By  on April 26, 2006

NEW YORK — J. Crew Group Inc.'s turnaround efforts are continuing to pay off.

The specialty retailer reported a significantly reduced fourth-quarter net loss on Tuesday as revenues rose 9.8 percent. And for the full year, the New York-based firm, which is expected to go public later this year, swung to a $4 million profit from a loss the previous year.

Driven by the efforts of chief executive officer Millard Drexler, J. Crew had a net loss of $6 million in the three months ended Jan. 28, compared with a loss of $52 million in the year-earlier quarter. Results in last year's quarter included a $50 million loss related to the refinancing of debt.

On an operating basis, which equals earnings before interest payments and income taxes, J. Crew reported a profit of $15 million, down from last year's operating income of $20 million.

Quarterly net revenues rose to $290 million from $264 million last year. By division, fourth-quarter sales at retail and factory stores combined rose to $201 million from $183 million, and Internet and catalogue sales totaled $80 million, up 11.1 percent. "Other" sales were flat at $9 million.

Same-store sales in the quarter increased 8 percent on top of a 17 percent comp-store gain last year.

Gross margins fell to 37 percent of sales during the quarter from 39 percent last year. J. Crew cited an increase in markdowns.

In the full year 2005, J. Crew reported net earnings of $4 million, compared with a loss of $100 million a year ago. Excluding last year's $50 million loss from the refinancing of debt, J. Crew would have had a loss of $50 million in 2004, which, the company said, would have resulted in a $54 million increase to 2005's net earnings.

Operating earnings in the year more than doubled to $80 million from $38 million.

Annual net revenues were $953 million, up 18.5 percent from $804 million last year. Comp-store sales rose 13 percent.

Separately, Moody's Investors Services and Standard & Poor's Rating Services each improved their credit outlooks on J. Crew. Moody's upgraded the corporate family rating on J. Crew to "B2" from "B3" and increased its senior discount debt rating to "Caa1" from "Caa2" with a positive outlook. Moody's also assigned J. Crew Operating Corp.'s new $285 million senior secured term loan a "B2" rating.In a report released late Monday, Moody's senior analyst Margaret Taylor wrote that the corporate family rating upgrade "reflects J. Crew's strong operating performance over the past several years, which has led to healthy improvements in the company's credit metrics."

The analyst added, though, that some of the company's "credit metrics continue to be weak due to the onerous terms of the existing redeemable preferred stock, which has created an arduous interest expense burden and a debt-heavy capital structure."

In November, J. Crew delayed its $200 million IPO. The retailer is now expected to go public around the third quarter.

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