<PAGE>

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

For the quarterly period ended      August 2, 2003

IRS Employer        Exact name of Registrant, State of Incorporation;
Identification No.  Address of Principal Executive Offices; and Telephone Number

22-2894486                    J. CREW GROUP, INC.
                            (A New York corporation)
                                  770 Broadway
                            New York, New York 10003
                                 (212) 209-2500

22-3540930                  J. CREW OPERATING CORP.
                            (A Delaware corporation)
                                  770 Broadway
                            New York, New York 10003
                                 (212) 209-2500

Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports) and (2) have been subject to
such filing requirements for the past 90 days. Yes x  No___
                                                  ---

The number of shares of Common Stock outstanding of each of the issuers as of
August 25, 2003

         J. CREW GROUP, INC.
                  12,870,373 shares of Common Stock, par value $.01 per share

         J. CREW OPERATING CORP.
                  100 shares of Common Stock, par value $.01 per share (all of
                  which are owned beneficially and of record by J.Crew Group,
                  Inc.)

This combined Form 10-Q is separately filed by each of J. Crew Group, Inc and J.
Crew Operating Corp. The information contained herein relating to each
individual registrant is filed by such registrant on its own behalf. No
registrant makes any representation as to information relating to any other
registrant.

J. Crew Operating Corp. meets the conditions set forth in General Instruction H
(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.

<PAGE>

                         Part I - Financial Information

Item I. Financial Statements

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                      Condensed Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                   August 2,    February 1,
                                 Assets                              2003          2003
                                 ------                              ----          ----
                                                                              (Restated - see
                                                                                   note 4)
                                                                        (unaudited)
                                                                       (in thousands)
<S>                                                               <C>           <C>
Current assets:
     Cash and cash equivalents                                    $  31,497     $  18,895
     Merchandise inventories                                         84,810       107,318
     Prepaid expenses and other current assets                       18,316        24,886
     Refundable income taxes                                          6,278         6,278
                                                                  ---------     ---------

           Total current assets                                     140,901       157,377
                                                                  ---------     ---------

Property and equipment - at cost                                    304,806       300,910
            less accumulated depreciation and amortization         (148,859)     (129,363)
                                                                  ---------     ---------
                                                                    155,947       171,547
                                                                  ---------     ---------

Deferred income tax assets                                            5,000         5,000
Other assets                                                         15,457        14,954
                                                                  ---------     ---------
            Total assets                                          $ 317,305     $ 348,878
                                                                  =========     =========

                      Liabilities and Stockholders' Deficit
                      -------------------------------------

Current liabilities:
     Current portion of long-term debt                            $   1,164     $      --
     Accounts payable and other current liabilities                  93,992       116,384
     Federal and state income taxes                                   2,716         2,978
                                                                  ---------     ---------

           Total current liabilities                                 97,872       119,362
                                                                  ---------     ---------

Deferred credits                                                     61,068        65,141
                                                                  ---------     ---------

Long-term debt                                                      290,358       292,000
                                                                  ---------     ---------

Redeemable preferred stock                                          190,770       171,238
                                                                  ---------     ---------

Stockholders' deficit                                              (322,763)     (298,863)
                                                                  ---------     ---------

           Total liabilities and stockholders' deficit            $ 317,305     $ 348,878
                                                                  =========     =========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       2

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                 Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                Thirteen weeks ended
                                                               August 2,     August 3,
                                                               ---------     --------
                                                                 2003          2002
                                                                 ----          ----
                                                                     (unaudited)
                                                                   (in thousands)
<S>                                                            <C>          <C>
Revenues:

    Net sales                                                  $ 159,186    $ 160,946
    Other                                                          7,881        6,687
                                                               ---------    ---------
                                                                 167,067      167,633
                                                               ---------    ---------

Cost of goods sold including buying and occupancy costs          117,919      106,613

Selling, general and administrative expenses                      61,967       62,478
                                                               ---------    ---------

           Loss from operations                                  (12,819)      (1,458)

Interest expense - net                                           (13,028)      (9,540)

Gain on exchange of debt (net of related expenses of $2,992)      41,085           --
                                                               ---------    ---------
           Income/(loss) before income taxes                      15,238      (10,998)

Income taxes                                                          --        3,850
                                                               ---------    ---------

           Net income/(loss)                                   $  15,238    $  (7,148)
                                                               =========    =========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       3

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                 Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                Twenty-six weeks ended
                                                                August 2,   August 3,
                                                                --------    --------
                                                                  2003        2002
                                                                  ----        ----
                                                                      (unaudited)
                                                                    (in thousands)
<S>                                                            <C>          <C>
Revenues:

    Net sales                                                  $ 311,778    $ 318,829
    Other                                                         16,784       15,856
                                                               ---------    ---------
                                                                 328,562      334,685
                                                               ---------    ---------

Cost of goods sold including buying and occupancy costs          223,500      206,700

Selling, general and administrative expenses                     127,746      138,425
                                                               ---------    ---------

          Loss from operations                                   (22,684)     (10,440)

Interest expense - net                                           (22,790)     (19,133)

Gain on exchange of debt (net of related expenses of $2,992)      41,085           --
                                                               ---------    ---------
          Loss before income taxes                                (4,389)     (29,573)

Income taxes                                                          --       10,350
                                                               ---------    ---------

          Net loss                                             $  (4,389)   $ (19,223)
                                                               =========    =========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       4

<PAGE>

                             J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                 Condensed Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                 Twenty-six weeks ended
                                                                 August 2,    August 3,
                                                                 ---------    ---------
                                                                   2003         2002
                                                                   ----         ----
                                                                      (unaudited)
                                                                     (in thousands)
<S>                                                               <C>         <C>
CASH FLOW FROM OPERATING ACTIVITIES:

Net loss                                                          $ (4,389)   $(19,223)

Adjustments to reconcile net loss to net cash used in
  operating activities:
     Depreciation and amortization                                  16,329      16,496
     Amortization of deferred financing costs                          933       1,343
     Non cash compensation expense                                      21        (594)
     Non cash interest expense                                      11,722       8,621
     Gain on exchange of debt                                      (41,085)          -

Changes in operating assets and liabilities:

     Merchandise inventories                                        22,508          (8)
     Prepaid expenses and other current assets                       6,570       4,309
     Other assets                                                       11      (1,696)
     Accounts payable and other liabilities                        (17,893)    (33,115)
     Federal and state income taxes                                   (262)    (10,796)
                                                                  --------    --------
     Net cash used in operating activities                          (5,535)    (34,663)
                                                                  --------    --------

CASH FLOW FROM INVESTING ACTIVITIES:

     Capital expenditures                                           (5,800)    (18,787)
     Proceeds from construction allowances                           1,000       3,245
                                                                  --------    --------
     Net cash used in investing activities                          (4,800)    (15,542)
                                                                  ========    ========

CASH FLOW FROM FINANCING ACTIVITIES:

     Increase in notes payable, bank                                    --      48,000
     Additional long term debt                                      25,820          --
     Repayment of long-term debt                                      (291)         --
     Costs incurred in connection with debt financings              (2,592)         --
                                                                  --------    --------
     Net cash provided by financing activities                      22,937      48,000
                                                                  --------    --------

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                    12,602      (2,205)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                     18,895      16,201
                                                                  --------    --------
CASH AND CASH EQUIVALENTS - END OF PERIOD                         $ 31,497    $ 13,996
                                                                  ========    ========

NON-CASH FINANCING ACTIVITIES:

     Dividends on preferred stock                                 $ 19,532    $ 16,992
                                                                  ========    ========

     Interest payable on 13 1/8% Senior Discount Debentures
     at February 1, 2003 capitalized and added to the principal
     amount of debt                                               $  4,416    $     --
                                                                  ========    ========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       5

<PAGE>

                       J.CREW GROUP, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      Thirteen and twenty-six weeks ended August 2, 2003 and August 3, 2002

1.   Basis of Presentation

          The accompanying unaudited condensed consolidated financial statements
          include the accounts of J. Crew Group, Inc. and its wholly-owned
          subsidiaries (collectively, "Holdings"). All significant intercompany
          balances and transactions have been eliminated in consolidation.

          The condensed consolidated balance sheet as of August 2, 2003 and the
          condensed consolidated statements of operations and cash flows for the
          thirteen and twenty-six week periods ended August 2, 2003 and August
          3, 2002 have been prepared by Holdings 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 of Holdings, the results of its operations and cash
          flows have been made.

          Certain information and footnote disclosure normally included in
          financial statements prepared in accordance with accounting principles
          generally accepted in the United States of America have been condensed
          or omitted. These financial statements should be read in conjunction
          with the financial statements and notes thereto included in the
          Holdings consolidated financial statements for the fiscal year ended
          February 1, 2003.

          The results of operations for the twenty-six-week period ended August
          2, 2003 are not necessarily indicative of the operating results for
          the full fiscal year.

2.   Exchange Offer

          On May 6, 2003 Holdings (through its newly-formed, wholly owned
          subsidiary, J.Crew Intermediate LLC ("Intermediate")) completed an
          offer to exchange 16% Senior Discount Contingent Principal Notes due
          2008 of Intermediate (new notes) for its outstanding 13 1/8% Senior
          Discount Debentures due 2008 (existing debentures). Approximately 85%
          of the outstanding debentures were tendered for exchange.

          Intermediate exchanged $87,006,000 fair value of new notes for
          $131,083,000 face amount (including accrued interest of $10,750,000)
          of existing debentures. The difference between the fair value of the
          new notes and the carrying value of the existing debentures is
          included as a gain in the statement of operations for the period ended
          August 2, 2003. The new notes were initially recorded at their fair
          value and the debt issuance discount of $44,077,000 will be accreted
          to the principal amount over the life of the new notes as additional
          interest expense.

          Interest from October 15, 2002 through May 5, 2003 was paid on the
          existing debentures not exchanged at 13 1/8%. Interest from October
          15, 2002 through May 5, 2003 on the existing debentures that were
          exchanged was added to the principal amount at 16% in accordance with
          the terms of the exchange offer.

          The new notes bear interest at 16% payable in arrears on May 15 and
          November 15. Interest from date of issuance through November 15, 2005
          will be added to the principal amount of the notes. Effective November
          15, 2005, interest will accrue and become payable on each May 15 and
          November 15 thereafter through May 15, 2008.

          Commencing on May 15, 2004 and on each May 15 through May 15, 2008,
          the accreted value of the new notes will be increased by 10% of
          earnings before interest, taxes and depreciation and amortization
          [EBITDA] in excess of $50.0 million for the immediately preceding
          fiscal year. Interest at 16% will accrue on such increase in
          principal.

                                       6

<PAGE>

                       J.CREW GROUP, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      Thirteen and twenty-six weeks ended August 2, 2003 and August 3, 2002


3.   Debt Financings

          (a)  On February 4, 2003, Holdings and J.Crew Operating Corp.
               ("Operating Corp.") entered into a credit agreement with TPG-MD
               Investment, LLC, a related party, which provides for a Tranche A
               loan to Operating Corp. in an aggregate principal amount of $10.0
               million and a Tranche B loan to Operating Corp. in an aggregate
               principal amount of $10.0 million. The loans are due in February
               2008 and bear interest at 5.0% per annum payable semi-annually in
               arrears on January 31 and July 31, commencing on July 31, 2003.
               Interest will compound and be capitalized and added to the
               principal amount on each interest payment date. The outstanding
               amount of these loans is convertible into shares of common stock
               of Holdings at $6.82 per share. These loans are subordinated in
               right of payment to the prior payment of all senior debt and are
               on the same terms as the 10-3/8% Senior Subordinated Notes due
               2008 of Operating Corp.

          (b)  The Loan and Security Agreement dated December 23, 2002, as
               amended, by and among Wachovia Bank, N.A., as arranger, Congress
               Financial Corporation, as administrative and collateral agent and
               a syndicate of lenders (the "Congress Credit Facility") was
               further amended on April 4, 2003 to (a) consent to the formation
               of J.Crew Intermediate LLC and the exchange offer; (b) carve-out
               from the EBITDA covenant for fiscal 2002 a $9.0 million one-time
               charge for non-current inventory; (c) modify required EBITDA
               covenant levels and (d) eliminate the supplemental loan
               availability in fiscal 2003.

          (c)  On April 8, 2003, Operating Corp. borrowed the real estate
               availability of $5.8 million under the Congress Credit Facility.
               This borrowing is repayable at $97,000 per month commencing June
               1, 2003.

4.   Restatement -- reclassification of Series A Preferred Stock

               The liquidation value of the Series B preferred stock and the
               accumulated and unpaid dividends related to the Series A and
               Series B preferred stock are redeemable on October 17, 2009. The
               liquidation value of the Series A preferred stock, which
               aggregates $92.8 million, is not mandatorily redeemable and the
               consolidated balance sheet at February 1, 2003 has been restated
               to reclassify this amount to stockholders' deficit, as follows:

                                                      As of February 1, 2003
                                                 -------------------------------
                                                 As Reported         As Restated
                                                 -----------         -----------
               Redeemable preferred stock         $ 264,038           $ 171,238
                                                 -----------         -----------
               Stockholders' deficit              $(391,663)          $(298,863)
                                                 ===========         ===========

               The Company is in the process of assessing the possible need for
               amending prior period filings as a result of the restatement.

5.   Recent Accounting Pronouncements

          In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
          133 on Derivative Instruments and Hedging Activities." This statement
          amends and clarifies financial accounting and reporting for derivative
          instruments, including certain derivative instruments embedded in
          other contracts (collectively referred to as derivatives) and for
          hedging activities under FASB Statement No. 133, "Accounting for
          Derivative Instruments and Hedging Activities." The provisions of this
          statement are effective for contracts entered into or modified after


                                       7

<PAGE>

                       J.CREW GROUP, INC. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      Thirteen and twenty-six weeks ended August 2, 2003 and August 3, 2002


          June 30, 2003 and hedging relationships designated after June 30,
          2003. The provisions of the Statement related to Statement 133
          implementation issues that have been effective for fiscal quarters
          that begin prior to June 15, 2003 should continue to be applied in
          accordance with their respective effective dates. The adoption of SFAS
          No. 149 will not have a significant effect on the Company's financial
          statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. The provisions of this Statement are
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of SFAS No. 150 will result in a reclassification of the
liquidation value and accumulated and unpaid dividends of the Series B preferred
stock and the accumulated and unpaid dividends related to the Series A preferred
stock to liabilities. ($190.8 million as of August 2, 2003)

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities." The FASB believes that if a business enterprise has
a controlling interest in a variable interest entity, the assets, liabilities
and results of the variable interest entity should be included in the
consolidated financial statements with those of the business enterprise. The
Interpretation applies immediately to enterprises that hold a variable interest
in variable interest entities created after January 31, 2003. It applies in the
first fiscal year or interim period beginning after June 15, 2003 to enterprises
that hold a variable interest in variable interest entities created before
February 1, 2003. The adoption of FASB Interpretation No. 46 will not have a
significant effect on the Company's financial statements.

EITF Issue No. 02-16 "Accounting by Customer (including a Reseller) for Certain
Consideration Received from a Vendor" is effective for fiscal periods beginning
after December 15, 2002. This release addresses how a reseller of a vendor's
products should account for cash consideration received from a vendor, and
provides that cash consideration received by a customer from a vendor is
presumed to be a reduction of the prices of the vendor's products or services,
and should, therefore, be characterized as a reduction of cost of sales when
recognized in the customer's income statement. However, the presumption is
overcome when the consideration is either a payment for assets or services
delivered to the vendor, or a reimbursement of costs incurred by the customer to
sell the vendor's products. The adoption of EITF 02-16 did not have any effect
on the Company's financial statements, since the Company sells all its
merchandise under its own brand name and receives no incentives from vendors.

                                       8

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                      Condensed Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                 August 2,              February 1,
                                 Assets                                            2003                    2003
                                 ------                                            ----                    ----
                                                                                            (unaudited)
                                                                                           (in thousands)
<S>                                                                           <C>                        <C>
Current assets:
     Cash and cash equivalents                                                  $   31,497               $   18,895
     Merchandise inventories                                                        84,810                  107,318
     Prepaid expenses and other current assets                                      18,316                   24,886
     Refundable income taxes                                                         6,278                    6,278
                                                                                ----------               ----------

           Total current assets                                                    140,901                  157,377

Property and equipment - at cost                                                   304,806                  300,910
           less accumulated depreciation and amortization                         (148,859)                (129,363)
                                                                                ----------               ----------
                                                                                   155,947                  171,547
                                                                                ----------               ----------

Other assets                                                                        12,877                   13,646
                                                                                ----------               ----------
           Total assets                                                         $  309,725               $  342,570
                                                                                ==========               ==========

                      Liabilities and Stockholder's Deficit
                      -------------------------------------

Current liabilities:
     Current portion of long-term debt                                          $    1,164               $       --
     Accounts payable and other current liabilities                                 92,465                  111,176
     Federal and state income taxes                                                  2,716                    2,978
     Deferred income tax liabilities                                                   910                      910
                                                                                ----------               ----------

           Total current liabilities                                                97,255                  115,064
                                                                                ----------               ----------

Deferred credits                                                                    61,068                   65,141
                                                                                ----------               ----------

Long-term debt                                                                     174,865                  150,000
                                                                                ----------               ----------

Due to J.Crew Group, Inc.                                                            8,225                    2,040
                                                                                ----------               ----------

Stockholder's deficit                                                              (31,688)                  10,325
                                                                                ----------               ----------


           Total liabilities and stockholder's deficit                          $  309,725               $  342,570
                                                                                ==========               ==========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       9

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                 Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                      Thirteen weeks ended
                                                                    August 2,       August 3,
                                                                    ---------       --------
                                                                        2003            2002
                                                                        ----            ----
                                                                           (unaudited)
                                                                          (in thousands)
<S>                                                                 <C>            <C>
Revenues:

    Net sales                                                       $ 159,186      $  160,946
    Other                                                               7,881           6,687
                                                                    ---------      ----------
                                                                      167,067         167,633

Cost of goods sold including buying and occupancy costs               117,919         106,613

Selling, general and administrative expenses                           61,956          62,184
                                                                    ---------      ----------
            Loss from operations                                      (12,808)         (1,164)

Interest expense - net                                                 (4,970)         (5,129)
                                                                    ---------      ----------
            Loss before income taxes                                  (17,778)         (6,293)

Income tax benefit                                                         --           2,230
                                                                    ---------      ----------
            Net loss                                                $ (17,778)     $   (4,063)
                                                                    =========      ==========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       10

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                 Condensed Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                        Twenty-six weeks ended
                                                                     August 2,            August 3,
                                                                     ---------            --------
                                                                         2003                 2002
                                                                         ----                 ----
                                                                                 (unaudited)
                                                                                (in thousands)
<S>                                                                  <C>                  <C>
Revenues:

    Net sales                                                       $ 311,778            $ 318,829
    Other                                                              16,784               15,856
                                                                    ---------            ---------
                                                                      328,562              334,685

Cost of goods sold including buying and occupancy costs               223,500              206,700

Selling, general and administrative expenses                          127,725              137,966
                                                                    ---------            ---------

         Loss from operations                                         (22,663)              (9,981)

Interest expense - net                                                (10,030)             (10,399)
                                                                    ---------            ---------

         Loss before income taxes                                     (32,693)             (20,380)

Income tax benefit                                                         --                7,130
                                                                    ---------            ---------
         Net loss                                                   $ (32,693)           $ (13,250)
                                                                    =========            =========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       11

<PAGE>

                           J. CREW OPERATING CORP. AND
                                  SUBSIDIARIES

                 Condensed Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                             Twenty-six weeks ended
                                                                            August 2,      August 3,
                                                                            ---------      ---------
                                                                                 2003           2002
                                                                                 ----           ----
                                                                                  (unaudited)
                                                                                 (in thousands)
<S>                                                                        <C>             <C>
CASH FLOW FROM OPERATING ACTIVITIES:

Net loss                                                                   $  (32,693)     $ (13,230)

Adjustments to reconcile net loss to net cash used in
  operating activities:
     Depreciation and amortization                                             16,329         16,496
     Amortization of deferred financing costs                                     765          1,200
     Non cash compensation expense                                                 --         (1,053)
     Non-cash interest expense                                                    500             --

Changes in operating assets and liabilities:

     Merchandise inventories                                                   22,508             (8)
     Prepaid expenses and other current assets                                  6,570          4,309
     Other assets                                                                  11         (1,696)
     Accounts payable and other liabilities                                   (18,628)       (33,115)
     Federal and state income taxes                                              (262)        (7,566)
                                                                           ----------      ---------

     Net cash used in operating activities                                     (4,900)       (34,663)
                                                                           ----------      ---------

CASH FLOW FROM INVESTING ACTIVITIES:

     Capital expenditures                                                      (5,800)       (18,787)
     Proceeds from construction allowances                                      1,000          3,245
                                                                           ----------      ---------

     Net cash used in investing activities                                     (4,800)       (15,542)
                                                                           ----------      ---------

CASH FLOW FROM FINANCING ACTIVITIES:

     Increase in notes payable, bank                                               --         48,000
     Additional long-term debt                                                 25,820             --
     Repayment of long term debt                                                 (291)            --
     Costs incurred in connection with debt financings                            (92)            --
     Transfers to affiliates                                                   (3,135)            --
                                                                           ----------      ---------
                                                                               22,302         48,000
                                                                           ----------      ---------

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                               12,602         (2,205)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                                18,895         16,201
                                                                           ----------      ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD                                  $   31,497      $  13,996
                                                                           ==========      =========

NON-CASH FINANCING ACTIVITIES:

     Dividends to J.Crew Group, Inc.                                       $    9,320      $      --
                                                                           ==========      =========
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       12

<PAGE>

                     J.CREW OPERATING CORP. AND SUBSIDIARIES

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      Thirteen and twenty-six weeks ended August 2, 2003 and August 3, 2002

1. Basis of Presentation

      The accompanying unaudited condensed consolidated financial statements
      include the accounts of J. Crew Operating Corp. and its wholly-owned
      subsidiaries (collectively, "Operating Corp."). All significant
      intercompany balances and transactions have been eliminated in
      consolidation.

      The condensed consolidated balance sheet as of August 2, 2003 and the
      condensed consolidated statements of operations and cash flows for the
      thirteen and twenty-six week periods ended August 2, 2003 and August 3,
      2002 have been prepared by Operating Corp. 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 of Operating Corp. the results of its operations and
      cash flows have been made.

      Certain information and footnote disclosure normally included in financial
      statements prepared in accordance with accounting principles generally
      accepted in the United States of America have been condensed or omitted.
      These financial statements should be read in conjunction with the
      financial statements and notes thereto included in the Operating Corp.
      consolidated financial statements for the fiscal year ended February 1,
      2003.

      The results of operations for the twenty-six-week period ended August 2,
      2003 are not necessarily indicative of the operating results for the full
      fiscal year.

2. Debt Financings

      (a) On February 4, 2003, Operating Corp. entered into a credit agreement
          with TPG-MD Investment, LLC, a related party, which provides for a
          Tranche A loan to Operating Corp. in an aggregate principal amount of
          $10.0 million and a Tranche B loan to Operating Corp. in an aggregate
          principal amount of $10.0 million. The loans are due in February 2008
          and bear interest at 5.0% per annum payable semi-annually in arrears
          on January 31 and July 31, commencing on July 31, 2003. Interest will
          compound and be capitalized and added to the principal amount on each
          interest payment date. The outstanding amount of these loans is
          convertible into common stock of Holdings at $6.82 per shares. These
          loans are subordinated in right of payment to the prior payment of all
          senior debt and are on the same terms as the 10-3/8% Senior
          Subordinated Notes due 2008 of Operating Corp.

      (b) The Loan and Security Agreement dated December 23, 2002, as amended,
          by and among Wachovia Bank, N.A., as arranger, Congress Financial
          Corporation, as administrative and collateral agent and a syndicate of
          lenders (the "Congress Credit Facility") was further amended on April
          4, 2003 to (a) consent to the formation of J.Crew Intermediate LLC and
          the exchange offer; (b) carve-out from the EBITDA covenant for fiscal
          2002 a $9.0 million one-time charge for non-current inventory; (c)
          modify required EBITDA covenant levels and (d) eliminate the
          supplemental loan availability in fiscal 2003.

      (c) On April 8, 2003, Operating Corp. borrowed the real estate
          availability of $5.8 million under the Congress Credit Facility. This
          borrowing is repayable at $97,000 per month commencing June 1, 2003.

                                       13

<PAGE>

3. Stockholder's Deficit

      On February 20, 2003, the Board of Directors of Operating Corp. declared a
      dividend of $9,320,000 payable to J. Crew Group, Inc.

Forward-looking statements

Certain statements in this Report on Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. We may also make written or oral forward-looking statements in our
periodic reports to the Securities and Exchange Commission on Forms 10-K, 10-Q,
8-K, etc., in press releases and other written materials and in oral statements
made by our officers, directors or employees to third parties. Statements that
are not historical facts, including statements about our beliefs and
expectations, are forward-looking statements. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of the Company, or
industry results, to differ materially from historical results, any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such risks and uncertainties include, but are not
limited to, competitive pressures in the apparel industry, changes in levels of
consumer spending or preferences in apparel and acceptance by customers of the
Company's products, overall economic conditions, governmental regulations and
trade restrictions, acts of war or terrorism in the United States or worldwide,
political or financial instability in the countries where the Company's goods
are manufactured, postal rate increases, paper and printing costs, availability
of suitable store locations at appropriate terms, the level of the Company's
indebtedness and exposure to interest rate fluctuations, and other risks and
uncertainties described in this report and the Company's other reports and
documents filed or which may be filed, from time to time, with the Securities
and Exchange Commission. These statements are based on current plans, estimates
and projections, and therefore, you should not place undue reliance on them.
Forward-looking statements speak only as of the date they are made and we
undertake no obligation to update publicly any of them in light of new
information or future events.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS - J.CREW GROUP, INC.

RESULTS OF OPERATIONS - THIRTEEN WEEKS ENDED AUGUST 2, 2003 COMPARED TO THIRTEEN
WEEKS ENDED AUGUST 3, 2002.

Revenues for the thirteen weeks ended August 2, 2003 decreased to $167.1 million
from $167.6 million in the thirteen weeks ended August 3, 2002.

Revenues of J.Crew Retail increased to $100.6 million in the second quarter of
2003 from $94.1 million in the second quarter of 2002. This increase was due
primarily to sales from stores not open for a full fiscal year. Comparable store
sales in the second quarter of 2003 increased by 2% over the second quarter of
2002, as the difficult retail environment improved in the second quarter. The
number of stores open at August 2, 2003 increased to 155 from 146 at August 3,
2002.

Revenues of J.Crew Direct (which consists of the Internet and catalog
operations) decreased to $38.2 million in the second quarter of 2003 from $45.9
million in the second quarter of 2002. Internet revenues increased to $26.9
million in the second quarter of 2003 from $25.3 million in the second quarter
of 2002. Catalog revenues in the second quarter of 2003 decreased to $11.3
million from $20.6 million in the second quarter of 2002, as a result of a
decrease in catalog circulation, including the elimination of a clearance
catalog in July, and continuing efforts to migrate customers to the Internet.

Revenues of J.Crew Factory decreased to $20.4 million in the second quarter of
2003 from $20.9 million in the second quarter of 2002 due to a 3.6% decrease in
comparable store sales. There were 42 stores open at August 2, 2003 compared to
43 stores at August 3, 2002.

                                       14

<PAGE>

As we have disclosed in recent filings, management changed its strategy of
disposing of slow moving merchandise in fiscal 2003 to drive aggressive
in-season inventory liquidation across all channels. As a result of this change,
sales in the second half of the year, especially in the Direct business, will be
adversely affected by the low levels of prior season merchandise on hand at
August 2, 2003.

Other revenues, which consist of shipping and handling fees and royalties,
increased to $7.9 million in the second quarter of 2003 from $6.7 million in the
second quarter of 2002 due primarily to an increase in shipping and handling
fees of $1.1 million. This increase resulted from a change in our returns
processing in the second half of 2002.

Cost of goods sold, including buying and occupancy costs, increased as a
percentage of revenues to 70.6% in the second quarter of 2003 from 63.6% in the
second quarter of 2002. This increase is attributable primarily to a decrease of
630 basis points in merchandise margin. The decrease in merchandise margin
resulted from higher sales of prior season's merchandise (at discounted prices)
in the second quarter of 2003 compared to the second quarter of 2002 and higher
markdowns related to the sale of Spring 2003 merchandise. These results reflect
management's new strategy of disposing of slow moving merchandise in season and
reducing the amount of merchandise held in its Factory and Direct divisions for
disposition in future seasons. Inventories at August 2, 2003 were down $54
million or 39% from August 3, 2002.

Selling, general and administrative expenses decreased to $62.0 million in the
thirteen weeks ended August 2, 2003 from $62.5 million in the thirteen weeks
ended August 3, 2002. This decrease of $.5 million resulted from an increase in
general and administrative expenses of $1.9 million and a decrease of $2.4
million in selling expense. The increase in general and administrative expenses
resulted primarily from expenses associated with the additional retail stores in
operation in 2003 offset by a $1.6 million insurance recovery related to the
destruction of our World Trade Center Store on September 11, 2001. The reduction
in selling expense was due primarily to a decrease in catalog circulation in the
second quarter of 2003. As a percentage of revenues, selling, general and
administrative expenses decreased to 37.1% of revenues in the second quarter of
2003 from 37.3% in the second quarter of 2002.

Interest expense increased to $13.0 million in the second quarter of 2003 from
$9.5 million in the second quarter of 2002. This increase resulted primarily
from the increase in interest rate from 13 1/8% to 16% for the $120.3 million of
discount debentures exchanged in May 2003 and the accretion in fair value of the
16% discount notes. Average short-term borrowings under our working capital
credit facility in the second quarter of 2003 were $.5 million compared to $48.0
million in the second quarter of 2002. Non-cash interest expense was $7.9
million in the second quarter of 2003 compared to $4.9 million in 2002.

The net gain on exchange of debt of $41.1 million reflects the difference
between the fair value of the new 16% subordinated notes at date of issuance and
the carrying value of the old 13 1/8% discount debentures of $44.1 million less
the additional interest expense of 2 7/8% from October 15, 2002 to May 6, 2003
paid to the note holders who accepted the exchange offer ($1.9 million) and the
write-off of unamortized deferred financing costs related to the debentures
exchanged ($1.1 million).

No tax provision was attributed to the pre-tax income in the second quarter of
2003 since there are available NOL carryforwards to offset any required
provision. Furthermore, management projections indicate that the full fiscal
year will result in a pre-tax loss. The net loss for the second quarter of 2002
included a tax benefit calculated at a 35% rate. At February 1, 2003 the Company
established a valuation allowance to reduce the net deferred tax assets to their
estimated recoverable amount and the Company does not expect to recognize any
tax benefits in future results of operations until an appropriate level of
profitability is sustained.

RESULTS OF OPERATIONS - TWENTY-SIX WEEKS ENDED AUGUST 2, 2003 COMPARED TO
TWENTY-SIX WEEKS ENDED AUGUST 3, 2002.

Revenues for the twenty-six weeks ended August 2, 2003 decreased to $328.6
million from $334.7 million in the twenty-six weeks ended August 3, 2002, a
decrease of 1.8%.

                                       15

<PAGE>

Revenues of J.Crew Retail increased to $182.5 million in the first six months of
2003 from $179.8 million in the first six months of 2002. This increase was due
to sales from stores not open for a full fiscal year which offset a 4.3% decline
in comparable store sales. The Company believes that the decrease in comparable
store sales was largely attributable to the continuing slow economy and the
related difficult retail environment, primarily in the first quarter of 2003.
The number of stores open at August 2, 2003 increased to 155 from 146 at August
3, 2002.

Revenues of J.Crew Direct (which consists of the Internet and catalog
operations) decreased to $93.2 million in the first six months of 2003 from
$102.1 million in the first six months of 2002. Internet revenues increased to
$63.5 million in the first six months of 2003 from $56.5 million in the first
six months of 2002. Catalog revenues in the first six months of 2003 decreased
to $29.7 million from $45.6 million in the first six months of 2002, as a result
of a decrease in catalog circulation and continuing efforts to migrate customers
to the Internet.

Revenues of J.Crew Factory decreased to $36.1 million in the first six months of
2003 from $36.9 million in the first six months of 2002 due to a 4.6% decrease
in comparable store sales. There were 42 stores open at August 2, 2003 compared
to 43 stores at August 3, 2002.

As we have disclosed in recent filings, management changed its strategy of
disposing of slow moving merchandise in fiscal 2003 to drive aggressive
in-season inventory liquidation across all channels. As a result of this change,
sales in the second half of the year, especially in the Direct business, will be
adversely affected by the low levels of prior season merchandise on hand at
August 2, 2003.

Other revenues, which consist of shipping and handling fees and royalties,
increased to $16.8 million in the first six months of 2003 from $15.9 million in
the first six months of 2002 due primarily to an increase in shipping and
handling fees of $.8 million. This increase resulted from a change in our
returns processing in the second half of 2002.

Cost of goods sold, including buying and occupancy costs, increased as a
percentage of revenues to 68.0% in the first six months of 2003 from 61.8% in
the first six months of 2002. This increase is attributable primarily to a
decrease of 530 basis points in merchandise margin. The decrease in merchandise
margin resulted from higher sales of prior season's merchandise (at discounted
prices) in the first six months of 2003 compared to the first six months of 2002
and higher markdowns related to the sale of Spring 2003 merchandise. These
results reflect management's new strategy of disposing of slow moving
merchandise in season and reducing the amount of merchandise held in its Factory
and Direct divisions for disposition in future seasons. Inventories at August 2,
2003 were down $54 million or 39% from August 3, 2002.

Selling, general and administrative expenses decreased to $127.7 million in the
twenty-six weeks ended August 2, 2003 from $138.4 million in the twenty-six
weeks ended August 3, 2002. This decrease of $10.7 million resulted from a
decrease in general and administrative expenses of $6.3 million and a decrease
of $4.4 million in selling expense. The decrease in general and administrative
expenses resulted from (a) $4.8 million of severance charges relating to
headcount reductions and the departure of a former Chief Executive Officer in
the first six months of 2002 compared to $1.4 million of severance charges in
the first six months of 2003, (b) the effect of the cost reduction initiatives
implemented in the first quarter of 2002 in the first quarter of 2003 and (c) a
$1.6 million insurance recovery related to the destruction of our World Trade
Center store on September 11, 2001 less the expenses associated with additional
retail stores in operation in 2003. The reduction in selling expense was due
primarily to a decrease in catalog circulation in the first six months of 2003.
As a percentage of revenues, selling, general and administrative expenses
decreased to 38.9% of revenues in the first six months of 2003 from 41.4% in the
first six months of 2002.

Interest expense increased to $22.8 million in the first six months of 2003 from
$19.1 million in the first six months of 2002. This increase resulted primarily
from the increase in interest rate from 13 1/8% to 16% for $120.3 million of
discount debentures exchanged in May 2003 and the accretion in fair value of the
16% subordinated notes. Average short-term borrowings under our working capital
credit facility in the first six months of 2003 were $.2 million compared to
$41.8 million in the first six months of 2002. Non-cash interest expense in the
first six months of 2003 was $12.7 million in 2003 compared to $10.0 million in
2002.

                                       16

<PAGE>

The net gain on exchange of debt of $41.1 million reflects the difference
between the fair value of the new 16% subordinated notes at date of issuance and
the carrying value of the old 13 1/8% discount debentures of $44.1 million, less
the additional interest expense of 2 7/8% from October 15, 2002 to May 6, 2003
paid to the note holders who accepted the exchange offer ($1.9 million) and the
write-off of unamortized deferred financing costs related to the debentures
exchanged ($1.1 million).

No tax benefit was attributed to the pre-tax loss in the first six months of
2003 compared to a 35% tax benefit in the same period last year. At February 1,
2003 the Company established a valuation allowance to reduce the net deferred
tax assets to their estimated recoverable amount and the Company does not expect
to recognize any tax benefits in future results of operations until an
appropriate level of profitability is sustained.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows used in operations decreased to $5.5 million in the first six months
of 2003 from $34.7 million in the first six months of 2002. This decrease in
cash used in operations resulted primarily from the decrease in working capital
requirements, primarily inventories, in the 2003 six month period compared to
the 2002 period.

Capital expenditures, net of construction allowances, were $4.8 million for the
first six months of 2003 compared to $15.5 million in the first six months of
2002. Capital expenditures for fiscal year 2003 are expected to be approximately
$10 million compared to $20.4 million in fiscal year 2002. Four new stores are
planned to open in fiscal 2003 compared to 16 in fiscal 2002.

There were no short-term borrowings under the working capital credit facility at
August 2, 2003 compared to $48.0 million at August 3, 2002. Long-term
indebtedness increased by $25.8 million in the first quarter of 2003 consisting
of $20.0 million of notes payable due in 2008 and $5.8 million under the
Congress Credit Facility repayable over a period of 60 months commencing June 1,
2003.

On May 6, 2003 the Company (through its wholly owned subsidiary, J.Crew
Intermediate LLC ("Intermediate")) completed an offer to exchange 16% Senior
Discount Contingent Principal Notes due 2008 of Intermediate for its outstanding
13 1/8% Senior Discount Debentures due 2008. Approximately 85% of the
outstanding debentures were tendered for exchange. The effect of the exchange
offer on interest expense in fiscal 2003 will be to increase total interest
expense by $2.6 million but decrease cash interest by $15.8 million.

The Company has determined that the liquidation value of the Series A preferred
stock, which aggregates $92.8 million, is not mandatorily redeemable and
accordingly the consolidated balance sheet as of February 1, 2003 has been
restated to reclassify this amount to stockholders' deficit.

Management believes that cash flow from operations and availability under the
Congress Credit Facility will provide adequate funds for the Company's
foreseeable working capital needs, planned capital expenditures and debt service
obligations. The Company's ability to fund its operations and make planned
capital expenditures, to make scheduled debt payments, to refinance indebtedness
and to remain in compliance with the financial covenants under its debt
agreements depends on its future operating performance and cash flow, which in
turn, are subject to prevailing economic conditions and to financial, business
and other factors, some of which are beyond its control.

SEASONALITY

The Company experiences two distinct selling seasons, spring and fall. The
spring season is comprised of the first and second quarters and the fall season
is comprised of the third and fourth quarters. Net sales are usually
substantially higher in the fall season and selling, general and administrative
expenses as a percentage of net sales are usually higher in the spring season.
Approximately 32% of annual net sales in fiscal year 2002 occurred in the fourth
quarter. The Company's working capital requirements also fluctuate throughout
the year, increasing substantially in September and October in anticipation of
the holiday season inventory requirements.


                                       17

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS - J.CREW OPERATING CORP.

RESULTS OF OPERATIONS - THIRTEEN WEEKS ENDED AUGUST 2, 2003 COMPARED TO THIRTEEN
WEEKS ENDED AUGUST 3, 2002.

Revenues for the thirteen weeks ended August 2, 2003 decreased to $167.1 million
from $167.6 million in the thirteen weeks ended August 3, 2002.

Revenues of J.Crew Retail increased to $100.6 million in the second quarter of
2003 from $94.1 million in the second quarter of 2002. This increase was due
primarily to sales from stores not open for a full fiscal year. Comparable store
sales in the second quarter of 2003 increased by 2% over the first six months of
2002, as the difficult retail environment improved in the second quarter. The
number of stores open at August 2, 2003 increased to 155 from 146 at August 3,
2002.

Revenues of J.Crew Direct (which consists of the Internet and catalog
operations) decreased to $38.2 million in the second quarter of 2003 from $45.9
million in the second quarter of 2002. Internet revenues increased to $26.9
million in the second quarter of 2003 from $25.3 million in the second quarter
of 2002. Catalog revenues in the second quarter of 2003 decreased to $11.3
million from $20.6 million in the second quarter of 2002, as a result of a
decrease in catalog circulation, including the elimination of a clearance
catalog in July, and continuing efforts to migrate customers to the Internet.

Revenues of J.Crew Factory decreased to $20.4 million in the second quarter of
2003 from $20.9 million in the second quarter of 2002 due to a 3.6% decrease in
comparable store sales. There were 42 stores open at August 2, 2003 compared to
43 stores at August 3, 2002.

As we have disclosed in recent filings, management changed its strategy of
disposing of slow moving merchandise in fiscal 2003 to drive aggressive
in-season inventory liquidation across all channels. As a result of this change,
sales in the second half of the year, especially in the Direct business, will be
adversely affected by the low levels of prior season merchandise on hand at
August 2, 2003.

Other revenues, which consist of shipping and handling fees and royalties,
increased to $7.9 million in the second quarter of 2003 from $6.7 million in the
second quarter of 2002 due primarily to an increase in shipping and handling
fees of $1.1 million. This increase resulted from a change in our returns
processing in the second half of 2002.

Cost of goods sold, including buying and occupancy costs, increased as a
percentage of revenues to 70.6% in the second quarter of 2003 from 63.6% in the
second quarter of 2002. This increase is attributable primarily to a decrease of
630 basis points in merchandise margin. The decrease in merchandise margin
resulted from higher sales of prior season's merchandise (at discounted prices)
in the second quarter of 2003 compared to the second quarter of 2002 and higher
markdowns related to the sale of Spring 2003 merchandise. These results reflect
management's new strategy of disposing of slow moving merchandise in season and
reducing the amount of merchandise held in its Factory and Direct divisions for
disposition in future seasons. Inventories at August 2, 2003 were down $54
million or 39% from August 3, 2002.

Selling, general and administrative expenses decreased to $62.0 million in the
second quarter of 2003 from $62.2 million in the second quarter of 2002. This
decrease of $.2 million resulted from an increase in general and administrative
expenses of $2.2 million and a decrease of $2.4 million in selling expense. The
increase in general and administrative expenses resulted primarily from expenses
associated with the additional retail stores in operation in 2003 offset by a
$1.6 million insurance recovery related to the destruction of our World Trade
Center Store on September 11, 2001. The reduction in selling expense was due
primarily to a decrease in catalog circulation in the second quarter of 2003. As
a percentage of revenues, selling, general and administrative expenses were
37.1% of revenues in the second quarter of 2003 and 2002.

Interest expense decreased to $5.0 million in the second quarter of 2003 from
$5.1 million in the second quarter of 2002. This decrease resulted primarily
from the decrease in average short term borrowings in the second quarter of 2003
compared to 2002, net of the increase in long term debt of $25.8 million in
2003.

                                       18

<PAGE>

Average short-term borrowings under our working capital credit facility in the
second quarter of 2003 were $.5 million compared to $48.0 million in the second
quarter of 2002.

No tax benefit was attributed to the pre-tax loss in the second quarter of 2003
compared to a tax benefit of 35% in the second quarter of 2002. The Company does
not expect to recognize any tax benefits in future results of operations until
an appropriate level of profitability is sustained.

RESULTS OF OPERATIONS - TWENTY-SIX WEEKS ENDED AUGUST 2, 2003 COMPARED TO
TWENTY-SIX WEEKS ENDED AUGUST 3, 2002.

Revenues for the twenty-six weeks ended August 2, 2003 decreased to $328.6
million from $334.7 million in the twenty-six weeks ended August 3, 2002, a
decrease of 1.8%.

Revenues of J.Crew Retail increased to $182.5 million in the first six months of
2003 from $179.8 million in the first six months of 2002. This increase was due
to sales from stores not open for a full fiscal year which offset a 4.3% decline
in comparable store sales. The Company believes that the decrease in comparable
store sales was largely attributable to the continuing slow economy and the
related difficult retail environment, primarily in the first quarter of 2003.
The number of stores open at August 2, 2003 increased to 155 from 146 at August
3, 2002.

Revenues of J.Crew Direct (which consists of the Internet and catalog
operations) decreased to $93.2 million in the first six months of 2003 from
$102.1 million in the first six months of 2002. Internet revenues increased to
$63.5 million in the first six months of 2003 from $56.5 million in the first
six months of 2002. Catalog revenues in the first six months of 2003 decreased
to $29.7 million from $45.6 million in the first six months of 2002, as a result
of a decrease in catalog circulation and continuing efforts to migrate customers
to the Internet.

Revenues of J.Crew Factory decreased to $36.1 million in the first six months of
2003 from $36.9 million in the first six months of 2002 due to a 4.6% decrease
in comparable store sales. There were 42 stores open at August 2, 2003 compared
to 43 stores at August 3, 2002.

As we have disclosed in recent filings, management changed its strategy of
disposing of slow moving merchandise in fiscal 2003 to drive aggressive
in-season inventory liquidation across all channels. As a result of this change,
sales in the second half of the year, especially in the Direct business, will be
adversely affected by the low levels of prior season merchandise on hand at
August 2, 2003.

Other revenues, which consist of shipping and handling fees and royalties,
increased to $16.8 million in the first six months of 2003 from $15.9 million in
the first six months of 2002 due primarily to an increase in shipping and
handling fees of $.8 million. This increase resulted from a change in our
returns processing in the second half of 2002.

Cost of goods sold, including buying and occupancy costs, increased as a
percentage of revenues to 68.0% in the first six months of 2003 from 61.8% in
the first six months of 2002. This increase is attributable primarily to a
decrease of 530 basis points in merchandise margin. The decrease in merchandise
margin resulted from higher sales of prior season's merchandise (at discounted
prices) in the first six months of 2003 compared to the first six months of 2002
and higher markdowns related to the sale of Spring 2003 merchandise. These
results reflect management's new strategy of disposing of slow moving
merchandise in season and reducing the amount of merchandise held in its Factory
and Direct divisions for disposition in future seasons. Inventories at August 2,
2003 were down $54 million or 39% from August 3, 2002.

Selling, general and administrative expenses decreased to $127.7 million in the
twenty-six weeks ended August 2, 2003 from $138.0 million in the twenty-six
weeks ended August 3, 2002. This decrease of $10.3 million resulted from a
decrease in general and administrative expenses of $5.9 million and a decrease
of $4.4 million in selling expense. The decrease in general and administrative
expenses resulted from (a) $4.8 million of severance charges relating to
headcount reductions and the departure of a former Chief Executive Officer in
the first six months of 2002 compared to $1.4 million of severance charges in
the first

                                       19

<PAGE>

six months of 2003, (b) the effect of the cost reduction initiatives implemented
in the first quarter of 2002 in the first quarter of 2003 and (c) a $1.6 million
insurance recovery related to the destruction of our World Trade Center store on
September 11, 2001 less the expenses associated with additional retail stores in
operation in 2003. The reduction in selling expense was due primarily to a
decrease in catalog circulation in the first six months of 2003. As a percentage
of revenues, selling, general and administrative expenses decreased to 38.9% of
revenues in the first six months of 2003 from 41.2% in the first six months of
2002.

Interest expense decreased to $10.0 million in the first six months of 2003 from
$10.4 million in the first six months of 2002. This decrease resulted primarily
from the decrease in average short term borrowings in the first six months of
2003 compared to 2002, net of the increase in long term debt of $25.8 million in
2003. Average short-term borrowings under our short term credit facility in the
first six months of 2003 were $.2 million compared to $41.8 million in the first
six months of 2002.

No tax benefit was attributed to the pre-tax loss in the first six months of
2003 compared to a 35% tax benefit in the same period last year. The Company
does not expect to recognize any tax benefits in future results of operations
until an appropriate level of profitability is sustained.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company's principal market risk relates to interest rate sensitivity, which
is the risk that future changes in interest rates will reduce net income or the
net assets of the Company. The Company's variable rate debt consists of
borrowings under the Congress Credit Facility. The interest rates are a function
of the bank prime rate or LIBOR. A one percentage point change in the base
interest rate would result in approximately $100,000 change in income before
taxes for each $10 million of borrowings.

The Company has a licensing agreement in Japan which provides for royalty
payments based on sales of J.Crew merchandise as denominated in yen. The Company
has entered into forward foreign exchange contracts from time to time in order
to minimize this risk. At August 2, 2003, there were no forward foreign exchange
contracts outstanding.

The Company enters into letters of credit primarily 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, 2003
were $53.7 million, including $3.5 million of standby letters of credit.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this Quarterly Report on Form 10-Q, the
Company's management, including the Chief Executive Officer and the Acting Chief
Financial Officer, conducted an evaluation of the effectiveness of disclosure
controls and procedures as provided in Rule 13a - 14 under the Securities
Exchange Act of 1934, as amended. Based on that evaluation, the Chief Executive
Officer and the Acting Chief Financial Officer concluded that the disclosure
controls and procedures are effective in ensuring that all material information
required to be filed in this Quarterly Report has been made know to them in a
timely fashion. There have been no significant changes in internal controls, or
in factors that could significantly affect internal controls, subsequent to the
date the Chief Executive Officer and the Acting Chief Financial Officer
completed their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

                                       20

<PAGE>

                           PART II - OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

               4.1    Indenture, dated as of May 6, 2003, between J.Crew
                      Intermediate LLC and U.S. Bank National Association, as
                      trustee relating to the 16% Senior Discount Contingent
                      Principal Notes due 2008. Incorporated by reference to
                      Exhibit 4.1 to the Company's Form 8-K filed on May 8,
                      2003.

               4.2    Registration Rights Agreement, dated as of May 6, 2003,
                      between J.Crew Intermediate LLC and U.S. Bank National
                      Association on behalf of the Holders. Incorporated by
                      reference to Exhibit 4.2 to the Company's Form 8-K filed
                      on May 8, 2003.

               4.3    First Supplemental Indenture, dated as of May 6, 2003,
                      between J.Crew Intermediate LLC and U.S. Bank National
                      Association relating to the 13 1/8% Senior Discount
                      Debentures due 2008. Incorporated by reference to the
                      Company's Form 8-K filed on May 8, 2003.

               31.1*  Certification of Chief Executive Officer pursuant to
                      Section 302 of the Sarbanes-Oxley Act of 2002.

               31.2*  Certification of Acting Chief Financial Officer pursuant
                      to Section 302 of the Sarbanes-Oxley Act of 2002.

               32.1*  Certification of Chief Executive Officer and Acting Chief
                      Financial Officer pursuant to Section 906 of the Sarbanes-
                      Oxley Act of 2002.

         (b) Reports on Form 8-K

             The following reports on Form 8-K were filed during the quarter
             covered by this report:

                                    Date of Report       Item(s) Reported
                                    --------------       ----------------

                                    May 8, 2003          Item 5
                                    May 13, 2003         Item 5
                                    May 29, 2003         Item 7 and Item 9

             The report on Form 8-K dated May 29, 2003 included the Company's
             Condensed Consolidated Income Statements for the thirteen weeks
             ended May 3, 2003 and May 4, 2002 and Condensed Consolidated
             Balance Sheets at May 3, 2003 and May 4, 2002.

             * Filed herewith.

                                       21

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature for each undersigned
company shall be deemed to relate only to matters having reference to such
company.

                                             J. CREW GROUP, INC.
                                             (Registrant)

Date:    September 17, 2003                  By:     /s/  Millard S.Drexler
                                                --------------------------------
                                                Millard S. Drexler
                                                Chairman of the Board and
                                                Chief Executive Officer

Date:    September 17, 2003                  By:     /s/  Nicholas Lamberti
                                                --------------------------------
                                                Nicholas Lamberti
                                                Vice-President and
                                                Corporate Controller
                                                (Acting Chief Financial Officer)

                                             J. CREW OPERATING CORP.
                                             (Registrant)

Date:    September 17, 2003                  By:     /s/  Millard S.Drexler
                                                --------------------------------
                                                Millard S. Drexler
                                                Chairman of the Board and
                                                Chief Executive Officer

Date:    September 17, 2003                  By:     /s/  Nicholas Lamberti
                                                --------------------------------
                                                Nicholas Lamberti
                                                Vice-President and
                                                Corporate Controller
                                                (Acting Chief Financial Officer)

                                       22