UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

|(Mark One)                                 |                                                                                         
|------------------------------------------ | ----------------------------------------------------------------------------------------
|ý                                          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended January 29, 2005
|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.
(Incorporated in New York)
770 Broadway
New York, New York 10003
Telephone: (212) 209-2500

22-2894486333-42423

J. CREW OPERATING CORP.
(Incorporated in Delaware)
770 Broadway
New York, New York 10003
Telephone: (212) 209-2500

22-3540930


Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act: None

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of each registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. ý

Indicate by a check mark whether either of the registrants is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The common stock of each registrant is not publicly traded. Therefore, the aggregate market value is not readily determinable.

Outstanding
at April 1, 2005:

J. Crew Group, Inc.

12,473,306 shares of common stock, par value $.01 per shareJ. Crew Operating Corp.

100 shares of common stock, par value $.01 per share (all of which are owned indirectly by J.Crew Group, Inc.)


This Annual Report on Form 10-K is a combined report being filed by two different registrants: J.Crew Group, Inc. and
J.Crew Operating Corp. (a wholly-owned indirect subsidiary of J.Crew Group, Inc.). The information contained herein relating to each individual registrant is filed by such registrant on its own
behalf. No registrant makes any representation as to information relating to any other registrant.

Documents
incorporated by reference: None

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



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FILING FORMAT

This Annual Report on Form 10-K is a combined report being filed by two different registrants: J.Crew Group, Inc. ("Group") and J.Crew
Operating Corp., a wholly-owned indirect subsidiary of Group ("Operating"). Except where the content clearly indicates otherwise, any references in this report to the "Company", "J.Crew" or "Group"
include all subsidiaries of Group, including Operating. Operating does not make any representations as to the information contained in this report in relation to Group and its subsidiaries other than
Operating.

References
herein to fiscal years are to the fiscal years of Group and Operating, which end on the Saturday closest to January 31 in the following calendar year for fiscal years
2000, 2001, 2002, 2003 and 2004. Accordingly, fiscal years 2000, 2001, 2002, 2003 and 2004 ended on February 3, 2001, February 2, 2002, February 1, 2003, January 31, 2004
and January 29, 2005. All fiscal years for which financial information is included are 52 weeks, except fiscal year 2000 which had 53 weeks.

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PART I    BUSINESS

In this section, "we," "us" and "our" refer to Group and our wholly owned subsidiaries, including Operating.

General

We are a nationally recognized retailer of women's and men's apparel, shoes, and accessories sold under the "J.Crew" brand name. Started in 1983, we have built
and reinforced our brand name and image through both the circulation of catalogs that use magazine-quality photography to portray a classic American perspective and aspirational lifestyle and the
operation of our stores and internet website. We believe that the "J. Crew" brand name is widely recognized as an iconic American brand known for its classic styles. We offer a full line of men's and
women's clothing, including basic durables, wear to work, wedding attire, swimwear, loungewear, accessories and shoes to meet our customers' lifestyle needs.

J.
Crew products are distributed through our retail and factory outlet stores, our catalog and our internet website located at www.jcrew.com. As of January 29, 2005, we operated 156 retail stores and
41 factory outlet stores in the United States. We believe that our
customer base consists primarily of college-educated, professional and upscale men and women who in our experience have demonstrated strong brand loyalty and a tendency to make repeated purchases. In
addition, J.Crew products are distributed through 43 freestanding and shop-in-shop stores in Japan under a licensing agreement with Itochu Corporation.

We
have two major operating divisions: J.Crew Retail (consisting of our retail and factory outlet stores) and J.Crew Direct (consisting of our catalog and Internet website), each of
which operate under the J.Crew brand name. In fiscal 2004, products sold under the J.Crew brand contributed $778.3 million in revenues, comprised of:



In
addition, in fiscal 2004, we generated other revenues of $25.9 million, consisting principally of shipping and handling fees derived from J.Crew Direct.

Group
was incorporated in the State of New York in 1988 and Operating was incorporated in the State of Delaware in 1997. Group is the sole member of J.Crew Intermediate LLC, a Delaware
limited liability company ("Intermediate"), and Intermediate owns 100% of the outstanding shares of Operating. Our principal executive offices are located at 770 Broadway, New York, NY 10003, and our
telephone number is (212) 209-2500.

See
"Forward Looking Statements and Risk Factors".

Merchandising and Design

Over time, our merchandising strategy has evolved from providing unisex products to creating full lines of men's and women's clothing, shoes and accessories. This
strategy had the effect of increasing overall J.Crew brand sales volume and significantly increasing revenues from sales of women's apparel to 75% of J.Crew brand sales in fiscal 2004.

All
of our products are designed by an in-house design staff to reflect a classic, clean aesthetic that is consistent with our American lifestyle brand image. Design teams
are formed around J.Crew product lines and categories to develop concepts, themes and products for each of our J.Crew businesses. Our technical design teams develop construction and fit specifications
for every product to ensure quality

1

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workmanship
and consistency across product lines. These teams work in close collaboration with the merchandising, production and quality assurance staffs in order to gain market and other input and
ensure quality of the J.Crew products.

Sourcing and Production

Our merchandise is produced for us by a variety of manufacturers in 35 countries. We do not own or operate any manufacturing facilities and instead contract with
third-party vendors for production of our merchandise. In fiscal 2004, approximately 77% of our merchandise was sourced in Asia, 8% was sourced in the United States and 15% was sourced in Europe and
other regions. Any event causing a sudden disruption of manufacturing or imports from Asia, including the imposition of additional import restrictions, could have a material adverse impact on our
operations. In addition, one vendor supplies approximately 15% of our merchandise, but we believe that the loss of this vendor would not have a material adverse impact on our ability to source our
products. Substantially all of our foreign purchases are negotiated and paid for in U.S. dollars.

We
cannot predict whether any of the countries in which our merchandise is currently produced or may be produced in the future will be subject to additional trade restrictions imposed by
the United States and other foreign governments, nor can we predict the likelihood, type or effect of any such restrictions. Trade restrictions, including increased tariffs or quotas, against apparel
and other items sold by us could increase the cost or reduce the supply of merchandise available to us and adversely affect our business, financial condition and results of operations. Our sourcing
operations may also be adversely affected by political and financial instability in any country in which our goods are produced or by acts of war or terrorism in the United States or worldwide to the
extent these acts impact the production, shipment or receipt of merchandise. Sourcing operations may also be adversely affected by significant fluctuation in the value of the U.S. dollar against
foreign currencies or restrictions on the transfer of funds. See "Forward-Looking Statements and Risk Factors".

Distribution

We operate one primary customer call center and two distribution facilities for our operations. We own a 406,500 square foot facility in Lynchburg, Virginia that
contains our customer call center, order fulfillment operations for J.Crew Direct and distribution operations for our factory outlet stores. This facility employs approximately 500 full and
part-time employees during our non-peak season and additional employees during our peak season. We also own a 192,500 square foot facility in Asheville, North Carolina that
contains our distribution operations for our retail stores. This facility employs approximately 100 full and part-time employees during our non-peak season and additional
employees during our peak season. To enhance efficiency, each facility is fully equipped with an automated warehouse locator system and inventory bar coding system. In addition, our facility in
Lynchburg has automated packing and shipping sorters. Merchandise is shipped to our customers via the United States Postal Service and Federal Express. We believe that our customer call center, order
fulfillment operations and distribution operations are designed to handle customer orders and distribute merchandise to stores in a customer-friendly, efficient and cost-effective manner.

Information Systems

Our management information systems are designed to provide, among other things, comprehensive order processing, production, accounting and management information
for the marketing, manufacturing, importing and distribution functions of our business. We have installed an SAP enterprise resource planning system for our information technology requirements. We
have point-of-sale registers in our retail and factory outlet stores that enable us to track inventory from store receipt to final sale on a real-time basis. We
believe our merchandising and financial systems, coupled with our point-of-sale registers and software programs, allow for rapid stock replenishment, concise

2

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merchandise
planning and real-time inventory accounting practices. Our telephone and telemarketing systems, warehouse package sorting systems, automated warehouse locator and inventory bar
coding systems utilize advanced technology. These systems have provided us with a number of benefits in the form of enhanced customer service, improved operational efficiency and increased management
control and reporting. In addition, our real-time inventory systems provide inventory management on a stock keeping unit basis and allow for an efficient fulfillment process.

Trademarks and Licensing

The "J.Crew" trademark and variations thereon, and certain other trademarks, are registered or are subject to pending trademark applications with the United
States Patent and Trademark Office and with the registries of many foreign countries. We believe that our trademarks have significant value and we intend to continue to vigorously protect them against
infringement.

In
addition, we license our "J.Crew" trademark to Itochu Corporation in Japan for which we receive percentage royalty fees. Under the license agreement, we retain a high degree of
control over the manufacture, design, marketing and sale of merchandise by Itochu Corporation under the J.Crew trademark. This agreement expires in January 2007. In fiscal 2004, licensing
revenues totaled $2.8 million.

Employees

As of January 29, 2005, we had approximately 6,100 employees, of whom approximately 2,200 were full-time employees and 3,900 were
part-time employees. In addition,
approximately 1,900 employees are hired on a seasonal basis to meet demand during the peak season. None of our employees are represented by a union. We believe that our relationship with our employees
is good.

Competition

All aspects of our business are highly competitive. We compete primarily with specialty brand retailers, other catalog and internet operations, department stores
and mass merchandisers that offer similar merchandise. We believe that the principal bases upon which we compete are quality, design, efficient service, selection and price. Many of our competitors
are substantially larger, have a more established retail store presence and experience and have greater financial, marketing and other resources than us. There is no assurance that we will be able to
successfully compete with our competitors in the future. In addition, our business is sensitive to a number of factors that could affect the level of consumer spending, including adverse economic
conditions, the levels of disposable consumer income, consumer confidence and interest rates. See "Forward-Looking Statements and Risk Factors".

Our Business

J. Crew Retail

J.Crew Retail consists of our retail and factory outlet store operations. During fiscal 2004, J.Crew Retail generated revenues of $579.8 million,
representing 72.1% of our total revenues.

As
of January 29, 2005, we operated 156 retail stores and 41 factory outlet stores throughout the United States. Our retail stores are located in upscale regional malls, lifestyle
centers, shopping centers and street locations. Our factory outlet stores are generally located in major regional outlet centers. Store locations are determined based on several factors, including
geographic location, demographic information, presence of anchor tenants in mall locations and proximity to other specialty retail stores. All of our stores are designed in-house and
fixtured to create a distinctive J.Crew environment and our store associates are trained to maintain high standards of visual presentation and customer service.

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All
stores that were open during all of fiscal 2004 averaged $2.9 million per store in sales and produced sales per gross square foot of $397. Our retail and factory outlet stores
have an average size of 7,400 total square feet. The table below highlights certain information regarding our retail and factory outlet stores open during the five years ended January 29, 2005:

Fiscal Year

Stores Open
At Beginning
of Fiscal Year

Stores
Opened
During
Fiscal Year

Stores
Closed
During
Fiscal Year

Stores
Open at
End of
Fiscal Year

Total Square
Footage (in
thousands)

Average
Store
Square
Footage2000

123

24

1

146

1,094

7,4962001

146

34

3

177

1,314

7,4252002

177

18

1

194

1,436

7,4022003

194

4

2

196

1,447

7,3812004

196

5

4

197

1,457

7,394


J.Crew Direct

J.Crew Direct consists of our catalog and internet website operations. During fiscal 2004, J.Crew Direct generated $198.5 million in revenues, including
$76.5 million from the catalog and $122.0 million from the internet website, representing 24.7% of our total revenues.

We
believe we have distinguished ourselves from other catalog retailers by our catalog which utilizes magazine-quality photography to depict an aspirational lifestyle image. In fiscal
2004, we distributed 32 catalog editions with a circulation of approximately 50 million and pages circulated of approximately 5.4 billion. This represented an increase from fiscal 2003
in which we distributed 28 catalog editions, but reflects a decrease in circulation as our fiscal 2003 circulation was approximately 53 million and pages circulated were approximately
5.8 billion.

We
focus on continually improving the segmentation of customer files and the acquisition of additional customer names. In fiscal 2004, approximately 58% of J.Crew Direct revenues were
generated by customers who had made a purchase from any J.Crew catalog or on our internet website in the prior 12 months. We segment our customer files and tailor our catalog offerings to
address the different product needs of our customer segments. To increase core catalog productivity and improve the effectiveness of marginal and prospecting circulation, each customer segment is
offered appropriate catalog editions. We also acquire new names from various sources, including our retail stores, our internet website, list rentals and exchanges with other catalog companies.
Telephones are also installed in most of our stores with direct access to our customer call center to allow customers in our stores to order catalog-specific or out-of-stock
items.

All
creative work on the catalogs is coordinated by J.Crew personnel to maintain and reinforce our brand image. Photography is executed both on location and in studios, and creative
design and copy writing are executed on a desktop publishing system. Digital images are transmitted directly to outside printers, thereby reducing lead times and improving reproduction quality.

We
do not have long-term contracts with paper mills. Projected paper requirements are communicated on an annual basis to paper mills to ensure the availability of an adequate
supply. We believe that our long-standing relationships with a number of the largest coated paper mills in the United States allow us to purchase paper at favorable prices commensurate
with the volume of our purchases.

In
1996, we launched our internet website located at www.jcrew.com, making J.Crew merchandise available to our customers over the internet. In fiscal 2004, our website logged over
48 million unique visitors, an increase of 26% over our fiscal 2003 visitors of 38 million, and represented 62% of the J.Crew Direct business. We design and operate our website using an
in-house technical staff and our

4

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website
emphasizes simplicity and ease of customer use while integrating the J.Crew brand's aspirational lifestyle imagery used in the catalog.

Available Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 (Exchange Act). We therefore file periodic reports and other information
with the Securities and Exchange Commission (SEC). Such reports may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth Street NW, Washington, D.C. 20549, or by calling the SEC
at (800) SEC-0330. In addition, the SEC maintains an internet website (www.sec.gov) that contains reports, proxy information statements and other information regarding issuers that
file electronically.

Our
filings under the Exchange Act (including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to these reports) are also available free of charge on our internet website at www.jcrew.com. These reports are available as soon as reasonably
practicable after such material is electronically filed with or furnished to the SEC. The reference to the Company's website address does not constitute incorporation by reference of the information
contained on the website, and the information contained on the website is not part of this document.

ITEM 2.    PROPERTIES

We are headquartered in New York City. Our headquarter offices are leased under a lease agreement expiring in 2012, with an option to renew thereafter. We own two
facilities: a 406,500-square-foot customer contact call center, order fulfillment and distribution center in Lynchburg, Virginia and a
192,500-square-foot distribution center in Asheville, North Carolina.

As
of January 29, 2005, we operated 156 J.Crew retail stores and 41 factory outlet stores in 39 states and the District of Columbia. All of the retail and factory outlet stores
are leased from third parties, and the leases in most cases have terms of 10 to 12 years, with options to renew for periods typically ranging from five to ten years. As a general matter, the
leases contain standard provisions concerning the payment of rent, events of default and the rights and obligations of each party. Rent due under the leases is generally comprised of annual base rent
plus a contingent rent payment based on the store's sales in excess of a specified threshold. Some of the leases also contain early termination options, which can be exercised by us or in some cases
the landlord under certain conditions. The leases also generally require us to pay real estate taxes, insurance and certain common area costs. Substantially all of the leases are guaranteed by us.

The
table below sets forth the number of stores by state operated by us in the United States as of January 29, 2005.

Retail Stores

Factory Stores

Total Number of StoresAlabama

2

1

3Arizona

4



4California

20

3

23Colorado

4

2

6Connecticut

6

1

7Delaware



1

1Florida

4

3

7Georgia

4

2

6Illinois

9



9Iowa

1



1Indiana

1

1

2Kansas

1



1


5

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Kentucky

2



2Louisiana

1



1Maine



2

2Maryland

3

1

4Massachusetts

6

2

8Michigan

6

1

7Minnesota

4



4Missouri

2

1

3Nevada

1



1New Hampshire

1

2

3New Jersey

9

1

10New Mexico

1



1New York

16

4

20North Carolina

4



4Ohio

6



6Oklahoma

2



2Oregon

2



2Pennsylvania

8

3

11Rhode Island

1



1South Carolina

2

2

4Tennessee

3

1

4Texas

6

2

8Utah

2



2Vermont

1

1

2Virginia

5

2

7Washington

3

1

4Wisconsin

1

1

2District of Columbia

2



2Total

156

41

197


ITEM 3.    LEGAL PROCEEDINGS

Charles E. Hill & Associates, Inc., or Hill, filed a lawsuit on August 16, 2002 in the U. S. District Court for the Eastern District of Texas
against us and seventeen other defendants, primarily large retailers, alleging infringement of three patents registered to Hill relating to electronic catalog systems and methods for processing data
at a remote location and updating and displaying that data. The suit seeks an injunction against continuing infringement, unspecified damages, including treble damages for willful infringement, and
interest, costs, expenses and fees. We believe that we have meritorious defenses and intend to defend ourselves vigorously.

In
addition, we are subject to various legal proceedings and claims that arise in the ordinary conduct of our business. Although the outcome of these other claims cannot be predicted
with certainty, management does not believe that the ultimate resolution of these matters will have a material adverse effect on our financial condition or results of operations.

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

No matters were submitted to a vote of security holders during the quarter ended January 29, 2005.

6

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no established public trading market for Group or Operating common stock. As of April 1, 2005, there were 54 shareholders of record of the Group
common stock. See "Item 12. Security Ownership of Certain Beneficial Owners and Management" for a discussion of the ownership of Group. Operating is a wholly-owned indirect subsidiary of Group.

Group
has not paid cash dividends on its common stock and does not anticipate paying any such dividends in the foreseeable future. Operating may from time to time pay cash dividends on
its common stock to permit Group to make required payments relating to its outstanding 131/8% Senior Discount Debentures due 2008.

Our
amended and restated credit facility with Wachovia Capital Markets LLC, as arranger, Wachovia Bank National Association, as administrative agent, Bank of America N.A,. as syndication
agent, and Congress Financial Corporation, as collateral agent, and a syndicate of lenders (Amended Wachovia Credit Facility) and the Indenture relating to Group's 131/8% Senior
Discount Debentures due 2008 (Group Indenture) prohibit the payment of dividends by Group on shares of common stock (other than dividends payable solely in shares of capital stock of Group).
Additionally, because Group is a holding company, its ability to pay dividends is dependent upon the receipt of dividends from its direct and indirect subsidiaries. Each of the Amended Wachovia Credit
Facility, the Group Indenture and the Indenture relating to Operating's 93/4% Senior Subordinated Notes due 2014 contains covenants that impose substantial restrictions on Operating's
ability to pay dividends or make distributions to Group.

Equity Compensation Plan Information

The following table summarizes information about the Amended and Restated J. Crew Group, Inc. 1997 Stock Option Plan and the J.Crew Group, Inc. 2003
Equity Incentive Plan (2003 Plan), as of January 29, 2005. Our shareholders have approved both of these plans.

(c)Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column(a)(a)

(b)Plan Category

Number of Securities to be Issued Upon Exercise of Outstanding Options Warrants and Rights

Weighted Average Exercise Price of Outstanding Options, Warrants and RightsEquity Compensation Plans Approved by Shareholders

4,582,265

$
13.15

675,171Equity Compensation Plans Not Approved by Shareholders




N/A

TOTAL

4,582,265


13.15

675,171


In addition to options, the 2003 Plan authorizes the issuance of restricted Group common stock. The 2003 Plan contains a sub-limit of
1,450,724 shares on the aggregate number of shares of restricted Group common stock that may be issued, of which 1,340,979 shares are outstanding and 109,745 shares are available for grant as of
January 29, 2005.

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ITEM 6.    SELECTED FINANCIAL DATA

The following table sets forth selected consolidated historical income statement, balance sheet and operating data of the Company. The selected income statement
and balance sheet data for each of the five fiscal years ended January 29, 2005 are derived from the Consolidated Financial Statements of the Company, which have been audited by KPMG LLP,
independent auditors. The data presented below should be read in conjunction with the Consolidated Financial Statements, including the related Notes thereto, included herein, the other financial
information included herein, and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

|                                    |                                                                        | Fiscal Year Ended |        
|----------------------------------- | ---------------------------------------------------------------------- | ----------------- | -------
|
|
|Income statement data:              |                                                                        |                   |        
|                                    | Revenues                                                               |                   | $      
|                                    | Cost of goods sold(b)                                                  |                   |        
|                                    | Selling, general and administrative expenses                           |                   |        
|                                    | Charges incurred in connection with discontinuance of Clifford & Wills |                   |        
|                                    | Income/(loss) from operations                                          |                   |        
|                                    | Interest expensenet                                                   |                   |        
|                                    | (Gain) loss on debt refinancing                                        |                   |        
|                                    | Insurance proceeds                                                     |                   |        
|                                    | Provision (benefit) for income taxes                                   |                   |        
|                                    |                                                                        |                   |        
|                                    | Net income (loss)                                                      |                   | $      
|                                    |                                                                        |                   |        
|Balance sheet data (at period end): |                                                                        |                   |        
|                                    | Cash and cash equivalents                                              |                   | $      
|                                    | Working capital                                                        |                   |        
|                                    | Total assets                                                           |                   |        
|                                    | Total long-term debt and preferred stock                               |                   |        
|                                    | Stockholders' deficit                                                  |                   | $      
|                                    |                                                                        |                   |        
|Operating data:                     |                                                                        |                   |        
|Revenues:                           |                                                                        |                   |        
|                                    | J.Crew Retail                                                          |                   | $      
|                                    | J.Crew Direct                                                          |                   |        
|                                    |                                                                        | Catalog           |        
|                                    |                                                                        | Internet          |        
|                                    |                                                                        |                   |        
|                                    |                                                                        |                   | 284,760
|                                    | Other                                                                  |                   |        
|                                    |                                                                        |                   |        
|Total revenues                      |                                                                        | $                 | 825,975
|                                    |                                                                        |                   |        
|J.Crew Retail:                      |                                                                        |                   |        
|                                    | Sales per gross square foot(c)                                         |                   | $      
|                                    | Number of stores open at end of period                                 |                   |        
|                                    | Comparable store sales change(d)                                       |                   |        
|J.Crew Direct:                      |                                                                        |                   |        
|                                    | Number of catalogs circulated (in thousands)                           |                   |        
|                                    | Number of pages circulated (in millions)                               |                   |        
|                                    | Depreciation and amortization                                          |                   | $      
|Capital expenditures:               |                                                                        |                   |        
|                                    | New store openings                                                     |                   | $      
|                                    | Other                                                                  |                   |        
|                                    |                                                                        |                   |        
|Total capital expenditures:         |                                                                        | $                 | 55,694 
|                                    |                                                                        |                   |        

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Forward Looking Statements and Risk Factors

Certain statements in this Annual Report on Form 10-K under the captions "Business," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Financial Statements and Supplementary Data" and elsewhere constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. We may also make written or oral forward-looking statements in our periodic reports to the Securities and Exchange Commission on Forms 10-Q,
8-K, etc., in press releases and other written materials and in oral statements made by our officers, directors or employees to third parties. Statements that are not historical facts,
including statements about our beliefs and expectations, are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of we, or industry results, to differ materially from historical results, any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to:



and
other risks and uncertainties described in this report and our other reports and documents filed or which may be filed, from time to time, with the Securities and Exchange Commission. These
statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward looking statements speak only as of the date they are made and we
undertake no obligation to update publicly any of them in light of new information or future events.

We
caution that there are important factors, in addition to those listed above, that may cause actual results to differ materially from those contained in forward-looking statements.
These factors include the following:

We must successfully gauge fashion trends and changing consumer preferences to succeed.

We believe that our success depends in substantial part on our ability to originate and define product and fashion trends as well as to anticipate, gauge and
react to changing consumer demands in a timely manner. There can be no assurance that we will be successful in this regard. We attempt to reduce the risks of changing fashion trends and product
acceptance by devoting a substantial portion of our product line to basic durables which are not significantly modified from year to year. Nevertheless, if we misjudge the market for our products, we
may be faced with significant excess inventories for some products and missed opportunities with others.

The fashion and apparel industry is highly competitive.

The fashion and apparel industry is highly competitive. We compete primarily with other catalog operations, specialty brand retailers, department stores, mass
merchandisers and Internet businesses that engage in the retail sale of men's and women's apparel, accessories, footwear and general merchandise. We believe that the principal bases upon which we
compete are quality, design, efficient service, selection and price. However, many of our competitors are larger and have greater financial,

9

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marketing
and other resources, and there can be no assurance that we will be able to compete successfully with them in the future.

We may be substantially more leveraged than certain of our competitors, which may place us at a competitive disadvantage.

Our substantial degree of leverage may limit our flexibility to adjust to changing market conditions, reduce our ability to withstand competitive pressures and
make us more vulnerable to a downturn in general economic conditions or our business. Our ability to make scheduled payments or to refinance our debt obligations will depend upon future financial and
operating performance of Operating, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond our control. There can be no
assurance that Operating's operating results, cash flow and capital resources will be sufficient for payment of our indebtedness in the future. In the absence of such operating results, cash flow and
capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations, and there can be no
assurance as to the timing of such sales or the proceeds that we could realize from such sale. If we are unable to service our indebtedness, we may take actions such as reducing or delaying planned
expansion and capital expenditures, selling assets, restructuring or refinancing our indebtedness or seeking additional equity capital. There can be no assurance that any of these actions could be
effected on satisfactory terms, if at all.

Competition for qualified personnel is intense in the fashion and apparel industry.

Our ability to anticipate and effectively respond to changing fashion trends depends in part on our ability to attract and retain key personnel in our design,
merchandising and marketing staff. Competition for these personnel is intense, and there can be no assurance that we will be able to attract and retain a sufficient number of qualified personnel in
the future. We rely, in particular, on the strategic guidance of Millard Drexler, our Chief Executive Officer, and Jeffrey Pfeifle, our President.
The loss, for any reason, of the services of either of these individuals could have a material adverse effect on us.

The fashion and apparel industry is cyclical, and decline in consumer spending on apparel and accessories could have an adverse effect on our results of
operations.

The industry in which we operate is cyclical. Purchases of apparel and related merchandise is sensitive to a number of factors that influence the levels of
general consumer spending, including economic conditions and the level of disposable consumer income, consumer debt, interest rates and consumer confidence. A decline in consumer spending on apparel
and accessories could have an adverse effect on our financial condition and results of operations.

Increase in costs of mailing, paper and printing will have an adverse effect on our results of operations.

Postal rate increases and paper and printing costs affect the cost of our catalog and promotional mailings. We rely on discounts from the basic postal rate
structure, such as discounts for bulk mailings and sorting by zip code and carrier routes. We are not a party to any long-term contracts for the supply of paper. Our cost of paper has
fluctuated significantly, and our future paper costs are subject to supply and demand forces external to our business. Consequently, there can be no assurance that we will not be subject to an
increase in paper costs. Future increases in postal rates or paper or printing costs would have a negative impact on our earnings to the extent that we are unable to pass such increases directly to
customers or offset such increases by raising selling prices or by implementing more efficient mailings. See "Our BusinessJ. Crew Direct."

We rely on foreign sourcing and are subject to a variety of risks associated with doing business abroad.

In fiscal 2004, approximately 92% of our merchandise was sourced from independent foreign factories located primarily in Asia, and many of our domestic vendors
import a substantial portion of

10

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their
merchandise from abroad. Any event causing a sudden disruption of manufacturing or imports from China, including the imposition of additional import restrictions, could have a material adverse
impact on our operations. We have no long-term merchandise supply contracts, and many of our imports are subject to existing or potential duties, tariffs or quotas that may limit the
quantity of certain types of goods that may be imported into the United States from countries in those regions. We compete with other companies for production facilities and import quota capacity. Our
business is also subject to a variety of other risks generally associated with doing business abroad, such as political instability, currency and exchange risks and potential local issues. Our
sourcing operations may also be adversely affected by political and financial instability or health concerns regarding infectious diseases in countries in which our merchandise is produced or acts of
war or terrorism in the United States or worldwide, to the extent these acts impact the production, shipment or receipt of merchandise. Our future performance will be subject to such factors, which
are beyond our control, and there can be no assurance that such factors would not have a material adverse effect on our financial condition and results of operations.

Trade
restrictions, including increased tariffs or quotas, against apparel and other items sold by us could increase the cost or reduce the supply of merchandise available to us and
adversely affect our business, financial condition and results of operations. The United States has agreed, as of January 1, 2005, to a phase out of import quotas for WTO member countries. This
should improve flexibility in importing textile and apparel products from WTO member countries. However, any flexibility resulting from this agreement may be eliminated if new restrictions are imposed
on the import of apparel from China. In addition, a number of pending applications have been made to U.S. government agencies to delay the elimination of certain quota categories at January 1,
2005. The outcome of these applications, plus other possible efforts to impede the elimination of quotas, could have a significant impact on worldwide sourcing patterns in 2005. The extent of this
impact, if any, and the possible effect on our purchasing patterns and costs, cannot be determined at this time. We cannot predict whether any of the countries in which our merchandise currently is
manufactured or may be manufactured in the future will be subject to additional trade restrictions imposed by the United States and other foreign governments, including the likelihood, type or effect
of any such restrictions. Trade restrictions, including increased tariffs or quotas, embargoes, safeguards and customs restrictions, against apparel items, as well as U.S. or foreign labor strikes,
work stoppages or boycotts, could increase the cost or reduce the supply of apparel available to we and adversely affect its business, financial condition and results of operations. See
"Sourcing and Production."

We require our licensing partner and independent manufacturers to operate in compliance with applicable laws and regulations.

While our internal and vendor operating guidelines promote ethical business practices, we do not control such manufacturers or their labor practices. Violation of
labor or other laws by our independent manufacturers or our licensing partner, or the divergence of an independent manufacturer's or our licensing partner's labor practices from those generally
accepted as ethical in the United States, could have a material adverse effect on our financial condition and results of operations if, as a result of such violation, we were to incur substantial
liability or attract negative publicity that damaged our brand.

Success of J. Crew Retail growth strategy remains uncertain.

We intend to expand our base of J. Crew Retail stores as part of our growth strategy. There can be no assurance that this strategy will be successful. Our success
depends, in part, on our ability to improve sales and margins at our stores. Actual number and type of such stores to be opened and their success will be dependent upon a number of factors, including,
among other things, the ability to manage such expansion and hire and train qualified associates, the availability of suitable store locations and the negotiation of acceptable lease terms for new
locations and upon lease renewals for existing locations. There can be no assurance that we will be able to open and operate new stores on a timely or profitable basis. See "Management's Discussion
and Analysis of Financial Condition and

11

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Results
of Operations of Holdings" and "Our BusinessJ. Crew Retail." We believe that the opening of J. Crew Retail stores has diverted some revenues from the J. Crew Direct operations.
There can be no assurance that future store openings will not continue to have such an effect.

Our quarterly results of operations fluctuate significantly due to seasonality and a variety of other factors.

We experience seasonal fluctuations in revenues and operating income, with a disproportionate amount of our revenues and a majority of our income from operations
typically realized during the fourth quarter of each fiscal year. Revenues and income from operations are generally weakest during the first and second quarters of each fiscal year. As a result of
this seasonality, sales during the third and fourth fiscal quarters cannot be used as accurate indicators for our annual results. In addition, any factors negatively affecting we during the third and
fourth fiscal quarters of any year, including adverse weather or unfavorable economic conditions, could have a material adverse effect on its financial condition and results of operations for the
entire year. Also, in order to prepare for our peak shopping seasons, we must order and keep in stock significantly more merchandise than we would carry at other times of the year. Any unanticipated
decrease in demand for our products during our peak shopping
seasons could require us to sell excess inventory at a substantial markdown, which could reduce our net sales and gross margins and negatively impact our profitability. See "Management's Discussion
and Analysis of Financial Condition and Results of OperationsSeasonality." Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors,
including the timing of new store openings and of catalog mailings, and the revenues contributed by new stores, merchandise mix and the timing and level of markdowns.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion summarizes the significant factors affecting our consolidated operating results, financial condition and liquidity during the
three-year period ended January 29, 2005. You should read the following discussion and analysis in conjunction with our audited consolidated financial statements for the
three-year period ended January 29, 2005 and the related notes thereto included herein.

Management's
discussion and analysis of the results of operations are provided solely with respect to Operating and its subsidiaries since substantially all of the Company's operations
are conducted by Operating. However, Group has additional debt securities that are outstanding. Accordingly, information with respect to interest expense of Group is also provided herein. The
discussion of liquidity and capital resources pertains to Group and its consolidated subsidiaries, including Operating.

Management Overview

The fashion and apparel industry is highly competitive. We compete primarily with specialty brand retailers, department stores, other catalog operations, and
internet businesses that engage in the retail sale of men's and women's apparel, accessories, footwear and similar merchandise. We believe that the principal bases upon which we compete are quality,
design, efficient service, selection and price. We believe that our success depends in substantial part on our ability to originate and define product and fashion trends as well as to anticipate,
gauge and react to changing consumer demands in a timely manner.

The
industry in which we operate is cyclical. Purchases of apparel and related merchandise are sensitive to a number of factors that influence the levels of consumer spending including
economic conditions and the level of disposable consumer income, consumer debt, interest rates and consumer confidence. The economic environment in 2002 had a negative impact on our sales and required
a higher level of promotional sales activities, which adversely affected our profitability. We believe our comparable store sales results in fiscal 2002 and the first half of 2003 also reflected in
large part customer dissatisfaction with our product offerings. When our new management took over in January 2003, they initiated a program to upgrade the quality and style of our merchandise

12

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assortments.
These changes were not implemented until our Fall and Holiday 2003 product offerings. We believe that our comparable store sales increase in fiscal 2004 reflects a positive customer
response to our merchandise development efforts and an emphasis on customer service in our retail stores.

An
important aspect of our business strategy has been an expansion program designed to reach new and existing customers through the opening of new stores. However, as a result of an
overall slowdown in the economic environment in 2002 and our declining comparable store sales trends in 2002 and 2003, we curtailed in the number of new store openings to concentrate on improving the
store productivity (as measured by sales per square foot) of our existing stores. We believe that we have begun to accomplish this, which is reflected in the increase in our store productivity as
sales per square foot increased to $397 in 2004 from $337 per square foot in 2003. We opened five new stores (and closed 4 stores) in fiscal 2004 and expect to accelerate the pace of our store
openings in fiscal 2005 with the addition of ten new stores.

Results of Operations

Our consolidated statements of operations presented as a percentage of revenues are as follows:

|                                                            |  | Fiscal Year Ended |       
|----------------------------------------------------------- |  | ----------------- | ------
|
|Revenues(1)                                                 |  |                   | 100.0%
|Cost of goods sold, including buying and occupancy costs(2) |  |                   | 59.5  
|Gross profit(2)                                             |  |                   | 40.5  
|Selling, general and administrative expenses(2)             |  |                   | 35.8  
|Income/(loss) from operations                               |  |                   | 4.7   
|Interest expense, net                                       |  |                   | 10.9  
|(Gain) loss on refinancing of debt                          |  |                   | 6.2   
|Insurance proceeds                                          |  |                   |      
|Loss before income taxes                                    |  |                   | (12.4 
|Provision (benefit) for income taxes                        |  |                   | 0.1   
|                                                            |  |                   |       
|Net loss                                                    |  |                   | (12.5 
|                                                            |  |                   |       
|Selected retail store data:                                 |  |                   |       
|Number of stores open                                       |  |                   | 197   
|Sales per gross square foot                                 |  | $                 | 397   
|Comparable store sales change                               |  |                   | 16.4  

---

Fiscal 2004 Compared to Fiscal 2003



Net sales in fiscal 2004 increased by $114.2 million, or 16.6%, to $804.2 million from $690.0 million in fiscal 2003. The increase resulted
primarily from an increase in J.Crew Retail sales of $92.6 million, due to an increase of 16.4% in comparable store sales, and an increase in J.Crew Direct sales of $25.1 million, or
14%, which we believe resulted in part from a 40% increase in the second half of 2004 in the number of styles presented in our catalog and on our website, as well as the mailing of four new catalog
editions. These increases were offset in part by a decrease in other revenues of $3.5 million resulting primarily from a decrease in shipping and handling fees as a result of a decline in
orders in the J.Crew Direct business in the first half of fiscal 2004. We believe that the increase in comparable store sales and in the J. Crew Direct business resulted from the positive customer
response to the continuing improvements in our product offerings and an emphasis on customer service.

13

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Gross profit increased by $75.7 million, or 30.3%, to $325.4 million in fiscal 2004 from $249.7 million in fiscal 2003. Gross margin
increased from 36.2% in 2003 to 40.5% in 2004, attributable primarily to a 440 basis point increase in merchandise margins, which resulted from lower markdowns and improved inventory management in
2004, coupled with the negative effect on 2003 margins from the liquidation of prior season inventories in the first half of the year.



Selling, general and administrative expenses increased by $7.2 million, or 2.6%, to $287.7 million in fiscal 2004 from $280.5 million in
fiscal 2003. The increase resulted primarily from increases in variable store operating expenses and incentive compensation. These increases were offset in part by a decrease in depreciation and
amortization of $6.0 million related primarily to computer equipment, and a decrease in catalog selling costs of $3.7 million due primarily to a reduction in pages circulated from
5.8 billion to 5.4 billion. As a percentage of sales, selling, general and administrative expenses decreased from 40.7% in 2003 to 35.8% in 2004, resulting primarily from an increase in
operating leverage due to the increase in revenues.



Interest expense for Group increased by $23.8 million to $87.6 million in fiscal 2004 from $63.8 million in fiscal 2003. The increase
resulted primarily from the inclusion as interest of dividends on mandatorily redeemable preferred stock for the full year in 2004 as compared to the inclusion only in the second half of fiscal 2003,
which resulted in an increase of $18.9 million. There were also increases in interest of $8.0 million, including amortization of debt issuance discount related to the 16% Senior Discount
Contingent Principal Notes due 2008 issued in May 2003 and $2.7 million on the 93/4% Senior Subordinated Notes due 2014 issued in December 2004. These increases
were offset by a reduction of $4.4 million of interest on the 131/8% Senior Discount Debentures due to the exchange offer completed in May 2003 and $1.5 million
reduction on the 103/8% Senior Subordinated Notes due 2007 due to their redemption in December 2004.

Interest
expense for Operating increased by $1.1 million to $21.6 million in fiscal 2004 from $20.5 million in fiscal 2003. The increase was primarily due to
$2.7 million of interest on $275 million of the 93/4% Senior Subordinated Notes issued in December 2004, offset in part by $1.6 million of interest on the
103/8% Senior Subordinated Notes that were redeemed in such transaction.



The gain (loss) on refinancing of debt was a loss of $49.8 million in fiscal 2004 compared to a gain of $41.1 million in 2003. In the fourth quarter
of 2004, we redeemed $150.0 million of 103/8% Senior Subordinated Notes and $169.0 million outstanding amount of 16% Senior Discount Contingent Principal Notes. The funds
used to redeem these notes were provided by the issuance of $275 million in new term loans and internally available funds. These term loans were subsequently converted into equivalent new
93/4% Senior Subordinated Notes due 2014 of Operating.

This
debt refinancing resulted in a loss of $49.8 million at Group in 2004 consisting of (a) redemption premiums of $15.3 million, (b) the
write-off of deferred financing costs related to the old debt of $3.2 million, and (c) the write-off of unamortized debt issuance costs of $31.3 related to the
16% Senior Discount Contingent Principal Notes. The loss on refinancing of debt at Operating in fiscal 2004 was $4.0 million consisting of redemption premiums of $2.6 million and the
write-off of deferred financing costs of $1.4 million.

The
gain of $41.1 million in fiscal 2003 resulted from the issuance of the 16% Senior Discount Contingent Principal Notes in May 2003.

14

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Insurance proceeds of $3.8 million in fiscal 2003 and $1.8 million in fiscal 2002 represent recoveries for claims related to the destruction of our
World Trade Center store on September 11, 2001. The recovery in fiscal 2003 is the final settlement of this claim.



Group files a consolidated federal tax return, which includes all its wholly owned subsidiaries. Each subsidiary files separate state tax returns in the required
jurisdictions. Group and its subsidiaries have entered into a tax sharing agreement providing (among other things) that each of the subsidiaries will reimburse Group for its share of income taxes
based on the proportion of such subsidiaries' tax liability on a separate return basis to the total tax liability of Group. Accordingly, the following discussion pertains to Group.

In
fiscal 2002, we established a valuation allowance of $21.0 million to reduce the net deferred tax assets to the estimated recoverable amount at February 1, 2003. The
valuation allowance was offset by a $9.0 million benefit from the reversal of prior year tax accruals. The valuation allowance was recorded in fiscal 2002 as a result of the significance of our
net loss in fiscal 2002 and management's projection of taxable income/loss in the near future. Management had previously concluded that considering all factors, including available tax planning
strategies and projections of future taxable income, it was more likely than not that the net deferred income tax assets would be realized. However, considering our substantially increased losses and
declining trends and projections of operating losses in the near future, the fact that our operating results for fiscal 2002 were significantly worse than originally forecasted and the downward
revision of the outlook for fiscal year 2003 and forward, we reassessed the need for a valuation allowance. We believed in fiscal 2002 that the "positive evidence" no longer outweighed the "negative
evidence" and a valuation allowance was, therefore, necessary. The tax accruals were reversed in 2002 based on a proposed IRS settlement of open years and the results of state audits at amounts less
than amounts accrued. An additional valuation allowance of $5.0 million was recorded in fiscal 2003 to fully reserve the net deferred tax assets at January 31, 2004. This increase was
offset by additional tax refunds and a reduction in prior year tax accruals as a result of the finalization of certain tax audits. The Company did not recognize any tax benefits in fiscal 2004 and
does not expect to recognize any tax benefits in future operations until an appropriate level of profitability is sustained.

Fiscal
2004, 2003 and 2002 include state and foreign tax provisions of $0.6 million, $0.5 million and $0.4 million, respectively.



The net loss of Group in fiscal 2004 was $100.3 million compared to $50.2 million in fiscal 2003. The loss in fiscal 2004 includes a loss on the
refinancing of debt of $49.8 million while fiscal 2003 included a gain on exchange of debt of $41.1 million and insurance proceeds of $3.8 million. Excluding these items, the net
loss for Group for fiscal 2004 would have been $50.5 million compared to a net loss of $95.1 million last year. The improvement in fiscal 2004 results is due primarily to the 16.6%
increase in net sales and
the improvement in gross margin. Operating had net income of $11.4 million in fiscal 2004 compared to a net loss of $42.0 million in fiscal 2003, an improvement of $53.4 million.

Fiscal 2003 Compared to Fiscal 2002



Net sales in fiscal 2003 decreased by $78.3 million, or 10.2%, to $690.0 million from $768.3 million in fiscal 2002. The decrease resulted
primarily from a decrease in J.Crew Direct sales of $74.5 million, or 30%, resulting from (a) 25% decrease in catalog circulation from 7.8 billion pages in 2002 to
5.8 billion pages in 2003 including the elimination of women's only and clearance catalogs in the second half of the year, (b) a decrease in density (items per page) resulting from a 30%
reduction in style

15

---



counts,
and (c) a reduction in promotional practices, including promotional e-mails. Other revenues decreased by $6.6 million resulting primarily from a decrease in shipping
and handling fees as a result of a decline in orders in Direct. These decreases were offset in part by an increase of $2.8 million in J.Crew Retail sales. A decline of 2.5% in comparable store
sales was offset by sales from four stores opened in fiscal 2003 and 16 stores opened in 2002 that were open for a full year in fiscal 2003. We believe that the improvement in comparable store sales
performance in 2003 was the result of an improving economy and an upgrade in the quality and style of our merchandise assortments in the second half of the year.



Gross profit decreased by $46.4 million, or 15.7%, to $249.7 million from $296.1 million. Gross margin decreased from 38.5% to 36.2%,
attributable primarily to a 160 basis point increase in buying and occupancy costs as a percentage of revenues resulting from the spreading of fixed buying and occupancy costs over a lower revenue
base, and a decrease of 70 basis points in merchandise margins primarily from the liquidation of prior season's inventories in the first half of 2003.



Selling, general and administrative expenses decreased by $21.2 million, or 7.0%, to $280.5 million from $301.7 million. The decrease
resulted primarily from lower catalog selling costs of $13.2 million related primarily to the reduction in pages circulated, including the elimination of women's only editions and clearance
catalogs in the second half of 2003, as well as a decrease in severance and other one-time employment-related charges of $10.0 million. These decreases were offset in part by
increased store expenses resulting from additional stores in operation in 2003. As a percentage of sales, selling, general and administrative expenses increased from 39.3% to 40.7%, resulting
primarily from the spreading of fixed overhead expenses over a lower revenue base.



Interest expense for Group increased by $22.8 million to $63.8 million from $41.0 million. The increase resulted from (a) the
inclusion as interest of $14.2 million of dividends on mandatorily redeemable preferred stock which classification as interest expense commenced in the third quarter of 2003, and
(b) interest on the 16% Senior Discount Contingent Principal Notes of $21.9 million, including amortization of debt issuance discount, issued in the exchange offer completed in
May 2003. These increases were offset by a reduction of $10.4 million of interest on the 131/8% Senior Discount Debentures that were exchanged for the 16% Senior Discount
Contingent Principal Notes, and lower deferred financing costs which resulted primarily from a write off of $1.8 million related to the refinancing of our working capital credit facility in
fiscal 2002.

Interest
expense for Operating decreased by $2.7 million to $20.5 million from $23.2 million. The decrease was primarily attributable to a reduction in amortization
of deferred financing costs, which resulted primarily from a write off of $1.8 million related to the refinancing of our working capital credit facility in fiscal 2002.



The net gain on exchange of debt of $41.1 million in 2003 reflects the difference between the fair value of the 16% Senior Discount Contingent Principal
Notes at date of issuance and the carrying value of the 131/8% Senior Discount Debentures of $44.1 million less related expenses which consist of (a) the additional
expense of 27/8% from October 15, 2002 to May 6, 2003 paid to the note holders who accepted the exchange offer completed in May 2003 ($1.9 million) and
(b) the write off of unamortized deferred financing costs related to the debentures exchanged in the May 2003 exchange offer ($1.1 million).

16

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For
the discussion of insurance proceeds, see "Fiscal 2004 compared to Fiscal 2003Insurance Proceeds."



For the discussion of income taxes, see "Fiscal 2004 Compared to Fiscal 2003Income Taxes".



The net loss of Group for fiscal 2003 was $50.2 million compared to a net loss of $40.6 million in fiscal 2002. However, the results in fiscal 2003
included a gain on the exchange of debt of $41.1 million and
an increase in insurance proceeds of $2.0 million. Excluding these items, the net loss of Group for fiscal 2003 would have been $95.1 million, an increase of $52.7 million from
the prior year. This increase in net loss is primarily attributed to the decrease in gross profit in fiscal 2003, attributable to the sales decline and the increase in interest expense.

The
net loss of Operating increased to $42.0 million in fiscal 2003 from $8.8 million in fiscal 2002. This increase resulted primarily from the decrease in gross profit
resulting from the sales decline.

Liquidity and Capital Resources

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

On
November 21, 2004, Operating entered into a Senior Subordinated Loan Agreement with entities managed by Black Canyon Capital LLC and Canyon Capital Advisors LLC, which provided
for a term loan of $275.0 million. The proceeds of the term loan were used to redeem in full Operating's outstanding 103/8% Senior Subordinated Notes due 2007
($150.0 million) and to redeem, in part, Intermediate's 16% Senior Discount Contingent Principal Notes due 2008 ($125.0 million). In January 2005, we redeemed the remaining
$44 million of outstanding 16% Senior Discount Contingent Principal Notes using internally available funds. On March 18, 2005, the term loan was converted into equivalent new
93/4% Senior Subordinated Notes of Operating due 2014 in accordance with the terms of the loan agreement. This refinancing will generate approximately $16.0 million of annual
interest savings.

On
December 23, 2004, Operating entered into an Amended and Restated Loan and Security Agreement, which we refer to as the Amended Wachovia Credit Facility, with Wachovia Capital
Markets LLC, as arranger, Wachovia Bank National Association, as administrative agent, Bank of America N.A., as syndication agent, Congress Financial Corporation, as collateral agent, and a syndicate
of lenders, which provides for maximum credit availability of up to $170.0 million (which can be increased to $250.0 million if certain conditions are met). The Amended Wachovia Credit
Facility provides for revolving loans and letters of credit of up to $170.0 million and expires in December 2009. The total amount of availability is limited to the sum of invested cash,
90% of eligible receivables, 95% of the net recovery percentage of inventories (as determined by inventory appraisal) for the period of August 1 through December 15, 92.5% of the net
recovery percentage of inventories for the period December 16 through July 31 and real estate availability of 65% of appraised fair market value. As of January 29, 2005, there was
$27.0 million of excess availability under the Amended Wachovia Credit Facility.

The
Amended Wachovia Credit Facility includes restrictions, including the incurrence of additional indebtedness, the payment of dividends and other distributions, the making of
investments, the granting of loans and the making of capital expenditures. We are required to maintain a minimum of fixed interest charge coverage of 1.1 if excess availability is less than
$20.0 million for any 30 consecutive day

17

---



period.
We have at all times been in compliance with all financial covenants under the Amended Wachovia Credit Facility.

The
Amended Wachovia Credit Facility permits restricted payments (by way of dividends or other distributions) with respect to, among other things, our capital stock payable solely in
additional shares of our capital stock, our tax sharing agreement, the Series A preferred stock of Group, the Series B preferred stock of Group and the 131/8% Senior
Discount Debentures due 2008 of Group. Our ability to declare dividends on our capital stock is also limited by Delaware law, which permits a company to pay dividends on its capital stock only out of
its surplus or, in the event that it has no surplus, out of its net profits for the year in which a dividend is declared or for the immediately preceding fiscal year. Under the Amended Wachovia Credit
Facility, the assets of Operating and its subsidiaries are restricted.

Cash
provided by operating activities was $58.8 million in fiscal 2004, $18.2 million in fiscal 2003 and $31.8 million in fiscal 2002. The increase in 2004 resulted
from the significant increase in operating income. Cash provided in 2003 and 2002 resulted from improvements in working capital, due primarily to reductions in inventories of $41.3 million in
2003 and $31.6 million in 2002, which offset the operating losses in those years.

Capital
expenditures were $13.4 million in fiscal 2004, $9.9 million in fiscal 2003 and $26.9 million in fiscal 2002. Capital expenditures related to new stores were
$5.9 million, $5.7 million and $17.2 million during the three years. Anticipated capital expenditures in fiscal 2005 are approximately $25 million, primarily for 10 new
stores and information technology initiatives.

There
were no borrowings under our working capital credit facility at January 29, 2005 and January 31, 2004. Average borrowings under the credit facility were none in
fiscal 2004, $1.0 million in fiscal 2003 and $40.4 million in fiscal 2002. Long-term indebtedness increased by $25.8 million in fiscal 2003 consisting of
$20.0 million of TPG-MD Investment LLC notes payable due in 2008 and $5.8 million under the our working capital credit facility, which was paid off in January 2005.

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

Restatement

The consolidated statements of cash flows for Group and Operating for the years ended January 31, 2004 and February 1, 2003 have been restated to
reclassify the proceeds from construction allowances from a reduction of capital expenditures in cash flows from investing activities to an increase in cash flow from operating activities. There was
no effect on the Company's consolidated balance sheet or consolidated statement of operations.

Off Balance Sheet Arrangements

We enter into letters of credit to facilitate the international purchase of merchandise. Standby letters of credit are required to secure certain of our
obligations, including insurance programs and duties related to import purchases.

Letters of Credit

Within
1 Year

2-3 Years

4-5 Years

After
5 Years

TotalStandby

$
0.7

$


$


$
5.0

$
5.7Import


53.0











53.0$
53.7

$


$


$
5.0

$
58.7


18

---





Contractual Obligations

The following summarizes our contractual obligations as of January 29, 2005 and the effect such obligations are expected to have on our liquidity and cash
flows in future periods.

Within
1 Year

2-3 Years

4-5 Years

After
5 Years

Total($ in millions)Long-term debt obligations

$


$


$
43.7

$
275.0

$
318.7Redeemable preferred stock








258.3





258.3Operating lease obligations(1)


54.3


99.3


81.0


98.8


333.4Purchase obligationsInventory commitments


197.7











197.7Other


5.7


8.0








13.7Employment agreements


1.9


3.8








5.7205.3


11.8








217.1Total

$
259.6

$
111.1

$
383.0

$
373.8

$
1,127.5


---

Impact of Inflation

Our results of operations and financial condition are presented based upon historical cost. While it is difficult to accurately measure the impact of inflation
due to the imprecise nature of the estimates
required, we believe that the effects of inflation, if any, on our results of operations and financial condition have been minor. However, there can be no assurance that during a period of significant
inflation, our results of operations would not be adversely affected.

Seasonality

We experience two distinct selling seasons, spring comprised of the first and second fiscal quarters and fall comprised of the third and fourth fiscal quarters.
Net sales are usually substantially higher in the fall season and selling, general and administrative expenses as a percentage of net sales are usually higher in the spring season. Approximately 33%
of annual net sales in fiscal 2004 occurred in the fourth fiscal quarter. Our working capital requirements also fluctuate throughout the year, increasing substantially in September and October in
anticipation of the holiday season inventory requirements.

Recent Accounting Pronouncements

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003),Consolidation of Variable Interest
Entities,which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN 46R applies to variable interests in variable interest entities created after December 31, 2003. For variable interests in variable interest
entities created before January 1, 2004, the Interpretation applies beginning on January 1, 2005. For any variable interest entities that must be consolidated under FIN 46R that were
created before January 1, 2004, the assets, liabilities and noncontrolling interests of the variable interest entity initially would be

19

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measured
at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an
accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of
the variable interest entity. The adoption of FIN 46R did not have any effect on the financial statements taken as a whole as of January 29, 2005, and for the year then ended.

In
December 2004, the FASB issued Statement No. 123 R, Share-Based Payment.This revision to Statement No. 123
requires that compensation expense be recognized for the fair value of stock options over their vesting period and changes the method of expense recognition for performance-based stock awards. The
Statement is required to be adopted by the Company for fiscal years beginning after December 15, 2005 and applies to all outstanding stock options and stock awards that have not yet vested at
the date of adoption. Management is evaluating the effects of this Statement.

Critical Accounting Policies

Management's discussion and analysis of financial condition and results of operations is based upon the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and other assumptions that are believed to be reasonable under the circumstances and evaluate
these estimates on an on-going basis. Actual results may differ from these estimates under different assumptions or conditions.

The
following critical accounting policies, which we have discussed with our audit committee, reflect the more significant estimates and judgments used in the preparation of our
consolidated financial statements. We do not believe that changes in these assumptions and estimates are likely to have a material impact on our consolidated financial statements.



Merchandise inventories are carried at the lower of cost or market. We evaluate all of our inventories to determine excess inventories based on estimated future
sales. Excess inventories may be disposed of through our factory channel, internet clearance sales and other liquidations. Based on historical results experienced through various methods of
disposition, we write down the carrying value of inventories that are not expected to be sold at or above costs.



The costs associated with direct response advertising, which consist primarily of catalog production and mailing costs, are capitalized and amortized over the
expected future revenue stream of the catalog mailings, which approximates four months. The expected future revenue stream is determined based on historical revenue trends developed over an extended
period of time. If the current revenue streams were to diverge from the expected trend, our future revenue streams would be adjusted accordingly.



We are exposed to potential impairment if the book value of our assets exceeds their future cash flows. The major components of our long-lived assets
are store fixtures, equipment and leasehold improvements. The impairment of unamortized costs is measured at the store level and the unamortized cost is reduced to fair value if it is determined that
the sum of expected future net cash flows is less than net book value.

20

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We must make estimates of future sales returns related to current period sales. Management analyzes historical returns, current economic trends and changes in
customer acceptance of our products when evaluating the adequacy of the reserve for sales returns.



We have significant deferred tax assets resulting from net operating loss carryforwards and temporary differences, which will reduce taxable income in future
periods. Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" states that a valuation allowance is required when it is more likely than not that all or a
portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence needs to be considered, including a company's current and past performance, the market
environment in which a company operates, length of carryback and carryforward periods, existing contracts or sales backlog that will result in future profits, etc. Forming a conclusion that a
valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years. Cumulative losses weigh heavily in the overall assessment. As a result of our
assessments, we established a valuation allowance to reduce our net deferred tax assets to their estimated realizable value of $5.0 million at February 1, 2003 and we provided additional
allowances at January 31, 2004 and January 29, 2005 to fully reserve our net deferred tax assets. We do not expect to recognize any tax benefit in future results of operations until an
appropriate level of profitability is sustained.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal market risk relates to interest rate sensitivity, which is the risk that future changes in interest rates will reduce our net income or net assets.
Our variable rate debt consists of borrowings under the Amended Wachovia Credit Facility. The interest rates are a function of the bank prime rate or LIBOR. A one percentage point increase 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 that provides for royalty payments based on sales of J.Crew merchandise as denominated in yen. We have entered into forward foreign exchange
contracts from time to time in order to minimize this risk. At January 29, 2005, there were no forward foreign exchange contracts outstanding.

We
also enter into letters of credit to facilitate the international purchase of merchandise. The letters of credit are primarily denominated in U.S. dollars. Outstanding letters of
credit at January 29, 2005 were $58.7 million, including $5.7 million of standby letters of credit.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements are set forth herein commencing on page F-1 of this Report.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

With the participation of the Company's management, including the Chief Executive Officer and the Chief Financial Officer, the Company has conducted an evaluation
of its disclosure controls and procedures as of the end of the period covered by this report. Such evaluation included a review of the facts and circumstances relating to the correction of certain of
the Company's lease accounting

21

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practices.
As a result of the February 7, 2005 letter issued by the Office of the Chief Accountant of the Securities and Exchange Commission to the American Institute of Certified Public
Accountants, the Company concluded that certain of its previously established lease accounting practices were not appropriate and determined to restate its Consolidated Statements of Cash Flows for
prior years to report construction allowances as operating activities, rather than investing activities. There was no impact on net income as a result of the changes. Based solely on this change in
lease accounting practices, the Company's Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of the end
of the period covered by this report.

Such
officers also confirm that there were no significant changes in the Company's internal controls over financial reporting during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

22

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PART III

Information required by items 10-14 with respect to Operating has been omitted pursuant to General Instruction I of
Form 10-K. Information required by items 10-14 with respect to Group is described below.

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age and position of individuals who are serving as directors and executive officers of Group as of April 1, 2005.

Name

Age

PositionMillard Drexler

60

Chief Executive Officer, Chairman of the Board and DirectorJeffrey Pfeifle

46

PresidentRoxane Al-Fayez

48

Executive Vice President, Catalog & e-CommerceAmanda Bokman

41

Executive Vice President, Chief Financial OfficerTracy Gardner

41

Executive Vice President, Merchandising, Planning & ProductionScott Hyatt

47

Senior Vice President, ManufacturingNicholas Lamberti

62

Vice President, Corporate ControllerRichard Boyce

50

DirectorJonathan Coslet

40

DirectorJames Coulter

45

DirectorSteven Grand-Jean

62

DirectorThomas Scott

39

DirectorStuart Sloan

61

DirectorJosh Weston

76

DirectorEmily Woods

43

Director


---

Millard Drexler.Mr. Drexler became Chief Executive Officer in January 2003 and Chairman of the Board and a
Director in March 2003. Before joining the Company, Mr. Drexler was Chief Executive Officer of The Gap, Inc. from 1995 until September 2002, and prior thereto he was
President of The Gap, Inc. since 1987. Mr. Drexler also serves on the Board of Directors of Apple Computer Inc.

Jeffrey Pfeifle.Mr. Pfeifle became President in February 2003. Before joining the Company, Mr. Pfeifle
was Executive Vice President, Product and Design of the Old Navy division of The Gap, Inc. from 1995.

Roxane Al-Fayez.Ms. Al-Fayez became Executive Vice President, Catalog &
e-Commerce in October 2003. Before joining the Company, she was Vice President of Operations, Gap, Inc. Direct for six years.

Amanda Bokman.Ms. Bokman became Executive Vice-President and Chief Financial Officer in May 2004.
Before joining the Company, Ms. Bokman was Senior Vice-President and Chief Financial Officer of one of the four major segments of Jones Apparel Group, Inc. from 2001 and
Vice-President and Chief Financial Officer of McNaughton Apparel Group, Inc. for nine years prior thereto.

Tracy Gardner.Ms. Gardner became Executive Vice President, Merchandising, Planning & Production in
March 2004. Prior to joining the Company, Ms. Gardner held various positions at The Gap, Inc., including Senior Vice President of Adult Merchandising for GAP brand from 2002 to
March 2004, Vice-President of Womens' Merchandising for the Banana Republic division from 2001 to 2002, Vice-President of Mens' Merchandising for the Banana Republic
division from 1999 to 2001, and Divisional Merchandising Manager of Mens' Wovens for the Banana Republic division prior to 1999.

23

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Scott Hyatt.Mr. Hyatt has been Senior Vice President, Manufacturing since 1998. Before joining the Company,
Mr. Hyatt was Vice President, Production and Sourcing of the Express division of Limited Brands, a retail apparel company, from 1996 to 1998.

Nicholas Lamberti.Mr. Lamberti has been Vice President, Corporate Controller for more than five years.
Mr. Lamberti also served as acting Chief Financial Officer from August 2003 until Ms. Bokman joined the Company in May 2004.

Richard Boyce.Mr. Boyce has been a Director since 1997 and has periodically served as Chief Executive Officer between
1997 and 1999 while also providing operating oversight to the remainder of the Texas Pacific Group portfolio. Mr. Boyce is a Senior Operating Partner of Texas Pacific Group and joined Texas
Pacific Group in 1997. Mr. Boyce is also the Chairman of the Executive Committee of the Board of Directors of Burger King Corporation and a Director of ON Semiconductor Corporation, Spirit
Group, Ltd. and Kraton Polymers.

Jonathan Coslet.Mr. Coslet became a Director in 2003. Mr. Coslet is a senior Partner of Texas Pacific Group
and is responsible for the investment firm's generalist and healthcare investment activities. Prior to joining Texas Pacific Group, Mr. Coslet worked in the investment banking department of
Donaldson, Lufkin & Jenrette, specializing in leveraged acquisitions and high yield finance from 1991 to 1993. Mr. Coslet also serves on the Board of Directors of Burger King
Corporation, Petco Animal Supplies, Inc., Quintiles Transnational Corp., IASIS Healthcare Corp. and Fidelity National Information Services.

James Coulter.Mr. Coulter has been a Director since 1997. Mr. Coulter is a founding Partner of Texas Pacific
Group, and has been Managing General Partner of Texas Pacific Group for more than eight years. Mr. Coulter also serves on the Board of Directors of Conexant Systems, Inc., Seagate
Technology, Inc. and Zhone Technologies.

Steven Grand-Jean.Mr. Grand-Jean became a Director in 2003. Mr. Grand-Jean
has been President of Grand-Jean Capital Management for more than five years.

Thomas Scott.Mr. Scott has been a Director since 2002. Mr. Scott is a founding partner of Plum TV, LLC, a
television station network in select resort markets, and has served as its Chief Executive Officer and Executive Co-Chairman since September 2003. He is also a founding partner of
Nantucket Allserve Inc., a beverage supplier, and has served as Co-Chairman thereof since 1989 and Co-Chairman and Co-Chief Executive Officer from 1989 to
2000. Mr. Scott has also served as Co-Chairman of Shelflink, a supply chain software company, since 2000. Mr. Scott is married to Emily Woods, a Director of the Company.

Stuart Sloan.Mr. Sloan has been a Director since September 2003. Mr. Sloan is the founder of Sloan
Capital Companies, a private investment company, and has been a Principal thereof since 1984. Mr. Sloan also serves on the Board of Directors of Anixter International, Inc. and Rite Aid
Corp.

Josh Weston.Mr. Weston has been a Director since 1998. Mr. Weston has also served as Honorary Chairman of the
Board of Directors of Automatic Data Processing, a computing services business, since 1998. Mr. Weston was Chairman of the Board of Automatic Data Processing from 1996 until 1998, and Chairman
and Chief Executive Officer for more than five years prior thereto. Mr. Weston also serves on the Board of Directors of Gentiva Health Services, Inc. and Russ Berrie &
Company, Inc.

Emily Woods.Ms. Woods served as Chairman of the Board of Directors of Group from 1997 to 2003, and continues to serve
as a Director. Ms. Woods started work at the Company the year that it was founded in 1983 and has also previously served as its Chief Executive Officer and Vice Chairman. Ms. Woods is
married to Thomas Scott, a Director of the Company.

24

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Our Board of Directors

Our Board of Directors currently has 9 members. Directors serve until the next annual meeting of shareholders or until his or her successor has been elected and
qualified. Directors may be removed at any time, with or without cause, by vote of our shareholders. Our Board of Directors currently has two standing committeesan Audit Committee and a
Compensation Committee.

Audit Committee.The primary duties of the Audit Committee include assisting the Board of Directors
in its oversight of (i) the integrity of our financial statements and financial reporting process; (ii) the integrity of our internal controls regarding finance, accounting and legal
compliance; and (iii) the independence and performance of our independent auditors and internal audit function. The Committee also reviews our critical accounting policies, our annual and
quarterly reports on Form 10-K and Form 10-Q, and our earnings releases before they are published. The Committee has sole authority to engage, evaluate and
replace the independent auditor. The Committee also has the authority to retain special legal, accounting and other consultants it deems necessary in the performance of its duties. The Committee meets
regularly with our management, independent auditors and internal auditors to discuss our internal controls and financial reporting process and also meets regularly with the independent auditors and
internal auditors in private.

The
current members of the Audit Committee are Messrs. Boyce, Grand-Jean and Weston (Chairperson). The Board of Directors has determined that Josh Weston qualifies as
an "audit committee financial expert" and is independent under the applicable rules of the Securities and Exchange Commission.

Compensation Committee.The primary duty of the Compensation Committee is to discharge the
responsibilities of the Board of Directors relating to compensation practices for our executive officers and other key employees, as the Committee may determine, to ensure that management's interests
are aligned with the interests of our equity holders. The Committee also reviews and makes recommendations to the Board of Directors with respect to our employee benefits plans, compensation and
equity-based plans and compensation of Directors. The current members of the Compensation Committee are Messrs. Coulter (Chairperson) and Sloan and Ms. Woods.

Compensation of Directors.Directors who are our employees or representatives of Texas Pacific Group
(Messrs. Boyce, Coslet, Coulter and Drexler) do not receive any compensation for their services. All other Directors (Messrs. Grand-Jean, Scott, Sloan and Weston and
Ms. Woods) received the following as compensation in 2004: (1) 5,000 shares of restricted Group common stock and (2) a non-qualified stock option to purchase 10,000
shares of Group common stock. In lieu of receiving such stock option, a Director could elect to have the Company make one or more charitable contributions on his or her behalf in a total amount up to
$50,000. Mr. Weston alone elected to have the Company make charitable contributions on his behalf of $50,000. The restricted stock awards have a value based on the fair market value of the
common stock on the effective grant date and vested immediately. The options have an exercise price of $6.82 per share, have a term of 10 years and become exercisable and vest in two equal
installments in December 2004 and December 2005. If a Director ceases to serve as a Director for any reason, other than removal for cause, any options vested at the time of termination
of his or her services will remain exercisable for 90 days (but no longer than the 10 year term of the options).

Our
Board of Directors has also approved the following to be paid as compensation to all eligible Directors for their services in 2005: (1) a cash retainer of $30,000 and
(2) a non-qualified stock option to purchase 10,000 shares of Group common stock. Upon grant, the options will have an exercise price to be determined at the time of grant, have a
term of 10 years and become exercisable and vest in equal installments over a two year period. If a Director ceases to serve as a Director for any reason, other than removal for cause, any
options vested at the time of termination of his or her services will

25

---



remain
exercisable for 90 days (but no longer than the 10 year term of the options). In addition, the Chairman of the Audit Committee will receive additional cash compensation of $10,000
for his services on such Committee. Directors who are our employees or representatives of Texas Pacific Group are not entitled to receive any compensation for their services.

Code of Ethics and Business Practices

We have a Code of Ethics and Business Practices that applies to all of our Directors and employees, including to our chief executive officer, chief financial
officer, controller and our other senior financial officers. A copy of the Code is filed as an exhibit to this Annual Report on Form 10-K and is available free of charge upon
written request to the Corporate Secretary, J.Crew Group, Inc., 770 Broadway, New York, NY 10003.

ITEM 11.    EXECUTIVE COMPENSATION

The following table sets forth compensation paid by Group for fiscal 2004, 2003 and 2002:



Long-Term CompensationAnnual Compensation



Awards



PayoutsName And Principal Position

Fiscal
Year

Salary
($)

Bonus
($)

Other
($)(l)

Restricted
Stock
Award(s)(a)

Numbers of Securities Underlying
Options/SARS(a)

LTIP
Payouts
($)

All Other
Compensation
($)(b)Millard Drexler
Chief Executive Officer and Chairman

2004
2003
2002

200,000
200,000






484,500
500,000


(c)
(c)
(c)

25,000

2,231,704
(d)






Jeffrey Pfeifle
President

2004
2003
2002

760,000
760,000


500,000
2,400,000

(e)




(f)
(f)
(f)



390,548
(g)
800,000
400,000


8,200

Roxane Al-Fayez
Executive Vice-President, Catalog & e-Commerce

2004
2003

377,900
115,400

275,000
100,000
(h)(h)
83,800

(i)
(i)

10,000
35,000




1,700
Tracy Gardner
Executive Vice-President, Merchandising, Planning & Production

2004

398,100

450,000
(j)
95,500

(k)

90,000



Scott Hyatt
Senior Vice President, Manufacturing

2004
2003
2002

375,000
364,000
364,000

160,000











10,000







8,200
10,500
9,700


---

26

---



As
of April 1, 2005, the named executive officers held the following aggregate number of restricted shares of Group common stock: Mr. Drexler463,278 vested
shares (of which 55,793 shares are held by a corporation of which Mr. Drexler is a principal) and 476,507 unvested shares; Mr. Pfeifle80,900 vested shares and 105,898
unvested shares; Ms. Al-Fayez6,250 vested shares and 28,750 unvested shares; Ms. Gardner0 vested shares and 50,000 unvested shares. Mr. Hyatt
did not hold any restricted shares of Group common stock.

In
September 2003, Mr. Drexler was granted 83,689 shares of Group common stock, of which 5,976 shares vested immediately upon grant, 19,429 shares vested on
January 27, 2004, and 19,428 shares vested on January 27, 2005, and the remainder will vest in equal annual installments on January 27, 2006 and 2007.

In
February 2003, Mr. Drexler was granted 725,303 shares of Group common stock, of which 181,326 shares vested on January 27, 2004 and 181,325 shares vested on
January 27, 2005, and the remainder will vest in equal annual installments on January 27, 2006 and 2007. Mr. Drexler paid $800,000 to Group for these shares, which was in excess
of their fair market value at the time of grant. A corporation of which Mr. Drexler is a principal was also granted 55,793 shares of Group common stock, all of which vested immediately upon
grant.

In
September 2003, Mr. Pfeifle was also granted 50,213 shares of Group common stock, of which 12,554 shares vested on February 1, 2004 and 12,553 shares vested on
February 1, 2005, and the remainder will vest in equal annual installments on February 1, 2006 and 2007.

In
February 2003, Mr. Pfeifle was granted 111,585 shares of Group common stock, of which 27,897 shares vested on February 1, 2004 and 27,896 shares vested on
February 1, 2005, and the remainder will vest in equal annual installments on February 1, 2006 and 2007.

27

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In
October 2003, Ms. Al-Fayez was granted 25,000 shares of Group common stock, of which 6,250 shares vested on October 22, 2004 and the remainder will
vest in equal annual installments on October 22, 2005, 2006 and 2007.

For
Ms. Al-Fayez and Ms. Gardner, this includes $83,800 in housing allowances and commuting reimbursements and $95,500 in relocation compensation, respectively,
in fiscal 2004. These include applicable tax gross-up amounts.



The following table shows information concerning stock options to purchase shares of Group common stock granted to any of the named executive officers during
fiscal 2004.

Individual Grants

Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(b)Number of Securities Underlying Options Granted(a)

Percent of Total Options Granted to Employees in Fiscal Year(a)Name

Exercise Price ($/Sh)

Expiration Date5% ($)

10% ($)Millard Drexler

25,000

4
%
$
6.82

2014

0
(b)
0
(b)Roxane Al-Fayez

10,000

2
%
$
6.82

2014

0
(b)
0
(b)Tracy Gardner

50,000

9
%
$
6.82

2014

0
(b)
0
(b)Scott Hyatt

10,000

2
%
$
6.82

2014

0
(b)
0
(b)Jeffrey Pfeifle















---

28

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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

The following table shows the number of stock options held to purchase shares of Group common stock by the named executive officers of Group at the end of fiscal
2004. The named executive officers did not exercise any stock options in fiscal 2004.

Name

Shares Acquired on Exercise(#)

Value Realized(#)

Number of Securities Underlying Unexercised Options at
Fiscal Year End
Exercisable/Unexercisable

Value of Unexercised
In-the-Money Options at Fiscal Year End($)(a)
Exercisable/UnexercisableMillard Drexler(b)

0



557,928/1,698,776

0/0Roxane Al-Fayez

0



8,750/36,250

0/0Tracy Gardner

0



0/90,000

0/0Scott Hyatt

0



31,000/14,000

0/0Jeffrey Pfeifle(b)

0



0/390,548

0/0


---



The following table shows the eligibility of our President to receive long-term incentive compensation pursuant to our employment agreement with him.
Under this arrangement, Mr. Pfeifle received a payment of $400,000 at the end of fiscal 2003 and an additional payment of $800,000 at the end of fiscal 2004, which constituted the maximum
payout under the arrangement. Mr. Pfeifle is not entitled to receive any future payouts of long-term incentive compensation pursuant to our employment agreement with him. We refer
you to "Employment Agreements and Other Compensation ArrangementsEmployment Agreements" for information on this compensation arrangement and payout schedule.

Long Term Incentive Plan/Awards in Last Fiscal Year

Estimated Future Payouts under Non-Stock-Price-Based PlansName

Number of Shares, Units or Other Rights(#)

Performance or
Other Period Until
Maturation or Payout

Threshold
($ or #)

Target
($ or #)

Maximum
($ or #)Jeffrey Pfeifle

$
800,000

1/31/034/30/05








29

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Employment Agreements and Other Compensation Arrangements



Millard Drexler.Mr. Drexler has a services agreement with the Company pursuant to which he will serve as Chief
Executive Officer for five years beginning on January 27, 2003, provided that Mr. Drexler can step down as Chief Executive Officer after January 2006 and serve only as Executive
Chairman. The agreement provides for a minimum annual base salary of $200,000, an annual bonus based on the achievement of earnings objectives to be determined each year, and reimbursement of business
expenses, provided that such total compensation not exceed $700,000 per year. The agreement also provides for (i) the grant of options to purchase 557,926 shares of Group common stock at an
exercise price equal to $6.82 per share, which we refer to as initial options, and (ii) the grant of premium options to purchase an additional 836,889 shares at an exercise price equal to
$25.00 per share and 836,889 shares at an exercise price equal to $35.00 per share, which we refer to as premium options. The initial options and the premium options vest in equal annual installments
over four years commencing on the second anniversary of the grant date. The agreement also provides for the grant of 55,793 immediately vested shares of Group common stock and the grant of 725,303
shares of Group common stock, which we refer to as the Drexler Restricted Shares. Mr. Drexler paid Group $200,000 for the initial options and $800,000 for the Drexler Restricted Shares. Under
the agreement, Mr. Drexler is subject to customary non-solicitation, non-compete and confidentiality covenants.

Pursuant
to the agreement, if Mr. Drexler's employment is terminated without "cause" or for "good reason" (each as defined in the services agreement), Mr. Drexler will be
entitled to receive his base salary for one year, the immediate vesting of any unvested Drexler Restricted Shares and the immediate vesting of that portion of the initial options and the premium
options that would have become vested and exercisable on the anniversary of the grant date immediately following the termination date. If such termination occurs after a "change in control" (as
defined in the services agreement), all of the unvested initial options and premium options will immediately vest and become exercisable.

In
September 2003, Mr. Drexler surrendered all of his premium options to the Company. In consideration of the surrender, we granted to Mr. Drexler replacement
premium options in May 2004 as follows: options to purchase 836,889 shares at an exercise price equal to $15.00 per share and options to purchase an additional 836,889 shares at an exercise
price equal to $25.00 per share. The replacement premium options have the same vesting schedule and other terms and conditions as the surrendered premium options. This option repricing was approved by
a majority of the Board of Directors.

We
refer you to footnote (c) to the Executive Compensation Table for information on the Drexler Restricted Shares and vesting thereof.

Roxane Al-Fayez.Ms. Al-Fayez has an offer letter, dated September 15, 2003, pursuant
to which she will serve as Executive Vice-President of Direct Operations. The letter provides for an annual base salary of $375,000, a one-time sign-bonus of
$50,000 payable after her start date and a one-time bonus of $50,000 payable in October 2004, and an annual bonus based on the achievement of earnings objectives and individual
performance goals to be determined each year, provided that the minimum bonus payable for fiscal year 2003 would be $50,000. The agreement also provides for (i) the grant of options to purchase
50,000 shares of Group common stock, which we refer to as initial options, and (ii) the grant of 25,000 shares of Group common stock, which we refer to as the Al-Fayez Restricted
Shares. The initial options have an exercise price of $6.82 per share and vest in equal annual installments over four years commencing on the first anniversary of the grant date.
Ms. Al-Fayez received relocation benefits and also receives a monthly housing allowance of $3,000 and reimbursement for certain commuting expenses.

30

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We
refer you to footnote (i) to the Executive Compensation Table for information on the Al-Fayez Restricted Shares and vesting thereof.

Tracy Gardner.Ms. Gardner has an employment agreement with the Company pursuant to which she will serve as Executive
Vice-President, Merchandising, Planning and Production for four years beginning in March 2004, subject to renewal upon mutual agreement. The agreement provides for a minimum annual
base salary of $450,000, a one-time sign-on bonus of $100,000, and an annual bonus based on the achievement of earnings objectives and individual performance goals to be
determined each year, provided that the minimum bonus payable for fiscal year 2004 would be $112,500. The agreement also provides for (i) the grant of options to purchase 50,000 shares of Group
common stock at an exercise price equal to $6.82 per share, which we refer to as initial options, and (ii) the grant of premium options to purchase an additional 20,000 shares of Group common
stock at an exercise price equal to $15.00 per share and 20,000 shares of Group common stock at an exercise price equal to $25.00 per share, which we refer to as premium options. The agreement also
provides for the grant in March 2005 of (x) an additional option to purchase 20,000 shares of Group common stock at an exercise price equal to $15.00 per share and (y) an
additional option to purchase 20,000 shares of Group common stock at an exercise price equal to $25.00 per share, which we refer to as the additional premium options. The initial options vest in equal
annual installments over four years commencing on the first anniversary of the grant date. The premium options and the additional premium options vest in equal installments over four years commencing
on the second anniversary of their respective grant dates. The agreement also provides for the grant of 50,000 shares of Group common stock, which we refer to as the Gardner Restricted Shares.
Ms. Gardner also received relocation benefits in connection with her relocation to the New York area. Under the agreement, Ms. Gardner is subject to customary non-solicitation,
non-compete and confidentiality covenants.

We
refer you to footnote (k) to the Executive Compensation Table for information on the vesting of the Gardner Restricted Shares and vesting thereof.

Pursuant
to the agreement, if Ms. Gardner's employment is terminated without "cause" or for "good reason" (each as defined in the employment agreement), Ms. Gardner will be
entitled to receive her base salary for one year and a pro-rated amount of any bonus that she would have otherwise received for the fiscal year ending before the termination date. However,
Ms. Gardner's right to the continuation of her base salary for one year will terminate upon the date that she becomes employed by a new employer or otherwise begins providing services for
another entity, provided that if the cash compensation she receives pursuant thereto is less than her base salary in effect immediately prior to her termination date, she will be entitled to receive
such incremental amount during the remainder of the severance period.

Jeffrey Pfeifle.Mr. Pfeifle has an employment agreement with the Company pursuant to which he will serve as President
for five years beginning on February 1, 2003, subject to automatic one-year renewals. The agreement provides for a minimum annual base salary of $760,000, one-time
bonuses in the total amount of $2,000,000 payable after his commencement date, an annual bonus based on the achievement of earnings objectives to be determined each year provided that the minimum
bonus payable for fiscal year 2003 would be $400,000, a long-term cash incentive payment between $800,000 and $1,200,000 based on the achievement of performance objectives to be determined
each year payable in installments at the end of fiscal years 2003 and 2004, and reimbursement of business expenses. The agreement also provides for (i) the grant of options to purchase 167,378
shares of Group common stock at an exercise price equal to $6.82 per share, which we refer to as initial options, and (ii) the grant of premium options to purchase an additional 111,585 shares
at an exercise price equal to $25.00 per share and 111,585 shares at an exercise price equal to $35.00 per share, which we refer to as premium options. The initial options and the premium options vest
in equal annual installments over four years commencing on the second anniversary of the grant date. The agreement also provides for the grant of 111,585 shares of Group common stock, which we refer
to as the Pfeifle Restricted Shares.

31

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Under
the agreement, Mr. Pfeifle is subject to customary non-solicitation, non-compete and confidentiality covenants.

Pursuant
to the agreement, if Mr. Pfeifle's employment is terminated without "cause" or for "good reason" (each as defined in the employment agreement), Mr. Pfeifle will be
entitled to receive his base salary for two years, a pro-rated amount of any bonus that he would have otherwise received for the fiscal year ending before the termination date, and the
immediate vesting of that portion of the initial options, premium options and Pfeifle Restricted Shares that would have become vested and exercisable on the anniversary of the grant date immediately
following the termination date. If such termination occurs after a "change in control" (as defined in the services agreement) or within six months before a "change in control" if in contemplation
thereof, all of the unvested initial options, premium options and Pfeifle Restricted Shares will immediately vest and become exercisable. If such termination occurs before February 1, 2006,
Mr. Pfeifle is entitled to receive a minimum of $2,000,000 in the form of cash severance compensation.

In
September 2003, Mr. Pfeifle received surrendered all of his premium options to the Company. In consideration of the surrender, we granted to Mr. Pfeifle
replacement premium options in May 2004 as follows: options to purchase 111,585 shares at an exercise price equal to $15.00 per share and options to purchase an additional 111,585 shares at an
exercise price equal to $25.00 per share. The replacement premium options have the same vesting schedule and other terms and conditions as the surrendered premium options. This option repricing was
approved by a majority of the Board of Directors.

We
refer you to footnote (f) to the Executive Compensation Table for information on the Pfeifle Restricted Shares and the vesting thereof.



On April 12, 2005, the Compensation Committee of the Company's Board of Directors approved the financial goals under the J.Crew Group, Inc. bonus
plan for fiscal 2005 (2005 Plan) for the annual cash bonus awards payable to our eligible employees participating in the 2005 Plan with respect to fiscal year 2005, including Messrs. Drexler,
Hyatt and Pfeifle and Mss. Al-Fayez and Gardner. The fiscal 2005 bonuses payable under the 2005 Plan will be based on to the extent to which we meet or exceed specific financial goals
established by the Compensation Committee and individual performance assessments as determined in the our discretion. For Messrs. Drexler, Hyatt and Pfeifle and Mss. Al-Fayez and
Gardner, the amount of the actual bonus award could range from zero to 100% of his or her annual base salary, with targets ranging from 35% to 50% of his or her annual base salary.



Mr. Hyatt has an agreement with the Company which provides that, in the event of a termination without "cause" (as defined in the agreement), he will
receive a continuation of his base salary and medical benefits for a period of one year after the termination date and the payment of any bonus that he would otherwise have received for the fiscal
year ending before the termination date.



The Drexler Restricted Shares, the Pfeifle Restricted Shares, the Al-Fayez Restricted Shares, the Gardner Restricted Shares and any shares of Group
common stock acquired by any of the named executive officers described above pursuant to the exercise of options are subject to a shareholders' agreement providing for certain transfer restrictions,
registration rights and customary tag-along and drag-along rights.

32

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In
addition, Mr. Drexler's shareholders' agreement provides him with certain rights to appoint three directors by himself and three additional directors by mutual agreement with
Texas Pacific Group, right to consent to our operating/capital budgets and certain anti-dilution and co-investment rights.



In fiscal 2004, the members of our Compensation Committee were Messrs. Coulter (Chairman) and Sloan and Ms. Woods. Ms. Woods is a former
Chairman, former Chief Executive Officer and former Vice-Chairman of the Company.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of the common stock of Group as of April 1, 2005 for each person who is known
to the Company to be the beneficial owner of 5% or more of Group common stock. The holders listed have sole voting power and investment power over the shares held by them, except as indicated by the
notes following the table.

Title of Class

Name and address of
Beneficial Owner

Amount and Nature of Beneficial Ownership

Percent
of ClassCommon stock

TPG Partners II, L.P.
301 Commerce Street,
Suite 3300
Fort Worth, TX 76102

8,932,291 shares
(a)(d)
51
%Common stock

Emily Woods
J. Crew Group, Inc.
770 Broadway
New York, NY 10003

2,767,377 shares
(b)
16
%Common stock

Millard S. Drexler
J. Crew Group, Inc.
770 Broadway
New York, NY 10003

2,639,700 shares
(c)
15
%


---

33

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The following table sets forth information regarding the beneficial ownership of each class of equity securities of Group as of April 1, 2005 for (a) each director,
(b) each of the named executive officers and (c) all directors and executive officers as a group.

The
holders listed have sole voting power and investment power over the shares held by them, except as indicated by the notes following the table.

|Title of Class           |  | Name of Beneficial Owner                        |  | Amount and Nature of
Beneficial Ownership |     | Percent of
Class |  
|------------------------ |  | ----------------------------------------------- |  | ----------------------------------------- | --- | ---------------- | -
|Common stock             |  | Richard Boyce                                   |  | 55,200                                    | (a) | *                |  
|Common stock             |  | Jonathan Coslet                                 |  | 8,932,211                                 | (b) | 51               | %
|Common stock             |  | James Coulter                                   |  | 8,932,211                                 | (b) | 51               | %
|Common stock             |  | Steven Grand-Jean                               |  | 12,500                                    | (c) | *                |  
|Common stock             |  | Thomas Scott                                    |  | 12,500                                    | (c) | *                |  
|Common stock             |  | Stuart Sloan                                    |  | 12,500                                    | (c) | *                |  
|Common stock             |  | Josh Weston                                     |  | 32,978                                    | (d) | *                |  
|Common stock             |  | Emily Woods                                     |  | 2,767,377                                 | (e) | 16               | %
|Common stock             |  | Millard Drexler                                 |  | 2,639,700                                 | (f) | 15               | %
|Common stock             |  | Roxane Al-Fayez                                 |  | 15,000                                    | (g) | *                |  
|Common stock             |  | Tracy Gardner                                   |  | 0                                         |     | *                |  
|Common stock             |  | Scott Hyatt                                     |  | 31,000                                    | (a) | *                |  
|Common stock             |  | Jeffrey Pfeifle                                 |  | 178,539                                   | (h) | 1                | %
|Common stock             |  | All directors and executive officers as a group |  | 14,689,505                                |     | 84               | %
|Series A preferred stock |  | Jonathan Coslet                                 |  | 73,475                                    | (b) | 79               | %
|Series A preferred stock |  | James Coulter                                   |  | 73,475                                    | (b) | 79               | %
|Series A preferred stock |  | Josh Weston                                     |  | 60                                        |     | *                |  
|Series A preferred stock |  | Emily Woods                                     |  | 2,979                                     |     | 3                | %
|Series A preferred stock |  | All directors and executive officers as a group |  | 76,514                                    |     | 83               | %
|                         |  |                                                 |  |                                           |     |                  |  

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34

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We
know of no arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Group and its subsidiaries entered into a tax sharing agreement providing (among other things) that each of the subsidiaries will reimburse Group for its share of
income taxes determined as if such subsidiary had filed its tax returns on a "separate return" basis.



On February 4, 2003, Operating entered into a credit agreement with TPG-MD Investment, LLC, an entity controlled by Texas Pacific Group, our
majority shareholder, and Millard Drexler, our Chief Executive Officer and Chairman of the Board, which provides for:



The
loans are due in February 2008 and bear interest at 5.0% per annum payable semi-annually in arrears on January 31 and July 31, commencing on
July 31, 2003. Interest will compound and be capitalized and added to the principal amount on each interest payment date. The loans are guaranteed by certain subsidiaries of Operating.

35

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The
lender has the right, exercisable at anytime prior to the maturity date, to exchange the principal amount of and accrued and unpaid interest on the loans into shares of common stock
of Group at an exercise price of $6.82 per share. The lender also has the right to require Operating to prepay the Tranche B loan without premium or penalty under certain circumstances.

In
November 2004, the credit agreement with TPG-MD Investment, LLC was amended to subordinate the Tranche A loan in right of payment to Operating's
93/4% Senior Subordinated Notes due 2014 while the Tranche B loan ispari passuin right of payment with such notes.

Under
the terms of TPG-MD Investment, LLC's operating agreement, the distributions payable to Mr. Drexler under this credit agreement go directly to MDJC LLC, an
entity whose sole members are Mr. Drexler and Grand-Jean Capital Management, which in turn is owned by Steven Grand-Jean, a Director of the Company. As payment for
certain financial advisory services that Mr. Grand-Jean rendered to Mr. Drexler and pursuant to MDJC LLC's operating agreement, Mr. Grand-Jean is entitled
to distributions under certain circumstances from his equity interest in MDJC LLC.



Stuart Sloan, a Director, is the President of UV, Inc., which is the general partner of University Village Limited Partnership, the owner and operator of
University Village Shopping Center in Seattle, Washington. On October 14, 2003, we entered into a lease agreement with University Village Limited
Partnership with respect to the lease of 7,400 square feet at the University Village Shopping Center for the operation of one of our retail stores. The term of the lease is 10 years. We
received an allowance for tenant's improvements in the amount of $450,000 from University Village Limited Partnership. Annual rent due under the lease is comprised of (i) base rent payment of
$296,000 for years one through five and $320,000 for years six through ten and (ii) contingent rent payment based on the store's sales in excess of a specified threshold. The lease also
requires us to pay real estate taxes, insurance and certain common area costs. We believe that the lease contains terms reached pursuant to arms-length negotiations. Mr. Sloan's
sons are the beneficiaries of trusts that are limited partners of University Village Limited Partnership.



Thomas Scott, a Director, is a founding partner, Chief Executive Officer and Executive Co-Chairman of Plum TV, LLC, a television station network
operating in select resort markets. In May 2004, we entered into a sponsorship agreement with Plum TV pursuant to which Plum TV provided us with airtime on its network to televise commercials.
The term of the agreement is one year and is scheduled to expire on May 31, 2005, although we currently plan to extend this arrangement. In fiscal 2004, we paid Plum TV, LLC a total amount of
$275,000, which we believe is the fair market value of the services provided. Emily Woods, also a Director, is married to Mr. Scott.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees.The aggregate fees billed to us by the independent registered public accounting firm, KPMG LLP, for professional
services rendered in connection with the audit of our financial statements included in this Annual Report on Form 10-K for fiscal 2004, and for review of our statements included in
our Quarterly Reports on Form 10-Q during fiscal 2004, totaled approximately $740,000. The aggregate fees billed to us by KPMG for professional services rendered in connection with
the audit of our financial statements included in our Annual Report on Form 10-K for fiscal 2003, and for the review of our financial statements included in our Quarterly Reports on
Form 10-Q during fiscal 2003, totaled approximately $668,350.

Audit-Related Fees.The aggregate fees billed to us by KPMG for assurance and related services that are reasonably related to
the performance of the audit and review of our financial statements that

36

---



are
not already reported in the paragraph immediately above totaled approximately $279,300 for fiscal 2003. These costs primarily related to services provided in connection with our exchange offer of
outstanding 131/8% Senior Discount Debentures for 16% Senior Discount Contingent Principal Notes, which was completed in May 2003. There were no audit-related fees in fiscal
2004.

Pre-Approval Policy.The Audit Committee has established policies on the pre-approval of audit and
other services that the independent auditor may perform for the Company. The Committee must pre-approve the annual audit fees payable to the independent auditor on an annual basis. The
Committee must also approve on a case-by-case basis their engagement for any other work to be performed for the Company that is not an integral component of the audit services
as well as the compensation payable to the independent auditor therefore.

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K









37

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38

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EXHIBIT INDEX

|Articles of Incorporation and By-Laws                                    
|-------------------------------------------------------------------------
|3.1                                                                      
|3.2                                                                      
|3.3                                                                      
|3.4                                                                      
|Instruments Defining the Rights of Security Holders, Including Indentures
|4.1                                                                      
|4.2                                                                      
|4.3                                                                      
|4.4                                                                      
|4.5                                                                      
|4.5                                                                      
|4.6                                                                      
|4.7                                                                      
|4.8                                                                      
|                                                                         

39

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|4.9                                                          |     | Stockholders' Agreement, dated as of February 12, 2003, among J. Crew Group, Inc., TPG Partners II, L.P. and Scott Gilbertson. Incorporated by reference to Exhibit 4.1 of the Form 8-K filed on February 14,
2003.                                                                                                                                                                                                                                                                                                   
|------------------------------------------------------------ | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Material Contracts                                          
|10.1                                                         | (a) | Loan and Security Agreement, dated as of December 23, 2002, by and among J. Crew Operating Corp., J. Crew Inc., Grace Holmes, Inc. and H.F.D. No. 55, Inc. as Borrowers, J. Crew Group, Inc. and J. Crew International, Inc. as
Guarantors, Wachovia Bank, National Association as Arranger, Congress Financial Corporation as Administrative and Collateral Agent, and the Lenders. Incorporated by reference to Exhibit 10.1 of the Form 8-K filed on December 27,
2002.                                            
|10.1                                                         | (b) | Amendment No. 1, dated as of February 7, 2003, to the Loan and Security Agreement. Incorporated by reference to Exhibit 10.1 of the Form 8-K filed on February 14, 2003.                                                                                                                                                                                                                                                                                                                                              
|10.1                                                         | (c) | Amendment No. 2, dated as of April 4, 2003, to the Loan and Security Agreement. Incorporated by reference to Exhibit 10.1 of the Form 8-K filed on April 8, 2003.                                                                                                                                                                                                                                                                                                                                                     
|10.1                                                         | (d) | Amendment No. 3, dated as of November 21, 2004, to the Loan and Security Agreement. Incorporated by reference to Exhibit 4.5 of the Form 8-K filed on December 28, 2004.                                                                                                                                                                                                                                                                                                                                              
|10.1                                                         | (e) | Amended and Restated Loan and Security Agreement, dated as of December 23, 2004, by and among J.Crew Group, Inc., J. Crew Intermediate LLC, J. Crew Operating Corp. and certain subsidiaries thereof, Wachovia Capital Markets LLC as sole lead
arranger and sole lead bookrunner, Wachovia Bank, National Association as Arranger, Congress Financial Corporation as Administrative Agent and Collateral Agent, and the Lenders. Incorporated by reference to Exhibit 4.6 of the Form 8-K filed
on December 28, 2004.
|10.2                                                         | (a) | Credit Agreement, dated as of February 4, 2003, by and between J.Crew Group, Inc., J.Crew Operating Corp., and certain subsidiaries thereof, and TPG-MD Investment, LLC. Incorporated by reference to Exhibit 10.1 of the Form 8-K filed on
February 7, 2003.                                                                                                                                                                                                                                                         
|10.2                                                         | (b) | Amendment No. 1, dated as of November 21, 2004, to the Credit Agreement. Incorporated by reference to Exhibit 4.4 of the Form 8-K filed on December 28, 2004.                                                                                                                                                                                                                                                                                                                                                         
|10.3                                                         |     | Senior Subordinated Loan Agreement, dated as of November 21, 2004, among J. Crew Operating Corp. as Borrower, and certain subsidiaries of J. Crew Operating Corp. as Guarantors, the Lenders, and U.S. Bank National Association as
Administrative Agent. Incorporated by reference to Exhibit 4.1 of the Form 8-K filed on December 28, 2004.                                                                                                                                                                        
|10.4                                                         |     | Security Agreement, dated as of November 21, 2004, among J. Crew Operating Corp., the grantors named therein and U.S. Bank National Association as Collateral Agent. Incorporated by reference to Exhibit 4.2 of the Form 8-K filed on
December 28, 2004.                                                                                                                                                                                                                                                             
|10.5                                                         |     | Intercreditor Agreement, dated as of November 21, 2004, among J. Crew Operating Corp., J.Crew Intermediate LLC and certain subsidiaries of J. Crew Operating Corp., Congress Financial Corporation as Senior Credit Agent, and U.S. Bank
National Association as Collateral Agent.                                                                                                                                                                                                                                    
|Management Contracts and Compensatory Plans and Arrangements
|10.6                                                         |     | Amended and Restated J. Crew Group, Inc. 1997 Stock Option Plan. Incorporated by reference to Exhibit 10.1 to the Form 10-Q for the period ended August 3, 2002.                                                                                                                                                                                                                                                                                                                                                      
|                                                             |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

40

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|10.7  | (a) | J. Crew Group, Inc. 2003 Equity Incentive Plan (the "2003 Plan"). Incorporated by reference to Exhibit 10.4 to the Form 10-K for the fiscal year ended February 1, 2003.                                                                
|----- | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7  | (b) | Amendment No. 1 to the 2003 Plan. Incorporated by reference to Exhibit 10.4(b) to Form 10-K for the fiscal year ended January 31, 2004.                                                                                                 
|10.8  |     | Separation Agreement, dated April 29, 2002, between the Company and Mark Sarvary. Incorporated by reference to Exhibit 10.5(d) to the Form 10-K for the fiscal year ended February 1, 2003.                                             
|10.9  | (a) | Services Agreement, dated January 24, 2003, between the Company, Millard S. Drexler, Inc. and Millard Drexler. Incorporated by reference to Exhibit 10.9 to the Form 10-K for the fiscal year ended February 1, 2003.                   
|10.9  | (b) | Option Surrender Agreement, dated September 25, 2003, between the Company and Millard Drexler. Incorporated by reference to Exhibit 10.9(b) to the Form 10-K for the fiscal year ended January 31, 2004.                                
|10.9  | (c) | Stock Option Grant Agreement with respect to certain replacement options, dated as of
May 12, 2004, between the Company and Millard Drexler. Incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended July 31, 2004.
|10.10 | (a) | Employment Agreement, dated January 24, 2003, between the Company and Jeffrey Pfeifle. Incorporated by reference to Exhibit 10.10 to the Form 10-K for the fiscal year ended February 1, 2003.                                          
|10.10 | (b) | Option Surrender Agreement, dated September 25, 2003, between the Company and Jeffrey Pfeifle. Incorporated by reference to Exhibit 10.10(b) to the Form 10-K for the fiscal year ended January 31, 2004.                               
|10.10 | (c) | Stock Option Grant Agreement with respect to certain replacement options, dated as of
May 12, 2004, between the Company and Jeffrey Pfeifle. Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarter ended July 31, 2004.
|10.11 |     | Separation Agreement, dated January 20, 2004, between the Company and Scott Gilbertson. Incorporated by reference to Exhibit 10.11(b) to Form 10-K for the fiscal year ended January 31, 2004.                                          
|10.12 |     | Form of Executive Severance Agreement between the Company and certain executives thereof. Incorporated by reference to Exhibit 10.14 to Form 10-K for the fiscal year ended February 2, 2002.                                           
|10.13 |     | Employment Agreement, dated January 23, 2004, between the Company and Tracy Gardner. Incorporated by reference to Exhibit 10.14 to Form 10-K for the fiscal year ended January 31, 2004.                                                
|10.14 |     | Separation Agreement, dated December 23, 2003, and letter agreement dated, January 26, 2004, between the Company and Kathy Boyer. Incorporated by reference to Exhibit 10.15 to Form 10-K for the fiscal year ended January 31,
2004.   
|10.15 |     | Employment Agreement, dated April 10, 2004, between the Company and Amanda Bokman. Incorporated by reference to Exhibit 10.16 to Form 10-K for the fiscal year ended January 31, 2004.                                                  
|10.16 | *   | Offer letter, dated September 15, 2003, from the Company to Roxane Al-Fayez.                                                                                                                                                            
|10.17 | *   | Separation Agreement, dated October 22, 2004, between the Company and Paul Fusco.                                                                                                                                                       
|      |     |                                                                                                                                                                                                                                         

41

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|10.18          | * | Lease Agreement, dated October 14, 2004, between a subsidiary of J. Crew Group, Inc. and University Village Limited Partnership relating to the Company's store in the University Village Shopping Center in Seattle, WA, and Guaranty of
J. Crew Group, Inc.
|-------------- | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Other Exhibits
|14             |   | Code of Ethics and Business Practices of the Company. Incorporated by reference to Exhibit 14 to Form 10-K for the fiscal year ended January 31, 2004.                                                                                                       
|21.1           |   | Subsidiaries of J. Crew Group, Inc. Incorporated by reference to Exhibit 21.1 to Form 10-K for the fiscal year ended January 31, 2004.                                                                                                                       
|23.1           | * | Consent of KPMG LLP, Independent Registered Public Accounting Firm.                                                                                                                                                                                          
|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.                                                                                                                              

---

42

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|Date: April 29, 2005 |  | J. CREW GROUP, INC.
J. CREW OPERATING CORP.
|-------------------- |  | -------------------------------------------
|                     |  | By:                                        

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each registrant and in the capacities
indicated, on April 29, 2005.

|Signature                             |  | Title                                                                                      
|------------------------------------- |  | -------------------------------------------------------------------------------------------
|                                      |  |                                                                                            
|/s/MILLARD DREXLERMillard Drexler     |  | Chairman of the Board, Chief Executive Officer and a Director (Principal Executive Officer)
|/s/AMANDA BOKMANAmanda Bokman         |  | Executive Vice President and Chief Financial Officer (Principal Financial Officer)         
|/s/NICHOLAS LAMBERTINicholas Lamberti |  | Vice President and Corporate Controller
(Principal Accounting Officer)                     
|/s/RICHARD BOYCERichard Boyce         |  | Director                                                                                   
|/s/JONATHAN COSLETJonathan Coslet     |  | Director                                                                                   
|/s/JAMES COULTERJames Coulter         |  | Director                                                                                   
|/s/STEVEN GRAND-JEANSteven Grand-Jean |  | Director                                                                                   
|                                      |  |                                                                                            

43

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|/s/THOMAS SCOTTThomas Scott |  | Director
|--------------------------- |  | --------
|/s/STUART SLOANStuart Sloan |  | Director
|/s/JOSH WESTONJosh Weston   |  | Director
|/s/EMILY WOODSEmily Woods   |  | Director

44

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INDEX TO FINANCIAL STATEMENTS

|Report of KPMG LLP, Independent Registered Public Accounting Firm                                                                        |  | F-2 
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|J. Crew Group, Inc. and subsidiaries:                                                                                                    |  |     
|Consolidated Balance Sheets as of January 29, 2005 and January 31, 2004                                                                  |  | F-3 
|Consolidated Statements of OperationsYears Ended January 29, 2005, January 31, 2004 and February 1, 2003                                |  | F-4 
|Consolidated Statements of Changes in Stockholders' DeficitYears Ended January 29, 2005, January 31, 2004 and February 1, 2003          |  | F-5 
|Consolidated Statements of Cash FlowsYears Ended January 29, 2005, January 31, 2004 and February 1, 2003                                |  | F-6 
|J. Crew Operating Corp. and subsidiaries:                                                                                                |  |     
|Consolidated Balance Sheets as of January 29, 2005 and January 31, 2004                                                                  |  | F-7 
|Consolidated Statements of OperationsYears Ended January 29, 2005, January 31, 2004 and February 1, 2003                                |  | F-8 
|Consolidated Statements of Changes in Stockholders' Equity (Deficit)Years Ended January 29, 2005, January 31, 2004 and February 1, 2003 |  | F-9 
|Consolidated Statements of Cash FlowsYears Ended January 29, 2005, January 31, 2004 and February 1, 2003                                |  | F-10
|Notes to Consolidated Financial Statements                                                                                               |  | F-11
|Financial Statement Schedules:                                                                                                           |  |     
|Schedule IIValuation and Qualifying AccountsYears Ended January 29, 2005, January 31, 2004 and February 1, 2003                        |  | F-27

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
J. Crew Group Inc, and J. Crew Operating Corp.

We have audited the consolidated financial statements of J. Crew Group Inc. ("Group") and J. Crew Operating Corp., a wholly owned subsidiary
of Group ("Operating") (together referred to as the "Companies") as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the
financial statement schedule listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Companies management. Our
responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Companies are not required to have, nor were we engaged to perform, an audit of their
internal controls over financial reporting. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Group and Operating as of January 29,
2005, and January 31, 2004 and the results of their operations and their cash flows for each of the years in the three-year period ended January 29, 2005, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As
discussed in Note 6 to the consolidated financial statements, in the third quarter of fiscal 2003, Group adopted Statement of Financial Accounting Standard No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity".

As
discussed in Note 2, the Companies restated the consolidated statements of cash flows for the years ended January 31, 2004 and February 1, 2003, to reclassify the
proceeds from construction allowances from cash flows from investing activities to cash flows from operating activities.

KPMG
LLP
New York, New York
April 4, 2005

F-2

---





J.CREW GROUP, INC. AND  SUBSIDIARIES        Consolidated Balance Sheets

January 29, 2005

January 31, 2004(in thousands)AssetsCurrent assets:Cash and cash equivalents

$
23,647

$
49,650Merchandise inventories


88,093


66,028Prepaid expenses and other current assets


22,217


20,733Refundable income taxes


9,320


9,320Total current assets


143,277


145,731Property and equipmentat cost


259,098


284,945Less accumulated depreciation and amortization


(138,285
)

(146,565
)120,813


138,380Other assets


14,104


13,500Total assets

$
278,194

$
297,611Liabilities and Stockholders' DeficitCurrent liabilities:Current portion of long-term debt

$


$
1,164Accounts payable


68,569


49,386Other current liabilities


61,148


47,789Federal and state income taxes


1,392


1,175Total current liabilities


131,109


99,514Deferred credits


59,064


56,723Long-term debt


576,933


516,640Preferred stock


92,800


92,800Stockholders' deficit


(581,712
)

(468,066
)Total liabilities and stockholders' deficit

$
278,194

$
297,611


See
accompanying notes to consolidated financial statements.

F-3

---





J.CREW GROUP, INC. AND  SUBSIDIARIES        Consolidated Statements of Operations

Years EndedJanuary 29, 2005

January 31, 2004

February 1, 2003(in thousands)Revenues:Net sales

$
778,295

$
660,628

$
732,279Other


25,921


29,337


36,065804,216


689,965


768,344Cost of goods sold, including buying and occupancy costs


478,829


440,276


472,262Gross profit


325,387


249,689


296,082Selling, general and administrative expenses


287,745


280,464


301,718Income/(loss) from operations


37,642


(30,775
)

(5,636
)Interest expensenet


87,571


63,844


40,954Insurance proceeds





(3,850
)

(1,800
)(Gain)/loss on refinancing of debt (net of expenses of $2,922 in 2003)


49,780


(41,085
)

Loss before income taxes


(99,709
)

(49,684
)

(44,790
)Income taxes (provision)/benefit


(600
)

(500
)

4,200Net loss

$
(100,309
)
$
(50,184
)
$
(40,590
)


See
accompanying notes to consolidated financial statements.

F-4

---





J.CREW GROUP, INC. AND  SUBSIDIARIES        Consolidated Statements of Changes in Stockholders' Deficit        (in thousands, except shares)

Common StockAdditional
paid-in
capital

Accumulated
deficit

Treasury
stock

Deferred
compensation

Stockholders'
deficitShares

AmountBalance at February 2, 2002

12,238,189

$
122

$
70,690

$
(387,186
)
$
(2,351
)
$
(318
)
$
(319,043
)Net loss










(40,590
)







(40,590
)Preferred stock dividends










(33,578
)







(33,578
)Issuance of common stock

12,318


1


283











284Issuance of restricted stock

1,109,266


11


1,100








(311
)

800Amortization of restricted stock
















464


464Balance at February 1, 2003

13,359,773


134


72,073


(461,354
)

(2,351
)

(165
)

(391,663
)Net loss










(50,184
)







(50,184
)Preferred stock dividends










(26,260
)







(26,260
)Issuance of restricted stock

224,402


2


163








(165
)

Amortization of restricted stock
















41


41Forfeiture of restricted stock













(62
)

62


Balance at January 31, 2004

13,584,175


136


72,236


(537,798
)

(2,413
)

(227
)

(468,066
)Net loss










(100,309
)







(100,309
)Preferred stock dividends










(13,456
)







(13,456
)Issuance of restricted stock

196,000


1


144








(145
)

Amortization of restricted stock
















119


119Balance at January 29, 2005

13,780,175

$
137

$
72,380

$
(651,563
)
$
(2,413
)
$
(253
)
$
(581,712
)


See
accompanying notes to consolidated financial statements.

F-5

---





J.CREW GROUP, INC. AND  SUBSIDIARIES        Consolidated Statements of Cash Flows

Years EndedJanuary 29,
2005

January 31,
2004

February 1,
2003(restated)

(restated)(in thousands)Cash flows from operating activities:Net loss

$
(100,309
)
$
(50,184
)
$
(40,590
)Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization


37,061


43,075


43,197Amortization of deferred financing costs


2,425


2,179


4,435Non-cash interest expense (including redeemable preferred stock dividends of $33,106 in 2004 and $14,206 in 2003)


63,536


40,991


12,313Deferred income taxes





5,000


7,421Non-cash compensation expense


119


41


(589
)(Gain)/loss on refinancing of debt


49,780


(41,085
)

Changes in operating assets and liabilities:Merchandise inventories


(22,065
)

41,290


31,600Prepaid expenses and other current assets


(1,484
)

4,153


2,140Other assets


664


832


(2,470
)Accounts payable and other liabilities


28,819


(23,211
)

(13,531
)Federal and state income taxes


217


(4,845
)

(12,140
)Net cash provided by operating activities


58,763


18,236


31,786Cash flow from investing activities:Capital expenditures


(13,431
)

(9,908
)

(26,920
)Cash flow from financing activities:Proceeds from long-term debt


275,000


25,820


Costs incurred in refinancing debt


(22,137
)

(2,617
)

(3,256
)Repayment of long-term debt


(324,198
)

(776
)

Proceeds from the issuance of common stock








1,084Net cash provided by (used in) financing activities


(71,335
)

22,427


(2,172
)Increase (decrease) in cash and cash equivalents


(26,003
)

30,755


2,694Cash and cash equivalents at beginning of year


49,650


18,895


16,201Cash and cash equivalents at end of year

$
23,647

$
49,650

$
18,895Supplementary cash flow information:Income taxes paid

$
411

$
345

$
453Interest paid

$
23,270

$
20,400

$
19,380Non-cash financing activities:Dividends on preferred stock (charged directly to stockholder's deficit)

$
13,456

$
26,260

$
33,578Interest payable on 131/8% Senior Discount Debentures at February 1, 2003 capitalized and added to the principal amount of the 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 131/8% Senior Discount Debentures of J.Crew Group,
Inc.











See accompanying notes to consolidated financial statements.

F-6

---





J.CREW OPERATING CORP. AND  SUBSIDIARIES        Consolidated Balance Sheets

January 29,
2005

January 31,
2004(in thousands)AssetsCurrent assets:Cash and cash equivalents

$
23,647

$
49,650Merchandise inventories


88,093


66,028Prepaid expenses and other current assets


22,217


20,733Refundable income taxes


9,320


9,320Total current assets


143,277


145,731Property and equipmentat cost


259,098


284,945Less accumulated depreciation and amortization


(138,285
)

(146,565
)120,813


138,380Due from J.Crew Group, Inc.


178,757


Other assets


13,971


11,091Total assets

$
456,818

$
295,202Liabilities and Stockholder's DeficitCurrent liabilities:Current portion of long-term debt

$


$
1,164Accounts payable


68,569


49,386Other current liabilities


60,314


46,942Federal and state income taxes


1,392


1,175Total current Liabilities


130,275


98,667Deferred credits


59,064


56,723Long-term debt


297,000


174,880Due to J.Crew Group, Inc.





5,897Stockholder's deficit


(29,521
)

(40,965
)Total liabilities and stockholder's deficit

$
456,818

$
295,202


See
accompanying notes to consolidated financial statements.

F-7

---





J.CREW OPERATING CORP. AND  SUBSIDIARIES        Consolidated Statements of Operations

|                                                          |           | Years Ended |        
|--------------------------------------------------------- | --------- | ----------- | -------
|
|
|Revenues:                                                 |           |             |        
|                                                          | Net sales |             | $      
|                                                          | Other     |             |        
|                                                          |           |             |        
|                                                          |           |             | 804,216
|Costs of goods sold, including buying and occupancy costs |           |             | 478,829
|                                                          |           |             |        
|Gross profit                                              |           |             | 325,387
|Selling, general and administrative expenses              |           |             | 287,704
|                                                          |           |             |        
|Income/(loss) from operations                             |           |             | 37,683 
|Interest expensenet                                      |           |             | 21,615 
|Loss on refinancing of debt                               |           |             | 4,024  
|Insurance proceeds                                        |           |             |       
|                                                          |           |             |        
|Income/(loss) before income taxes                         |           |             | 12,044 
|Income taxes(provision)/benefit                          |           |             | (600   
|                                                          |           |             |        
|Net income/(loss)                                         |           | $           | 11,444 
|                                                          |           |             |        

See
accompanying notes to consolidated financial statements.

F-8

---





J.CREW OPERATING CORP. AND  SUBSIDIARIES        Statement of Changes in Stockholder's Equity/(Deficit)

|                            |  | (in thousands) |        
|--------------------------- |  | -------------- | -------
|Balance at February 2, 2002 |  | $              | 19,147 
|Net loss                    |  |                | (8,822 
|                            |  |                |        
|Balance at February 1, 2003 |  |                | 10,325 
|Net loss                    |  |                | (41,970
|Dividends to affiliates     |  |                | (9,320 
|                            |  |                |        
|Balance at January 31, 2004 |  |                | (40,965
|Net income                  |  |                | 11,444 
|                            |  |                |        
|Balance at January 29, 2005 |  | $              | (29,521
|                            |  |                |        

Note:    Operating
Corp. has authorized 100 shares of common stock, par value $.01 per share, all of
              which were issued and outstanding during the three year period ended January 29, 2005.

See
accompanying notes to consolidated financial statements.

F-9

---





J.CREW OPERATING CORP. AND  SUBSIDIARIES        Consolidated Statements of Cash Flows

|                                                                                         |                                           | Years Ended |        
|---------------------------------------------------------------------------------------- | ----------------------------------------- | ----------- | -------
|
|
|
|Cash flows from operating activities:                                                    |                                           |             |        
|Net income (loss)                                                                        |                                           | $           | 11,444 
|Adjustments to reconcile net income/(loss) to net cash provided in operating activities: |                                           |             |        
|                                                                                         | Depreciation and amortization             |             |        
|                                                                                         | Amortization of deferred financing costs  |             |        
|                                                                                         | Deferred income taxes                     |             |        
|                                                                                         | Non-cash compensation expense             |             |        
|                                                                                         | Non-cash interest expense                 |             |        
|                                                                                         | Loss on refinancing of debt               |             |        
|Changes in operating assets and liabilities:                                             |                                           |             |        
|                                                                                         | Merchandise inventories                   |             |        
|                                                                                         | Prepaid expenses and other current assets |             |        
|                                                                                         | Other assets                              |             |        
|                                                                                         | Accounts payable and other liabilities    |             |        
|                                                                                         | Federal and state income taxes            |             |        
|                                                                                         |                                           |             |        
|Net cash provided by operating activities                                                |                                           |             | 61,576 
|                                                                                         |                                           |             |        
|Cash flow from investing activities:                                                     |                                           |             |        
|                                                                                         | Capital expenditures                      |             |        
|                                                                                         |                                           |             |        
|Cash flow from financing activities:                                                     |                                           |             |        
|                                                                                         | Proceeds from long-term debt              |             |        
|                                                                                         | Transfers to affiliate                    |             |        
|                                                                                         | Costs incurred in refinancing debt        |             |        
|                                                                                         | Repayment of long-term debt               |             |        
|                                                                                         |                                           |             |        
|Net cash provided by/(used in) financing activities                                      |                                           |             | (74,148
|Increase/(decrease) in cash and cash equivalents                                         |                                           |             | (26,003
|Cash and cash equivalents at beginning of year                                           |                                           |             | 49,650 
|                                                                                         |                                           |             |        
|Cash and cash equivalents at end of year                                                 |                                           | $           | 23,647 
|                                                                                         |                                           |             |        

See
accompanying notes to consolidated financial statements.

F-10

---





J.CREW GROUP, INC. AND SUBSIDIARIES        J.CREW OPERATING CORP. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        Fiscal Year Ended January 29,
2005  Dollars in thousands, unless otherwise indicated

1.    Nature Of Business And Summary Of Significant Accounting Policies

The
consolidated financial statements included herein are:



All
significant intercompany balances and transactions are eliminated in consolidation.

Except
where otherwise specified all notes to the consolidated financial statements apply to both Operating and Group.

The
Company designs, contracts for the manufacture of, markets and distributes men's and women's apparel, shoes and accessories under the J.Crew brand name. The Company's products are
marketed, primarily in the United States, through various channels of distribution, including retail and factory outlet stores, catalogs, and the Internet. The Company is also party to a licensing
agreement which grants the licensee exclusive rights to use the Company's trademarks in connection with the manufacture and sale of products in Japan. The license agreement provides for payments based
on a specified percentage of net sales.

The
Company is subject to seasonal fluctuations in its merchandise sales and results of operations. The Company expects its sales and operating results generally to be lower in the first
and second quarters than in the third and fourth quarters (which include the back-to-school and holiday seasons) of each fiscal year.

A
significant amount of the Company's products are produced in Asia through arrangements with independent contractors. As a result, the Company's operations could be adversely affected
by political instability resulting in the disruption of trade from the countries in which these contractors are located or by the imposition of additional duties or regulations relating to imports or
by the contractor's inability to meet the Company's production requirements.

The
Company operates in one reportable business segment. All of the Company's identifiable assets are located in the United States. Export sales are not significant.

F-11

---



The
Company's fiscal year ends on the Saturday closest to January 31. The fiscal years 2004, 2003 and 2002 ended on January 29, 2005, January 31, 2004 and
February 1, 2003 and each fiscal year consisted of 52 weeks.

For
purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments, with maturities of 90 days or less when purchased, to be cash
equivalents. Cash equivalents, which were $14,192 and $43,312 at January 29, 2005 and January 31, 2004, respectively, are stated at cost, which approximates market value.

Merchandise
inventories are stated at the lower of average cost or market. The Company capitalizes certain design, purchasing and warehousing costs in inventory and these costs are
included in cost of goods sold as the inventories are sold.

Direct
response advertising, which consists primarily of catalog production and mailing costs, are capitalized and amortized over the expected future revenue stream. The Company accounts
for catalog costs in accordance with the AICPA Statement of Position ("SOP") 93-7, "Reporting on Advertising Costs." SOP 93-7 requires that the amortization of capitalized
advertising costs be the amount computed using the ratio that current period revenues for the catalog cost pool bear to the total of current and estimated future period revenues for that catalog cost
pool. The capitalized costs of direct response advertising are amortized, commencing with the date catalogs are mailed, over the duration of the expected revenue stream, which was four months for the
fiscal years 2002, 2003 and 2004. Deferred catalog costs, included in prepaid expenses and other current assets, as of January 29, 2005 and January 31, 2004 were $6,478 and $6,411,
respectively. Catalog costs, which are reflected in selling and administrative expenses, for the fiscal years 2004, 2003 and 2002 were $41,258, $43,978 and $56,695, respectively.

All
other advertising costs, which are not significant, are expensed as incurred.

Property
and equipment are stated at cost and are depreciated over the estimated useful lives by the straight-line method. Buildings and improvements are depreciated over
estimated useful lives of twenty years. Furniture, fixtures and equipment are depreciated over estimated useful lives, ranging from three to ten years. Leasehold improvements (including rent
capitalized during the construction period) are amortized over the shorter of their useful lives or related lease terms (without consideration of optional renewal periods).

Systems
development costs are capitalized and amortized on a straight-line basis over periods ranging from three to five years.

F-12

---



Debt
issuance costs (included in other assets) are amortized over the term of the related debt agreements. Unamortized debt issuance costs are as follows:

January 29, 2005

January 31, 2004Group

$
132

$
2,409Operating


7,897


3,966Total

$
8,029

$
6,375


The
Company accounts for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". This statement requires the
use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred taxes are determined based on the difference between the financial reporting and
tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The provision for income taxes includes taxes currently payable and
deferred taxes resulting from the tax effects of temporary differences between the financial statement and tax bases of assets and liabilities.

Revenue
is recognized for catalog and internet sales when merchandise is shipped to customers and at the time of sale for retail sales. Shipping terms for catalog and internet sales are
FOB shipping point, and title passes to the customer at the time and place of shipment. Prices for all merchandise are listed in the Company's catalogs and website and are confirmed with the customer
upon order. The customer has no cancellation privileges other than customary rights of return that are accounted for in accordance with SFAS No. 48 "Revenue Recognition
When Right of Return Exists." The Company accrues
a sales return allowance for estimated returns of merchandise subsequent to the balance sheet date that relate to sales prior to the balance sheet date. Amounts billed to customers for shipping and
handling fees related to catalog and internet sales are included in other revenues at the time of shipment. Royalty revenue is recognized as it is earned based on contractually specified percentages
applied to reported sales. Advance royalty payments are deferred and recorded as revenue when the related sales occur. Other revenues include estimated amount of unredeemed gift card liability based
on Company specific historical trends, which amounted to $1,410, $1,676 and $1,962 in fiscal years 2004, 2003, and 2002, respectively.

Cost
of goods sold (including buying and occupancy costs) includes the direct cost of purchased merchandise, inbound freight, design, buying and production costs, occupancy costs related
to store operations and all shipping and handling and delivery costs associated with our J.Crew Direct business.

F-13

---



Selling,
general and administrative expenses include all operating expenses not included in cost of goods sold, primarily catalog production and mailing costs, certain warehousing
expenses, which aggregated $10,816, $9,860 and $10,440 for fiscal years 2004, 2003 and 2002, respectively, administrative payroll, store expenses other than occupancy costs, depreciation and
amortization and credit card fees.

Costs
associated with the opening of new retail and factory outlet stores are expensed as incurred.

Derivative
financial instruments have been used by the Company from time to time to manage its interest rate and foreign currency exposures. The Company does not enter into derivative
financial
instruments for speculative purposes. For interest rate swap agreements, the net interest paid is recorded as interest expense on a current basis. Gains or losses resulting from market fluctuations
are not recognized. The Company from time to time enters into forward foreign exchange contracts as hedges relating to identifiable currency positions to reduce the risk from exchange rate
fluctuations.

The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

The
Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company assesses the recoverability of such assets based upon estimated cash flow forecasts. Charges of $146, $675 and $137 were incurred in fiscal 2004, 2003 and
2002 to write-down the carrying value of certain long-lived assets.

The
Company accounts for stock-based compensation using the intrinsic value method of accounting for employee stock options as permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation". Accordingly, compensation expense is not recorded for options granted if the option price is equal to or in excess of the fair market price at the date of grant. If the
Company had adopted the fair value recognition provisions of SFAS No. 123, the effect on net income would not be material.

Restricted
stock awards result in the recognition of deferred compensation, which is charged to expense over the vesting period of the awards. Deferred compensation is presented as a
reduction of stockholders' equity. Total compensation expense recorded with respect to stock-based compensation, all of which related to restricted stock awards, amounted to $119, $41 and $464 in
2004, 2003 and 2002, respectively.

F-14

---



Rental
payments under operating leases are charged to expense on a straight-line basis after consideration of step rent provisions and escalation clauses. Differences between
rental expense and actual rental payments are recorded as deferred rent and included in deferred credits. The Company capitalizes rent expense during the period from possession date through the
completion of store construction. Rent is expensed subsequent to the end of construction. Capitalized rent is amortized over the lease term (without consideration of optional renewal periods).

The
Company receives construction allowances upon entering into certain store leases. These construction allowances are recorded as deferred credits and are amortized as a reduction of
rent expense over the term of the related lease. Deferred construction allowances were $39,250 and $43,668 at January 29, 2005 and January 31, 2004, respectively.

Certain
prior year amounts have been reclassified to conform with current year's presentation.

2.    Restatement

During the fourth quarter of fiscal 2004, the Company determined that it had misclassified proceeds from construction allowances in the consolidated statement of
cash flows. As a result, the consolidated statements of cash flows for Group and Operating for the years ended January 31, 2004 and February 1, 2003 have been restated to reclassify the
proceeds from construction allowances from cash flows from investing activities to cash flows from operating activities. There was no effect on the Company's consolidated balance sheet or consolidated
statement of operations.

F-15

---



The
effects of the reclassification are as follows:

|                                        |             | Year Ended |  
|--------------------------------------- | ----------- | ---------- | -
|
|Accounts payable and other liabilities: |             |            |  
|Group:                                  |             |            |  
|                                        | As reported |            | $
|                                        |             |            |  
|                                        | As restated |            | $
|                                        |             |            |  
|Operating:                              |             |            |  
|                                        | As reported |            | $
|                                        |             |            |  
|                                        | As restated |            | $
|                                        |             |            |  
|Cash flows from operating activities:   |             |            |  
|Group:                                  |             |            |  
|                                        | As reported |            | $
|                                        |             |            |  
|                                        | As restated |            | $
|                                        |             |            |  
|Operating:                              |             |            |  
|                                        | As reported |            | $
|                                        |             |            |  
|                                        | As restated |            |  
|                                        |             |            |  
|Proceeds from construction allowances:  |             |            |  
|Group and Operating                     |             |            |  
|                                        | As reported |            | $
|                                        |             |            |  
|                                        | As restated |            | $
|                                        |             |            |  
|Cash flows from investing activities:   |             |            |  
|Group:                                  |             |            |  
|                                        | As reported |            | $
|                                        |             |            |  
|                                        | As restated |            | $
|                                        |             |            |  
|Operating:                              |             |            |  
|                                        | As reported |            | $
|                                        |             |            |  
|                                        | As restated |            | $
|                                        |             |            |  

F-16

---





3.    Insurance Proceeds

The terrorist events of September 11, 2001 resulted in the destruction of the Company's retail store located at the World Trade Center in New York City,
resulting in the loss of inventories and store fixtures, equipment and leasehold improvements. These losses and the resulting business interruption were covered by insurance policies maintained by the
Company.

The
statement of operations for the years ended January 31, 2004 and February 1, 2003 include gains of $3,850 and $1,800 as a result of additional insurance recoveries. No
additional insurance recoveries are payable to the Company relating to this loss.

4.    Property and Equipment

Property and equipment, net consists of:

January 29, 2005

January 31, 2004Land

$
1,710

$
1,710Buildings and improvements


11,712


11,705Fixtures and equipment


68,811


90,898Leasehold improvements


173,725


176,740Construction in progress


3,140


3,892259,098


284,945Less accumulated depreciation and amortization


138,285


146,565$
120,813

$
138,380


5.    Other Current Liabilities

Other current liabilities consist of:

January 29, 2005

January 31, 2004Customer liabilities

$
14,095

$
9,089Accrued catalog and marketing costs


801


2,505Taxes, other than income taxes


3,115


3,046Accrued interest(a)


3,664


5,330Accrued occupancy


1,141


817Reserve for sales returns


4,831


2,988Accrued compensation


8,465


3,535Other


25,036


20,479$
61,148

$
47,789




F-17

---





6.    Lines of Credit

On December 23, 2004, Operating entered into an Amended and Restated Loan and Security Agreement with Wachovia Capital Markets LLC, as arranger, Wachovia
Bank, National Association, as administrative agent, Bank of America NA, as syndication agent, and Congress Financial Corporation, as collateral agent, and a syndicate of lenders (the "Amended
Wachovia Credit Facility") which provides for a maximum credit availability of up to $170.0 million (which may be increased to $250.0 million subject to certain conditions).

The
Amended Wachovia Credit Facility provides for revolving loans and letter of credit accommodations. The Amended Wachovia Credit Facility expires in December 2009. The total
amount of availability is subject to limitations based on specified percentages of eligible receivables, inventories and real property. As of January 29, 2005 excess availability under the
Amended Wachovia Credit Facility was $27.0 million.

Borrowings
are secured by a perfected first priority security interest in all the assets of Intermediate and its subsidiaries and bear interest, at the Company's option, at the prime
rate plus a margin of up to 0.25% or the Eurodollar rate plus a margin ranging from 1.25% to 2.00%. The Company is required to pay a monthly unused line fee ranging from .25% to .375%. Fees for
outstanding commercial letters of credit range from .625% to 1.0% and fees for outstanding standby letters of credit are 1.25%.

The
Amended Wachovia Credit Facility includes restrictions, including the incurrence of additional indebtedness, the payment of dividends and other distributions, the making of
investments, the granting of loans and the making of capital expenditures. The Amended Wachovia Credit Facility permits restricted payments (by way of dividends or other distributions) with respect
to, among other things, the Company's capital stock payable solely in additional shares of its capital stock, the Company's tax sharing agreement, the Series A Preferred Stock of Group, the
Series B Preferred Stock of Group and the 131/8% Senior Discount Debentures due 2008 of Group. The ability of Operating to declare dividends on its capital stock is also limited
by Delaware law, which permits a company to pay dividends on its capital stock only out of its surplus or, in the event that it has no surplus, out of its net profits for the year in which a dividend
is declared or for the immediately preceding fiscal year. Under the Amended Wachovia Credit Facility, Operating is required to maintain a fixed interest charge coverage ratio of 1.1 if excess
availability is less than $20.0 million for any 30 consecutive day period. Operating has at all times been in compliance with all financial covenants.

Maximum
borrowings under our working capital credit agreements were none, $10,000 and $63,000 and average borrowings were none, $1,020 and $40,400 during fiscal years 2004, 2003 and
2002, respectively. There were no borrowings outstanding at January 29, 2005 and January 31, 2004.

Outstanding
letters of credit established primarily to facilitate international merchandise purchases at January 29, 2005 and January 31, 2004 amounted to $58,700 and
$39,500.

F-18

---



7.    Long-Term Debt and Preferred Stock

January 29, 2005

January 31, 2004Operating:93/4% senior subordinated notes(a)

$
275,000

$
5% notes payable(b)


22,000


21,000103/8% senior subordinated notes(c)





150,000Wachovia credit facility





5,044Less amount due within one year





(1,164
)Total Operating long-term debt


297,000


174,880Intermediate:16% senior discount contingent principal notes (net of unamortized debt issuance discount of $38,677)(d)





108,389Group:131/8% senior discount debentures(e)


21,667


21,667Mandatorily redeemable preferred stock(f)


258,266


211,704Total Group long-term debt


576,933


516,640Group preferred stock(f)


92,800


92,800Total Group long-term debt and preferred stock

$
669,733

$
609,440


The
scheduled payments of long term debt are $43.7 million in 2008, $258.3 million in 2009 and $275.0 million in 2014.

---

(a)   On
November 21, 2004, Operating entered into a Senior Subordinated Loan Agreement with entities managed by Black Canyon Capital LLC and Canyon Capital Advisors
LLC, which provided for a term loan of $275 million. The proceeds of the term loan were used to redeem in full Operating's outstanding 103/8% senior subordinated notes due 2007
($150 million) and to redeem in part Intermediate's 16% senior discount contingent principal notes due 2008 ($125 million). On March 18, 2005, the term loan was converted into
equivalent new 93/4% senior subordinated notes of Operating due 2014 (93/4% senior subordinated notes) in accordance with the terms of the loan agreement.

The
93/4% senior subordinated notes are general senior subordinated obligations of the Operating and certain subsidiaries of Operating and Intermediate, are subordinated
in right of payment to their existing and future senior debt, are pari passu in right of payment with any of their future senior subordinated debt and are senior in right of payment to any of their
future subordinated debt. Operating's existing domestic subsidiaries, other than non-guarantor subsidiaries, are guarantors of the 93/4% senior subordinated notes. The
93/4% senior subordinated notes are secured by the assets of Operating and certain subsidiaries of Operating and by Operating's common stock owned by

F-19

---



Intermediate
and such security interest is junior in priority to that securing first-lien obligations, including those under the Amended Wachovia Credit Facility.

Interest
on the notes accrues at the rate of 93/4% per annum and is payable semi-annually in arrears on each June 23 and December 23. The notes mature on
December 23, 2014. The notes may be redeemed at the option of the issuer, in whole or in part, at 101% of the principal amount at any time until June 23, 2006 and thereafter, at any time
on or after December 23, 2009 at prices ranging from 104.875% to 100% of the principal amount, in each case, plus accrued and unpaid interest on the notes.

The
indenture governing the 93/4% senior subordinated notes contains covenants that, among other things, limit the ability of Operating and certain subsidiaries of
Operating to incur additional indebtedness or issue disqualified stock or preferred stock, pay dividends or make other distributions on, redeem or repurchase the capital stock of Operating, make
certain investments, create certain liens, guarantee indebtedness, engage in transactions with affiliates and consolidate, merge or transfer all or substantially all of the assets of Operating and
certain subsidiaries of Operating.

Under
the indenture governing the 93/4% senior subordinated notes, Operating may declare cash dividends payable to Group in an amount sufficient to enable Group to make
the regularly scheduled payment of interest in respect of the senior discount debentures of Group so long as no default or event of default has occurred and is continuing under the indenture. The
ability of Operating to declare dividends on its capital stock is also limited by Delaware law, which permits a company to pay dividends on its capital stock only out of its surplus or, in the even
that it has no surplus, out of its net profits for the year in which a dividend is declared or for the immediately preceding fiscal year. In order to pay dividends in cash, Operating must have surplus
or net profits equal to the full amount of the cash dividend at the time such dividend is declared. In determining Operating's ability to pay dividends, Delaware law permits the board of directors of
Operating to revalue its assets and liabilities from time to time to their fair market value in order to create a surplus.

(b)   On
February 4, 2003, Group and Operating entered into a credit agreement with TPG-MD Investment, LLC, a related party, which provides for a Tranche A
loan to Operating in an aggregate principal amount of $10.0 million and a Tranche B loan to Operating in an aggregate principal amount of $10.0 million. The loans are due in
February 2008 and bear interest at 5.0% per annum payable semi-annually in arrears on January 31 and July 31, commencing on July 31, 2003. Interest will
compound and be capitalized and added to the principal amount on each interest payment date, resulting in an effective interest rate of 5.6%. The outstanding amount of these loans is convertible into
shares of common stock of Group at $6.82 per share. These loans are subordinated in right of payment to the prior payment of all senior debt. On November 21, 2004, this credit agreement was
amended to subordinate the Tranche A loan in right of payment to Operating's 93/4% senior subordinated notes while the Tranche B loan is pari passu in right of payment with such notes.

(c)   The
103/8% senior subordinated notes were redeemed in full in December 2004.

F-20

---



(d)   On
May 6, 2003, Group completed an offer to exchange 16% senior discount contingent principal notes due 2008 of Intermediate (new notes) for its outstanding
131/8% senior discount debentures due 2008 (existing debentures). Approximately 85% of the outstanding debentures were tendered for exchange. Group exchanged $87,006 fair value of new
notes for $131,083 face amount (including accrued interest of $10,750) of existing debentures. The difference between the fair value of the new notes and the carrying value of the existing debentures
of $44,077 was included as a gain in the statement of operations for the year ended January 31, 2004.

The
outstanding 16% senior discount contingent principal notes were redeemed in full through two separate redemption events in December 2004 and January 2005.

(e)   The
131/8% senior discount debentures are senior unsecured obligations of Group and mature on October 15, 2008. Interest is payable in arrears on
April 15 and October 15 of each year subsequent to October 15, 2002. The 131/8% senior discount debentures may be redeemed at the option of Group at 1.0219 of
principal until October 15, 2005 and 100% thereafter.

(f)    The
restated certificate of incorporation authorizes Group to issue up to:



At
January 29, 2005 and January 31, 2004, 92,800 shares of Series A preferred stock and 32,500 shares of Series B preferred stock were issued and outstanding.

Each
series of the preferred stock accumulates dividends at the rate of 14.5% per annum (payable quarterly) for periods ending on or prior to October 17, 2009. Dividends compound
to the extent not paid in cash. A default in the payment of the Series A preferred stock redemption price will trigger dividends accruing and compounding quarterly at a rate of
(i) 16.50% per annum with respect to periods ending on or before October 17, 2009 and (ii) 18.50% with respect to periods starting after October 17, 2009. A default in the
payment of the Series B preferred stock redemption price will trigger dividends accruing and compounding quarterly at a rate of 16.50% per annum.

On
October 17, 2009, Group is required to redeem the Series B preferred stock and to pay all accumulated but unpaid dividends on the Series A preferred stock.
Thereafter, the Series A preferred stock will accumulate dividends at the rate of 16.5% per annum. Subject to restrictions imposed by certain indebtedness of the Company, Group may redeem
shares of the preferred stock at a redemption price equal to 100% of liquidation value plus accumulated and unpaid dividends.

In
certain circumstances (including a change of control of Group), subject to restrictions imposed by certain indebtedness of the Company, Group may be required to repurchase shares of
the preferred stock at liquidation value plus accumulated and unpaid dividends. If Group liquidates, dissolves or winds up, whether voluntary or involuntary, no distribution shall be made either
(i) to those holders of stock ranking junior to the preferred stock, unless prior thereto the holders of the preferred stock receive the total value for each share of preferred stock plus an
amount equal to all accrued dividends thereon as of the date of such payment or (ii) to the holders of stock rankingpari passuwith the

F-21

---



preferred
stock (which we refer to as the "parity stock"), except distributions made ratably on the preferred stock and all such parity stock in proportion to the total amounts to which the holders of
all such shares are entitled upon liquidation, dissolution or winding up of Group.

Effective
at the beginning of the third quarter of 2003, the Company adopted SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities
and Equity". This pronouncement required the reclassification to long term debt of the liquidation value of Group Series B preferred stock and the related accumulated and unpaid dividends and
the accumulated and unpaid dividends related to the Series A preferred stock since these amounts are required to be redeemed in October 2009. The preferred dividends related to the
liquidation value of the Series B preferred stock and to the accumulated and unpaid dividends of the Series A and Series B preferred stock for the third and fourth quarters of
2003 and fiscal 2004 are included in interest expense. The Series A preferred stock is only redeemable in certain circumstances (including a change of control at Group) and does not qualify for
reclassification under SFAS No. 150. Accordingly, the dividends related to the Series A preferred stock are deducted from stockholders' deficit.

Accumulated
but unpaid dividends amounted to $225,766 at January 29, 2005.

8.    Gain (loss) on Refinancing of Debt

During the fourth quarter of 2004, the Company redeemed in full the outstanding 103/8% senior subordinated notes due 2007 ($150.0 million)
and redeemed the outstanding 16% senior discount contingent principal notes due 2008 ($169.1 million). Funds used for the redemption were generated from the proceeds of a $275 million
term loan and internally available funds.

This
refinancing resulted in a loss of $49.8 million for Group in fiscal 2004, which consisted of: (a) redemption premiums of $15.3 million, (b) the
write-off of deferred financing costs of $3.2 million and (c) the write-off of deferred debt issuance costs of $31.3 million related to the 16% senior
discount contingent principal notes issued in May 2003.

The
loss on refinancing of debt for Operating in fiscal 2004 was $4.0 million consisting of redemption premiums of $2.6 million and the write off of deferred financing
costs of $1.4 million.

Refer
to Note 7(d) for explanation of gain on exchange of debt in fiscal 2003.

9.    Common Stock

The restated certificate of incorporation authorizes Group to issue up to 100,000,000 shares of common stock; par value $.01 per share. At January 29,
2005, shares issued were 13,780,175 and shares outstanding were 13,207,086. At January 31, 2004, shares issued were 13,584,175 and shares outstanding were 13,011,086.

F-22

---



10.    Commitments and Contingencies

As
of January 29, 2005, Operating was obligated under various long-term operating leases for retail and factory outlet stores, warehouses, office space and equipment
requiring minimum annual rentals.

These
operating leases expire on varying dates through 2014. At January 29, 2005 aggregate minimum rentals are, as follows:

Fiscal year

Amount2005

$
54,2572006


50,6362007


48,7132008


43,1152009


37,841Thereafter


98,772


Certain
of these leases include renewal options and escalation clauses and provide for contingent rentals based upon sales and require the lessee to pay taxes, insurance
and other occupancy costs.

Rent
expense for fiscal 2004, 2003 and 2002 was $46,583, $42,997 and $41,657, respectively, including contingent rent, based on store sales, of $1,700, $814 and $1,187.

The
Company is party to employment agreements with certain executives, which provide for compensation and certain other benefits. The agreements also provide for severance payments under
certain circumstances.

The
Company is subject to various legal proceedings and claims that arise in the ordinary conduct of its business. Although the outcome of these claims cannot be predicted with
certainty, management does not believe that it is reasonably possible that resolution of these legal proceedings will result in unaccrued losses that would be material.

11.    Employee Benefit Plan

The Company has a thrift/savings plan pursuant to Section 401 of the Internal Revenue Code whereby all eligible employees may contribute up to 15% of their
annual base salaries subject to certain limitations. The Company's contribution is based on a percentage formula set forth in the plan agreement. Company contributions to the thrift/savings plan were
$1,306, $1,288 and $1,834 for fiscal 2004, 2003 and 2002, respectively.

12.    License Agreement

Operating has a licensing agreement through January 2007 with Itochu Corporation, a Japanese trading company. The agreement permits Itochu to distribute
J.Crew merchandise in Japan.

F-23

---





Operating earns royalty payments under the agreement based on the sales of its merchandise. Royalty income, which is included in other revenues, for fiscal 2004,
2003, and 2002 was $2,757, $2,456 and $2,280, respectively.

13.    Other Revenues

Other revenues consist of the following:

2004

2003

2002Shipping and handling fees

$
21,624

$
25,205

$
31,823Royalties


2,757


2,456


2,280Other


1,540


1,676


1,962$
25,921

$
29,337

$
36,065


14.    Financial Instruments

The fair value of the Company's long-term debt (including redeemable preferred stock) is estimated to be approximately $576,933 and $501,400 at
January 29, 2005 and January 31, 2004, respectively, and is based on dealer quotes or quoted market prices of the same or similar instruments. The carrying amounts of
long-term debt were $576,933 and $517,804 at January 29, 2005 and January 31, 2004, respectively. The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, accounts payable and other current liabilities approximate fair value because of the short-term maturity of those financial instruments. The estimates presented
herein are not necessarily indicative of amounts the Company could realize in a current market exchange.

15.    Income Taxes

Group files a consolidated federal tax return, which includes all its wholly owned subsidiaries. Each subsidiary files separate state tax returns in the required
jurisdictions. Group and its subsidiaries have entered into a tax sharing agreement providing (among other things) that each of the subsidiaries will reimburse Group for its share of income taxes
based on the proportion of such subsidiaries' tax liability on a separate return basis to the total tax liability of Group.

F-24

---



Group

The income tax provision/(benefit) of Group consists of:

2004

2003

2002Current:Foreign

$
300

$
250

$
193Federal





(3,744
)

(12,014
)State and local


300


(1,006
)

200600


(4,500
)

(11,621
)Deferred





5,000


7,421Total

$
600

$
500

$
(4,200
)


A
reconciliation between the provision/(benefit) for income taxes based on the U.S. Federal statutory rate and the Company's effective rate, is as follows:

2004

2003

2002Federal income tax rate

(35.0
)%
(35.0
)%
(35.0
)%State and local income taxes, net of federal benefit

0.4

0.8

Valuation allowance

5.6

64.0

47.0Additional NOL carryback



(7.4
)
Reversal of prior tax accruals



(2.6
)
(20.9
)Non-deductible expenses and other (primarily preferred dividends)

18.6

8.4

(.5
)Non-recognized gain on exchange of debt

11.0

(27.2
)
Effective tax rate

0.6
%
1.0
%
(9.4
)%


F-25

---



The
tax effect of temporary differences which give rise to deferred tax assets and liabilities are:

January 29, 2005

January 31, 2004Deferred tax assets:Original issue discount

$
3,600

$
33,660Rent


17,800


17,514Federal NOL carryforwards


47,200


19,600State and local NOL carryforwards


4,500


4,485Reserve for sales returns


1,900


1,207Other


4,700


5,05779,700


81,523Valuation allowance


(63,400
)

(57,838
)16,300


23,685Deferred tax liabilities:Prepaid catalog and other prepaid expenses


(6,600
)

(8,555
)Difference in book and tax basis for property and equipment


(9,700
)

(15,130
)(16,300
)

(23,685
)Net deferred income tax asset

$


$



Operating

The income tax provision/(benefit) of Operating consists of:

2004

2003

2002Current:Foreign

$
300

$
250

$
193Federal





(3,744
)

(13,449
)State and local


300


(1,006
)

200600


(4,500
)

(13,056
)Deferred





(910
)

(4,694
)Total

$
600

$
(5,410
)
$
(17,750
)


F-26

---



A
reconciliation between the provision/(benefit) for income taxes based on the U.S. Federal statutory rate and the Company's effective rate is as follows:

2004

2003

2002Federal income tax rate

35.0%

(35.0
)%
(35.0
)%State and local income taxes, net of federal benefit

3.4

0.8

Valuation allowance

(32.3
)
36.9

Additional NOL carryback



(7.8
)
Reversal of prior tax accruals



(2.7
)
(38.6
)Non-deductible expenses and other

(.9
)
(3.6
)
6.8Effective tax rate

5.2%

(11.4
)%
(66.8
)%


The
tax effect of temporary differences which give rise to deferred tax assets and liabilities are:

January 29, 2005

January 31, 2004Deferred tax assets:Federal NOL carryforwards

$
6,200

$
17,540State and local NOL carryforwards


4,500


4,485Reserve for sales returns


1,900


1,207Rent


17,800


17,514Other


4,700


5,45935,100


46,205Valuation allowance


(18,800
)

(22,520
)16,300


23,685Deferred tax liabilities:Prepaid catalog and other prepaid expenses


(6,600
)

(8,555
)Difference in book and tax basis for property and equipment


(9,700
)

(15,130
)(16,300
)

(23,685
)Net deferred income tax asset

$


$



The
Company has significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences, which will reduce taxable income in future periods.
SFAS No. 109 "Accounting for Income Taxes" states that a valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. A
review of all available positive and negative evidence needs to be considered, including a company's current and past performance, the market environment in which a company operates, length of
carryback and carryforward periods, existing contracts or sales backlog that will result in future profits, etc. Forming a conclusion that a valuation allowance is not needed is difficult when there
is negative evidence such as

F-27

---



cumulative
losses in recent years. Cumulative losses weigh heavily in the overall assessment. As a result of our assessment, we established a valuation allowance for the net deferred tax assets at
February 1, 2003. The valuation allowance was increased at January 31, 2004 and January 29, 2005 to fully reserve net deferred tax assets at such dates. The Company did not recognize any
tax benefits in fiscal 2004 and does not expect to recognize any tax benefits in future results of operations until an appropriate level of profitability is sustained.

The
Company has state and local income tax net operating loss carryforwards of varying amounts.

16.    Stock Compensation Plans

Amended and Restated 1997 Stock Option Plan

Under the terms of the Amended and Restated 1997 Stock Option Plan (1997 Plan), an aggregate of 1,910,000 shares of Group common stock are available for grant to
key employees and consultants in the form of non-qualified stock options. The options have terms of seven to ten years and become exercisable over a period of four to five years. Options granted under
the 1997 Plan are subject to various conditions, including under some circumstances, the achievement of certain performance objectives.

2003 Equity Incentive Plan

In January 2003, the Board of Directors of Group approved the adoption of the 2003 Equity Incentive Plan (2003 Plan). Under the terms of the 2003 Plan, an
aggregate of 4,798,160 shares of Group common stock are available for award to key employees and consultants in the form of non-qualified stock options and restricted shares, as follows:



The
options have terms of ten years and become exercisable over the period provided in each grant agreement. Under the Plan, the Compensation Committee of the Board of Directors of Group
has the discretion to modify the exercise price and the number of shares reserved for the issuance of stock options and restricted shares.

F-28

---



A
summary of stock option activity for the three years ended January 29, 2005, is as follows:

|                                   |  | 2004      |   | 2003 |       | 2002
|---------------------------------- |  | --------- | - | ---- | ----- | ----
|
|Outstanding, beginning of year     |  | 2,410,606 |   | $    | 8.37  |     
|Granted                            |  | 2,515,848 |   |      | 17.07 |     
|Exercised                          |  |          |   |      |       |     
|Cancelled                          |  | (344,189  | ) |      | 8.33  |     
|                                   |  |           |   |      |       |     
|Outstanding, end of year           |  | 4,582,265 |   | $    | 13.15 |     
|                                   |  |           |   |      |       |     
|Options exercisable at end of year |  | 1,508,850 |   | $    | 9.84  |     
|                                   |  |           |   |      |       |     

The
following table summarizes information about stock options outstanding as of January 29, 2005:

|              |  | Outstanding |  |   |       | Exercisable
|------------- |  | ----------- |  | - | ----- | -----------
|
|$6.82$8.53   |  | 2,131,731   |  | $ | 6.85  |            
|$10.00$35.00 |  | 2,450,534   |  |   | 18.62 |            
|              |  |             |  |   |       |            
|$6.82$35.00  |  | 4,582,265   |  | $ | 13.15 |            
|              |  |             |  |   |       |            

Under
the 2003 Plan, 1,004,266, 224,402 and 196,000 restricted shares were issued in fiscal 2002, 2003 and 2004, respectively, and 83,689 restricted shares were forfeited in fiscal 2003.
On January 29, 2005, there were 1,340,979 restricted shares outstanding, of which 509,979 shares were vested.

17.    Recent Accounting Pronouncements

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003),Consolidation of Variable Interest
Entities,which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN 46R applies to variable interests in variable interest entities created after December 31, 2003. For variable interests in variable
interest entities created before January 1, 2004, the Interpretation applies beginning on January 1, 2005. For any variable interest entities that must be consolidated under FIN 46R that
were created before January 1, 2004, the assets, liabilities and noncontrolling interests of the variable interest entity initially would be measured at their carrying amounts with any
difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting

F-29

---



change.
If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and noncontrolling interest of the variable
interest entity. The adoption of FIN 46R did not have any effect on the financial statements taken as a whole as of January 29, 2005, and for the year then ended.

In
December 2004, the FASB issued Statement No. 123 R,Share-Based Payment.This revision to Statement No. 123
requires that compensation expense be recognized for the fair value of stock options over their vesting period and changes the method of expense recognition for performance-based stock awards. The
Statement is required to be adopted by the Company for fiscal years beginning after December 15, 2005 and applies to all outstanding stock options and stock awards that have not yet vested at
the date of adoption. Management is evaluating the effects of this Statement.

18.    Quarterly Financial Information (Unaudited)

|                            |  | 13 weeks
ended
5/3/03 |       | 13 weeks
ended
8/2/03(a) |   | 13 weeks
ended
11/1/03 |   | 13 weeks
ended
1/31/04 |       | 52 weeks
ended
1/31/04 |  
|--------------------------- |  | --------------------- | ----- | ------------------------ | - | ---------------------- | - | ---------------------- | ----- | ---------------------- | -
|
|Net sales                   |  | $                     | 152.6 |                          | $ | 159.2                  |   | $                      | 146.4 |                        | $
|Gross profit                |  |                       | 57.9  |                          |   | 51.3                   |   |                        | 59.9  |                        |  
|Net income/(loss)Group     |  |                       | (20.2 | )                        |   | 15.0                   |   |                        | (24.5 | )                      |  
|Net income/(loss)Operating |  |                       | (15.5 | )                        |   | (18.0                  | ) |                        | (9.2  | )                      |  

|                            |  | 13 weeks
ended
5/1/04 |       | 13 weeks
ended
7/31/04 |   | 13 weeks
ended
10/30/04 |   | 13 weeks
ended
1/29/2005(b) |       | 52 weeks
ended
1/29/05 |  
|--------------------------- |  | --------------------- | ----- | ---------------------- | - | ----------------------- | - | --------------------------- | ----- | ---------------------- | -
|Net sales                   |  | $                     | 140.6 |                        | $ | 182.1                   |   | $                           | 200.9 |                        | $
|Gross profit                |  |                       | 60.7  |                        |   | 74.2                    |   |                             | 89.0  |                        |  
|Net lossGroup              |  |                       | (23.7 | )                      |   | (13.8                   | ) |                             | (9.9  | )                      |  
|Net income/(loss)Operating |  |                       | (7.7  | )                      |   | 3.2                     |   |                             | 7.5   |                        |  

---

F-30

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SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS

|                            |                                         | beginning
balance |        | charged to
cost and
expenses(a) |   | charged to
other accounts |  | deductions(a) |   | ending
balance
|--------------------------- | --------------------------------------- | ----------------- | ------ | ------------------------------- | - | ------------------------- |  | ------------- | - | --------------
|
|Inventory reserve           |                                         |                   |        |                                 |   |                           |  |               |   |               
|                            | (deducted from inventories)             |                   |        |                                 |   |                           |  |               |   |               
|Fiscal year ended:          |                                         |                   |        |                                 |   |                           |  |               |   |               
|February 1, 2003            |                                         | $                 | 8,367  |                                 | $ | 4,053                     |  | $             |  |               
|January 31, 2004            |                                         |                   | 12,420 |                                 |   |                          |  |               |  |               
|January 29, 2005            |                                         |                   | 5,040  |                                 |   |                          |  |               |  |               
|Allowance for sales returns |                                         |                   |        |                                 |   |                           |  |               |   |               
|                            | (included in other current liabilities) |                   |        |                                 |   |                           |  |               |   |               
|Fiscal year ended:          |                                         |                   |        |                                 |   |                           |  |               |   |               
|February 1, 2003            |                                         | $                 | 6,475  |                                 | $ |                          |  | $             |  |               
|January 31, 2004            |                                         |                   | 5,313  |                                 |   |                          |  |               |  |               
|January 29, 2005            |                                         |                   | 3,004  |                                 |   | 1,827                     |  |               |  |               

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F-31

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