NEW YORK — J. Crew Group Inc. combatted slow traffic in the second quarter with vigorous promotions, and its profits fell in the process.
For the three months ended Aug. 3, the New York-based operator of J. Crew and Madewell stores registered net income of $17.5 million, down 20.7 percent from $22 million in the year-ago quarter. Excluding interest, taxes, depreciation, amortization and a series of items related to its capital structure, adjusted EBITDA contracted 6.4 percent to $83 million.
Revenues advanced 6.4 percent to $559.1 million from $525.5 million, with store sales up 3.9 percent to $399.1 million and direct sales up 13.4 percent to $151.8 million on top of a 16 percent advance in last year’s quarter. Direct channel sales accounted for 27.6 percent of retail sales in this year’s quarter, up from 25.9 percent in the corresponding period of 2012.
“Generally speaking, it was a challenging quarter with a continuation of a lot of the trends that we and others in the industry saw in the first quarter, such as a promotional climate and traffic headwinds,” Stuart Haselden, chief financial officer, told WWD. “It required us to get more aggressive to clear through our inventory, and the pressure on gross margins and merchandise margins was a direct result of actions we took to make sure our inventory ended in good shape.”
Inventories rose 13.6 percent, to $321.2 million, over year-ago levels. Haselden noted that the company ended the quarter with less carryover inventory than it did a year ago.
“We feel good about how we’re heading into the second half,” he said. “Our inventory is very current.”
Comparable sales — same-store sales combined with e-commerce activity — declined 1 percent but were up 1 percent after adjustment for calendar differences. Men’s apparel grew to 26 percent of sales from 24 percent, while women’s fell to 56 percent from 59 percent. Accessories accounted for 12 percent in both periods, while children’s rose to 6 percent from 5 percent.
Gross margin receded 400 basis points to 41.1 percent of revenues from 45.1 percent in the prior-year quarter. Cost of goods sold grew 14 percent, to $329.1 million, reflecting the intensity of promotional activity. Selling, general and administrative expenses were down fractionally, to $174.2 million, and corresponded to 31.2 percent of sales, down from 33.2 percent a year ago.
The cfo said the company is “very pleased” with its double-digit growth in the direct channel. “There’s certainly been some shifting in the way that consumers shop, but I don’t sense that it’s a matter of cannibalization or due to the traffic trends in our business or across the industry,” he noted, adding that J. Crew is reaping e-commerce benefits from its outlet site launched last October at factory.jcrew.com and from the expansion of its international e-commerce sites, now in more than 100 countries.
He compared the growth in international to the performance of madewell.com. “Madewell’s been online since 2010 and as its store footprint grows, it drives traffic to the site and accelerates that growth,” said Haselden.
The company expects online benefits in the U.K. after it opens its Regent Street flagship in London in November. Smaller stores — one for men’s and another for women’s — are expected to open prior to that. The company currently operates 264 J. Crew units, 60 Madewell stores and eight Crewcuts stores in addition to 114 outlets and its portfolio of Web sites.
For the first half of the year, net income was down 11.2 percent, to $46.8 million from $52.7 million, while revenues escalated 9.2 percent to $1.12 billion from $1.03 billion. Year-to-date gross margin stood at 24.9 percent of revenues versus 46.3 percent in the first six months of 2012.
The company will hold a conference call Thursday morning to discuss the results.
@chanel and @pharrell dropped what’s being dubbed as the world’s most exclusive sneakers yesterday. The Adidas Originals NMD Hu, which Williams designed in collaboration with Chanel and @adidasoriginals, has a waiting list of over 120K people who pre-registered online at chanelatcolette.fr –– and only 500 pairs are on sale. The singer predicted the resale value of the shoes could reach $40K. Read the full interview on WWD.com. Link in bio. #wwdfashion
@imanshumpert is diving deeper into his creative endeavors and relaunching his clothing line, Post 90s, and is helping to raise money for the hurricane victims in St. Maarten with a jersey he’s designed with his brother. The Cleveland Cavaliers player talked to WWD about kneeling during the national anthem, working with fashion brands and how he wants to be more than an @nba player. Read the interview on WWD.com #wwdfashion (📷: George Chinese)
Not only does #TheProfit return to CNBC tonight, but @marcuslemonis has launched @shopmarcus, a new shopping and lifestyle retail experience in Aspen and Chicago, with more locations to come. The retail stores offer in-store stylists and a variety of contemporary womenswear selections.
“It’s life, I’m going to face it,” @mingxi11 sighed. “I fell, but you know, I think the most important thing is that I get back up. I had the love, the help from my sister — the girl next to me Gizele [Oliveira] — she’s so nice. When I went backstage everybody was trying to comfort me like ‘Oh Ming, it’s OK.’ I’m really, really touched. I think it’s them who gave me the courage to go back on stage for the finale,” Xi told WWD of her fall at the @victoriassecret fashion show. (📷: David Fisher) #wwdfashion #vsfashionshow #victoriassecret
@louisvuitton tapped @therealpeterlindbergh for its latest city-centric photo book, which is part of a series called Fashion Eye. The primarily black and white book captures the spirit of Berlin in 57 images shot between 1989 and 2019. “Berlin is an inspiration for me, more than a city. I mean @millajovovich is simply Berlin!” said Lindbergh. #wwdfashion
“You know, I think audiences expect a certain performance so I have to deliver to them what they’re expecting to a certain degree. But I’m also a different actor and a different person, I have my own spin on the character,” says @noahegalvin of his takeover of the leading role in “Dear Evan Hansen” following the departure of @bensplatt, who originated the role. Read WWD’s interview with the 23-year-old actor on WWD.com #wwdeye (📷: @jilliansollazzo)
For pre-fall 2018, @etro created richly-colored wonderland, using tapestries, textiles and wallpapers from the Eastern world at large. The line featured floral and graphic prints and jacquard motifs, like this two-piece look featured here. #wwdfashion (📷: Giovanna Pavesi)
@kith is moving into children’s. The men’s and women’s streetwear brand has launched Kidset, a Kith kids line located in New York at 64 Bleecker Street. The line includes mini versions of staple Kith pieces like the Astor bomber jacket and the Kith box logo sweatshirts, along with a wall that can display up to 120 pairs of shoes from @adidas, @newbalance, @timberland and more. #wwdfashion
“I just wanted to create this fully rounded character, but I do think what excited me most was just the opportunity to give a group of people representation that I feel needs it. I like to do characters in projects that stand for something and Karolina definitely does, so that was really exciting to me,” @ginnygardner says of her new role in @hulu’s “The Runaways.” Gardner plays Karolina Dean, a queer superhero, which is a rarity for @marvel. Read more about Gardner’s character on WWD.com #wwdeye (📷: @dandoperalski)