Highlights of J.Crew 3rd Quarter Fiscal 2008 Results

J.Crew released today their third quarter fiscal results (click here), the following are some interesting financial figures :

• Revenues increased 9% to $363.1 million.
• Store sales (retail and factory) increased 7% to $250.9 million, with comparable store sales decreasing 3%.
• Direct sales (Internet and Phone) rose by 13% to $101.8 million. (Direct sales increased 36% in the third quarter of fiscal 2007.
• Gross margin decreased to 41.6% of revenues from 45.6% of revenues in the third quarter of fiscal 2007.
• Operating income decreased 32% to $32.5 million, or 9.0% of revenues, compared to $47.7 million, or 14.3% of revenues, in the third quarter of fiscal 2007. Operating income in the third quarter of fiscal 2008 includes approximately $6 million of costs related to Direct channel systems upgrades.
• Net income was $19.0 million, or $0.30 per diluted share, compared to a net income of $26.8 million, or $0.42 per diluted share, in the third quarter of fiscal 2007.

I listened to the conference call today (although I missed the first half an hour). There were some highlights that I thought were interesting to share:

• Some stores were offering deep discounted prices (e.g. 50% off sales, 75% off original price), which did devalue the brand a bit
  
• Mickey recognized that customers (both loyal and not) are not buying at full price- even stating "why trust it won't be on sale next week"
• In order to reposition J.Crew as a full priced brand ("when customers will trust prices again" as Mickey stated), they will need to look at inventory management and quality of goods
  
• Mickey got slightly defensive when an analyst questioned J.Crew's inventory issues
  (this was interesting, because I have not seen or heard him lose his cool before)
  
• J.Crew has been driving traffic to the web, not constraining it
  (which makes sense considering all those email promotions they have been sending lately)
  
• There are still great sellers at J.Crew: the ruffle blouse, graphic tees with "fabulous embellishments", matchstick denim, cashmere cardigans. Also, customers are still responding to color. :)
• Mickey is finding that differentiation of product is more important than ever, especially since customers aren't buying an item in 10 different colors anymore
  
• Mickey briefly mentioned how Michelle Obama helped with their image, but didn't get specific (in figures)
  
• Future J.Crew catalogs and website will include more definitions to better educate customers about fabrics and materials
• According to Mickey, J.Crew's core prices are not that high
  
• 85% of their goods are under $100 ($18-78 totals are the largest share of making money)

UPDATE: "Thanks!" to Naomi who let us know that the transcript of the call is available (click here to read).

If you listened to the conference call, what else did you find interesting? Did I miss something, if so please share. :) What are your thoughts on the above points? What do you think J.Crew should do next?