J. Crew Group had 33 net new store openings in the last year and opened 6 new stores in Q2. Net square footage in Q2 grew by 8 percent. J. Crew expects to open 42 new stores in full year 2012.
J. Crew has received a great positive response from its Very Personal Stylist program. Currently, the company does very little fulfillment from stores, but it is a high priority for it to expand omni-channel fulfillment. The Very Personal Stylist program is the beginning of J. Crew's attempt to sell across channels.
J. Crew's Madewell business is doing well. It will open 15 Madewell stores this year and 15 to 20 stores next year.
J. Crew has also been pleased with its men's only stores. It just opened one in South Coast Plaza and plans to open 2 more this year in Copley and the Grove. It will have a total of 9 men's only stores by the end of the year. The stores are targeting the more affluent customer.
Internationally, J. Crew hopes to have stores open in the United Kingdom in the second half of 2013 and in Hong Kong by the first half of 2014. In October, J. Crew is launching its partnership with Lane Crawford in Hong Kong.
The consumer is currently buying for what he/she is wearing now, not what he/she plans to wear in the future.
Financials.
Total revenues increased by 21 percent. Comparable revenues, which consists of comp store sales, direct sales, and shipping and handling revenues, increased by 14 percent. Stores sales increased by 24 percent. Direct sales increased by 16 percent.
Gross profit margin in Q2 was 45.1 percent, an increase of 860 basis points. Excluding an amortization charge last year, gross profit margin increased by 360 basis points. Of the 360 points, 240 points were expansion of merchandise margins and 120 basis points were buying and occupancy leverage. J. Crew was able to sell more merchandise at full price, resulting in lower markdowns, which helped its merchandise margin. The full prices have been about the same as last year.
Margins also benefited somewhat from lower cotton prices, although wool prices increased. Average unit costs (AUC) will increase by high single-digits in the second half of 2012 due to product mix. However, those increased costs will not pressure margins because initial markups (IMU) and average unit revenue (AUR) will also increase.
SG&A expenses as a percent of revenues were 33.2 percent versus 33.7 percent last year. Excluding litigation costs from last year, SG&A expenses as a percent of revenues increased by 100 basis points over last year.
Adjusted EBITDA was 16.9 percent of revenues versus 14.8 percent last year.
Inventories at the end of Q2 were $283 million versus $260 million a year ago. When adjusted for a change in purchase accounting and normalizing in-transit inventories from last year, inventory at the end of Q2 increased by 24 percent.
The transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/838441-j-crew-group-management-discusses-q2-2012-results-earnings-call-transcript?page=3&p=qanda&l=last
Copyright 2012 Jaygo's Earnings Conference Call Summaries
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
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