J.Crew Turns Around and Heads into an IPO
By Rick Moss
In what is expected to be the biggest retail IPO since 2002 when Petco went public, J.Crew is preparing to hit the NYSE big board under the ticker symbol JCG. The 215-store
clothing retailer that began life as a catalog in 1983 plans to offer 18.8 million shares in the $15 to $17 range, which would yield about $280 million in new proceeds and give
it a proposed market value of close to $1 billion.
The timing seems just right for a successful IPO event. J.Crew is coming off a good 3-year run thanks in large part to the leadership of former Gap CEO Millard Drexler. Analysts
credit the turnaround to a number of improvements: reconfirming its “preppy” image, improving store designs, and broadening assortments. The management team has also gotten high
marks for closing underperforming stores and adopting a more conservative expansion strategy. It’s all led to eight consecutive quarters of same-store-sales growth. In fact, in
the most recent quarter, J.Crew reported a 60 percent pop in first-quarter profit along with double-digit sales gains.
Despite a more measured approach, the chain is by no means hesitant about pushing out in a number of directions. Currently operating 167 retail stores and 48 factory outlets,
in the next few years J.Crew plans to open as many as 35 new locations annually. There are new formats as well: Madewell, focusing on casual women’s fashions, and Crewcuts for
kids. And of course, there’s the well-regarded jcrew.com to round out the company’s well-orchestrated, multichannel strategy.
In commentary published on MarketWatch.com, Renaissance Capital is generally bullish on the new stock. “It has a lot to prove, but J. Crew enjoys a strong brand name,
and we believe investors will give its savvy management team credit for its execution thus far.”
“Despite the recent sell-off in the market, most of J. Crew’s publicly traded retail peers have held up, and given its fair valuation based on its proposed expansion plans, we
believe there will be a decent amount of interest in the deal,” concludes the analyst.
Moderator’s Comment: Assuming J.Crew’s IPO is a success, will other chains, that have been sitting on the sidelines, take heart and make their move?
How will J.Crew use the new capital to its advantage and, conversely, what dangers could befall a “hot” chain like this?
J.Crew had one advantage from the start when it expanded into brick and mortar retail. From its genesis in catalog retailing, its marketers worked the power
of the photograph and, in a sense, good storytelling. Each catalog was another episode in the lives of rich, breezy, carefree people; lounging, splashing and sporting around in
their comfortably broken-in preppy togs. As long as J.Crew perpetuated that storyline – in their advertising, merchandising and product mix – they stayed on track.
Clearly, this current management team gets it and we hope the monetary injection won’t introduce plot-spoiling characters and pressures. –
Rick Moss – Moderator
Crew deal is featured IPO – MarketWatch
- Retailer J.Crew transforming into hot fashion chain – The Philadelphia Inquirer