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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended August 2, 2008

Or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------







|                       |  |                                                                 |  |                                   
|---------------------- |  | --------------------------------------------------------------- |  | ----------------------------------
|Commission File Number |  | Registrant, State of Incorporation Address and Telephone Number |  | I.R.S. Employer Identification No.
|333-42427              |  | J. CREW GROUP, INC.                                             |  | 22-2894486                        

(Incorporated in Delaware)





770 Broadway

New York, New York 10003

Telephone: (212) 209-2500





Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

Large Accelerated Filer  x    Accelerated Filer   ̈    Non-Accelerated Filer   ̈    Small Reporting Company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest practicable date.

Outstanding at August 29, 2008:

62,432,255 shares of common stock, par value $.01 per share











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##### Table of Contents

J.CREW GROUP, INC.

TABLE OF CONTENTS  FORM 10-Q



|                              |  |                                                                                                                                            |  |           
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------
|                              |  |                                                                                                                                            |  | PageNumber
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                           
|                              |  |                                                                                                                                           
|Item 1.                       |  | Condensed Consolidated Financial Statements (unaudited):                                                                                   |  |           
|                              |  |                                                                                                                                           
|                              |  | Condensed Consolidated Balance Sheets at August 2, 2008 and February 2, 2008 (unaudited)                                                   |  | 3         
|                              |  |                                                                                                                                           
|                              |  | Condensed Consolidated Statements of Operations for the thirteen and twenty-six weeks ended August 2, 2008 and August 4,
 2007 (unaudited) |  | 4         
|                              |  |                                                                                                                                           
|                              |  | Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended August 2, 2008 and August 
4, 2007 (unaudited)              |  | 6         
|                              |  |                                                                                                                                           
|                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                             |  | 7         
|                              |  |                                                                                                                                           
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                      |  | 10        
|                              |  |                                                                                                                                           
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                 |  | 17        
|                              |  |                                                                                                                                           
|Item 4.                       |  | Controls and Procedures                                                                                                                    |  | 18        
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                                           
|                              |  |                                                                                                                                           
|Item 1.                       |  | Legal Proceedings                                                                                                                          |  | 18        
|                              |  |                                                                                                                                           
|Item 1A.                      |  | Risk Factors                                                                                                                               |  | 18        
|                              |  |                                                                                                                                           
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                |  | 18        
|                              |  |                                                                                                                                           
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                                            |  | 18        
|                              |  |                                                                                                                                           
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                                        |  | 18        
|                              |  |                                                                                                                                           
|Item 5.                       |  | Other Information                                                                                                                          |  | 18        
|                              |  |                                                                                                                                           
|Item 6.                       |  | Exhibits                                                                                                                                   |  | 18        



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##### Table of Contents

PART I  FINANCIAL INFORMATION



|ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|------- | -------------------------------------------

J.CREW GROUP, INC.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share data)



|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------- | - | --------------- | - | -------- | -
|                                                                                                                                                    |  | August 2,2008 |          |   | February 2,2008 |  
|Assets                                                                                                                                              |  |               |          |   |                 |   |          |  
|Cash and cash equivalents                                                                                                                           |  | $             | 113,438  |   |                 | $ | 131,510  |  
|Merchandise inventories                                                                                                                             |  |               | 197,833  |   |                 |   | 158,525  |  
|Prepaid expenses and other current assets                                                                                                           |  |               | 39,086   |   |                 |   | 33,293   |  
|Prepaid income taxes                                                                                                                                |  |               | 12,025   |   |                 |   | 1,194    |  
|Refundable income taxes                                                                                                                             |  |               | 8,600    |   |                 |   | 8,600    |  
|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|Total current assets                                                                                                                                |  |               | 370,982  |   |                 |   | 333,122  |  
|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|Property and equipmentat cost                                                                                                                      |  |               | 338,652  |   |                 |   | 305,014  |  
|Less accumulated depreciation and amortization                                                                                                      |  |               | (154,760 | ) |                 |   | (136,722 | )
|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|                                                                                                                                                    |  |               | 183,892  |   |                 |   | 168,292  |  
|Deferred income taxes, net                                                                                                                          |  |               | 20,266   |   |                 |   | 20,188   |  
|Other assets                                                                                                                                        |  |               | 12,532   |   |                 |   | 13,994   |  
|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|Total assets                                                                                                                                        |  | $             | 587,672  |   |                 | $ | 535,596  |  
|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|                                                                                                                                                    |  |              
|Liabilities and Stockholders Equity                                                                                                                |  |               |          |   |                 |   |          |  
|Accounts payable                                                                                                                                    |  | $             | 117,009  |   |                 | $ | 101,277  |  
|Other current liabilities                                                                                                                           |  |               | 75,994   |   |                 |   | 93,796   |  
|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|Total current liabilities                                                                                                                           |  |               | 193,003  |   |                 |   | 195,073  |  
|Deferred credits                                                                                                                                    |  |               | 73,484   |   |                 |   | 67,600   |  
|Long-term debt                                                                                                                                      |  |               | 100,000  |   |                 |   | 125,000  |  
|Other liabilities                                                                                                                                   |  |               | 7,829    |   |                 |   | 7,601    |  
|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|Total liabilities                                                                                                                                   |  |               | 374,316  |   |                 |   | 395,274  |  
|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|Stockholders equity:                                                                                                                               |  |               |          |   |                 |   |          |  
|Common stock ($.01 par value; 200,000,000 shares authorized; 63,626,112 and 62,823,940 shares issued; 62,372,504 and 61,574,862 shares
outstanding) |  |               | 637      |   |                 |   | 628      |  
|Additional paid-in capital                                                                                                                          |  |               | 578,718  |   |                 |   | 554,127  |  
|Accumulated deficit                                                                                                                                 |  |               | (362,566 | ) |                 |   | (411,208 | )
|Treasury stock, at cost (1,253,608 and 1,249,078 shares held)                                                                                       |  |               | (3,433   | ) |                 |   | (3,225   | )
|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|Total stockholders equity                                                                                                                          |  |               | 213,356  |   |                 |   | 140,322  |  
|                                                                                                                                                    |  |               |          |   |                 |   |          |  
|Total liabilities and stockholders equity                                                                                                          |  | $             | 587,672  |   |                 | $ | 535,596  |  
|                                                                                                                                                    |  |               |          |   |                 |   |          |  

See notes to unaudited condensed consolidated financial statements.



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J.CREW GROUP, INC.

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except for share data)



|                                                         |  |                      |         |               |   |        
|-------------------------------------------------------- |  | -------------------- | ------- | ------------- | - | -------
|                                                         |  | Thirteen weeks ended
|                                                         |  | August 2,2008        |         | August 4,2007
|Revenues:                                                |  |                      |         |               |   |        
|Net sales                                                |  | $                    | 325,493 |               | $ | 294,124
|Other                                                    |  |                      | 10,782  |               |   | 10,607 
|                                                         |  |                      |         |               |   |        
|Total revenues                                           |  |                      | 336,275 |               |   | 304,731
|Cost of goods sold, including buying and occupancy costs |  |                      | 198,543 |               |   | 171,554
|                                                         |  |                      |         |               |   |        
|Gross profit                                             |  |                      | 137,732 |               |   | 133,177
|Selling, general and administrative expenses             |  |                      | 106,199 |               |   | 96,054 
|                                                         |  |                      |         |               |   |        
|Income from operations                                   |  |                      | 31,533  |               |   | 37,123 
|Interest expensenet                                     |  |                      | 1,430   |               |   | 2,858  
|                                                         |  |                      |         |               |   |        
|Income before income taxes                               |  |                      | 30,103  |               |   | 34,265 
|Provision for income taxes                               |  |                      | 11,980  |               |   | 13,630 
|                                                         |  |                      |         |               |   |        
|Net income                                               |  | $                    | 18,123  |               | $ | 20,635 
|                                                         |  |                      |         |               |   |        
|Income per share:                                        |  |                      |         |               |   |        
|Basic                                                    |  | $                    | 0.29    |               | $ | 0.34   
|                                                         |  |                      |         |               |   |        
|Diluted                                                  |  | $                    | 0.28    |               | $ | 0.32   
|                                                         |  |                      |         |               |   |        
|Weighted average shares outstanding:                     |  |                      |         |               |   |        
|Basic                                                    |  |                      | 61,693  |               |   | 60,316 
|                                                         |  |                      |         |               |   |        
|Diluted                                                  |  |                      | 64,346  |               |   | 63,806 
|                                                         |  |                      |         |               |   |        

See notes to unaudited condensed consolidated financial statements.



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J.CREW GROUP, INC.

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except for share data)



|                                                         |  |                        |         |               |   |        
|-------------------------------------------------------- |  | ---------------------- | ------- | ------------- | - | -------
|                                                         |  | Twenty-six weeks ended
|                                                         |  | August 2,2008          |         | August 4,2007
|Revenues:                                                |  |                        |         |               |   |        
|Net sales                                                |  | $                      | 655,535 |               | $ | 581,703
|Other                                                    |  |                        | 21,318  |               |   | 20,340 
|                                                         |  |                        |         |               |   |        
|Total revenues                                           |  |                        | 676,853 |               |   | 602,043
|Cost of goods sold, including buying and occupancy costs |  |                        | 379,234 |               |   | 330,303
|                                                         |  |                        |         |               |   |        
|Gross profit                                             |  |                        | 297,619 |               |   | 271,740
|Selling, general and administrative expenses             |  |                        | 213,040 |               |   | 190,244
|                                                         |  |                        |         |               |   |        
|Income from operations                                   |  |                        | 84,579  |               |   | 81,496 
|Interest expensenet                                     |  |                        | 3,800   |               |   | 6,300  
|                                                         |  |                        |         |               |   |        
|Income before income taxes                               |  |                        | 80,779  |               |   | 75,196 
|Provision for income taxes                               |  |                        | 32,155  |               |   | 29,912 
|                                                         |  |                        |         |               |   |        
|Net income                                               |  | $                      | 48,624  |               | $ | 45,284 
|                                                         |  |                        |         |               |   |        
|Income per share:                                        |  |                        |         |               |   |        
|Basic                                                    |  | $                      | 0.79    |               | $ | 0.75   
|                                                         |  |                        |         |               |   |        
|Diluted                                                  |  | $                      | 0.76    |               | $ | 0.71   
|                                                         |  |                        |         |               |   |        
|Weighted average shares outstanding:                     |  |                        |         |               |   |        
|Basic                                                    |  |                        | 61,443  |               |   | 60,024 
|                                                         |  |                        |         |               |   |        
|Diluted                                                  |  |                        | 64,171  |               |   | 63,698 
|                                                         |  |                        |         |               |   |        

See notes to unaudited condensed consolidated financial statements.



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J.CREW GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)



|                                                                        |  |                        |         |   |               |   |         |  
|----------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------- | - | ------- | -
|                                                                        |  | Twenty-six weeks ended |        
|                                                                        |  | August 2,2008          |         |   | August 4,2007 |  
|Cash flows from operating activities:                                   |  |                        |         |   |               |   |         |  
|Net income                                                              |  | $                      | 48,624  |   |               | $ | 45,284  |  
|Adjustments to reconcile to net cash provided by operating activities:  |  |                        |         |   |               |   |         |  
|Depreciation and amortization of property and equipment                 |  |                        | 18,571  |   |               |   | 15,455  |  
|Amortization of deferred financing costs                                |  |                        | 1,472   |   |               |   | 828     |  
|Share-based compensation                                                |  |                        | 4,230   |   |               |   | 3,199   |  
|Excess tax benefit from share-based compensation plans                  |  |                        | (12,722 | ) |               |   | (18,432 | )
|Changes in operating assets and liabilities:                            |  |                        |         |   |               |   |         |  
|Merchandise inventories                                                 |  |                        | (39,308 | ) |               |   | (17,890 | )
|Prepaid expenses and other current assets                               |  |                        | (5,793  | ) |               |   | (5,105  | )
|Other assets                                                            |  |                        | (10     | ) |               |   | 25      |  
|Accounts payable and other liabilities                                  |  |                        | 3,814   |   |               |   | 14,138  |  
|Income taxes                                                            |  |                        | 2,054   |   |               |   | 25,001  |  
|                                                                        |  |                        |         |   |               |   |         |  
|Net cash provided by operating activities                               |  |                        | 20,932  |   |               |   | 62,503  |  
|                                                                        |  |                        |         |   |               |   |         |  
|Cash flow used in investing activities:                                 |  |                        |         |   |               |   |         |  
|Capital expenditures                                                    |  |                        | (34,171 | ) |               |   | (31,672 | )
|                                                                        |  |                        |         |   |               |   |         |  
|Cash flows from financing activities:                                   |  |                        |         |   |               |   |         |  
|Repayments of long-term debt                                            |  |                        | (25,000 | ) |               |   | (25,000 | )
|Excess tax benefit from share-based compensation plans                  |  |                        | 12,722  |   |               |   | 18,432  |  
|Proceeds from share-based compensation plans                            |  |                        | 7,653   |   |               |   | 7,793   |  
|Costs incurred in connection with amended and restated credit agreement |  |                        |        |   |               |   | (1,284  | )
|Repurchase of common shares                                             |  |                        | (208    | ) |               |   |        |  
|                                                                        |  |                        |         |   |               |   |         |  
|Net cash used in financing activities                                   |  |                        | (4,833  | ) |               |   | (59     | )
|                                                                        |  |                        |         |   |               |   |         |  
|(Decrease)/increase in cash and cash equivalents                        |  |                        | (18,072 | ) |               |   | 30,772  |  
|Cash and cash equivalentsbeginning of period                           |  |                        | 131,510 |   |               |   | 88,900  |  
|                                                                        |  |                        |         |   |               |   |         |  
|Cash and cash equivalentsend of period                                 |  | $                      | 113,438 |   |               | $ | 119,672 |  
|                                                                        |  |                        |         |   |               |   |         |  
|Supplemental cash flow information:                                     |  |                        |         |   |               |   |         |  
|Income taxes paid                                                       |  | $                      | 30,380  |   |               | $ | 5,081   |  
|                                                                        |  |                        |         |   |               |   |         |  
|Interest paid                                                           |  | $                      | 2,863   |   |               | $ | 6,597   |  
|                                                                        |  |                        |         |   |               |   |         |  

See notes to unaudited condensed consolidated financial statements.



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J.CREW GROUP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Thirteen and
twenty-six weeks ended August 2, 2008 and August 4, 2007

(Dollars in thousands, unless otherwise indicated)

1. Basis of Presentation

The
condensed consolidated financial statements presented herein include the accounts of J.Crew Group, Inc. and its wholly owned subsidiaries (Group or the Company). All significant intercompany balances and transactions are
eliminated in consolidation.

The condensed consolidated balance sheet as of August 2, 2008, the condensed consolidated statements of
operations for the thirteen and twenty-six weeks ended August 2, 2008 and August 4, 2007, and the condensed consolidated statements of cash flows for the twenty-six weeks ended August 2, 2008 and August 4, 2007 have been prepared
by the Company and have not been audited. In the opinion of management, all adjustments, consisting of only normal recurring adjustments necessary for the fair presentation of the financial position, results of operations and cash flows, have been
made.

Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the consolidated financial statements filed in the Companys
Annual Report on Form 10-K for the fiscal year ended February 2, 2008 (fiscal 2007).

The results of operations for the
thirteen and twenty-six weeks ended August 2, 2008 are not necessarily indicative of the operating results for the full fiscal year.

2.
Share-Based Compensation

Effective January 29, 2006, the Company adopted the provisions of SFAS No. 123(R), using the
modified prospective transition method. Under this method, share-based compensation recognized in the thirteen and twenty-six weeks ended August 2, 2008 and August 4, 2007 includes compensation cost for all share-based awards: (i) not
vested as of January 29, 2006, and (ii) granted subsequent to January 29, 2006, based on the estimated grant date fair value using the Black-Scholes option pricing model. The Company recognizes compensation expense for stock option
awards and restricted stock awards on a straight-line basis over the requisite service period of the award. There have been no significant changes subsequent to the end of fiscal 2007 in the methods or assumptions used to measure share-based awards.

A summary of the impact of share-based awards on our financial condition and results of operations is as follows:



|                                                          |  |                      |       |                        |   |               |  |               |        |  |   |       
|--------------------------------------------------------- |  | -------------------- | ----- | ---------------------- | - | ------------- |  | ------------- | ------ |  | - | ------
|                                                          |  | Thirteen Weeks Ended |       | Twenty-six Weeks Ended
|                                                          |  | August 2,2008        |       | August 4,2007          |   | August 2,2008 |  | August 4,2007
|Share-based compensation(1)                               |  | $                    | 2,166 |                        | $ | 1,938         |  | $             | 4,230  |  | $ | 3,199 
|                                                          |  |                      |       |                        |   |               |  |               |        |  |   |       
|Proceeds from exercise of stock option                    |  | $                    | 835   |                        | $ | 2,842         |  | $             | 6,822  |  | $ | 6,876 
|Proceeds from issuance of common stock under ASPP         |  |                      | 831   |                        |   | 917           |  |               | 831    |  |   | 917   
|                                                          |  |                      |       |                        |   |               |  |               |        |  |   |       
|Proceeds from share-based compensation plans              |  | $                    | 1,666 |                        | $ | 3,759         |  | $             | 7,653  |  | $ | 7,793 
|                                                          |  |                      |       |                        |   |               |  |               |        |  |   |       
|Excess tax benefit from share-based compensation plans(2) |  | $                    | 2,629 |                        | $ | 8,284         |  | $             | 12,722 |  | $ | 18,432
|                                                          |  |                      |       |                        |   |               |  |               |        |  |   |       



|(1) | included in selling, general and administrative expenses.
|--- | ---------------------------------------------------------

|(2) | included in stockholders equity.
|--- | ---------------------------------



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3. Income Taxes

Group files a consolidated federal income tax return, which includes all of its wholly owned subsidiaries. Each subsidiary files separate, or combined where required, state tax returns in required jurisdictions. Tax
years ending January 2002 through January 2006 are currently under audit by the IRS. The results of these audits are not expected to have a significant effect on the results of operations or financial position. Various state and local jurisdiction
tax authorities are in the process of examining income tax returns of Groups subsidiaries for various tax years ranging from 2001 to 2005.

The Company has $7.8 million in unrecognized tax benefits, reflected in other liabilities, including interest and penalties. The amount, if recognized, that would affect the effective tax rate is $4.3 million. While the Company expects the
amount of unrecognized tax benefits to change in the next twelve months, the change is not expected to have a significant effect on the estimated effective annual tax rate, the results of operations or financial position.

It is the Companys policy to recognize interest income and expense related to income taxes as a component of interest expense, and penalties as a
component of selling, general and administrative expenses. The amount of interest and penalties accrued at August 2, 2008 is $1.3 million.

4. Debt
and Credit Agreements

Debt

Long-term debt consists of the following:



|                     |  |               |         |                 |   |        
|-------------------- |  | ------------- | ------- | --------------- | - | -------
|                     |  | August 2,2008 |         | February 2,2008
|Term loan            |  | $             | 100,000 |                 | $ | 125,000
|Less current portion |  |               |        |                 |   |       
|                     |  |               |         |                 |   |        
|Total long-term debt |  | $             | 100,000 |                 | $ | 125,000
|                     |  |               |         |                 |   |        

On May 15, 2006 (the Closing Date), J. Crew Operating Corp.
(Operating), as borrower, Group and certain of Operatings direct and indirect subsidiaries, as guarantors, entered into a Credit and Guaranty Agreement (the Credit and Guaranty Agreement) with certain lenders named
therein as lenders, Goldman Sachs Credit Partners L.P. (GSCP) and Bear, Stearns & Co. Inc. as joint lead arrangers and joint bookrunners, GSCP as administrative agent and collateral agent, Bear Stearns Corporate Lending Inc. as
syndication agent and Wachovia Bank, National Association as documentation agent.

The total amount of the term loan (the Term
Loan) borrowed by Operating under the Credit and Guaranty Agreement on the Closing Date was $285.0 million. Borrowings bear interest, at the Companys option, at the base rate plus a margin of 0.75% or at LIBOR plus a margin of
1.75% per annum, payable quarterly. All borrowings will mature on May 15, 2013.

The Company is required to make the following
annual principal payments: (i) 1% of the original principal balance of the Term Loan due quarterly and (ii) an amount equal to 50% of excess cash flow, as defined in the agreement, due within 90 days of the fiscal year-end. The Company
made a voluntary prepayment of $25.0 million in the first quarter of 2008. Aggregate voluntary prepayments are in excess of the required principal payments.

Credit Agreements

Credit Facility

On May 4, 2007, Group and certain of its subsidiaries, as guarantors, and Operating and certain of its subsidiaries, as borrowers, entered into a Second Amended and Restated Credit Agreement (the Credit
Facility) with Citicorp USA, Inc. (Citicorp), as administrative agent, Citicorp, as collateral agent, and Bank of America, N.A. and Wachovia Bank, National Association, as syndication agents.

The Credit Facility provides for revolving loans and letters of credit of up to $200 million, which amount may be increased up to $250 million subject to
certain conditions. Borrowings bear interest, at the Companys option, at floating interest rates based on Citibank N.A.s prime rate plus a margin of up to 0.25% or LIBOR plus a margin ranging from 1.0% to 1.25%. The total amount of
availability is limited to the sum of: (a) 100% of qualified cash, (b) 90% of eligible receivables, (c) 92.5% of the net recovery percentage of inventories (as determined by periodic inventory appraisals) for the period August 1
through December 31, or 90% of the net recovery percentage of inventories for the period January 1 through July 31, and (d) 65% of the fair market value of eligible real estate. The Credit Facility expires on May 4, 2013.
Excess availability at August 2, 2008 was $192.7 million. There were no short-term borrowings during the first six months of fiscal 2008 or fiscal 2007.



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Borrowings under the Credit Facility are guaranteed by the Company and certain of its subsidiaries, and
are secured by a perfected first priority security interest in substantially all of the Companys assets and those of certain of its subsidiaries. The Credit Facility includes restrictions on the Companys ability and the ability of
certain of its subsidiaries to incur additional indebtedness and liens, pay dividends or make other distributions, make investments, dispose of assets and merge. If excess availability under the Credit Facility is less than $20 million at any time,
then the Companys fixed charge coverage ratio for the most recently ended period of four consecutive fiscal quarters may not be less than 1.10 to 1.00.

If an event of default occurs under the Credit Facility, the lenders may declare all amounts outstanding under the Credit Facility immediately due and payable. In such event, the lenders may exercise any rights and
remedies they may have by law or agreement, including the ability to cause all or any part of the collateral securing the Credit Facility to be sold.

Demand Letter of Credit Facility

On October 31, 2007, Operating entered into an unsecured,
demand letter of credit facility with The Hong Kong and Shanghai Banking Corporation Limited (HSBC) which provides for the issuance of up to $35 million of documentary letters of credit on a no fee basis. Outstanding letters of credit
were $19.8 million and availability was $15.2 million at August 2, 2008 under this facility.

5. Income Per Share

The calculation of basic and diluted income per share is presented as follows:



|                                            |  |                      |        |                        |   |               |  |               |        |  |   |       
|------------------------------------------- |  | -------------------- | ------ | ---------------------- | - | ------------- |  | ------------- | ------ |  | - | ------
|                                            |  | Thirteen Weeks Ended |        | Twenty-six Weeks Ended
|                                            |  | August 2,2008        |        | August 4,2007          |   | August 2,2008 |  | August 4,2007
|Net income                                  |  | $                    | 18,123 |                        | $ | 20,635        |  | $             | 48,624 |  | $ | 45,284
|                                            |  |                      |        |                        |   |               |  |               |        |  |   |       
|Income per share:                           |  |                      |        |                        |   |               |  |               |        |  |   |       
|Basic                                       |  | $                    | 0.29   |                        | $ | 0.34          |  | $             | 0.79   |  | $ | 0.75  
|                                            |  |                      |        |                        |   |               |  |               |        |  |   |       
|Diluted                                     |  | $                    | 0.28   |                        | $ | 0.32          |  | $             | 0.76   |  | $ | 0.71  
|                                            |  |                      |        |                        |   |               |  |               |        |  |   |       
|Weighted average common shares outstanding: |  |                      |        |                        |   |               |  |               |        |  |   |       
|Basic                                       |  |                      | 61,693 |                        |   | 60,316        |  |               | 61,443 |  |   | 60,024
|                                            |  |                      |        |                        |   |               |  |               |        |  |   |       
|Diluted                                     |  |                      | 64,346 |                        |   | 63,806        |  |               | 64,171 |  |   | 63,698
|                                            |  |                      |        |                        |   |               |  |               |        |  |   |       

The number of shares of potentially dilutive securities excluded from the calculation of diluted
earnings per share are as follows:



|                          |  |                      |  |                        |  |               |  |              
|------------------------- |  | -------------------- |  | ---------------------- |  | ------------- |  | -------------
|                          |  | Thirteen Weeks Ended |  | Twenty-six Weeks Ended
|                          |  | August 2,2008        |  | August 4,2007          |  | August 2,2008 |  | August 4,2007
|Stock options             |  | 2,303                |  | 16                     |  | 2,213         |  | 16           
|Unvested restricted stock |  | 8                    |  |                       |  | 8             |  |             
|                          |  |                      |  |                        |  |               |  |              
|Total                     |  | 2,311                |  | 16                     |  | 2,221         |  | 16           
|                          |  |                      |  |                        |  |               |  |              

6. Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements. SFAS No. 157
establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for the Company beginning February 1, 2009. The Company has not
yet determined the impact, if any, from the adoption of this new accounting standard.

In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities.SFAS No. 159 permits entities to elect to measure many financial instruments and certain other items at fair value and establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 was effective for the Company beginning February 3, 2008. SFAS
No. 159 did not impact the financial condition or results of operations of the Company.



9



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##### Table of Contents

Forward-Looking Statements

This report contains forward-looking statements, which include information concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures,
financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings Condensed Consolidated Financial Statements and Managements Discussion and Analysis
of Financial Condition and Results of Operations. When used in this report, the words estimate, expect, anticipate, project, plan, intend, believe and
variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, our examination of historical operating trends, are based upon our current
expectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but there can be no assurance that we will realize our expectations or that our beliefs will prove correct.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in
this report. Important factors that could cause our actual results to differ materially from those expressed as forward-looking statements are set forth in this report, including but not limited to those under the heading Risk Factors in
our Annual Report on Form 10-K for the fiscal year ended February 2, 2008 filed with the Securities and Exchange Commission. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to
differ materially from the forward-looking statements.

All forward-looking statements attributable to us or persons acting on our behalf
apply only as of the date they are made and are expressly qualified in their entirety by the cautionary statements included in this report. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking
statement to reflect events or circumstances occurring after the date they were made or to reflect the occurrence of unanticipated events.



|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

This document should be read in conjunction with the Managements Discussion and Analysis section of our Annual Report on Form 10-K for the fiscal
year ended February 2, 2008 filed with the Securities and Exchange Commission. When used herein, the terms Group, Company, we, us and our refer to J. Crew Group, Inc., including
consolidated subsidiaries.

Executive Overview

J.Crew is a nationally recognized apparel and accessories brand that we believe embraces a high standard of style, craftsmanship, quality and customer service, while projecting an aspirational American lifestyle. On the basis of data
collected on our Internet channel customers, we believe our customer base consists primarily of affluent, college-educated, professional and fashion-conscious women and men.

We have two primary sales channels: Stores, which consists of our retail and factory stores, and
Direct, which consists of our catalog and our Internet website at www.jcrew.com. At August 2, 2008, we operated 210 retail stores (including four crewcuts® and nine Madewell® stores) and 66 factory stores, compared to 185 retail stores (including three crewcuts stores and five Madewell stores) and 53 factory stores at August 4, 2007.

The following is a summary of our revenues for the thirteen and twenty-six week periods ended August 2, 2008 (second quarter and first half of
fiscal 2008) and August 4, 2007 (second quarter and first half of fiscal 2007):



|                      |  |                      |       |                        |   |               |  |               |       |  |   |      
|--------------------- |  | -------------------- | ----- | ---------------------- | - | ------------- |  | ------------- | ----- |  | - | -----
|                      |  | Thirteen Weeks Ended |       | Twenty-six Weeks Ended
|(Dollars in millions) |  | August 2,2008        |       | August 4,2007          |   | August 2,2008 |  | August 4,2007
|Stores                |  | $                    | 242.3 |                        | $ | 219.6         |  | $             | 471.4 |  | $ | 420.6
|Direct                |  |                      | 83.2  |                        |   | 74.5          |  |               | 184.1 |  |   | 161.1
|                      |  |                      |       |                        |   |               |  |               |       |  |   |      
|Net sales             |  |                      | 325.5 |                        |   | 294.1         |  |               | 655.5 |  |   | 581.7
|Other                 |  |                      | 10.8  |                        |   | 10.6          |  |               | 21.3  |  |   | 20.3 
|                      |  |                      |       |                        |   |               |  |               |       |  |   |      
|Total revenues        |  | $                    | 336.3 |                        | $ | 304.7         |  | $             | 676.8 |  | $ | 602.0
|                      |  |                      |       |                        |   |               |  |               |       |  |   |      



10



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##### Table of Contents

The following is a brief summary of second quarter fiscal 2008 highlights:



| |  |  | Revenues totaled $336.3 million, reflecting a 10% increase over prior year revenues of $304.7 million.
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Comparable store sales decreased 0.4%.
| | - |  | --------------------------------------



| |  |  | Direct net sales increased 12% to $83.2 million.
| | - |  | ------------------------------------------------



| |  |  | Income from operations decreased 15% to $31.5 million.
| | - |  | ------------------------------------------------------



| |  |  | We opened four J.Crew retail stores, three J.Crew factory stores and two Madewell stores.
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | We implemented certain Direct channel systems upgrades such as a new platform for our website, a new order management system in our call center and a new warehouse
management system. These systems upgrades impacted our ability to capture, process, ship and service customer orders.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following is a brief summary of first half fiscal 2008 highlights:



| |  |  | Revenues totaled $676.8 million, reflecting a 12% increase over prior year revenues of $602.0 million.
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | Comparable store sales increased 1%.
| | - |  | ------------------------------------



| |  |  | Direct net sales increased 14% to $184.1 million.
| | - |  | -------------------------------------------------



| |  |  | Income from operations increased 4% to $84.6 million.
| | - |  | -----------------------------------------------------



| |  |  | A voluntary prepayment of $25.0 million was made under the Term Loan.
| | - |  | ---------------------------------------------------------------------



| |  |  | We opened eight J.Crew retail stores, five J.Crew factory stores and three Madewell stores.
| | - |  | -------------------------------------------------------------------------------------------

How We Assess the Performance of Our Business

In
assessing the performance of our business, we consider a variety of performance and financial measures. A key measure for determining how our business is performing is comparable store sales, which reflect net sales at stores that have been open for
at least twelve months. In the first quarter of fiscal 2008, we refined our comparable stores sales calculation to include the impact of more significant remodelings of our stores. This refinement did not significantly change the decrease in
comparable store sales in the second quarter of fiscal 2008.

A complete description of the measures we use to assess the performance of
our business appears in the Managements Discussion and Analysis section of our Annual Report on Form 10-K for the fiscal year ended February 2, 2008 filed with the Securities and Exchange Commission.

Results of OperationsSecond quarter of Fiscal 2008 Compared to Second quarter of Fiscal 2007



|                                             |  |                                    |       |                    |                                    |   |        |                       |                    |  |       |         |  |   |            |   |  |       |   
|-------------------------------------------- |  | ---------------------------------- | ----- | ------------------ | ---------------------------------- | - | ------ | --------------------- | ------------------ |  | ----- | ------- |  | - | ---------- | - |  | ----- | --
|                                             |  | Thirteen Weeks EndedAugust 2, 2008 |       |                    | Thirteen Weeks EndedAugust 4, 2007 |   |        | Increase / (Decrease) |                   
|(Dollars in millions)                        |  | Amount                             |       | Percent ofRevenues |                                    |   | Amount |                       | Percent ofRevenues |  |       | Dollars |  |   | Percentage |  
|Revenues                                     |  | $                                  | 336.3 |                    | 100.0                              | % |        | $                     | 304.7              |  | 100.0 | %       |  | $ | 31.6       |   |  | 10.4  | % 
|Gross profit                                 |  |                                    | 137.7 |                    | 41.0                               | % |        |                       | 133.2              |  | 43.7  | %       |  |   | 4.5        |   |  | 3.4   | % 
|Selling, general and administrative expenses |  |                                    | 106.2 |                    | 31.6                               | % |        |                       | 96.1               |  | 31.5  | %       |  |   | 10.1       |   |  | 10.6  | % 
|Income from operations                       |  |                                    | 31.5  |                    | 9.4                                | % |        |                       | 37.1               |  | 12.2  | %       |  |   | (5.6       | ) |  | (15.1 | )%
|Interest expense, net                        |  |                                    | 1.4   |                    | 0.4                                | % |        |                       | 2.9                |  | 0.9   | %       |  |   | (1.5       | ) |  | (50.0 | )%
|Income taxes                                 |  |                                    | 12.0  |                    | 3.6                                | % |        |                       | 13.6               |  | 4.5   | %       |  |   | (1.6       | ) |  | (12.1 | )%
|Net income                                   |  | $                                  | 18.1  |                    | 5.4                                | % |        | $                     | 20.6               |  | 6.8   | %       |  | $ | (2.5       | ) |  | (12.2 | )%

Revenues

Revenues for the second quarter of fiscal 2008 (the thirteen weeks ended August 2, 2008) increased $31.6 million, or 10.4%, to $336.3 million from $304.7 million in the second quarter of fiscal 2007 (the thirteen
weeks ended August 4, 2007). We believe the increase in revenues for the second quarter of fiscal 2008 resulted from the additional number of store locations compared to the prior comparable period, the continuing appeal of our expanded product
line in both Stores and Direct and our continuing commitment to customer service.

Stores sales increased $22.7 million, or 10.3%, to
$242.3 million in the second quarter of fiscal 2008 from $219.6 million in the second quarter of fiscal 2007. Comparable store sales decreased $0.8 million, or 0.4%, to $211.6 million in the second quarter of fiscal 2008 from $212.4 million in the
comparable period last year. Non-comparable store sales were $30.7 million in the second quarter of fiscal 2008.



11



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##### Table of Contents

Direct sales increased $8.7 million, or 11.6%, to $83.2 million in the second quarter of fiscal 2008 from
$74.5 million in the second quarter of fiscal 2007. During the second quarter of fiscal 2008 we implemented certain Direct channel systems upgrades which impacted our ability to capture, process, ship and service customer orders. As a result, our
Direct sales growth rate was lower than recent quarterly trends. We expect the impact of the systems upgrades to continue into the second half of fiscal 2008. The number of catalog pages circulated in the second quarter of fiscal 2008 increased 6%
from the comparable period last year. This increase was primarily due to a shift in the timing of circulating catalogs at quarter end. We continue to see a shift of orders placed on the phone to the Internet. We evaluate the efficiency of our
circulation strategies on a continuing basis and make adjustments as we deem appropriate. The following table summarizes net sales of the Direct channel:



|                       |  |                      |      |               |   |     
|---------------------- |  | -------------------- | ---- | ------------- | - | ----
|                       |  | Thirteen Weeks Ended
|(Dollars in millions)  |  | August 2,2008        |      | August 4,2007
|Internet               |  | $                    | 71.1 |               | $ | 57.3
|Phone                  |  |                      | 12.1 |               |   | 17.2
|                       |  |                      |      |               |   |     
|Total Direct net sales |  | $                    | 83.2 |               | $ | 74.5
|                       |  |                      |      |               |   |     

The approximate percentage of our sales by product category, based on our internal merchandising
system, is as follows:



|            |  |                      |   |  |               |  
|----------- |  | -------------------- | - |  | ------------- | -
|            |  | Thirteen Weeks Ended |  
|            |  | August 2,2008        |   |  | August 4,2007 |  
|Apparel:    |  |                      |   |  |               |  
|Womens     |  | 65                   | % |  | 65            | %
|Mens       |  | 20                   | % |  | 20            | %
|Childrens  |  | 2                    | % |  | 2             | %
|Accessories |  | 13                   | % |  | 13            | %
|            |  |                      |   |  |               |  
|            |  | 100                  | % |  | 100           | %
|            |  |                      |   |  |               |  

The increase in Stores and Direct sales in the second quarter of fiscal 2008 was primarily driven
by an increase in sales of womens apparel. This increase was largely driven by sales of sweaters, knits and skirts. Sales of mens apparel and accessories also increased during the period. We offer childrens apparel in shops within
our retail stores, stand-alone stores and our Direct channel. As of August 2, 2008, we operated 39 crewcuts shop-in-shops and four stand-alone stores, as compared to 26 shop-in-shops and three stand-alone stores as of August 4, 2007.

Other revenues, which consist primarily of shipping and handling fees and royalties, increased to $10.8 million in the second quarter of
fiscal 2008 from $10.6 million in the comparable period last year. The increase resulted primarily from an increase in shipping and handling fees attributable to the increase in Direct sales. However, this increase was negatively impacted as a
result of providing free or upgraded shipping to improve customer service during our Direct channel systems upgrades. We expect the impact of the systems upgrades to continue into the second half of fiscal 2008.

Gross Profit

Gross profit increased $4.5 million to
$137.7 million in the second quarter of fiscal 2008 from $133.2 million in the second quarter of fiscal 2007. This increase resulted from the following factors:



|                                       |  |   |      |  
|-------------------------------------- |  | - | ---- | -
|(Dollars in millions)                  |  |   |     
|Increase in revenues                   |  | $ | 17.5 |  
|Decrease in merchandise margin         |  |   | (5.3 | )
|Increase in buying and occupancy costs |  |   | (7.7 | )
|                                       |  |   |      |  
|                                       |  | $ | 4.5  |  
|                                       |  |   |      |  

Gross margin decreased to 41.0% in the second quarter of fiscal 2008 from 43.7% in the second
quarter of fiscal 2007. The decrease in gross margin was driven by approximately (i) a 150 basis point decline in merchandise margin, due primarily to increased



12



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##### Table of Contents

markdowns, customer accommodations associated with our Direct channel systems upgrades and increased freight expenses, and (ii) a 120 basis point
increase in buying and occupancy costs as a percentage of revenues. We expect the impact of the systems upgrades to continue into the second half of fiscal 2008.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $10.1 million, or
10.6%, to $106.2 million in the second quarter of fiscal 2008 from $96.1 million in the second quarter of fiscal 2007. This increase primarily resulted from:



| |  |  | an increase in Direct and Stores operating expensesprimarily payroll and payroll related expensesof $10.3 million, which includes unanticipated expenses
of $1.5 million related to our Direct channel systems upgrades. We expect the impact of the systems upgrades to continue into the second half of fiscal 2008;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in catalog paper, postage and printing costs of $2.3 million; offset by
| | - |  | -----------------------------------------------------------------------------------



| |  |  | a decrease in share-based and incentive compensation of $4.2 million.
| | - |  | ---------------------------------------------------------------------

As a percentage of revenues, selling, general and administrative expenses increased to 31.6% in the second quarter of fiscal 2008 from 31.5% in the
comparable period last year, primarily due to the above mentioned items.

Interest Expense, Net

Interest expense, net of interest income, decreased $1.5 million to $1.4 million in the second quarter of fiscal 2008 from $2.9 million in the second
quarter of fiscal 2007. This decrease primarily reflects our lower average outstanding debt in fiscal 2008 resulting from voluntary prepayments under the Term Loan.

Income Taxes

The income tax provision for the second quarter of fiscal 2008 and 2007 reflects the
estimated annual effective tax rate of 39.8%.

Net Income

Net income decreased $2.5 million to $18.1 million in the second quarter of fiscal 2008 from $20.6 million in the second quarter of fiscal 2007. This decrease was due to a $4.5 million increase in gross profit driven
by the 10.4% increase in revenues, a $1.5 million decrease in interest expense, a $1.6 million decrease in the provision for income taxes, more than offset by a $10.1 million increase in selling, general and administrative expenses.

Results of Operations  First Half of Fiscal 2008 Compared to First Half of Fiscal 2007



|                                             |  |                                      |       |                    |                                      |   |        |                       |                    |  |       |         |  |   |            |   |  |       |   
|-------------------------------------------- |  | ------------------------------------ | ----- | ------------------ | ------------------------------------ | - | ------ | --------------------- | ------------------ |  | ----- | ------- |  | - | ---------- | - |  | ----- | --
|                                             |  | Twenty-six Weeks EndedAugust 2, 2008 |       |                    | Twenty-six Weeks EndedAugust 4, 2007 |   |        | Increase / (Decrease) |                   
|(Dollars in millions)                        |  | Amount                               |       | Percent ofRevenues |                                      |   | Amount |                       | Percent ofRevenues |  |       | Dollars |  |   | Percentage |  
|Revenues                                     |  | $                                    | 676.9 |                    | 100.0                                | % |        | $                     | 602.0              |  | 100.0 | %       |  | $ | 74.9       |   |  | 12.4  | % 
|Gross profit                                 |  |                                      | 297.6 |                    | 44.0                                 | % |        |                       | 271.7              |  | 45.1  | %       |  |   | 25.9       |   |  | 9.5   | % 
|Selling, general and administrative expenses |  |                                      | 213.0 |                    | 31.5                                 | % |        |                       | 190.2              |  | 31.6  | %       |  |   | 22.8       |   |  | 12.0  | % 
|Income from operations                       |  |                                      | 84.6  |                    | 12.5                                 | % |        |                       | 81.5               |  | 13.5  | %       |  |   | 3.1        |   |  | 3.8   | % 
|Interest expense, net                        |  |                                      | 3.8   |                    | 0.6                                  | % |        |                       | 6.3                |  | 1.0   | %       |  |   | (2.5       | ) |  | (39.7 | )%
|Income taxes                                 |  |                                      | 32.2  |                    | 4.8                                  | % |        |                       | 29.9               |  | 5.0   | %       |  |   | 2.3        |   |  | 7.5   | % 
|Net income                                   |  | $                                    | 48.6  |                    | 7.2                                  | % |        | $                     | 45.3               |  | 7.5   | %       |  | $ | 3.3        |   |  | 7.4   | % 

Revenues

Revenues for the first half of fiscal 2008 (the twenty-six weeks ended August 2, 2008) increased $74.9 million, or 12.4%, to $676.9 million from $602.0 million in the first half of fiscal 2007 (the twenty-six
weeks ended August 4, 2007). We believe the increase in revenues for the first half of fiscal 2008 resulted from the additional number of store locations compared to the prior comparable period, the continuing appeal of our expanded product
line in both Stores and Direct and our continuing commitment to customer service.

Stores sales increased $50.8 million, or 12.1%, to
$471.4 million in the first half of fiscal 2008 from $420.6 million in the first half of fiscal 2007. Comparable store sales increased $3.9 million, or 1.0%, to $411.7 million in the first half of fiscal 2008 from $407.8 million in the comparable
period last year. Non-comparable store sales were $59.7 million in the first half of fiscal 2008.



13



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##### Table of Contents

Direct sales increased $23.0 million, or 14.3%, to $184.1 million in the first half of fiscal 2008 from
$161.1 million in the first half of fiscal 2007. During the second quarter of fiscal 2008 we implemented certain Direct channel systems upgrades which impacted our ability to capture, process, ship and service customer orders. As a result, our
Direct sales growth rate was lower than recent quarterly trends. We expect the impact of the systems upgrades to continue into the second half of fiscal 2008. The number of catalog pages circulated in the first half of fiscal 2008 increased 1% from
the comparable period last year. We continue to see a shift of orders placed on the phone to the Internet. We evaluate the efficiency of our circulation strategies on a continuing basis and make adjustments as we deem appropriate. The following
table summarizes net sales of the Direct channel:



|                       |  |                        |       |               |   |      
|---------------------- |  | ---------------------- | ----- | ------------- | - | -----
|                       |  | Twenty-six Weeks Ended
|(Dollars in millions)  |  | August 2,2008          |       | August 4,2007
|Internet               |  | $                      | 157.7 |               | $ | 123.0
|Phone                  |  |                        | 26.4  |               |   | 38.1 
|                       |  |                        |       |               |   |      
|Total Direct net sales |  | $                      | 184.1 |               | $ | 161.1
|                       |  |                        |       |               |   |      

The approximate percentage of our sales by product category, based on our internal merchandising
system, is as follows:



|            |  |                        |   |  |               |  
|----------- |  | ---------------------- | - |  | ------------- | -
|            |  | Twenty-six Weeks Ended |  
|            |  | August 2,2008          |   |  | August 4,2007 |  
|Apparel:    |  |                        |   |  |               |  
|Womens     |  | 67                     | % |  | 66            | %
|Mens       |  | 18                     | % |  | 19            | %
|Childrens  |  | 2                      | % |  | 2             | %
|Accessories |  | 13                     | % |  | 13            | %
|            |  |                        |   |  |               |  
|            |  | 100                    | % |  | 100           | %
|            |  |                        |   |  |               |  

The increase in Stores and Direct sales in the first half of fiscal 2008 was primarily driven by
an increase in sales of womens apparel. This increase was largely driven by sales of sweaters, knits and pants. Sales of mens apparel and accessories also increased during the period. We offer childrens apparel in shops within our
retail stores, stand-alone stores and our Direct channel. As of August 2, 2008, we operated 39 crewcuts shop-in-shops and four stand-alone stores, as compared to 26 shop-in-shops and three stand-alone stores as of August 4, 2007.

Other revenues, which consist primarily of shipping and handling fees and royalties, increased to $21.3 million in the first half of
fiscal 2008 from $20.3 million in the comparable period last year. The increase resulted primarily from an increase in shipping and handling fees attributable to the increase in Direct sales. However, this increase was negatively impacted as a
result of providing free or upgraded shipping to improve customer service during our Direct channel systems upgrades. We expect the impact of the systems upgrades to continue into the second half of fiscal 2008.

Gross Profit

Gross profit increased $25.9 million to
$297.6 million in the first half of fiscal 2008 from $271.7 million in the first half of fiscal 2007. This increase resulted from the following factors:



|                                       |  |   |       |  
|-------------------------------------- |  | - | ----- | -
|(Dollars in millions)                  |  |   |      
|Increase in revenues                   |  | $ | 42.6  |  
|Decrease in merchandise margin         |  |   | (1.4  | )
|Increase in buying and occupancy costs |  |   | (15.3 | )
|                                       |  |   |       |  
|                                       |  | $ | 25.9  |  
|                                       |  |   |       |  

Gross margin decreased to 44.0% in the first half of fiscal 2008 from 45.1% in the first half of
fiscal 2007. The decrease in gross margin was driven by approximately (i) a 20 basis point decline in merchandise margin and (ii) a 90 basis point increase in buying and occupancy costs as a percentage of revenues. We expect the impact of
the systems upgrades to continue into the second half of fiscal 2008.



14



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##### Table of Contents

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $22.8 million, or 12.0%, to $213.0 million in the first half of fiscal 2008 from $190.2 million in
the first half of fiscal 2007. This increase primarily resulted from:



| |  |  | an increase in Direct and Stores operating expenses  primarily payroll and payroll related expenses  of $20.5 million, which includes unanticipated
expenses of $1.5 million related to our Direct channel systems upgrades. We expect the impact of the systems upgrades to continue into the second half of fiscal 2008;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an increase in catalog paper, postage and printing costs of $4.7 million; offset by
| | - |  | -----------------------------------------------------------------------------------



| |  |  | a decrease in share-based and incentive compensation of $4.6 million.
| | - |  | ---------------------------------------------------------------------

As a percentage of revenues, selling, general and administrative expenses decreased to 31.5% in the first half of fiscal 2008 from 31.6% in the
comparable period last year, primarily due to the above mentioned items.

Interest Expense, Net

Interest expense, net of interest income, decreased $2.5 million to $3.8 million in the first half of fiscal 2008 from $6.3 million in the first half of
fiscal 2007. This decrease primarily reflects our lower average outstanding debt in fiscal 2008 resulting from voluntary prepayments under the Term Loan.

Income Taxes

The income tax provision for the first half of fiscal 2008 and 2007 reflects the estimated annual effective
tax rate of 39.8%.

Net Income

Net
income increased $3.3 million to $48.6 million in the first half of fiscal 2008 from $45.3 million in the first half of fiscal 2007. This increase was due to a $25.9 million increase in gross profit driven by the 12.4% increase in revenues, a $2.5
million decrease in interest expense, offset by a $22.8 million increase in selling, general and administrative expenses, and a $2.3 million increase in the provision for income taxes.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations and
borrowings under the Credit Facility (as defined below). Our primary cash needs are (a) funding working capital requirements, (b) making capital expenditures in connection with opening new stores, enhancing information technology systems
and expanding our distribution centers, and (c) meeting debt service requirements . The most significant components of our working capital are cash and cash equivalents, merchandise inventories, accounts payable and other current liabilities.

Operating Activities



|                                                             |  |                        |       |   |               |   |       |  
|------------------------------------------------------------ |  | ---------------------- | ----- | - | ------------- | - | ----- | -
|                                                             |  | Twenty-six Weeks Ended |      
|                                                             |  | August 2,2008          |       |   | August 4,2007 |  
|                                                             |  | (amounts in millions)  |      
|Net income                                                   |  | $                      | 48.6  |   |               | $ | 45.3  |  
|Adjustments to reconcile to net cash provided by operations: |  |                        |       |   |               |   |       |  
|Depreciation and amortization of property and equipment      |  |                        | 18.6  |   |               |   | 15.4  |  
|Amortization of deferred financing costs                     |  |                        | 1.5   |   |               |   | 0.8   |  
|Share-based compensation                                     |  |                        | 4.2   |   |               |   | 3.2   |  
|Excess tax benefit from share-based compensation plans       |  |                        | (12.7 | ) |               |   | (18.4 | )
|Changes in operating assets and liabilities                  |  |                        | (39.3 | ) |               |   | 16.2  |  
|                                                             |  |                        |       |   |               |   |       |  
|Net cash provided by operations                              |  | $                      | 20.9  |   |               | $ | 62.5  |  
|                                                             |  |                        |       |   |               |   |       |  

Cash provided by operating activities in the first half of fiscal 2008 was $20.9 million and
consisted of (i) net income of $48.6 million, (ii) adjustments to net income of $24.3 million, offset by (iii) changes in operating assets and liabilities (including the impact of excess tax benefits from share-based compensation
plans) of $52.0 million due primarily to (a) increases in inventories due



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primarily to anticipated sales increases and (b) an increase in prepaid income taxes as a result of $30.4 million of tax payments in the first half of
fiscal 2008 compared to $5.1 million in the first half of fiscal 2007 due to the lapse of net operating loss carry-forwards and a decreased tax benefit from share-based compensation plans.

Cash provided by operating activities in the first half of fiscal 2007 was $62.5 million and consisted of (i) net income of $45.3 million,
(ii) adjustments to net income of $19.4 million, offset by (iii) changes in operating assets and liabilities (including the impact of excess tax benefits from share-based compensation plans) of $2.2 million due to normal business
fluctuations.

Investing Activities

Capital expenditures were $34.2 million in the first half of fiscal 2008 compared to $31.7 million in the first half of fiscal 2007. Capital expenditures for the opening of new stores were $16.6 million and $13.2 million in the first half
of fiscal 2008 and fiscal 2007, respectively. Capital expenditures are planned at approximately $80 to $85 million for fiscal 2008, including approximately $35 to $40 million for new stores, $20 to $25 million for information technology enhancements
and the remainder for store renovations and refurbishments and general corporate purposes.

Financing Activities



|                                                                        |  |                        |       |   |               |   |       |  
|----------------------------------------------------------------------- |  | ---------------------- | ----- | - | ------------- | - | ----- | -
|                                                                        |  | Twenty-six Weeks Ended |      
|                                                                        |  | August 2,2008          |       |   | August 4,2007 |  
|                                                                        |  | (amounts in millions)  |      
|Repayments of long-term debt                                            |  | $                      | (25.0 | ) |               | $ | (25.0 | )
|Excess tax benefit from share-based compensation plans                  |  |                        | 12.7  |   |               |   | 18.4  |  
|Proceeds from share-based compensation plans                            |  |                        | 7.7   |   |               |   | 7.8   |  
|Costs incurred in connection with amended and restated credit agreement |  |                        |      |   |               |   | (1.3  | )
|Repurchase of common shares                                             |  |                        | (0.2  | ) |               |   |      |  
|                                                                        |  |                        |       |   |               |   |       |  
|Net cash used in financing activities                                   |  | $                      | (4.8  | ) |               | $ | (0.1  | )
|                                                                        |  |                        |       |   |               |   |       |  

Cash used in financing activities in the first half of fiscal 2008 was $4.8 million due to
(i) a voluntary principal payment under the Term Loan of $25.0 million, offset primarily by (ii) excess tax benefits from share-based compensation plans of $12.7 million and (iii) proceeds from share-based compensation plans of $7.7
million.

Cash used in financing activities in the first half of fiscal 2007 was $0.1 million due to (i) a voluntary principal payment
under the Term Loan of $25.0 million, (ii) costs incurred in connection with the amended and restated credit agreement of $1.3 million, offset by (iii) excess tax benefits from share-based compensation plans of $18.4 million and
(iv) . proceeds from share-based compensation plans of $7.8 million

Amended and Restated Credit Agreement

On May 4, 2007, J. Crew Group, Inc. and certain of its subsidiaries, as guarantors, and Operating and certain of its subsidiaries, as borrowers,
entered into a Second Amended and Restated Credit Agreement (the Credit Facility) with Citicorp USA, Inc. (Citicorp), as administrative agent, Citicorp, as collateral agent, and Bank of America, N.A. and Wachovia Bank,
National Association, as syndication agents.

The Credit Facility provides for revolving loans and letters of credit of up to $200 million,
which amount may be increased up to $250 million subject to certain conditions. Borrowings bear interest, at the Companys option, at floating interest rates based on Citibank N.A.s prime rate plus a margin of up to 0.25% or LIBOR plus a
margin ranging from 1.0% to 1.25%. The total amount of availability is limited to the sum of: (a) 100% of qualified cash, (b) 90% of eligible receivables, (c) 92.5% of the net recovery percentage of inventories (as determined by
periodic inventory appraisals) for the period August 1 through December 31, or 90% of the net recovery percentage of inventories for the period January 1 through July 31, and (d) 65% of the fair market value of eligible real
estate. The Credit Facility expires on May 4, 2013.

Borrowings under the Credit Facility are guaranteed by the Company and certain of
its subsidiaries, and are secured by a perfected first priority security interest in substantially all of the Companys assets and those of certain of its subsidiaries. The Credit Facility includes restrictions on the Companys ability and
the ability of certain of its subsidiaries to incur additional indebtedness and liens, pay dividends or make other distributions, make investments, dispose of assets and merge. If excess availability under the Credit Facility is less than $20
million at any time, then the Companys fixed charge coverage ratio for the most recently ended period of four consecutive fiscal quarters may not be less than 1.10 to 1.00.



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If an event of default occurs under the Credit Facility, the lenders may declare all amounts outstanding
under the Credit Facility immediately due and payable. In such event, the lenders may exercise any rights and remedies they may have by law or agreement, including the ability to cause all or any part of the collateral securing the Credit Facility
to be sold.

There were no short-term borrowings during the first half of fiscal 2008 or fiscal 2007. There was $192.7 million of excess
availability under the Credit Facility at August 2, 2008.

Demand Letter of Credit Facility

On October 31, 2007, Operating entered into an unsecured, demand letter of credit facility with HSBC which provides for the issuance of up to $35
million of documentary letters of credit on a no fee basis. Outstanding letters of credit were $19.8 million and availability was $15.2 million at August 2, 2008 under this facility.

Liquidity and Capital Resources Outlook

Management
anticipates that capital expenditures in fiscal 2008 will be approximately $80 to $85 million, primarily for opening 42 new stores, information technology enhancements, store renovations and refurbishments and general corporate purposes. Management
believes that the Companys current cash position, cash flow from operations and availability under the Credit Facility will be adequate to finance working capital needs, planned capital expenditures and debt service obligations for the next
twelve months. Our ability to fund our operations and make planned capital expenditures, to make scheduled debt payments, and to remain in compliance with the financial covenants under our debt agreements depends on our future operating performance,
cash flow and financing activities, which in turn, are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond our control.

Off Balance Sheet Arrangements

We enter into documentary letters of credit to facilitate the
international purchase of merchandise. We also enter into standby letters of credit to secure certain of our obligations, including insurance programs and duties related to import purchases. As of August 2, 2008, we had the following
obligations under letters of credit in future periods:



|                  |  |                       |      |              |   |          |  |          |   |              |   |   |  |   |    
|----------------- |  | --------------------- | ---- | ------------ | - | -------- |  | -------- | - | ------------ | - | - |  | - | ---
|                  |  | Total                 |      | Within1 Year |   | 2-3Years |  | 4-5Years |   | After 5Years
|                  |  | (amounts in millions)
|Letters of Credit |  |                       |      |              |   |          |  |          |   |              |   |   |  |   |    
|Standby           |  | $                     | 7.3  |              | $ |         |  | $        |  |              | $ |  |  | $ | 7.3
|Documentary       |  |                       | 19.8 |              |   | 19.8     |  |          |  |              |   |  |  |   |   
|                  |  |                       |      |              |   |          |  |          |   |              |   |   |  |   |    
|                  |  | $                     | 27.1 |              | $ | 19.8     |  | $        |  |              | $ |  |  | $ | 7.3
|                  |  |                       |      |              |   |          |  |          |   |              |   |   |  |   |    

We have converted a substantial amount of international merchandise purchases to open account from
letters of credit thereby reducing the dollar amount of outstanding documentary letters of credit.

Seasonality

Our business is seasonal. As a result, our revenues fluctuate from quarter to quarter. We have four distinct selling seasons that align with our four
fiscal quarters. Revenues are usually substantially higher in our fourth fiscal quarter, particularly December, as customers make holiday purchases. Approximately 30% of our revenues in fiscal year 2007 occurred in the fourth quarter. Our working
capital requirements also fluctuate throughout the year, increasing substantially in September and October in anticipation of holiday season inventory requirements.

Critical Accounting Policies

A summary of our critical accounting policies is included in the
Managements Discussion and Analysis section of our Annual Report on Form 10-K for the fiscal year ended February 2, 2008 filed with the Securities and Exchange Commission.



|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|------- | ---------------------------------------------------------

Our principal market risk relates to interest rate sensitivity, which is the risk that future changes in interest rates will reduce our net income or net assets. Our variable rate debt consists of borrowings under the Credit Facility and
the Term Loan. The interest rates under the Credit Facility are a function of Citigroups prime rate or LIBOR, and the interest rates under the Term Loan are a function of a base rate or LIBOR. A one percentage point change in the interest rate
on our variable rate debt would result in a change in income before income taxes of approximately $100,000 for each $10.0 million of borrowings under the Credit Facility and approximately $1.0 million for the $100.0 million of borrowings under the
Term Loan.



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We have a licensing agreement in Japan that provides for royalty payments in yen based on sales of J.Crew
merchandise. We have entered into forward foreign exchange contracts from time to time in order to minimize this risk. At August 2, 2008, there were no forward foreign exchange contracts outstanding. In February 2008, we provided notice that we
do not intend to renew the licensing agreement, which expires in January 2009.

We also enter into letters of credit to facilitate the
international purchase of merchandise. The letters of credit are primarily denominated in U.S. dollars. Outstanding letters of credit at August 2, 2008 were $27.1 million, including $7.3 million of standby letters of credit.



|ITEM 4. | CONTROLS AND PROCEDURES
|------- | -----------------------

Our management, with the
participation of our Chief Executive Officer and our Executive Vice President and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.

There were no changes in internal control over financial reporting that
occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.

PART II  OTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS
|------- | -----------------

The Company is a party to
routine litigation arising in the ordinary course of its business. Although the amount of any liability that could arise with respect to these actions cannot be accurately predicted, in the Companys opinion, any such liability will not have a
material adverse effect on its consolidated financial position, consolidated results of operations or liquidity.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

There have been no material changes
from the risk factors previously disclosed in the Companys Annual Report on Form 10-K for the fiscal year ended February 2, 2008.



|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|------- | -----------------------------------------------------------

None.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES
|------- | -------------------------------

None.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



|ITEM 5. | OTHER INFORMATION
|------- | -----------------

None.



|ITEM 6. | EXHIBITS
|------- | --------



|            |  |                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Document                                                                                                                                                   
|            |  | Articles of Incorporation and Bylaws                                                                                                                       
|            | 
|3.1         |  | Certificate of Incorporation of J. Crew Group, Inc. Incorporated by reference to Exhibit 3.1 to the S-1/A Registration Statement filed on October 11, 2005.
|            | 
|3.2         |  | Bylaws of J. Crew Group, Inc. Incorporated by reference to Exhibit 3.2 to the Form 8-K/A filed on October 17, 2005.                                        



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##### Table of Contents

|            |  |                                                                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Document                                                                                                                                                        
|10.1        |  | Standard Form of Restricted Stock Grant Agreement (Time-Based Vesting). Incorporated by reference to Exhibit 10.1 to the Form 8-K filed on July 17, 2008.       
|            | 
|10.2        |  | Standard Form of Restricted Stock Grant Agreement (Performance-Based Vesting). Incorporated by reference to Exhibit 10.2 to the Form 8-K filed on July 17, 2008.
|            | 
|10.3        |  | Standard Form of Stock Option Grant Agreement. Incorporated by reference to Exhibit 10.3 to the Form 8-K filed on July 17, 2008.                                
|            | 
|            |  | Certifications                                                                                                                                                  
|            | 
|Exhibit No. |  | Document                                                                                                                                                        
|31.1*       |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                             
|            | 
|31.2*       |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                             
|            | 
|32.1**      |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                 



|* | Filed herewith.
|- | ---------------

|** | Furnished herewith.
|-- | -------------------



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized



|                         |  |                     |  |                                                     
|------------------------ |  | ------------------- |  | ----------------------------------------------------
|                         |  | J. CREW GROUP, INC.
|                         |  | (Registrant)       
|                         |  |                    
|Date: September 10, 2008 |  | By:                 |  | /s/ Millard S. Drexler                              
|                         |  |                     |  | Millard S. Drexler                                  
|                         |  |                     |  | Chairman of the Board and Chief Executive Officer   
|                         |  |                    
|Date: September 10, 2008 |  | By:                 |  | /s/ James S. Scully                                 
|                         |  |                     |  | James S. Scully                                     
|                         |  |                     |  | Executive Vice President and Chief Financial Officer



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EXHIBIT INDEX



|            |  |                                                                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Document                                                                                                                                                        
|            |  | Articles of Incorporation and Bylaws                                                                                                                            
|            | 
|3.1         |  | Certificate of Incorporation of J. Crew Group, Inc. Incorporated by reference to Exhibit 3.1 to the S-1/A Registration Statement filed on October 11, 2005.     
|            | 
|3.2         |  | Bylaws of J. Crew Group, Inc. Incorporated by reference to Exhibit 3.2 to the Form 8-K/A filed on October 17, 2005.                                             
|            | 
|10.1        |  | Standard Form of Restricted Stock Grant Agreement (Time-Based Vesting). Incorporated by reference to Exhibit 10.1 to the Form 8-K filed on July 17, 2008.       
|            | 
|10.2        |  | Standard Form of Restricted Stock Grant Agreement (Performance-Based Vesting). Incorporated by reference to Exhibit 10.2 to the Form 8-K filed on July 17, 2008.
|            | 
|10.3        |  | Standard Form of Stock Option Grant Agreement. Incorporated by reference to Exhibit 10.3 to the Form 8-K filed on July 17, 2008.                                
|            | 
|            |  | Certifications                                                                                                                                                  
|            | 
|31.1*       |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                             
|            | 
|31.2*       |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                             
|            | 
|32.1**      |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                 



|* | Filed herewith.
|- | ---------------

|** | Furnished herewith.
|-- | -------------------



21