Nov 25, 2009
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J Crew full-price sales spur profit beat, shares up

Nov 25, 2009

By Alexandria Sage

SAN FRANCISCO, Nov 24 (Reuters) - J Crew Group Inc (JCG.N) reported a quarterly net profit far above Wall Street estimates due to strong autumn sales of clothing and expanded profit margins from depressed year-ago levels.

Photo: www.jcrew.com

The shares of the upscale apparel retailer rose 7 percent in after-hours trading.

J Crew has been one of the few U.S. apparel retailers to see robust sales in a still-weak economy. The company said its merchandise margins hit a historical high, helped by controlled inventory and fueled by more shoppers willing to pay full price for trend-right looks.

"The fashion looks good and because inventories are lean, they're getting good full price selling -- some items are actually selling out," said Needham & Co analyst Christine Chen. "After promoting like crazy last year, they're retraining the customer to pay full price, which in this environment is pretty hard to do."

J Crew, which also operates the Madewell and Crewcuts chains besides its main J Crew stores, said third-quarter net income more than doubled to $43.9 million, or 67 cents per share, from $19 million, or 30 cents per share, a year earlier.

Analysts, on average, had been expecting earnings of 58 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 14 percent to $414.1 million while same-store sales -- a key gauge of retail performance that measures sales at stores open at least a year -- jumped 8 percent.

Sales at the company have been robust during the fall season as shoppers with some disposable income update their wardrobes.

The company, which also operates an online store and a catalog, struggled earlier this year with too-high inventory levels that pressured margins.


J Crew attributes its current sales strength to what it calls unique, differentiated merchandise that cannot be found elsewhere, and tailored customer service.

Operating profit margins rose to 18.2 percent of revenues from 9 percent of revenues a year earlier. Gross profit margins rose to 48.4 percent of revenues from 41.6 percent.

"The merchandise margin performance was significantly better than anticipated, representing an historical high for us," said Chief Financial Officer James Scully on a call with analysts. He cited a substantial increase in full-price sales.

Looking ahead, J Crew said it expects fourth-quarter earnings per share to range between 37 cents to 42 cents. Wall Street had been expecting earnings of 41 cents per share.

Asked whether the company had any plans to expand internationally, Chief Executive Millard Drexler said the company regularly considers the possibility but added, "I don't see the numbers that support that."

"Right now, no plans," he said. "But things always can change."

Shares rose 7 percent to $43.70 after hours after closing at $40.85 on the New York Stock Exchange. (Reporting by Alexandria Sage; editing by Carol Bishopric, Andre Grenon and Gunna Dickson) (([email protected] +1-415-677-3923; Reuters Messaging: [email protected])) ((See blogs.reuters.com/shop-talk/ for Shop Talk -- Reuters' retail and consumer blog.))

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