J. Crew Profit Down 99%; Sales Up

J. Crew Group Inc., in its first earnings report since going public in June, said Thursday that second-quarter profit dropped 99% on spending to refinance debt. Earnings exceeded analysts’ estimates.

Net income was $20,000, down from $1.73 million a year earlier, J. Crew said. The New York-based clothing retailer recorded $10 million in debt refinancing costs. Sales for the three months through July 29 increased 17% to $269.2 million.

J. Crew raised $402 million in an initial public offering in June.

Chief Executive Millard “Mickey” Drexler returned the company to profit after four years of losses by updating its mix of casual sweaters and khaki slacks with cashmere and Italian suits. He has opened a children’s-wear chain and another that sells items at lower prices than at the namesake shops.

“The stores look fabulous,” said Patricia Edwards, who helps manage assets at Wentworth, Hauser & Violich. The company is “able to see what people are going to crave and respond to that. They did a really good job.”

Excluding the effect of debt refinancing and other items, J. Crew said it earned $13.3 million, or 21 cents a share. Analysts surveyed by Thomson Financial had estimated per-share earnings of 17 cents.

Chief Financial Officer James Scully said per-share profit this year might be 86 cents to 88 cents, with sales at stores open more than a year increasing 10% in the second half.

Including the effect of preferred-stock dividends, J. Crew reported a loss of $2.76 million, or 8 cents a share, compared with a loss of $1.63 million, or 7 cents, a year earlier.

The company said its annual long-term growth targets included a “mid-single-digit” percentage increase in same-store sales, or sales at stores open at least a year, and a rise in earnings per share of more than 20%.

Second-quarter same-store sales jumped 16%.

J. Crew shares rose $1, or 3.7%, to $27.70 in extended trading after closing up 55 cents to $26.70.

Shares of J. Crew, which is partly owned by investment firm Texas Pacific Group, have gained 34% since the company went public June 27. Gap Inc., formerly headed by Drexler, has declined 2.1% over that time. Same-store sales have dropped in 23 of the last 26 months at San Francisco-based Gap.

Drexler, 62, has installed a merchandising team at J. Crew, hired executives from Gap and shut underperforming stores.

J. Crew, which has 169 retail stores and 50 factory outlets in the U.S., plans to open 25 to 35 stores each year, mostly in what it calls “affluent markets.” It has opened a lower-priced apparel chain for women called Madewell and a children’s chain called Crewcuts.