J. Crew to close 20 flagship outlet stores

Diving brief:

  • J. Crew Group reported Wednesday that total first-quarter revenue increased 7% to $578.5 million. The company’s Madewell sales rose 15% to $132.9 million, while flagship J. Crew sales fell 4% to $376.1 million, according to a company press release.

  • The disparity in banner performance continued with store mixes increasing 1% overall: J. Crew mixes fell 1% (after a 6% decline a year ago), while that Madewell’s comps increased 10%, following a 31% increase in the first quarter of last year.

  • Gross margin declined to 37% from 38.3% in the prior year quarter, while operating profit reached $22.1 million from an operating loss of $0.9 million l last year. Net loss for the quarter narrowed to $16.2 million from $33.9 million a year ago.

Overview of the dive:

While Madewell’s growth has slowed, as evidenced by its same-store sales, which jumped 31% last year, the brand remains the company’s beacon of hope.

The company continues to consider taking Madewell public, which, in a conference call on Wednesday, said interim CEO Michael Nicholson would give it “overall financial flexibility” and help it meet the deadlines of its debt. The group remains mired in debt, totaling $1.7 billion from $1.71 billion at the end of the first quarter of last year, the statement said. As of May 29, there were outstanding borrowings of approximately $198 million under its asset-backed loan facility, with excess availability of approximately $113 million.

The company managed to reduce its profits thanks to cost-cutting measures: selling, general and administrative expenses were $189.8 millioni.e. 32.8% of turnover, against $200.8 millionor 37.2% of revenues in the first quarter of last year.

Nicholson expressed confidence in the future, which has the company deprived of a permanent CEO and much of the creative leadership that fueled the popularity of the J. Crew brand a decade ago. Nicholson has been leading the group on a solo basis since last month, replacing a four-person team (including himself) that ran things after the abrupt departure six months ago of ex-CEO Jim Brett, who left after just over a year. a year. But that confidence seems centered on the potential of Madewell — which since April has had a CEO, for the very first time — rather than J. Crew.

Like we look to the future, we are optimistic about our plans to relaunch the J.Crew brand with new designs, assortments and brand expressions, and remain steadfast in our commitment to realizing Madewell’s long-term growth potential by as a leading global brand,” he said.

The key, therefore, is to nurture the growth of Madewell, which still contributes the minority of the company’s sales, as quickly as possible. During the quarter, the company opened one J. Crew store and 10 Madewell stores, and executives said they would continue to streamline its footprint, with plans to close approximately 20 J. Crew and outlet stores.