Interesting what is going on with J.Crew! I hope they are able to get things back on {fashion} track with the Holiday roll-out. :)J. Crew, industry darling, hit on outlook
By Andria Cheng
August 27, 2010
J.Crew Group Inc., which has had a streak of growth that outpaced its rivals and exceeded Wall Street expectations, saw its shares hit on Friday after the company lowered its outlook for the year and its third-quarter outlook also fell short.
"The continued economic uncertainty that we are all seeing is leading us to take a more conservative outlook for the back half of the year," Chief Executive Mickey Drexler said on a conference call late Thursday. "The customer is more selective with their purchases. More than ever, they are focused on newness. The headline is 'They're deferring. They're waiting. They're comparison shopping and people are a little nervous."'
J.Crew shares fell 7.3% to $31 in early afternoon trading, their biggest percentage decline in at least a year.
The clothing retailer cut its full-year outlook to a range of $2.25 to $2.35 a share from a previous projection of as much as $2.45 a share. The company forecast third-quarter profit of 55 cents to 60 cents a share. Both projections fell short of analysts' estimates.
Economic impact aside, analysts said some of J.Crew's fall merchandise also has been too edgy and not resonated as well with its customers. The company also may have been hurt by increased competition from rivals from Ann Taylor Stores Corp. to Talbots Inc. that have also offered embellished tops and other looks that are similar to J. Crew's offerings, analysts said.
Still, Wall Street likes the stock. Among 20 analysts tracked by FactSet, more rated the stock a buy than a hold with only one underweight rating.
"Weak guidance was attributed to weaker spending trends, but we suspect some fashion missteps may have played a role, too," said analyst Linda Tsai of MKM Partners in a report. "This is not completely unusual and a bit reassuring, as we think (J.Crew) can correct this for Holiday. (We) still think stock is attractive."
Regarding the company outlook, analysts said a 10% increase in inventory growth per square foot at the end of the second quarter may likely translate to some profit-eroding discounts if demand falters.
"Given that (J. Crew) does not have strong ability to cut orders, we expect accelerated promotional activity resulting in margin pressure," said analyst Pamela Quintiliano at Oppenheimer & Co.
To lift growth, the company for the first time is bringing its factory outlet products online for sale. It also has opened its first wedding store and is opened more locations just for men as well as its Crewcuts for kids.
The warnings came after the company reported second-quarter profit surged a better-than-expected 88% to $34.9 million, or 53 cents a share on an 11% comparable store sales gain. Analysts surveyed by FactSet Research had forecast earnings of 45 cents a share.
What is your take on the article? Would you consider purchasing J.Crew stock? Do you think J.Crew will perform better in its next quarter?
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