J. Crew Group CEO Discusses Q2 2010 Results - Earnings Call Transcript

J. Crew Group CEO Discusses Q2 2010 Results - Earnings Call Transcript
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J. Crew Group Inc. (JCG)

Q2 2010 Earnings Call Transcript

August 26, 2010 4:30 pm ET

Executives

Allison Malkin – IR, ICR Inc.

Millard Drexler – CEO & Chairman

Jim Scully – Chief Administrative Officer & CFO

Libby Wadle – EVP, Retail & Factory

Analysts

Adrienne Tennant – Janney Capital Markets

Janet Kloppenburg – JJK Research

Michelle Tan – Goldman Sachs

Jeff Klinefelter – Piper Jaffray

Brian Tunick – JPMorgan

Lorraine Hutchinson – Bank of America

Roxanne Meyer – UBS

Richard Jaffe – Stifel Nicolaus

Laura Champine – Cowen and Company

Christine Chen – Needham & Company

Erika Maschmeyer – Robert W. Baird

Sam Panella – Raymond James

Presentation

Operator

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Previous Statements by JCG
» J. Crew Group Q1 2010 Earnings Call Transcript
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» J. Crew Group, Inc. Q3 2009 Earnings Call Transcript

Greetings and welcome to the J. Crew Group, Inc. second quarter fiscal 2010 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Allison Malkin of ICR. Thank you, Ms. Malkin. You may begin.

Allison Malkin

Thank you and good afternoon. Before we get started, I would like to remind you of the company’s safe harbor language, which I’m sure you’re all familiar with.

The statements contained in this conference call which are not historical facts 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.

Now, I would like to turn the call over to J. Crew’s Chairman and CEO, Millard Drexler.

Mickey Drexler

Good afternoon, everyone, and thanks for joining us. I’m here with Jim Scully, Jenna Lyons, Libby Wadle, and other senior partners at the company. I’ll start with a brief overview of our second quarter results, and then Jim will walk you through our financials in more details and provide an update to our revised outlook.

In the second quarter, our revenues increased 14% with our comp sales up 11% and direct sales increasing 16%. Our gross margin expanded over 3 points to 44.6% of revenues and our operating income totaled $59 million or 14.5% of revenue.

While we are pleased with our second quarter results, the continued economic uncertainty that we’re all seeing is leading us to take a more conservative outlook for the back half of the year. What we see in our stores and what our store and online associates are telling us is that the customer is more selective with their purchases. More than ever, they are focused on newness.

At the end of the day, the customer knows what they are getting in terms of product, quality, style design and at what value. As we cannot control the macro environment, we are always focused on what we can control; our product, our inventory, our expenses, our associates and our investment in the business for the long term.

As you know, one of the critical distinctions and competitive advantages that we have is that we do, in fact, control our product. We control with distribution, we control with image and anything and everything that has to do with our brand perception. Of course, that’s true for crewcuts and Madewell as well. This is clearly a critical issue in the retail world. Every single wholesale branded product is sold in multiple channels and multiple price points today.

Now, more than ever, we need to keep moving forward and continue to make investments in our business for the long term. We have a number of opportunities, and I might add, we have the luxury of not having too many stores and we can invest where we see growth. To us, it almost feels like a startup when we look at all the organic growth opportunities we have and we wanted to talk about a few of them.

Starting with our J. Crew store growth plans; we continue to tailor each of our new J. Crew stores to each market and size and concept, with plans to grow square footage in the mid-single-digit range annually over three- to five-year horizon. We opened our first wedding store in late May at 769 Madison Avenue, which is more than just gown. It’s really an extension of our collection business.

Our major retooling of men’s has produced quite dramatic results. You see our stores have a mixture of timeless items from our design team and curated and collaborative items from both our old and some of our newer partners.

We opened up our newest New York location men’s store at 1040 Madison in 79th Street two days ago, which we’re very proud of, and please, if you get a chance, please check it out. We’ll also be opening up our next freestanding men’s store at Property Place in Boston later this fall.

We are seeing healthy growth in our crewcuts business, where we again decided that the only strategic path here was to be the best in quality and style. We are pursuing a number of opportunities in key markets to open additional, standalone locations in further brand awareness.

On the direct side, we successfully launched Madewell.com in late May. We launched did what we’re supposed to do and increased awareness and allowed more customers access to our Madewell stores and products.

As many of you probably don’t know, we ship internationally to Canada and Japan in addition to selling Net-A-Porter, which gives us access to a 170 countries.

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