J.Crew 3Q Profit Surges On Higher Margins, Same-Store SalesBy John Kell
November 24, 2009
J.Crew Group Inc.'s (JCG) fiscal third-quarter profit more than doubled as the retailer posted higher margins and same-store sales, and results topped already rosy projections.
The retail industry has been hit by a sharp contraction in consumer spending and J.Crew, like its competitors, has spent the last year cutting costs, including reducing inventory, and trimming some corporate office positions. But the company's casual styles have been widely copied and creative director Jenna Lyons' design aesthetic has been credited for J.Crew's recent success.
Last month, Pali Research said the chain is well-positioned to increase market share as it courts luxury trade-down consumers, adding its "unique product at compelling price points is increasingly sought out by customers that are increasingly price and value conscious." The firm also touted the differentiated fashion and lower price points of J.Crew's growing Madewell division.
For the quarter ended Oct. 31, J.Crew reported a profit of $43.9 million, or 67 cents a share, up from $19 million, or 30 cents a share, a year earlier. Last month, the company drastically lifted its earnings projection to 54 cents to 59 cents, citing stronger-than-expected sales and margins.
Revenue grew 14% to $414.1 million. Analysts polled by Thomson Reuters most recently expected $408 million. Gross margin surged to 48.4% from 41.6%.
Retail and factory sales were up 20%, and direct sales increased 4%. Same-store sales jumped 8%, in line with the company's October estimate. Inventory per square foot was down 17% from a year ago. For the fiscal fourth quarter, the company expects earnings of 37 cents to 42 cents, while analysts were looking for 41 cents.
"Regardless of the economic environment our long-term mission does not change--it's all about product, it's about design, it's about service, it's about creativity," said Chairman and Chief Executive Millard Drexler.
Shares rose 0.5% to $41.06 in after-hours trading. The stock has more than tripled this year.
I am pleasantly pleased with the results. (Especially since I am a stock holder. Go J.Crew, go!) J.Crew's strategy to reduce inventory and keep price reductions at a minimum seem to be working quite well for them.
What are your thoughts on the news? Do you disagree or agree with J.Crew's strategy? Do you think Jenna Lyon's role has helped contribute to the success of J.Crew?
I am taking a conservative approach to J. Crew purchases. I think their cost reductions are based on lower cost materials and manufacturing.
ReplyDeleteWhen I was at the B&M, I marveled at how gorgeous the men's section was, that it reminded me of the old J. Crew with the leather toggled navy sweaters and such. The SA agreed and said the women's section is taking a "trendier" approach. That's fine, but it is not what drew me to J. Crew.
I love a lot of J. Crew items, don't get me wrong, but I've been deeply attached to J. Crew for years and the changes are impossible to overlook. It's working for them; their profits are higher. But I will keep my purchases to the styles that originally drew me to them.
Hi Alexis, sorry for offtop, but have not you seen this http://community.livejournal.com/obama_daily/280807.html#cutid1?
ReplyDeleteI#m not sure if such publicity is for good or for bad. And I guess tis factor is even more powerful on some than the Jenna aesthetics
oh, and than this!
ReplyDeletehttp://community.livejournal.com/obama_daily/281499.html#cutid1
Well, me kvetching earlier aside about how they need to shape up or else THEY WILL SUFFER and DIE...apparently I was wrong! Ha ha, who knew.
ReplyDeleteSorry J Crew. Sorry I told you to, um, suffer and die.
Gooo Jenna. *twirls finger a few times*
:D
I agree with Laura, their profits are the result from cost cutting. Last weekend there were comments posted by a couple of JCAs about what their SAs told them that JC sales were down.
ReplyDeleteThe declining quality has to be catching up to them, I know have I reduced spending and I am cutting down on my purchasing next year as well. I am tired of sending things back, or clothng falling apart after a few wearings.
I think the number that jumps out to me is retail being up 20%. Regardless of quality or cost cutting that's huge. And pretty amazing. I agree that the declining quality is becoming an issue but kudos to J.Crew for drawing in more people to their stores than ever.
ReplyDeleteroxy: I don't think sales are actually up 20%, cost cutting makes profits higher and inflate sales figures, when the actual figures are much lower. Sales could be up but I question the 20% figure.
ReplyDeleteComparable same store sales down.
ReplyDelete4% - no growth in stores open more than 1 year.
Direct sales (internet stores) + 1% - basically flat.
All revenue growth came from new store openings: +$ 319 Million.
Where did they get the added 5% operating profit? Head count reductions and lease re-negotiations, as stated in their news release to AP.
It was a great quarter for J Crew, but bad for employees and people who lease their properties to J Crew.
I've never bought J. Crew in the past but now they have some more interesting styles, I've gotten a few things, especially jewelry. I don't like the traditional preppy look at all and they've won me and some of my friends. Much of it is still too staid for my tastes, but I've spent hundreds of dollars in there recently. I know this is not a typical opinion here but the shift towards more fashionable items means they've stolen some customers from other retailers. I do understand why some of you are not so happy though.
ReplyDeletecasual crew,
ReplyDeleteI agree. I have cut way down on my spending b/c I am so frustrated with having to send defective items back and declining quality. JCrew is becoming a throw away trendy brand and that is not for me! I used to spend thousands per month and now maybe a hundred or two if that...in Oct. I bought nothing. I first in 8 years!
casual-crew: cost cutting does not inflate sales numbers - those numbers are what they are. cost cutting increases the bottom line and the profit margin, but it doesn't inflate actual revenue.
ReplyDeleteI second comments by Laura, Casual Crew, and Summer about the decline in quality. I've been buying from J.Crew for 12+ years and have noticed the change. It seems like they're producing the same mass- manufactured clothing as all other large chain retailers, and relying on their brand strength to sell the lower quality items at inflated prices. I'm definitely shopping there less, and being more wary when I do buy things. There are still things that are well made, but a lot has drifted south.
ReplyDeleteAnd I also second the change in style other people have noticed, from timeless preppy to more trendy here and now. For example, it's been ruffles galore recently, and what's with all the big gaudy costume jewelry? There are also changes in terms of fit: the tops all tend to be long and skinny now (especially knits and sweaters), and they've done away with petites in sweaters.
J.Crew is definitely evolving both in terms of quality (for the worse) and style/look (debatable I suppose). If they get enough new customers on board, maybe it won't matter about the long time fans shopping there less and less. I just went in my closet and was taken aback by the relatively small fraction of my wardrobe that is J.Crew, where in previous years it was a staple. I guess I'm finding that more and more things are overpriced for what they are. I still love looking through the catalog...