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J.Crew Releases Q3 2019 Results, Plans to Separate Madewell

Logo and photo courtesy of J. Crew

J.Crew Group Inc. recently announced financial results for the third quarter and first nine months of fiscal 2019. Total revenues for the company increased 1% to $625.6 million. Comparable company sales increased 3%, following an increase of 8% in the third quarter last year. J.Crew sales decreased 4% to $415.8 million. J.Crew comparable sales were flat following an increase of 4% in the third quarter last year.

“Our third quarter results reflect adjusted EBITDA growth of nearly 50%, marking our strongest third quarter performance in the last five years,” said Michael J. Nicholson, president, chief operating officer and interim chief executive officer. “These results reflect encouraging momentum at the J.Crew brand fueled by strong gross margin performance, continued growth at Madewell and the early benefits of our multi-year cost optimization program announced in September. Our teams are enthusiastic about our progress and remain relentlessly focused on continuing to capitalize on this momentum as we head into the holiday season.”

“Additionally, the company reached an agreement on the terms of a transaction that will enable the company to separate J.Crew and Madewell into two independent companies, pursue a proposed IPO of Madewell and recapitalize the company’s balance sheet,” Nicholson continued. “As a result of the transaction, we expect both J.Crew and Madewell to have sustainable capital structures and to deliver enhanced value for our stakeholders.”

Third Quarter highlights:

  • Madewell sales increased 13% to $151.6 million. Madewell comparable sales increased 10% following an increase of 22% in the third quarter last year.
  • Gross margin increased to 40.7% from 38.3% in the third quarter last year. The increase in gross margin was driven by: (i) a 210 basis point margin expansion and (ii) a 30 basis point decrease in buying and occupancy costs as a percentage of revenues. The margin expansion was driven by an increase in the J.Crew brand, partially offset by a decrease in the Madewell brand.
  • Selling, general and administrative expenses were $235.1 million, or 37.6% of revenues, compared to $202.8 million, or 32.6% of revenues, in the third quarter last year. This year includes transaction costs of $36.0 million related to the exploration of strategic alternatives to maximize the value of the Company. Last year includes a $6.9 million benefit related to the lease termination payment in connection with corporate headquarters relocation. Excluding these items, selling, general and administrative expenses were $198.5 million, or 31.7% of revenues, compared to $210.1 million, or 33.8% of revenues, in the third quarter last year.
  • Operating income was $11.5 million compared to $32.7 million in the third quarter last year. Operating income this year was impacted by transaction costs and non-cash impairment charges. The third quarter last year reflects the impact of the benefit related to the lease termination payment.
  • Net loss was $19.9 million compared to $5.7 million in the third quarter last year. Net loss this year was impacted by transaction costs and non-cash impairment charges. The third quarter last year reflects the impact of the benefit related to the lease termination payment.

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