NEW YORK, Sept. 13, 2019 /PRNewswire/ -- J.Crew Group, Inc. (the "Company") today announced financial results for the second quarter and first half of fiscal 2019.
Second Quarter highlights:
Michael J. Nicholson, Interim Chief Executive Officer, commented, "Our second quarter results reflect our ongoing commitment to returning J.Crew to profitable growth over time. Our work to reignite the J.Crew brand with new designs, assortments, and brand expressions is well underway and we remain focused on advancing our digital transformation and elevating customer engagement across channels.
During the quarter, we launched a multi-year cost-optimization program, which is expected to generate cost savings of approximately $50 million. This program is expected to reduce overall costs and enable the Company to move faster in the execution of our strategy. These actions, combined with our previously announced review of strategic alternatives, further support our initiatives to maximize value, position the Company for long-term growth, and deleverage and strengthen our balance sheet."
First Half highlights:
Balance Sheet highlights:
During the second quarter of fiscal 2019, the Company completed a comprehensive review of its J.Crew business and launched a multi-year cost-optimization program, which is expected to generate savings of approximately $50 million over the next three years with approximately $10 million expected to be realized in fiscal 2019.
Adoption of New Accounting Standard
During the first quarter of fiscal 2019, the Company adopted pronouncements that were issued with respect to the accounting for leases. The pronouncements require lessees to recognize right-of-use lease assets ("ROU assets") and right-of-use lease liabilities ("ROU liabilities") for leases with terms of more than one year. The ROU liabilities are measured as the present value of the lease obligations. The ROU assets reflect the amount of the ROU liabilities less lease-related deferred credits. Upon adoption of the new standard, the Company recorded a significant gross-up to the balance sheet, including ROU assets of $533.5 million and ROU liabilities of $624.6 million. The Company used the effective date method whereby initial application occurred on the date of adoption with comparative periods unchanged. For more information on the adoption of the pronouncement, see the Company's Form 10-Q for the quarterly period ended August 3, 2019.
How the Company Assesses the Performance of its Business
In assessing the performance of its business, the Company considers a variety of performance and financial measures. A key measure used in its evaluation is comparable company sales, which includes (i) net sales from stores that have been open for at least 12 months, (ii) e-commerce net sales, and (iii) shipping and handling fees. Due to the 53rd week in fiscal 2017, when calculating comparable company sales for fiscal 2018, the Company realigned the weeks of fiscal 2017 to be consistent with the fiscal 2018 retail calendar.
Use of Non-GAAP Financial Measures
This announcement includes certain non-GAAP financial measures. An explanation of the manner in which the Company uses Adjusted EBITDA and an associated reconciliation to comparable GAAP measures is included in Exhibit (3).
Conference Call Information
A conference call to discuss second quarter results is scheduled for today, September 13, 2019, at 4:30 PM Eastern Time. Investors and analysts interested in listening to the call are invited to dial (877) 407-3982 approximately ten minutes prior to the start of the call. The conference call will also be simultaneously webcast at www.jcrew.com. A replay of this call will be available until September 20, 2019 and can be accessed by dialing (844) 512-2921 and entering conference ID number 13694020.
About J.Crew Group, Inc.
J.Crew Group, Inc. is an internationally recognized omni-channel retailer of women's, men's and children's apparel, shoes and accessories. As of September 13, 2019, the Company operates 192 J.Crew retail stores, 133 Madewell stores, jcrew.com, jcrewfactory.com, madewell.com, and 172 factory stores. Certain product, press release and SEC filing information concerning the Company are available at the Company's website www.jcrew.com.
Certain statements herein are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect the Company's current expectations or beliefs concerning future events, and actual results of operations may differ materially from historical results or current expectations. Any such forward-looking statements are subject to various risks and uncertainties, including the Company's substantial indebtedness, its substantial lease obligations, its ability to anticipate and timely respond to changes in trends and consumer preferences, the strength of the global economy, competitive market conditions, its ability to attract and retain key personnel, its ability to successfully develop, launch and grow its newer concepts and execute on strategic initiatives, product offerings, sales channels and businesses, its ability to implement its growth strategy, material disruption to its information systems, compromises to its data security, its ability to maintain the value of its brands and protect its trademarks, its ability to implement its real estate strategy, changes in demographic patterns, adverse or unseasonable weather or other interruptions in its foreign sourcing, customer call, order fulfillment or distribution operations, increases in the demand for or prices of raw materials used to manufacture its products, trade restrictions or disruptions, the Company's exploration of strategic alternatives to maximize the value of the Company and the risk that such exploration may not lead to a successful transaction and other factors which are set forth in the section entitled "Risk Factors" and elsewhere in the Company's Annual Report on Form 10-K and in all filings with the SEC made subsequent to the filing of the Form 10-K. Because of the factors described above and the inherent uncertainty of predicting future events, the Company cautions you against relying on forward-looking statements. The Company does not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
J.Crew Group, Inc
Condensed Consolidated Statements of Operations
(in thousands, except percentages)
Cost of goods sold, including buying and occupancy costs
As a percent of revenues
Selling, general and administrative expenses
As a percent of revenues
Operating income (loss)
As a percent of revenues
Interest expense, net
Loss before income taxes
Provision for income taxes
J.Crew Group, Inc
Condensed Consolidated Balance Sheets
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and other current assets
Refundable income taxes
Total current assets
Property and equipment, net
Right-of-use lease assets
Intangible assets, net
Liabilities and Stockholders' Deficit
Other current liabilities
Borrowings under the ABL Facility
Current portion of right-of-use lease liabilities
Due to Parent
Current portion of long-term debt
Total current liabilities
Long-term debt, net
Long-term right-of-use lease liabilities
Lease-related deferred credits, net
Deferred income taxes, net
Total liabilities and stockholders' deficit
J.Crew Group, Inc.
Reconciliation of Adjusted EBITDA
Non-GAAP Financial Measure
The following table reconciles net loss reflected on the Company's condensed consolidated statements of operations to: (i) Adjusted EBITDA (a non-GAAP measure), (ii) cash flows from operating activities (measured in accordance with GAAP) and (iii) cash, cash equivalents and restricted cash as reflected on the condensed consolidated balance sheet (measured in accordance with GAAP).
Provision for income taxes
Depreciation and amortization (including intangible assets)
Charges related to workforce reductions
Amortization of lease commitments
Lease termination payment
Changes in working capital
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of changes in foreign exchange rates on cash, cash
Decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning
Cash, cash equivalents and restricted cash, ending
The Company presents Adjusted EBITDA, a non-GAAP financial measure, because it uses such measure to: (i) monitor the performance of its business, (ii) evaluate its liquidity, and (iii) determine levels of incentive compensation. The Company believes the presentation of this measure will enhance the ability of its investors to analyze trends in its business, evaluate its performance relative to other companies in the industry, and evaluate its ability to service debt.
Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles, and therefore, differences may exist in the manner in which other companies calculate this measure. Adjusted EBITDA should not be considered an alternative to (i) net income, as a measure of operating performance, or (ii) cash flows, as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation to, or as a substitute for, analysis of the Company's results as measured in accordance with GAAP.
SOURCE J.Crew Group, Inc.
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