J.Crew Group, Inc. Announces Fourth Quarter and Pro Forma Fiscal 2011 Results
Company to Host Conference Call and Webcast Tomorrow at 11:00 AM Eastern Time
NEW YORK, March 19, 2012 /PRNewswire/ -- J.Crew Group, Inc. today announced financial results for the three months and the pro forma fiscal year ended January 28, 2012.
On March 7, 2011, J.Crew was acquired by Chinos Holdings, Inc., a company formed by investments funds affiliated with TPG Capital, L.P. and Leonard Green & Partners, L.P. Although the Company continued as the same legal entity after the acquisition, our financial statements were prepared for the following periods: (i) March 8, 2011 to January 28, 2012 (Successor) and (ii) January 30, 2011 to March 7, 2011 (Predecessor). To facilitate a meaningful comparison to fiscal 2010, we have also prepared a pro forma statement of operations for fiscal 2011 which reflect the combination of the Successor and Predecessor periods, giving effect to the acquisition and related transactions as if they occurred on the first day of the fiscal year. Comparisons for the fourth quarter reflect actual results of the Successor this year versus actual results of the Predecessor last year.
Fourth Quarter highlights:
- Revenues increased 13% to $530.9 million, with comparable company sales increasing 6%. Comparable company sales were flat in the fourth quarter last year. Store sales increased 16% to $354.0 million, with comparable store sales increasing 6%. Comparable store sales decreased 5% in the fourth quarter last year. Direct sales increased 10% to $170.8 million on top of increasing 12% in the fourth quarter last year.
- Gross margin increased to 37.8% from 37.4% in the fourth quarter last year. Gross profit this year reflects the impact of purchase accounting of $2.7 million.
- Selling, general and administrative expenses decreased to $159.1 million from $160.7 million in the fourth quarter last year. Last year includes transaction costs of $20.0 million.
- Operating income was $41.7 million, or 7.9% of revenues, compared to $15.5 million, or 3.3% of revenues, in the fourth quarter last year. Last year includes transaction costs of $20.0 million.
- Net income was $15.1 million compared to $4.0 million in the fourth quarter last year. This year includes (i) transaction-related costs and the impact of purchase accounting noted above and (ii) increased interest expense as a result of debt incurred in connection with the acquisition. Last year includes the impact of transaction costs noted above.
- Adjusted EBITDA was $59.5 million compared to $51.6 million in the fourth quarter last year. An explanation of how we use Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are included in Exhibit (4).
Pro forma fiscal 2011 highlights:
- Revenues increased 8% to $1,855.0 million, with comparable company sales increasing 3%. Comparable company sales increased 7% last year. Store sales increased 7% to $1,280.8 million, with comparable store sales increasing 1%. Comparable store sales increased 4% last year. Direct sales increased 11% to $545.7 million on top of increasing 15% last year.
- Gross margin decreased to 41.7% from 43.4% last year. Gross profit this year reflects the impact of purchase accounting of $4.0 million.
- Selling, general and administrative expenses increased to $587.4 million from $533.0 million last year. This year includes the impact of purchase accounting of $21.7 million. Last year includes transaction costs of $20.0 million.
- Operating income was $185.8 million, or 10.0% of revenues, compared to $214.0 million, or 12.4% of revenues, last year. This year includes the impact of purchase accounting of $25.7 million. Last year includes transaction costs of $20.0 million.
- Net income was $51.5 million compared to $121.5 million last year. This year reflects increased interest expense incurred in connection with the acquisition.
- Adjusted EBITDA was $282.2 million compared to $288.2 million last year. An explanation of how we use Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are included in Exhibit (5).
Balance Sheet highlights as of January 28, 2012:
- Cash and cash equivalents were $221.8 million compared to $381.4 million last year.
- Total debt was $1,594 million, including the seven-year senior secured term loan of $1,194 million and the eight-year senior unsecured notes of $400 million, incurred in connection with the acquisition, compared with no debt outstanding last year.
- Inventories were $242.7 million compared to $214.4 million last year. Inventory per square foot increased 6%.
Use of Non-GAAP Financial Measures
This announcement contains non-GAAP financial measures. An explanation of these measures and a reconciliation to the most directly comparable GAAP financial measures are included in Exhibits (4) and (5).
Conference Call Information
A conference call to discuss fourth quarter results is scheduled for tomorrow, March 20, 2012, at 11:00 AM Eastern Time. Investors and analysts interested in participating in 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 webcast live at www.jcrew.com. A replay of this call will be available until March 27, 2012 and can be accessed by dialing (877) 870-5176 and entering conference ID number 389713.
About J.Crew Group, Inc.
J.Crew Group, Inc. is a nationally recognized multi-channel retailer of women's, men's and children's apparel, shoes and accessories. As of March 9, 2012, the Company operates 267 retail stores (including 225 J.Crew retail stores, 10 crewcuts stores and 32 Madewell stores), jcrew.com, the J.Crew catalog, madewell.com, the Madewell catalog, and 96 factory outlet stores. Additionally, certain product, press release and SEC filing information concerning the Company are available at the Company's website www.jcrew.com.
ForwardLooking Statements:
Certain statements herein, including the information in Exhibit (6) hereof, 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 our substantial indebtedness and lease obligations, the strength of the economy, declines in consumer spending or changes in seasonal consumer spending patterns, competitive market conditions, our ability to anticipate and timely respond to changes in trends and consumer preferences, our ability to successfully develop, launch and grow our newer concepts, products offerings, sales channels and businesses, material disruption to our information systems, our ability to implement our real estate strategy, our ability to attract and retain key personnel, interruptions in our foreign sourcing operations, impact of costs of mailing, paper and printing, and other factors which are set forth in the Company's Annual Report on Form 10-K and in all filings with the SEC made by the Company subsequent to the filing of the Form 10-K. The Company does not undertake to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.
Exhibit (1) J.Crew Group, Inc. Condensed Consolidated Statements of Operations (in thousands, except percentages) (unaudited) |
|||
Fourth Quarter of |
Fourth Quarter of |
||
(Successor) |
(Predecessor) |
||
Net sales: |
|||
Stores |
$ 354,044 |
$ 304,645 |
|
Direct |
170,815 |
155,788 |
|
Other |
6,083 |
11,067 |
|
Total revenues |
530,942 |
471,500 |
|
Cost of goods sold, including buying and occupancy costs |
330,131 |
295,275 |
|
Gross profit |
200,811 |
176,225 |
|
As a percent of revenues |
37.8% |
37.4% |
|
Selling, general and administrative expenses |
159,129 |
160,743 |
|
As a percent of revenues |
30.0% |
34.1% |
|
Operating income |
41,682 |
15,482 |
|
As a percent of revenues |
7.9% |
3.3% |
|
Interest expense, net |
25,095 |
528 |
|
Income before income taxes |
16,587 |
14,954 |
|
Provision for income taxes |
1,440 |
10,917 |
|
Net income |
$ 15,147 |
$ 4,037 |
|
Exhibit (2) J.Crew Group, Inc. Condensed Consolidated Pro Forma Statement of Operations (in thousands, except percentages) (unaudited) |
||||||
For the Period March 8, 2011 |
For the Period |
Adjustments |
Pro forma Fiscal 2011 |
Fiscal 2010 |
||
(Successor) |
(Predecessor) |
(Predecessor) |
||||
Net sales: |
||||||
Stores |
$ 1,194,276 |
$ 86,474 |
$ — |
$ 1,280,750 |
$ 1,192,876 |
|
Direct |
502,033 |
43,642 |
— |
545,675 |
490,594 |
|
Other |
25,441 |
3,122 |
— |
28,563 |
38,757 |
|
Total revenues |
1,721,750 |
133,238 |
— |
1,854,988 |
1,722,227 |
|
Cost of goods sold, including buying and occupancy costs |
1,042,197 |
70,284 |
(a) (30,689) |
1,081,792 |
975,230 |
|
Gross profit |
679,553 |
62,954 |
30,689 |
773,196 |
746,997 |
|
As a percent of revenues |
39.5% |
47.2% |
41.7% |
43.4% |
||
Selling, general and administrative expenses |
574,877 |
79,736 |
(a) (67,214) |
587,399 |
533,029 |
|
As a percent of revenues |
33.4% |
59.8% |
31.7% |
30.9% |
||
Operating income (loss) |
104,676 |
(16,782) |
97,903 |
185,797 |
213,968 |
|
As a percent of revenues |
6.1% |
(12.6)% |
10.0% |
12.4% |
||
Interest expense, net |
91,683 |
1,166 |
(b) 8,498 |
101,347 |
3,914 |
|
Income before income taxes |
12,993 |
(17,948) |
89,405 |
84,450 |
210,054 |
|
Provision (benefit) for income taxes |
584 |
(1,798) |
(c) 34,150 |
32,936 |
88,549 |
|
Net income (loss) |
$ 12,409 |
$ (16,150) |
$ 55,255 |
$ 51,514 |
$ 121,505 |
|
See notes to pro forma statement of operations |
||||||
Notes to Pro Forma Statement of Operations (a) To give effect to the following adjustments: |
||
(in thousands) |
Adjustments |
|
Amortization expense(1) |
$ 813 |
|
Depreciation expense(2) |
880 |
|
Sponsor monitoring fees(3) |
649 |
|
Amortization of lease commitments, net(4) |
2,199 |
|
Elimination of non-recurring charges(5) |
(102,444) |
|
Total pro forma adjustment |
$ (97,903) |
|
Pro forma adjustment: |
||
Recorded in cost of goods sold |
$ (30,689) |
|
Recorded in selling, general and administrative expenses |
(67,214) |
|
Total pro forma adjustment |
$ (97,903) |
|
(1) To record five weeks of additional amortization expense to reflect a full year of amortization of intangible assets for our Madewell brand name, loyalty program and customer lists amortized on a straight-line basis over their respective useful lives. (2) To record five weeks of additional depreciation expense to reflect a full year of depreciation of the step-up of property and equipment allocated on a straight-line basis over a weighted average remaining useful life of 8.2 years. (3) To record five weeks of additional expense to reflect a full year of an annual monitoring fee (calculated as the greater of 40 basis points of annual revenues or $8 million) to be paid to the Sponsors in accordance with a management services agreement. (4) To record five weeks of additional amortization expense to reflect a full year of amortization of favorable and unfavorable lease commitments amortized on a straight-line basis over the remaining lease life, offset by the elimination of the amortization of historical deferred rent credits. (5) To eliminate non-recurring charges that were incurred in connection with the acquisition and related transactions, including acquisition-related share based compensation, transaction costs, transaction-related litigation recoveries, and amortization of the step-up in the carrying value of inventory. |
||
(b) To give effect to the following adjustments: |
||
(in thousands) |
Adjustments |
|
Pro forma annual cash interest expense(1) |
$ 91,729 |
|
Pro forma annual amortization of deferred financing costs(1) |
9,602 |
|
Less recorded interest expense, net |
(92,833) |
|
Total pro forma adjustment to interest expense, net |
$ 8,498 |
|
(1) To record a full year of interest expense associated with borrowings under the term loan facility and notes, and the amortization of deferred financing costs. Pro forma cash interest expense reflects a weighted-average interest rate of 5.6%. |
||
(c) To reflect our expected annual effective tax rate of approximately 39%. |
||
Exhibit (3) J.Crew Group, Inc. Condensed Consolidated Balance Sheets |
|||
(in thousands) |
January 28, |
January 29, |
|
(Successor) |
(Predecessor) |
||
Assets |
|||
Current assets: |
|||
Cash and cash equivalents |
$ 221,852 |
$ 381,360 |
|
Inventories |
242,659 |
214,431 |
|
Prepaid expenses and other current assets |
48,052 |
39,104 |
|
Deferred income taxes, net |
9,971 |
— |
|
Prepaid income taxes |
4,087 |
— |
|
Total current assets |
526,621 |
634,895 |
|
Property and equipment, net |
264,572 |
197,210 |
|
Favorable lease commitments, net |
48,930 |
— |
|
Deferred financing costs, net |
58,729 |
970 |
|
Deferred income taxes, net |
— |
20,171 |
|
Intangible assets, net |
985,322 |
4,343 |
|
Goodwill |
1,686,915 |
— |
|
Other assets |
2,433 |
2,577 |
|
Total assets |
$ 3,573,522 |
$ 860,166 |
|
Liabilities and Stockholders' Equity |
|||
Current liabilities: |
|||
Accounts payable |
$ 158,116 |
$ 147,083 |
|
Other current liabilities |
116,339 |
117,642 |
|
Interest payable |
26,735 |
— |
|
Income taxes payable |
— |
1,673 |
|
Deferred income taxes, net |
— |
4,277 |
|
Current portion of long-term debt |
15,000 |
— |
|
Total current liabilities |
316,190 |
270,675 |
|
Long-term debt |
1,579,000 |
— |
|
Unfavorable lease commitments and deferred credits |
53,700 |
67,665 |
|
Deferred income taxes, net |
410,515 |
— |
|
Other liabilities |
37,065 |
10,705 |
|
Stockholders' equity |
1,177,052 |
511,121 |
|
Total liabilities and stockholders' equity |
$ 3,573,522 |
$ 860,166 |
|
Exhibit (4) J.Crew Group, Inc. Reconciliation of Adjusted EBITDA Non-GAAP Financial Measure (unaudited) |
|||
The following table reconciles net income reflected on the Company's condensed consolidated statements of operations for the fourth quarter to: (i) Adjusted EBITDA (a non-GAAP measure), (ii) cash flows from operating activities (prepared in accordance with GAAP) and (iii) cash and cash equivalents as reflected on the condensed consolidated balance sheet (prepared in accordance with GAAP). |
|||
(in millions) |
Fourth Quarter of |
Fourth Quarter of |
|
Net income |
$ 15.1 |
$ 4.0 |
|
Provision for income taxes |
1.4 |
10.9 |
|
Interest expense, net |
25.1 |
0.5 |
|
Depreciation and amortization |
20.3 |
13.1 |
|
EBITDA |
61.9 |
28.5 |
|
Share-based compensation |
1.0 |
3.8 |
|
Amortization of inventory step-up |
1.7 |
— |
|
Amortization of lease commitments |
2.7 |
(0.7) |
|
Sponsor monitoring fees |
2.0 |
— |
|
Transaction costs |
— |
10.0 |
|
Transaction-related litigation |
(9.8) |
10.0 |
|
Adjusted EBITDA |
59.5 |
51.6 |
|
Taxes paid |
(17.4) |
(13.4) |
|
Interest paid |
(7.6) |
(0.1) |
|
Changes in working capital |
74.7 |
50.4 |
|
Cash flows from operating activities |
109.2 |
88.5 |
|
Cash flows from investing activities |
(24.0) |
(14.4) |
|
Cash flows from financing activities |
(6.1) |
(4.4) |
|
Increase in cash |
79.1 |
69.7 |
|
Cash and cash equivalents, beginning |
142.7 |
311.7 |
|
Cash and cash equivalents, ending |
$ 221.8 |
$ 381.4 |
|
Exhibit (5) J.Crew Group, Inc. Reconciliation of Adjusted EBITDA Non-GAAP Financial Measure (unaudited) |
|||
The following table reconciles net income reflected on the Company's condensed consolidated pro forma statements of operations to: (i) Adjusted EBITDA (a non-GAAP measure), (ii) cash flows from operating activities (prepared in accordance with GAAP) and (iii) cash and cash equivalents as reflected on the condensed consolidated balance sheet (prepared in accordance with GAAP). |
|||
(in millions) |
Pro forma Fiscal 2011 |
Fiscal 2010 |
|
Net income |
$ 51.5 |
$ 121.5 |
|
Provision for income taxes |
32.9 |
88.6 |
|
Interest expense, net |
101.4 |
3.9 |
|
Depreciation and amortization |
74.2 |
49.8 |
|
EBITDA |
260.0 |
263.8 |
|
Transaction costs |
— |
20.0 |
|
Share-based compensation |
4.4 |
10.6 |
|
Amortization of lease commitments |
9.8 |
(6.2) |
|
Sponsor monitoring fees |
8.0 |
— |
|
Adjusted EBITDA |
282.2 |
288.2 |
|
Taxes paid |
(35.5) |
(87.2) |
|
Interest paid |
(56.0) |
(1.1) |
|
Changes in working capital |
(45.5) |
(18.1) |
|
Cash flows from operating activities |
145.2 |
181.8 |
|
Cash flows from investing activities |
(3,077.5) |
(52.3) |
|
Cash flows from financing activities |
2,772.7 |
(46.2) |
|
Increase (decrease) in cash |
(159.6) |
83.3 |
|
Cash and cash equivalents, beginning |
381.4 |
298.1 |
|
Cash and cash equivalents, ending |
$ 221.8 |
$ 381.4 |
|
We present Adjusted EBITDA, a non-GAAP financial measure, because we use such measure to monitor and evaluate both the performance of our business and our liquidity. We believe the presentation of this measure will enhance the ability of our investors to analyze trends in our business, evaluate our performance relative to other companies in the industry, and evaluate our ability to service debt.
Adjusted EBITDA eliminates the impact of items such as non-cash share-based compensation, transaction costs, litigation costs, sponsor monitoring fees, as well as the impact of purchase accounting adjustments resulting from the acquisition of the Company.
Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles and this computation may vary from others in the industry. 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.
Exhibit (6) Actual and Projected Store Count and Square Footage(a) |
|||||
Fiscal 2011 (Actual) |
|||||
Quarter |
Total stores open at |
Number of stores |
Number of stores |
Total stores open at |
|
1st Quarter |
333 |
5 |
(1) |
337 |
|
2nd Quarter |
337 |
6 |
— |
343 |
|
3rd Quarter |
343 |
17 |
— |
360 |
|
4th Quarter |
360 |
5 |
(3) |
362 |
|
Fiscal 2011 (Actual) |
|||||
Quarter |
Total gross square |
Gross square feet |
Reduction of gross |
Total gross square |
|
1st Quarter |
2,006,999 |
31,039 |
(6,461) |
2,031,577 |
|
2nd Quarter |
2,031,577 |
25,529 |
(4,075) |
2,053,031 |
|
3rd Quarter |
2,053,031 |
83,726 |
— |
2,136,757 |
|
4th Quarter |
2,136,757 |
16,522 |
(14,616) |
2,138,663 |
|
Fiscal 2012 (Projected) |
|||||
Quarter |
Total stores open at |
Number of stores |
Number of stores |
Total stores open at |
|
1st Quarter |
362 |
10 |
— |
372 |
|
2nd Quarter |
372 |
7 |
(1) |
378 |
|
3rd Quarter |
378 |
19 |
(1) |
396 |
|
4th Quarter |
396 |
6 |
— |
402 |
|
Fiscal 2012 (Projected) |
|||||
Quarter |
Total gross square |
Gross square feet |
Reduction of gross |
Total gross square |
|
1st Quarter |
2,138,663 |
42,057 |
(1,811) |
2,178,909 |
|
2nd Quarter |
2,178,909 |
42,382 |
(2,576) |
2,218,715 |
|
3rd Quarter |
2,218,715 |
100,687 |
(14,156) |
2,305,246 |
|
4th Quarter |
2,305,246 |
30,417 |
— |
2,335,663 |
|
(a) Excludes three clearance stores and includes one factory store that is temporarily closed due to flooding. (b) Stores opened or closed during fiscal 2011 by channel are as follows: Q1 – One retail, one factory, one retail crewcuts, and two Madewell stores. Closed one retail store. Q2 – Three factory, one crewcuts factory, and two Madewell stores. Q3 – Six retail, four factory and seven Madewell stores. Q4 – One retail, one factory, one crewcuts factory, and two Madewell stores. Closed two retail stores and one Madewell store. (c) Stores projected to be opened or closed during fiscal 2012 by channel are as follows: Q1 – Three retail and seven Madewell stores. Q2 – Five retail, one factory, and one Madewell stores. Close one Madewell store. Q3 – Six retail, seven factory, one crewcuts, and five Madewell stores. Close one retail store. Q4 – Two retail, two factory, and two Madewell stores. |
|
Exhibit (7) Historical Comparable Sales (Unaudited) |
||||
Increase (decrease) in |
||||
Fiscal 2011 |
Comparable company sales(a) |
Comparable store sales |
Direct sales |
|
1st Quarter |
(2.8)% |
(5.8)% |
5.3% |
|
2nd Quarter |
3.5% |
0.8% |
13.1% |
|
3rd Quarter |
5.4% |
1.5% |
17.5% |
|
4th Quarter |
6.4% |
6.3% |
9.6% |
|
Increase (decrease) in |
||||
Fiscal 2010 |
Comparable company sales(a) |
Comparable store sales |
Direct sales |
|
1st Quarter |
15.9% |
15.1% |
19.9% |
|
2nd Quarter |
11.6% |
10.6% |
16.3% |
|
3rd Quarter |
2.0% |
(1.4)% |
11.8% |
|
4th Quarter |
0.1% |
(5.2)% |
11.9% |
|
(a) Comparable company sales include (i) comparable store sales, (ii) direct sales, and (iii) shipping and handling fees, which are reported as other revenues. |
|
SOURCE J. Crew Group, Inc.
WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?
Newsrooms &
Influencers
Digital Media
Outlets
Journalists
Opted In
Share this article