My colleague Jeremy MacNealy has focused on J. Crew's (NYSE:JCG) recent successes without paying enough attention to the retailer's shortcomings. Experienced investors know that such unbalanced analysis often leads to regrettable investing decisions. J. Crew's dynamic growth and quality merchandise are indisputable. What should concern long-term investors is the weakness of the company's competitive strategy and financial condition.

A few retailers have unique strengths that can provide a sustainable competitive advantage, but J. Crew is not one of them. Unlike Wal-Mart (NYSE:WMT), which is engineered to deliver a cost advantage over rivals, or Coach (NYSE:COH), which has a design operation and supply chain that can quickly refresh store inventories with new merchandise, J. Crew's approach to retailing isn't unusual. Accordingly, J. Crew's continuing success will breed copycat fashions and improved service at the company's competitors. That increased competition will inevitably depress J. Crew's pricing power and sales growth.

J. Crew does not have the financial capacity to triumph in a state of heightened competition or reduced consumer spending. The company is more indebted than its rivals, and debt service makes a significant and ongoing claim on cash flows from operations. Interest payments appear manageable now that the business climate is so favorable. But leverage cuts both ways, and a downturn in sales would sharply reduce J. Crew's ability to invest in new stores and maintain high standards of quality.

The momentum of J. Crew's strong operating performance makes it unlikely that the retailer will stumble in the foreseeable future. But at an EV/EBITDA multiple of 17.9, the company's stock is priced for a perfection that has not yet been achieved. Any disappointment in J. Crew's operating results promises to cause a dramatic correction in the retailer's share price.

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Fool contributor Michael Leibert welcomes your feedback. He owns shares of Gap. The Fool has an ironclad disclosure policy.