Moody’s Investors Service has downgraded the rating outlook of J. Crew Group from stable to negative, largely due to “very high debt levels” and “intense competition from catalog, Internet, and brick-and-morter retailers.” But the firm also cited decreased mail order sales beyond the chain’s anticipated declines.
While some sales declines had been expected by J. Crew, partly due to a decrease in catalog pages, Moody’s cited overhead costs of the mail order operations as having a negative effect. The investor service said the cataloger needs to “substantially reduce fixed costs connected with producing and fulfilling catalog and Internet sales.”
According to Moody’s, industry-wide weakness in winter apparel will contribute to lower-than-anticipated sales growth and product margins for 1998. But these factors will be partly offset by the strength of the J. Crew name, expertise brought in by new senior management, and the sale of J. Crew’s PCP catalog to Fingerhut. The catalog, said Moody’s, had been a poor performer.
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