By  on August 26, 2010

A growing sense of caution about the second half led J. Crew Group Inc. to issue soft third-quarter guidance despite achieving an 87.6 percent leap in second-quarter profits.

Reporting after the close of the markets Thursday, the retailer said that based on a “different current environment,” which it called a “step down versus the first quarter,” it expects third-quarter EPS in the range of 55 cents to 60 cents, below analysts’ projections of 71 cents a share. Shares fell 7.2 percent in the first hours of after-market trading following a 0.7 percent decline Thursday to $33.43.

J. Crew’s caution about the second half of the year mirrored the outlook of investors generally Thursday as the Dow Jones Industrial Average slid 74.25 points, or 0.7 percent, to 9.985.81, its first sub-10,000 close since July 6. The S&P Retail Index Thursday managed to hover and finish above 400, despite a 1 percent drop to 401.28.

“While we are pleased with our second-quarter results, the continued economic uncertainty that we’re all seeing is leading us to take a more conservative outlook for the back half of the year,” said chairman and chief executive officer Millard “Mickey” Drexler on the company conference call.

“What we see in our stores is that the customer is more selective with their purchases. More than ever, they are focused on newness…. As we cannot control the macroenvironment, we are always focused on what we can control: our product, our inventory and our expenses, our associates and our investment in the business for the long term.”

But the ceo admitted the retail landscape has changed, and that it’s not simply newness that draws in consumers.

“There’s a big world out there that’s playing the low-price game or lower-price game,” he said, adding that J. Crew, which is known for premium priced merchandise, is investing more in its outlet business, including the launch of an online channel, factory.com, in September. The company is also placing a greater emphasis on growing its direct business, which expanded 16 percent to $102.5 million.

The ceo said “it is more critical than ever to continue to move forward and invest in our business for quality, long-term earnings growth. It’s about moving, doing, creating — it never stops.” He identified its hip Madewell unit as another opportunity. The retailer, which currently operates 18 Madewell stores in addition to 220 J. Crew stores and nine Crewcuts children’s stores, said it expects to open 10 to 15 Madewell doors next year.

For the quarter ended July 31, the retailer posted profits of $34.9 million, or 53 cents a diluted share, compared with income of $18.6 million, or 29 cents a share, in the year-ago period. Revenues rose 14 percent to $407.5 million versus $357.6 million, in 2009. Analysts polled by Yahoo were looking for EPS of 46 cents on revenue of $403.3 million.

Same-store sales for the quarter rose 11 percent, the company said, as quarterly gross margin improved to 44.6 percent of revenues from 41.2 percent a year earlier.

During the first half, net income more than doubled to $79.6 million, or $1.21 a share, versus year-ago income of $39.1 million. Total revenues expanded 16.8 percent to $821.4 million, compared with $703.3 million. For the year, the retailer said it anticipates earnings of between $2.25 and $2.35 a share, which includes a 3-cent benefit for recognition of share-based awards from the resignation of the company’s president of retail and direct. Analysts had projected annual EPS of $2.46 a share.

The equity markets began the day on a strong note following word that first-time jobless claims fell after rising over the past three weeks, but pessimism returned in the afternoon as selling activity accelerated.

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