J. Crew Outlines Expansion Plans

The company has its eye on continued investment in the company and “long-term growth” following solid fourth-quarter and 2012 results.

NEW YORK — J. Crew Group Inc. has its eye on continued investment in the company and “long-term growth” following solid fourth-quarter and 2012 results.

This story first appeared in the March 22, 2013 issue of WWD.  Subscribe Today.

That message came from company officials in a conference call Thursday, after Wednesday’s report that earnings for the quarter ended Feb. 2 rose 18 percent to $70.4 million, from $59.5 million a year ago, on an adjusted earnings before interest, taxes, depreciation and amortization basis.

Comparable sales in the fourth quarter rose 11 percent. And for the year, J. Crew cracked $2 billion in revenues for the first time, reporting sales of $2.23 billion, up 3 percent on a comparable basis.

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“We are pleased with our fourth-quarter performance, which concluded a strong year of growth for our company and a positive response to our assortments,” said Jim Scully, J. Crew’s chief administrative officer, during the call.

Capital expenditures are seen at between $135 million and $145 million for fiscal 2013, compared with $132 million last year. Among the key areas of investment are direct, including international expansion of jcrew.com, and new marketing capabilities. There is a shift in the spend to reduce catalogue expenditures while investing more in digital marketing and advertising as well as customer research and customer segmentation tools, though Stuart C. Haselden, chief financial officer, noted, “We do believe the catalogue continues to drive online and in-store sales.”

The company is also driving store growth, with 46 openings seen in 2013, including 17 Madewell, 13 factory outlet and 16 J. Crew units, among them the first J. Crew in Europe, opening on London’s Regent Street in the fourth quarter. The company will roll out additional stores in Europe and launch stores in Asia but has not yet specified any locations beyond London. Internationally, the company operates four J. Crew and two factory outlets in Canada. Last year 17 Madewell, 14 J. Crew and eight factory outlet units opened in the U.S. , as well as the Canadian units. The company operates 240 J. Crew, eight Crewcut and 48 Madewell stores; 106 factory outlets; jcrew.com; jcrewfactory.com; madewell.com, and the J. Crew and Madewell catalogues.

Recapping last year’s performance, officials cited strong growth across all categories. Despite a stiff promotional environment in the fourth quarter, J. Crew is now in a “clean” inventory position. “We are comfortable with our inventory level and composition as we enter the first quarter,” Scully said.

The retailer believes adjusted EBITDA, taking into account expenses from the 2011 acquisition of the company by TPG Capital and Leonard Green & Partners, is a better barometer of the company’s performance. Adjusted EBITDA for fiscal 2012 increased to $359.6 million compared with $282.2 million the year before. Operating income in the fourth quarter decreased slightly to $41.4 million, from $41.7 million in the year-ago quarter. Operating income for the year increased to $253.7 million, from $185.8 million the year before. Operating income in fiscal 2012 includes additional share-based and incentive compensation of $34.4 million for the year and $9.3 million in the last quarter.

The net income includes transaction-related expenses, and therefore J. Crew believes it is not an accurate measure of its operations and growth. The fourth-quarter net a year ago was pumped up by a transaction-related insurance recovery of $10 million stemming from a shareholder suit, which was partially offset by the amortization of inventory step-up. For that period, J. Crew reported net income of $15.1 million. In the latest quarter, which was impacted by the additional compensation, the net was $10.2 million. For fiscal 2012, net income was $96.1 million versus $51.5 million.