SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 333-424237
---------------
J. CREW GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 22-2894486
- ------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
770 BROADWAY, NEW YORK, NEW YORK 10003
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (212) 209-2500
- ------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Shares of common stock, par value $0.01 per share, outstanding at May 2, 1998:
60,745.
<PAGE>
J. CREW GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
Consolidated Balance Sheets as of May 2, 1998 (unaudited) and January 31, 1998
Consolidated Statements of Operations (unaudited) for the thirteen weeks ended
May 2, 1998 and May 1, 1997
Consolidated Statements of Cash Flows (unaudited) for the thirteen weeks ended
May 2, 1998 and May 1, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Item 3. Quantitative and Qualitative Disclosures about Market Risk
----------------------------------------------------------
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Item 3. Defaults Upon Senior Securities
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Item 5. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
SIGNATURES
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
--------------------
J. CREW GROUP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
May 2,
1998 January 31,
(unaudited) 1998
----------------- ----------------
(in thousands)
ASSETS
- ------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents............................................... $ 13,294 $ 12,166
Accounts receivable (net of allowance for doubtful
accounts of $5,610 and $5,438).......................................... 15,050 16,834
Merchandise inventories................................................. 202,370 202,763
Prepaid expenses and other current assets............................... 51,113 62,399
Federal income tax receivable........................................... 8,829 --
--------- ---------
Total current assets............................................... 290,656 294,162
--------- ---------
PROPERTY AND EQUIPMENT -- AT COST:...................................... 174,445 166,276
Less accumulated depreciation and amortization........................ (60,045) (55,613)
--------- ---------
114,400 110,663
OTHER ASSETS............................................................ 17,147 17,053
--------- ---------
TOTAL ASSETS............................................................ $ 422,203 $ 421,878
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
CURRENT LIABILITIES:
Notes payable -- bank................................................... $ 38,000 $ --
Accounts payable........................................................ 65,854 65,553
Other current liabilities............................................... 48,903 77,700
Deferred income taxes................................................... 7,981 7,981
Federal and state income taxes.......................................... -- 251
--------- ---------
Total current liabilities.......................................... 160,738 151,485
--------- ---------
LONG-TERM DEBT.......................................................... 300,645 298,161
DEFERRED CREDITS AND OTHER LONG TERM--LIABILITIES....................... 44,648 43,578
REDEEMABLE PREFERRED STOCK.............................................. 134,749 130,296
STOCKHOLDERS' DEFICIT................................................... (218,577) (201,642)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT............................. $ 422,203 $ 421,878
========= =========
</TABLE>
See notes to unaudited consolidated financial statements.
3
<PAGE>
J. CREW GROUP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Thirteen weeks ended
May 2, 1998 May 1, 1997
----------- -----------
(unaudited)
(in thousands)
<S> <C> <C>
Net sales............................................................... $163,430 $162,227
Other revenues.......................................................... 2,356 3,000
-------- --------
Revenues........................................................... 165,786 165,227
Cost of goods sold including buying and occupancy costs................. 96,818 92,011
-------- --------
Gross profit....................................................... 68,968 73,216
Selling, general and administrative expenses............................ 81,268 80,876
-------- --------
Loss from operations............................................... (12,300) (7,660)
Interest expense -- net................................................. 9,362 2,618
-------- --------
Loss before income taxes........................................... (21,662) (10,278)
Income tax benefit...................................................... 8,880 4,200
-------- --------
Net loss........................................................... $(12,782) $ (6,078)
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
4
<PAGE>
J. CREW GROUP, INC. AND SUBSIDIARIES
------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Thirteen weeks ended
May 2, 1998 May 1, 1997
----------- -----------
(unaudited)
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................. $(12,782) $ (6,078)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization.................................... 3,511 2,769
Amortization of deferred financing costs......................... 538 99
Amortization of restricted stock................................. 300 --
Non cash interest expense........................................ 2,484 --
Provision for losses on accounts receivable...................... 1,651 1,408
Changes in assets and liabilities providing/(using) cash:
Accounts receivable.............................................. 133 6,643
Merchandise inventories.......................................... 393 (18,876)
Prepaid expenses and other current assets........................ 11,286 4,870
Income taxes receivable.......................................... (9,080) (10,590)
Other assets..................................................... (819) (954)
Accounts payable................................................. 301 (6,939)
Other liabilities................................................ (28,542) (21,647)
-------- --------
Net cash used in operating activities................................. (30,626) (49,295)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................................. (8,169) (9,469)
Proceeds from construction allowances................................. 1,923 2,735
-------- --------
Net cash used in investing activities................................. (6,246) (6,734)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable, bank....................................... 38,000 59,500
Repayment of long term debt........................................... -- (59)
-------- --------
Net cash provided by financing activities............................. 38,000 59,441
======== ========
INCREASE IN CASH AND CASH EQUIVALENTS................................... 1,128 3,412
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................... 12,166 7,132
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................ $ 13,294 $ 10,544
======== ========
NON-CASH FINANCING ACTIVITIES
Dividends on preferred stock.......................................... $ 4,453 $ --
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
J. CREW GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN WEEKS ENDED MAY 1, 1997 AND MAY 2, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of J. Crew Group, Inc. ("Holdings") and its wholly-owned
subsidiaries (the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
The consolidated balance sheet as of May 2, 1998 and the consolidated statements
of operations and cash flows for the thirteen week periods ended May 1, 1997 and
May 2, 1998 have been prepared by the Company and have not been audited. In the
opinion of management, all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the financial position of the
Company, the results of its operations and cash flows have been made.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's consolidated financial statements for the fiscal year ended January
31, 1998.
The results of operations for the thirteen week period ended May 2, 1998 are not
necessarily indicative of the operating results for the full fiscal year.
Effective January 31, 1998, the Company changed its fiscal year-end from the
Friday closest to January 31 to the Saturday closest to January 31. The Company
also changed its quarterly reporting periods to four thirteen week reporting
periods from 12-16-12-12 week reporting periods. Prior year amounts have been
restated to conform to a thirteen week period.
2. SUBSEQUENT EVENT
The Company has retained an investment banking firm to find a buyer for its
Clifford & Wills mail-order and factory outlet divisions. The decision to sell
Clifford & Wills reflects the Company's strategy to focus on building the J.
Crew brand. Net sales of the Clifford & Wills divisions were $14.4 million in
the thirteen weeks ended May 2, 1998.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Results of Operations
- ---------------------
Revenues for the three months ended May 2, 1998 increased to $165.8 million from
$165.2 million in the three months ended May 1, 1997. This increase resulted
primarily from an increase in J. Crew Retail net sales of $12.3 million from
$37.7 million in the first quarter of 1997 to $50.0 million in the first quarter
of 1998, offset by a decrease in J. Crew Mail Order net sales of $10.8 million
from $49.4 million in the first quarter of 1997, to $38.6 million in the first
quarter of 1998. Other revenues decreased by $0.7 million due to a decrease in
service charge income as a result of the sale of accounts receivable.
The increase in J. Crew Retail revenues was due primarily to the sales in the
first quarter of 1998 from the 12 stores opened in fiscal 1997. Comparable
store sales in the first quarter of 1998 increased by 6.1%. The number of
stores opened at May 2, 1998 increased to 55 from 51 at January 3l, 1998.
The decrease in J. Crew Mail Order revenues resulted from a 16% decrease in
pages circulated from 1.65 billion in the first quarter of 1997 to 1.39 billion
in the first quarter of 1998. The decrease in pages circulated resulted from the
elimination of a sale book and a change in circulation strategy to increase the
customer segmentation of catalog mailings. This reduction in pages circulated is
expected to result in a decrease in paper and postage expense and an increase in
productivity or sales per page circulated.
The gross margin for the three months ended May 2, 1998 was $69.0 million or
41.6% of revenues compared to $73.2 million or 44.3% of revenues for the three
months ended May 1, 1997. The decrease in gross margin as a percentage of
revenues was due to a lower initial markup on spring merchandise in J. Crew
Retail and J. Crew Mail Order and increased markdowns to dispose of inventory
overstocks.
Selling, general and administrative expenses increased to $81.3 million for the
three months ended May 2, 1998 from $80.9 million for the three months ended May
1, 1997. As a percentage of revenues, selling, general and administrative
expenses were 49.0% of revenues in the first quarter of 1998 and 48.9% in the
first quarter of 1997.
Selling expenses decreased from $27.6 million or 16.7% of revenues in the first
quarter of 1997 to $26.7 million or 16.1% of revenues in the first quarter of
1998. The decrease in the number of pages circulated in J. Crew Mail Order
resulted in a decrease of $2.3 million. This decrease was offset by increases
of $0.8 million at Clifford & Wills and $0.6 million at Popular Club Plan.
General and administrative expenses increased from $53.3 million or 32.2% of
revenues in the first quarter of 1997 to $54.6 million or 32.9% of revenues in
the first quarter of 1998. This increase of $1.3 million was attributed
primarily to an increase in store related expenses at J. Crew Retail, which
offset a decrease at J. Crew Mail Order attributable to the implementation of a
cost reduction program.
7
<PAGE>
The increase in interest expense from $2.6 million in the first quarter of 1997
to $9.4 million in the first quarter of 1998 resulted from the additional debt
outstanding in the first quarter of 1998 as a result of the recapitalization
transaction consummated in October 1997. Average borrowings under revolving
credit arrangements were $22.1 million in the first quarter of 1998 compared to
$40.3 million in the first quarter of 1997.
The increase in the loss before income taxes from $10.3 million in the first
quarter of 1997 to $21.7 million in the first quarter of 1998 resulted primarily
from the decrease in gross margin of $4.2 million and the increase in interest
expense of $6.8 million.
Liquidity and Capital Resources
- -------------------------------
Cash flow used in operations improved from a use of $49.3 million in the first
quarter of 1997 to a use of $30.6 million in the first quarter of 1998 due to a
reduction in inventories of approximately $14.0 million from May 1, 1997 to May
2, 1998. Inventories at May 2, 1998 were $202.4 million compared to $216.5
million at May 1, 1997.
As a result of the increase in cash flow from operations, borrowings under the
revolving credit line decreased to $38.0 million at May 2, 1998 from $59.5
million at May 1, 1997.
The Company has retained an investment banking firm to find a buyer for its
Clifford & Wills mail-order and factory outlet divisions. The decision to sell
Clifford & Wills reflects the Company's strategy to focus on building the J.
Crew brand. Net sales of the Clifford & Wills divisions were $14.4 million in
the thirteen weeks ended May 2, 1998.
The Year 2000 Issue
- -------------------
The effect of Year 2000 issues on the Company's operations are being addressed
by the Company's Information Technology Department. A plan has been developed
which identifies the systems and related programs which must be upgraded and a
timetable has been established for the completion of these upgrades.
This plan contemplates the use of internal programming resources, outside
consulting services, system upgrades from existing vendors and the replacement
of existing packages with packages that are Year 2000 compliant. The designed
plan estimates that the Company will be in compliance with Year 2000 issues by
the Fall of 1999.
The estimated cost of the Year 2000 upgrade is not expected to be material to
the Company.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company's principal market risk relates to interest rate sensitivity which
is the risk that future changes in interest rates will reduce net income or the
net assets of the Company. The Company's variable rate debt consists of
borrowings under the Revolving Credit Facility and the $70 million Term Loan
Facility. In order to manage this interest rate risk, the Company entered into
an interest rate swap agreement in October 1997 for $70 million notional
principal amount.
8
<PAGE>
This agreement, which has a term of three years, converts the interest rate on
$70 million of debt to a fixed rate of 6.23%. If this interest rate swap
agreement was settled on May 2, 1998, the Company would be required to pay an
additional $505,000.
The Company enters into letters of credit to facilitate the international
purchase of merchandise. The letters of credit are primarily denominated in U.S.
dollars. Outstanding letters of credit at May 2, 1998 were approximately $22.6
million.
Furthermore, the Company has a licensing agreement in Japan which provides for a
royalty payment based on sales of J. Crew merchandise as denominated in yen.
The Company has from time to time entered into forward foreign exchange
contracts to minimize this risk. At May 2, 1998, there were no forward foreign
exchange contracts outstanding. A 10% change in the dollar-yen exchange rate
would have an annual effect on net income of approximately $200,000, which
amount is not material.
9
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no material legal proceedings presently pending to which J. Crew
Group, Inc. is a party or of which any of its property is the subject.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
There were no defaults with respect to any indebtedness of the registrant or its
subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
There were no matters submitted to a vote of security holders for the quarter
ended May 2, 1997.
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27. Financial Data Schedule
(b) There were no reports filed on Form 8-K during the thirteen week period
ended May 2, 1998.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J. CREW GROUP, INC.
(Registrant)
Date: September 9, 1998 By: /s/ Howard Socol
--------------------------------
Howard Socol
Chief Executive Officer
Date: September 9, 1998 By: /s/ Scott Rosen
---------------------------------
Scott Rosen
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MAY 2, 1998, THE CONSOLIDATED STATEMENTS OF
OPERATIONS AND THE CONSOLIDATED STATEMENTS OF CASH FLOWS EACH FOR THE THIRTEEN
WEEKS ENDED MAY 2, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> MAY-2-1998
<CASH> 13
<SECURITIES> 0
<RECEIVABLES> 21
<ALLOWANCES> 5
<INVENTORY> 202
<CURRENT-ASSETS> 291
<PP&E> 174
<DEPRECIATION> 60
<TOTAL-ASSETS> 422
<CURRENT-LIABILITIES> 161
<BONDS> 301
135
0
<COMMON> 0
<OTHER-SE> (219)
<TOTAL-LIABILITY-AND-EQUITY> 422
<SALES> 163
<TOTAL-REVENUES> 166
<CGS> 97
<TOTAL-COSTS> 97
<OTHER-EXPENSES> 81
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (22)
<INCOME-TAX> (8)
<INCOME-CONTINUING> (11)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
