Better-than-Expected Results and Solid Guidance for J. Crew (JCG)

3/12 - "J.Crew reported Q4 EPS of $0.41 (excluding $0.02 of severance costs) vs. $0.33 LY, above our forecast and Street outlook of $0.39. Total sales were $399.9 million vs. $366.7 million in the prior year, driven by flat same store sales (+4% on realigned basis) and 11% growth in the direct channel."

"We note the potential for earnings upside given outlined product extensions and store expansion plans. Specifically, we see additional growth via crewcuts (10 shop-in-shops, 1-2 freestanding, and inaugural Factory locations in F08) and accessories penetration (including shoes, costume jewelry, and ties) that could have encouraging margin contribution."

"We continue to maintain our positive stance on JCG shares as we view the company’s fresh, innovative Spring assortments as a standout in the current retail environment. Further, we remind investors of the company’s (1) aspirational brand positioning targeting more resilient higher-income consumers, (2) multiple legs of legitimate growth vehicles, (3) meaningful margin opportunity through IMUs and product mix, and (4) improving sales productivity potential. We derive our 12-month price target of $57 by applying a discounted multiple of 27.1x (to reflect the company’s disciplined square footage growth vs. the stock’s 2-year historical forward P/E multiple of 30.9x) to our F09 EPS estimate of $2.10."