UPGRADE FOR J.CREW DEBT RATING

NEW YORK — Citing J. Crew Group’s “positive operating momentum,” Moody’s Investors Service changed its outlook on the firm to “positive” from “stable.”
The changed outlook signals that the ratings may be raised with continued improvement. Although privately held, J. Crew reports its numbers because of public debt.
Crew “has benefited from increased operational disciplines and retention of experienced management at senior levels,” the rating agency said. “The benefits have affected all processes, from conceptual design to customer servicing, and appear to be reducing the cost of risk of J. Crew’s operation.”
The new management includes Mark Savary, formerly president of Nestle Frozen Foods who became ceo in May 1999.
Moody’s said an upgrade would also depend on Crew’s ability to maintain margins “as a result of a stable direct sales business and continuing high store productivity for its retail stores,” and its ability to fund operations through cash flow.
The debt includes 12.75 percent senior discount notes rated Caa3, due 2008, and 10.375 percent subordinate notes rated Caa1, due 2007.
Crew’s operating cash flow (EBITDA) in the first quarter improved to $5 million from $100,000. Net losses were cut to $5.2 million from $8.7 million. Sales rose to $158.8 million from $143 million, with retail sales growing 21.8 percent to $78.7 million and direct sales up 2.7 percent to $60.2 million. Same-store sales increased 3 percent, and e-commerce sales nearly doubled to $19 million.

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