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J.Crew to Refocus Strategy in Hopes of Returning to Profitability

Unsuccessful strategies pushed J.Crew Group Inc. to a sizable fourth-quarter loss, while the quarterly report also indicated that Madewell is resonating better with consumers than the core–and more mature–J.Crew brand.

In a Nutshell: Michael J. Nicholson, president and chief operating officer and member of the office of the chief executive officer, acknowledged the disappointing results in 2018, noting that “many new strategies we deployed were ultimately not successful and negatively impacted our financial performance, while Madewell generated another year of record results, accelerating its path to becoming a $1 billion global brand.”

The company also saw its gross margins fall to 22.4 percent in the quarter, versus the 36.7 percent it posted in the year-ago period. And the operating loss this time was $64.2 million, compared with operating income of $4.9 million a year ago. J.Crew attributed the loss to the impact of excess inventory write-downs.

According to Nicholson, “Despite continued strong performance at Madewell, we believe our 2018 results do not reflect the opportunity inherent in the collective strength of our iconic brands.”

As Nicholson noted, the company has “taken immediate and decisive action to refocus our strategy and improve performance in 2019 with the goal of returning J.Crew to profitability and sustaining momentum at Madewell. Finally, we remain highly focused on managing inventory with increased discipline while aggressively optimizing expenses.”

Sales: Total revenues for the quarter ended Feb. 2 rose 3 percent to $733.8 million from $712.7 million. By brand segment, sales at J.Crew were down 3.6 percent to $527.9 million, but rose 15.9 percent at Madewell to $157.9 million. The balance of revenues was from other sources. The company said comparable sales for the company rose 9 percent. By brand segment, J.Crew comps rose 6 percent, while Madewell comps jumped 22 percent.

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Earnings: For the quarter, the company swung to the red with a net loss of $74.4 million against net income of $34.7 million in the year-ago quarter. The company said results reflect the impact of a $39.3 million charge for losses connected to excess inventory write-downs.

The company said cash and cash equivalents were $25.7 million compared to $107.1 million at the end of the year-ago quarter. The company also said inventory grew 33 percent to $390.5 million from $292.5 million a year ago. Total debt, net of certain items such as deferred financing costs, was $1.705 billion, versus $1.714 billion last year.

The company is still in the midst of a search for a new chief executive. It currently operates 202 J.Crew stores, 131 Madewell stores, jcrew.com, jcrewfactory.com, madewell.com and 174 factory stores that include 42 J.Crew Mercantile doors.