By  on September 14, 2005

NEW YORK — J. Crew Group Inc. posted a strong second quarter on Tuesday, giving fuel to its push to go public and extending its run of improved results.

Operating income for the quarter ended July 30 rose 150 percent to $20 million, compared with $8 million in the year-ago period.

Net income rose by $16 million to $2 million, compared with a net loss of $14 million in the prior year, stemming from the operating income gain and a $4 million decrease in interest expense due to debt refinancing last year.

The firm is riding stronger sales, particularly with higher-priced, higher-quality styles at full price, generating improved margins compared with previous seasons.

Millard Drexler, chairman and chief executive officer, said in a statement, "We are pleased with our customers' response to our continuing focus on quality, styling and craftsmanship combined with our customer service initiatives."

J. Crew officials declined to comment further, citing U.S. Securities and Exchange Commission restrictions since the company filed a registration statement on Aug. 17 for an initial public offering of as much as $200 million in common stock. The company is expected to go public before the end of the year, and possibly within a couple of months.

Market sources said J. Crew will soon begin its road show to drum up support for its IPO.

As far as what's selling best, "It's the luxury pieces, the higher-end pieces, cashmere blazers, shoes and accessories and men's suitings," said one market source. "They've increased quality overall."

Among the highlights of the second quarter:

  • Revenues increased 22 percent to $229 million from $188 million last year.
  • Comparable-store sales increased 15 percent.
  • Direct sales (Internet and catalogue) rose 35 percent to $58 million, from $43 million last year.
  • Gross margin came to 42 percent of revenues, compared with 39 percent last year.
The company also said selling, general and administrative expenses during the quarter were $77 million, or 34 percent of revenues, against $66 million in the prior-year period. Inventory was $111 million, an increase of 18 percent over the prior year, the company said.There were no outstanding borrowings under the company's working capital facility during the first half of 2004 or 2005.

Before the SEC filing, J. Crew was expected to go public next year. The timing may have been accelerated because of the successful turnaround of the retailer orchestrated by Drexler and president Jeff Pfeifle. The company has been on a roll for more than a year and knows there are many investors out there who have money to burn and confidence in the J. Crew management, in light of the turnaround.

J. Crew is controlled by the private equity firm Texas Pacific Group, which will close on its $5.1 billion deal to purchase Neiman Marcus Group this fall. Money raised through the J. Crew IPO could be used for a variety of purposes, including paying down debt and expanding the retailer. The company operates 156 retail stores, the J. Crew catalogue business, and 44 factory outlet stores.

From 2003 to 2004, the company increased revenues to $804 million from $690 million and went from an operating loss of $31 million to an operating profit of almost $38 million.

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