First-quarter direct response sales for apparel marketer J. Crew dropped 6%, slightly faster than the 5% dip in comparable store sales. While total revenue rose from $340.6 million a year ago to $345.8 million, the gains were due to additional stores.
Total store sales (the company did not break out comparable store sales in its first-quarter results) rose from $229.1 million during first-quarter 2008 to $240.7 million, while direct sales slipped from $100.9 million to $95.4 million.
That wasn’t the only drop for J. Crew’s catalog and Internet sales: As a percentage of total revenue, direct channels’ contributions fell from 29.6% to 27.6%.
The company’s net income dipped from $30.5 million a year ago to $20.4 million. The quarter ended May 2.
A statement accompanying the company’s financial results noted that first-quarter 2008 had seen exceptionally strong direct sales, as they had risen 17% from first-quarter 2007’s figures.
During an earnings teleconference call, CFO James S. Scully projected a further drop in comparable store revenue by a mid- to high-single-digit percentage, while he anticipated direct revenue to grow by a low-single-digit percentage.
“With respect to the direct business, circulation for the first quarter was actually down 27%, a very strong showing,” Scully said, according to a transcript of the teleconference by Seeking Alpha.
Scully continued, “We had talked on the Q4 call about the fact that we had tested a number of initiatives in Q4 when we had reduced circulation by 18%, things such as eliminating re-mails, being more specific in versioning, eliminating some pages related to [children’s retail concept] Crewcuts and other categories that we did not see a sales impact, and we took that opportunity in Q1.
“We do see that the rest of the year playing out the same way, I would say between 25% and 27%-ish in terms of circulation reduction the rest of the year,” Scully added. “But as you can imagine, with the size of that spend in that business, it's already our most profitable channel, it just makes that channel even more profitable and we have not seen a sales impact from those decreases in circulation.”
During the conference call, CEO Millard S. Drexler noted that J. Crew “made a major creative investment in our catalog and online, continuing to connect more and more to our customer…To this effect, we recently featured Lauren Hutton and artist Alex Katz in our catalog and online.”
Tracy Gardner, J. Crew’s president of retail and direct commented on the company’s drop in catalog circulation, saying “…the circulation we got out of wasn’t doing anything…our circulation strategy will continue [to be] based on the growth of our customer file, which continues to be healthy.
“And then also we’re investing into search on the Web, so that’s another key driver of our business that is highly, highly efficient, so that circulation money, a portion of it goes to getting out there with affiliate marketing and search as well to grow.”
Gardner concluded, “But on the Crewcuts front we will start mailing more aggressively. We were really pleased with the results of our first Crewcuts mailing. We also really amped up search there as well. And now we see a path to really getting more in the mail and aggressively searching around our Crewcuts file.”
