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J.Crew May Let Go of Madewell Brand

J.Crew looks to be shedding excess weight as it struggles to get its business back on track.

The company may be considering a separation of its more successful Madewell brand, sources familiar with the matter told Reuters, and an investment bank has been brought in to help assess strategic options as J.Crew battles a big debt burden and declining sales.

Though sources stressed that a decision hasn’t yet been made, the separation of Madewell could lead to a sale or spinoff.

For the second quarter, J.Crew reported comparable sales down 8 percent and revenues down 4 percent to $569.8 million. Breaking out the businesses, comparable sales at J.Crew fell 9 percent, which brought its overall sales down 6 percent to $476.7 million. At Madewell, comparable sales were up 3 percent, giving overall sales a 15 percent boost to $78.3 million.

Looking at both businesses, J.Crew had roughly $2 million in debt as of the end of July.

That debt could pose a problem, according to Reuters, because a provision with lenders prohibits J.Crew from selling Madewell if its debt compared to a measure of profit surpasses a certain ceiling.

The move is being seen by some as a potential value gain for the company’s private equity owners, TPG Capital LP and Leonard Green & Partners L.P. Others, on the other hand, think it would simply leave J.Crew without its quick-growing segment, which could end up not working out so well for the already struggling company.

No public comments have yet been made by J.Crew or the investors involved.

J.Crew has been looking to change up its strategy to better appeal to customers, and has since tried to tap into the athleisure trend with a New Balance partnership. Earlier this month, J.Crew also said it was axing its bridal collection due to sluggish sales, looking instead to focus on party dresses women would wear to other people’s weddings.

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