J. Crew profit drops as mall traffic wanes; company reported pursuing IPO

The J. Crew store at the Americana Manhasset

The J. Crew store at the Americana Manhasset on June 20, 2012. (Credit: Nina Ruggiero)

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J. Crew Group Inc., the retail chain owned by TPG Capital and Leonard Green & Partners LP, reported a 42 percent drop in fourth-quarter profit amid a broader decline in shopping-mall traffic.

Net income tumbled to $5.92 million in the quarter, down from $10.2 million a year earlier, the New York-based company said Monday in a statement. Still, revenue grew almost 7 percent to $686.2 million in the period that ended Feb. 1.

J. Crew is working to bounce back from an industry slump that hurt holiday sales and triggered a wave of discounting among rival retailers. At the same time, the company is contemplating an initial public offering for later this year, according to people familiar with the matter. It also held early-stage talks with Japan's Fast Retailing Co. about a sale of the chain, people said in February.

CELEBRITY FAVORITE

J. Crew, whose clothes have been worn by celebrities such as first lady Michelle Obama and Kate Middleton, the duchess of Cambridge, was acquired by TPG and Leonard Green more than three years ago. The chain could fetch a valuation of as much as $5 billion in a potential public offering, one person familiar with the situation said.

Tapping the IPO market would mean following in the footsteps of other private-equity backed retailers. Burlington Stores Inc., which is backed by Bain Capital LLC, is up 83 percent since its October debut. Vince Holding Corp., the apparel company backed by Sun Capital Partners Inc., has gained almost 24 percent since its November debut.

HIGHER VALUATION

J. Crew has begun interviewing banks about an IPO, people familiar with that matter said last month. A $5 billion valuation would be a big jump over what TPG and Leonard Green paid for the chain in November 2010. Net of cash, the value of that deal was about $2.64 billion, data compiled by Bloomberg show. At the time, the takeover drew complaints from shareholders that chief executive Mickey Drexler didn't get a fair price for the company.

The investors sued, alleging that Drexler and other J. Crew executives stood to make millions of dollars in the deal, prompting them to only halfheartedly seek higher bids, court papers show. J. Crew settled the suit for $16 million, in addition to $6.5 million in legal fees.

The company also said Monday that it will incur a refinancing loss of $37 million in the first quarter.

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