NEW YORK — Waning sales conspired with gross margin erosion to throw J. Crew Group Inc. into the red in the third quarter.
This story first appeared in the November 27, 2002 issue of WWD. Subscribe Today.
For the three months ended Nov. 2, the New York-based retailer and direct merchant sustained a net loss of $700,000. That compares with the year-ago quarter when the company realized profits of $300,000. Earnings before interest, taxes, depreciation and amortization, EBITDA, fell 9.4 percent to $17.3 million from $19.1 million last year, and the loss before taxes was $1 million versus earnings of $400,000 a year ago.
Sales for the period declined 2.9 percent to $189.9 million from $195.6 million last year, as comparable-store sales plunged 11 percent and sales at J. Crew’s direct business decreased 8.7 percent. While privately held, J. Crew reports its results because the company has public debt.
“Despite the strengthening of our trend in October, we enter the holiday season with a cautious outlook given the difficult macro environment,” said chief executive officer Ken Pilot in a statement.
Pilot, former president of Gap International, succeeded Mark Sarvary in his current post on Sept. 9. Texas Pacific owns about 60 percent of J. Crew while Emily Woods, chairwoman, owns a stake of about 19 percent.
Gross margin deflation outpaced the slimming sales, falling 230 basis points to 39.8 percent of sales from 42.1 percent of sales a year ago. Other cost comparisons included a 7.3 percent decline in selling, general and administrative expenses, SG&A, to $67.1 million from $72.4 million last year, while interest expense grew 2.1 percent to $9.8 million from $9.6 million in the prior-year quarter.
Overall, for the first nine months of the year, J. Crew reported a wider net loss of $19.9 million. Last year, the company sustained a loss of $17.7 million. In a lone bright spot, EBITDA did gain for the period, rising 5.1 percent to $22.8 million from $21.7 million a year ago. The loss before taxes also widened to $30.6 million from last year’s $29.7 million loss.
Sales for the period were down 1.3 percent to $524.6 million from $531.3 million last year, as comp-store sales plummeted 11.7 percent and J. Crew’s direct sales decreased 2.7 percent.
Gross margin for the period also eroded, falling 90 basis points to 38.9 percent of sales from 39.8 percent of sales a year ago. SG&A came down 3.7 percent to $205.6 million from $213.5 million last year, but interest expense rose 5.1 percent to $28.9 million from $27.5 million a year ago.