J. Crew Swings into Q1 Loss, Warns of Write-Downs

Juan Carlos Obando for J.Crew

Juan Carlos Obando for J.Crew

New York—J. Crew said Wednesday that it swung into a first quarter loss, adding that it may write down the value of its business if operating results continue to decline.

For the quarter ended May 3, J. Crew posted a net loss was $30.1 million compared with net income of $29.3 million in the first quarter last year. “This year reflects a loss of $36 million, net of tax, incurred in connection with the refinancing of our term loan facility and the redemption of our senior notes,” the company said.

‘A Fashion Miss’

Revenues increased 5% to $592 million, with comparable company sales decreasing 2%. Comp store sales increased 2% to $386.4 million on top of an increase of 7% in the first quarter last year. Direct sales increased 12% to $197.0 million following an increase of 23% in the first quarter last year.

Gross margin narrowed to 38.7% compared to 44.7% in the first quarter last year.

Selling, general and administrative expenses were $195.2 million, or 33.0% of revenues, compared to $178.4 million, or 31.6% of revenues in the first quarter last year.

Operating income fell 54% to $34 million in the first quarter from a year earlier. Thus the results as well as the outlook for the future “have given rise to substantial deterioration in the excess of fair value over the carrying value of our stores,” J. Crew said in its statement on Wednesday.

“We expect weak comparable sales and margin performance were related to a fashion miss, heightened inventories at the start of the quarter, and ongoing light mall traffic,” Jenna Giannelli, an analyst at Citigroup, said.

Owned by TPG Capital and Leonard Green & Partners LP which bought it for $3 billion, J. Crew is reportedly considering a U.S. initial public offering for later this year.

In March, the company reported a 42% drop in net income in the fourth quarter, as an industry slump hurt holiday sales and triggered a wave of discounting among rival retailers.

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Jeff Prine

Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com