J. Crew cuts loss; to discontinue low-priced Mercantile unit

J. Crew Group’s efforts to improve its business are beginning to pay off.

Earlier this month, the company dismissed its CEO, James Brett, over reported disagreements with the board. Some of the programs he put in place are being discontinued, while others are being retooled. J. Crew is currently being run by an “office of the CEO” made up of four senior J. Crew executives.

“Jim and the board did not share the same vision on how best to take J. Crew forward,” said president and chief operating officer Michael Nicholson on the company’s quarterly conference call.

In news first reported by The Wall Street Journal, J. Crew plans to discontinue its budget apparel division, Mercantile. The move comes nearly three months after J.Crew entered into an agreement with Amazon, which currently has a dedicated storefront for Mercantile products. The decision to sell on Amazon, a move the company had long resisted, was made by the now-departed Brett.

In an internal memo that was cited by the Journal, the company told employees its priorities are to “return the J.Crew brand to profitable growth” to focus on growing its lower-cost “factory” business online and in stores. J. Crew’s factory business is made up of 175 stores, with 42 operating under the Mercantile banner and the rest under the J. Crew banner.

“We believe that a ‘good’ price tier opportunity is better served by the J.Crew label,” the memo stated according to the Journal.

The apparel retailer narrowed its loss to $5.7 million for the quarter ended Nov.3, from a loss of $18.4 million in the year-ago period. (This year’s quarter reflects the impact of the benefit related to the lease termination payment, while last year’s reflected the impact of transformation costs and transaction costs.).

Total revenues increased 10% to $622.2 million. Total same-store sales increased 8% following a decrease of 9% last year. By brand, J.Crew comparable sales increased 4% following a decrease of 13% in the year-ago period. Madewell comparable sales increased 22% following an increase of 14% last year.

"The third quarter was highlighted by double-digit revenue growth and a solid early response to our relaunch of the J.Crew brand,” said Nicholson. “We enter the fourth quarter with a renewed focus on growing profitability at J.Crew and fueling continued strong performance at Madewell.”