J. Crew Looking to Madewell Chain to Fuel Growth After Slump

(Bloomberg) -- J. Crew Group Inc., trying to bounce back from years of sluggish sales, is increasingly looking to its Madewell chain to carry the burden.

Though overall revenue increased just 2 percent last quarter, it jumped 32 percent at Madewell, the company said on Tuesday. Chief Executive Officer Jim Brett announced plans to make strategic investments into the division that should earn “highly profitable returns.”

Madewell, a seller of denim clothing and accessories for women, has become a bright spot at J. Crew by appealing to millennials. It remains a small part of the company, but a faster growth strategy could put it front and center of a potential turnaround.

J. Crew Looking to Madewell Chain to Fuel Growth After Slump

“We will scale Madewell more rapidly, building upon its proven and consistent record of growth,” Brett said in a statement.

Brett took the helm at J. Crew last year and set about trying to reinvent a chain that had lost relevance with shoppers. The veteran of Williams-Sonoma Inc. assumed the job after long-time leader Mickey Drexler stepped aside.

Industry Downturn

J. Crew has been striving to recover from an industrywide drop in brick-and-mortar traffic. It’s also laboring under a debt load from a leveraged buyout by TPG and Leonard Green & Partners LP in 2011. Making matters worse, it largely missed out on a shift to more sporty apparel that helped bolster sales at chains like Old Navy.

Madewell, which was launched in 2006, is now helping restore some of that mojo.

A key profit measure also showed signs of improvement in the fourth quarter. Adjusted earnings before interest, taxes, depreciation and amortization rose 25 percent to $64.6 million, J. Crew said.

Same-store sales declined 3 percent in the period, which ended Feb. 3. But that was a less severe drop than the 5 percent decrease J. Crew posted in the year-earlier period.

Entering new product categories and improving J. Crew’s omnichannel operations -- the melding of online and offline sales -- are helping with the comeback, according to Moody’s Corp. analyst Raya Sokolyanska.

“J. Crew is focusing on transforming the business by providing better value to customers,” Sokolyanska said.

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