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NEW YORK — J. Crew Group Inc. sees plenty of room for expansion.
This story first appeared in the June 7, 2013 issue of WWD. Subscribe Today.
The retailer plans to open more stores in the U.S., even in markets where it already has a presence; ramp up growth in Canada, where it has eight stores; open a handful of units in London, the first of which on Regent Street will bow before the holidays, and unveil locations in Hong Kong and Tokyo.
Its men’s retail concept, with 10 units, is also ripe for growth, Stuart C. Haselden, chief financial officer, told WWD following the company’s first-quarter conference call with analysts on Thursday.
Generally, in the U.S., “we’re still identifying opportunities to densify,” he said. “Beyond that, we’re looking at markets where we’re underrepresented and continue to evaluate the men’s business, which has exciting growth potential.”
The retailer opened its first men’s factory store on Long Island during the quarter.
The expansion plans come as J. Crew’s sales continued to grow in double digits in the first quarter even as profits were pressured by markdowns and higher expenses.
For the three months ended May 4, net income declined 4.5 percent to $29.3 million from $30.7 million in the prior-year quarter.
Adjusted earnings before interest, taxes, depreciation and amortization was $101 million, compared to $101.6 million in the first quarter of last year.
Total revenues rose 12 percent to $564.1 million from $503.5 million as store sales were up 7.4 percent, to $380.2 million, and direct marketing revenues grew 22.8 percent, to $176.2 million. Comparable sales, including direct revenues and those for stores open at least a year, were up 5.5 percent.
Gross margin declined to 44.7 percent of sales from 47.6 percent in the 2012 quarter as the cost of goods sold rose 18.4 percent to $312.1 million. The bottom line was affected less by an 8.7 percent increase in selling, general and administrative expenses, to $178.4 million. Higher markdowns led to a $15.9 million decline in the merchandise margin while buying and occupancy costs were up $8 million.
Libby Wadle, president of the J. Crew brand, said the promotional pitch of the first quarter took a toll on gross margins. “It was a tough macroeconomic environment out there,” she said during the call with analysts. “With the J. Crew [brand], we had a very tough full-price comparison [over last year’s quarter]. We had to change how we planned to do business. It was about navigating through the environment in the healthiest way we could.”
Wadle said there was “frankly, a lot of competition on some of our franchise items — at lower prices. We feel good about our fashion and newness. We remain focused on innovating and inventing new franchises and looking ahead.”
J. Crew saw continued strength in the direct business, which was a highlight of the quarter. Up against a historic high of a 19 percent increase in the 2012 first quarter, the company was able to grow direct by 23 percent. Results reflected solid performance in the core J. Crew brand and the new factory.jcrew.com e-commerce site. Overseas, J. Crew will launch e-commerce with the help of a company called Border Free. “We’ll ship to over 100 countries through Border Free,” said Haselden. “That will allow us to quickly ramp up and gain access to a big number of countries. In markets where we have stores, we’ll set up localized Web sites.”
Capital expenditures were $29 million in the first quarter compared to $37 million last year. Spending for fiscal year 2013 is planned at about $135 million to $145 million, with $55 million to $60 million for new stores across retail, factory and Madewell formats; $40 million to $45 million for information technology upgrades, and the rest for warehouse and corporate office expansion, store renovations and general purposes.
Including its Madewell and Crewcuts nameplates, J. Crew operated 302 full-price stores, 107 factory outlets and three clearance centers at the end of the quarter, up from 276 stores, 96 outlets and three clearance centers a year ago.