J. Crew to sell Clifford & Wills

Jul 01, 1998 9:30 PM  By

The J. Crew Group is putting its women’s apparel book, Clifford & Wills (CW), on the selling block. But why, especially since CW showed a 50% growth in earnings in 1997? Could it be that company flagship J. Crew is hurting for money?

The numbers tell the story: While total sales for retailer/cataloger J. Crew jumped to $834 million for the year ended Jan. 31 1997, from $808.7 million a year ago, sales from its flagship catalog fell 8.6%, to $524.1 million, from $556.3 million. Operating expenses also grew to 43.1% of sales from 41.6%. Texas Pacific, which borrowed money to finance the purchase of Crew last fall, saddled the firm with a lot more debt-$283.9 million vs. only $86.9 million before the buyout.

Making matters worse, Standard and Poor’s (S&P) lowered the J. Crew Corp.’s bond rating (which reflects the company’s future borrowing and debt paying ability) and characterized the outlook as “negative” due to a 12% decline in fall sales, which typically account for two-thirds of J. Crew’s annual revenue.

Kevin Silverman, an analyst with Chicago-based Everen Securities, says exploring a CW sale to raise badly needed capital is logical, and that J. Crew may see CW as a “distraction to the core catalog.” Indeed, Crew CEO Howard Socol said as much in a statement: “Our decision to divest of Clifford & Wills reflects our strategy to focus on building the J. Crew brand.”

Others conjecture that J. Crew is readying to go public. An analyst who asked not to be identified says J. Crew is “trying to clean up its financial house; all the signs would indicate the firm is trying to go public.”

Other analysts interviewed for this article say the signs are pointing to an initial public offering (IPO) sometime “in the next six or nine months.”

And S&P analyst Michael Kerrane says that because Crew failed to meet its fourth-quarter projections, it must now put together “several quarters of strong performance.”