J. Crew to close 50 stores as sales plunge, again

The dive in brief:

  • Crew reported a string of disappointing numbers for its third quarter, with total revenue decreasing 5 % to USD 566.7 million against the year-ago period and comparable sales falling 9%, according to a press release.
  • The apparel retailer’s namesake banner was a drag on the company, with J. Crew brand sales at USD 430.4 million, down 12 % in the quarter compared to Q3 last year, and comparable sales for the brand fell 12 % as well. Meanwhile, the company’s Madewell stores had a banner quarter, with a sales increase of 22 %, to USD 107.5 million and comparable sales up 13 %, compared to a 4 % rise in the prior-year period.
  • For the quarter, J. Crew posted a USD 17.6 million net loss, up 123 % over the USD 7.9 million loss in Q3 last year and driven in part by costs related to the company’s turnaround efforts and debt restructuring moves. J. Crew plans to close 50 stores altogether in 2017, with 39 closures planned for the fourth quarter, the company said in a press release.

The dive insight:

Amid the harrowing numbers, J. Crew CEO Jim Brett, who joined after the departure this year of Mickey Drexler, tried to strike an upbeat note, saying in a statement his company wanted to “reinvigorate the J.Crew Brand to reflect the America of today.”

Indeed, that’s been one of the major challenges for the retailer, as it struggles to both manage debt and forge a new identity. J. Crew underwent a massive expansion in recent years, trying to go more upscale as consumers were changing their tastes and spending habits. “J. Crew made a gamble on upscale millennials by moving away from ‘preppy basics,’ which had been their brand cachet, and carrying more premium merchandise,” A.T. Kearney principal Manik Aryapadi told Retail Dive earlier this year. “This move backfired, and alienated their core consumers.”

The result: Declining sales, the departure of a longtime CEO and a USD 2 billion debt problem.

The company has taken numerous steps to address its financial position, including an out-of-court debt restructuring, which prompted lawsuits, and assorted cost cuts. Brett noted that the cuts had improved the company’s gross margins, with the metric rising to 40.1% in Q3 from 38.1% in the year-ago period.

But the numbers for the year so far are painful, with total revenues down 4% to $1.66 billion in the first nine months of the fiscal year compared to the year-ago period. Comparable sales are down 8% for the first nine months of the year. Net losses so far stand at $161.6 million, compared to a $24.6 million loss in the prior-year period, with much of that loss reflecting costs the company incurred in efforts to change its trajectory.

The year’s bad numbers and executive shuffling has put J. Crew in a in a “parlous state,” GlobalData Retail Managing Director Neil Saunders said in a note earlier this year. “There is always an argument for change, but change by itself is neither a strategy nor a solution — it needs to be accompanied by a blueprint for reinventing the business,” Saunders said. “While J. Crew has some rudimentary plans for change, we do not believe these are advanced enough to show on the shop-floor or to create a step change in business performance.”