The preppy retailer reported that its first-quarter net income more than tripled to $24.6 million, or $0.39 per share. Revenue increased by 24% to $297.3 million, with same-store sales up 13%. J. Crew was also able to increase its gross margin by 110 basis points, to 46.6% of sales from 45.5% of sales. Needless to say, J. Crew also upped its guidance, which probably helped galvanize investors on the stock.
Part of my previous issue with J. Crew was that it had a pretty hefty amount of debt; interest expense this quarter was only $3.4 million, as opposed to $19.2 million this time last year. J. Crew management said in its conference call that the discrepancy in this expense reflects the company's post-IPO capital structure as well as lower interest rates on the debt and the fact that it has paid down the debt. The IPO funds certainly have helped in that regard -- J. Crew's debt clocks in at $175 million now, compared to $740 million last year.
Another problem I've always had with J. Crew is that, despite its strong brand, its preppy wares didn't seem very differentiated. Other companies aim for the same type of customer, like Abercrombie & Fitch
Of course, J. Crew does have an interesting factor going for it -- it's headed up by someone many people would consider a real expert merchant, Millard (Mickey) Drexler. He's often been saddled with a reputation for overexpanding and overextending his last retail gig, Gap
I still feel hesitant about the idea of investing in J. Crew; trading at 31 times next year's earnings sounds awfully pricey for a retailer that I still think has some obstacles. However, I have to admit, so far my pessimism on this retail stock seems to have been unfounded.
For related Foolishness, see the following articles:
- J. Crew cleaned up in March.
- Check out a Fool on Call for J. Crew last November.
- Last fall, one Fool contributor wondered if J. Crew was sewn together strongly enough.