J. Crew refutes accounting allegations

Cataloger/retailer J. Crew flatly denies charges of misleading accounting practices levied against it by a former employee. In a letter to the Securities and Exchange Commission (SEC), former J. Crew order consultant Charles Sayler accused the marketer of inappropriately shifting expenses among its catalog, retail, and Internet divisions.

Although J. Crew is controlled by the privately held Texas Pacific Group, it has issued bonds to finance its debt and therefore must file documents with the SEC. In his letter, Sayler claimed that J. Crew’s accounting practices would mislead investors about the relative performance of the company’s divisions.

In denying the charges, a J. Crew spokesperson doesn’t mince words: “The charges made against J. Crew by a former employee are irrelevant and baseless. Anyone who understands our business knows that we do not report profitability by division. Equally important, no cost shifting has occurred, and there would be no advantage to the company in doing so for the reason stated above. Perhaps not surprisingly, the company has not received any notice from the SEC about any potential claim or investigation.”

The apparel cataloger/retailer reported a $12.1 million net loss for its fiscal first quarter ended May 4, compared with a $9.3 million loss for the first quarter of fiscal 2001. Excluding severance charges, however, this year’s first-quarter net loss would have been $9.1 million.

Revenue for the quarter dipped to $167.1 million from $167.8 million a year ago. Catalog and Internet sales increased 1%. But comparable store sales decreased 13%.

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