J. Crew Restructures for Survival Against a 2B debt

J. Crew continues to fight for survival facing major changes, starting with a possible debt restructuring agreement.

© AFP PHOTO/Jewel Samad

J. Crew continues to fight for survival facing major changes starting with a possible debt restructuring agreement.

The US apparel company has continued to struggle with debt and low sales leading to J. Crew Group Inc, looking to negotiate its debt totaling around $2Billion sources told Reuters. Falling sales amount to in what J. Crew CEO Mickey Drexler considers a “challenging traffic environment”. J. Crew, once known for its relatively affordable all-American style, has begun to lose its identity and core customers after going through several brand reinventions. Clients are also supposedly disappointed by the perceived inattention to quality and availability, with prices simply refusing to decline.

Bloomberg Markets reporting a second quarter decrease in J. crew sales leading to a revenue decline of 4% down to $569.8 million; While this is an improvement from the reported 2Q net loss of $13.6 million loss of 2105, it still amounts to net loss of about $8.6 million dollars. The problem is, that according to Bloomberg. this would be the eighth straight quarter of declines, as its 8% same-store sales decrease was worse than its disappointing drop from the first sales quarter.

J. Crew’s approximately $1.5 billion term loan and its bonds has continued trading below face value reflecting investor concerns about full repayment. This shows little overall confidence in the brand as term loan was trading at around 71 cents on the dollar, while its bonds were trading at 42 cents on the dollar, according to Thomson Reuters data.

Additionally, J. Crew faces $500 million in maturities in bonds in 2019 and four undisclosed “but familiar” sources stated in a report by Debtwire on Friday that proposed solutions to the distressed equities value include moving the company’s intellectual property to an unrestricted Cayman Islands subsidiary. The more affordable Madewell segment is not part of the transfer and will stay in its current box which is a good thing, as CEO Draxler bets big on the J. Crew’s renaissance leaning on its economically procurable subsidiary. This seems to be chief executive’s go-to-model for change, as he did when head of rival retailer Gap, successfully launching the more affordable Old Navy and boosting overall results. The lower-priced Madewell brand has helped its parent company by showing strong sales, while relying on its more comfortable and lean style, winning over new clients and consistently appealing to young shoppers.

That is not all of the new J. Crew restructuring plan, with the company recently abandoning its bridal business, which had appealed to younger brides looking for more accessible wedding and bridesmaid dresses. The brand is also looking to make a late push into athleisure, competing with innovate yoga maker Lululemon, and emphasizing activewear or tailored clothing. There are also plans of speeding up its supply chain and promoting increased use of online sales.

Questions remain in that if these moves may be a bit too late, and if the upturn in Madewell sales has come at a cost of J. Crews’ own base, “cannibalizing” its market share.