J. Crew (JCG)

Q3 2010 Earnings Call

November 23, 2010 11:00 a.m. ET

Executives

Millard Drexler – CEO & Chairman

Jim Scully – Chief Administrative Officer & CFO

Presentation

[Jim Scully]

Compare to:
Previous Statements by JCG
» J. Crew Group CEO Discusses Q2 2010 Results - Earnings Call Transcript
» J. Crew Group Q1 2010 Earnings Call Transcript
» J. Crew Group, Inc. Q4 2009 Earnings Call Transcript

Thank you and good morning. I'd like to welcome you to our listen-only conference call to review third quarter results and the transaction we announced this morning. I would like to begin by reminding you of the company's Safe Harbor language, which I am sure you are familiar with.

The statements contained in this conference call, which are not historical fact, may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual future results might differ materially from those projected in such statements due to a number of risks and uncertainties, all of which are described in the company's filings with the SEC.

And now I would like to turn over the call to our chairman and CEO, Millard Drexler.

Millard Drexler

Good morning. Before we review our third quarter results, I want to spend a few minutes talking about today's announcement that J. Crew has agreed to be acquired by two private investment firms, TPG Capital and Leonard Green & Partners.

As you probably saw in this morning's release, under the terms of the agreement, holders of the outstanding common shares of J. Crew will receive $43.50 per share in cash, or a total of approximately $3 billion. Our board concluded, at the recommendation of a special committee formed to evaluate the proposal, that this was a highly compelling offer that will provide J. Crew's shareholders with substantial and immediate value for their shares.

As part of this transaction, I will continue as chairman and CEO of J. Crew, and will remain a significant shareholder. I'm looking forward to partnering with TPG Capital and Leonard Green &Partners. This transaction is a clear endorsement of J. Crew and the hard work and dedication of all of our associates.

In a few minutes, Jim will provide some more specifics on the transaction, but first I'd like to provide a high-level review of our third quarter results. In the third quarter, our revenues increased 4% with our comp sales down 1% and direct sales increasing 12%. Our operating income totaled $64 million, a 15% decline versus last year.

Needless to say, we are disappointed with our third quarter results and our fourth quarter outlook. While we are seeing strength from our men's, crewcuts, accessories, Factory and Madewell businesses, the softness has been primarily isolated to our women's retail and direct business. In the short-term, we are taking aggressive actions to move through our inventory as efficiently as possible, which is reflected in our updated outlook.

While we work through the short-term hurdles - and we believe it is short-term - we remain focused on our long-term strategy and will not compromise the integrity of our products or our customer service. We continue to see opportunity to capitalize on all the hard work and investment we have made in our quality, style, and design across all of our businesses.

In our J. Crew store business, we have seen momentum in key businesses that hold large potential for further square footage growth. These include our men's business. We had a strong quarter with the opening at 1040 Madison in late August, and Copley Place in late September. Across the company, our men's business is gaining momentum with our customers.

Our wedding and collections store at 769 Madison has been a great showcase for the category, and we are learning, changing, creating every day, and see this as a long-term rollout opportunity in key markets. We're also seeing really healthy growth in our crewcuts business, both in stores and online. Our customer file is growing dramatically, and we still see a lot of opportunity in key markets to open additional standalone stores.

On the direct side, we launched Factory.com in September, weekends only. And while we are still in the testing phase, we are pleased with the performance. As you know, we also launched Madewell.com in late May. We have expanded our online assortment, and it's exciting to see the impact the website is having on our store business.

We are on track with international online, to add selected key countries in the first half of next year, which will include enhanced capabilities to offer shipping and an improved customer experience. Our factory store business continues to be highly productive for us, and we have plans to accelerate our growth through a combination of new units, both J. Crew and crewcuts factory and expansion in the existing centers.

Our Madewell store openings keep getting stronger. We opened our 20th store last week in Georgetown, and opened in eastern Ohio in late October. We continue to actively pursue new store opportunities in key markets, and we will add 10-15 Madewell units next year.

While we have taken the necessary steps to address our short-term hurdles, the team is focused and moving forward in doing what we do every day - focusing on our products, our style, design, and quality.

With that, I'll turn it over to Jim to provide more information on our third quarter results and on the transaction we announced this morning.

Jim Scully

Thanks Mickey. To continue on with the quarter in more detail, total revenues increased 4% in the third quarter to $429 million. Our store sales increased 1% to $303 million. This was driven by a 2% increase in net square footage, partially offset by a 1% decline in comp store sales. In addition, direct sales increased 12%, which includes both our J. Crew and Madewell direct businesses.

Read the rest of this transcript for free on seekingalpha.com