2. Nguyen2
DavidNguyen
ProfessorEpstein
Business101
10 November2008
Analyst Report
J Crew(JCG) isan accessoriesand clothingcompanylocatedinNew York,New York. Currently,
J Crewoperatesapproximately260outletsandstoresacross the UnitedStates.Inaddition,some of
theirsalesare purchaseddirectlyoff of theirwebsite (www.JCrew.com).In2007, J Crew was operated
by about7,600 employees. The keyexecutivesare MillardDrexler(CEO),JamesScully(CFO),Steve Dee
(CIO),andTracy Gardner (Presidentof the JCrew retail anddirectiondivision) (Biesada1).
J Crewoffersa varietyof menandwomen’sapparel andaccessories.Theyhave twokindsof
formats;CrewCutsandMadweell.Crewcutsare storesthatofferclothingandaccessoriesforchildren
fromages 2-10 while Madewell targetsadults.Inaddition,CEODrexlercontinuestoaddnew bridal
attire,women’ssuite,andjewelryeachyear.Furthermore,JCrew isscheduledtoopenanadditional 40
storesin2008 (Biesada1).
J Crewhas a differenttype of marketingthenmostclothingretailerssuchasThe Gap and
Abercrombie andFinch.AccordingtoMillardDrexler,JCrew ismakingstores“thatfeel crowdedwith
goods”(MacNealy1). However,thismodeldoesnotinclude crowdingastore witha lotof clothingand
accessories.Instead,DrexlerwantsJCrew storesto be smallerbecause itmakesconsumersfeel more
intimate tothe surroundings(MacNealy1).
Currently,manyof J Crewstoresrange form1,000-2,600 square feetand5,000-7000 square
feetif the marketislarge enough.Eventhoughthese storesare already relativelysmall,JCrew wantsto
continue toreduce the size of theirstoresinorderto blendinwiththe surroundingenvironment.
Drexlernotedthat“the smallerstoresrequire managementtobe smarterand more focusedon
inventorymanagement”.Asaresult,the increase ininventorymanagementwill leadto fewer
markdownswhich are ultimately badforprofitmargins(MacNealy1).
EventhoughJ Crewis focusingonreducingthe size of theirstores,itdoesnotmeanthatthey
will stopexpanding.JCrew hasnotedthat inthe long-runtheyare lookingtoexpandingtheircompany
by an additional 9%.Asa result,shareholderscanfeel safe asthe expansionwill leadtosome solid
returnfor investors. CEODrexlerhasbeenvisitingnew JCrew storesthatare about to opentocheck if
the locationandlayoutof the store will maximize theirnetsales (MacNealy2).
Recently,DrexlerhasannouncedthatJCrew will launchamissiontoincrease clothingthatwill
target menratherthan womenorchildren. OnAugust2008, Drexlerannounce thathe will openastore
inTribeca whichwill onlyfeaturemenitemssuchasneckties,mencashmere sweaters,andmanymore.
These newmen-onlystoreswill helpJCrew reinventtheirmen’sbusinesswhichisnotcommonlyseen
3. Nguyen3
inthe clothingindustry. JCrewhopesthatthese new storeswill helpboostsalesforthe holidayseven
thoughthe economyisfalling“(J.CrewMickeyDrexlerMakesThe List” 1).
Overall,JCrewhasseenan increase insalesandprofitfromFebruary 2007 to February2008. J.
Crewreportedthaton February2007, theymade $1,152,100,000 in saleswitha$77,782,000 net
income.These statisticsincreasedduringFebruary2008 whentheyreporteda$1,334,723,000 in sales
witha $97,075,000 innetincome.ThisshowsthatJ. Crew has increaseditsnetcome bynearly25% in
one yearas well asincreasedtheirprofitmarginby0.5%.
February 2, 2008 February 3, 2007
NetSales $1,334,723,000 $1,152,100,000
NetIncome $97,075,000 $77,782,000
Profit Margin 7.27% 6.75%
In additiontothe increase insalesthatJ.Crew has made betweenFebruaryof 2007 and2008,
theyhave alsobeenable toreduce theirliabilities. Accordingtothe J.Crew Q-10 record,theyreduce
theirtotal liabilitiesfrom$422,446,000 in2007 to $395,274,000 in2008. Furthermore,J.Crew wasable
to keeptheircurrentratiorelativelyclose inbothyearseventhoughtheirtotal liabilityhasdecreased.
February 2, 2008 February 3, 2007
Total Liability $395,274,000 $422,446,000
As of now,the future projectionforJ.Crew looksmediocre.Justlikemanyclothingindustries,J.
Crewishavingtrouble sellingtheirproductsbecause of the economy. Asaresult,J.Crew as well as
otherclothingcompanieswill see littleornogrowthin the upcomingyear. J.Crew reportedontheirQ-2
that eventhoughsaleshave increasedby10.4% in2008, profits hasfallenby12.2% (“J Crew’sMickey
Makes The List” 1). Inaddition,since the economyisnotina great shape,J.Crew will have additional
trouble sellingtheirproductsduringthe Christmasholidaysaspeople continue tocutspending.Inthe
nearfuture,itseemslike thatJ.Crewstockswill continue todrop onlybya small amount;however,this
economicpandemicisgoingtoaffecteveryoneinthe clothingindustry.
The clothingindustryisdefinedasretailersthathave general linesformen,women,and
childrenwithoutspecializinginsalesforaspecificgenderorgroup.Clothingindustries usuallyopen
storessuch as familyandunisex clothingstoresaswell aswesternwearstores.Asmentionedabove,the
clothingindustriessplittheirmarketinglineintomen‘swear,women’swear,andchildren’swear (Ibis
World1).
On July11, 2008; an outlookof the entire industrywasmade.Beforethe economiccrisisin
September,expertsbelieve thatthere isgoingtobe an increase inrevenue forthe clothingindustries;
however,itwasas little as0.2%.These projectionswere due tothe assumptionthatinthe nextfive
years,demandforclotheswill increaseata slow and steadypace. On the nextpage,there isa
projectionof the grossproductgrowth of the industryforthe next six years(IbisWorld1).
4. Nguyen4
GROSS PRODUCT GROWTH
Growth
%
2009 13,635.00 0.6
2010 13,959.00 2.4
2011 14,175.00 1.5
2012 14,231.00 0.4
2013 14,332.00 0.7
2014 14,369.00 0.3
Charts andtables are presentedby IBIS world
REVENUE GROWTH
Growth
%
2009 89,400.00 0.9
2010 89,800.00 0.4
2011 89,700.00 -0.1
2012 90,100.00 0.4
2013 90,700.00 0.7
2014 90,950.00 0.3
In additiontothe small growth,itisexpectedthatthe clothingindustrieswill producemore
accessoriesata lowerprice.In2007, about30% of manufacturingof womenandchildrenapparelwas
shifttoChina.Thishas causedcompanies toproduce productsat a cheaperprice andpassingthat onto
the consumers.Thishascausedthe competitive environmentinthe clothingindustrytobe verytense as
there isa lot of supplyfightingforalimitedamountof demands(consumers) (“IndustryOutlook”1).
5. Nguyen5
Year
Percentage Percentage Percentage
Real Disp.Income
Growth
Unemployment
Rate
Consumer
Sentiment
2008 1.8 5.6 -26.29
2009 1.3 6 3.01
2010 2.1 5.6 18
2011 2.3 5.4 6.91
2012 2.5 5 7.32
2013 2.5 5 0.57
Presentedby IBISWorld
The above table isIBIS Worldprojectionof the economicoutlookof the clothingindustryforthe
nextfive years.IBISbelievesthatthere willbe alow economicgrowthin2008 and 2009 due to a credit
crunch. People will cutbackon spendingbecause they justdon’thave the fundstopurchase a lotof
clothingandaccessories.Due tolowspending,companiesare forcedtocutback on employeesto
maintaintheirrevenuecausinganincrease inunemploymentfrom2008 to 2009. Since the 2008 quota
on Chinawill end,expertsbelievethatitwill allow Chinatoimportmore clothingtoAmericaata
cheaperprice.Thiswill allowretailerstopasstheirsavingsonto the customerand inreturnwill cause
the industrytogrow from2010 and beyond (“IndustryOutlook”1).
0
2
4
6
8
10
12
14
16
18
20
2008 2009 2010 2011 2012 2013
Growth
Unemployment
Consumer Sentiment
The above chart shows the projection from the table above. Experts believe that there will
be steady growth in the clothing industries.
6. Nguyen6
Market Share
Major Player Market Share Range
TJX CompaniesInc.,The 21.0% (2008)
Gap, IncorporatedThe 14.6% (2008)
Ross Stores,Inc. 6.7% (2008)
Other 57.7% (2008)
Presented byIBIS World
The top three competitorsinthe clothingindustryare TJXCompaniesInc,GapIncorporated,and
Ross StoresInc. TJX Companydominate about¼ of the clothingindustry.Theyselltheirproducts
throughretailerssuchasMaxx and Marshall Stores.TJXhas beenable tosustaina positive growtheven
throughthese economictimes.Onthe otherhand,The Gap has seenanegative growthinthe pastyear.
Each year,the companyisprojectedtohave a growth of -1.0% and a reductionof employees.Finally,
Ross ishas a profitable growthrate justlike TJX.Overall,itseemslike The Gapwill continue todropinits
dominationof the clothingindustries.AbercrombieandFinchisprojectedtomake a huge impacton the
clothingindustryastheirgrowthrate is nearly30% eachyear.The maincompetitorsof the clothing
industriesinthe future are likelytobe TJX,Ross, The Gap, and Abercrombie andFinch. These
companies;excludingRoss,are growingatan average rate while J.Crew seemstobe growingata
slowerrate.Fromthisdata, manyexpertscandetermine thatthe large companiesinthe industryare
dominatingoverthe smallercompaniessuchasJ.Crew.
Since the overview of the clothingindustryisnow clear,itiseasiertodetermine the current
issue of the companyand if these issuesare goingtoaffectitsstockprice. As the chart below shows,J.
CrewbeganMay withan average highof about$50 pershare.However,inmid-maythe stockslump
about$10 whenanalystssaidthattheirearningwaslowerthan“expected”(“Stocksinthe Spotlight”1).
As the chart shows,the company’sstockcontinuestoslump
afterthisoccasion as the economycontinuestodecline.The
nextmajordrop inthe company’sstockoccurred inmid-
Septemberwhichwasthe beginningof the American
economiccrisis. Eversince thatpoint,J.Crew has not been
able to keeptheirstocksstable asitcontinuestodecline to
thisday.
7. Nguyen7
The main issuesfacingclothingindustriessuchasJ.Crew are how to obtaintheirrevenues.In
the past, these companiescouldrelyonbankstoobtainadditionalrevenue tokeepthe company
running.However,due tothe credit crunch,manybanksare refusingtolendoutmoneytocompanies.
Thisissue iswhatis causingJ.Crew’sstockto continue todecline inOctoberintoNovember.InOctober,
Citigroupannouncedthatitwill cutJ.Crew’sprice targetfrom $26 to $20. Thisis a bigblow to J.Crewas
the predictionof lowershare price byCitigroupcausedinvestorstolose faithinJ.Crew (“BRIEF-
Citigroupcutsprice targetson several U.S.retailers”1).Since J.Crew’sstockcontinue tofall due toissue
like thisandbanks are notlendingoutmuchmoney,J.Crew isleftina predicamentthatdoesnotseem
like itisgoingto be resolvedinthe nearfuture.
Graph byBusinessWeek.
As the above graphshows,J.Crew stocks are consistentwiththatof the S&P500 stock index.
The major slumpsinthe J. Crewstockwere resultedfromadecline inthe S&P500 inmost cases.The
onlydifference betweenthe twocurves isbetween July andearlySeptember.Itseemslikeduringthat
period,J.Crewstocksdecline while the index stayedrelativelythe same.Asstatedabove,thiswas
probablydue tothe fact thata reportstatedthat earningsforJ.Crew was lowerthanexpectedinthose
months. Thisindex showsthatlike J.Crew,manyof the industriesinthe S&P500 are sufferingmajor
stock lossesdue toa decline inthe economy.
Base on the reviewsof the industryandJ.Crew, I wouldrecommendthat investors buyJ.Crew
stocks.First,underMickeyDrexler;J.Crew hasdesignedmanynew clothinglinesaswell asstores
specificallytargetedtomen.Asmentioninthe analystreport,salesof J.Crew’sclothingwasincreased;
however,due tothe marketmanyclothingcompaniesmustreduce theirpricestoincrease revenue.As
the economicmarketgetsbetterinthe future,J.Crew will be able toraise theirprice andkeeptheir
increase insalestomake a biggerprofit.
Secondly, the projectionsof the clothingindustrylookprofitableinthe future.Fromthe
informationgatherbyIBISworld,itshowsthatthe clothingindustrywill have littlegrowthin2008 and
2009 but the growthwill onlyincrease forthe mostpartfrom there on. Due to thisconclusion,it’ssafe
to say that the clothingindustryasa whole will continue togrow slowlyandpickupitspace lateron in a
couple of years.Thisincrease will alsohelpJ.Crew increaseitsprofitability.
The red line showsthe S&P500
while the blue lineshowsthe J.
Crew stock formthe periodof
Januaryto the beginningof
November2008.
8. Nguyen8
Finally,lookingatJ.Crew’s annual reportfrom February 2007 to February 2008, it showsthat
the companyis increasingits total netincome. Also,J.Crew’scurrentratioin2008 is about1.708. This
meansthat if itcomesdownto it, J.Crew can covertheircurrentliabilitieswhichwouldpreventthem
fromgoingbankrupt.These ratioincombinationwiththe profitabilityratiosshowsthatJ.Crew isin
goodfinancial standingeventhoughtheyreportedlossesinmid-year.
Financial Statement Analysis
2008 2007
CurrentRatio 1.708x 1.732x
Debt-To-AssetsRatio 61.18% 84.10%
ReturnOn Investment 69.18% 1384.02%
InventoryTurnover 8.42x 8.19x
Profitmargin 7.27% 6.75%
Returnon Assets 18.12% 18.17%
EarningsPerShare $1.61 $1.61
Overall the philosophyof “buylow and sell high”and“whatgoesdownmust comesup”applyin
the case of J. Crew.Lookingat all of the industryinformationaswell asJ.Crew’sinformation,itseems
that inthe periodof the nextthree months,investorsshouldbuyJ.Crew’sstocks.The stock iscurrently
at $16.00, whichisdownfrom 50$ just about5 monthsago.I believe thatif investorstake this
opportunitytobuythisstock while itislow theywill be able tocapitalizetheirprofitsasthe stockwill
rise lateron nextyear.
9. Nguyen9
Works Cited
Alexandra,Biesada."J.CrewGroup,Inc.Overview."2008. Hoovers.Hagertry,Philadelphia.8Nov.2008.
"BRIEF-Citigroupcutsprice targetsonseveral U.S.retailers." AFX.31 Oct. 2008. Factiva.Hagertry,
Philadelphia.8Nov.2008.
"CITIGROUP CUTS J CREW GROUP INCPRICETARGET TO $20 FROM$29." (2008): 1-1. 31 Oct. 2008.
Factiva.Hagertry,Philadelphia.8Nov.2008.
"FamilyClothingStoresinthe US."11 July2008: 1-7. IBISWorld.Hagertry,Philadelphia.8Nov.2008.
J CrewGroup OrderShare.Digital image. Factiva.8Nov.2008. 8 Nov.2008
<http://http://global.factiva.com/cq/default.aspx>.
"J. Crew'sMickeyDrexlerMakesthe List!"Weblogpost. 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 MotleyFool.8Nov.2008. 8 Nov.2008
<http://caps.fool.com/ticker/jcg.aspx>.
Macnealy,Jeremy."Fool onCall:J.Crew'sWinningStrategy." The MotleyFool.27Nov.2006.
9 Nov.2008 <http://www.fool.com/investing/general/2006/11/27/fool-on-call-j-crews-
winning-strategy.aspx>.
"Stocksin the spotlight." The Providence Journal6(2008): 1-1. 31 May 2008. Factiva.Hagertry
, Philadelphia.8Nov.2008.
