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The Madewell Brand is Growing, But J. Crew Isn’t

J. Crew Group Inc. narrowed its first quarter loss, but it was continued growth at its Madewell brand that helped the company’s bottom line.

In a Nutshell: Michael J. Nicholson, interim chief executive officer, said, “We are encouraged by the meaningful progress we have made in the first quarter, reporting a 31 percent increase in adjusted [earnings before interest, taxes, depreciation and amortization] driven by continued momentum at Madewell and the early impact of our swift actions to improve profitability at J. Crew.”

The company said back in March when it posted its fourth-quarter loss of $74.4 million versus net income of $34.7 million in the year-ago period that unsuccessful strategies had negatively impacted its performance at the time. The latest quarterly results showed improvement, and the continued momentum of Madewell suggests that Nicholson’s comment then about Madewell on a “path to becoming a $1 billion global brand” hasn’t changed. There’s been speculation since last month that the company may spin off Madewell, and that it could happen later this year.

The company said that as of Wednesday, its earnings report date, it operated 195 J. Crew retail stores, 132 Madewell stores, 173 factory stores including 41 J. Crew Mercantile stores, and the websites jcrew.com, jcrewfactory.com and madewell.com

Net Sales: Total revenues for the quarter ended May 4 rose 7.0 percent to $578.5 million from $540.5 million. Revenues included a 14.7 percent increase in Madewell sales to $132.9 million, and a 4.0 percent decrease in sales at its core J. Crew brand.

The company said consolidated comparable company sales rose 1 percent on top of a 1 percent gain in the year-ago quarter. By brand, Madewell comps grew 10 percent on top of a 31 percent increase a year ago, while J. Crew comps slipped 1 percent on top of the 6 percent decline last year.

The company also said its gross margin in the quarter slipped to 37 percent from 38.3 percent.

The company noted that on an adjusted basis, EBITDA increased $11.4 million to $48.3 million for the quarter, compared with adjusted EBITDA of $36.9 million last year.

Earnings: The company narrowed its net loss to $16.2 million from a net loss of $33.9 million last year.

One improvement was operating income, which came in at $22.1 million versus an operating loss of $900,000 in the year-ago quarter.

At quarter end, J. Crew Group had cash and cash equivalents of $30.2 million, versus $36 million a year ago. Inventories rose 21 percent to $418.0 million from $345.3 million.

CEO’s Take: Nicholson said, “As we look ahead, we are optimistic about our plans to reignite the J. Crew brand with new designs, assortments and brand expressions, and remain steadfast in our commitment towards achieving Madewell’s long-term growth potential as a leading global brand.”

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