J.Crew's Q2, Guidance: Losing Steam

| About: J CREW (JCG)

By David Gibbs

Earnings: Q2 profits of $0.53 vs. estimates of $0.46 and $0.29 in Q2 last year. [see call transcript]

Revenue: Up 14% to $407.5 million vs. estimates of $403 million.

According to investment firm Brean Murray, “investors [are] likely worried about the difficult comparisons J. Crew faces in the second half of the fiscal year, but [sic] the company [will] benefit from a highly differentiated viewpoint and a fashion-driven core consumer who will pay full price for the right offerings.”

Comment: J.Crew Group (NYSE: JCG) blew away the numbers for Q2, upping profits 88% YoY, but weak guidance is pressuring shares after-hours. Management forecasted Q3 earnings of $0.55-$0.65 vs. expectations of $0.71 and lowered their FY2010 target by $0.10 to $2.25-$2.35. Inventory per square foot also increased by about 10%.

Add that all up and you’ve got a stock that’s trading down 6.76% after-hours on top of a 0.65% decline during regular trading. Shares last changed hands at $31.17, a price they haven’t hit since around this time last year.

This news coincides with another story reported earlier Thursday regarding Coach (NYSE:COH), indicating impending weakness at higher-priced retailers, a sector that held up through much of the downturn. This may be a result of an American consumer who many say has now completely acclimated to a recessionary environment and finds him/herself comfortable spending less money.

JCG has always been known to be among the best retailers at executing high-margin strategies, but the company seems to be losing steam. Until we see a well-founded reason to get back behind shares, J. Crew looks like a stock worth avoiding.

Disclosure: No holdings in JCG.

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