You can count on one hand the apparel retailers on a hot streak. But it's hard not to put your hands together for the results coming out of J.Crew
Unlike the host of other retailers like Abercrombie & Fitch
Preppy consumers flocked to J.Crew's stores, so revenue -- adjusted for the extra week the previous year -- was up 13%, with the strong comps and 9% extra net square footage contributing to the growth. Retail stores generated 12% growth, and the Internet and catalog business was up 15%. Gross margins expanded by 50 basis points, and that, along with leveraging expenses, helped boost operating income by a solid 22% year over year.
While reported earnings took a nosedive, adjusted earnings in both the 2007 and 2006 fourth quarters led to a 24% increase to $0.41 per share.
J.Crew is going against the typical retail strategy of building cookie-cutter stores as fast as possible. Its total square footage last year increased 9%, spread among a variety of store types including namesake J.Crew stores, Crewcuts for kids ages 2 through 10, and a new Madewell brand offering casual women's apparel.
I don't want to sound too gushy here, but I can't think of another apparel merchant that is hitting the consumer at all the right places (with the possible exception of Urban Outfitters
Guidance for 2008 struck a positive note with analysts. J.Crew's management sees comp sales growing in the mid-single digits, direct sales increasing by the high single digits, and square footage up 7% to 9%. Put it all together, and management expects earnings per share to advance more than 20%.
Of course, a stock performing this well doesn't come cheap; J.Crew shares trade at 24 times trailing earnings. True, a lot of retailers are looking attractive after their stocks fell 20% to 40% from last year's highs. But few of them are enjoying this kind of tailwind.
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Fool contributor Timothy M. Otte surveys the retail scene from Dallas. He welcomes comments on his articles, and doesn't own shares of any of the companies mentioned here. The Fool has a disclosure policy.