UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
March 24, 2014
 
J.Crew Group, Inc.
(Exact name of registrant as specified in its charter)
 
Commission File Number: 333-175075
 
Delaware	 	22-2894486	
(State or other jurisdiction
of incorporation)	 	(IRS Employer
Identification No.)	
770 Broadway
New York, NY 10003
(Address of principal executive offices, including zip code)
(212) 209-2500
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 	 	
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 	 	
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 	 	
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 

 

Item 2.02. Results of Operations and Financial Condition.
On March 24, 2014, J.Crew Group, Inc. issued a press release announcing the Company’s financial results for the fourth quarter and fiscal year ended February 1, 2014. The Company is furnishing a copy of the press release hereto as Exhibit 99.1.
 
Item 9.01. Financial Statements and Exhibits
(a) through (c) Not applicable
(d) Exhibits:
The following exhibit is furnished with this Current Report on Form 8-K:
 
Exhibit
No.	  	Description	
 	 	 	
99.1	  	Press Release issued by J.Crew Group, Inc. on March 24, 2014	
The information in this Current Report is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), nor shall such information be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly stated by specific reference in such filing.

 
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
 
 	 	J.CREW GROUP, INC.	
 	 	 	
Date: March 24, 2014	 	By:	 	/s/ Stuart C. Haselden	
 	 	 	 	Stuart C. Haselden	
 	 	 	 	Chief Financial Officer	

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Exhibit 99.1
Contacts:
Stuart C. Haselden
Chief Financial Officer
(212) 209-8461
Allison Malkin/Joe Teklits
ICR, Inc.
(203) 682-8200
J.CREW GROUP, INC. ANNOUNCES FOURTH QUARTER AND FISCAL 2013 RESULTS
NEW YORK, March 24, 2014 — J.Crew Group, Inc. (the “Company”) today announced financial results for the three months and the fiscal year ended February 1, 2014.
Fourth Quarter highlights:
—	Revenues increased 7% to $686.2 million, with comparable company sales increasing 3%. When realigning last year to be consistent with the current year retail calendar, comparable company sales increased 4% on top of an increase of 11% in the fourth quarter last year. Store sales increased 5% to $438.6 million on top of an increase of 18% in the fourth quarter last year. Direct sales increased 10% to $238.1 million following an increase of 27% in the fourth quarter last year.	

—	Gross margin was 36.8% compared to 38.4% in the fourth quarter last year.	

—	Selling, general and administrative expenses were $215.0 million, or 31.3% of revenues, compared to $205.7 million, or 32.0% of revenues in the fourth quarter last year. This year reflects a decrease of $8 million in share-based and incentive compensation.	

—	Operating income was $37.6 million, or 5.5% of revenues, compared to $41.4 million, or 6.4% of revenues, in the fourth quarter last year.	

—	Net income was $5.9 million compared to $10.2 million in the fourth quarter last year.	

—	Adjusted EBITDA increased to $75.7 million from $70.4 million in the fourth quarter last year. An explanation of the manner in which we use adjusted EBITDA and an associated reconciliation to GAAP measures are included in Exhibit (3).	
Fiscal 2013 highlights:
—	Revenues increased 9% to $2,428.3 million, with comparable company sales increasing 3% (which was the same on a realigned basis) on top of an increase of 13% last year. Store sales increased 6% to $1,638.2 million on top of an increase of 21% last year. Direct sales increased 16% to $755.9 million following an increase of 19% last year.	

—	Gross margin was 41.4% compared to 44.3% last year.	

—	Selling, general and administrative expenses were $756.2 million, or 31.1% of revenues, compared to $733.1 million, or 32.9% of revenues, last year. This year reflects a decrease of $31 million in share-based and incentive compensation.	

—	Operating income was $249.9 million, or 10.3% of revenues, compared to $253.7 million, or 11.4% of revenues, last year.	

—	Net income was $88.1 million compared to $96.1 million last year.	

—	Adjusted EBITDA increased to $370.2 million from $359.6 million last year. An explanation of the manner in which we use adjusted EBITDA and an associated reconciliation to GAAP measures are included in Exhibit (3).	
Balance Sheet highlights:
—	Cash and cash equivalents increased to $156.6 million from $68.4 million at the end of the fourth quarter last year.	

—	Total debt was $1,567 million, consisting of the senior secured term loan of $1,167 million, maturing in 2018, and the senior unsecured notes of $400 million, maturing in 2019; compared to $1,579 million at the end of the fourth quarter last year. For more information, see “Subsequent Event” section.	

 
—	Inventories were $354.0 million compared to $265.6 million at the end of the fourth quarter last year. Inventories and inventories per square foot increased 33% and 20%, respectively.	
Subsequent Event
On March 5, 2014, the Company, Bank of America, N.A., as administrative agent and as collateral agent, and each lender party thereto entered into the Second Amendment to the Credit Agreement, which modifies the Company’s $250 million asset-based revolving credit facility (the “ABL Facility”). The Second Amendment amends the ABL Facility to, among other things, permit the incurrence of incremental secured indebtedness under the term loan facility described below and the redemption in full of the Company’s $400 million in outstanding 8.125% Senior Notes due 2019 (the “Senior Notes”) pursuant to the Senior Notes Indenture, dated March 7, 2011.
On March 5, 2014, the Company also entered into an amended and restated credit agreement with certain lenders, Bank of America, N.A. and Goldman Sachs USA, as joint lead arrangers and joint bookrunners, and Bank of America, N.A., as administrative and collateral agent, which provides for a $1,567 million term loan facility (the “Term Loan Facility”) and amends various terms of the Company’s prior credit agreement dated March 7, 2011, as amended (the “Prior Term Loan Facility”).The proceeds of the Term Loan Facility were used to (i) refinance outstanding borrowings under the Prior Term Loan Facility of $1,167 million and (ii) together with cash on hand, satisfy and discharge the Company’s obligations under the Senior Notes and Senior Notes Indenture. The maturity date of the Term Loan Facility was extended to March 5, 2021.
In the first quarter of fiscal 2014, the Company will incur a loss on refinancing of $37 million, consisting of (i) a non-cash write-off of deferred financing costs of $16 million, (ii) call premiums of $16 million, and (iii) debt issuance costs of $5 million. The refinancing will also result in the discontinuance of the designation of the Company’s interest rate swap agreements as a cash flow hedge. Accordingly, prior unrealized losses of $22 million, previously recorded as a component of accumulated other comprehensive income, will be reclassified to earnings in the first quarter as a component of interest expense.
Related Party
On November 4, 2013 Chinos Intermediate Holdings A, Inc. (the “Issuer”), an indirect parent holding company of J.Crew Group, Inc., issued $500 million aggregate principal of 7.75/8.50% Senior PIK Toggle Notes due May 1, 2019 (the “PIK Notes”). The PIK Notes are (i) senior unsecured obligations of the Issuer, (ii) structurally subordinated to all of the liabilities of the Issuers’ subsidiaries, and (iii) not guaranteed by any of the Issuers’ subsidiaries, and therefore are not recorded in our financial statements. While not required, we intend to pay dividends to the Issuer to fund interest payments. The semi-annual interest payments will be $19 million, or $213 million through the maturity date.
How We Assess the Performance of Our Business
In assessing the performance of our business, we consider a variety of performance and financial measures. A key measure used in our evaluation is comparable company sales, which includes (i) net sales from stores that have been open for at least twelve months, (ii) direct net sales, and (iii) shipping and handling fees. We also consider gross profit and selling, general and administrative expenses in assessing the performance of our business.
Use of Non-GAAP Financial Measures
This announcement includes certain non-GAAP financial measures. An explanation of the manner in which we use adjusted EBITDA and an associated reconciliation to GAAP measures is included in Exhibit (3).
Conference Call Information
A conference call to discuss fourth quarter results is scheduled for tomorrow, March 25, 2014, at 11:00 AM Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-3982 approximately ten minutes prior to the start of the call. The conference call will also be webcast live at www.jcrew.com. A replay of this call will be available until April 1, 2014 and can be accessed by dialing (877) 870-5176 and entering conference ID number 13577193.
About J.Crew Group, Inc.
J.Crew Group, Inc. is an internationally recognized multi-brand retailer of women’s, men’s and children’s apparel, shoes and accessories. As of March 24, 2014, the Company operates 266 J.Crew retail stores, 66 Madewell stores, jcrew.com, jcrewfactory.com, the J.Crew catalog, madewell.com, the Madewell catalog, and 122 factory stores. Certain product, press release and SEC filing information concerning the Company are available at the Company’s website www.jcrew.com.
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Forward-Looking Statements:
Certain statements herein, including projected store count and square footage in Exhibit (4) hereof, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements reflect our current expectations or beliefs concerning future events and actual results of operations may differ materially from historical results or current expectations. Any such forward-looking statements are subject to various risks and uncertainties, including our substantial indebtedness and the indebtedness of our indirect parent, for which we intend to pay a dividend to service such debt, and our substantial lease obligations, the strength of the global economy, declines in consumer spending or changes in seasonal consumer spending patterns, competitive market conditions, our ability to anticipate and timely respond to changes in trends and consumer preferences, our ability to successfully develop, launch and grow our newer concepts and execute on strategic initiatives, products offerings, sales channels and businesses, adverse or unseasonable weather, material disruption to our information systems, our ability to implement our real estate strategy, our ability to implement our international expansion strategy, our ability to attract and retain key personnel, interruptions in our foreign sourcing operations, and other factors which are set forth in the section entitled “Risk Factors” and elsewhere in our Annual Report on Form 10-K and in all filings with the SEC made subsequent to the filing of the Form 10-K. We do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 
3

 
Exhibit (1)
J.Crew Group, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
 
(in thousands, except percentages)	  	Fourth Quarter
Fiscal 2013	 	 	Fourth Quarter
Fiscal 2012(a)	 	 	Fiscal 2013	 	 	Fiscal 2012(b)	 	
Net sales:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Stores	  	$	438,636	  	 	$	416,850	  	 	$	1,638,170	  	 	$	1,546,619	  	
Direct	  	 	238,120	  	 	 	217,313	  	 	 	755,915	  	 	 	651,480	  	
 
Other	  	 	9,461	  	 	 	8,735	  	 	 	34,172	  	 	 	29,618	  	
Total revenues	  	 	686,217	  	 	 	642,898	  	 	 	2,428,257	  	 	 	2,227,717	  	
 
Cost of goods sold, including buying and occupancy costs	  	 	433,606	  	 	 	395,765	  	 	 	1,422,143	  	 	 	1,240,989	  	
Gross profit	  	 	252,611	  	 	 	247,133	  	 	 	1,006,114	  	 	 	986,728	  	
As a percent of revenues	  	 	36.8	% 	 	 	38.4	% 	 	 	41.4	% 	 	 	44.3	% 	
 
Selling, general and administrative expenses	  	 	215,013	  	 	 	205,713	  	 	 	756,219	  	 	 	733,070	  	
As a percent of revenues	  	 	31.3	% 	 	 	32.0	% 	 	 	31.1	% 	 	 	32.9	% 	
 
Operating income	  	 	37,598	  	 	 	41,420	  	 	 	249,895	  	 	 	253,658	  	
As a percent of revenues	  	 	5.5	% 	 	 	6.4	% 	 	 	10.3	% 	 	 	11.4	% 	
 
Interest expense, net	  	 	25,834	  	 	 	26,823	  	 	 	104,221	  	 	 	101,684	  	
 
Income before income taxes	  	 	11,764	  	 	 	14,597	  	 	 	145,674	  	 	 	151,974	  	
 
Provision for income taxes	  	 	5,847	  	 	 	4,392	  	 	 	57,550	  	 	 	55,887	  	
 
Net income	  	$	5,917	  	 	$	10,205	  	 	$	88,124	  	 	$	96,087	  	

(a)	consists of 14 weeks.	

(b)	consists of 53 weeks.	

 
4

 
Exhibit (2)
J.Crew Group, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
 
(in thousands)	  	February 1, 2014	 	  	February 2, 2013	 	
Assets	  	 	 	 	  	 	 	 	
Current assets:	  	 	 	 	  	 	 	 	
Cash and cash equivalents	  	$	156,649	  	  	$	68,399	  	
Inventories	  	 	353,976	  	  	 	265,628	  	
Prepaid expenses and other current assets	  	 	68,265	  	  	 	65,791	  	
Prepaid income taxes	  	 	2,782	 	  	 	11,620	  	
Total current assets	  	 	581,672	  	  	 	411,438	  	
 
Property and equipment, net	  	 	375,092	  	  	 	324,111	  	
 
Favorable lease commitments, net	  	 	26,560	  	  	 	35,104	  	
 
Deferred financing costs, net	  	 	41,911	  	  	 	51,851	  	
 
Intangible assets, net	  	 	966,175	  	  	 	975,517	  	
 
Goodwill	  	 	1,686,915	  	  	 	1,686,915	  	
 
Other assets	  	 	3,895	  	  	 	1,778	  	
Total assets	  	$	3,682,220	  	  	$	3,486,714	  	
 
Liabilities and Stockholders’ Equity	  	 	 	 	  	 	 	 	
Current liabilities:	  	 	 	 	  	 	 	 	
Accounts payable	  	$	237,019	  	  	$	141,119	  	
Other current liabilities	  	 	154,796	  	  	 	153,743	  	
Interest payable	  	 	18,065	  	  	 	18,812	  	
Current portion of long-term debt	  	 	12,000	  	  	 	12,000	  	
Total current liabilities	  	 	421,880	  	  	 	325,674	  	
 
Long-term debt	  	 	1,555,000	  	  	 	1,567,000	  	
 
Unfavorable lease commitments and deferred credits	  	 	93,788	  	  	 	71,146	  	
 
Deferred income taxes, net	  	 	389,403	  	  	 	392,984	  	
 
Other liabilities	  	 	31,729	  	  	 	38,419	  	
 
Stockholders’ equity	  	 	1,190,420	  	  	 	1,091,491	  	
Total liabilities and stockholders’ equity	  	$	3,682,220	  	  	$	3,486,714	  	

 
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Exhibit (3)
J.Crew Group, Inc.
Reconciliation of Adjusted EBITDA
Non-GAAP Financial Measure
The following table reconciles net income reflected on the Company’s condensed consolidated statements of operations to: (i) Adjusted EBITDA (a non-GAAP measure), (ii) cash flows from operating activities (prepared in accordance with GAAP) and (iii) cash and cash equivalents as reflected on the condensed consolidated balance sheet (prepared in accordance with GAAP).
 
(in millions)	  	Fourth Quarter
Fiscal 2013	 	 	Fourth Quarter
Fiscal 2012	 	 	Fiscal 2013	 	 	Fiscal 2012	 	
Net income	  	$	5.9	  	 	$	10.2	  	 	$	88.1	  	 	$	96.1	  	
Provision for income taxes	  	 	5.9	  	 	 	4.4	  	 	 	57.6	  	 	 	55.9	  	
Interest expense, net	  	 	25.8	  	 	 	26.8	  	 	 	104.2	  	 	 	101.7	  	
Depreciation and amortization	  	 	24.2	  	 	 	22.6	  	 	 	88.7	  	 	 	82.2	  	
EBITDA	  	 	61.8	  	 	 	64.0	  	 	 	338.6	  	 	 	335.9	  	
Share-based compensation	  	 	1.4	  	 	 	2.0	  	 	 	5.8	  	 	 	5.3	  	
Amortization of lease commitments	  	 	3.9	  	 	 	2.1	  	 	 	9.8	  	 	 	9.3	  	
Sponsor monitoring fees	  	 	2.5	  	 	 	2.3	  	 	 	9.9	  	 	 	9.1	  	
Dividend equivalent	  	 	6.1	  	 	 	—	  	 	 	6.1	  	 	 	—	  	
Adjusted EBITDA	  	 	75.7	  	 	 	70.4	  	 	 	370.2	  	 	 	359.6	  	
Taxes paid	  	 	(14.6	) 	 	 	(17.8	) 	 	 	(53.4	) 	 	 	(74.1	) 	
Interest paid	  	 	(15.6	) 	 	 	(17.9	) 	 	 	(92.2	) 	 	 	(99.2	) 	
Changes in working capital	  	 	64.7	 	 	 	65.9	  	 	 	7.5	 	 	 	8.0	  	
Cash flows from operating activities	  	 	110.2	  	 	 	100.6	  	 	 	232.1	  	 	 	194.3	  	
Cash flows from investing activities	  	 	(28.6	) 	 	 	(22.4	) 	 	 	(131.2	) 	 	 	(132.0	) 	
Cash flows from financing activities	  	 	(2.4	) 	 	 	(205.5	) 	 	 	(12.0	) 	 	 	(215.7	) 	
Effect of changes in foreign exchange rates on cash and cash equivalents	  	 	(0.5	)  	 	 	—	  	 	 	(0.7	) 	 	 	—	  	
Increase (decrease) in cash	  	 	78.7	 	 	 	(127.3	) 	 	 	88.2	  	 	 	(153.4	) 	
Cash and cash equivalents, beginning	  	 	77.9	  	 	 	195.7	  	 	 	68.4	  	 	 	221.8	  	
Cash and cash equivalents, ending	  	$	156.6	  	 	$	68.4	  	 	$	156.6	  	 	$	68.4	  	
We present Adjusted EBITDA, a non-GAAP financial measure, because we use such measure to: (i) monitor the performance of our business, (ii) evaluate our liquidity, and (iii) determine levels of incentive compensation. We believe the presentation of this measure will enhance the ability of our investors to analyze trends in our business, evaluate our performance relative to other companies in the industry, and evaluate our ability to service debt.
Adjusted EBITDA is not a presentation made in accordance with generally accepted accounting principles, and therefore, differences may exist in the manner in which other companies calculate this measure. Adjusted EBITDA should not be considered an alternative to (i) net income, as a measure of operating performance, or (ii) cash flows, as a measure of liquidity. Adjusted EBITDA has important limitations as an analytical tool and should not be considered in isolation to, or as a substitute for, analysis of the Company’s results as measured in accordance with GAAP.

 
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Exhibit (4)
Actual and Projected Store Count and Square Footage
 
 	  	Fiscal 2013 (Actual)	 	
Quarter	  	Total stores open at
beginning of the
quarter	 	  	Number of stores
opened during the
quarter(1)	 	  	Number of stores closed
during the quarter(1)	 	 	Total stores open at end
of the quarter	 	
1st Quarter	  	 	401	  	  	 	8	  	  	 	—	  	 	 	409	  	
2nd Quarter	  	 	409	  	  	 	12	  	  	 	—	  	 	 	421	  	
3rd Quarter	  	 	421	  	  	 	16	  	  	 	(1	) 	 	 	436	  	
4th Quarter	  	 	436	  	  	 	15	  	  	 	—	  	 	 	451	  	
 
 	  	Fiscal 2013 (Actual)	 	
Quarter	  	Total gross square feet
at beginning of the
quarter	 	  	Gross square feet
for stores opened or
expanded during the
quarter	 	  	Reduction of gross
square feet for stores
closed or downsized
during the quarter	 	 	Total gross square feet
at end of the quarter	 	
1st Quarter	  	 	2,330,687	  	  	 	40,113	  	  	 	—	  	 	 	2,370,800	  	
2nd Quarter	  	 	2,370,800	  	  	 	60,852	  	  	 	(2,019	) 	 	 	2,429,633	  	
3rd Quarter	  	 	2,429,633	  	  	 	66,869	  	  	 	(5,105	) 	 	 	2,491,397	  	
4th Quarter	  	 	2,491,397	  	  	 	94,142	  	  	 	—	  	 	 	2,585,539	  	
 
 	  	Fiscal 2014 (Projected)	 	
 	  	Total stores open at
beginning of the year	 	  	Number of stores
opened during the
year(2)	 	  	Number of stores closed
during the year(2)	 	 	Total stores open at end
of the year	 	
Fiscal year	  	 	451	  	  	 	60	  	  	 	(1	) 	 	 	510	  	
 
 	  	Fiscal 2014 (Projected)	 	
 	  	Total gross square feet
at beginning of the year	 	  	Gross square feet for
stores opened or
expanded during the
year	 	  	Reduction of gross
square feet for stores
closed or downsized
during the year	 	 	Total gross square feet
at end of the year	 	
Fiscal year	  	 	2,585,539	  	  	 	288,014	  	  	 	(7,671	) 	 	 	2,865,882	  	

(1)	Actual number of stores opened or closed during fiscal 2013 by channel are as follows:	
Q1 – Three retail, one factory, and four Madewell stores.
Q2 – Three international retail, four factory, one international factory, and four Madewell stores.
Q3 – Four retail, one international retail, four factory, and seven Madewell stores. Close one retail store.
Q4 – Five retail, three international retail, five factory, and two Madewell stores.
(2)	Projected number of stores to be opened or closed during fiscal 2014 by channel are as follows:	
 
 	  	Retail	 	 	Factory	 	  	Madewell	 	  	International
Retail	 	  	International
Factory	 	  	Total	 	
Open	  	 	12	  	 	 	17	  	  	 	20	  	  	 	8	  	  	 	3	  	  	 	60	  	
Close	  	 	(1	) 	 	 	—	 	  	 	—	 	  	 	—	 	  	 	—	 	  	 	(1	) 	
Net	  	 	11	  	 	 	17	  	  	 	20	  	  	 	8	  	  	 	3	  	  	 	59	  	
 
7