New York—J. Crew reported Wednesday afternoon that its third quarter profit rose 6.8% on sales increases despite a decrease in gross margin.
For the quarter ended Nov. 2, J. Crew posted net income of $35.4 million compared with income of $33.2 million in the third quarter last year.
Net revenue was up 11% to $618.8 million while comparable company sales increased 4%. When realigning last year to be consistent with the current year retail calendar, comparable company sales increased 5% on top of an increase of 10% in the third quarter last year.
Sales at its stores increased 7% to $420.2 million on top of an increase of 17% in the third quarter last year. Direct-sales, which includes J. Crew Factory and Madewell direct businesses, increased 21% on top of a 13% increase last year.
Q4 ‘Highly Promotional’
Gross margin fell to 43.9% from 47.3% as input costs rose 19%.
Selling, general and administrative expenses were flat to last year at $188.6 million, or 30.5% of revenues compared to 33.9% of revenues in the third quarter last year. This year reflects a decrease of $7 million in share-based and incentive compensation.
Projections and estimates weren’t given since J. Crew was taken private in March 2011 in a $3 billion acquisition by private equity firms including TPG Capital and Leonard Green & Partners.
But on a conference call with analysts, Libby Wadle, president of J. Crew brand, said fourth quarter appears to be “highly promotional” as expected.
“But I think we are participating to the extent that we’re comfortable, and so far we’ve been pleased with our results. But as it has been–honestly all year, it’s been a promotional environment out there and we expect it will continue,” Wadle said.