J.Crew Group, Inc. today announced financial results for the three months and the pro forma fiscal year ended January 28, 2012.

On March 7, 2011, J.Crew was acquired by Chinos Holdings, Inc., a company formed by investments funds affiliated with TPG Capital, L.P. and Leonard Green & Partners, L.P.  Although the Company continued as the same legal entity after the acquisition, our financial statements were prepared for the following periods: (i) March 8, 2011 to January 28, 2012 (Successor) and (ii) January 30, 2011 to March 7, 2011 (Predecessor).  To facilitate a meaningful comparison to fiscal 2010, we have also prepared a pro forma statement of operations for fiscal 2011 which reflect the combination of the Successor and Predecessor periods, giving effect to the acquisition and related transactions as if they occurred on the first day of the fiscal year.  Comparisons for the fourth quarter reflect actual results of the Successor this year versus actual results of the Predecessor last year.    

Fourth Quarter highlights:

  • Revenues increased 13% to $530.9 million, with comparable company sales increasing 6%.  Comparable company sales were flat in the fourth quarter last year.  Store sales increased 16% to $354.0 million, with comparable store sales increasing 6%. Comparable store sales decreased 5% in the fourth quarter last year.  Direct sales increased 10% to $170.8 million on top of increasing 12% in the fourth quarter last year.  
  • Gross margin increased to 37.8% from 37.4% in the fourth quarter last year.  Gross profit this year reflects the impact of purchase accounting of $2.7 million.    
  • Selling, general and administrative expenses decreased to $159.1 million from $160.7 million in the fourth quarter last year.  Last year includes transaction costs of $20.0 million.          
  • Operating income was $41.7 million, or 7.9% of revenues, compared to $15.5 million, or 3.3% of revenues, in the fourth quarter last year.  Last year includes transaction costs of $20.0 million.      
  • Net income was $15.1 million compared to $4.0 million in the fourth quarter last year.  This year includes (i) transaction-related costs and the impact of purchase accounting noted above and (ii) increased interest expense as a result of debt incurred in connection with the acquisition.  Last year includes the impact of transaction costs noted above.  
  • Adjusted EBITDA was $59.5 million compared to $51.6 million in the fourth quarter last year.  An explanation of how we use Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are included in Exhibit (4).  

Pro forma fiscal 2011 highlights:

  • Revenues increased 8% to $1,855.0 million, with comparable company sales increasing 3%.  Comparable company sales increased 7% last year.  Store sales increased 7% to $1,280.8 million, with comparable store sales increasing 1%.  Comparable store sales increased 4% last year.  Direct sales increased 11% to $545.7 million on top of increasing 15% last year.    
  • Gross margin decreased to 41.7% from 43.4% last year.  Gross profit this year reflects the impact of purchase accounting of $4.0 million.      
  • Selling, general and administrative expenses increased to $587.4 million from $533.0 million last year.  This year includes the impact of purchase accounting of $21.7 million.  Last year includes transaction costs of $20.0 million.          
  • Operating income was $185.8 million, or 10.0% of revenues, compared to $214.0 million, or 12.4% of revenues, last year.  This year includes the impact of purchase accounting of $25.7 million.  Last year includes transaction costs of $20.0 million.      
  • Net income was $51.5 million compared to $121.5 million last year.  This year reflects increased interest expense incurred in connection with the acquisition.  
  • Adjusted EBITDA was $282.2 million compared to $288.2 million last year.  An explanation of how we use Adjusted EBITDA and a reconciliation of net income to Adjusted EBITDA are included in Exhibit (5).    

Balance Sheet highlights as of January 28, 2012:  

  • Cash and cash equivalents were $221.8 million compared to $381.4 million last year.  
  • Total debt was $1,594 million, including the seven-year senior secured term loan of $1,194 million and the eight-year senior unsecured notes of $400 million, incurred in connection with the acquisition, compared with no debt outstanding last year.  
  • Inventories were $242.7 million compared to $214.4 million last year.  Inventory per square foot increased 6%.

Use of Non-GAAP Financial Measures

This announcement contains non-GAAP financial measures.  An explanation of these measures and a reconciliation to the most directly comparable GAAP financial measures are included in Exhibits (4) and (5).  

Conference Call Information

A conference call to discuss fourth quarter results is scheduled for tomorrow, March 20, 2012, at 11:00 AM Eastern Time.  Investors and analysts interested in participating in the call are invited to dial (877) 407-3982 approximately ten minutes prior to the start of the call.  The conference call will also be webcast live at www.jcrew.com.  A replay of this call will be available until March 27, 2012 and can be accessed by dialing (877) 870-5176 and entering conference ID number 389713.  

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