents to 10 cents based on assumptions of a high-single digit decline in fourth-quarter comps and direct channel sales that are flat to ahead in the midsingle digits.
Year-to-date net income declined 6.2 percent to $67.7 million, or $1.06 a diluted share. Revenues rose 11.2 percent to $1.04 billion from $934.8 million on a 0.4 percent decrease in same-store sales.
J. Crew reported results after the market closed Tuesday. Earlier, American Eagle Outfitters Inc. blamed a deep decline in third-quarter earnings on the slowdown in consumer spending, particularly in the women’s market.
Profits in the quarter ended Nov. 1 fell 57.2 percent to $42.6 million, or 21 cents a diluted share, from $99.4 million, or 45 cents a share, in last year’s period. Excluding an investment-related impairment charge of 9 cents, the performance matched the consensus EPS estimate of 30 cents. Sales for the three months gained 1.3 percent, to $754 million from $744.4 million, but declined 7 percent on a comparable-store basis. In the first two weeks of November, comps were down 17 percent, the company reported.
Jim O’Donnell, chief executive officer of the Pittsburgh-based teen retailer, said the company has reduced capital spending plans and now expects to open 29 stores next year, down from the 90 previously projected. Capital expenditures will drop to $110 million to $135 million next year from this year’s range of $250 million to $275 million.
For the first three quarters, the company’s profits fell 43.6 percent to $146.3 million, or 70 cents a share, from $259.5 million, or $1.17 a share, last year. Sales in the nine months rose 1.1 percent to $2.08 billion from $2.06 billion a year ago.
EXCLUSIVE: @tomford is opening its first-ever beauty store. The boutique, which opens November 20 in London’s Covent Gardens, was designed with the over-the-top glam Ford is known for. Read the full story on WWD.com, link in bio. #wwdbeauty #wwdnews (📷: Simon Wagner) #TomFordBeauty
New York-based DJ @harleyvnewton threw a party to celebrate the holiday collection of her dress and pajama line @hvn at the Ladurée Beverly Hills. It Girls @katebosworth, @rashidajones and more joined in on the fun, which included cocktails, croque monsieur sandwiches and a photo booth. #wwdfashion (📷: Owen Kolasinski/BFA.com)
For the holidays, @Burberry partnered with 20-year-old artist @blondeymccoy on a series of three outdoor murals in downtown Manhattan. The murals are McCoy’s interpretation of a Christmas eve party, the idea of charity and the spirit of family. His third mural, pictured here, is the most personal. The image depicts McCoy’s grandparents and father in London’s Trafalgar Square in the Seventies. “My work often features lots of sentimental objects.” #wwdeye
For spring 2018, designers applied bold colors and cartoonish motifs on everything from sneakers and belts to key chains. See all the top men’s accessories trends on WWD.com. #wwdtrends (📷: George Chinsee; Prop Styling by @rnasti; Market Editor: @luiscampuzano)
The @dior-sponsored @guggenheim international gala pre-party has a history of drawing cool-girl musical acts to serenade the crowd –– and last night was no exception. @haimtheband performed songs both new and old, and lured a star-studded audience with the likes of Rebecca Hall, Kate Mara, Mamoudou Athie and more. #wwdeye (📷: @lexieblacklock)
In a partnership between the @metopera and the @englishnationalopera, “Marnie” was born. The opera, with costumes sponsored by @mrporterlive, is an adaptation of the 1961 thriller by Winston Graham. Arianne Phillips, who created the costumes, is no rookie: She’s styled Madonna for her tours and created costumes for a myriad of films in the past. Read WWD’s interview with Phillips, where she talks about her inspiration for the opera’s costumes on WWD.com #wwdfashion
@barneysnyc took a different approach to their holiday windows this year. Instead of Christmas decor, Barneys tapped @thehaasbrothers to tell a story of positivity, gratitude and inclusivity via heartwarming silliness and humor. “It’s about kids and it’s about coming together and being family and loving each other,” said Simon Haas. #wwdfashion (📷: @joshuascottphoto)
Beauty influencer @kandeejohnson makes her foray into hair care with a collaboration with @ogx_beauty — making it the first time that OGX has teamed up for a product creation. The collab includes shampoos and conditioners in three scents. At 39 and a mom, Johnson is a different profile than the emerging social media stars, but is considered one of the pioneers of the digital beauty influencer world. Read WWD’s interview with her on wwd.com, including the strangest beauty product she’s ever tried #wwdbeauty