Sunday, June 8, 2008

Something to think about...

The following comes from Reuters on May 29, 2008
J Crew cuts year earnings outlook, shares drop 15 pct
By Alexandria Sage

LOS ANGELES (Reuters) - J Crew Group Inc (JCG.N: Quote, Profile, Research) cut its full-year earnings outlook on Thursday, and its shares fell 15 percent as the high-flying retailer showed it was not immune to weak U.S. consumer spending.The upscale clothing company headed by Wall Street darling and former GAP Inc CEO Mickey Drexler also posted disappointing same-store sales for the first quarter. "Clearly there are traffic challenges around America and clearly we are all sharing the same challenges and struggles. I think the whole retail industry is," Drexler told analysts on a conference call.


J Crew, which sells its fashions for women, men, and children in its stores, a catalog and on the Internet, said same-store sales for the remainder of fiscal 2008 would be flat or would rise only in the low-single digits. In the first quarter, it posted a mere 2 percent rise in same-store sales, compared to 8 percent a year earlier."The fear is that trend of slowing will continue," said Stifel Nicolaus analyst Richard Jaffe, who has a "hold" rating on shares.


Drexler, who has led the company to earnings and sales growth in his five years at the helm, revitalizing the merchandise and image of the preppy J Crew brand, assured analysts that the company was planning conservatively. Consumers were not balking at paying J Crew's higher prices, he said. But he acknowledged that the weakening U.S. economy would affect the company's projected results. Jaffe said J Crew's first-quarter and projected results were not just negatively affected by lower consumer spending, but by cold spring weather and the company's prior success."He's a great success, a phenomenal success," Jaffe said of Drexler. "At some point, having phenomenal success on top of phenomenal success makes it tougher to do better the next year."


In the first quarter, the company beat analysts' earnings expectations by a penny per share, posting a 24 percent rise in net income to $30.5 million, or 48 cents per share, from $24.6 million, or 39 cents per share, a year earlier. Sales rose 15 percent in the quarter to $340.6 million, driven by stores sales growth of 14 percent and Internet and catalog sales growth of 17 percent.


For the full year, the company said it now expects per share earnings between $1.70 to $1.75, down from an earlier range of $1.85 to $1.87 a share. For the second quarter, it said it expects earnings between 31 cents to 33 cents per share. Wall Street, on average, had been expecting full-year earnings per share of $1.86 and second-quarter earnings of 40 cents a share, according to Reuters Estimates.


Peppered with questions by analysts about the outlook, Drexler said it was virtually impossible to predict. "This is all a forecast. America in the last six months pretty much gets an F on forecasting in most sectors of America," Drexler said. "Understand this is not a science, we are here as responsible shareholders of a company to manage the business with the utmost of prudence and conservative ways." Drexler told analysts not to underestimate his Internet business, especially given high gasoline prices that force many American consumers to shop online rather than drive to stores.


Shares of J Crew fell as low as 17 percent in after-hours trade before settling down 15 percent to $39.65 after closing on the New York Stock Exchange at $46.91.

9 comments:

  1. Wow, that's interesting. That's a shame that the economy is affecting everyone.
    But great post!
    I have a question about a few posts ago, though. I ordered a Madras Petite Tulip Jacket (No. 91817). It was sold out of all sizes except size 4. I'm a size 0/2P, though, for tops, so I wasn't sure if this would be a problem. I'm a size 32A. Any help?

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  2. I love how he concludes it has nothing to do with their rising prices and everything to do with rising fuel prices.

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  3. Dadnabbit...I have some shares of JCrew stock. I hope those prices go back up soon!

    Everyone, keep shopping at JCrew. Kidding! :o)

    Antigone:
    Totally agree! Interesting how he mentioned part of the blame goes to "cold spring weather". Um, obviously he hasn't been paying much attention to the weather in the South!

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  4. What does same-store sales mean?

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  5. I was curious too about the "cold spring" comment. I'm in Georgia where Spring started in January and I had to shop for bathing suits in March!
    Thanks for this post, I appreciate learning about the entire business.

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  6. From Wikipedia:

    Same-store sales is a business term which refers to the revenue generated a retail chain's existing outlets over a certain period of time (often a fiscal quarter or a particular shopping season), compared to an identical period in the past, usually in the previous year. By comparing sales data from existing outlets (that is, by excluding new outlets), the comparison is like-to-like, and avoids comparing data that are fundamentally incomparable.

    Same-store sales are also known as comparable store sales or like-store sales.

    Same-store sales are widely reported by publicly-owned retail chains as a key element of their operational results. For chains that are growing quickly by opening new outlets, same store sales figures allow analysts to differentiate between revenue growth that comes from new stores, and growth from improved operations at existing outlets.

    By comparing how well existing outlets perform during a particular week compared to that same week in the previous year, business trends can be measured more accurately. Seasonal and geographical variations are removed from the measurement: instead of collecting an average over spans of time and location, annual changes in performance are revealed.

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  7. Hi, "Same Store Sales" is existing store sales growth rate, which is one of indicators equity analysts use to evaluate company's sales momentum (New store sales do not have previous year data, so growth rates are not avalable and not comparable). If a existing store generates more sales than previous year, same stroe sales would be positive, if not negative. Company sometimes boosts sames store sales by price reduction, but price cut is a double edge blade because it reduces gross profit margin which affects earnings per share (EPS). Since J.Crew offers mark down to keep sales momentum, J.Crew needs to reduce expenses (like shipping costs) to increase EPS. That is one of the reason why J.Crew stopped Free Shipping Codes. I have been worried about J.Crew's aggressive price cut strategy as an equity analyst, but as a J.Crew big fan, I would like J.Crew to continue mark down and to offer FS code again... Hope this helps.

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  8. Antigone- A girl after my own heart, you are spot on in all of your comments. Nothing like making excuses for yourself... :0(

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  9. Hi Anna! I suggest that you either (1) wait for the jacket to come up in the sale secion in a size 0 [and trust me, it most likely will!], (2) take a chance with a size 4 and have it tailored for less than $20, or (3) try finding it on ebay. Good luck either way! :)

    Antigone: Couldn't agree more, just like Kirbydog!

    Sue.Bee: I bought J.Crew stock when it was around $50- I know I am hurting now!

    Marisa and Anonymous at 12:33PM: I was curious about the cold spring too!

    To the anonymous poster with the definition of "same store" sales: thanks! :)

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