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J.Crew Optimistic Despite 2Q Malaise

The latest retail victim of a wobbly economy, J. Crew Group Inc., saw its profits ebb in the second quarter. For the quarter that ended August 3rd, the preppie clothier saw its net income decline 20.7% to $17.5 million, down from last year’s $22 million.

Stuart Haselden, chief financial officer, said, “Generally speaking, it was a challenging quarter with a continuation of a lot of the trends that we and others in the industry saw in the first quarter, such as a promotional climate and traffic headwinds. It required us to get more aggressive to clear through our inventory, and the pressure on gross margins and merchandise margins was a direct result of actions we took to make sure our inventory ended in good shape.”

And while J. Crew’s inventory certainly rose from its levels at the same time last year–by 13.6% to $321.2 million—Haselden contended that carryover inventory decreased.

Striking an optimistic note, Haselden said, “We feel good about how we’re heading into the second half,” he said. Our inventory is very current.”

Haselden also expressed satisfaction with its muscular growth in direct channel business. J. Crew has benefitted especially from its international proliferation of e-commerce sites and, its discounted online outlet. “There’s certainly been some shifting in the way that consumers shop, but I don’t sense that it’s a matter of cannibalization or due to the traffic trends in our business or across the industry. Madewell’s been online since 2010 and as its store footprint grows, it drives traffic to the site and accelerates that growth.”

J. Crew’s revenues surged 6.4 percent to $559.1 million while store sales rose 3.9% to $399.1 million. Direct channel sales climbed 25.9%, a sizable 27.6% of of its quarterly retail sales.