Madewell a bright spot as J. Crew struggles
J. Crew executives hosted a truncated conference call on Wednesday, taking no questions in a nine-and-a-half-minute presentation on its second quarter results. Q2 total revenues fell 2% to $560.9 million as same-store sales fell 5%, following a decrease of 8% in the second quarter last year, according to a company press release. The company’s net loss in the quarter widened to $20.7 million compared to $8.6 million in the year-ago period and operating income tumbled to $2.6 million compared to $6.7 million last year.
By brand, J.Crew sales fell 7% to $443.1 million and same-store sales fell 8% following a decrease of 9% in the second quarter last year; Madewell sales rose 19% to $93.1 million and same-store sales rose 11% following an increase of 3% in the second quarter last year.
The company also promoted Vincent Zanna on Wednesday, previously senior vice president of finance and treasurer, to chief financial officer and treasurer, effective immediately. He will continue reporting to Michael J. Nicholson, president and chief operating officer, according to a company press release.
With its debt swap behind it, J. Crew can now focus on fundamentals to improve the business, Nicholson said on Wednesday, and that will include refinements in merchandising, design and pricing initiatives. "Overall we are encouraged by our second-quarter performance and confident in our ability to deliver continued progress as the year unfolds," he said. "We continue to be laser-focused on delivering top line results especially in our J. Crew brand."
The financial maneuver, completed on July 13, entailed an exchange offer and refinancing, which extended the maturity of some loans and reduced the company’s debt by $300 million, Nicholson said. But that won't be enough for the beleaguered retailer, according to Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates.
"Facts are nasty things and here are the facts," he told Retail Dive. "Sales are down again, losses are up. Comparable sales fell 5%, which, given the number of closed stores, 5% looks pretty bad. $300 million gets them nowhere."
As he projected optimism about "what lies ahead," Nicholson said the company is exploring all "strategic opportunities" to maximize growth and profitability, though he gave no specifics. Davidowitz said those could be found in the company's smaller but decidedly more robust Madewell brand, which he hailed as "another ingenious thing" from former CEO Mickey Drexler, who also devised Gap Inc.'s best-performing brand, Old Navy.
"I don’t know this, I’m purely speculating — but what could be a 'strategic opportunity' is doing something with Madewell," Davidowitz said. "I don’t know if that could be done, but if everyone could agree on it, I think Madewell looks to be a very valuable asset that is increasing in value. The rest of the company doesn't appear viable given their debt, given their sales trends, given their cash burn and given their losses."
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