J Crew beats in quarter, posts robust sales

SAN FRANCISCO Tue Mar 9, 2010 6:53pm EST

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SAN FRANCISCO (Reuters) - Apparel retailer J Crew Group Inc JCG.N on Tuesday posted a net profit in its holiday quarter that beat Wall Street estimates, helped by tight inventory and double-digit sales growth.

The company, which caters to urban professionals willing to pay extra to make subtle fashion statements, also estimated first-quarter earnings that would either meet or exceed analysts' estimates.

J Crew posted a fourth-quarter net income of $40.4 million, or 61 cents per share, versus a year-earlier net loss of $13.5 million, or 22 cents per share, when it slashed prices to clear too-high inventory levels.

Analysts, on average, had been expecting earnings of 46 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose 19 percent to $460.6 million, helped by a 17 percent increase in same-store sales.

But J Crew's stock, which is trading near its 12-month high of $47.57, was essentially flat after the results were released. The stock has rallied 436 percent since it hit a 4-year low of $8.77 in December 2008.

"The Street has expectations that have gone a bit too far over the past weeks," said Brean Murray Carret analyst Eric Beder. "By any measure that (fourth-quarter profit) was a great number. The stock should be rewarded for that."

J Crew's merchandise generally costs even more than offerings by Gap Inc's (GPS.N) upscale Banana Republic chain. In the year-ago fourth quarter, when the financial crisis left the company with a glut of unsold merchandise, it offered heavy discounts that hurt its profit margins.

A decrease in markdowns in the latest quarter helped J Crew achieve a 43.9 percent gross margin versus a 27.6 percent in the year-earlier period. Operating income also improved over the same period, with operating margin as a percentage of revenues rising to 14.9 percent from 5.3 percent.

Looking ahead, J Crew said it expects first-quarter earnings per share of 48 cents to 53 cents, with fiscal 2010 earnings of $2.20 to $2.30 per share.

Wall Street had been expecting earnings per share of 48 cents in the quarter, and $2.13 for the fiscal year.

J Crew shares were nearly flat in after-hours trade, rising 0.23 percent to $47.10 after closing 0.86 percent lower on the New York Stock Exchange.

(Reporting by Alexandria Sage; Editing by Richard Chang)

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