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Spiffy Quarter from J. Crew

Shares jump after the retailer beats targets and raises guidance.
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Updated from 5:24 PM EST


J. Crew


sewed up stronger-than-expected third-quarter results, with Internet sales pushing up profit and allowing the company raise guidance for the year.

Shares were jumping $4.01, or 10%, to $44.31 in after-hours trading.

The retailer posted third-quarter earnings of $26.8 million, or 42 cents a share, up from $26 million, or 40 cents a share, a year ago, when the company benefited from a much lower tax rate. Analysts had anticipated earnings of 36 cents a share, according to Thomson Financial.

Sales rose 21% to $332.7 million from $275.6 million a year ago, beating analysts' average estimate of $312 million.

Same-store sales, or sales at stores open at least a year, increased 5% in the third quarter, a much slower pace than its 19% growth last year in the same period. Direct sales, which include online and catalog sales, jumped 36% to $90.3 million.

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"Our direct business continues to exceed our expectations," said J. Crew Chief Executive Mickey Drexler during Thursday's conference call with investors. "Our founding DNA is in fact in the catalog and direct business."

Internet sales now make up about 79% of J. Crew's direct business, up from 71% last year.

The company is also focused on strengthening the productivity of its stores, growing its sales per square foot by 10% to $561 from last year's $510.

The third-quarter results mark a bright spot in what was largely a weak quarter for retailers, who were hurt in the period by a consumer spending slowdown and warm temperatures. Moreover, many big chains have offered lackluster forecasts for the remainder of the year.

J. Crew, however, raised its guidance for the year to $1.50 to $1.52 a share. Its prior view called for earnings per share of $1.42 to $1.46. Analysts had anticipated full-year earnings of $1.46.

The company expects same-store sales to remain in the mid-single digit range for the long term while its direct sales grow in the high single digits. It will continue to expand its store base at a modest rate, by 7% to 9%.

"We want to be the best not the biggest," Drexler said. "We have said and continue to believe strongly that the only way to rise above the crowd and build a powerful franchise for the future is to continue to stand for the quality business we are in."

J. Crew opened 18 new stores in the third quarter and expects to open seven more in the fourth quarter in order to meet its goal of 34 net new stores for the year.

Its Madewell stores are still going through growing pains, however. Introduced last year, with merchandise priced 20% lower than J. Crew. It now operates six stores. But so far, Madewell has led to a $3 million loss for the quarter, and a $10 million loss for the year.

Drexler said the brand continues to be in the research and development phase.