J.Crew's First Quarter Fiscal 2009

J.Crew has come out with their First quarter (fiscal 2009) results (click here). Some highlights include:

• Revenues increased 2% to $345.8 million. Store sales (Retail and Factory) increased 5% to $240.7 million, with comparable store sales decreasing 5%. Comparable store sales increased 2% in the first quarter of fiscal 2008. Direct sales (Internet and Phone) decreased 6% to $95.4 million. Direct sales increased 17% to $100.9 million in the first quarter of fiscal 2008.
• Gross margin decreased to 42.2% of revenues from 46.9% of revenues in the first quarter of fiscal 2008. The decrease in gross margin is primarily related to increased markdowns as a result of beginning of quarter inventory levels.
• Operating income decreased 34% to $35.3 million, or 10.2% of revenues, compared to $53.0 million, or 15.6% of revenues, in the first quarter of fiscal 2008. Operating income in the first quarter of fiscal 2009 includes a charge of $1.3 million for severance and related costs associated with our workforce reduction announced in February 2009 and non-cash asset impairment charges of $1.0 million related to underperforming stores.
• Net income was $20.4 million, or $0.32 per diluted share and includes the impact of severance and asset impairment charges of approximately $0.02. Net income was $30.5 million, or $0.48 per diluted share, in the first quarter of fiscal 2008.

Millard Drexler, J.Crew's Chairman and CEO stated: "We are relatively pleased with our first quarter results and while earnings were lower than last year, we did experience an improved trend in our business. We think it is clear that there is no choice in this environment than to continue to be creative and figure out where the customer is going, not to respond to where he or she has been."

J.Crew is doing much better than its competitors- which I am happy to see! I am also listening to the conference call. Here are some notes so far:

• Mickey Drexler kept reiterating the point of their commitment to quality & value. (Seriously, he must have mentioned this at least 10 times- no matter what the question. We get it already!) ;)
• They are happy with the Crewcuts line. They will only open 1 additional Crewcuts store (in NYC) this year. The plan is to mainly keep it direct (online/catalog) as oppose to retail. They are also lowering price points in response to parents concern of costs.
  
• Madewell is opening additional stores. The original concept had jeans priced at $98 and above, but they found that with the economy (and competitors), they should start to offer $59.50 and above (with their new line called Madewell37; coming in July).
  
• Mickey knows they are less promotional than their competitors (e.g. less private and public sales), but they think this works for them. They also have been offering less markdowns and buying more "shrewdly".
• J.Crew adjusted prices from being too high. Also, Mickey said that customers have a short term memory- if they see something they love, they buy it.
• Discounting is a big issue. Mickey doesn't want to have their products discounted and sold somewhere else- that is why they have Factory Stores. (Um... so then why was J.Crew available in Marshalls stores awhile back?)