J. Crew Group, driven by strong online revenues, healthy margins and conservative planning, reported first-quarter net income up 23.7 percent to $30.5 million, or 48 cents a diluted share, compared with $24.6 million, or 39 cents, in the first quarter of fiscal 2007.
Revenues increased 14.6 percent to $341 million, with Internet and catalogue sales up 17 percent to $100.9 million, and retail stores and outlets up 14 percent to $229.1 million. In the quarter, gross margin increased to 46.9 percent of revenues from 46.6 percent.
However, due to concerns about the economy, some slowing of comp-store sales gains to 2 percent in the quarter from last year's 8 percent, and resistance to summer shorts and T-shirts, the outlook for the year has changed. The company now projects diluted earnings per share in the range of $1.70 to $1.75, as compared with its previous guidance range of $1.85 to $1.87, though that's still higher than fiscal 2007 diluted earnings per share of $1.52.
Comp-store sales growth is projected at flat to low single-digits; direct sales are seen in the high single-digits and net square footage should grow about 11 percent.
"None of us have a crystal ball," J. Crew chairman and chief executive Millard "Mickey" Drexler told WWD, when asked if the economy has bottomed or will get worse. "We try to be very conservative and plan for the downside not the upside in this kind of environment. We don't see a lot of reason to be optimistic. It's being realistic."
While some summer goods are sluggish, Drexler cited bridal, women's and men's pants, the new yoga collection, men's washed shirts, costume jewelry, Madewell and women's suits as among the strong sellers.
While many other retailers, from AnnTaylor Stores Corp. to J.C. Penney Co. Inc., have slashed capital expenditures, Drexler said 43 new stores will be opened in 2008 and that the expansion remains on track.
Regarding the two-year old Madewell division, Drexler said, "We are very pleased with the performance of Madewell, which continues to gain momentum and more customers everyday. Eight stores are operating. We plan to open two more this year, and launch an e-commerce site sometime during the summer."
By close to Christmas, Drexler noted, "What we don't want is to own too much merchandise. December has become the biggest promotional month in the world. We are planning very conservatively....Please let's not own a markdown inventory on Dec. 22. I guess the customers will continue to wait, with so many sales signs everywhere."
"The summer businesses are very difficult. Shorts and T-shirts, frankly, are tough, and clearly there are traffic challenges around America." However, "We are not compromising, not making wholesale changes....We are not driving earnings through expense reduction. We know in the long term one does not win by expense cutting. One wins with great product."
And with comp-store gains slipping somewhat, "No one in this world should neglect the growth of our direct business. It's very important with gasoline at $4 a gallon."
And one of the keys to J. Crew's success is to maintain an assortment that's unique. "Basic is an illegal term in our company. People get arrested when they use that term," or the term 'chain,'" he added.
As far as other results, the company expects second-quarter diluted earnings per share in the range of 31 cents to 33 cents.
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