J.Crew News: Stock Slides Further & Excess Inventory

"Thanks!" to Montrose who shared with us interesting (and sad) news about J.Crew's stock price.

J.Crew shares sink lower on downgrade
By Associated Press
Article Link
November 12, 2008

Shares of J.Crew Group Inc. continued to slump on Wednesday, after an analyst said the apparel company is discounting at levels that might harm results and downgraded it to "Sell."

J.Crew shares lost $2.26, or 16.3 percent, to $11.64, after earlier sinking to a new all-time low of $11.60. The stock has dropped to a new all-time low each day this week. Previously it traded in a 52-week range of $13.60 to $51.96.

Brean Murray, Carret & Co. analyst Eric Beder wrote in a note to investors Wednesday that J. Crew is being hurt by a weak economy and a customer base not shopping for J.Crew "bread and butter basics." He said surveys and store tours have shown J.Crew is becoming "more and more aggressive," to clear out inventory.

"We believe that it will not be until the first half of 2009 before the company has fully right-sized its inventory position, Beder wrote. "As such, even with J.Crew trading near all-time lows, we believe there remains significant risk in the story."

He downgraded the company to "Sell" from "Hold" and set a $12 price target on the stock. Beder also cut his 2008 earnings estimate to $1.24 from $1.49 and his 2009 earnings estimate to $1.28 from $1.92.

"We do not believe the J.Crew business model works at the current levels and depth of price cuts," he wrote.

In another article Montrose sent (click here), J.Crew was said to be "entering the third quarter with an additional $15 million in goods".

I did not think that some of the price cuts were that steep, although they have had a lot of sales recently (in their stores) that were at an additional 40-50% off (which my local stores had never carried before). I have also definitely noticed an increase in promotions (e.g. emails). However, some of those promotions were not always the most attractive offers. It will be interesting to see how J.Crew alleviates themselves from the excess inventory without damaging their brand perception. J.Crew, like most other retailers, will be facing some hard times this holiday season.

What do you think of the articles? Do you think J.Crew is discounting prices that will harm them? How do you think J.Crew should liquidate its excess inventory while preserving its brand image?