Green light granted by lenders for Madewell's initial public offering
In the third quarter of this year, American clothing retailer J. Crew saw a significant improvement in its financial performance. The company's adjusted EBITDA grew nearly 50%, marking its strongest third-quarter performance in the last five years, according to CEO Jan Singer (Nicholson).
This growth was partially driven by the success of J. Crew's year-old loyalty program, which now boasts 4 million active members who are spending more than non-loyalty customers. Digital sales also contributed to the growth, driving more than half of the total revenue.
However, J. Crew's net loss in the quarter widened to $19.9 million from $5.7 million last year. The third-quarter revenue rose by 1% to $625.6 million, but sales fell by 4% to $415.8 million for J. Crew, while Madewell's sales rose by 13% to $151.6 million. Comparable sales rose by 3% overall, with flat sales at J. Crew and a 10% increase at Madewell.
Amidst this performance, J. Crew announced plans to spin off its Madewell denim brand and take it public in the first quarter of next year. The proceeds from the spinoff are intended to delever J. Crew's balance sheet, allowing it to return to profitable growth over time.
The spinoff has been approved by the company's lenders and a special committee of its board. The exact size of Madewell's planned IPO and its specific timing have not been publicly disclosed yet, making a valid forecast for the IPO size currently unavailable.
As for J. Crew's physical stores, the company is planning to open one J. Crew store and shutter 20, and open 10 Madewell stores this year. However, industry expert Lee Peterson, executive vice president of WD Partners, expressed concern that adding more stores may not spur Madewell's growth as much as executives assume.
Meanwhile, Moody's Investors Service has questioned the $1.9 billion to $2.9 billion valuation of Madewell, suggesting it may be closer to $1.2 billion to $1.9 billion. This valuation could impact the size and success of Madewell's IPO.
Despite these challenges, J. Crew's CEO remains optimistic about the spinoff, stating that it will generate substantial proceeds for the company. The cost optimization program announced in September is also contributing to margin improvements at J. Crew, with gross margin rising year over year to 40.7%.
As J. Crew prepares for the spinoff and the upcoming holiday season, it will be interesting to see how these changes impact the company's performance in the coming quarters.
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