NEW YORK — Reversing a year-ago loss in the second quarter, J.Crew saw the first signs of slow but steady progress since Mickey Drexler’s arrival seven months ago.
For the three months ended Aug. 2, Crew said it made $15.2 million, compared with a loss of $7.1 million in the year-ago quarter. Gross profit declined 19.5 percent to $49.1 million as the firm aggressively reduced inventories, but a $41.1 million pretax gain on the exchange of debt more than erased any red ink.
Overall sales for the period were virtually flat, falling 0.3 percent to $167.1 million from $167.6 million.
By channel, retail sales extended 7 percent to $100.7 million from $94.1 million and rose 2 percent on a comparable-store basis, offset by a 16.8 percent sales decrease in the direct channel to $38.2 million from $45.9 million. Internet sales grew 6.3 percent to $26.9 million from $25.3 million, while catalog sales dropped 45.1 percent to $11.3 million from $20.6 million. Factory sales slipped 2.9 percent to $20.3 million from $20.9 million.
“We believe we made solid progress in redirecting the company, the brand and the overall operations,” Scott Gilbertson, Crew’s chief operating officer, said on a conference call, which was preceded, for those on hold, by an orchestral version of Madonna’s “Like A Prayer.” Madonna is currently featured in television ads for Drexler’s previous employer, Gap Inc.
Gilbertson added, “The goal is to return to the quality of the past that has been the hallmark of J.Crew.”
When Drexler was named ceo in January after finishing his long tenure at Gap, he laid out an ambitious plan to improve quality and fashion content and reverse a drift towards promotional selling. To help turn around the business, company executives said they needed to provide a financial platform to allow for the necessary changes, clean up the inventory to run the business with current-season merchandise only, improve the quality and styling of products and reinvigorate customer service and other operations.
While admitting that working through the past problems will take more time, Gilbertson said Crew, which currently operates 155 retail stores and 42 outlet units, adopted an approach to inventory that resulted in lower, more current merchandise. He said inventory is down 38.8 percent to $85 million from $139 million last year. In addition, he said more timely markdowns across all channels drove aggressive in-season inventory liquidations, allowing for a significant reduction of sales from clearance merchandise during the balance of the fall season.Other changes included, in the direct channel, the elimination of catalogs featuring only sales, clearance and women’s apparel; a reduction of page counts in the base books; eliminating over-assortments and a reduction in the frequency of promotional e-mails. At retail, style-level price promotions and storewide promotional events were stricken, Gilbertson said.
Although the fall and holiday collections have been edited with improvements in fit and quality, the chief operating officer said he is cautious about the outlook for the balance of the year, given the economic uncertainty and the firm’s being up against significant promotional and clearance activity.
For the first half, Crew managed to narrow its losses to $4.4 million, including the debt benefit, from $29.5 million even as sales declined 1.8 percent to $328.6 million from $334.7 million.
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