J. Crew CEO Jan Singer

J. Crew Group has turned a corner.

Showing progress in repairing the J. Crew division while Madewell continues to win, the company reported net income of $1.5 million for the fourth quarter ended Feb. 1, compared with a net loss of $74.4 million in the year-ago fourth quarter.

The company also reported in a Securities and Exchange Commission filing Monday that it amended its agreement with lenders, providing additional time to consider strategic alternatives designed to improve its balance sheet, reduce debt and elevate future prospects. The group, which has $1.7 billion in long-term debt, remains open to possibly breaking up into two entities, J. Crew and Madewell, and staging a Madewell initial public offering. However, with the stock market on a roller-coaster ride due to the coronavirus, plummeting last week and recovering somewhat Monday, it’s not an opportune time for a Madewell IPO.

In the fourth quarter, total revenues increased 2 percent to $747.2 million. Comparable sales increased 3 percent following an increase of 9 percent in the fourth quarter of 2018.

J. Crew sales decreased 2 percent to $516.8 million, and increased 1 percent on a comparable basis, following an increase of 6 percent in the fourth quarter of 2018.

Madewell sales increased 13 percent to $178.1 million, and 9 percent on a comparable basis following an increase of 22 percent in the fourth quarter of 2018.

“Our fourth-quarter and full-year results reflect exciting progress at J. Crew, driven by strong gross margin performance and the accelerated benefits from our multiyear cost optimization program, as well as continued growth at Madewell,” said Michael J. Nicholson, president and chief operating officer. “I am proud of the team’s accomplishments this year.

“As a result of this strong performance, we now have an opportunity to broaden our exploration of strategic alternatives in support of our objectives to maximize value, position the company for long-term growth and de-leverage our balance sheet,” Nicholson added. “As such, we have reached an agreement with certain term-loan and security holders to amend the previously announced transaction support agreement, which will allow us additional time to thoroughly assess all alternatives, including the separation of J. Crew and Madewell into two independent companies and a potential IPO of Madewell.”

Jan Singer, chief executive officer since late January, commented: “I echo Mike’s sentiment on congratulating the team for executing our strategy with discipline in 2019, which led to a significant increase in profitability, and, importantly, a more efficient and stronger operating platform from which to grow.”

Singer, a veteran executive in consumer goods and retail, most recently served as ceo of Victoria’s Secret, and earlier worked at Spanx and Nike. When Singer joined JCG, the company specified that she was selected to oversee the J. Crew  and J. Crew Factory brands and businesses, without having responsibility for Madewell, which was being set up for an IPO. The company also said back then that Libby Wadle, who continues as president and ceo of Madewell, and Singer report separately to the board.

“I am enthusiastic about the opportunities that lie ahead for this business, as I bring my perspective for developing product, brand experiences and teams toward evolving our brand strategy and driving long-term profitable growth with the consumer at the center,” Singer said Monday in the SEC filing.

Store closings, personnel cuts and a renewed focus on the categories and items at J. Crew with a history of selling best have contributed to some recent improved performance.

In other results for the fourth quarter, gross margin increased to 38.3 percent from 22.4 percent in the fourth quarter a year ago. During the fourth quarter of fiscal 2018, the company recorded a charge of $39.3 million for expected losses on the disposition of excess merchandise inventories.

Selling, general and administrative expenses were $246.2 million, or 33 percent of revenues, compared to $227.7 million, or 31 percent of revenues, in the fourth quarter a year ago. This year includes transaction, transformation and severance costs of $18.1 million and a benefit of $1 million related to the lease termination payment in connection with relocating the corporate headquarters from the East Village of Manhattan to lower Manhattan in Brookfield Place.

Operating income was $39.4 million, compared with an operating loss of $64.2 million in the fourth quarter last year.

For the year, the company had a net loss of $78.8 million compared to a $120.1 million loss in 2018. The retailer in 2019 was impacted by transaction costs and non-cash impairment charges. In 2018, the company was impacted by excess inventory write-downs and the benefit related to the lease termination payment.

For 2019, total revenues increased 2 percent to $2.54 billion. Comparable sales increased 2 percent. J. Crew sales decreased 4 percent to $1.71 billion as comparable sales decreased 1 percent. Madewell sales increased 14 percent to $602.4 million as comparable sales increased 10 percent.

Gross margin increased to 38 percent from 33.6 percent. SG&A expenses were $879 million, or 34.6 percent of revenues, compared to $824 million, or 33.2 percent of revenues in 2018.

Operating income was $71.5 million compared to $900,000 in 2018.

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