In the midst of the sharpest downturn since the Great Depression, J. Crew Group is staying the course.
On Thursday, J. Crew posted a slight increase in net income for the second quarter to $18.6 million, or 29 cents a diluted share, from $18.1 million, or 28 cents, in last year’s quarter. The per-share gain handily beat the Wall Street estimate of 15 cents and came despite a comparable-store sales drop of 5 percent.
“There’s nothing like a good old-fashioned recession to make you run a better business,” Millard “Mickey” Drexler, J. Crew’s chairman and chief executive officer, told analysts during a conference call.
Other retailers have been reporting lower profits or losses and complaining about stagnant store traffic, but Drexler, encouraged by his company’s performance, told WWD: “From what I am seeing and hearing and feeling, consumers seem to be loosening up from the lowest depths of the fourth quarter, though it’s still not where it once was.”
He went on to cite Crew’s cropped fitted Minnie pants, “toothpick” and “match stick” jeans, Italian shoe boots, jewelry, boy blazers, wedding attire and hair accessories as among the bestsellers during the quarter, when total revenues increased 6 percent to $357.6 million.
Operating income rose 2 percent to $32.2 million from $31.5 million. Gross margin increased to 41.2 percent of revenues from 41 percent in last year’s quarter. In addition, the balance sheet remains in good shape with $204.3 million in cash and cash equivalents on the books at the end of the second quarter versus $113.4 million in the year-ago quarter. Inventories were down 11 percent last quarter, on a square-foot basis.
While analysts applauded the performance, one down note was with Madewell, which is expected to lose $15 million to $16 million this year, partially due to a recent store closing in Las Vegas. On the other hand, Drexler said Madewell’s flagship in New York’s SoHo is doing “really well,” and in the call he said: “Madewell is gaining momentum,” although he acknowledged some locations still have volume issues. “We continue to view this business as a long-term opportunity.” Madewell is lower priced and more casual than the J. Crew brand.
Drexler disclosed the company is seeking sites on Madison Avenue to open its first bridal salon and another men’s unit. Earlier this year, a Crewcuts flagship and a J. Crew Collection store opened on Madison Avenue, as J. Crew continues to capitalize on the high vacancy rate plaguing Manhattan’s most upscale venue, and the lowered rents that some landlords have recently begun to offer.
However, Drexler cautioned: “The reality is we don’t want to have too many stores,” in Manhattan or elsewhere, to avoid being too saddled with rents.
J. Crew projected third-quarter profits of 30 cents to 33 cents a diluted share, comps in negative midsingle digits and a gross margin expansion of 100 basis points. For the fourth quarter, comp-store and direct sales are seen in the positive low-single digits.
The company has opened 23 stores this year and has one more to go. There are 216 J. Crew retail stores, nine Crewcuts stores, 17 Madewells and 78 outlets. The company also distributes catalogues and operates jcrew.com.
Drexler credited the company with not being in the markdown business, providing designer-quality fabrics and styles but at prices representing greater value, and service.
“This was not a cutting cost quarter,” he said. “It’s about a building product quarter. There is just so far you can go as far as shaving costs. We are not expensing ourselves to earnings here. We are investing in our business. The only area where we are quite conservative is rents, though we maintain solid expense controls. We review all expenses, but we still continue to invest in our future.”
The company also changed its merchandise flow so there is a lot less corduroy, outerwear and cashmere in the stores this time of year. “It isn’t inventory that drives profit. It’s the right inventory.”
By channel in the second quarter, retail and outlets increased 7 percent to $259.1 million, with comparable-store sales decreasing 5 percent. Direct sales increased by 6 percent to $88.2 million.
For the six months, net income was $39.1 million, or 61 cents a diluted share, compared with $48.6 million, or 76 cents a diluted share, in the first six months of fiscal 2008. Operating income decreased 20 percent to $67.5 million. Total revenues increased 4 percent to $703.3 million; comparable-store sales decreased 5 percent. Direct sales decreased 0.3 percent to $183.5 million.
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews
“Stranger Things” is getting a new cast member for season 2. Meet @sadiesink_, the 15-year-old who will be joining the Netflix series for its new season. You may recognize her from “The Glass Castle” with Brie Larson and Woody Harrelson, but the Texas native’s next role goes in an entirely different direction. She describes her character, Max, as “a rough and tumble skater girl [who] becomes friends with the boys at school.” The second season debuts on October 27. (📷: @jgreenery) #wwdeye
Amid the Harvey Weinstein controversy, there’s another sector that’s being put under the spotlight for sexual abuse: the modeling industry. While rumors about abuse and sexual harassment of female and male models — and the photographers, agents and others who perpetrated it — have circulated within the fashion world for years, model @cameronrussell started posting stories from models on Instagram last week about abusive situations they’ve encountered — from sexual harassment and molestation to attempted rape. Over 75 have weighed in so far. Read more on WWD.com. Link in bio. #wwdnews
To celebrate its 16th anniversary, @dylanscandybar tapped designers and celebrities to create mosaics out of candy. The mosaics will be auctioned off to support the philanthropic cause of each participant’s choice. Pictured here is the mural created by @aliceandolivia's Stacey Bendet. For a first look at some of the other artwork being unveiled tonight, go to WWD.com. #wwdeye
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye
"Nowadays when life is not so happy with everything going on in the world, I think people come to me for a little bit of whimsy and color and fun." - Designer Rebecca De Ravenel on her cult-favorite jewelry line. (📸 : @vsteves) #wwd40
“Everyone is talking about how the retail industry is struggling, but I think it’s an incredible time because brands who are doing something different and innovative are setting themselves up for the future,” said @adamgoldston, who founded the luxury athletic brand @apl with his brother @ryangoldsten. The Goldston’s are part of WWD’s 40 under 40: a group of industry notables. See the rest of the list on WWD.com. (📷: @vsteves) #wwd40
@eyeswoon blogger Athena Calderone debuted her first-ever cookbook, “Cook Beautiful,” which is heavily centered on the presentation and visual expression of food. Pictured here are her miso glazed carrots from the book. Get the recipe on WWD.com. (📷: @johnny_miller_) #wwdeye