Analyst
Report
2008
J. Crew Corporation
CEO Mickey Drexler
David Nguyen
J. Crew Corporation
11/10/2008
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David Nguyen
Professor Epstein
Business 101
10 November 2008
Analyst Report
J Crew (JCG) is an accessories and clothing company located in New York, New York. Currently,
J Crew operates approximately 260 outlets and stores across the United States. In addition, some of
their sales are purchased directly off of their website (www.JCrew.com). In 2007, J Crew was operated
by about 7,600 employees. The key executives are Millard Drexler (CEO), James Scully (CFO), Steve Dee
(CIO), and Tracy Gardner (President of the J Crew retail and direction division) (Biesada 1).
J Crew offers a variety of men and women’s apparel and accessories. They have two kinds of
formats; CrewCuts and Madweell. Crewcuts are stores that offer clothing and accessories for children
from ages 2-10 while Madewell targets adults. In addition, CEO Drexler continues to add new bridal
attire, women’s suite, and jewelry each year. Furthermore, J Crew is scheduled to open an additional 40
stores in 2008 (Biesada 1).
J Crew has a different type of marketing then most clothing retailers such as The Gap and
Abercrombie and Finch. According to Millard Drexler, J Crew is making stores “that feel crowded with
goods” (MacNealy 1). However, this model does not include crowding a store with a lot of clothing and
accessories. Instead, Drexler wants J Crew stores to be smaller because it makes consumers feel more
intimate to the surroundings (MacNealy 1).
Currently, many of J Crew stores range form 1,000-2,600 square feet and 5,000-7000 square
feet if the market is large enough. Even though these stores are already relatively small, J Crew wants to
continue to reduce the size of their stores in order to blend in with the surrounding environment.
Drexler noted that “the smaller stores require management to be smarter and more focused on
inventory management”. As a result, the increase in inventory management will lead to fewer
markdowns which are ultimately bad for profit margins (MacNealy 1).
Even though J Crew is focusing on reducing the size of their stores, it does not mean that they
will stop expanding. J Crew has noted that in the long-run they are looking to expanding their company
by an additional 9%. As a result, shareholders can feel safe as the expansion will lead to some solid
return for investors. CEO Drexler has been visiting new J Crew stores that are about to open to check if
the location and layout of the store will maximize their net sales (MacNealy 2).
Recently, Drexler has announced that J Crew will launch a mission to increase clothing that will
target men rather than women or children. On August 2008, Drexler announce that he will open a store
in Tribeca which will only feature men items such as neckties, men cashmere sweaters, and many more.
These new men-only stores will help J Crew reinvent their men’s business which is not commonly seen
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in the clothing industry. J Crew hopes that these new stores will help boost sales for the holidays even
though the economy is falling “(J. Crew Mickey Drexler Makes The List” 1).
Overall, J Crew has seen an increase in sales and profit from February 2007 to February 2008. J.
Crew reported that on February 2007, they made $1,152,100,000 in sales with a $77,782,000 net
income. These statistics increased during February 2008 when they reported a $1,334,723,000 in sales
with a $97,075,000 in net income. This shows that J. Crew has increased its net come by nearly 25% in
one year as well as increased their profit margin by 0.5%.
Net Sales
Net Income
Profit Margin
February 2, 2008
$1,334,723,000
$97,075,000
7.27%
February 3, 2007
$1,152,100,000
$77,782,000
6.75%
In addition to the increase in sales that J. Crew has made between February of 2007 and 2008,
they have also been able to reduce their liabilities. According to the J. Crew Q-10 record, they reduce
their total liabilities from $422,446,000 in 2007 to $395,274,000 in 2008. Furthermore, J. Crew was able
to keep their current ratio relatively close in both years even though their total liability has decreased.
Total Liability
February 2, 2008
$395,274,000
February 3, 2007
$422,446,000
As of now, the future projection for J. Crew looks mediocre. Just like many clothing industries, J.
Crew is having trouble selling their products because of the economy. As a result, J. Crew as well as
other clothing companies will see little or no growth in the upcoming year. J. Crew reported on their Q-2
that even though sales have increased by 10.4% in 2008, profits has fallen by 12.2% (“J Crew’s Mickey
Makes The List” 1). In addition, since the economy is not in a great shape, J. Crew will have additional
trouble selling their products during the Christmas holidays as people continue to cut spending. In the
near future, it seems like that J. Crew stocks will continue to drop only by a small amount; however, this
economic pandemic is going to affect everyone in the clothing industry.
The clothing industry is defined as retailers that have general lines for men, women, and
children without specializing in sales for a specific gender or group. Clothing industries usually open
stores such as family and unisex clothing stores as well as western wear stores. As mentioned above, the
clothing industries split their marketing line into men‘s wear, women’s wear, and children’s wear (Ibis
World 1).
On July 11, 2008; an outlook of the entire industry was made. Before the economic crisis in
September, experts believe that there is going to be an increase in revenue for the clothing industries;
however, it was as little as 0.2%. These projections were due to the assumption that in the next five
years, demand for clothes will increase at a slow and steady pace. On the next page, there is a
projection of the gross product growth of the industry for the next six years (Ibis World 1).
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GROSS PRODUCT GROWTH
2009
2010
2011
2012
2013
2014
13,635.00
13,959.00
14,175.00
14,231.00
14,332.00
14,369.00
Growth
%
0.6
2.4
1.5
0.4
0.7
0.3
Charts and tables are presented by IBIS world
REVENUE GROWTH
2009
2010
2011
2012
2013
2014
89,400.00
89,800.00
89,700.00
90,100.00
90,700.00
90,950.00
Growth
%
0.9
0.4
-0.1
0.4
0.7
0.3
In addition to the small growth, it is expected that the clothing industries will produce more
accessories at a lower price. In 2007, about 30% of manufacturing of women and children apparel was
shift to China. This has caused companies to produce products at a cheaper price and passing that on to
the consumers. This has caused the competitive environment in the clothing industry to be very tense as
there is a lot of supply fighting for a limited amount of demands (consumers) (“Industry Outlook” 1).
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Percentage
Real Disp. Income
Growth
1.8
1.3
2.1
2.3
2.5
2.5
Year
2008
2009
2010
2011
2012
2013
Percentage
Unemployment
Rate
5.6
6
5.6
5.4
5
5
Percentage
Consumer
Sentiment
-26.29
3.01
18
6.91
7.32
0.57
Presented by IBIS World
The above table is IBIS World projection of the economic outlook of the clothing industry for the
next five years. IBIS believes that there will be a low economic growth in 2008 and 2009 due to a credit
crunch. People will cut back on spending because they just don’t have the funds to purchase a lot of
clothing and accessories. Due to low spending, companies are forced to cut back on employees to
maintain their revenue causing an increase in unemployment from 2008 to 2009. Since the 2008 quota
on China will end, experts believe that it will allow China to import more clothing to America at a
cheaper price. This will allow retailers to pass their savings on to the customer and in return will cause
the industry to grow from 2010 and beyond (“Industry Outlook” 1).
20
18
16
14
12
Growth
10
Unemployment
8
Consumer Sentiment
6
4
2
0
2008
2009
2010
2011
2012
2013
The above chart shows the projection from the table above. Experts believe that there will
be steady growth in the clothing industries.

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Market Share
Major Player
Market Share Range
TJX Companies Inc., The 21.0% (2008)
Gap, Incorporated The 14.6% (2008)
Ross Stores, Inc.
6.7% (2008)
Other
57.7% (2008)
Presented by IBIS World
The top three competitors in the clothing industry are TJX Companies Inc, Gap Incorporated, and
Ross Stores Inc. TJX Company dominate about ¼ of the clothing industry. They sell their products
through retailers such as Maxx and Marshall Stores. TJX has been able to sustain a positive growth even
through these economic times. On the other hand, The Gap has seen a negative growth in the past year.
Each year, the company is projected to have a growth of -1.0% and a reduction of employees. Finally,
Ross is has a profitable growth rate just like TJX. Overall, it seems like The Gap will continue to drop in its
domination of the clothing industries. Abercrombie and Finch is projected to make a huge impact on the
clothing industry as their growth rate is nearly 30% each year. The main competitors of the clothing
industries in the future are likely to be TJX, Ross, The Gap, and Abercrombie and Finch. These
companies; excluding Ross, are growing at an average rate while J. Crew seems to be growing at a
slower rate. From this data, many experts can determine that the large companies in the industry are
dominating over the smaller companies such as J. Crew.
Since the overview of the clothing industry is now clear, it is easier to determine the current
issue of the company and if these issues are going to affect its stock price. As the chart below shows, J.
Crew began May with an average high of about $50 per share. However, in mid-may the stock slump
about $10 when analysts said that their earning was lower than “expected” (“Stocks in the Spotlight” 1).
As the chart shows, the company’s stock continues to slump
after this occasion as the economy continues to decline. The
next major drop in the company’s stock occurred in midSeptember which was the beginning of the American
economic crisis. Ever since that point, J. Crew has not been
able to keep their stocks stable as it continues to decline to
this day.
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The main issues facing clothing industries such as J. Crew are how to obtain their revenues. In
the past, these companies could rely on banks to obtain additional revenue to keep the company
running. However, due to the credit crunch, many banks are refusing to lend out money to companies.
This issue is what is causing J. Crew’s stock to continue to decline in October into November. In October,
Citigroup announced that it will cut J. Crew’s price target from $26 to $20. This is a big blow to J. Crew as
the prediction of lower share price by Citigroup caused investors to lose faith in J. Crew (“BRIEFCitigroup cuts price targets on several U.S. retailers” 1). Since J. Crew’s stock continue to fall due to issue
like this and banks are not lending out much money, J. Crew is left in a predicament that does not seem
like it is going to be resolved in the near future.
The red line shows the S&P 500
while the blue line shows the J.
Crew stock form the period of
January to the beginning of
November 2008.
Graph by BusinessWeek.
As the above graph shows, J. Crew stocks are consistent with that of the S&P 500 stock index.
The major slumps in the J. Crew stock were resulted from a decline in the S&P 500 in most cases. The
only difference between the two curves is between July and early September. It seems like during that
period, J. Crew stocks decline while the index stayed relatively the same. As stated above, this was
probably due to the fact that a report stated that earnings for J. Crew was lower than expected in those
months. This index shows that like J. Crew, many of the industries in the S&P 500 are suffering major
stock losses due to a decline in the economy.
Base on the reviews of the industry and J. Crew, I would recommend that investors buy J. Crew
stocks. First, under Mickey Drexler; J. Crew has designed many new clothing lines as well as stores
specifically targeted to men. As mention in the analyst report, sales of J. Crew’s clothing was increased;
however, due to the market many clothing companies must reduce their prices to increase revenue. As
the economic market gets better in the future, J. Crew will be able to raise their price and keep their
increase in sales to make a bigger profit.
Secondly, the projections of the clothing industry look profitable in the future. From the
information gather by IBIS world, it shows that the clothing industry will have little growth in 2008 and
2009 but the growth will only increase for the most part from there on. Due to this conclusion, it’s safe
to say that the clothing industry as a whole will continue to grow slowly and pick up its pace later on in a
couple of years. This increase will also help J. Crew increase its profitability.
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Finally, looking at J. Crew’s annual report from February 2007 to February 2008, it shows that
the company is increasing its total net income. Also, J. Crew’s current ratio in 2008 is about 1.708. This
means that if it comes down to it, J. Crew can cover their current liabilities which would prevent them
from going bankrupt. These ratio in combination with the profitability ratios shows that J. Crew is in
good financial standing even though they reported losses in mid-year.
Financial Statement Analysis
Current Ratio
Debt-To-Assets Ratio
Return On Investment
Inventory Turnover
Profit margin
Return on Assets
Earnings Per Share
2008
1.708x
61.18%
69.18%
8.42x
7.27%
18.12%
$1.61
2007
1.732x
84.10%
1384.02%
8.19x
6.75%
18.17%
$1.61
Overall the philosophy of “buy low and sell high” and “what goes down must comes up” apply in
the case of J. Crew. Looking at all of the industry information as well as J. Crew’s information, it seems
that in the period of the next three months, investors should buy J. Crew’s stocks. The stock is currently
at $16.00, which is down from 50$ just about 5 months ago. I believe that if investors take this
opportunity to buy this stock while it is low they will be able to capitalize their profits as the stock will
rise later on next year.
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Works Cited
Alexandra, Biesada. "J. Crew Group, Inc. Overview." 2008. Hoovers. Hagertry, Philadelphia. 8 Nov. 2008.
"BRIEF-Citigroup cuts price targets on several U.S. retailers." AFX. 31 Oct. 2008. Factiva. Hagertry,
Philadelphia. 8 Nov. 2008.
"CITIGROUP CUTS J CREW GROUP INC PRICE TARGET TO $20 FROM $29." (2008): 1-1. 31 Oct. 2008.
Factiva. Hagertry, Philadelphia. 8 Nov. 2008.
"Family Clothing Stores in the US." 11 July 2008: 1-7. IBIS World. Hagertry, Philadelphia. 8 Nov. 2008.
J Crew Group Order Share. Digital image. Factiva. 8 Nov. 2008. 8 Nov. 2008
<http://http://global.factiva.com/cq/default.aspx>.
"J. Crew's Mickey Drexler Makes the List!" Weblog post. J. Crew Aficonada. 28 Oct. 2008. 9 Nov. 2008
<http://jcrewaficionada.blogspot.com/2008/10/jcrews-mickey-drexler-makes-list.html>.
JCG Vs. S&P 500. Digital image. The Motley Fool. 8 Nov. 2008. 8 Nov. 2008
<http://caps.fool.com/ticker/jcg.aspx>.
Macnealy, Jeremy. "Fool on Call: J. Crew's Winning Strategy." The Motley Fool. 27 Nov. 2006.
9 Nov. 2008 <http://www.fool.com/investing/general/2006/11/27/fool-on-call-j-crewswinning-strategy.aspx>.
"Stocks in the spotlight." The Providence Journal 6 (2008): 1-1. 31 May 2008. Factiva. Hagertry
, Philadelphia. 8 Nov. 2008.