NEW YORK,– J.Crew Group, Inc. (the “Company”) today announced financial results for the three months and fiscal year ended February 1, 2020.
Fourth Quarter highlights:
Michael J. Nicholson, President, Chief Operating Officer, commented, “Our fourth quarter and full year results reflect exciting progress at J.Crew, driven by strong gross margin performance and the accelerated benefits from our multi-year cost optimization program, as well as continued growth at Madewell. I am proud of the team’s accomplishments this year. As a result of this strong performance, we now have an opportunity to broaden our exploration of strategic alternatives in support of our objectives to maximize value, position the Company for long-term growth and deleverage our balance sheet. As such, we have reached an agreement with certain term loan and security holders to amend the previously announced transaction support agreement, which will allow us additional time to thoroughly assess all alternatives, including the separation of J.Crew and Madewell into two independent companies and a potential IPO of Madewell.”
Jan Singer, Chief Executive Officer, commented, “I echo Mike’s sentiment on congratulating the team for executing our strategy with discipline in 2019, which led to a significant increase in profitability, and, importantly, a more efficient and stronger operating platform from which to grow. Since joining J.Crew, I have been constantly impressed by the caliber of this talented team and the passion they all possess for this iconic brand. I am enthusiastic about the opportunities that lie ahead for this business, as I bring my perspective for developing product, brand experiences, and teams towards evolving our brand strategy and driving long-term profitable growth with the consumer at the center.”
Fiscal 2019 highlights:
Balance Sheet highlights:
Transaction Support Agreement Update
Today, the Company announced that it has entered into an amendment to the Transaction Support Agreement with the other parties thereto to eliminate the requirement that it commence the proposed Madewell IPO on or before March 2, 2020 and to extend the outside date to complete the transactions contemplated by the Transaction Support Agreement from March 18, 2020 to April 30, 2020. The Company continues to pursue strategic alternatives to maximize value, including the separation of J.Crew and Madewell into two independent companies and a potential IPO of the Madewell business in the future depending on market and other conditions, and the Company and such parties continue to engage in further discussions in that regard. For further information regarding the Transaction Support Agreement, the Company refers you to the publicly filed Form 8-Ks regarding that agreement.
Cost-Optimization Program
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 $15 million 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 November 2, 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).
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 March 2, 2020, the Company operates 182 J.Crew retail stores, 140 Madewell stores, jcrew.com, jcrewfactory.com, madewell.com, and 170 factory stores. Certain product, press release and SEC filing information concerning the Company are available at the Company’s website www.jcrew.com.
Forward-Looking Statements:
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 announced agreement on the terms of a transaction, including risks that a new or amended transaction support agreement is entered into, the transaction may not be consummated on the terms set forth in the existing, amended or new transaction support agreement or in the time frame anticipated or at all, or, if the transaction is consummated, risks that the anticipated benefits of the transaction may not be achieved, 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 impact of potential global health emergencies such as COVID-19 (coronavirus), including potential negative impacts on the global economy, product demand, foreign sourcing and operations generally, 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.