J.Crew Announces Latest Quarter Results

"Thanks!" to Julie who shared with us an interesting article (click here) over at MarketWatch that included the statement that "J.Crew Group Inc. shares jumped Tuesday evening after the apparel and accessories retailer posted a narrower-than-expected quarterly loss".

There is another article (click here for its entirety) that discusses the conference call held today by J.Crew that reviews their "financial results for the three months (fourth quarter) and fiscal year ended January 31, 2009 (fiscal 2008)".

J Crew's loss beats Street, expects solid Q1
By Reuters
March 10, 2009

J.Crew Group Inc slid into the red after quarterly sales dived, but unveiled a first-quarter outlook that may surpass Wall Street expectations, sending its shares up 8 percent on Tuesday. ....

But the apparel retailer, which announced a cost-saving plan last month that encompassed job cuts and fewer store openings, would not give an annual outlook given economic uncertainty and worsening consumption.

Chief Executive Millard Drexler told analysts on a call the company, which had resorted to holiday markdowns to clear inventory, was striving to adjust to "this new, not fun, retail reality." The fourth quarter was quite extraordinary in the clearance pressures we all had," he said. When asked about the current consumer environment, Drexler replied, "It kind of sucks, you know."

J.Crew was slower than most other apparel retailers to feel the negative effects of the U.S. recession. But in past months, J Crew cut its full-year outlook and scaled back its capital expenditure plan as traffic slowed at its stores, warning that a "sea-change" had occurred in customers' buying habits.

The net loss in J.Crew's fourth quarter came to $13.5 million, or 22 cents per share, compared with a year-ago profit of $25 million, or 39 cents per share. Its sales fell 3 percent in the holiday quarter to $388 million, while same-store sales, a key gauge of performance, fell 13 percent. Gross margin fell in the quarter to 27.6 percent of revenues from 41.3 percent a year earlier due to more markdowns used to clear unsold items.

"Significant" margin pressure was expected to continue in the first half of 2009, Chief Financial Officer Jim Scully said. Scully said the company expected its small Madewell chain to incur a loss of $15 million to $16 million in 2009, compared to $11 million last year.

Drexler said inventory levels would be in line with current business trends by the end of the second quarter. Analysts have criticized what they have called too-high inventory levels at J Crew that have appeared out of whack with consumer buying patterns.

Costs also rose in the holiday quarter due to spending on J Crew's direct-to-consumer division, which has seen software glitches that affected order fulfillment.

J.Crew has so many issues to address: from external issues like the current economic climate which has been curbing consumer spending for clothing, to internal, J.Crew specific, issues like their high inventory levels and Madewell's performance. J.Crew has already reduced its workforce and suspended some of their benefits (refer to this post) to reduce costs... but will these actions be enough?

What do you think of these results- surprised or not surprised? Do you think the outlook for J.Crew will get better or worse (for the rest of the year?)