Monday, March 31, 2014

J.Crew Profit Drops {uh oh!}

The following is from Newsday (click here to read in its entirety):
J.Crew profit drops as mall traffic wanes; company reported pursuing IPO
March 25, 2014
By Lindsay Rupp  

J.Crew Group Inc., the retail chain owned by TPG Capital and Leonard Green & Partners LP, reported a 42 percent drop in fourth-quarter profit amid a broader decline in shopping-mall traffic.

Net income tumbled to $5.92 million in the quarter, down from $10.2 million a year earlier, the New York-based company said Monday in a statement. Still, revenue grew almost 7 percent to $686.2 million in the period that ended Feb. 1.

J.Crew is working to bounce back from an industry slump that hurt holiday sales and triggered a wave of discounting among rival retailers. At the same time, the company is contemplating an initial public offering for later this year, according to people familiar with the matter. It also held early-stage talks with Japan's Fast Retailing Co. about a sale of the chain, people said in February.

... The chain could fetch a valuation of as much as $5 billion in a potential public offering, one person familiar with the situation said.

Tapping the IPO market would mean following in the footsteps of other private-equity backed retailers. Burlington Stores Inc., which is backed by Bain Capital LLC, is up 83 percent since its October debut. Vince Holding Corp., the apparel company backed by Sun Capital Partners Inc., has gained almost 24 percent since its November debut.

... A $5 billion valuation would be a big jump over what TPG and Leonard Green paid for the chain in November 2010. Net of cash, the value of that deal was about $2.64 billion, data compiled by Bloomberg show. At the time, the takeover drew complaints from shareholders that chief executive Mickey Drexler didn't get a fair price for the company.

The company also said Monday that it will incur a refinancing loss of $37 million in the first quarter.
(1) Very interesting to see that J.Crew did not perform as well as in other quarters. For the most part, J.Crew had been able to avoid the issues other retailers faced (like the decline in mall shopping).

(2) I also want to point out that as much as J.Crew does not like it, they are still a "shopping mall" store. So when I saw that line in the article, I chuckled to myself.

(3) Lastly, I am interested to hear how J.Crew plans to "bounce back from an industry slump that hurt holiday sales and triggered a wave of discounting among rival retailers". Right now, J.Crew has been offering back to back promotions, and the sale section is still packed with goodies. (I am not complaining about the promotions, in fact, I am happy to see so many. But is it just me, or it doesn't feel like they are moving merchandise like they should be?)

What are your thoughts on J.Crew's performance? Are you surprised or not surprised by the latest numbers? What do you think J.Crew's strategy should be?