J. Crew Group has a way to go before it’s out of the woods, but executives on Thursday cited product improvements at the troubled J. Crew brand, strength at the rapidly growing Madewell division and a narrower fourth-quarter loss.
The company is working hard to turn around the J. Crew brand through a “revitalization of iconic, classic-with-a-twist items.” Executives told WWD that they are seeing consumers respond better to an updating of J. Crew’s classic blazers, dresses, shirts and pants, among other products.
Madewell continues to get a strong response “across the board,” with denim and dresses leading the way, and seems to be offsetting results at J. Crew, which had been experiencing tepid response to its collections amid the intensely promotional retail landscape.
J. Crew Group narrowed its net loss for the fourth quarter ended Jan. 30 to $7 million, from the year-ago’s $30.6 million, which largely reflected a non-cash impairment charge.
Adjusted earnings before interest, taxes, depreciation and amortization increased 4 percent to $44 million, from $42.1 million in the fourth quarter of 2014.
Total revenues increased 1 percent to $711 million. Comparable company sales decreased 4 percent following a decrease of 3 percent in the fourth quarter a year ago.
“The fourth quarter represented a positive ending to a difficult year,” said Millard “Mickey” Drexler, chairman and chief executive officer, on Thursday when the company reported its fourth quarter and 2015 results. “We believe we are better positioned having made important changes in our product and marketing and through the careful management of expenses and inventory. Looking ahead, our team is focused on delivering further improvements in the business by executing on our strategic initiatives to deliver long-term, sustained growth for our brands.”
By brand, J. Crew sales decreased 3 percent to $604.5 million, and 5 percent on a comparable basis, following a decrease of 5 percent in the year-ago quarter.
Madewell, continuing its upward trajectory, posted a 26 percent sales increase to $92.5 million. Comparable sales increased 12 percent following an increase of 14 percent in the fourth quarter last year.
Gross margin was 33.3 percent, compared to 34.5 percent in the fourth quarter last year. Selling, general and administrative expenses were $228.8 million, or 32.2 percent of revenues, compared to $236.2 million, or 33.5 percent of revenues in the fourth quarter last year.
Operating income was $6.3 million compared with an operating loss of $18.7 million in the fourth quarter last year. Last year reflects the impact of a pre-tax, non-cash impairment charge of $260 million.
For all of 2015, the net loss swelled to $1.24 billion from the $657.8 million in 2014, which reflected the impact of non-cash impairment charges and a charge for severance and related costs. Last year reflects the impact of the loss on refinancing and non-cash impairment charges.
Total revenues decreased 3 percent to $2.5 billion. Comparable sales decreased 8 percent following a decrease of 1 percent the year before.
By brand, J. Crew sales decreased 7 percent to $2.15 billion and comparable sales decreased 10 percent following a decrease of 2 percent the year before.
Madewell sales increased 23 percent to $301 million. Comparable sales increased 8 percent following an increase of 14 percent the year before.
Gross margin was 35.7 percent compared to 37.6 percent the year before.
Selling, general and administrative expenses were $834.1 million, or 33.3 percent of revenues, compared to $846 million, or 32.8 percent of revenues the year before.
The operating loss was $1.32 billion compared to $585 million the year before. This year includes pre-tax, non-cash impairment charges of $1.38 billion and a charge of $4.8 million for severance and related costs. Last year includes pre-tax, non-cash impairment charges of $710 million. Adjusted EBITDA was $203.4 million compared to $255.2 million the year before.
In a conference call, Drexler cited sequential improvement in comp sales last year “largely due to our strengthened women’s assortment which reflected more of who we are….Our women’s business has been a key area of focus for us and we remain committed to getting the product where it needs to be. In Q4, we saw strength in women’s jackets, pants and shirts and the improvement in the sales trend for sweaters and knits. Additionally, our men’s business was also highlighted by strength in pants and jackets and an improved trend in sweaters and knits.”
Drexler said Madewell “continued its strong performance, with double-digit sales growth in the fourth quarter. We ended the year with a total of 103 locations and plan to open approximately 10 additional stores in 2016.”
He also said J. Crew Mercantile has 19 locations and the group plans to open about 20 more this year “making our value goods more accessible to a broader universe of customers and offering the classic J. Crew level of style.”
“While the retail apparel environment remains challenging, we believe we are better positioned in 2016 having made important changes in our product and marketing, along with the careful management of our expenses and inventory while investing in our key initiatives,” Drexler said.
He also cited several key management changes in recent months, including naming Mike Nicholson its president, chief operating officer and chief financial officer, and Somsack Sikhounmuong as head of women’s design at J. Crew. Also recently hired were a new head of sourcing and a chief information officer.
For Nicholson, formerly of Ann Inc., it was his first conference call for J. Crew Group. “We ended the year in a healthy position from an expense, inventory and liquidity standpoint,” he said.
Outlining this year’s priorities, Nicholson cited:
• Achieving increased sales productivity and margin improvement at the J. Crew brand, with fewer stockkeeping units and styles and sharper pricing.
• Challenging the supply chain on speed to market and costs, with “no sacrifice to quality” to benefit gross margins and better align buys with customer demand.
• Continuing to invest in Madewell with new stores and initiatives such as mobile, a loyalty program and expanded wholesale. Madewell is sold at Nordstrom.
• Opening 20 additional J. Crew Mercantile value stores, to end the year with 40.
“Overall, across all of our brands and geographies, we will maintain a conservative posture with respect to new unit growth, with plans to increase net square footage by 5 percent in 2016, driven primarily by Madewell and J. Crew Mercantile,” Nicholson said.