** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM10-Q**

** **
| **(Mark One)**                                      |
|-----------------------------------------------------|
| **ý**                                          | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934** |
|                                                |
| **For the quarterly period ended October 30, 2004** |
|                                                |
| **Or**                                              |
| ** **                                          |
| o                                                   | **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  New York)

770  Broadway

New  York, New York 10003

Telephone:  (212) 209-2500 |       |                                          |
|                             | ** ** |                                                                                                  |       |                                          |
| **333-107211**                   | ** ** | **J. CREW  INTERMEDIATE LLC**                                                                         |       | **N/A**                                       |
|                             | ** ** | (Formed  in Delaware)

770  Broadway

New  York, New York 10003

Telephone:  (212) 209-2500           |       |                                          |
|                             | ** ** |                                                                                                  |       |                                          |
| **333-42423**                    | ** ** | **J. CREW  OPERATING CORP.**                                                                          |       | **22-3540930**                                |
|                             | ** ** | (Incorporated  in Delaware)

770  Broadway

New  York, New York 10003

Telephone:  (212) 209-2500     |       |                                          |

 

Indicate by check mark whether each 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 (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past90 days. Yes ý    No o

 

Indicate by a check mark whether any of theregistrants is an accelerated filer (as defined in Rule 12b-2 of theExchange Act). Yes o    No ý

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Outstanding at November 30, 2004

----

 
| J.  Crew Group, Inc.      |   | 12,199,128  shares of common stock, par value $.01 per share                                                |
|---------------------------|--------|-------------------------------------------------------------------------------------------------------------|
| J.  Crew Intermediate LLC |   | 100%  of its membership interests are owned by J. Crew Group, Inc.                                          |
| J.  Crew Operating Corp.  |   | 100  shares of common stock, par value $.01 per share (all of which are owned by  J. Crew Intermediate LLC) |

 

This Quarterly Report on Form 10-Q is acombined report being filed by three different registrants: J. Crew Group,Inc., J. Crew Intermediate LLC (a wholly-owned subsidiary of J. Crew Group,Inc.) and J. Crew Operating Corp. (a wholly-owned subsidiary of J. CrewIntermediate LLC).  The informationcontained herein relating to each individual registrant is filed by suchregistrant on its own behalf. No registrant makes any representation as toinformation relating to any other registrant.

 

J. Crew Intermediate LLC  and J. Crew Operating Corp. meet theconditions set forth in General Instruction (I)(1)(a) and (b) of theForm 10-Q and are therefore filing this Form 10-Q with the reduceddisclosure format.

 

 

 

----

** **

**Part I — Financial Information**

 

**Item I.        FinancialStatements**

**J Crew Group, Inc. and Subsidiaries**

** **

**Condensed Consolidated Balance Sheets**

** **
| ** **                                       | ** ** | **October  30, 2004**                | ** ** | **January  31, 2004** | ** ** |
|--------------------------------------------------|------------|--------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **(unaudited)**

**(in  thousands)** | ** ** |
| Assets                                           |       |                                 |       |                  |       |
| Current assets:                                  |       |                                 |       |                  |       |
| Cash and cash equivalents                        |       | $                                    | 28,529     |                  | $          | 49,650 |   |
| Merchandise inventories                          |       | 137,315                              |       | 66,028                |       |
| Prepaid expenses and other current assets        |       | 22,335                               |       | 20,733                |       |
| Refundable income taxes                          |       | 9,320                                |       | 9,320                 |       |
| Total current assets                             |       | 197,499                              |       | 145,731               |       |
|                                             |       |                                 |       |                  |       |
| Property and equipment - at cost                 |       | 291,301                              |       | 284,945               |       |
| Less accumulated depreciation and  amortization  |       | (170,313                             | )          | (146,565              | )          |
|                                             |       | 120,988                              |       | 138,380               |       |
|                                             |       |                                 |       |                  |       |
| Other assets                                     |       |                                 |       |                  |       |
| Total assets                                     |       | 11,115                               |       | 13,500                |       |
|                                             |       | $                                    | 329,602    |                  | $          | 297,611 |   |
|                                             |       |                                 |       |                  |       |
| Liabilities  and Stockholders’ Deficit      |       |                                 |       |                  |       |
|                                             |       |                                 |       |                  |       |
| Current liabilities:                             |       |                                 |       |                  |       |
| Current portion of long-term debt                |       | $                                    | 1,164      |                  | $          | 1,164 |   |
| Accounts payable and other current  liabilities  |       | 130,443                              |       | 97,175                |       |
| Federal and state income taxes                   |       | 721                                  |       | 1,175                 |       |
| Total current liabilities                        |       | 132,328                              |       | 99,514                |       |
|                                             |       |                                 |       |                  |       |
| Deferred credits                                 |       | 55,665                               |       | 56,723                |       |
|                                             |       |                                 |       |                  |       |
| Long-term debt                                   |       | 574,447                              |       | 516,640               |       |
|                                             |       |                                 |       |                  |       |
| Preferred stock                                  |       | 92,800                               |       | 92,800                |       |
|                                             |       |                                 |       |                  |       |
| Stockholders’ deficit                       |       | (525,638                             | )          | (468,066              | )          |
|                                             |       |                                 |       |                  |       |
| Total liabilities and stockholders’ deficit |       | $                                    | 329,602    |                  | $          | 297,611 |   |

 

See notes tounaudited condensed consolidated financial statements.

 

2

----

**J Crew Group, Inc. and Subsidiaries**

** **

**Condensed Consolidated Statements ofOperations**

** **
| ** **                                                | ** ** | **Thirteen weeks ended**             | ** ** |
|-----------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                | ** ** | **October 30, 2004**                 | ** ** | **November 1, 2003** | ** ** |
|                                                      |       | **(unaudited)**

**(in  thousands)** |       |
| Revenues:                                                 |       |                                 |       |   |   |
| Net sales                                                 |       | $                                    | 200,852    |   | $ | 146,403 |   |
| Other                                                     |       | 5,200                                |       | 4,558 |   |
|                                                      |       | 206,052                              |       | 150,961 |   |
|                                                      |       |                                 |       |   |   |
| Cost of goods sold, including buying and  occupancy costs |       | 117,048                              |       | 91,042 |   |
|                                                      |       |                                 |       |   |   |
| Gross profit                                              |       | 89,004                               |       | 59,919 |   |
|                                                      |       |                                 |       |   |   |
| Selling, general and administrative  expenses             |       | 75,898                               |       | 66,277 |   |
|                                                      |       |                                 |       |   |   |
| Income (loss) from operations                             |       | 13,106                               |       | (6,358 | ) |
|                                                      |       |                                 |       |   |   |
| Interest expense - net                                    |       | 23,044                               |       | 20,428 |   |
|                                                      |       |                                 |       |   |   |
| Insurance proceeds                                        |       | —                               |       | (2,250 | ) |
|                                                      |       |                                 |       |   |   |
| Loss before income taxes                                  |       | (9,938                               | )          | (24,536 | ) |
|                                                      |       |                                 |       |   |   |
| Income taxes                                              |       | —                               |       | — |   |
|                                                      |       |                                 |       |   |   |
| Net loss                                                  |       | $                                    | (9,938     | ) | $ | (24,536 | ) |

 

See notes to unaudited condensed consolidated financial statements.

 

3

----

**J Crew Group, Inc. and Subsidiaries**

 

**Condensed Consolidated Statements of Operations**

 
| ** **                                                    | ** ** | **Thirty-nine weeks ended** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                    | ** ** | **October  30, 2004**       | ** ** | **November  1, 2003** | ** ** |
| ** **                                                    | ** ** | **(unaudited)**             | ** ** |
|                                                          |       | **(in  thousands)**         |       |
| Revenues:                                                     |       |                        |       |   |   |
| Net sales                                                     |       | $                           | 523,533    |   | $ | 458,181 |   |
| Other                                                         |       | 16,259                      |       | 21,342 |   |
|                                                          |       | 539,792                     |       | 479,523 |   |
|                                                          |       |                        |       |   |   |
| Cost of goods sold, including buying and  occupancy costs     |       | 315,836                     |       | 310,424 |   |
|                                                          |       |                        |       |   |   |
| Gross profit                                                  |       | 223,956                     |       | 169,099 |   |
|                                                          |       |                        |       |   |   |
| Selling, general and administrative  expenses                 |       | 205,327                     |       | 200,596 |   |
|                                                          |       |                        |       |   |   |
| Income (loss) from operations                                 |       | 18,629                      |       | (31,497 | ) |
|                                                          |       |                        |       |   |   |
| Interest expense - net                                        |       | 66,116                      |       | 43,218 |   |
|                                                          |       |                        |       |   |   |
| Insurance proceeds                                            |       | —                      |       | (3,850 | ) |
|                                                          |       |                        |       |   |   |
| Gain on exchange of debt (net of related  expenses of $2,992) |       | —                      |       | (41,085 | ) |
|                                                          |       |                        |       |   |   |
| Loss before income taxes                                      |       | (47,487                     | )          | (29,780 | )  |
|                                                          |       |                        |       |   |   |
| Income taxes                                                  |       | —                      |       | — |   |
|                                                          |       |                        |       |   |   |
| Net loss                                                      |       | $                           | (47,487    | ) | $ | (29,780 | )  |
|                                                               |            |                             |            |  |  |  |  |  |

 

See notes tounaudited condensed consolidated financial statements.

 

4

----

**J Crew Group, Inc. and Subsidiaries**

** **

**CondensedConsolidated Statements of Cash Flows**

** **
| ** **                                                                                                                                                                                                                                | ** ** | **Thirty-nine  weeks ended** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                                                                                                | ** ** | **October  30,**

**2004**   | ** ** | **November  1,**

**2003** | ** ** |
|                                                                                                                                                                                                                                      |       | **(unaudited)**              |       |
|                                                                                                                                                                                                                                      |       | **(in  thousands)**          |       |
| Cash flow from operating activities:                                                                                                                                                                                                      |       |                         |       |   |   |
| Net loss                                                                                                                                                                                                                                  |       | $                            | (47,487    | ) | $ | (29,780 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:                                                                                                                                                              |       |                         |       |   |   |
| Depreciation and amortization                                                                                                                                                                                                             |       | 27,099                       |       | 31,381 |   |
| Amortization of deferred financing costs                                                                                                                                                                                                  |       | 1,965                        |       | 1,599 |   |
| Amortization of deferred compensation                                                                                                                                                                                                     |       | 31                           |       | 31 |   |
| Non-cash interest expense (including  non-cash preferred stock dividends of $24,231 and $7,080 in 2004 and 2003,  respectively)                                                                                                           |       | 48,588                       |       | 26,132 |   |
| Gain on exchange of debt, net                                                                                                                                                                                                             |       | —                       |       | (41,085 | ) |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Changes in operating assets and  liabilities:                                                                                                                                                                                             |       |                         |       |   |   |
| Merchandise inventories                                                                                                                                                                                                                   |       | (71,287                      | )          | (11,620 | ) |
| Prepaid expenses and other current assets                                                                                                                                                                                                 |       | (1,602                       | )          | 4,653 |   |
| Other assets                                                                                                                                                                                                                              |       | 420                          |       | (220 | ) |
| Accounts payable and other liabilities                                                                                                                                                                                                    |       | 28,283                       |       | (9,453 | ) |
| Federal and state income taxes                                                                                                                                                                                                            |       | (454                         | )          | (310 | ) |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Net cash used in operating activities                                                                                                                                                                                                     |       | (14,444                      | )          | (28,672 | ) |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Cash flow from investing activities:                                                                                                                                                                                                      |       |                         |       |   |   |
| Capital expenditures                                                                                                                                                                                                                      |       | (9,707                       | )          | (8,195 | ) |
| Proceeds from construction allowances                                                                                                                                                                                                     |       | 3,903                        |       | 2,022 |   |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Net cash used in investing activities                                                                                                                                                                                                     |       | (5,804                       | )          | (6,173 | ) |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Cash flow from financing activities:                                                                                                                                                                                                      |       |                         |       |   |   |
| Increase in notes payable - bank                                                                                                                                                                                                          |       | —                       |       | 3,000 |   |
| Additional long-term debt                                                                                                                                                                                                                 |       | —                       |       | 25,820 |   |
| Costs incurred in connection with debt  financings                                                                                                                                                                                        |       | —                       |       | (2,500 | ) |
| Repayment of long-term debt                                                                                                                                                                                                               |       | (873                         | )          | (582 | ) |
| Net cash provided by/(used in) financing  activities                                                                                                                                                                                      |       | (873                         | )          | 25,738 |   |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Decrease in cash and cash equivalents                                                                                                                                                                                                     |       | (21,121                      | )          | (9,107 | ) |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Cash and cash equivalents - beginning of  period                                                                                                                                                                                          |       | 49,650                       |       | 18,895 |   |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Cash and cash equivalents - end of period                                                                                                                                                                                                 |       | $                            | 28,529     |   | $ | 9,788 |   |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Non-cash financing activities:                                                                                                                                                                                                            |       |                         |       |   |   |
| Dividends on preferred stock (reflected  directly in stockholders’ deficit)                                                                                                                                                          |       | $                            | 10,092     |   | $ | 22,732 |   |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Interest payable on 13 1/8% Senior Discount  Debentures at February 1, 2003 that was added to the principal amount of debt                                                                                                                |       |                         |       |   |   |
|                                                                                                                                                                                                                                      | $          | —                       |       | $ | 4,416 |   |
|                                                                                                                                                                                                                                      |       |                         |       |   |   |
| Exchange of 16% Senior Discount Contingent  Principal Notes of J.Crew Intermediate LLC with a fair value of $87,006 for  $131,083 carrying value of 13 1/8% Senior Discount Debentures of J.Crew  Group, Inc., effective May 6, 2003 |       | —                       |       | — |   |
|                                                                                                                                                                                                                                      |       |                         |
|                                                                                                                                                                                                                                      |       |                         |
|                                                                                                                                                                                                                                      |       |                         |

 

See notes to unaudited condensed financial statements.

 

5

----

**J Crew Intermediate LLC**

** **

**CondensedConsolidated Balance Sheets**

** **
| ** **                                                              | ** ** | **October  30,**    | ** ** | **January  31,** | ** ** |
|-------------------------------------------------------------------------|------------|---------------------|------------|------------------|------------|
| ** **                                                              | ** ** | **2004**            | ** ** | **2004**         | ** ** |
|                                                                    |       | **(unaudited)**     |       |
|                                                                    |       | **(in  thousands)** |       |
| Assets                                                                  |       |                |       |             |       |
| Current assets:                                                         |       |                |       |             |       |
| Cash and cash equivalents                                               |       | $                   | 28,529     |             | $          | 49,650 |   |
| Merchandise inventories                                                 |       | 137,315             |       | 66,028           |       |
| Prepaid expenses and other current assets                               |       | 22,335              |       | 20,733           |       |
| Refundable income taxes                                                 |       | 9,320               |       | 9,320            |       |
| Total current assets                                                    |       | 197,499             |       | 145,731          |       |
|                                                                    |       |                |       |             |       |
| Property and equipment - at cost                                        |       | 291,301             |       | 284,945          |       |
| Less accumulated depreciation and  amortization                         |       | (170,313            | )          | (146,565         | )          |
|                                                                    |       | 120,988             |       | 138,380          |       |
|                                                                    |       |                |       |             |       |
| Investment in 13 1/8% Senior Discount  Debentures of J.Crew Group, Inc. |       | 131,083             |       | 131,083          |       |
|                                                                    |       |                |       |             |       |
| Interest receivable from J.Crew Group, Inc.                             |       | 25,568              |       | 12,665           |       |
|                                                                    |       |                |       |             |       |
| Other assets                                                            |       | 10,974              |       | 13,333           |       |
| Total assets                                                            |       | $                   | 486,112    |             | $          | 441,192 |   |
|                                                                    |       |                |       |             |       |
| Liabilities  and Membership Interests                                   |       |                |       |             |       |
|                                                                    |       |                |       |             |       |
| Current liabilities:                                                    |       |                |       |             |       |
| Current portion of long-term debt                                       |       | $                   | 1,164      |             | 1,164      |   |
| Accounts payable and other current  liabilities                         |       | 130,318             |       | 96,335           |       |
| Federal and state income taxes                                          |       | 721                 |       | 1,175            |       |
| Total current liabilities                                               |       | 132,203             |       | 98,674           |       |
|                                                                    |       |                |       |             |       |
| Deferred credits                                                        |       | 55,665              |       | 56,723           |       |
|                                                                    |       |                |       |             |       |
| Long-term debt                                                          |       | 306,753             |       | 283,269          |       |
|                                                                    |       |                |       |             |       |
| Due to J.Crew Group, Inc.                                               |       | 5,659               |       | 8,506            |       |
|                                                                    |       |                |       |             |       |
| Membership interests                                                    |       | (14,168             | )          | (5,980           | )          |
|                                                                    |       |                |       |             |       |
| Total liabilities and membership interests                              |       | $                   | 486,112    |             | $          | 441,192 |   |
|                                                                         |            |                     |            |                  |            |  |  |  |  |

 

See notes tounaudited condensed consolidated financial statements.

 

6

----

**J Crew Intermediate LLC**

** **

**CondensedConsolidated Statements of Operations**

** **
| ** **                                                | ** ** | **Thirteen  weeks ended** | ** ** |
|-----------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                | ** ** | **October  30, 2004**     | ** ** | **November  1, 2003** | ** ** |
|                                                      |       | **(unaudited)**           |       |
|                                                      |       | **(in  thousands)**       |       |
| Revenues:                                                 |       |                      |       |   |   |
| Net sales                                                 |       | $                         | 200,852    |   | $ | 146,403 |   |
| Other                                                     |       | 5,200                     |       | 4,558 |   |
|                                                      |       | 206,052                   |       | 150,961 |   |
|                                                      |       |                      |       |   |   |
| Cost of goods sold, including buying and  occupancy costs |       | 117,048                   |       | 91,042 |   |
|                                                      |       |                      |       |   |   |
| Gross profit                                              |       | 89,004                    |       | 59,919 |   |
|                                                      |       |                      |       |   |   |
| Selling, general and administrative  expenses             |       | 75,888                    |       | 66,267 |   |
|                                                      |       |                      |       |   |   |
| Income (loss) from operations                             |       | 13,116                    |       | (6,348 | ) |
|                                                      |       |                      |       |   |   |
| Intercompany interest income                              |       | (4,301                    | )          | (4,301 | ) |
|                                                      |       |                      |       |   |   |
| Interest expense - net                                    |       | 13,832                    |       | 13,016 |   |
|                                                      |       |                      |       |   |   |
| Insurance proceeds                                        |       | —                    |       | (2,250 | ) |
|                                                      |       |                      |       |   |   |
| Income (loss) before income taxes                         |       | 3,585                     |       | (12,813 | ) |
|                                                      |       |                      |       |   |   |
| Income taxes                                              |       | —                    |       | — |   |
|                                                      |       |                      |       |   |   |
| Net income/(loss)                                         |       | $                         | 3,585      |   | $ | (12,813 | ) |

 

See notes to unaudited condensed consolidatedfinancial statements.

 

7

----

**J Crew Intermediate LLC**

** **

**CondensedConsolidated Statements of Operations**

** **
| ** **                                                | ** ** | **Thirty-nine  weeks ended** | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                | ** ** | **October  30,**

**2004**   | ** ** | **November  1,**

**2003** | ** ** |
|                                                      |       | **(unaudited)**              |       |
|                                                      |       | **(in  thousands)**          |       |
| Revenues:                                                 |       |                         |       |   |   |
| Net sales                                                 |       | $                            | 523,533    |   | $ | 458,181 |   |
| Other                                                     |       | 16,259                       |       | 21,342 |   |
|                                                      |       | 539,792                      |       | 479,523 |   |
|                                                      |       |                         |       |   |   |
| Cost of goods sold, including buying and  occupancy costs |       | 315,836                      |       | 310,424 |   |
|                                                      |       |                         |       |   |   |
| Gross profit                                              |       | 223,956                      |       | 169,099 |   |
|                                                      |       |                         |       |   |   |
| Selling, general and administrative  expenses             |       | 205,296                      |       | 200,565 |   |
|                                                      |       |                         |       |   |   |
| Income (loss) from operations                             |       | 18,660                       |       | (31,466 | ) |
|                                                      |       |                         |       |   |   |
| Intercompany interest income                              |       | (12,904                      | )          | (8,363 | ) |
|                                                      |       |                         |       |   |   |
| Interest expense - net                                    |       | 39,752                       |       | 29,320 |   |
|                                                      |       |                         |       |   |   |
| Gain on exchange of debt                                  |       | —                       |       | (44,077 | ) |
|                                                      |       |                         |       |   |   |
| Insurance proceeds                                        |       | —                       |       | (3,850 | ) |
|                                                      |       |                         |       |   |   |
| Loss before income taxes                                  |       | (8,188                       | )          | (4,496 | ) |
|                                                      |       |                         |       |   |   |
| Income taxes                                              |       | —                       |       | — |   |
|                                                      |       |                         |       |   |   |
| Net loss                                                  |       | $                            | (8,188     | ) | $ | (4,496 | ) |

 

 

See notes to unauditedcondensed consolidated financial statements.

 

8

----

**J Crew Intermediate LLC**

** **

**CondensedConsolidated Statements of Cash Flows**

** **
| ** **                                                                                                                                                                                                                                   | ** ** | **Thirty-nine  weeks ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                                                                                                                                   | ** ** | **October  30,**

**2004**   | ** ** | **November  1,**

**2003** | ** ** |
|                                                                                                                                                                                                                                         |       | **(unaudited)**              |       |
|                                                                                                                                                                                                                                         |       | **(in  thousands)**          |       |
| Cash flow from operating activities:                                                                                                                                                                                                         |       |                         |       |   |   |
|                                                                                                                                                                                                                                         |       |                         |       |   |   |
| Net loss                                                                                                                                                                                                                                     |       | $                            | (8,188     | ) | $ | (4,496 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:                                                                                                                                                                 |       |                         |       |   |   |
| Depreciation and amortization                                                                                                                                                                                                                |       | 27,099                       |       | 31,381 |   |
| Amortization of deferred financing costs                                                                                                                                                                                                     |       | 1,939                        |       | 1,527 |   |
| Non-cash interest expense                                                                                                                                                                                                                    |       | 24,357                       |       | 14,650 |   |
| Gain on exchange of debt                                                                                                                                                                                                                     |       | —                       |       | (44,077 | ) |
| Intercompany interest income                                                                                                                                                                                                                 |       | (12,904                      | )          | (8,363 | ) |
|                                                                                                                                                                                                                                         |       |                         |       |   |   |
| Changes in operating assets and  liabilities:                                                                                                                                                                                                |       |                         |       |   |   |
| Merchandise inventories                                                                                                                                                                                                                      |       | (71,287                      | )          | (11,620 | ) |
| Prepaid expenses and other current assets                                                                                                                                                                                                    |       | (1,602                       | )          | 4,653 |   |
| Other assets                                                                                                                                                                                                                                 |       | 420                          |       | (220 | ) |
| Accounts payable and other liabilities                                                                                                                                                                                                       |       | 29,023                       |       | (8,939 | ) |
| Federal and state income taxes                                                                                                                                                                                                               |       | (454                         | )          | (310 | ) |
| Net cash used in operating activities                                                                                                                                                                                                        |       | (11,597                      | )          | (25,814 | ) |
|                                                                                                                                                                                                                                         |       |                         |       |   |   |
| Cash flow from investing activities:                                                                                                                                                                                                         |       |                         |       |   |   |
| Capital expenditures                                                                                                                                                                                                                         |       | (9,707                       | )          | (8,195 | ) |
| Proceeds from construction allowances                                                                                                                                                                                                        |       | 3,903                        |       | 2,022 |   |
| Net cash used in investing activities                                                                                                                                                                                                        |       | (5,804                       | )          | (6,173 | ) |
|                                                                                                                                                                                                                                         |       |                         |       |   |   |
| Cash flow from financing activities:                                                                                                                                                                                                         |       |                         |       |   |   |
| Increase in notes payable - bank                                                                                                                                                                                                             |       | —                       |       | 3,000 |   |
| Additional long-term debt                                                                                                                                                                                                                    |       | —                       |       | 25,820 |   |
| Repayment of long-term debt                                                                                                                                                                                                                  |       | (873                         | )          | (582 | ) |
| Costs incurred in connection with debt  financing                                                                                                                                                                                            |       | —                       |       | (2,500 | ) |
| Transfers to affiliates                                                                                                                                                                                                                      |       | (2,847                       | )          | (2,858 | ) |
| Net cash provided by/(used in) financing  activities                                                                                                                                                                                         |       | (3,720                       | )          | 22,880 |   |
|                                                                                                                                                                                                                                         |       |                         |       |   |   |
| Decrease in cash and cash equivalents                                                                                                                                                                                                        |       | (21,121                      | )          | (9,107 | ) |
| Cash and cash equivalents - beginning of  period                                                                                                                                                                                             |       | 49,650                       |       | 18,895 |   |
| Cash and cash equivalents - end of period                                                                                                                                                                                                    |       | $                            | 28,529     |   | $ | 9,788 |   |
|                                                                                                                                                                                                                                         |       |                         |       |   |   |
| Non-cash financing activities:                                                                                                                                                                                                               |       |                         |       |   |   |
|                                                                                                                                                                                                                                         |       |                         |       |   |   |
| Exchange of 16% Senior Discount Contingent  Principal Notes of J.Crew Intermediate LLC with a fair value of $87,006,000  for $131,083,000 carrying value of 13 1/8% Senior Discount Debentures of  J.Crew Group, Inc., effective May 6, 2003 |       | —                       |       | — |   |

 

See notes to unaudited condensed consolidated financial statements.

 

9

----

**J Crew Operating Corp. and Subsidiaries**

** **

**CondensedConsolidated Balance Sheets**

** **
| ** **                                       | ** ** | **October  30,**

**2004** | ** ** | **January  31,**

**2004** | ** ** |
|--------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                       | ** ** | **(unaudited)**            | ** ** |
|                                             |       | **(in  thousands)**        |       |
| Assets                                           |       |                       |       |                       |       |
|                                             |       |                       |       |                       |       |
| Current assets:                                  |       |                       |       |                       |       |
| Cash and cash equivalents                        |       | $                          | 28,529     |                       | $          | 49,650 |   |
| Merchandise inventories                          |       | 137,315                    |       | 66,028                     |       |
| Prepaid expenses and other current assets        |       | 22,335                     |       | 20,733                     |       |
| Refundable income taxes                          |       | 9,320                      |       | 9.320                      |       |
| Total current assets                             |       | 197,499                    |       | 145,731                    |       |
|                                             |       |                       |       |                       |       |
| Property and equipment - at cost                 |       | 291,301                    |       | 284,945                    |       |
| Less accumulated depreciation and  amortization  |       | (170,313                   | )          | (146,565                   | )          |
|                                             |       | 120,988                    |       | 138,380                    |       |
|                                             |       |                       |       |                       |       |
| Other assets                                     |       | 8,993                      |       | 11,091                     |       |
| Total assets                                     |       | $                          | 327,480    |                       | $          | 295,202 |   |
|                                             |       |                       |       |                       |       |
| Liabilities  and Stockholder’s Deficit      |       |                       |       |                       |       |
|                                             |       |                       |       |                       |       |
| Current liabilities:                             |       |                       |       |                       |       |
| Current portion of long-term debt                |       | $                          | 1,164      |                       | $          | 1,164 |   |
| Accounts payable and other current  liabilities  |       | 130,310                    |       | 96,328                     |       |
| Federal and state income taxes                   |       | 721                        |       | 1,175                      |       |
| Total current liabilities                        |       | 132,195                    |       | 98,667                     |       |
|                                             |       |                       |       |                       |       |
| Deferred credits                                 |       | 55,665                     |       | 56,723                     |       |
|                                             |       |                       |       |                       |       |
| Long-term debt                                   |       | 174,757                    |       | 174,880                    |       |
|                                             |       |                       |       |                       |       |
| Due to J.Crew Group, Inc.                        |       | 2,890                      |       | 5,897                      |       |
|                                             |       |                       |       |                       |       |
| Stockholder’s deficit                       |       | (38,027                    | )          | (40,965                    | )          |
|                                             |       |                       |       |                       |       |
| Total liabilities and stockholder’s deficit |       | $                          | 327,480    |                       | $          | 295,202 |   |
|                                                  |            |                            |            |                            |            |  |  |  |  |

 

See notes to unaudited condensed consolidatedfinancial statements.

 

10

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**J Crew Operating Corp. and Subsidiaries**

** **

**CondensedConsolidated Statements of Operations**

** **
| ** **                                                | ** ** | **Thirteen  weeks ended**  | ** ** |
|-----------------------------------------------------------|------------|----------------------------|------------|
| ** **                                                | ** ** | **October  30,**

**2004** | ** ** | **November  1,**

**2003** | ** ** |
|                                                      |       | **(unaudited)**            |       |
|                                                      |       | **(in  thousands)**        |       |
| Revenues:                                                 |       |                       |       |   |   |
| Net sales                                                 |       | $                          | 200,852    |   | $ | 146,403 |   |
| Other                                                     |       | 5,200                      |       | 4,558 |   |
|                                                      |       | 206,052                    |       | 150,961 |   |
|                                                      |       |                       |       |   |   |
| Cost of goods sold, including buying and  occupancy costs |       | 117,048                    |       | 91,042 |   |
|                                                      |       |                       |       |   |   |
| Gross profit                                              |       | 89,004                     |       | 59,919 |   |
|                                                      |       |                       |       |   |   |
| Selling, general and administrative  expenses             |       | 75,888                     |       | 66,267 |   |
|                                                      |       |                       |       |   |   |
| Income (loss) from operations                             |       | 13,116                     |       | (6,348 | ) |
|                                                      |       |                       |       |   |   |
| Interest expense - net                                    |       | 5,630                      |       | 5,139 |   |
|                                                      |       |                       |       |   |   |
| Insurance proceeds                                        |       | —                     |       | (2,250 | ) |
|                                                      |       |                       |       |   |   |
| Income/(loss) before income taxes                         |       | 7,486                      |       | (9,237 | ) |
|                                                      |       |                       |       |   |   |
| Income taxes                                              |       | —                     |       | — |   |
|                                                      |       |                       |       |   |   |
| Net income/(loss)                                         |       | $                          | 7,486      |   | $ | (9,237 | ) |

 

 

See notes tounaudited condensed consolidated financial statements.

 

11

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**J Crew Operating Corp. and Subsidiaries**

** **

**CondensedConsolidated Statements of Operations**

** **
| ** **                                                | ** ** | **Thirty-nine  weeks ended** | ** ** |
|-----------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                | ** ** | **October  30,**

**2004**   | ** ** | **November  1,**

**2003** | ** ** |
|                                                      |       | **(unaudited)**              |       |
|                                                      |       | **(in  thousands)**          |       |
| Revenues:                                                 |       |                         |       |   |   |
| Net sales                                                 |       | $                            | 523,533    |   | $ | 458,181 |   |
| Other                                                     |       | 16,259                       |       | 21,342 |   |
|                                                      |       | 539,792                      |       | 479,523 |   |
|                                                      |       |                         |       |   |   |
| Cost of goods sold, including buying and  occupancy costs |       | 315,836                      |       | 310,424 |   |
|                                                      |       | 223,956                      |       | 169,099 |   |
|                                                      |       |                         |       |   |   |
| Selling, general and administrative  expenses             |       | 205,296                      |       | 200,565 |   |
|                                                      |       |                         |       |   |   |
| Income (loss) from operations                             |       | 18,660                       |       | (31,466 | ) |
|                                                      |       |                         |       |   |   |
| Interest expense - net                                    |       | 15,722                       |       | 15,169 |   |
|                                                      |       |                         |       |   |   |
| Insurance proceeds                                        |       | —                       |       | (3,850 | ) |
|                                                      |       |                         |       |   |   |
| Income/(loss) before income taxes                         |       | 2,938                        |       | (42,785 | ) |
|                                                      |       |                         |       |   |   |
| Income taxes                                              |       | —                       |       | — |   |
|                                                      |       |                         |       |   |   |
| Net income/(loss)                                         |       | $                            | 2,938      |   | $ | (42,785 | ) |

 

See notes tounaudited condensed consolidated financial statements.

 

12

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**J Crew Operating Corp. and Subsidiaries**

** **

**CondensedConsolidated Statements of Cash Flows**

** **
| ** **                                                                   | ** ** | **Thirty-nine weeks ended** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                   | ** ** | **October 30, 2004**        | ** ** | **November 1, 2003** | ** ** |
|                                                                         |       | **(unaudited)**             |       |
|                                                                         |       | **(in  thousands)**         |       |
| Cash flow from operating activities:                                         |       |                        |       |   |   |
| Net income (loss)                                                            |       | $2,938                      |       | $(42,785 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                        |       |   |   |
| Depreciation and amortization                                                |       | 27,099                      |       | 31,381 |   |
| Amortization of deferred financing costs                                     |       | 1,517                       |       | 1,220 |   |
| Non-cash interest expense                                                    |       | 750                         |       | 750 |   |
|                                                                         |       |                        |       |   |   |
| Changes in operating assets and  liabilities:                                |       |                        |       |   |   |
| Merchandise inventories                                                      |       | (71,287                     | )          | (11,620 | ) |
| Prepaid expenses and other current assets                                    |       | (1,602                      | )          | 4,653 |   |
| Other assets                                                                 |       | 420                         |       | (220 | ) |
| Accounts payable and other liabilities                                       |       | 29,182                      |       | (8,883 | ) |
| Federal and state income taxes                                               |       | (454                        | )          | (310 | ) |
| Net cash used in operating activities                                        |       | (11,437                     | )          | (25,814 | ) |
|                                                                         |       |                        |       |   |   |
| Cash flow from investing activities:                                         |       |                        |       |   |   |
| Capital expenditures                                                         |       | (9,707                      | )          | (8,195 | ) |
| Proceeds from construction allowances                                        |       | 3,903                       |       | 2,022 |   |
| Net cash used in investing activities                                        |       | (5,804                      | )          | (6,173 | ) |
|                                                                         |       |                        |       |   |   |
| Cash flow from financing activities:                                         |       |                        |       |   |   |
| Increase in notes payable - bank                                             |       | —                      |       | 3,000 |   |
| Additional long-term debt                                                    |       | —                      |       | 25,820 |   |
| Repayment of long-term debt                                                  |       | (873                        | )          | (582 | ) |
| Transfers to affiliates                                                      |       | (3,007                      | )          | (5,358 | ) |
| Net cash provided by financing activities                                    |       | (3,880                      | )          | 22,880 |   |
|                                                                         |       |                        |       |   |   |
| Decrease in cash and cash equivalents                                        |       | (21,121                     | )          | (9,107 | ) |
|                                                                         |       |                        |       |   |   |
| Cash and cash equivalents - beginning of  period                             |       | 49,650                      |       | 18,895 |   |
|                                                                         |       |                        |       |   |   |
| Cash and cash equivalents - end of period                                    |       | $28,529                     |       | $9,788 |   |

 

See notes to unauditedcondensed consolidated financial statements.

 

13

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J.CREW GROUP, INC. AND SUBSIDIARIES

Notesto Unaudited Condensed

ConsolidatedFinancial Statements

Thirteenand thirty-nine weeks ended October 30, 2004 and November 1, 2003

 

**1.      Basis of Presentation**

** **

Theconsolidated financial statements presented herein are as follows:

 

a.                    J.Crew Operating Corp. andits wholly-owned subsidiaries (collectively, “Operating Corp.”), which consistof the accounts of J.Crew Operating Corp. and its wholly-owned subsidiaries.

 

b.                   J.Crew Intermediate LLC and itswholly-owned subsidiaries (collectively, “Intermediate”), which consist of theaccounts of J.Crew Intermediate LLC and Operating Corp.

 

c.                    J.Crew Group, Inc. and itswholly-owned subsidiaries (collectively, “Group”), which consist of theaccounts of J.Crew Group, Inc. and Intermediate.

 

Allsignificant intercompany balances and transactions are eliminated inconsolidation.

 

Intermediatewas formed in Delaware as a limited liability company on March 27, 2003.  100% of the membership interests ofIntermediate are owned by Group. Effective May 2003, Group transferred its investment in J.Crew OperatingCorp. and subsidiaries to Intermediate. This combination of entities under common control was accounted for in amanner similar to a pooling of interests. On May 6, 2003, Intermediate issued $193,346,138 aggregate principalamount at maturity (including prospective interest to maturity of $62,263,000)of 16% senior discount contingent principal notes due 2008 in exchange for$131,083,000 in aggregate principal amount (including accrued interest of$10,750,000) of outstanding 13 1/8% senior discount debentures of Group.  The 13 1/8% senior discount debentures ofGroup that were exchanged are being held as an intercompany asset byIntermediate, and interest income received by Intermediate from Group thereonduring the thirty-nine weeks ended October 30, 2004 and November 1, 2003 was$12.9 million and $8.4 million, respectively.

 

Thestatements of operations and cash flows of Intermediate for the period prior toMay 2003 consist of the operations and cash flows of Operating Corp. (thepredecessor business).

 

Thecondensed consolidated balance sheets as of October 30, 2004 and the condensedconsolidated statements of operations and cash flows for the thirteen andthirty-nine week periods ended October 30, 2004 and November 1, 2003 have beenprepared by the Company and have not been audited.  In the opinion of management, all adjustments,consisting of only normal recurring adjustments necessary for the fairpresentation of the financial position, results of operations and cash flows,have been made.

 

Certaininformation and footnote disclosure normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America have been condensed or omitted.  These financial statements should be read inconjunction with the restated financial statements and notes thereto includedin the Annual Report filed on Form 10-K/A for the fiscal year ended January 31,2004.  The fiscal 2003 amounts includedherein reflect the restatement.

 

Theresults of operations for the thirty-nine-week period ended October 30, 2004are not necessarily indicative of the operating results for the full fiscalyear.

** **

**2.      Recent Accounting Pronouncements**

** **

InMay 2003, the FASB issued SFAS No. 150, “Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity”.  This statement establishes standards for howan issuer classifies and measures certain financial instruments withcharacteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that iswithin its scope as a liability (or an asset in some circumstances).  Many of those instruments were previouslyclassified as equity.  The provisions ofthis statement were effective at the beginning of the first interim periodbeginning after June 15, 2003.  Theadoption of SFAS No. 150 at the beginning of the third quarter of 2003 resultedin a reclassification of the liquidation value and accumulated and unpaiddividends of the Series B preferred stock and the accumulated and unpaiddividends related to the Series A preferred stock toliabilities, which total $246.0 million as of October 30, 2004.  In connection with this reclassification, thedividends related to the Series B preferred stock and the accreted dividends ofthe Series A preferred stock are included in interest expense.

 

14

----

 

InDecember 2003, the FASB revised and reissued FASB Interpretation No. 46, “Consolidationof Variable Interest Entities”.  FIN No.46 requires unconsolidated variable interest entities to be consolidated by theirprimary beneficiaries if the entities do not effectively dispense the risks andrewards of ownership among their owners and other parties involved.  The provisions of FIN No. 46 must be appliedno later than as of the end of the first reporting period ending after March 5,2004.  The adoption of FASBInterpretation No. 46 did not have any effect on our financial statements.

** **

**3.      Long-Term Debt**

** **

Long-termdebt consists of the following:

 
| ** **                                      | ** ** | **October 30,**

**2004** | ** ** | **January 31,**

**2004** | ** ** |
|-------------------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| ** **                                      | ** ** | **(in thousands)**        | ** ** |
| Operating Corp.:                                |       |                      |       |                      |       |
| Congress Credit Facility                   |       | $                         | 4,171      |                      | $          | 5,044 |   |
| 5% notes payable                                |       | 21,750                    |       | 21,000                    |       |
| 10 3/8% senior subordinated notes               |       | 150,000                   |       | 150,000                   |       |
|                                            |       | 175,921                   |       | 176,044                   |       |
| Less amount due within one year                 |       | (1,164                    | )          | (1,164                    | )          |
| Total Operating Corp.                           |       | 174,757                   |       | 174,880                   |       |
|                                            |       |                      |       |                      |       |
| Intermediate:                                   |       |                      |       |                      |       |
| 16% senior discount contingent principal  notes |       | 164,890                   |       | 147,066                   |       |
| Debt issuance discount                          |       | (32,894                   | )          | (38,677                   | )          |
|                                            |       | 131,996                   |       | 108,389                   |       |
| Total Intermediate                              |       | 306,753                   |       | 283,269                   |       |
|                                            |       |                      |       |                      |       |
| Group:                                          |       |                      |       |                      |       |
| 13 1/8% senior discount debentures              |       | 21,667                    |       | 21,667                    |       |
| Mandatorily redeemable preferred stock          |       | 246,027                   |       | 211,704                   |       |
| Total Group                                     |       | $                         | 574,447    |                      | $          | 516,640 |   |
|                                                 |            |                           |            |                           |            |  |  |  |  |

 

**4.      Subsequent Events**

 

On November21, 2004, Operating Corp. entered into a new Senior Subordinated Loan Agreementwith entities managed by Black Canyon Capital LLC and Canyon Capital AdvisorsLLC, as lenders, which provided for term loans of $275 million (the “BlackCanyon Refinancing”).  The closing dateand funding of the commitments under the Loan Agreement are subject to certainconditions precedent and are expected to occur on or about December 23,2004.  The term loans will bear interestat a rate of 9.75% per annum payable in cash and will mature in 2014.

 

The proceedsof the loans to be incurred under the Loan Agreement will be used (a) to redeemin full Operating Corp.’s outstanding 10 3/8% Senior Subordinated Notes due2007 and (b) to redeem in part Intermediate’s 16% Senior Discount ContingentPrincipal Notes due 2008.

 

The redemptionprice of the 10 3/8% notes is equal to 101.729% of the aggregate principalamount of the outstanding notes ($150 million) together with the accrued andunpaid interest to the redemption date. The redemption price of the 16% notes is equal to 107.5% of theoutstanding amount of the notes to be redeemed ($125 million) as of theredemption date.  The redemption date forboth the 10 3/8% notes and the 16% notes is December 23, 2004.

 

The interestsavings resulting from the Black Canyon Refinancing will be approximately $8.8million per year.  At closing, we will record  a loss ofapproximately $38.4 million, which includes the following costs relating to theportion of the outstanding debt being redeemed: (a)  prepayment penalties of $12.0 million, and(b) non-cash charges of $26.4 million resulting from the write-off of  debt issuance discount of $23.7 million anddeferred financing costs of $2.7 million. The debt issuance discount to be written off in 2004 was recorded at theclosing of the exchange offer completed in May 2003, giving rise to the gain onexchange of debt of $41.1 million, net, recognized at that time.  The 2003 gain resulted from recording the 16%notes at their fair value as opposed to their face value, in accordance withGAAP.

 

On November24, 2004, Group entered into a commitment letter with Wachovia Bank, N.A. andCongress Financial Corporation to refinance the existing $180,000,000 securedloan agreement dated as of December 23, 2002 (the “Congress Credit Facility”)among Operating Corp. and certain of its subsidiaries, as borrowers, Group andcertain of its subsidiaries, as guarantors, Wachovia Bank,

 

15

----

 

N.A. asarranger, and Congress Financial Corporation, as administrative agent andcollateral agent. Under the terms of the commitment letter, the refinanced facility willhave a five-year term and provide up to $170,000,000 of revolving loans andletters of credit to Operating Corp. and its subsidiaries on termssubstantially similar to those contained in the existing Congress CreditFacility.  The pricing and lendingformulas used to determine availability under the refinanced facility will bemore favorable to Operating Corp. and its subsidiaries than the applicableprovisions of the Congress Credit Facility. The closing of the refinanced facility is subject to certain conditionsprecedent and is expected to occur prior to the end of the fiscal year.

 

**5.      Reclassification**

** **

Certain prior year amounts have been reclassified toconform to current year’s presentation.

** **

**Forward-Looking Statements**

** **

Certainstatements in this Report on Form 10-Q constitute “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of 1995. Wemay also make written or oral forward-looking statements in our periodicreports 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 madeby our officers, directors or employees to third parties. Statements that arenot historical facts, including statements about our beliefs and expectations,are forward-looking statements. Such forward-looking statements involve knownand unknown risks, uncertainties and other important factors that could causethe actual results, performance or achievements of the Company, or industryresults, to differ materially from historical results, any future results,performance or achievements expressed or implied by such forward-lookingstatements. Such risks and uncertainties include, but are not limited to,competitive pressures in the apparel industry, changes in levels of consumerspending or preferences in apparel and acceptance by customers of the Company’sproducts, overall economic conditions, governmental regulations and traderestrictions, acts of war or terrorism in the United States or worldwide,political or financial instability in the countries where the Company’s goodsare manufactured, postal rate increases, paper and printing costs, availabilityof suitable store locations at appropriate terms, the level of the Company’sindebtedness and exposure to interest rate fluctuations, and other risks anduncertainties described in this report and the Company’s other reports anddocuments filed or which may be filed, from time to time, with the Securitiesand Exchange Commission. These statements are based on current plans, estimatesand projections, and therefore, you should not place undue reliance on them. Forward-lookingstatements speak only as of the date they are made and we undertake no obligationto 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** |
|-------------|-------------------------------------------------------------------------------------------------|

 

Management’s discussion and analysis of the resultsof operations are provided solely with respect to Operating Corp. and itssubsidiaries since substantially all of our operations are conducted byOperating Corp.  However, Intermediateand Group have outstanding additional debt securities and preferred stock.  Furthermore, debt securities of Group arebeing held as an intercompany asset by Intermediate.  Accordingly, information with respect tointerest income and expense of each of those entities is also provided herein.  The discussion of liquidity and capitalresources pertains to Group and its consolidated subsidiaries, includingIntermediate and Operating Corp.

 

This document should be read in conjunction with theManagement’s Discussion and Analysis section of our Annual Report on Form10-K/A for the year ended January 31, 2004 filed with the Securities andExchange Commission.

** **

**Results of Operations — ThirteenWeeks Ended October 30, 2004 Compared to Thirteen Weeks Ended November 1, 2003**

** **

Revenuesfor the thirteen weeks ended October 30, 2004 increased to $206.1 million from$151.0 million in the thirteen weeks ended November 1, 2003, an increase of36.5%.

 

Revenuesof the Retail division (which consists of J.Crew Retail stores and J.CrewFactory stores) increased by 34.2% to $153.9 million in the third quarter of2004 from $114.8 million in the third quarter of 2003.  This increase was due primarily to anincrease of 30.3% in comparable store sales which we believe reflects thecontinuing increase in the customer acceptance of our merchandise assortment.

 

Revenuesof the Direct division (which consists of Internet andcatalog operations) increased by 48.7% to $47.0 million in the third quarter of2004 from $31.6 million in the third quarter of 2003.  The increase in Direct revenues was due tothe increase in customer demand for our merchandise assortment and thecirculation of three new editions of our “women’s only” catalog which had beendiscontinued in the third quarter of 2003.

 

16

----

 

Otherrevenues, which consist of shipping and handling fees and royalties, increasedto $5.2 million in the third quarter of 2004 from $4.6 million in the thirdquarter of 2003.  This was due to anincrease in shipping and handling fees resulting from an increase in ordersshipped in the Direct division.

 

Gross margin increased as a percentage of revenuesto 43.2% in the third quarter of 2004 from 39.7% in the third quarter of2003.  This increase is attributable toan increase in operating leverage from buying and occupancy costs, which arerelatively fixed, expenses, and decreased markdowns, primarily in the Retaildivision.

 

Selling, general and administrative expensesincreased to $75.9 million (36.8% of revenues) in the third quarter of 2004from $66.3 million (43.9% of revenues) in the third quarter of 2003.  This increase is attributable primarily toincreases in variable store operating expenses and employment-relatedexpenses.  Selling, general andadministrative expenses decreased as a percentage of revenues due to operatingleverage on fixed expenses resulting from the significant increase in salesduring the quarter.

 

Interest expense, net, consists of:

 
| ** **                                           | ** ** | **Operating Corp.** | ** ** | **Intermediate**   | ** ** | **Group**          | ** ** |
|------------------------------------------------------|------------|---------------------|------------|--------------------|------------|--------------------|------------|
| Thirteen weeks ended October 30, 2004                |       |                |       |               |       |               |       |
|                                                 |       |                |       |               |       |               |       |
| Cash interest                                        |       | $                   | 4.7        |               | $          | 4.7                |       | $ | 5.2 |   |
| Non-cash interest:                                   |       |                |       |     |       |          |       |
| Interest on notes                                    |       | .3                  |       | 6.4                |       | 6.4                |       |
| Amortization of deferred financing costs             |       | .6                  |       | .8                 |       |  .8           |       |
| Amortization of debt issuance costs                  |       | —              |       | 2.0                |       | 2.0                |       |
| Dividends on mandatorily redeemable  preferred stock |       | —              |       | —             |       | 8.6                |       |
| Total non-cash interest                              |       | .9                  |       | 9.2                |       | 17.8               |       |
| Total interest expense                               |       | $                   | 5.6        |               | $          | 13.9               |       | $ | 23.0 |   |
|                                                 |       |                |       |               |       |               |       |
| Thirteen weeks ended November 1, 2003                |       |                |       |               |       |               |       |
|                                                 |       |                |       |               |       |               |       |
| Cash interest                                        |       | $                   | 4.3        |               | $          | 4.3                |       | $ | 4.7 |   |
| Non-cash interest:                                   |       |                |       |          |       |     |       |
| Interest on notes                                    |       | .3                  |       | 6.1                |       | 6.1                |       |
| Amortization of deferred financing costs             |       | .5                  |       | .7                 |       | .7                 |       |
| Amortization of debt issuance costs                  |       | —              |       | 1.9                |       | 1.9                |       |
| Dividends on mandatorily redeemable  preferred stock |       | —              |       | —             |       | 7.0                |       |
| Total non-cash interest                              |       | .8                  |       | 8.7                |       | 15.7               |       |
| Total interest expense                               |       | $                   | 5.1        |               | $          | 13.0               |       | $ | 20.4 |   |
|                                                 |       |                |       |               |       |               |       |
| Increase in interest expense                         |       | $                   | .5         |               | $          | .9                 |       | $ | 2.6 |   |

 

The increase in interest expense at Operating Corp.is due to additional credit facility expenses in 2004, principally letter ofcredit fees.

 

The increase in interest expense at Intermediateresults primarily from additional interest and amortization of debt issuancecosts of $.5 million as a result of the issuance of the 16% senior discountcontingent principal notes due 2008 in connection with the exchange offercompleted on May 6, 2003 and the increase in interest expense of OperatingCorp.

 

Group’s interest expense increased primarily due toan increase in preferred stock dividends of $1.6 million resulting from theaccrual of the 14.5% dividend on a higher accreted amount of preferred stockand the increase in interest expense of Intermediate.

 

The third quarter of 2003 includes insuranceproceeds of $2.2 million related to the destruction of our World Trade Centerstore.

 

No tax benefit was attributed to the pre-tax loss inthe third quarter of 2004 and 2003.  Thenet deferred tax assets at January 31, 2004 were fully reserved.  No tax benefits are expected to be recognizedin future results of operations until an appropriate level of profitability issustained.

** **

**Results of Operations —Thirty-nine Weeks Ended October 30, 2004 Compared to Thirty-nine Weeks EndedNovember 1, 2003**

** **

Revenuesfor the thirty-nine weeks ended October 30, 2004 increased to $539.8 millionfrom $479.5 million in the thirty-nine weeks ended November 1, 2003, anincrease of 12.6%.

 

17

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Revenuesof the Retail division (which consists of J.Crew Retail stores and J.CrewFactory stores) increased to $396.6 million in the 2004 thirty-nine week periodfrom $333.3 million last year.  Thisincrease was due primarily to an increase of 16.1% in comparable store sales inthe 2004 period, which we believe reflects the increased customer acceptance ofour merchandise assortment.

 

Revenuesof the Direct division (which consists of Internet and catalog operations)increased to $127.0 million in the 2004 thirty-nine week period from $124.8million in the comparable period last year. The increase in Direct revenues resulted fromincreases in the second and third quarters which offset a decrease of $18.4million in Direct revenues in the 2004 first quarter.  The increase in Direct revenues in the secondand the third quarters was due to the increase in customer demand for ourmerchandise assortment and the circulation of three new editions of our “women'sonly” catalog which had been discontinued in the third quarter of 2003.  The first quarter decrease resulted fromreduced clearance sales and lower catalog circulation.

 

Otherrevenues, which consist of shipping and handling fees and royalties, decreasedto $16.2 million in the 2004 thirty-nine week period from $21.4 million lastyear.  Such decrease was due to adecrease in shipping and handling fees resulting from a reduction in the numberof orders shipped in the Direct division in the firstand second quarters of 2004.

 

Gross margin increased as a percentage of revenuesto 41.5% in the 2004 thirty-nine week period from 35.3% in the comparableperiod of 2003.  This increase wasattributable to decreased markdowns across all channels partially offset byincreased buying and occupancy costs due to additional merchandise designexpenses.  In addition, the first ninemonths of 2003 were negatively impacted by clearance activities, as we disposedof prior season inventories and adopted a new strategy of liquidating currentseason inventories in season.

 

Selling, general and administrative expensesincreased to $205.3 million (38.0% of revenues) in the first nine months of2004 from $200.6 million (41.8% of revenues) in the first nine months of2003.  This increase was attributableprimarily to increases in variable store operating expenses andemployment-related expenses, which were partially offset by a reduction of $3.3million in selling expense in the Direct division dueto a decrease in circulation in the first six months of the year and a $4.3million decrease in depreciation and amortization, primarily related tocomputer equipment.  Selling, general andadministrative expenses decreased as a percentage of revenues primarily due tooperating leverage on fixed expenses resulting from sales increases in thesecond and third quarters.

 

Interest expense, net, consists of:

 
| **Thirty-nine weeks ended October 30, 2004:**        | ** ** | **Operating Corp.** | ** ** | **Intermediate**       | ** ** | **Group**  | ** ** |
|------------------------------------------------------|------------|---------------------|------------|------------------------|------------|------------|------------|
|                                                 |       |                |       |                   |       |       |       |
| Cash interest                                        |       | $                   | 13.4       |                   | $          | 13.4       |       | $ | 15.5 |   |
| Non-cash interest:                                   |       |                |       |              |       |       |       |
| Interest on notes                                    |       | .8                  |       | 18.6                   |       | 18.6       |       |
| Amortization of deferred financing costs             |       | 1.5                 |       | 1.9                    |       | 2.0        |       |
| Amortization of debt issuance discount               |       | —              |       | 5.8                    |       | 5.8        |       |
| Dividends on mandatorily redeemable preferred  stock |       | —              |       | —                 |       | 24.2       |       |
| Total non-cash interest                              |       | 2.3                 |       | 26.3                   |       | 50.6       |       |
| Total interest expense                               |       | $                   | 15.7       |                   | $          | 39.7       |       | $ | 66.1 |   |
| ** **                                           | ** ** | ** **          | ** ** | ** **             | ** ** | ** ** | ** ** |
| Thirty-nine weeks ended November 1, 2003:            | ** ** | ** **          | ** ** | ** **             | ** ** | ** ** | ** ** |
|                                                 |       |                |       |                   |       |       |       |
| Cash interest                                        |       | $                   | 13.2       |                   | $          | 13.2       |       | $ | 15.3 |   |
| Non-cash interest:                                   | ** ** | **  **    | ** ** | **   ** | ** ** | ** ** | ** ** |
| Interest on notes                                    | ** ** | .8                  |       | 11.0                   |       | 15.6       | ** ** |
| Amortization of deferred financing costs             | ** ** | 1.2                 |       | 1.5                    |       | 1.6        | ** ** |
| Amortization of debt issuance discount               | ** ** | —              |       | 3.6                    |       |  3.6  | ** ** |
| Dividends on mandatorily redeemable  preferred stock | ** ** | —              |       | —                 |       | 7.1        | ** ** |
| Total non-cash interest                              | ** ** | 2.0                 |       | 16.1                   |       |  27.9 | ** ** |
| Total interest expense                               |       | $                   | 15.2       |                   | $          | 29.3       |       | $ | 43.2 |   |
|                                                 |       |                |       |                   |       |       |       |
| Increase in interest expense                         |       | $                   | .5         |                   | $          | 10.4       |       | $ | 22.9 |   |
|                                                      |            |                     |            |                        |            |            |            |  |  |  |  |  |  |  |  |  |  |

 

The increase in interest expense at Operating Corp.is due to additional credit facility expenses in 2004 principally letter ofcredit fees.

 

 

18

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The increase in interest expense at Intermediate of$10.4 million results primarily from the issuance of the 16% senior discountcontingent principal notes due 2008 in connection with the exchange offercompleted on May 6, 2003 and consists of interest expense of $7.6 million andamortization of debt issuance discount and deferred financing costs of $2.2million.

 

Group’s interest expense increased by $22.9 milliondue to an increase of $17.1 million of dividends on mandatorily redeemablepreferred stock , $15.8 million of which resulted from a change in theclassification of such dividends (which were recorded as a direct charge tostockholders deficit prior to the third quarter of 2003), and additionalinterest and amortization of debt issuance discount resulting from the exchangeof Group’s 13 1/8% senior discount debentures for the 16% senior discountcontingent principal notes of Intermediate.

 

The increase in intercompany interest income of $4.5million at Intermediate resulted from the inclusion of three quarters of incomeon the 13 1/8% senior discount debentures held by Intermediate compared to twoquarters in 2003 since the Exchange Offer was effective on May 6, 2003.

 

The first nine months of 2003 includes a gain onexchange of debt of $41.1 million (net of related expenses of $3.0 million) andinsurance proceeds of $3.8 million related to the destruction of our WorldTrade Center store.

 

No tax benefit was attributed to the pre-tax loss inthe first nine months of 2004 and 2003. The net deferred tax assets at January31, 2004 were fully reserved and no tax benefits are expected to be recognizedin future results of operations until an appropriate level of profitability issustained.

 

**Liquidity and Capital Resources**

** **

          Our sources of liquidity are primarily cash flows fromoperations and borrowings under our working capital credit facility.  Our primary cash needs are for capitalexpenditures incurred primarily for opening new stores and system maintenanceand enhancements, debt service requirements and working capital.

 

On December 23, 2002,Operating Corp. entered into a Loan and Security Agreement with Wachovia Bank,N.A., as arranger, Congress Financial Corporation, as administrative andcollateral agent, and a syndicate of lenders, which provides for maximum creditavailability of up to $180.0 million. The Congress Credit Facility expires in December 2005 and provides forrevolving loans of up to $160.0 million; supplemental loans of up to $20.0million each year during the period from April 15 to September 15; and letterof credit accommodations.  The totalamount of availability is limited to the sum of (a) 85% of eligible receivables,(b) 90% of the net recovery percentage of inventories (as determined byinventory appraisal) for the period of August 1 through November 30, or 85% ofthe net recovery percentage of inventories for the period December 1 throughJuly 31 and (c) the remaining outstanding balance of the real estateavailability loan.  The CongressCredit Facility includes restrictions, including the incurrence of additionalindebtedness, the payment of dividends and other distributions, the making ofinvestments, the granting of loans and the making of capital expenditures.  We are required to maintain minimum levels ofearnings before interest, taxes, depreciation, amortization and certainnon-cash items (“EBITDA”) if excess availability is less than $15.0 million forany 30 consecutive day period.  We have at all times been in compliance withall financial covenants under the Congress Credit Facility.

 

At October 30,2004, there was $54.2 million in availability under the Congress CreditFacility.  There were no short-termborrowings under the Congress Credit Facility during the nine month periodended October 30, 2004 and average short-term borrowings of $200,000 during thenine month period ended November 1, 2003.

 

Cash used inoperations decreased to $14.4 million in the first nine months of 2004 from $28.7million in the first nine months of 2003, primarily as a result of an increasein operating income of $50.1 million, partially offset by the increase inworking capital, primarily inventories, which is seasonal in nature andconsistent with the increase in sales.

 

Capitalexpenditures, net of construction allowances, were $5.8 million for the firstnine months of 2004 compared to $6.2 million in the first nine months of2003.  Capital expenditures for fiscalyear 2004 are expected to be approximately $9.0 million.  Five new stores have been opened in fiscal2004.

 

Long-termindebtedness increased by $25.8 million in 2003 consisting of $20.0 million of5% notes payable due in 2008 and $5.8 million under the Congress CreditFacility, which is repayable over a period of 60 months commencing June 1,2003.

 

On November21, 2004, Operating Corp. entered into a new Senior Subordinated Loan Agreementwith entities managed by Black Canyon Capital LLC and Canyon Capital AdvisorsLLC, as lenders, which provided for term loans of $275 million (the “BlackCanyon Refinancing”).  The closing dateand funding of the commitments under the Loan Agreement are subject to certainconditions precedent and are expected to occur on or about December 23,2004.  The term loans will bear interestat a rate of 9.75% per annum payable in cash and will mature in 2014.

 

19

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The proceedsof the loans to be incurred under the Loan Agreement will be used (a) to redeemin full Operating Corp.’s outstanding 10 3/8% Senior Subordinated Notes due2007 and (b) to redeem in part Intermediate’s 16% Senior Discount ContingentPrincipal Notes due 2008.

 

The redemptionprice of the 10 3/8% notes is equal to 101.729% of the aggregate principalamount of the outstanding notes ($150 million) together with the accrued andunpaid interest amount to the redemption date. The redemption price of the 16% notes is equal to 107.5% of the accretedvalue of the notes to be redeemed ($125 million) as of the redemptiondate.  The redemption date for both the10 3/8% notes and the 16% notes is December 23, 2004.

 

The interestsavings resulting from the Black Canyon Refinancing will be approximately $8.8million per year.  At closing, we will record  a loss ofapproximately $38.4 million, which includes the following costs relating to theportion of the outstanding debt being redeemed: (a)  prepayment penalties of $12.0 million, and(b) non-cash charges of $26.4 million resulting from the write-off of  debt discount of $23.7 million and deferredfinancing costs of $2.7 million.  Thedebt discount to be written off in 2004 was recorded at the closing of theexchange offer completed in May 2003, giving rise to the gain on exchange of debtof $41.1 million, net, recognized at that time. The 2003 gain resulted from recording the 16% notes at their fair valueas opposed to their face value in accordance with GAAP.

 

On November24, 2004, Group entered into a commitment letter with Wachovia Bank, N.A. andCongress Financial Corporation to refinance the existing $180,000,000 securedloan agreement dated as of December 23, 2002 (the “Congress Credit Facility”)among Operating Corp. and certain of its subsidiaries, as borrowers, Group andcertain of its subsidiaries, as guarantors, Wachovia Bank, N.A. as arranger,and Congress Financial Corporation, as administrative agent and collateralagent.  Under the terms of the commitmentletter, the refinanced facility will have a five-year term and provide up to$170,000,000 of revolving loans and letters of credit to Operating Corp. andits subsidiaries on terms substantially similar to those contained in theexisting Congress Credit Facility.  Thepricing and lending formulas used to determine availability under therefinanced facility will be more favorable to Operating Corp. and itssubsidiaries than the applicable provisions of the Congress CreditFacility.  The closing of the refinancedfacility is subject to certain conditions precedent and is expected to occurprior to the end of the fiscal year.

 

Management believes that invested cash, cash flowfrom operations, and availability under the Congress Credit Facility willprovide adequate funds for our foreseeable working capital needs, plannedcapital expenditures and debt service obligations. Our ability to fund ouroperations and make planned capital expenditures, to make scheduled debtpayments, to refinance indebtedness and to remain in compliance with thefinancial covenants under our debt agreements depends on our future operatingperformance and cash flow, which in turn, are subject to prevailing economicconditions and to financial, business and other factors, some of which arebeyond our control.

** **

**Off Balance Sheet Arrangements**

** **

We enter intodocumentary letters of credit to facilitate the international purchase ofmerchandise.  Standby letters of creditare required to secure certain obligations.

 
| ** **        | ** ** | **Within 1**

**Year**   | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5**

**Years** | ** ** | **Total** | ** ** |
|-------------------|------------|--------------------------|------------|---------------|------------|---------------|------------|------------------------|------------|-----------|------------|
| ** **        | ** ** | **($ in millions)** | ** ** |
| Letters of Credit |       |                     |       |          |       |          |       |                   |       |      |       |
| Standby           |       | $                        | —     |          | $          | —        |       | $                      | —     |      | $          | 6.3 |   | $ | 6.3 |   |
| Documentary       |       | 50.8                     |       | —        |       | —        |       | —                 |       | 50.8      |       |
|              |       | $                        | 50.8       |          | $          | —        |       | $                      | —     |      | $          | 6.3 |   | $ | 57.1 |   |

** **

**Contractual Obligations**

** **

The followingsummarizes our contractual obligations as of October 30, 2004 and the effectsuch obligations are expected to have on our liquidity and cash flows in futureperiods.

 
| ** **                     | ** ** | **Within 1**

**Year**   | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5**

**Years** | ** ** | **Total** | ** ** |
|--------------------------------|------------|--------------------------|------------|---------------|------------|---------------|------------|------------------------|------------|-----------|------------|
| ** **                     | ** ** | **($ in millions)** | ** ** |
| Long-term debt obligations(1)  |       | $                        | 1.2        |          | $          | 152.4         |       | $                      | 209.0      |      | $          |  |   | $ | 362.6 |   |
| Redeemable preferred stock(2)  |       | —                   |       | —        |       | 246.0         |       | -                      |       | 246.0     |       |
| Operating lease obligations(3) |       | 52.4                     |       | 96.4          |       | 84.3          |       | 116.2                  |       | 349.3     |       |
| Purchase obligations:          |       |                     |       |          |       |          |       |                   |       |      |       |
| Inventory commitments          |       | 183.0                    |       | —        |       | —        |       | —                 |       | 183.0     |       |
| Other                          |       | 4.5                      |       |  9.0     |       | —        |       | —                 |       | 13.5      |       |
| Employment agreements          |       | 1.8                      |       | 3.6           |       | 3.6           |       | —                 |       | 9.0       |       |
|                           |       | $                        | 242.9      |          | $          | 261.4         |       | $                      | 542.9      |      | $          | 116.2 |   | $ | 1,163.4 |   |

----

(1)           Excludes unamortized debt issuancediscount. Upon the closing of the Black Canyon Refinancing, the maturities ofthese obligations will change as follows:

 

20

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| ** **                 | ** ** | **Within 1 Year**        | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **After 5 Years** | ** ** | **Total** | ** ** |
|----------------------------|------------|--------------------------|------------|---------------|------------|---------------|------------|-------------------|------------|-----------|------------|
| ** **                 | ** ** | **($ in millions)** | ** ** |
| Long-term debt obligations |       | $                        | 1.2        |          | $          | 2.4           |       | $                 | 84.0       |      | $          | 275.0 |   | $ | 362.6 |   |
|                            |            |                          |            |               |            |               |            |                   |            |           |            |  |  |  |  |  |

 

(2)           Included in long-term debt in thefinancial statements.

(3)           Operating lease obligations representobligations under various long-term operating leases entered in the normalcourse of business for Retail and Factory stores, warehouses, office space andequipment requiring minimum annual rentals. Operating lease expense is asignificant component of our operating expenses. The lease terms range forvarious rental markets and are entered into at different times, which mitigatesexposure to market changes which could have a material effect on our results ofoperations within any given year.

** **

**Seasonality**

** **

We experiencetwo distinct selling seasons, spring and fall. The spring season is comprised of the first and second quarters and thefall season is comprised of the third and fourth quarters.  Net sales are usually substantially higher inthe fall season, and selling, general and administrative expenses as apercentage of net sales are usually higher in the spring season.  Approximately 31% of annual net sales infiscal year 2003 occurred in the fourth quarter.  Our working capital requirements alsofluctuate throughout the year, increasing substantially in September andOctober in anticipation of the holiday season inventory requirements.

** **

**Critical Accounting Policies**

** **

Asummary of our critical accounting policies is included in the Management’sDiscussion and Analysis section of our Annual Report on Form 10-K/A for theyear ended January 31, 2004 filed with the Securities and Exchange Commission.

** **

**ITEM 3.****     QUANTITATIVE AND QUALITATIVE DISCLOSUREABOUT MARKET RISK**

** **

Ourprincipal market risk relates to interest rate sensitivity, which is the riskthat future changes in interest rates will reduce our net income or net assets.Ourvariable rate debt consists of borrowings under the Congress Credit Facility.Theinterest rates are a function of the bank prime rate or LIBOR.A onepercentage point change in the base interest rate would result in approximately$100,000 change in income before taxes for each $10 million of borrowings.

 

We have a licensing agreement in Japan which provides for royaltypayments based on sales of J.Crew merchandise as denominated in yen.  We have entered into forward foreign exchangecontracts from time to time in order to minimize this risk.  At October 30, 2004, there were no forwardforeign exchange contracts outstanding.

 

We enter into letters of credit primarily to facilitate theinternational purchase of merchandise. The letters of credit are primarily denominated in U.S. dollars.  Outstanding letters of credit at October 30,2004 were $57.1 million, including $6.3 million of standby letters of credit.

** **

**ITEM 4.****     CONTROLS AND PROCEDURES**

** **

With the participation of management, including our Chief ExecutiveOfficer and Chief Financial Officer, we have conducted an evaluation of ourdisclosure controls and procedures as of the end of the period covered by thisReport. Based on such evaluation, our Chief Executive Officer and ChiefFinancial Officer have concluded that our disclosure controls and procedureswere effective as of the end of the period covered by this Report.

 

There were no significant changes in our internal controls overfinancial reporting during the period covered by this Report that havematerially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting.

 

21

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** **

**PART II— OTHER INFORMATION**

** **

**ITEM 6.****     EXHIBITS**

 

                   (a)        Exhibits

 
| 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. |

 

 

 

* Filedherewith.

 

 

22

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** **

**SIGNATURES**

** **

Pursuant tothe requirements of the Securities Exchange Act of 1934, each Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.  The signature for eachundersigned company shall be deemed to relate only to matters having referenceto such company.

 
|                    | J. CREW GROUP, INC.

(Registrant)                                      |
|-------------------------|------------------------------------------------------------------------|
|                    |                                                                   |
| Date: December 14, 2004 | By:                                                                    | /s/ Millard S. Drexler |
|                    | Millard S. Drexler

Chairman of the Board and

Chief Executive Officer |

 
| Date: December 14, 2004 | By:                                                                      | /s/ Amanda J. Bokman |
|-------------------------|--------------------------------------------------------------------------|----------------------|
|                    | Amanda J. Bokman

Executive Vice-President  and

Chief Financial Officer |

 
|  

           | J. CREW INTERMEDIATE LLC

(Registrant)

                          |
|-------------------------|------------------------------------------------------------------------|
| Date: December 14, 2004 | By:                                                                    | /s/ Millard S. Drexler |
|                    | Millard S. Drexler

Chairman of the Board and

Chief Executive Officer |

 
| Date: December 14, 2004 | By:                                                                      | /s/ Amanda J. Bokman |
|-------------------------|--------------------------------------------------------------------------|----------------------|
|                    | Amanda J. Bokman

Executive Vice-President  and

Chief Financial Officer |

 
|                    | J. CREW OPERATING CORP.

(Registrant)

                           |
|-------------------------|------------------------------------------------------------------------|
| Date: December 14, 2004 | By:                                                                    | /s/ Millard S. Drexler |
|                    | Millard S. Drexler

Chairman of the Board and

Chief Executive Officer |

 
| Date: December 14, 2004 | By:                                                                      | /s/ Amanda J. Bokman |
|-------------------------|--------------------------------------------------------------------------|----------------------|
|                    | Amanda J. Bokman

Executive Vice-President  and

Chief Financial Officer |

 

 

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