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8-K - FORM 8-K - J. CREW INC.d263927d8k.htm

Exhibit 99.1

 

   

Contacts:

James S. Scully

Chief Administrative Officer and

Chief Financial Officer

(212) 209-8040

 

Allison Malkin/Joe Teklits

ICR, Inc.

(203) 682-8200

J.CREW GROUP, INC. ANNOUNCES THIRD QUARTER FISCAL 2011 RESULTS

New York, NY – December 1, 2011 – J.Crew Group, Inc. today announced financial results for the three months (third quarter) and nine months (first nine months) ended October 29, 2011.

The results below reflect the Company’s performance for the “combined period” which consists of the period prior to its acquisition on March 7, 2011 (“predecessor period”) by affiliates of TPG Capital, L.P. and Leonard Green & Partners, L.P. and the period after the acquisition (“successor period”).

The combination of the predecessor and successor periods to present combined totals is not consistent with GAAP and may yield results that are not comparable on a period-to-period basis. For purposes of comparing results of operations for the first nine months of fiscal 2011 to the comparable period last year, the Company believes that the combined presentation provides a meaningful comparison. Combined operating results (i) have not been prepared on a pro forma basis as if the acquisition occurred on the first day of the period, (ii) may not reflect the actual results we would have achieved absent the acquisition and (iii) may not be predictive of future results of operations.

Third Quarter highlights:

 

   

Revenues increased 12% to $479.6 million, with comparable company sales increasing 5%. Comparable company sales increased 2% in the third quarter last year. Store sales increased 10% to $334.5 million, with comparable store sales increasing 2%. Comparable store sales decreased 1% in the third quarter last year. Direct sales increased 18% to $138.5 million on top of increasing 12% in the third quarter last year.

 

   

Gross margin decreased to 42.1% from 43.5% in the third quarter last year. The decrease includes the impact of purchase accounting of $6.8 million.

 

   

Selling, general and administrative expenses increased to $143.9 million from $122.6 million in the third quarter last year. The increase includes transaction-related costs and the impact of purchase accounting of $4.0 million.

 

   

Operating income was $57.9 million, or 12.1% of revenues, compared to $64.1 million, or 14.9% of revenues, in the third quarter last year. Operating income includes transaction-related costs and the impact of purchase accounting of $10.8 million.

 

1


   

Net income was $21.6 million compared to $37.8 million in the third quarter last year. Net income includes (i) transaction-related costs and the impact of purchase accounting noted above and (ii) increased interest expense as a result of debt incurred in connection with the acquisition.

 

   

Adjusted EBITDA was $83.8 million compared to $78.2 million in the third quarter last year. Last year included income of $5.9 million resulting from a bonus accrual reversal. An explanation of how we use Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are included in Exhibit (3).

First Nine Months highlights:

 

   

Revenues increased 6% to $1,324.0 million, with comparable company sales increasing 2.0%. Comparable company sales increased 9% in the first nine months last year. Store sales increased 4% to $926.7 million, with comparable store sales decreasing 1%. Comparable store sales increased 8% in the first nine months last year. Direct sales increased 12.0% to $374.8 million on top of increasing 16% in the first nine months last year.

 

   

Gross margin decreased to 40.9% from 45.6% in the first nine months last year. The decrease includes the impact of purchase accounting of $33.4 million.

 

   

Selling, general and administrative expenses increased to $495.4 million from $372.3 million in the first nine months last year. The increase includes transaction-related costs and the impact of purchase accounting of $99.5 million.

 

   

Operating income was $46.2 million, or 3.5% of revenues, compared to $198.5 million, or 15.9% of revenues, in the first nine months last year. Operating income includes transaction-related costs and the impact of purchase accounting of $132.9 million.

 

   

Net loss was $18.8 million compared with net income of $117.5 million in the first nine months last year. Net loss includes (i) transaction-related costs and the impact of purchase accounting noted above and (ii) increased interest expense as a result of debt incurred in connection with the acquisition.

 

   

Adjusted EBITDA was $222.7 million compared to $236.6 million in the first nine months last year.

Balance Sheet highlights as of October 29, 2011:

 

   

Cash and cash equivalents were $142.7 million at the end of the third quarter compared to $311.7 million at the end of the third quarter last year.

 

   

Total debt was $1,597 million at the end of the third quarter, including the seven-year senior secured term loan of $1,197 million and the eight-year senior unsecured notes of $400 million, incurred in connection with the acquisition, compared with no debt outstanding at the end of the third quarter last year.

 

   

Inventories at the end of the third quarter were $291.7 million (including $1.7 million of inventory step-up from purchase accounting), compared to $261.0 million at the end of the third quarter last year. Inventory per square foot (excluding inventory step-up) increased 4% compared to the third quarter last year.

 

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Use of Non-GAAP Financial Measures

This announcement contains non-GAAP financial measures. An explanation of these measures and a reconciliation to the most directly comparable GAAP financial measures are included in Exhibit (3).

Conference Call Information

A conference call to discuss third quarter results is scheduled for today, December 1, 2011, at 11:00 AM Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-3982 approximately ten minutes prior to the start of the call. The conference call will also be webcast live at www.jcrew.com. A replay of this call will be available until December 8, 2011 and can be accessed by dialing (877) 870-5176 and entering conference ID number 382545.

About J.Crew Group, Inc.

J.Crew Group, Inc. is a nationally recognized multi-channel retailer of women’s, men’s and children’s apparel, shoes and accessories. As of November 30, 2011, the Company operates 269 retail stores (including 226 J.Crew retail stores, 10 crewcuts stores and 33 Madewell stores), the J.Crew catalog business, jcrew.com, madewell.com and 96 factory outlet stores. Additionally, certain product, press release and SEC filing information concerning the Company are available at the Company’s website www.jcrew.com.

 

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Forward-Looking Statements:

Certain statements herein, including the information in Exhibit (4) hereof, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the Company’s current expectations or beliefs concerning future events and actual results of operations may differ materially from historical results or current expectations. Any such forward-looking statements are subject to various risks and uncertainties, including our substantial indebtedness and lease obligations, the strength of the economy, declines in consumer spending or changes in seasonal consumer spending patterns, competitive market conditions, our ability to anticipate and timely respond to changes in trends and consumer preferences, our ability to successfully develop, launch and grow our newer concepts, products offerings, sales channels and businesses, material disruption to our information systems, our ability to implement our real estate strategy, our ability to attract and retain key personnel, interruptions in our foreign sourcing operations, impact of costs of mailing, paper and printing, and other factors which are set forth in the Company’s Annual Report on Form 10-K and in all filings with the SEC made by the Company subsequent to the filing of the Form 10-K. The Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

 

4


Exhibit (1)

J.Crew Group, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

(In thousands, except percentages)

   Three Months
Ended
October 29, 2011
          Three Months
Ended
October 30, 2010
    Nine Months
Ended
October 29, 2011
    Nine Months
Ended
October 30, 2010
 
     (Successor)           (Predecessor)     (Combined)     (Predecessor)  

Net sales

             

Stores

   $ 334,483           $ 303,252      $ 926,706      $ 888,231   

Direct

     138,544             117,940        374,860        334,806   
  

 

 

        

 

 

   

 

 

   

 

 

 
     473,027             421,192        1,301,566        1,223,037   

Other

     6,548             8,137        22,480        27,690   
  

 

 

        

 

 

   

 

 

   

 

 

 

Total Revenues

     479,575             429,329        1,324,046        1,250,727   
 

Costs of goods sold, buying and occupancy costs

     277,806             242,708        782,350        679,955   
  

 

 

        

 

 

   

 

 

   

 

 

 

Gross profit

     201,769             186,621        541,696        570,772   

As a percent of revenues

     42.1          43.5     40.9     45.6
  

 

 

        

 

 

   

 

 

   

 

 

 
 

Selling, general and administrative expenses

     143,876             122,566        495,484        372,286   

As a percent of revenues

     30.0          28.5     37.4     29.8
  

 

 

        

 

 

   

 

 

   

 

 

 

Operating income

     57,893             64,055        46,212        198,486   

As a percent of revenues

     12.1          14.9     3.5     15.9
  

 

 

        

 

 

   

 

 

   

 

 

 
 

Interest expense, net

     25,349             2,127        67,754        3,386   
  

 

 

        

 

 

   

 

 

   

 

 

 
 

Income (loss) before income taxes

     32,544             61,928        (21,542     195,100   
 

Provision (benefit) for income taxes

     10,944             24,095        (2,654     77,632   
  

 

 

        

 

 

   

 

 

   

 

 

 
 

Net income (loss)

   $ 21,600           $ 37,833      $ (18,888   $ 117,468   
  

 

 

        

 

 

   

 

 

   

 

 

 

 

5


Exhibit (2)

J.Crew Group, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

(In thousands)

   October 29, 2011            January 29, 2011      October 30, 2010  
     (Successor)            (Predecessor)      (Predecessor)  

Assets

             

Current assets:

             

Cash and cash equivalents

   $ 142,714            $ 381,360       $ 311,702   

Inventories

     291,737              214,431         260,969   

Prepaid expenses and other current assets

     53,258              39,104         35,543   

Prepaid income taxes

     3,880              —           1,930   
  

 

 

         

 

 

    

 

 

 
 

Total current assets

     491,589              634,895         610,144   
 

Property and equipment, net

     258,815              197,210         195,873   
 

Favorable lease commitments, net

     52,271              —           —     
 

Deferred financing costs, net

     61,129              970         1,078   
 

Deferred income taxes, net

     —                20,171         14,851   
 

Intangible assets, net

     987,773              4,343         4,287   
 

Goodwill

     1,686,429              —           —     
 

Other assets

     2,473              2,577         2,564   
  

 

 

         

 

 

    

 

 

 

Total assets

   $ 3,540,479            $ 860,166       $ 828,797   
  

 

 

         

 

 

    

 

 

 
 

Liabilities and Stockholders’ Equity

             

Current liabilities:

             

Accounts payable

   $ 157,222            $ 147,083       $ 144,610   

Other current liabilities

     123,096              117,642         99,026   

Current portion of long-term debt

     12,000              —           —     

Income taxes payable

     —                1,673         —     

Deferred income taxes, net

     5,678              4,277         958   
  

 

 

         

 

 

    

 

 

 
 

Total current liabilities

     297,996              270,675         244,594   
 

Long-term debt

     1,585,000              —           —     
 

Unfavorable lease commitments and deferred credits, net

     46,839              67,665         67,058   
 

Deferred income taxes, net

     409,704              —           —     
 

Other liabilities

     33,264              10,705         9,521   
 

Stockholders’ equity

     1,167,676              511,121         507,624   
  

 

 

         

 

 

    

 

 

 
 

Total liabilities and stockholders’ equity

   $ 3,540,479            $ 860,166       $ 828,797   
  

 

 

         

 

 

    

 

 

 

 

6


Exhibit (3)

J.Crew Group, Inc.

Non-GAAP Financial Measure

(Unaudited)

The following table reconciles net income (loss) reflected on the Company’s condensed consolidated statements of operations (prepared in accordance with GAAP) to Adjusted EBITDA (a non-GAAP measure), to cash provided by operating activities (prepared in accordance with GAAP) and then to cash and cash equivalents as reflected on the condensed consolidated balance sheet (prepared in accordance with GAAP).

 

(in millions)

   Three Months
Ended
October 29, 2011
          Three Months
Ended
October 30, 2010
    Nine Months
Ended
October 29, 2011
    Nine Months
Ended
October 30, 2010
 
     (Successor)           (Predecessor)     (Combined)     (Predecessor)  

Net income (loss)

   $ 21.6           $ 37.8      $ (18.9   $ 117.5   

Provision (benefit) for income taxes

     10.9             24.1        (2.7     77.6   

Interest expense, net

     25.3             2.1        67.8        3.4   

Depreciation and amortization

     18.4             12.5        52.3        36.7   
  

 

 

        

 

 

   

 

 

   

 

 

 

EBITDA

     76.2             76.5        98.5        235.2   
  

 

 

        

 

 

   

 

 

   

 

 

 

Adjustments:

             

Share-based compensation

     1.0             3.3        48.1        6.8   

Inventory step-up amortization

     5.8             —          30.8        —     

Amortization of favorable leases

     3.3             —          8.7        —     

Amortization of unfavorable leases, deferred rent and landlord contributions

     (1.1          (1.7     (3.9     (5.5

Transaction costs

     —               —          32.2        —     

Transaction-related litigation

     (3.6          —          2.9        —     

Other

     2.2             0.1        5.4        0.1   
  

 

 

        

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     83.8             78.2        222.7        236.6   
  

 

 

        

 

 

   

 

 

   

 

 

 

Taxes paid

     (9.1          (18.3     (18.1     (73.7

Interest paid

     (30.6          (0.4     (48.4     (1.0

Changes in operating assets and liabilities

     36.9             (21.4     (120.2     (68.5
  

 

 

        

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     81.0             38.1        36.0        93.4   

Net cash used in investing activities.

     (25.0          (19.9     (3,053.4     (38.0

Net cash provided by (used in) financing activities

     (1.6          (47.0     2,778.8        (41.8
  

 

 

        

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash

     54.4             (28.8     (238.6     13.6   

Cash and cash equivalents, beginning balance

     88.3             340.5        381.3        298.1   
  

 

 

        

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, ending balance

   $ 142.7           $ 311.7      $ 142.7      $ 311.7   
  

 

 

        

 

 

   

 

 

   

 

 

 

 

7


We present the non-GAAP financial measure Adjusted EBITDA because we use this measure to monitor and evaluate both the performance of our business and our liquidity, and we believe the presentation of this measure will enhance investors’ ability to analyze trends in our business, evaluate our performance relative to other companies in our industry and evaluate our ability to service our debt.

Adjusted EBITDA does not reflect the impact of items such as non-cash share-based compensation, transaction costs, litigation costs, sponsor monitoring fees, as well as the impact of purchase accounting adjustments resulting from the acquisition of the Company by affiliates of TPG Capital, L.P. and Leonard Green & Partners, L.P.

Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles in the U.S. (GAAP) and this computation may vary from others in the industry. Adjusted EBITDA should not be considered as an alternative to net income or other GAAP measures as a measure of operating performance or cash flows as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation to, or as a substitute for analysis of the Company’s results as reported under GAAP.

The addition of the predecessor and successor period amounts to present combined totals is not consistent with GAAP and may yield results that are not comparable on a period-to-period basis due to the changes of accounting basis during these periods.

 

8


Exhibit (4)

Actual and Projected Store Count and Square Footage (Note 1)

 

Projected Fiscal 2011         (Note 2)     (Note 2)        

Quarter

  Total stores open
at beginning of the
quarter
    Number of stores
opened during

the quarter
    Number of stores
closed during

the quarter
    Total stores
open at end of

the quarter
 

1st Quarter (Actual)

    333        5        1        337   

2nd Quarter (Actual)

    337        6        0        343   

3rd Quarter (Actual)

    343        17        0        360   

4th Quarter (Projected)

    360        5        3        362   
Projected Fiscal 2011                        

Quarter

  Total gross square
feet at beginning of
the quarter
    Gross square feet
for stores

opened or expanded
during the quarter
    Reduction of
gross square feet
for stores closed or
downsized
during the quarter
    Total gross square
feet at end of

the quarter
 

1st Quarter (Actual)

    2,006,999        31,039        (6,461     2,031,577   

2nd Quarter (Actual)

    2,031,577        21,454        0        2,053,031   

3rd Quarter (Actual)

    2,053,031        83,726        0        2,136,757   

4th Quarter (Projected)

    2,136,757        16,522        (14,616     2,138,663   

 

Note 1    Store count and square footage summary excludes three clearance store locations. Above summary also includes one factory store that is temporarily closed at the time of this announcement due to flooding.
Note 2 –   Actual and Projected number of stores to be opened and closed during Fiscal 2011 by quarter:
  1st Quarter – one retail, one factory, one retail crewcuts and two Madewell stores. We closed one retail store (actual).
  2nd Quarter – three factory, one crewcuts factory and two Madewell stores (actual).
  3rd Quarter – six retail, four factory and seven Madewell stores (actual)
  4th Quarterone retail, one factory, one crewcuts factory and two Madewell stores.
  We anticipate closing two retail and one Madewell store (projected).

 

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Exhibit (5)

Historical Comparable Sales

(Unaudited)

 

Fiscal 2010

 

Quarter

   (a)
Comparable
Company Sales
    Comparable
Store Sales
    Direct Sales  

1st Quarter

     16     15     20

2nd Quarter

     12     11     16

3rd Quarter

     2     (1 %)      12

4th Quarter

     0     (5 %)      12

Fiscal 2011

 

Quarter

                  

1st Quarter

     (3 %)      (6 %)      5

2nd Quarter

     3     1     13

3rd Quarter

     5     2     18

 

(a) Comparable company sales include comparable store sales, direct sales and shipping and handling fees.

 

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