<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   _________
                                   FORM 10-K

        ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   For the fiscal year ended January 29, 2000

                       Commission File Number  333-42427
                                               ---------

                              J. CREW GROUP, INC.
             (Exact name of registrant as specified in its charter)

             New York                                   22-2894486
             --------                                   ----------
  (State or other jurisdiction of            (IRS Employer Identification No.)
   incorporation or organization)

        770 Broadway, New York, New York  10003
        (Address of principal executive offices)  (Zip Code)

        Registrant's telephone number, including area code: (212) 209-2500

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

Indicate by check mark 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 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.  [X]

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

As of April 1, 2000, there were 11,726,865 shares of Common Stock, par value
$.01 per share, outstanding.

Documents incorporated by reference:     None
<PAGE>

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

References herein to fiscal years are to the fiscal years of J. Crew Group,
Inc., which end on the Friday closest to January 31 in the following calendar
year for fiscal years 1995 and 1996 and on the Saturday closest to January 31 in
the following calendar year for fiscal years 1997, 1998 and 1999. Accordingly,
fiscal years 1995, 1996, 1997, 1998 and 1999 ended on February 2, 1996, January
31, 1997, January 31, 1998, January 30, 1999 and January 29, 2000. All fiscal
years for which financial information is included had 52 weeks.

References in this Report to the "Company" and "J. Crew" mean J. Crew Group,
Inc. and its subsidiaries, unless the context requires otherwise.

                                     Part I

ITEM 1.  BUSINESS

General

The Company is a leading retailer of women's and men's apparel, shoes and
accessories operating  under the J. Crew (R) brand name. The Company has built a
strong and widely recognized brand name known for its timeless styles at price
points that the Company believes represent exceptional product value. The J.
Crew image has been built and reinforced over its 17-year history through the
circulation of more than 700 million catalogs that use magazine-quality
photography to portray a classic American perspective and aspirational
lifestyle. Many of the original items introduced by the Company in the early
1980s (such as the rollneck sweater, weathered chino, barn jacket and pocket
tee) were instrumental in establishing the J. Crew brand and continue to be core
product offerings. The Company has capitalized on the strength of the J. Crew
brand to provide customers with clothing to meet more of their lifestyle needs,
including casual, career and sport.

The J. Crew merchandising strategy emphasizes timeless styles and a broad
assortment of high-quality products designed to provide customers with one-stop
shopping opportunities at attractive prices. J. Crew retail stores, catalogs and
its Internet site offer a full line of men's and women's basic durables (casual
weekend wear), sport, swimwear, accessories and shoes, as well as the more
tailored men's and women's "Classics" lines. Approximately 60% of the Company's
J. Crew brand sales are derived from its core offerings of classics, durables
and sport clothing, the demand for which the Company believes is stable and
resistant to changing fashion trends. The Company believes that the J. Crew
image and merchandising strategy appeal to college-educated, professional and
affluent customers who, in the Company's experience, have demonstrated strong
brand loyalty and a tendency to make repeat purchases.

                                       1
<PAGE>

J. Crew products are distributed exclusively through the Company's retail and
factory outlet stores, catalogs and the Company's Internet site, jcrew.com. The
Company currently circulates over 75 million J. Crew catalogs per annum and
operates 81 J. Crew retail stores and 42 J. Crew factory outlet stores. In
addition, J. Crew products are distributed through 70 free-standing and shop-in-
shop stores in Japan under a licensing agreement with Itochu Corporation.

The Company has three major operating divisions: J. Crew Direct, J. Crew Retail,
and J. Crew Factory Outlets, each of which operate under the J. Crew brand name.
In 1999, products sold under the J. Crew brand contributed $716.6 million in
revenues. J. Crew brand revenues in 1999 were comprised of $333.6 million from
J. Crew Retail, $278.5 million from J. Crew Direct, $102.0 million from J. Crew
Factory Outlet and $2.5 million of licensing revenues. The Company also markets
to its customers through its Internet site (jcrew.com). Revenues derived from
the Internet, which were $65.2 million for 1999, are included in J. Crew Direct
revenues.

Effective as of October 30, 1998 the Company sold Popular Club Plan, Inc. and
subsidiaries (PCP) to The Fingerhut Companies, Inc. for $42.0 million and the
assumption of an accounts receivable securitization facility. Revenues for the
nine months ended October 30, 1998 were $124.1 million. A gain on the sale of
$10.0 million was included in the results of operations in fiscal 1998.  An
additional gain of $1.0 million was recognized in fiscal 1999 from the reversal
of certain estimated liabilities recorded at the date of sale.

In 1998, management of the Company made a decision to exit the operations of its
Clifford & Wills mail order and factory outlet subsidiaries (C&W). Revenues for
the year ended January 30, 1999 were $74.3 million. A charge of $13.3 million
was included in fiscal 1998 operations to write down the assets of C&W to net
realizable value and to provide for certain additional costs in connection with
the discontinuance of the C&W operations, including severance and lease
termination costs. Additionally, fourth quarter charges of $1.7 million,
included in selling expense, were incurred relating to deferred catalog costs.

In February 2000 the Company sold certain intellectual property assets to
Spiegel Catalog Inc. for $3.9 million.  In connection with this sale the Company
agreed to cease the fulfillment of catalog orders but retained the right to
operate its outlet stores and conduct other liquidation sales of inventories
through December 31, 2000.  After consideration of the proceeds from this sale
and other terms of the agreement the Company provided an additional $4,000,000
to write down inventories to net realizable value as of January 29, 2000.

J. Crew Brand

Merchandising and Design Strategy

Over time, the J. Crew 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 as a percentage of total J. Crew brand sales from 47% in 1995 to 65% in
1999.

Every J. Crew product is designed by an in-house design staff, to reflect a
classic, clean aesthetic that is consistent with the brand's American lifestyle
image. Design teams are formed around J. Crew product lines and categories to
develop concepts, themes and products for each of the Company's J. Crew
businesses. Members of the J. Crew technical design team develop construction
and fit specifications for every product to ensure quality workmanship and
consistency across product lines. These teams work in close collaboration with
the merchandising and production staff in order to gain market and other input.
Product merchandisers provide designers with market trend and other information
at initial stages of the design process. J. Crew designers and merchants source
globally for fabrics, yarns and finished products to ensure quality and value,
while manufacturing teams research and develop key vendors worldwide to identify
and maintain the essential characteristics for every style.

                                       2
<PAGE>

Sourcing, Production and Quality

The Company maintains separate merchandising, design, manufacturing and quality
assurance teams for the production of J. Crew brand merchandise. The Company's
products are designed exclusively by in-house design and product development
teams which support each line and class of product. These teams provide
individual attention and expertise to every style, ensuring that these styles
fit the J. Crew brand image.

The Company's merchandise is produced for the Company by a variety of
manufacturers, both domestically and outside the United States. The Company does
not own or operate any manufacturing facilities, instead contracting with third
party vendors in over 20 countries for the production of its products. In 1999,
approximately 70% of the Company's J. Crew brand products were sourced in the
Far East, 15% were sourced domestically and 15% were sourced in Europe and other
regions. Rarely does the Company represent the majority of any one vendor's
business and no one vendor supplies more than 10% of the Company's merchandise.

The Company retains independent buying agents to conduct in-line and final
quality inspections at each manufacturing site. Random inspections of all
incoming merchandise at the Lynchburg and Asheville distribution facilities
further assure that the Company's products are of a consistently high quality.

Due to the high concentration of foreign suppliers of J. Crew brand merchandise,
the Company estimates seven month lead times for its products. The Company has
established through the use of domestic vendors and strategic partnerships, a
core group of long-term suppliers to provide quick response programs at
significantly shorter lead times for certain product categories.

Distribution

The Company operates two major telemarketing and distribution facilities for its
operations. Order fulfillment for J. Crew Direct takes place at the 406,500
square foot telemarketing and distribution center located in Lynchburg,
Virginia. The Lynchburg facility processes approximately 3.8 million orders per
year and employs approximately 1,000 full and part-time employees during its
non-peak season and an additional 500 employees during its peak season.

A 192,500 square foot telemarketing and distribution facility in Asheville,
North Carolina serves as the main distribution center for the retail and outlet
store operations and also houses a J. Crew Direct telemarketing center. This
facility employs approximately 550 full- and part-time employees during its non-
peak season and an additional 200 employees during the peak holiday season.

The Company ships merchandise via UPS, the United States Postal Service and
FedEx. To enhance efficiency, each facility is fully equipped with a highly
advanced telephone system, an automated warehouse locator system and an
inventory bar coding system.

Management Information Systems

The Company's 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 the Company's business. The Company has sophisticated
point-of-sale registers in its J. Crew Retail and Factory Outlet stores that
enable it to track inventory from store receipt to final sale on a real-time
basis. The Company believes its merchandising and financial systems, coupled
with its point-of-sale registers and software programs, allow for rapid stock
replenishment, concise merchandise planning and real-time inventory accounting
practices. The Company's telephone and telemarketing systems, warehouse package
sorting systems, automated warehouse locator and inventory bar coding systems
utilize advanced technology. These systems have provided the Company with a
number of benefits in the form of enhanced customer service, improved
operational efficiency and increased management control and reporting. In
addition, the Company's real-time inventory systems provide inventory management
on a per SKU basis and allow for a more efficient fulfillment process.

                                       3
<PAGE>

The Company is in the process of installing an enterprise resource planning
system for its future information technology requirements.  This system is
scheduled for a phased-in implementation over a period of three years.

J. Crew Retail

During fiscal 1999, J. Crew Retail generated revenues of $333.6 million,
representing 46.5% of the Company's total J. Crew brand revenues.

The principal aspect of the Company's business strategy is an expansion program
designed to reach new and existing customers through the opening of J. Crew
Retail stores. In addition to generating sales of J. Crew products, J. Crew
Retail stores help set and reinforce the J. Crew brand image. The stores are
designed in-house and fixtured to create a distinctive J. Crew environment and
store associates are trained to maintain high standards of visual presentation
and customer service. The result is a complete statement of J. Crew's timeless
American style, classic design and attractive product value.

The Company believes that J. Crew Retail derives significant benefits from the
concurrent operation of J. Crew Direct. The broad circulation of J. Crew
catalogs performs an advertising function, enhancing the visibility and exposure
of the brand, aiding the expansion of the retail concept and increasing the
profitability of the stores.

The Company believes that its J. Crew Retail stores are among the most
productive in its industry segment. All of the Company's J. Crew Retail stores
are profitable and have generated positive store contribution within the first
12 months of opening. J. Crew Retail stores that were open during all of fiscal
1999 averaged $4.7 million per store in sales, produced sales per gross square
foot of approximately $571 and generated store contribution margins of
approximately 26.0%. The Company believes that these results compare favorably
to the average among retailers that the Company believes to be its primary
competitors. J. Crew Retail stores have an average size of 8,243 total square
feet.

As of January 29, 2000 J. Crew Retail operated 81 retail stores nationwide,
having expanded from 29 stores in 1995. The Company opened 16 stores in fiscal
1999 and intends to open approximately 20 stores in fiscal 2000. The stores are
located in upscale shopping malls and in retail areas within major metropolitan
markets that have an established higher-end retail business.

The table below highlights certain information regarding J. Crew Retail stores
opened through fiscal 1999.
<TABLE>
<CAPTION>

                               Stores  Stores                           Average
                               ------  ------                         -----------
                               Opened  Closed    Stores      Total    Store Total
                               ------  ------  -----------  --------  -----------
               Stores Open     During  During    Open at     Square     Square
              --------------   ------  ------  -----------  --------  -----------
               At Beginning    Fiscal  Fiscal    End of     Footage   Footage at
              --------------   ------  ------  -----------  --------  -----------
              Of Fiscal Year   Year    Year    Fiscal Year  (000's)   End of Year
              --------------   ----    ----    -----------  --------  -----------
<S>                 <C>        <C>     <C>         <C>        <C>        <C>
1995                29           2      --         31         266        8,581
1996                31           8      --         39         338        8,667
1997                39          12      --         51         428        8,392
1998                51          14      --         65         530        8,150
1999                65          16      --         81         668        8,243
</TABLE>

J. Crew Retail plans to increase the number of stores in operation by 20 to 30
stores annually, resulting in approximately 100 stores in operation by the end
of fiscal 2000. The retail expansion plan focuses on markets in which J. Crew
Direct has been successful and, more generally, in areas within major
metropolitan markets with affluent and well educated populations.

                                       4
<PAGE>

J. Crew Direct

Since its inception in 1983, J. Crew Direct has distinguished itself from other
catalog retailers by its award-winning catalog, which utilizes magazine-quality
"real moment" pictures to depict an aspirational lifestyle image. During fiscal
1999, J. Crew Direct distributed 31 catalog editions with a combined circulation
of more than 75 million, and expanded its direct marketing concept to e-commerce
via its Internet site (jcrew.com). J. Crew Direct generated $278.6 million in
revenues (including $65.2 million from its Internet site) or 38.9% of the
Company's total J. Crew brand revenues in fiscal 1999.

Circulation Strategy

J. Crew Direct circulation strategy focuses on continually improving the
segmentation of customer files and the acquisition of additional customer names.
In 1999, approximately 60% of J. Crew Direct revenues were from customers in the
12-month buyer file (buyers who have made a purchase from any J. Crew catalog in
the prior 12 months).

The Company segments its customer file and tailors its catalog offerings to
address the different product needs of its customer segments. To increase core
catalog productivity and improve the effectiveness of marginal and prospecting
circulation, each customer segment is offered appropriate catalog editions. The
Company currently circulates Base, Women's, Prospect and Sale catalogs to
targeted customer segments.

Descriptions of the Company's current catalogs follow:
Base Books. These catalogs contain the entire mail order product offering and
are sent primarily to 12-month buyers.

Women's Books. The Women's books feature women's merchandise and are sent to
buyers who purchase primarily women's merchandise. These books represent an
additional customer contact potentially generating incremental revenue from
women customers.

Prospect Books.    These editions are abridged versions of the Base Books and
are sent to less active and prospective customers in order to cost-effectively
reactivate old customers and acquire new customers.

Sale Books. These catalogs contain overstock merchandise to be sold at reduced
prices without adversely affecting the J. Crew brand image.

In 1999, total circulation increased to approximately 75 million from 73 million
in 1998, while pages circulated were approximately 9.3 billion in 1999 and 8.8
billion in 1998.

J. Crew Direct name acquisition programs are designed to attract new customers
in a cost-effective manner. The Company acquires new names from various sources,
including its Internet site, list rentals, exchanges with other catalog and
credit card companies, "friends' name" card inserts, and through J. Crew Retail
stores which represent an increasingly significant resource in prospecting for
new names. Names and addresses of 25% to 30% of the customers making credit card
purchases at J. Crew Retail stores are automatically captured at the point of
sale. Customers are also asked to fill out cards at the cash register when they
make purchases. In addition, the Company is in the process of placing telephones
in its J. Crew Retail stores with direct access to the J. Crew Direct
telemarketing center to allow customers in the stores to order catalog-specific
or out-of-stock items.

Catalog Creation and Production

The Company is distinguished from other catalog retailers by its award-winning
catalog, which utilizes magazine-quality "real moment" pictures to depict an
aspirational lifestyle image. All creative work on the catalogs is coordinated
by J. Crew personnel to maintain and reinforce the J. Crew brand image.
Photography is executed both on location and in studios, and creative design and
copy writing are executed on a desk-top publishing system. Digital images are
transmitted directly to outside printers, thereby reducing lead times and
improving reproduction quality. The Company believes that appropriate page
presentation of its merchandise stimulates demand and therefore places great
emphasis on page layout.

                                       5
<PAGE>

J. Crew Direct does 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. Management believes that the Company's
long-standing relationships with a number of the largest coated paper mills in
the United States allow it to purchase paper at favorable prices commensurate
with the Company's size and payment terms.

Telemarketing and Customer Service

J. Crew Direct's primary telemarketing and fulfillment facilities are located in
Lynchburg, Virginia. An additional telemarketing facility is located in
Asheville, North Carolina. Telemarketing operations are open 24 hours a day,
seven days a week and handled over 5.9 million calls in fiscal 1999. Orders for
merchandise may be received by telephone, facsimile, mail and on the Company's
Internet site. The telemarketing centers are staffed by a total of 850 full-time
and part time telemarketing associates, and up to 600 additional associates
during peak periods, who are trained to assist customers in determining the
customer's correct size and to describe merchandise fabric, texture and
function. Each telemarketing associate utilizes a terminal with access to an IBM
mainframe computer which houses complete and up-to-date product and order
information. The fulfillment operations are designed to process and ship
customer orders in a quick and cost-effective manner. Orders placed before 9:00
p.m. are shipped the following day. Same-day shipping is available for orders
placed before noon.

J. Crew Factory Outlets

The Company extends its reach to additional consumers through its 42 J. Crew
Factory Outlets. Offering J. Crew products at an average of 30% below full
retail prices, J. Crew Factory Outlets target value-oriented consumers. The
factory outlet stores also serve to liquidate excess, irregular or out-of-season
J. Crew products outside of the Company's three primary distribution channels.
During fiscal 1999, J. Crew Factory Outlets generated revenues of $102.0
million, representing 14.2% of the Company's total J. Crew brand revenues.

J. Crew Factory Outlets offer selections of J. Crew menswear and womenswear.
Ranging in size from 3,800 to 10,000 square feet with an average of 6,500 square
feet, the stores are generally located in major outlet centers in 25 states
across the United States. The Company believes that the outlet stores, which are
designed in-house, maintain fixturing, visual presentation and service standards
superior to those typically associated with outlet stores.

Trademarks and International Licensing

J. Crew International, Inc., an indirect subsidiary of J. Crew Group, Inc.,
currently owns all of the trademarks and domain names for the J. Crew name that
the Company holds throughout the world, as well as its international licensing
contracts with third parties. Trademarks related to the J. Crew name are
registered in the United States Patent and Trademark Office.

The Company derives revenues from the international licensing of its trademarks
in the J. Crew name and the know-how it has developed. The Company has entered
into a licensing agreement with Itochu Corporation in Japan which gives the
Company the right to receive payments of percentage royalty fees in exchange for
the exclusive right to use the Company's trademarks in Japan. Under the license
agreement the Company retains a high degree of control over the manufacture,
design, marketing and sale of merchandise under the J. Crew trademarks. This
agreement expires in January, 2003. In 1999, licensing revenues totaled $2.5
million.

Employees

The Company focuses significant resources on the selection and training of sales
associates in both its mail order, retail and factory operations. Sales
associates are required to be familiar with the full range of merchandise of the
business in which they are working and have the ability to assist customers with
merchandise selection. Both retail and factory store management are compensated
in a combination of annual salary plus performance-based bonuses. Retail,
telemarketing and factory associates are compensated on an hourly basis and may
earn team-based performance incentives.

                                       6
<PAGE>

At January 29, 2000, the Company had approximately 5,400 associates, of whom
approximately 1,900 were full-time associates and 3,500 were part-time
associates. In addition, approximately 3,000 associates are hired on a seasonal
basis to meet demand during the peak holiday buying season. None of the
associates employed by J. Crew are represented by a union. The Company believes
that its relationship with its associates is good.

Competition

All aspects of the Company's businesses are highly competitive. The Company
competes primarily with specialty brand retailers, other catalog operations,
department stores, and mass merchandisers engaged in the retail sale of men's
and women's apparel, accessories, footwear and general merchandise. The Company
believes that the principal bases upon which it competes are quality, design,
efficient service, selection and price.

The Recapitalization

On October 17, 1997, the recapitalization of J. Crew Group, Inc. ("Holdings")
(the "Recapitalization") was consummated pursuant to a Recapitalization
Agreement, dated as of July 22, 1997, as amended as of October 17, 1997 (the
"Recapitalization Agreement"), among Holdings, its shareholders and TPG Partners
II, L.P. ("TPG"). Pursuant to the Recapitalization Agreement, Holdings purchased
from its shareholders all outstanding shares of Holdings' capital stock, other
than shares having an implied value of $11.1 million, almost all of which
continue to be held by Emily Woods, and which represented approximately 14.8% of
the outstanding shares of common stock of Holdings ("Common Stock") immediately
following the transaction.

In connection with the Recapitalization, Holdings organized J. Crew Operating
Corp. ("Operating Corp.") and immediately prior to the consummation of the
Recapitalization, Holdings transferred substantially all of its assets and
liabilities to Operating Corp. Holdings' current operations are, and future
operations are expected to continue to be, limited to owning the stock of
Operating Corp. Operating Corp. repaid substantially all of the Company's funded
debt obligations existing immediately before the consummation of the
Recapitalization.

Cash funding requirements for the Recapitalization totaled $559.8 million
(including $99.0 million in seasonal borrowings) and were satisfied through the
purchase by TPG, certain of its affiliates and other investors of an aggregate
$188.9 million in Holdings' equity securities together with an aggregate $330.9
million in borrowings and $40.0 million in proceeds from the securitization of
certain of the Company's accounts receivable.

                                       7
<PAGE>

ITEM 2.  PROPERTIES

The Company is headquartered in New York City. The New York City headquarters'
offices are leased under a lease agreement expiring in 2012 (not including
renewal options). The Company owns two telemarketing and distribution
facilities: a 406,500-square-foot telemarketing and distribution center for J.
Crew Direct operations in Lynchburg, Virginia and a 192,500-square-foot
telemarketing and distribution center in Asheville, North Carolina servicing the
J. Crew Retail and Factory Outlet store operations.

As of January 29, 2000, the Company operated 81 J. Crew retail stores and 42
factory outlet stores in 34 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, not including renewal options. 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 comprised of annual base rent plus a contingent rent payment
based on the store's sales in excess of a specified threshold. Substantially all
the leases are guaranteed by the Company.

The table below sets forth the number of stores by state operated by the Company
(excludes 7 C&W Outlet stores) in the United States as of January 29, 2000:


                                         Total
                                         -----
                        Retail  Outlet   Number
                        ------  ------   ------
                        Stores  Stores   Of Stores
                        ------  ------   ---------

Alabama                    1       1        2
Arizona                    1      --        1
California                14       3       17
Colorado                   2       2        4
Connecticut                3       1        4
Delaware                   1       1        2
Florida                    4       3        7
Georgia                    3       2        5
Illinois                   4      --        4
Indiana                    1       2        3
Kansas                     1      --        1
Maine                     --       2        2
Maryland                   2       1        3
Massachusetts              5       1        6
Michigan                   2       1        3
Minnesota                  1      --        1
Missouri                   1       1        2
Nevada                    --       1        1
New Hampshire             --       2        2
New Jersey                 4       1        5
New Mexico                 1      --        1
New York                   9       4       13
North Carolina             2      --        2
Ohio                       4      --        4
Oregon                     2      --        2
Pennsylvania               2       3        5
Rhode Island               1       -        1
South Carolina            --       2        2
Tennessee                  1       1        2
Texas                      3       3        6
Vermont                   --       1        1
Virginia                   3       1        4
Washington                 2       1        3
Wisconsin                 --       1        1
District of Columbia       1      --        1
                          --      --      ---

Total.                    81      42      123
                          ==      ==      ===

                                       8
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

      Routine litigation is pending against the Company with respect to matters
incidental to its business.  Although the outcome of litigation cannot be
predicted with certainty, in the opinion of the Company none of those actions
should have a material adverse effect on the financial condition of the Company

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, 2000.

                                       9
<PAGE>

                                    PART II

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

There is no established public market for Holdings Common Stock. As of April 1,
2000, there were 37 shareholders of record of the Common Stock. See "Item 12.
Security Ownership of Certain Beneficial Owners and Management" for a discussion
of the ownership of Holdings.

Holdings has not paid cash dividends on its Common Stock and does not anticipate
paying any such dividends in the foreseeable future.

The Credit Agreement entered into a connection with the Recapitalization (the
"Credit Agreement") and the Indenture relating to the Senior Discount Debentures
(the "Holdings Indenture") prohibits the payment of dividends by Holdings on
shares of Common Stock (other than dividends payable solely in shares of capital
stock of Holdings). Additionally, because Holdings 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 Credit Agreement, the Holdings
Indenture and the Indenture relating to the Senior Subordinated Notes contains
covenants which impose substantial restrictions on Operating Corp's ability to
make dividends or distributions to Holdings.

The Directors of Holdings have the right to receive all or a portion of the fees
for their services as a Director in Common Stock at a purchase price of $6.82
per share for meetings prior to April 13, 1999 and $10 per share for meetings
held thereafter. In fiscal 1999, certain Directors elected to receive a total of
17,665 shares of Common Stock in payment of their fees. Holdings issued the
Common Stock to the Directors in transactions which did not involve any public
offering in reliance upon Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act").

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated historical financial,
operating, balance sheet and other data of the Company. The selected income
statement and balance sheet data for each of the two fiscal years ended January
31, 1997 are derived from the Consolidated Financial Statements of the Company,
which have been audited by Deloitte & Touche LLP, independent auditors. The
selected income statement and balance sheet data for each of the three fiscal
years ended January 29, 2000 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."

<TABLE>
<CAPTION>

                                                                                   Fiscal Year Ended
                                                         February 2,   January 31,    January 31,   January 30,    January 29,
                                                         -----------   -----------    -----------   -----------    -----------
                                                             1996          1997           1998          1999          2000
                                                             ----          ----           ----          ----          ----
                                                                  (dollars in thousands, except per square foot data)
<S>                                                    <C>           <C>           <C>            <C>           <C>
Income Statement Data:
 Revenues                                                 $745,909      $808,843      $ 834,031     $ 824,258     $ 716,624
 Cost of goods sold(a)                                     399,668       428,719        465,168       460,592       394,813
 Selling, general and administrative                       327,672       348,305        359,811       336,590       281,610
  expenses
 Charges incurred in connection with
  discontinuance of Clifford &Wills                                                                    13,300         4,000
 Other charges                                                  --            --             --         7,995         7,018
 Income from operations                                     18,569        31,819          9,052         5,781        29,183
 Interest expense-net                                        9,350        10,470         20,494        39,323        38,861
 Gain on sale of Popular Club Plan                              --            --             --       (10,000)       (1,000)
 Expenses incurred-Recapitalization                             --            --         20,707            --            --
 Provision (benefit) for income taxes                        3,700         8,800         (5,262)       (8,162)       (2,050)
 Extraordinary items and cumulative effect
 of accounting changes, net of taxes                           931            --         (4,500)           --            --
                                                          --------      --------      ---------     ---------     ---------
 Net income (loss)                                        $  6,450      $ 12,549      $ (31,387)    $ (15,380)    $  (6,628)
                                                          ========      ========      =========     =========     ---------
</TABLE>

                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                                                   Fiscal Year Ended

                                                       February 2,   January 31,         January 31,   January 30,   January 29,
                                                              1996          1997                1998          1999          2000
<S>                                                       <C>           <C>                <C>           <C>           <C>
Balance Sheet Data (at period end):
 Cash and cash equivalents                                $ 13,529      $  7,132           $  12,166     $   9,643     $  38,693
 Working capital                                           132,256       132,222             142,677        95,710        75,929
 Total assets                                              355,249       410,821             421,878       376,330       373,604
 Total long term debt and redeemable
 preferred stock                                            87,329        87,092             428,457       433,243       458,218
 Stockholders' equity (deficit)                             89,633       102,006            (201,642)     (235,773)     (264,593)

Operating Data:
Revenues:
J. Crew retail                                            $134,959      $167,957           $ 209,559     $ 273,972     $ 333,575
J. Crew direct
  Catalog                                                  274,653       289,773             260,853       230,752       213,308
  Internet                                                      --            --               4,000        22,000        65,249
                                                          --------      --------           ---------     ---------     ---------
                                                           274,653       289,773             264,853       252,752       278,557
                                                          --------      --------           ---------     ---------     ---------

J. Crew factory outlet                                      79,203        94,579             100,285        96,461       101,987
J. Crew licensing                                            3,975         3,817               2,897         2,712         2,505
                                                          --------      --------           ---------     ---------     ---------

Total J. Crew brand                                        492,790       556,126             577,594       625,897       716,624
Other divisions(b)                                         253,119       252,717             256,437       198,361            --
                                                          --------      --------           ---------     ---------     ---------

Total                                                     $745,909      $808,843           $ 834,031     $ 824,258     $ 716,624
                                                          ========      ========           =========     =========     =========

J. Crew Direct:

Number of catalogs circulated (in                           67,519        76,087              76,994        73,440        75,479
thousands)
Number of pages circulated (in millions)                    10,198         9,827               9,830         8,819         9,319

J. Crew Retail:

Sales per gross square foot(c)                            $    533      $    551           $     542     $     558     $     571
Store contribution margin(c)                                  25.5%         25.4%               23.4%         25.0%         26.0%
Number of stores open at end of period                          31            39                  51            65            81
Comparable store sales change(c)                             (6.0)%          4.5%              (6.6)%          9.0%          1.8%

Depreciation and amortization                             $ 10,272      $ 10,541           $  15,255     $  15,972     $  19,241

Net capital expenditures(d)
New store openings                                        $  6,009      $ 10,894           $  19,802     $  14,749     $  13,300
Other                                                        8,631        11,587              11,565        21,605        27,953
                                                          --------      --------           ---------     ---------     ---------

Total net capital expenditures                            $ 14,640      $ 22,481           $  31,367     $  36,354     $  41,253
</TABLE>

(a) Includes buying and occupancy costs.
(b) Includes revenues from the Company's PCP and C&W divisions and finance
 charge income from PCP installment sales. PCP was sold effective October 30,
 1998 and the Company made a decision in 1998 to exit the catalog and outlet
 store operations of C&W.
(c) Includes stores that have been opened for a full twelve month period.
(d) Capital expenditures are net of proceeds from construction allowances.

                                       11
<PAGE>

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

This discussion summarizes the significant factors affecting the consolidated
operating results, financial condition and liquidity of the Company during the
three-year period ended January 29, 2000. This discussion should be read in
conjunction with the audited consolidated financial statements of the Company
for the three-year period ended January 29, 2000 and notes thereto included
elsewhere in this Annual Report on Form 10-K.

Results of Operations

Consolidated statements of operations presented as a percentage of revenues are
as follows:
<TABLE>
<CAPTION>
                                                                  Fiscal Year ended
                                                             January    January    January
                                                             29,2000    30,1999    31,1998
<S>                                                           <C>         <C>        <C>
Revenues                                                       100.0%     100.0%     100.0%
Cost of goods sold, including buying and occupancy costs        55.1       55.9       55.8
Selling, general and administrative expenses                    39.3       40.8       43.1
Charges incurred in connection with discontinuance of C&W         .5        1.6         --
Other charges                                                    1.0        1.0         --
Income from operations                                           4.1         .7        1.1
Interest expense, net                                           (5.4)      (4.8)      (2.5)
Gain on the sale of Popular Club Plan                             .1        1.2         --
Expenses incurred-recapitalization                                --         --       (2.5)
Loss before income taxes and extraordinary items                (1.2)      (2.9)      (3.9)
Benefit for income taxes                                          .3        1.0         .6
                                                             -------    -------    -------
Loss before extraordinary items                                  (.9)%     (1.9)%     (3.3)%
                                                             =======    =======    =======
</TABLE>
Fiscal 1999  Compared to Fiscal 1998

Revenues
--------

Revenues decreased 13.1% to $716.6 million in the fiscal year ended January 29,
2000 from $824.3 million in the fiscal year ended January 30, 1999. The decrease
in revenues was attributable to the sale of Popular Club Plan, effective as of
October 30, 1998, and the discontinuance of Clifford & Wills operations which
resulted in a decrease of $198.4 million. This decrease was offset by increases
of $59.6 million in J. Crew Retail and $25.8 million in J.Crew Direct. Excluding
Popular Club Plan and Clifford & Wills, revenues increased 14.5% from $625.9
million in fiscal 1998 to $716.6 million in fiscal 1999.

J. Crew Retail revenues increased by 21.8% from $274.0 million in fiscal 1998 to
$333.6 million in fiscal 1999. The percentage of the Company's total revenues
derived from J. Crew Retail increased to 46.6% in fiscal year 1999 compared to
33.2% in fiscal 1998. This increase was attributed to $54.6 million from the
opening of new stores and $5.0 million from an increase in comparable store
sales of 1.8%. The number of stores opened at January 29, 2000 increased to 81
from 65 at January 30, 1999.

J. Crew Direct revenues (which includes revenues from catalog and internet
operations) increased by 10.2% from $252.8 million in fiscal 1998 to $278.5
million in fiscal 1999. The percentage of the Company's total revenues derived
from J. Crew Direct increased to 38.9% in fiscal 1999 from 30.7% in fiscal 1998.
This increase was primarily due to an increase in net sales from j.crew.com
which increased to $65.2 million fiscal 1999 from $21.6 million in fiscal
1998.Catalog sales decreased to $213.3 million in fiscal 1999 from $231.2
million in fiscal 1998 as the Company adopted initiatives to migrate catalog
customers to the Internet.

                                       12
<PAGE>

J. Crew Factory Outlet revenues increased by 5.7% from $96.5 million in fiscal
1998 to $102.0 million in fiscal 1999. The percentage of the Company's total
revenues derived from J. Crew Factory Outlet increased to 14.2% in fiscal 1999
from 11.7% in fiscal 1998. Comparable store sales for J. Crew Factory Outlet
increased by 3.8% in fiscal 1999. J. Crew Factory Outlet closed three stores in
fiscal 1999 and 42 stores were open at January 29, 2000.


Cost of sales, including buying and occupancy costs
---------------------------------------------------

Cost of sales, including buying and occupancy costs as a percentage of revenues
decreased to 55.1% in fiscal 1999 compared to 55.9% in fiscal 1998. Excluding
the operations of PCP and C&W, cost of sales including buying and occupancy
costs decreased to 55.1% in fiscal 1999 from 56.2% in fiscal 1998. This decrease
was caused primarily by an increase in initial mark up caused by a decrease in
the cost of merchandise.

Selling, general and administrative expenses
--------------------------------------------

Selling, general and administrative expenses decreased to $281.6 million in
fiscal 1999 (39.3% of revenues) from $336.6 million in fiscal 1998 (40.8% of
revenues). Approximately $94.4 million of selling, general, and administrative
expenses in fiscal 1998 resulted from the operations of PCP and C&W.

Selling, general and administrative expenses of the J.Crew brand increased to
$281.6 million in fiscal 1999 (39.3% of revenues) from $242.2 million in fiscal
1998 (38.7% of revenues).  This increase resulted primarily from an increase in
general and administrative expenses of $31.5 million due to (a) an increase in
the number of retail stores in operation during fiscal 1999 compared to fiscal
1998; (b) an increase in consulting fees and other expenses attributable to
information technology initiatives; and (c) an increase in marketing expenses of
approximately $8 million, primarily direct advertising, devoted to increasing
customer awareness of the Company's Internet site.

Selling expenses were $75.7 million in fiscal 1999 (10.6% of revenues) compared
to $67.8 million in fiscal 1998 (10.8% of revenues).  This increase was due to
$6.0 million of direct advertising related to the Internet and an increase in
pages circulated from 8.8 billion pages in fiscal 1998 to 9.3 billion pages in
fiscal year 1999, an increase of 5.7%. These increases in selling expenses were
partially offset by decreases related to efficiencies in the catalog production
process.

Write-down of assets and other charges in connection with the discontinuance of
-------------------------------------------------------------------------------
Clifford & Wills
----------------

An additional charge of $4.0 million was incurred in fiscal 1999 to write down
the carrying value of inventories to net realizable value. (See note 2 to the
consolidated financial statements).

Other charges
-------------

Other charges in fiscal 1999 include $7.0 million relating to the write off of
certain software development costs which were impaired by the decision of the
Company to adopt an enterprise resource planning system for its future
information technology requirements.

Gain on sale of subsidiary
--------------------------

An additional gain of $1.0 million was recognized in fiscal 1999 from a
reduction in certain estimated liabilities established at the time of sale.(See
note 2 to the consolidated financial statements).

Interest expense
----------------

Interest expense, net decreased to $38.9 million in fiscal 1999 from $39.3
million in fiscal 1998. This decrease resulted primarily from lower average
borrowings during fiscal 1999 under the Revolving Credit Facility and the
reduced term loan balances which was offset by higher non-cash interest and
interest related to the settlement of a sales and use tax assessment. Average
borrowings under a Revolving Credit Facility required to fund inventories and
capital expenditures were $30.8 million in fiscal 1999 and $47.5 million in
fiscal 1998.

                                       13
<PAGE>

Interest expense included non-cash interest and amortization of deferred
financing costs of $14.2 million in fiscal 1999 compared to $12.7 million fiscal
1998.

Income Taxes
------------

The effective tax rate was (23.6%) in fiscal 1999 compared to (34.7)% in fiscal
1998.  The decrease in the effective tax rate in 1999 was primarily due to the
inability of certain subsidiaries to deduct net operating losses for state tax
purposes.

Fiscal 1998 Compared to Fiscal 1997

Revenues
--------

Revenues decreased 1.2% to $824.3 million in the fiscal year ended January 30,
1999 from $834.0 million in the fiscal year ended January 31, 1998. The decrease
in revenues was due primarily to (a) the sale of Popular Club Plan, effective as
of October 30, 1998, which resulted in a decrease of $60.3 million and (b) a
decrease in J. Crew Direct revenues of $12.0 million. These decreases were
offset by an increase of $64.4 million in the revenues of J. Crew Retail.
Excluding Popular Club Plan, revenues increased 7.8% from $649.6 million in
fiscal 1997 to $700.3 million in fiscal 1998.

J. Crew Retail revenues increased by 30.7% from $209.6 million in fiscal 1997 to
$274.0 million in fiscal 1998. The percentage of the Company's total revenues
derived from J. Crew Retail increased to 33.2% in fiscal 1998 from 25.1% in
fiscal 1997. This increase was attributed to $45.5 million from the opening of
new stores and $18.9 million from an increase in comparable store sales of 9.0%.
The number of stores opened at January 30, 1999 increased to 65 from 51 at
January 31, 1998.

J. Crew Direct revenues decreased by 4.5% from $264.8 million in fiscal 1997 to
$252.8 million in fiscal 1998. The percentage of the Company's total revenues
derived from J. Crew Direct decreased to 30.7% in fiscal 1998 from 31.8% in
fiscal 1997. This decrease was primarily due to a decrease in catalog
circulation from 9.8 billion pages circulated in fiscal 1997 to 8.8 billion
pages circulated in fiscal 1998 and a continuing weak performance in menswear
sales. J. Crew Direct revenues in fiscal 1998 include approximately $22.0
million from jcrew.com compared to approximately $4.0 million in fiscal 1997.

J. Crew Factory Outlet revenues decreased by 3.8% from $100.3 million in fiscal
1997 to $96.5 million in fiscal 1998. The percentage of the Company's total
revenues derived from J. Crew Factory Outlet decreased to 11.7% in fiscal 1998
from 12.0% in fiscal 1997. Comparable store sales for J. Crew Factory Outlet
decreased by 11.5% in fiscal 1998. The decrease in comparable store sales
resulted from additional markdowns required to sell through overstock
merchandise, primarily in the Spring of 1998. J. Crew Factory Outlet opened
three new stores in fiscal 1998 and 45 stores were open at January 30, 1999.

C&W revenues increased by 3.2% to $74.3 million in fiscal 1998 from $72.0
million in fiscal 1997. The percentage of the Company's revenues derived from
C&W increased to 9.0% in fiscal 1998 from 8.6% in fiscal 1997. The increase in
revenues resulted from an increase in the number of catalogs mailed from
approximately 40 million in fiscal 1997, to 42 million in fiscal 1998 and the
introduction of a deferred payment program in the fall of 1998. During 1998 the
Company made a decision to exit the operations of C&W and incurred a charge of
$13.3 million to write-down C&W assets to estimated realizable value and to
provide for other costs to be incurred in the discontinuance of operations, such
as severance and lease termination costs. Additionally fourth quarter charges of
$1.7 million were incurred relating to deferred catalog costs.

Cost of sales, including buying and occupancy costs
---------------------------------------------------

Cost of sales, including buying and occupancy costs as a percentage of revenues
was 55.9% for fiscal 1998 compared to 55.8% for fiscal 1997. This increase was
caused primarily by higher markdowns in fiscal 1998 to liquidate overstocks.

                                       14
<PAGE>

Selling, general and administrative expenses
--------------------------------------------

Selling, general and administrative expenses as a percentage of revenues was
40.8% in fiscal year 1998 and 43.1% in fiscal year 1997.

As a percentage of revenues, selling expenses (catalog circulation costs)
decreased to 13.1% in fiscal 1998 from 14.7% in 1997 and general and
administrative expenses decreased to 27.7% in fiscal 1998 from 28.4% in fiscal
1997. The decrease in selling expense resulted primarily from the reduction in
catalog circulation from 9.8 billion pages circulated in 1997 to 8.8 billion
pages circulated in 1998 and the implementation of cost reduction initiatives
relating primarily to printing costs at J. Crew Direct.

The decrease in general and administrative expenses in fiscal 1998 as a
percentage of revenues was due to a decrease in expenses at J. Crew Direct and
J. Crew Retail from the implementation of cost reduction initiatives.

The absolute dollar amount of selling, general and administrative expenses
decreased to $336.6 million in fiscal 1998 from $359.8 million in fiscal 1997
primarily as a result of the sale of Popular Club Plan as of October 30, 1998
which accounted for $20.0 million of the decrease.

Write-down of assets and other charges in connection with the discontinuance of
-------------------------------------------------------------------------------
Clifford & Wills
----------------

A charge of $13.3 million was included in fiscal 1998 operations to write-down
the assets of C&W to net realizable value and to provide for certain additional
costs in connection with the discontinuance

Additionally fourth quarter charges of $1.7 million were included in selling
expense relating to deferred catalog costs. (See note 2 to the consolidated
financial statements).

Other charges
-------------

Other charges in fiscal 1998 include $2.9 million of costs incurred in
connection with the termination of the employment contracts of two senior
executives, including the former Chief Executive Officer, and $5.1 million of
tax gross-up payments made on behalf of senior executives relating to restricted
stock grants (See note 19 to the consolidated financial statements).

Gain on sale of subsidiary
--------------------------

During 1998 the Company sold the capital stock of Popular Club Plan Inc. and
subsidiaries to the Fingerhut Companies, Inc. for gross proceeds of $42.0
million and realized a gain of $10.0 million. (See note 2 to the consolidated
financial statements).

Interest expense
----------------

Interest expense, net increased to $39.3 million in fiscal 1998 from $20.5
million in fiscal 1997. This increase resulted primarily from the issuance of
$295.3 million of debt in October 1997 to fund the Recapitalization including
$85.0 million to retire senior indebtedness outstanding at the time of the
Recapitalization. Average borrowings under a Revolving Credit Facility required
to fund inventories and capital expenditures were $54.3 million in fiscal 1997
and $47.5 million in fiscal 1998.

Interest expense included non-cash interest and amortization of deferred
financing costs of $12.7 million in fiscal 1998 compared to $3.9 million fiscal
1997.

Income Taxes
------------

The effective tax rate was (34.7)% in fiscal 1998 compared to (21.1)% in fiscal
1997. The effective tax rate in fiscal 1997 was effected by the non-
deductibility of certain expenses related to the Recapitalization.

                                       15
<PAGE>

Liquidity and Capital Resources

The Company's primary cash needs have been for capital expenditures incurred
primarily for opening new stores and system enhancements, debt service
requirements and working capital. The Company's sources of liquidity have been
primarily cash flows from operations and borrowings under the revolving credit
facility.

In October 1997 the Company incurred substantial indebtedness in connection with
the Recapitalization. After giving effect to the Recapitalization, the Company
had $298.2 million of indebtedness outstanding and $201.6 million of
stockholders' deficit at January 31, 1998. The Company's significant debt
service obligations following the Recapitalization could, under certain
circumstances, have material consequences to security holders of the Company. In
fiscal 1998 the Company sold its Popular Club Plan subsidiary and used $26.0
million of the proceeds to repay debt. In fiscal 1999 the Company used net
proceeds from the sale of assets of its discontinued Clifford & Wills subsidiary
to prepay an additional $10.0 million of the term loan.

Cash provided by operating activities was $94.1 million in fiscal year 1999
compared to $8.1 million in fiscal 1998. The increase in cash provided by
operations resulted from (a) a decrease in the level of inventories of $26.1
million despite an increase in the number of retail stores from 65 to 81, (b) an
increase in income from operations of $23.4 million, and (c)  a federal income
tax refund of $8.7 million.

Capital expenditures, net of construction allowances, were $41.3 million in
fiscal 1999. The 1999 capital expenditures consisted primarily of the opening of
16 new J. Crew retail stores and systems enhancements. Capital expenditures in
fiscal 1998 were $36.4 million (including $5.2 million for Popular Club Plan
which was sold in October 1998). The capital expenditures in 1998 were incurred
primarily from the opening of 14 new J.Crew Retail Stores and system
enhancements.

Capital expenditures are expected to be approximately $45.0 million in fiscal
2000, primarily for the opening of at least 20 J. Crew retail stores and for
system enhancements. The expected capital expenditures will be funded from
internally generated cash flows and by borrowings from available financing
sources.

There were no borrowings under the Revolving Credit Facility at January 29,
2000, compared to $14.0 million of  borrowings outstanding at January 30, 1999.
Average borrowings under the Revolving Credit Facility were $30.8 million for
the fiscal year ended January 29, 2000 and $47.5 million for the fiscal year
ended January 30, 1999.

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

Year 2000

The Company completed its Year 2000 software program conversions and compliance
programs during the fourth quarter of 1999.  The total external costs for such
programs were approximately $2.6 million.  Subsequent to December 31, 1999, the
Company has not experienced any Year 2000 problems either internally or from
outside sources.  The Company has no reason to believe that Year 2000 failures
will materially affect it in the future.  However, since it may take several
additional months before it is known whether the Company or third party
suppliers, vendors or customers may have undergone Year 2000 problems, no
assurances can be given that the Company will not experience losses or
disruptions due to Year 2000 computer-related problems.  The Company will
continue to monitor the operation of its computers and microprocessor-based
devices for any Year 2000 problems.

                                       16
<PAGE>

Impact of Inflation

The Company's 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, the Company
believes that the effects of inflation, if any, on its results of operations and
financial condition have been minor. However, there can be no assurance that
during a period of significant inflation, the Company's results of operations
would not be adversely affected.

Seasonality

The Company's retail and direct businesses experience two distinct selling
seasons, spring and fall. The spring season is comprised of the first and second
quarters and the fall season is comprised of the third and fourth quarters. Net
sales are usually substantially higher in the fall season and selling, general
and administrative expenses as a percentage of net sales are usually higher in
the spring season. Approximately 35% of annual net sales in fiscal 1999 occurred
in the fourth quarter. The Company's working capital requirements also fluctuate
throughout the year, increasing substantially in September and October in
anticipation of the holiday season inventory requirements.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" which requires entities to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for all fiscal years
beginning after June 15, 1999. In June 1999 the effective date of SFAS No.133
was deferred to all fiscal years beginning after June 15, 2000. The Company is
currently reviewing SFAS No. 133 and is not able to evaluate the impact, if any,
it may have on future operating results or financial statement disclosures.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's principal market risk relates to interest rate sensitivity which
is the risk that future changes in interest rates will reduce net income or the
net assets of the Company. The Company's variable rate debt consists of
borrowings under the Revolving Credit Facility and the Term Loan Facility. In
order to manage this interest rate risk, the Company entered into an interest
rate swap agreement for a notional principal amount of $50 million which expires
in October 2000. This agreement converts the interest rate to a fixed rate of
6.23%. If this interest rate swap agreement was settled on January 29, 2000 the
Company would have received $62,000.

The Company enters 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, 2000 were approximately
$38.3 million.

Furthermore, the Company has a licensing agreement in Japan which provides for
royalty payments based on sales of J. Crew merchandise as denominated in yen.
The Company has from time to time entered into forward foreign exchange
contracts to minimize this risk. At January 29, 2000, there was a forward
foreign exchange contract outstanding to sell 120 million Yen which expires on
March 31, 2000.

                                       17
<PAGE>

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

Not applicable.


                                    PART III

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 of Holdings and executive officers of Holdings and
Operating Corp. Each Director of Holdings will hold office until the next annual
meeting of shareholders or until his or her successor has been elected and
qualified. Officers are elected by the respective Boards of Directors and serve
at the discretion of such Board.
<TABLE>
<CAPTION>

Name                    Age  Position
----                    ---  --------
<S>                     <C>  <C>

Emily Woods...........   38  Director, Chairman of the Board
Mark A. Sarvary.......   40  Director, Chief Executive Officer
Charlotte L. Beers....   64  Director
David Bonderman.......   57  Director
Richard W. Boyce......   45  Director
Gregory D. Brenneman..   38  Director
John W. Burden, III...   63  Director
James G. Coulter......   40  Director
Richard M. Anders.....   43  President of Retail
Barbara K. Eisenberg..   54  Senior Vice President, General Counsel and Corporate Secretary
Scott Formby..........   38  Executive Vice President, Design
Scott D. Hyatt........   42  Senior Vice President, Manufacturing
Walter Killough.......   45  Chief Operating Officer
David F. Kozel........   44  Senior Vice President, Human Resources
Nicholas Lamberti.....   57  Vice President-Corporate Controller
Thomas A. Lesica......   40  Senior Vice President, Chief Information Officer
Michael Ovitz.........   53  Director
Scott M. Rosen........   41  Executive Vice President, Chief Financial Officer
Carol Sharpe..........   45  Executive Vice President, Merchandising - Brand
Trudy Sullivan........   50  President
Brian T. Swette.......   46  Director
Mark T. Walsh.........   38  Executive Vice President, e-commerce and  Strategic
                             Planning
Josh S. Weston........   71  Director

</TABLE>

                                       18
<PAGE>

Emily Woods
     Ms. Woods became Chairman of the Board of Directors of Holdings upon
consummation of the Recapitalization.  Ms. Woods is also a director and Chairman
of the Board of Operating Corp.  Ms. Woods co-founded the J. Crew brand in 1983.
Ms. Woods has also served as Chief Executive Officer and Vice-Chairman of
Holdings and as Chief Executive Officer of Operating Corp.  She is also a
director of Yankee Candle Company.

Mark A. Sarvary
          Mr. Sarvary joined the Company in May 1999 as Chief Executive Officer
and as a Director.  He was President/General Manager of the Nestle Frozen Food
Division of Nestle USA from 1996 to May 1999 and Vice President Marketing from
1995 to 1996.

Charlotte L. Beers
     Ms. Beers became a director of Holdings in 1998.  Ms. Beers has been
Chairman of J. Walter Thompson (advertising agency) since March 1999.  She was
Chairman and Chief Executive Officer of Ogilvy & Mather (advertising agency)
from 1992 until 1997 and Chairman Emeritus from 1997 until March 1999.  She also
serves as a director of Martha Stewart Living, Omnimedia and IBeauty.com.

David Bonderman
     Mr. Bonderman became a director of Holdings upon consummation of the
Recapitalization.  Mr. Bonderman is a founding partner of Texas Pacific Group
and has been Managing General Partner of TPG for more than six years.  Mr.
Bonderman serves on the Boards of Directors of Bell & Howell, Inc., Beringer
Wine Estates, Inc., Continental Airlines, Inc., Co-Star Realty Information,
Inc., Denbury Resources Inc., Ducati Motor Holdings S.p.A., Magellan Health
Services, Inc., Oxford Health Plans, Inc., Paradyne Networks, Inc. and Ryanair
Ltd.

Richard W. Boyce
     Mr. Boyce became a director of Holdings upon consummation of the
Recapitalization and was Chief Executive Officer from January 1999 until May
1999.  Mr. Boyce is the President of CAF, Inc. ("CAF"), a management consulting
firm which advises various companies controlled by TPG. Prior to founding CAF in
1997, Mr. Boyce served as Senior Vice President of Operations for Pepsi-Cola
North America ("PCNA") from 1996 to 1997, and Chief Financial Officer of PCNA
from 1994 to 1996.  He is also Chairman of Del Monte Foods Company.  He is
Chairman of Favorite Brands International Holding Corp., which filed for
protection under Chapter 11 of the Bankruptcy Code on March 30, 1999.  Mr. Boyce
is also a director of ON Semiconductor.

Gregory D. Brenneman
     Mr. Brenneman became a director of Holdings in 1998. He has been President
of Continental Airlines Inc. since 1996 and Chief Operating Officer of
Continental Airlines Inc. since 1995.  He has been a director of Continental
since 1995.

John W. Burden, III
     Mr. Burden became a director of Holdings in 1998. Mr. Burden has been a
retail consultant for more than five years. He also serves as a director of Saks
Incorporated and Chicos Fas Inc.

James G. Coulter
     Mr. Coulter became a director of Holdings upon consummation of the
Recapitalization.  Mr. Coulter is a founding partner of Texas Pacific Group and
has been Managing General Partner of TPG for more than six years.  Mr. Coulter
serves on the Boards of Directors of Beringer Wine Estates, Inc., Genesis Health
Ventures, Inc., Northwest Airlines, Inc., Oxford Health Plans, Inc. and
Globespan Semiconductor, Inc.

                                       19
<PAGE>

Barbara K. Eisenberg
     Ms. Eisenberg has been Senior Vice President, General Counsel and Corporate
Secretary since August 1999 and was Vice President, General Counsel and
Corporate Secretary from 1998 until then.  Prior thereto, she was Vice
President, Associate General Counsel and Corporate Secretary of Burlington
Industries, Inc. (textile manufacturer) for more than five years.

Richard M. Anders
          Mr. Anders joined the Company in May 1999 as President of Retail.  He
was Zone Vice President of Old Navy, a division of The Gap, Inc., from 1996 to
May 1999 and Regional Manager, Gap brand prior thereto.

Scott Formby
     Mr. Formby became Executive Vice President, Design of J. Crew in 1999.
Prior thereto, he was Vice President, Design for more than five years.

Scott D. Hyatt
          Mr. Hyatt joined the Company in 1998 as Senior Vice President,
Manufacturing.  He was with Express Inc. as Vice President, Production and
Sourcing from 1996 to 1998 and Vice President, Manufacturing of Bernard Chaus
Inc. for more than five years prior thereto.

Walter Killough
     Mr. Killough became Chief Operating Officer of the Company in October 1999.
Prior thereto, he was Senior Vice President, General Manager, Mail Order for
more than five years.

David F. Kozel
          Mr. Kozel joined the Company in 1999 as Senior Vice President, Human
Resources.  Prior thereto, he was with Grey Advertising as Vice President, Human
Resources from 1998, Vice President, Human Resources of Deluxe Corporation from
1997 to 1998 and Vice President, Human Resources of Citibank from 1995 to 1996.

Nicholas Lamberti
     Mr. Lamberti has been Vice President - Corporate Controller for more than
five years.

Thomas A. Lesica
     Mr. Lesica joined the Company in 1999 as Senior Vice President and Chief
Information Officer. He was with PepsiCo, Inc. as Vice President and Chief
Information Officer from 1997 until joining the Company and Director of
Information Technology of Pepsi Cola Company prior thereto.

Michael Ovitz
     Mr. Ovitz became a director of Holdings in 1998. He is an independent
businessman and investor and co-founded Artists Management Group, LLC, a
management/production multi-media company. He has been a Principal of Artist
Management Group since December 1998. From 1995 to 1996, Mr. Ovitz was President
of the Walt Disney Company. For more than five years prior to 1995, Mr. Ovitz
served as Chairman of Creative Artists Agency, which he co-founded. Mr. Ovitz is
also a director of Gulfstream Aerospace Corp. and Livent, Inc.

Scott M. Rosen
     Mr. Rosen has been Executive Vice President and Chief Financial Officer
since August 1999, Senior Vice President and Chief Financial Officer from 1998
until then and Chief Financial Officer of Mail Order for more than five years
prior thereto.

Carol Sharpe
     Ms. Sharpe has been Executive Vice President, Merchandising - Brand since
August 1999 and was Senior Vice President, General Merchandising Manager, Retail
prior thereto.  She was Senior Vice President and General Merchandising Manager-
Women's from 1998 until then and Vice President, Women's for more than 5 years
prior to 1998.

                                       20
<PAGE>

Trudy Sullivan
     Ms. Sullivan has been President since rejoining the Company in February
2000.  She was President of Kids "R" Us, a division of Toys "R" Us, Inc., from
October 1999 to February 2000. Ms. Sullivan was President, Mail Order of the
Company from 1998 to October 1999 and President of Clifford and Wills from 1995
to 1998.

Brian T. Swette
     Mr. Swette became a director of Holdings in 1998.  He has been Chief
Operating Officer of eBay Inc. (person-to-person trading community on the
Internet), since November 1999 and from 1998 until then was Senior Vice
President of Marketing and International of eBay. He was Executive Vice
President and Chief Marketing Officer-Global Beverages of Pepsi-Cola Beverages
from 1996 until joining eBay and Executive Vice President Marketing-North
America of Pepsi-Cola Beverages from 1994 to 1996. He is also a director of eBay
Inc.

Mark T. Walsh
          Mr. Walsh joined the Company in September 1999 as Senior Vice
President Strategic Planning, Marketing and Internet and was elected Executive
Vice-President e-commerce and Strategic Planning in March 2000.  Prior thereto,
he was Director, Global Marketing Strategy of Citibank, N.A., from 1998.  He was
Chief Financial Officer, Fountain Beverage Division of Pepsico, Inc. from 1997
to 1998 and Vice President, Mergers and Acquisitions of Pepsico from 1996 to
1997.

Josh S. Weston
     Mr. Weston became a director of Holdings in 1998. He has been Honorary
Chairman of the Board of Directors of Automatic Data Processing (computing
services business) since 1998. He 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 is also a director of Gentiva
Health Services, Shared Medical Systems Corporation and Russ Berrie & Company,
Inc.

                                       21
<PAGE>

ITEM 11.                 EXECUTIVE COMPENSATION

The following table sets forth compensation paid for fiscal years 1999, 1998 and
1997 to each individual serving as its chief executive officer during fiscal
1999 and to each of the four other most highly compensated executive officers of
the Company as of the end of fiscal 1999.

<TABLE>
<CAPTION>


                                                                  Annual Compensation
                                                     --------------------------------------------

Name                                                                              Other Annual
And                                            Fiscal    Salary        Bonus          Comp.
Principal Position                              Year       ($)          ($)            ($)
-------------------------------------------------------------------------------------------------
<S>                                            <C>     <C>          <C>          <C>
Emily Woods                                     1999   $1,000,000   $1,000,000        $--
Chairman                                        1998    1,000,000    1,000,000         --
                                                1997      700,000         --           --

Mark Sarvary                                    1999      560,190      335,000    1,000,000(5)
Chief Executive Officer                         1998         --           --           --
                                                1997         --           --           --

Richard W. Boyce                                1999      250,000         --           --
Former Chief Executive Officer                  1998       83,333         --           --
                                                1997         --           --           --

Scott Formby                                    1999      422,115      106,800         --
Executive Vice President, Design                1998      392,158      107,000         --
                                                1997      358,654       30,000         --

Carol Sharpe                                    1999      402,500      240,000      360,000(5)
Executive Vice President, Merchandising -       1998      362,500      100,300         --
  Brand                                         1997      315,856       75,000         --

Richard Anders                                  1999      304,220       75,000      300,000(5)
President, Retail                               1998         --           --           --
                                                1997         --           --           --

</TABLE>


<TABLE>
<CAPTION>
                                                        Long-Term Compensation
                                                         Awards             Payouts
                                            ----------------------------------------
                                                               Securities
                                               Restricted      Underlying      LTIP        All Other
                                                 Stock          Options/     Payouts         Comp.
                                             Award(s)($)(1)   SARS (#)(1)      ($)            ($)
                                            ------------------------------------------------------------
<S>                                         <C>             <C>             <C>        <C>
Emily Woods                                     --                 --           --               $5,000(6)
Chairman                                        (2)                --           --         2,907,590(3)(6)
                                                --              492,200         --        10,004,750(4)(6)

Mark Sarvary                                    --              272,000         --                 --
Chief Executive Officer                         --                 --           --                 --
                                                --                 --           --                 --

Richard W. Boyce                                --                 --           --                 --
Former Chief Executive Officer                  --               55,200         --                 --
                                                --                 --           --                 --

Scott Formby                                    --                8,800         --                5,000(6)
Executive Vice President, Design                --                 --           --                5,000(6)
                                                --               31,200         --            64,750(4)(6)

Carol Sharpe                                    --               12,000         --                5,000(6)
Executive Vice President, Merchandising -       --               12,400         --                5,000(6)
  Brand                                         --               12,600         --            54,750(4)(6)

Richard Anders                                  --               60,000                            --
President, Retail                               --                 --           --                 --
                                                --                 --           --                 --
</TABLE>

__________

(1)    There is no established public market for shares of Common Stock. Holders
       of restricted stock have the same right to receive dividends as other
       holders of Common Stock. The Company has not paid any cash dividends on
       its Common Stock. All share amounts have been adjusted to reflect a 200
       for 1 stock split effective April 1999.
(2)    Ms. Woods was granted 661,600 shares of Common Stock ("Woods Restricted
       Shares"), of which 78,600 shares vested immediately upon grant, 194,400
       shares will vest on each of the 3rd and 4th anniversaries of the
       Recapitalization and 194,200 shares will vest on the 5th anniversary of
       the Recapitalization.
(3)    The amount set forth in this column includes reimbursement for income
       taxes in the amount of $ 2,902,590 incurred by Ms. Woods as a result of
       the grant of the Woods Restricted Shares.
(4)    The amount set forth in this column includes a bonus paid in connection
       with the consummation of the Recapitalization.
(5)    This amount is a signing bonus.
(6)    Includes Company matching contributions to 401(k) plan in the amounts of
       $5,000, $5,000 and $4,750 for fiscal years 1999, 1998 and 1997,
       respectively.

                                       22
<PAGE>

   The following Table shows information concerning stock options granted to any
of the named executive officers during fiscal year 1999.

                       Option Grants In Fiscal Year 1999
<TABLE>
<CAPTION>

                                                                            Potential Realizable Value At
                                                                              Assumed Annual Rates Of
                                                                            Stock Price Appreciation For
                          Individual Grants                                          Option Term
------------------------------------------------------------------------------------------------------------
                      Number of             Percent Of
                     Securities           Total Options
                     Underlying             Granted To
                       Options             Employees In    Exercise    Expiration
Name               Granted(#) (1)(2)       Fiscal Year    Price($/Sh)     Date         5%($)      $10% ($)
------------------------------------------------------------------------------------------------------------
<S>               <C>                <C>             <C>          <C>         <C>            <C>
Richard Anders           60,000                7.9%          $6.82       5/3/09      $257,344     $652,319

Scott Formby              8,800                1.2%          10.00      4/13/09        55,344      140,250

Mark Sarvary            272,000               35.7%          10.00      5/10/09     1,710,594    4,334,979

Carol Sharpe             12,000                1.6%           6.82      4/13/09        51,468      131,094
</TABLE>
__________
(1)    The Company has not granted any SARs.

(2)    The options have 10-year terms and are exercisable in the case of Messrs.
       Anders and Formby, 20% on January 31st in each of 2000 through 2004; in
       the case of Mr. Sarvary, 20% on May 10th in each of 2000 through 2004;
       and in the case of Ms. Sharpe, 20% on April 30th in each of 2000 through
       2004.

       The following Table shows the number of stock options held by the named
executive officers at the end of fiscal year 1999. The named executive officers
did not exercise any stock options in fiscal year 1999.

   Aggregated Option Exercises in Fiscal Year 1999 and Fiscal Year-End Option
                                     Values

<TABLE>
<CAPTION>
                                                              Number Of Securities
                                                             Underlying Unexercised
                                                         Options At Fiscal Year End (1)
                                                                      (#)
Name                                                       Exercisable/Unexercisable
----                                                       -------------------------
<S>                                                            <C>
Richard Anders..............................................   12,000 / 48,000
Scott Formby................................................   14,240 / 25,760
Mark Sarvary................................................        0 / 272,000
Carol Sharpe................................................   10,000 / 27,000
Emily Woods.................................................   65,600 / 426,600
</TABLE>
__________
(1)  There is no established public market for shares of the Company's Common
     Stock.

                                       23
<PAGE>

Employment Agreements and Other Compensation Arrangements

Ms. Woods has an employment agreement with Holdings and Operating Corp. (the
"Employers") which provides that, for a period of five years beginning on
October 17, 1997, she will serve as Chairman of the Board of Directors of
Holdings.  The employment agreement provides for an annual base salary of $1.0
million, and an annual target bonus of up to $1.0 million based on achievement
of earnings objectives to be determined each year.  The employment agreement
also provided for the grant of 661,600 shares of Common stock (the "Woods
Restricted Shares").  (See footnotes 2 and 3 to the Executive Compensation Table
for information on the vesting of the Woods Restricted Shares and the
reimbursement of income taxes incurred by Ms. Woods in connection with such
grant.)  Ms. Woods is also entitled to various executive benefits and
perquisites under the employment agreement.

Under the terms of stock options awarded to Ms. Woods under the Company's Stock
Option Plan, all unvested options shall become exercisable (i) if Ms. Woods'
employment is terminated by Holdings without cause, by Ms. Woods for good reason
or by reason of death or disability, or (ii) in the event of a change in control
of Holdings.  Because of a change in Ms. Woods' duties and responsibilities,
upon the termination of Ms. Woods' employment, she will be entitled to severance
benefits and other benefits as described in the February 4, 2000 amendment to
her agreement.

Mr. Sarvary has an Employment Agreement with Operating Corp., which provides
that, for a period of five years commencing on May 10, 1999, he will serve as
Chief Executive Officer of Operating Corp.  The Employers also agreed to cause
Mr. Sarvary to be elected to the Board of Directors of Holdings.  The Employment
Agreement provides for an annual base salary $670,000 and an annual target bonus
of 50% of his annual base salary based on achievement of earnings objectives to
be determined each year, provided that with respect to fiscal year 1999, the
bonus would be at least $335,000 regardless of whether the bonus objectives were
achieved.  The Employment Agreement also provides for the payment of a signing
bonus of $1,000,000 and the grant of options to purchase 272,000 shares of
Common Stock as well as the grant of additional stock options to purchase 68,000
shares on the earlier of the date of an initial public offering of Holdings'
Common Stock or May 10, 2004.  Mr. Sarvary is also entitled to various executive
benefits and perquisites under the Employment Agreement.  Mr. Sarvary's
Employment Agreement also provides that in the event of his termination by
Operating Corp. without cause or termination by Mr. Sarvary for Good Reason (as
defined in the Agreement), he will receive an amount equal to two times his base
salary.

Ms. Sharpe has an Employment Agreement with Operating Corp. which provides that,
for a period of five years commencing on April 30, 1999, she will serve as
Executive Vice President-Merchandising of Operating Corp.  The Employment
Agreement provides for an annual base salary of $400,000 and an annual target
bonus of 60% of her annual base salary based on achievement of earnings
objectives to be determined for each year, provided that with respect to fiscal
year 1999, the bonus would be at least $240,000 regardless of whether the bonus
objectives were achieved.  The Employment Agreement also provides for a signing
bonus of $360,000 and the grant of options to purchase 12,000 shares of Common
Stock.  The Agreement provides for continuation of salary for a period of one
year if Ms. Sharpe's employment is terminated without cause (as defined in the
Agreement).  Ms. Sharpe's employment agreement also provides that if, on April
30, 2003, the aggregate spread between the fair market value per share and the
exercise price per share of her options to purchase 34,600 shares of Holdings
Common Stock does not equal or exceed $1,124,500, then Operating Corp. will pay
her a cash payment equal to any such shortfall, subject to adjustment in the
event she has disposed of any of the shares underlying such options.

The Woods Restricted Shares and any shares of Common Stock acquired by Ms.
Woods, Mr. Sarvary and Ms. Sharpe 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.

Compensation Committee Interlocks and Insider Participation

Ms. Woods, Chairman, is a member of the Compensation Committee of Holdings.

                                       24
<PAGE>

Compensation of Directors

An attendance fee of $10,000 for each Board of Directors meeting is paid to each
Director who is neither an employee of the Company nor a representative of TPG.
Directors have the option to receive all or a portion of that fee paid in cash
or in shares of Common Stock at a per share purchase price of $6.82 for meetings
prior to April 13, 1999 and $10.00 for meetings held thereafter.

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 Holdings as of March 9, 2000 for each person who is known to
Holdings to be the beneficial owner of 5% or more of Holdings 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.
<TABLE>
<CAPTION>
                      Name and Address            Amount and Nature of       Percent of
 Title of Class       of Beneficial Owner         Beneficial Ownership         Class
-------------------------------------------------------------------------------------------
<S>               <C>                             <C>                          <C>
Common Stock      TPG Partners II, L.P.           7,313,797.6 shares (1)        60.3%
                  201 Main Street, Suite 2420
                  Fort Worth, TX 76102

Common Stock      Emily Woods                     2,330,776.6 shares (2)        19.2%
                  J. Crew Group, Inc.
                  770 Broadway
                  New York, NY 10003
</TABLE>
__________

(1) These shares of Common Stock are held by TPG and the following affiliates of
    TPG (collectively, "TPG Affiliates"):  TPG Parallel II L.P. and TPG
    Investors II, L.P.

(2) Includes (a) 65,600 shares not currently owned but which are issuable upon
    the exercise of stock options awarded under the Company's Stock Option Plan
    that are currently exercisable, and (b) 583,000 shares of Common Stock that
    have not vested and are held in custody by the Company until vesting
    thereof.

                                       25
<PAGE>

     The following table sets forth information regarding the beneficial
ownership of each class of equity securities of Holdings as of March 9, 2000 for
(i) each director, (ii) each of the executive officers identified in the table
set forth under Item 11. "Executive Compensation", and (iii) all directors and
all such 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.
<TABLE>
<CAPTION>

                                                             Number of Shares
                                                               and Nature of                    Percent of
Title of Class              Name of Beneficial Owner       Beneficial Ownership                   Class
-----------------------------------------------------------------------------------------------------------------
<S>                         <C>                          <C>                                   <C>
Common Stock                Richard M. Anders                      12,000 (2)                      *
Common Stock                Charlotte L. Beers                     13,466.276                      *
Common Stock                David Bonderman                     7,313,797.6 (1)                    60.3%
Common Stock                Richard W. Boyce                       55,200 (2)                      *
Common Stock                Gregory D. Brenneman                       10,600                      *
Common Stock                John W. Burden, III                     2,466.276                      *
Common Stock                James G. Coulter                    7,313,797.6 (1)                    60.3%
Common Stock                Scott Formby                           14,240 (2)                      *
Common Stock                Michael Ovitz                          11,400                          *
Common Stock                Mark A. Sarvary                        54,400 (2)                      *
Common Stock                Carol Sharpe                           12,400 (2)                      *
Common Stock                Brian T. Swette                        13,866.276                      *
Common Stock                Josh S. Weston                         13,466.276                      *
Common Stock                Emily Woods                         2,330,776.6 (3)                    19.2%
Common Stock                All Directors and executive         9,926,239.304 (1) (2) (3)          81.8%
                            officers as a group
Series A Preferred Stock    Charlotte L. Beers                             60                      *
Series A Preferred Stock    David Bonderman                        73,474.58 (1)                   79.2%
Series A Preferred Stock    Gregory D. Brenneman                           60                      *
Series A Preferred Stock    James G. Coulter                       73,474.58 (1)                   79.2%
Series A Preferred Stock    Michael Ovitz                                  60                      *
Series A Preferred Stock    Brian T. Swette                                60                      *
Series A Preferred Stock    Josh S. Weston                                 60                      *
Series A Preferred Stock    Emily Woods                             2,978.505                       3.2%
Series A Preferred Stock    All Directors and executive            76,753.085                      82.7%
                            officers as a group
</TABLE>

__________
*Represents less than 1% of the class.

(1) Attributes ownership of the shares owned by TPG Affiliates to Messrs.
    Bonderman and Coulter, who are partners of TPG. Each of Messrs. Bonderman
    and Coulter disclaim beneficial ownership of the shares owned by TPG
    Affiliates.

(2) These are shares not currently owned but which are issuable upon the
    exercise of stock options awarded under the Company's Stock Option Plan that
    are currently exercisable or become exercisable within 60 days.

(3) Includes (a) 65,600 shares not currently owned but which are issuable upon
    the exercise of stock options awarded under the Company's Stock Option Plan
    that are currently exercisable, and (b) 583,000 shares of Common Stock that
    have not vested and are held in custody by the Company until vesting
    thereof.

                                       26
<PAGE>

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       In connection with Mr. Sarvary's relocation to the Company's
headquarters, the Company loaned Mr. Sarvary $1.0 million on an interest-free
basis to purchase a residence. The loan is secured by a mortgage on that
residence and $950,000 is still outstanding.

       The Company loaned Mr. Gilbertson $250,000 in connection with his
purchase of a residence. The loan bears interest at 8% per annum and is secured
by a mortgage on that residence and a life insurance policy of $250,000 naming
the Company as the sole beneficiary. Mr. Gilbertson resigned as President of the
Company's e-commerce business on March 31, 2000, to return to TPG and the loan
is in the process of being repaid in full with accrued interest.

       Holdings and its subsidiaries entered into a tax sharing agreement
providing (among other things) that each of the subsidiaries will reimburse
Holdings for its share of income taxes determined as if such subsidiary had
filed its tax returns separately from Holdings.

                                       27
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1.  Financial Statements

          The following financial statements of J. Crew Group, Inc. and
          subsidiaries are included in Item 8:

          (i)   Report of KPMG LLP, Independent Auditors

          (ii)  Consolidated Balance Sheets as of January 29, 2000 and January
                30, 1999

          (iii) Consolidated Statements of Operations - Years ended January 29,
                2000, January 30, 1999 and January 31, 1998

          (iv)  Consolidated Statements of changes in Stockholders' Deficit -
                Years ended January 29, 2000, January 30, 1999 and January 31,
                1998

          (v)   Consolidated Statements of Cash Flows - Years ended January 29,
                2000, January 30, 1999 and January 31, 1998

          (vi)  Notes to consolidated financial statements

     2.   Financial Statements Schedules

          Schedule II  Valuation and Qualifying Accounts.

     3.   Exhibits

          The exhibits listed on the accompanying Exhibit Index are incorporated
          by reference herein and filed as part of this report.

(b)  Reports on Form 8-K

     The Company has not filed any reports on Form 8-K during the fiscal quarter
     ended January 29, 2000.

(c)  Exhibits

     See Item 14(a)3 above.

(d)  Financial Statement Schedules

     See Item 14(a)1 and 14(a)2 above.

                                       28
<PAGE>

                                   SIGNATURES

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

                                                   J. CREW GROUP, INC.
Date: April 17, 2000
                                                   By: /s/ Mark A. Sarvary
                                                     ---------------------
                                                       Mark A. Sarvary
                                                       Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
         Signature                           Title                             Date
         ---------                           -----                             ----
<S>                             <C>                                        <C>
/s/ Emily Woods                 Director; Chairman of the Board            April 17, 2000
--------------------------
Emily Woods

/s/ Mark A. Sarvary             Director; Chief Executive Officer          April 17, 2000
--------------------------
Mark A. Sarvary                 (Principal Executive Officer)

/s/ Scott M. Rosen              Executive Vice President, Chief Financial  April 17, 2000
--------------------------
Scott M. Rosen                  Officer (Principal Financial Officer)

/s/ Nicholas Lamberti           Vice President, Corporate Controller       April 17, 2000
--------------------------
Nicholas Lamberti               (Principal Accounting Officer)

/s/ Charlotte L. Beers          Director                                   April 17, 2000
--------------------------
Charlotte Beers

/s/ David Bonderman             Director                                   April 17, 2000
--------------------------
David Bonderman

/s/ Richard W. Boyce            Director                                   April 17, 2000
--------------------------
Richard W. Boyce

/s/ Gregory D. Brenneman        Director                                   April 17, 2000
--------------------------
Gregory D. Brenneman

/s/ John W. Burden, III         Director                                   April 17, 2000
--------------------------
John W. Burden, III

/s/ James G. Coulter            Director                                   April 17, 2000
--------------------------
James G. Coulter

/s/ Michael Ovitz               Director                                   April 17, 2000
--------------------------
Michael Ovitz

/s/ Brian T. Swette             Director                                   April 17, 2000
--------------------------
Brian T. Swette

/s/ Josh S. Weston              Director                                   April 17, 2000
--------------------------
Josh S. Weston
</TABLE>
<PAGE>

Independent Auditors' Report

The Board of Directors and Stockholders
J. Crew Group, Inc. and Subsidiaries:

We have audited the consolidated financial statements of J. Crew Group, Inc. and
subsidiaries (the "Company") 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 Company's 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 J. Crew Group, Inc.
and subsidiaries as of January 29, 2000 and January 30, 1999 and the results of
their operations and their cash flows for each of the years in the three-year
period ended January 29, 2000, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement 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.

                                              KPMG LLP

March 31, 2000

                                      F-1
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                          Consolidated Balance Sheets

                                                     January 29,    January 30,
      Assets                                            2000            1999
      ------                                            ----            ----
                                                           (in thousands)
Current assets:
 Cash and cash equivalents                             $ 38,693      $  9,643
 Merchandise inventories                                129,928       156,022
 Prepaid expenses and other current assets               30,083        46,729
 Net assets held for disposal                             8,927        17,377
                                                       --------      --------

   Total current assets                                 207,631       229,771
                                                       --------      --------

Property and equipment - at cost:

 Land                                                    1,460          1,460
 Buildings and improvements                             11,363         11,167
 Furniture, fixtures and equipment                      60,355         53,344
 Leasehold improvements                                130,054        114,424
 Construction in progress                               12,851          3,932
                                                       -------        -------
                                                       216,083        184,327
     Less accumulated depreciation and amortization     77,683         64,577
                                                       -------        -------
                                                       138,400        119,750
                                                       -------        -------
 Deferred income tax assets                             14,830         11,624
 Other assets                                           12,743         15,185
                                                       -------        -------
    Total assets                                      $373,604       $376,330
                                                       =======        =======

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

Current liabilities:
  Notes payable - bank                                 $    --        $14,000
  Accounts payable                                      40,951         40,130
  Other current liabilities                             70,222         59,175
  Federal and state income taxes payable                14,687         11,280
  Deferred income tax liabilities                        5,842          9,476
                                                       -------        -------

    Total current liabilities                          131,702        134,061
                                                       -------        -------

 Long-term debt                                        284,684        282,695
                                                       -------        -------
 Deferred credits and other long-term liabilities       48,277         44,799
                                                       -------        -------
 Redeemable preferred stock                            173,534        150,548
                                                       -------        -------
 Stockholders' deficit                                (264,593)      (235,773)
                                                       -------        -------
 Total liabilities and stockholders' deficit          $373,604       $376,330
                                                       =======        =======



See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                     Consolidated Statements of Operations
<TABLE>
<CAPTION>

                                                                            Years ended
                                                                            -----------
                                                             January 29,    January 30,    January 31,
                                                             -----------    -----------    -----------
<S>                                                          <C>           <C>             <C>
                                                                 2000            1999          1998
                                                                 ----            ----          ----
                                                                                (in thousands)
Revenues:

 Net sales                                                      $714,119        $816,221      $822,840
 Other                                                             2,505           8,037        11,191
                                                                --------        --------      --------
                                                                 716,624         824,258       834,031

Operating costs and expenses:

 Cost of goods sold, including buying and occupancy
  costs                                                          394,813         460,592       465,168
 Selling, general and administrative expenses                    281,610         336,590       359,811
 Write off of software development costs                           7,018              --            --
 Write down of assets and other charges in
  connection with discontinuance of Clifford & Wills               4,000          13,300            --
 Termination costs and other nonrecurring
  employment contract charges                                          -           7,995            --
                                                                --------        --------      --------
                                                                 687,441         818,477       824,979
                                                                --------        --------      --------

     Income from operations                                       29,183           5,781         9,052

Interest expense - net                                            38,861          39,323        20,494

Gain on sale of Popular Club Plan                                 (1,000)        (10,000)           --

Expenses incurred in connection with the Recapitalization             --              --        20,707
                                                                --------        --------      --------

     Loss before income taxes and extraordinary item              (8,678)        (23,542)      (32,149)
Benefit for income taxes                                           2,050           8,162         5,262
                                                                --------           -----         -----


     Loss before extraordinary item                               (6,628)        (15,380)      (26,887)
                                                                --------        --------      --------
Extraordinary item - loss on early retirement of debt
 (net of income tax benefit of $3,127)                                --              --        (4,500)
                                                                --------        --------      --------


     Net loss                                                    $(6,628)       $(15,380)     $(31,387)
                                                                 =======        ========      ========

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES
                     Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                            Years ended
                                                                            -----------
                                                              January 29,    January 30,    January 31,
                                                              -----------    -----------    -----------
<S>                                                          <C>           <C>             <C>
                                                                  2000           1999          1998
                                                                  ----           ----          ----
                                                                            (in thousands)
Cash flows from operating activities:
Net loss                                                        $ (6,628)       $(15,380)    $ (31,387)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
  Depreciation and amortization                                   19,241          15,972        15,255
  Write off of software development costs                          7,018              --            --
  Amortization of deferred financing costs                         2,196           2,119           958
  Noncash interest expense                                        11,989          10,534         2,904
  Deferred income taxes                                           (6,840)        (10,129)       (5,010)
  Provision for losses on accounts receivable                         --           5,627         7,343
  Noncash compensation expense                                       636             881           150
  Gain on sale of subsidiary                                      (1,000)        (10,000)           --
  Write down of assets and other charges
  in connection with discontinued catalog                          4,000          15,000            --
  Loss on early retirement of debt                                    --              --         7,627
Changes in operating assets and liabilities:
Accounts receivable                                                   --          (8,242)       33,902
Merchandise inventories                                           26,094         (15,608)       (5,106)
Net assets held for disposal                                       4,450              --            --
Prepaid expenses and other current assets                         16,646            (536)       (4,081)
Other assets                                                        (777)         (2,559)         (587)
Accounts payable                                                     821           7,415       (37,726)
Other liabilities                                                 12,892           1,931        17,577
Federal and state income taxes payable                             3,407          11,029        (9,268)
                                                                --------        --------     ---------
  Net cash provided by (used in) operating activities             94,145           8,054        (7,449)
                                                                --------        --------     ---------

Cash flows from investing activities:
Capital expenditures                                             (48,684)        (41,177)      (43,134)
Proceeds from construction allowances                              7,431           4,823        11,767
Proceeds from sale of subsidiary, net of related expenses              -          37,157             -
                                                                --------        --------     ---------
  Net cash provided by (used in) investing activities            (41,253)            803       (31,367)
                                                                --------        --------     ---------

Cash flows from financing activities:
(Decrease)/increase in notes payable, bank                       (14,000)         14,000            --
Issuance of long-term debt                                            --              --       295,257
Repayment of long-term debt                                      (10,000)        (26,000)      (92,863)
Costs incurred in connection with the issuance of debt                --              --       (16,429)
Proceeds from the issuance of common stock                           158             320        63,891
Proceeds from the issuance of redeemable preferred stock              --             300       125,000
Repurchase and retirement of capital stock                            --              --      (316,688)
Costs incurred in connection with the repurchase of
 capital stock                                                        --              --       (14,318)
                                                                --------        --------     ---------
  Net cash provided by (used in) financing activities            (23,842)        (11,380)       43,850
                                                                --------        --------     ---------

Increase (decrease) in cash and cash equivalents                  29,050          (2,523)        5,034

Cash and cash equivalents at beginning of year                     9,643          12,166         7,132
                                                                --------        --------     ---------
Cash and cash equivalents at end of year                        $ 38,693        $  9,643     $  12,166
                                                                ========        ========     =========
Supplementary cash flow information:
  Income taxes paid (refunded)                                  $ (7,570)       $   (515)    $   5,180
                                                                ========        ========     =========
  Interest paid                                                 $ 24,792        $ 27,763     $  12,655
                                                                ========        ========     =========
Noncash financing activities:
  Dividends on redeemable preferred stock                       $ 22,986        $ 19,952     $   5,296
                                                                ========        ========     =========
</TABLE>
See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

          Consolidated Statements of Changes in Stockholders' Deficit

                         (in thousands, except shares)
<TABLE>
<CAPTION>

                                                6% noncumulative             8% cumulative
                                                   preferred stock              preferred stock
                                                   ---------------              ----------------
                                              Shares            Amount      Shares        Amount
                                              ------            ------      ------        ------
<S>                                      <C>                <C>             <C>      <C>

Balance at January 31, 1997                   15,794           $ 1,579      5,000          $ 500

Net loss                                          --                --         --             --

Repurchase and retirement of
capital stock                                (15,794)           (1,579)    (5,000)          (500)

Costs incurred in connection with the
repurchase of capital stock                       --                --         --             --

Issuance of common stock                          --                --         --             --

Preferred stock dividends                         --                --         --             --

Issuance of common stock pursuant
to grant of restricted stock                      --                --         --             --

Amortization of restricted stock                  --                --         --             --
                                                  --                --         --             --

Balance at January 31, 1998                       --           $    --         --          $  --
</TABLE>
Net loss

Issuance of common stock

Preferred stock dividends

Issuance of common stock pursuant
to grant of restricted stock, net

Forfeiture of shares of restricted stock

Amortization of restricted stock

Balance at January 30, 1999

Net loss

Issuance of common stock

Preferred stock dividends

Amortization of restricted stock

Balance at January 29, 2000




See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

<TABLE>
<CAPTION>


                                                                           Stock-
                              Additional   Retained             Deferred   holders'
       Common stock            paid-in     earnings  Treasury    compen-    equity
       ------------
Shares               Amount     capital   (Deficit)    stock     sation   (Deficit)
------               ------     -------   ---------    -----     ------   ---------
<S>             <C>        <C>        <C>         <C>       <C>       <C>
    262,912         $    263    $ 3,710   $ 101,850   $(5,896)  $    --   $ 102,006

         --               --         --     (31,387)       --        --     (31,387)

   (262,912)            (263)    (3,161)   (317,081)    5,896        --    (316,688)

         --               --         --     (14,318)       --        --     (14,318)

 11,000,000                1     63,890          --        --        --      63,891

         --               --         --      (5,296)       --        --      (5,296)

    661,600               --      4,500          --        --    (4,500)         --

 -----------         -------    -------    --------        --       150         150
 -----------        --------    -------    ---------   -------   -------   ---------
 11,661,600                1     68,939     (266,232)      --    (4,350)   (201,642)

         --               --         --      (15,380)      --        --     (15,380)

     47,600               --        320          --        --        --         320

         --               --         --     (19,952)       --        --     (19,952)

    487,400               --      1,120          --        --    (1,120)         --

         --               --         --          --    (2,325)    2,325          --

        ---               --         --          --        --       881         881
 ----------         --------    -------   ---------   -------   -------   ---------
 12,196,600                1     70,379    (301,564)   (2,325)   (2,264)   (235,773)

                                             (6,628)                         (6,628)

     17,665                         158                                         158

                                            (22,986)                        (22,986)

                                                                    636         636
     _____               ___    _______   _________  _______    _______   _________
 12,214,265               $1    $70,537   $(331,178) $(2,325)   $(1,628)  $(264,593)
 ==========              ===    =======   =========  =======    =======   =========
</TABLE>

                                      F-6
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998

(1) Nature Of Business And Summary Of Significant Accounting Policies

  (a)  Principles of Consolidation

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

  (b)  Business

       The Company designs, contracts for the manufacture of, markets and
       distributes men's and women's apparel and accessories. The Company's
       products are marketed, primarily in the United States, through retail
       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 the Far
       East 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.

  (c)  Fiscal Year

       The Company's fiscal year ends on the Saturday closest to January 31. The
       fiscal years 1999, 1998 and 1997 ended on January 29, 2000 (52 weeks),
       January 30, 1999 (52 weeks) and January 31, 1998 (52 weeks).

  (d)  Cash Equivalents

       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 $23,896,000 and $755,000 at January 29, 2000 and January 30, 1999,
       are stated at cost, which approximates market value.

                                      F-7
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998

  (e)   Merchandise Inventories

       Merchandise inventories are stated at the lower of cost (determined on a
       first-in, first-out basis) or market. The Company capitalizes certain
       design, purchasing and warehousing costs into inventory.

  (f)  Advertising and Catalog Costs

       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.
       Deferred catalog costs, included in prepaid expenses and other current
       assets, as of January 29, 2000 and January 30, 1999 were $14,300,000 and
       $21,130,000. Catalog costs, which are reflected in selling and
       administrative expenses, for the fiscal years 1999, 1998 and 1997 were
       $84,077,000, $116,515,000, and $131,103,000.

       All other advertising costs are expensed as incurred. Advertising
       expenses were $6,671,000 for fiscal year 1999. Prior year amounts were
       not significant.

  (g)  Property and Equipment

       Property and equipment are stated at cost. Buildings and improvements are
       depreciated by the straight-line method over the estimated useful lives
       of twenty years. Furniture, fixtures and equipment are depreciated by the
       straight-line method over the estimated useful lives, ranging from three
       to ten years. Leasehold improvements are amortized over the shorter of
       their useful lives or related lease terms.

       Significant systems development costs are capitalized and amortized on a
       straight-line basis over periods ranging from three to five years.
       Approximately $6.0 million of systems development costs were capitalized
       in fiscal 1999.

       The Company receives construction allowances upon entering into certain
       store leases. These construction allowances are recorded as deferred
       credits and are amortized over the term of the related lease.

  (h)  Other Assets

       Other assets consist primarily of debt issuance costs of $11,282,000 and
       $12,857,000 at January 29, 2000 and January 30, 1999, which are amortized
       over the term of the related debt agreements.

  (i)  Income Taxes

       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,
       in accordance with Statement of Financial Accounting Standards ("SFAS")
       No. 109, "Accounting for Income Taxes."

                                      F-8
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998


  (j)  Revenue Recognition

       Revenue is recognized for catalog and Internet sales when merchandise is
       shipped to customers, and at the time of sale for retail sales. 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.

  (k)  Store Preopening Costs

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

  (l)  Derivative Financial Instruments

       Derivative financial instruments are used by the Company to manage its
       interest rate and foreign currency exposures. 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. Gains and losses on
       contracts accounted for as hedges are deferred and recognized as
       adjustments to the bases of those assets. Contracts accounted for as
       speculative are marked to market and gains and losses are recorded
       currently. Such gains and losses were not material for the fiscal years
       ended January 29, 2000, January 30, 1999 and January 31, 1998.

  (m)  Use of Estimates in the Preparation of Financial Statements

       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.

  (n)  Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
       of

       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.

       During fiscal 1999 the Company wrote off $7,018,000 of capitalized
       computer software costs which were impaired by the Company's decision to
       adopt an enterprise resource planning system for its future information
       technology requirements.

  (o)  Stock Based Compensation

       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 the fair market price at the date of grant, as
       determined by management.

  (p)  Reclassifications

       Certain amounts in the prior year have been reclassified to conform with
       the current year presentation.

                                      F-9
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998

(2)   Disposal of Businesses

  (a) Popular Club Plan

      In accordance with a sale agreement dated November 24, 1998 the Company
      sold all of the capital stock of Popular Club Plan, Inc. and subsidiaries
      ("PCP") to The Fingerhut Companies, Inc. effective as of October 30, 1998
      for gross proceeds of $42.0 million in cash.

      A gain on the sale of PCP of $10.0 million is included in the statement of
      operations for fiscal 1998.  An additional gain of $1.0 million was
      recognized in fiscal 1999 from the reversal of certain estimated
      liabilities recorded at the date of sale.   For the nine months ended
      October 30, 1998 revenues of $124.1 million were included in the statement
      of operations.

  (b) Clifford & Wills

      In 1998, management of the Company made a decision to exit the catalog and
      outlet store operations of Clifford & Wills ("C&W").  Revenues of C&W
      included in the statement of operations for the year ended January 30,
      1999 were $74.3 million. Revenues and expenses for fiscal 1999 were not
      material and as a result have been netted in the accompanying consolidated
      statement of operations.

      The statement of operations for fiscal year 1998 includes a charge of
      $13,300,000 to write down assets to net realizable value and provide for
      other costs to be incurred in the discontinuance of operations including
      lease termination and severance costs. This loss includes the write down
      of inventories of $9,400,000; the estimated loss on cancellation of leases
      of $1,000,000, severance costs of $1,100,000, write down of property and
      equipment of $600,000, and other related costs of $1,200,000.

      The inventory write down of $9,400,000 was required due to lower than
      anticipated recovery rates on the liquidation of these inventories.
      Additionally fourth quarter charges of $1,700,000 included in selling
      expense were incurred relating to deferred catalog costs.

      In February 2000 the Company sold certain intellectual property assets to
      Spiegel Catalog Inc. for $3.9 million. In connection with this sale the
      Company agreed to cease the fulfillment of catalog orders but retained the
      right to operate its outlet stores and conduct other liquidation sales of
      inventories through December 31, 2000. After consideration of the proceeds
      from the sale and other terms of the agreement the Company provided an
      additional $4,000,000 to write down inventories to net realizable value as
      of January 29, 2000.

                                      F-10
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998

(3)   Recapitalization Transaction

      In October 1997, the Company entered into a recapitalization transaction
      (the "Recapitalization"). Holdings purchased from the existing
      Shareholders for an aggregate purchase price of approximately $316,688,000
      all of the outstanding shares of Holdings' capital stock, other than a
      certain number of shares of Holdings' common stock held by existing
      shareholders which represented 14.8% of the outstanding shares of
      Holdings' common stock immediately following consummation of the
      Recapitalization. The purchase of such outstanding shares of capital stock
      was financed in part by (a) issuing to TPG Partners II, L.P., its
      affiliates and other investors shares of common stock of Holdings for
      approximately $63,891,000 and shares of preferred stock of Holdings for
      $125,000,000 and (b) consummating the debt and securitization transactions
      described in Notes 5, 6 and 7. In connection with the Recapitalization,
      the Company repaid substantially all of its preexisting debt obligations
      immediately before the consummation of the Recapitalization.

      Expenses incurred in connection with the Recapitalization consisted of:

          Management bonuses                                      $12,163,000
          TPG financial advisory fee                                5,550,000
          Legal and accounting fees                                 1,454,000
          Consulting fee                                            1,000,000
          Other                                                       540,000
                                                                  -----------
          Total                                                   $20,707,000
                                                                  -----------

(4)   Other Current Liabilities

      Other current liabilities consist of:

                                                       January 29,  January 30,
                                                          2000         1999
                                                          ----         ----

      Customer liabilities                            $ 8,855,000  $ 6,861,000
      Accrued catalog and marketing costs              11,503,000    5,155,000
      Taxes, other than income taxes                    2,372,000    3,834,000
      Accrued interest                                  4,926,000    5,042,000
      Accrued occupancy                                 6,957,000    4,059,000
      Reserve for sales returns                         5,011,000    3,473,000
      Accrued compensation (including employment
      contract termination costs of $2,850,000 at
      January 30, 1999)                                 7,411,000   11,984,000
      Other                                            23,187,000   18,767,000
                                                       ----------   ----------
                                                      $70,222,000  $59,175,000
                                                      -----------  -----------

                                      F-11
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998

 (5)  Sale of Accounts Receivable

      In October 1997, the Company entered into an agreement to securitize
      certain customer installment receivables of Popular Club Plan, Inc. on a
      revolving basis. The Company had no obligation to reimburse the trust or
      the purchasers of beneficial interests for credit losses. The transactions
      were accounted for as a sale in accordance with the provisions of SFAS No.
      125 "Accounting for Transfers and Servicing of Financial Assets and
      Extinguishment of Liabilities." Under SFAS No. 125, no servicing asset or
      liability was recorded as fees charged were expected to cover related
      expenses.

      At January 31, 1998, $46,000,000 of accounts receivable had been sold
      pursuant to this agreement. The sale of receivables resulted in a gain of
      $1,472,000 during the year ended January 31, 1998. Finance charge income,
      including the gain on sale, was $5,325,000 and $8,294,000 for fiscal years
      1998 and 1997.

      Obligations under the securitization agreement were assumed by the
      acquiror under the terms of the sale agreement with The Fingerhut
      Companies, Inc. (see Note 2).

 (6)  Long-Term Debt
                                                   January 29,   January 30,
                                                      2000          1999
                                                      ----          ----

      Term loan (a)                               $ 34,000,000  $ 44,000,000
      10-3/8% senior subordinated notes (b)        150,000,000   150,000,000
      13-1/8% senior discount debentures (c)       100,684,000    88,695,000
                                                  ------------  ------------
         Total                                    $284,684,000  $282,695,000
                                                  ============  ============

   (a) The term loan is subject to the same interest rates and security terms as
       the Revolving Credit Agreement. Weighted average interest rates were 8.5%
       at January 29, 2000 and January 30, 1999 (see Note 7). The term loan is
       repayable in quarterly installments of $1,925,000 from February 2001
       through November 2001 and $3,287,500 from February 2002 through November
       2003. Proceeds of $26.0 million from the sale of PCP were used to prepay
       the term loan in 1998 and proceeds of $10.0 million from the sale of
       assets of its discontinued C&W subsidiary were used to prepay the term
       loan in 1999.

   (b) The senior subordinated notes are unsecured general obligations of J.
       Crew Operating Corp., a subsidiary of Holdings, and are subordinated in
       right of payment to all senior debt. Interest on the notes accrues at the
       rate of 10-3/8% per annum and is payable semi-annually in arrears on
       April 15 and October 15. The notes mature on October 15, 2007 and may be
       redeemed at the option of the issuer subsequent to October 15, 2002 at
       prices ranging from 105.188% in 2002 to 100% in 2005 and thereafter.

                                      F-12
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998

  (c)  The senior discount debentures were issued in aggregate principal amount
       of $142.0 million at maturity and mature on October 15, 2008. These
       debentures are senior unsecured obligations of Holdings. Cash interest
       will not accrue prior to October 15, 2002. However, the Company records
       non-cash interest expense as an accretion of the principal amount of the
       debentures at a rate of 13-1/8% per annum. Interest will be payable in
       arrears on April 15 and October 15 of each year subsequent to October 15,
       2002. The senior discount debentures may be redeemed at the option of
       Holdings on or after October 15, 2002 at prices ranging from 106.563%, to
       100% in 2005 and thereafter.

       The maturities of long-term debt required during the next five years are:

                 Fiscal year                 Amount
                 -----------                 ------
                 2000                     $      --
                 2001                     7,700,000
                 2002                    13,150,000
                 2003                    13,150,000
                 2004                          ----

(7)  Lines of Credit

     On October 17, 1997, in connection with the Recapitalization, the Company
     entered into a syndicated revolving credit agreement of up to $200.0
     million (the "Revolving Credit Agreement") with a group of banks. This
     agreement was amended on March 18, 1998, November 23, 1998 and April 20,
     1999. Borrowings may be utilized to fund the working capital requirements
     of the Company including issuance of stand-by and trade letters of credit
     and bankers' acceptances.

     Borrowings are secured by a perfected first priority security interest in
     all assets of the Company's subsidiaries and bear interest, at the
     Company's option, at a base rate equal to the Administrative Agent's
     Eurodollar rate plus an applicable margin or an alternate base rate equal
     to the highest of the Administrative Agent's prime rate, a certificate of
     deposit rate plus 1% or the Federal Funds effective rate plus one-half of
     1% plus, in each case, an applicable margin. The Revolving Credit Agreement
     matures on October 17, 2003.

     Maximum borrowings under revolving credit agreements were $58,000,000
     during fiscal year 1999 and $104,000,000 during fiscal years 1998 and 1997;
     and average borrowings were $30,800,000, $47,500,000, and $54,300,000.
     Borrowings outstanding under the Company's revolving credit agreement were
     $14,000,000 at January 30, 1999. There were no borrowings outstanding at
     January 29, 2000.

     Outstanding letters of credit established to facilitate international
     merchandise purchases at January 29, 2000 and January 30, 1999 amounted to
     $38,315,000 and $41,628,000.

     The provisions of the Revolving Credit Agreement, as amended, require that
     the Company maintain certain levels of (i) leverage ratio, (ii) interest
     coverage ratio and (iii) inventory coverage ratio; provide for limitations
     on capital expenditures, sale and leaseback transactions, liens,
     investments, sales of assets and indebtedness; and prohibit the payment of
     cash dividends on shares of common stock.

                                      F-13
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31,1998

(8)  Common Stock

     The restated certificate of incorporation authorizes Holdings to issue up
     to 100,000,000 shares of common stock; par value $.01 per share. In April
     1999 the Board of Directors approved a 200 for 1 stock split of its common
     stock in the form of a stock dividend. All references to shares of common
     stock have been restated to reflect the stock split. During 1998 directors
     acquired 30,000 shares of common stock and converted fees into 17,600
     shares of common stock. During 1999 directors converted fees into 17,665
     shares of common stock.

(9)  Redeemable Preferred Stock

     The restated certificate of incorporation authorizes Holdings to issue up
     to:

     (a) 1,000,000 shares of Series A cumulative preferred stock; par value $.01
     per share; and

     (b) 1,000,000 shares of Series B cumulative preferred stock; par value $.01
     per share.

     In connection with the Recapitalization, Holdings issued 92,500 shares of
     Series A Preferred Stock and 32,500 shares of Series B Preferred Stock.
     During 1998 directors acquired 300 shares of preferred stock at $1,000 per
     share.

     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. On October 17, 2009,
     Holdings 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, Holdings may redeem shares of the Preferred
     Stock at any time at redemption prices ranging from 103% of liquidation
     value plus accumulated and unpaid dividends at October 17, 1998 to 100% of
     liquidation value plus accumulated and unpaid dividends at October 17, 2000
     and thereafter. In certain circumstances (including a change of control of
     Holdings), subject to restrictions imposed by certain indebtedness of the
     Company, Holdings may be required to repurchase shares of the Preferred
     Stock at liquidation value plus accumulated and unpaid dividends.

     Accumulated but unpaid dividends amounted to $48,234,000 at January 29,
     2000. Dividends are recorded as an increase to redeemable preferred stock
     and a reduction of retained earnings.

(10)  Commitments and Contingencies

      (a) Operating Leases

          As of January 29, 2000, the Company was obligated under various
          long-term operating leases for retail and outlet stores, warehouses,
          office space and equipment requiring minimum annual rentals. These
          operating leases expire on varying dates to 2012. At January 29, 2000
          aggregate minimum rentals in future periods are as follows:

          Fiscal year                              Amount
          -----------                              ------
          2000                               $ 36,900,000
          2001                                 34,720,000
          2002                                 33,611,000
          2003                                 33,317,000
          2004                                 29,609,000
          Thereafter                          132,817,000

                                      F-14
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES
                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998


       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 1999, 1998 and 1997 was $ 39,474,000, $42,347,000
       and $35,753,000, including contingent rent based on store sales of
       $2,600,000, $3,270,000, and $2,877,000.

     (b)   Employment Agreements

       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.

     (c)   Litigation

       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 the ultimate resolution of these matters will have a material
       adverse effect on the Company's financial condition or results of
       operations.


(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
        $1,320,000 for fiscal 1999 and $1,780,000 for fiscal 1998 and 1997.

(12)   License Agreement

        The Company has a licensing agreement through January 2003 with Itochu
        Corporation, a Japanese trading company. The agreement permits Itochu to
        distribute J. Crew merchandise in Japan. The Company earns royalty
        payments under the agreement based on the sales of its merchandise.
        Royalty income, which is included in other revenues, for fiscal 1999,
        1998 and 1997 was $2,505,000, $2,712,000 and $2,897,000.

 (13)   Interest Expense - Net

        Interest expense, net consists of the following:

                                          1999          1998          1997
                                          ----          ----          ----
             Interest expense         $39,099,000   $40,379,000   $20,636,000
             Interest income             (238,000)   (1,056,000)     (142,000)
                                      -----------   -----------   -----------
             Interest expense, net    $38,861,000   $39,323,000   $20,494,000
                                      -----------   -----------   -----------

     Interest expense in fiscal 1999 includes $1,029,000 incurred in connection
     with the settlement of a sales and use tax assessment.  Interest income in
     fiscal 1998 includes $979,000 related to a federal income tax refund.

                                      F-15
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998


(14) Financial Instruments

     The following disclosure about the fair value of financial instruments is
     made in accordance with the requirements of SFAS No. 107, "Disclosures
     About Fair Value of Financial Instruments." The fair value of the Company's
     long-term debt is estimated to be approximately $235,215,000 and
     $246,680,000 at January 29, 2000 and January 30, 1999, and is based on
     dealer quotes or quoted market prices of the same or similar instruments
     The carrying amounts of long-term debt were $284,684,000 and $282,695,000
     at January 29, 2000 and January 30, 1999. The carrying amounts reported in
     the consolidated balance sheets for cash and cash equivalents, notes
     payable-bank, 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.

     In October 1997 the Company entered into an interest rate swap agreement
     for $70 million notional amount, which was reduced to $50 million in
     October 1998. This agreement effectively converted the interest rate on its
     term loan and borrowings on the Revolving Credit Agreement from a variable
     rate to a fixed rate of 6.23% through October 2000. If this agreement had
     been settled on January 29, 2000, the Company would have received $62,000.

     At January 29, 2000, the Company had a forward foreign exchange contract
     outstanding to sell 120 million yen on March 31, 2000. At January 30, 1999
     the company had two forward foreign exchange contracts outstanding to sell
     130 million yen each on March 31, 1999 at different rates of exchange.
     These contracts are entered into to manage the foreign exchange rate
     exposure relating to foreign licensing revenues. The fair value of the
     contracts approximate carrying value. The Company is exposed to credit
     losses in the event of nonperformance by the counterparties to these
     contracts, but it does not expect any counterparties to fail to meet their
     obligation given their high-credit rating.

(15) Income Taxes

     The Company accounts for income taxes in accordance with SFAS No. 109,
     "Accounting for Income Taxes". This statement requires the use of the
     liability method of accounting for income taxes. Under the 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.

                                      F-16
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998

The income tax benefit consists of:
<TABLE>
<CAPTION>

                                                                    1999          1998           1997
                                                                    ----          ----           ----
<S>                                                             <C>           <C>            <C>
     Current:
     Foreign                                                    $   250,000   $    270,000   $   309,000
     Federal                                                      3,100,000        600,000      (866,000)
     State and local                                              1,440,000      1,097,000       305,000
                                                                -----------   ------------   -----------
                                                                  4,790,000      1,967,000      (252,000)
                                                                -----------   ------------   -----------
       Deferred - Federal, state and local                       (6,840,000)   (10,129,000)   (5,010,000)
                                                                -----------   ------------   -----------
       Income taxes before tax effect of extraordinary items     (2,050,000)    (8,162,000)   (5,262,000)
       Tax effect of extraordinary items                                  -             --    (3,127,000)
                                                                -----------   ------------   -----------
         Total                                                  $(2,050,000)  $ (8,162,000)  $(8,389,000)
                                                                ===========   ============   ===========
</TABLE>

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

<TABLE>
<CAPTION>

                                                                     1999           1998          1997
                                                                     ----           ----          ----
<S>                                                              <C>               <C>        <C>
  Federal income tax rate                                             (35.0)%      (35.0)%       (35.0)%
  State and local income taxes, net
    of federal benefit                                                   7.0         (1.4)         (1.8)
  Nondeductible expenses and other                                       4.4          1.7          15.7
                                                                         ---          ---          ----
  Effective tax rate                                                   (23.6)%      (34.7)%       (21.1)%
                                                                       =====        =====         =====
</TABLE>

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

<TABLE>
<CAPTION>
                                                                           January 29,         January 30,
                                                                              2000                1999
                                                                              ----                ----

 Deferred tax assets:

<S>                                                                       <C>                <C>
  Original issue discount                                                 $ 8,629,000        $  4,519,000
  State and local net operating loss carryforwards                          3,034,000           4,132,000
  Difference in book and tax basis
     for property and equipment                                             1,885,000           2,302,000
  Reserve for sales returns                                                 2,012,000           1,396,000
  Other                                                                     2,298,000           1,073,000
                                                                          -----------        ------------
                                                                           17,858,000          13,422,000

 Deferred tax liabilities:

  Prepaid catalog expenses and other
  prepaid expenses                                                         (8,870,000)        (11,274,000)
                                                                          -----------        ------------

   Net deferred income tax asset                                          $ 8,988,000        $  2,148,000
                                                                          ===========        ============
</TABLE>

                                      F-17
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998

     Management believes that it is more likely than not that the results of
     future operations will generate sufficient taxable income to realize the
     deferred tax assets. The Company has state and local income tax net
     operating loss carryforwards of varying amounts.

(16) Extraordinary Item

     In October 1997, the Company prepaid $85 million principal amount of senior
     notes and recorded an extraordinary loss of $4,500,000 (net of an income
     tax benefit of $3,127,000) consisting of the write-off of deferred
     financing costs and redemption premiums related to the early retirement of
     debt.

(17) Stock Options

     The J. Crew Group, Inc. Stock Option Plan (the "Option Plan") was adopted
     by the Company in 1997. Under the terms of the Option Plan, an aggregate of
     1,810,000 shares are available for grant to certain key employees or
     consultants. The options have terms of seven to ten years and become
     exercisable over a period of five years. Options granted under the Option
     Plan are subject to various conditions, including under some circumstances,
     the achievement of certain performance objectives.

     A summary of stock option activity for the Plan was, as follows:
<TABLE>
<CAPTION>

                                                  1999                       1998                    1997
                                                  ----                       ----                    ----
                                                        Weighted                   Weighted                 Weighted
                                                        --------                   --------                 --------
                                                         average                    average                  average
                                                         -------                    -------                  -------
                                        Shares    exercise price   Shares    exercise price  Shares   exercise price
                                        ------    --------------   ------    --------------  ------   --------------
<S>                                   <C>         <C>             <C>        <C>             <C>      <C>

Outstanding,beginning of year           997,200            $8.00   786,800            $8.31     ----           $ ---

              Granted                   772,800             9.47   431,000             6.82  786,800            8.31

              Cancelled                (237,200)            7.14  (220,600)            6.82       --
                                      ---------                   --------                   -------

Outstanding, end of year              1,532,800            $8.87   997,200            $8.00  786,800           $8.31
                                      =========            =====  ========            =====  =======  ==============

Options exercisable at end of year      318,040            $7.97   189,460            $7.06       --              --
                                      =========            =====  ========            =====  =======  ==============
</TABLE>

(18) Employee Restricted Stock

     Under the terms of employment agreements with several key executives
     661,600 shares of restricted stock were awarded in fiscal 1997 and 487,400
     shares in fiscal 1998. These shares vest through October 2002. Deferred
     compensation of $5,620,000 was credited to additional paid in capital.
     Deferred compensation is charged to expense over the vesting period.

     In connection with the termination of an executive in 1998, 487,400 shares
     were forfeited and deferred compensation of $2,325,000 was reversed and the
     shares were reacquired as treasury stock.

(19) Termination costs and other non-recurring employment contract charges

     Charges of $2,850,000 were incurred in fiscal 1998 in connection with the
     termination of the employment contracts of two senior executives including
     the former Chief Executive Officer. Additionally, during fiscal 1998, tax
     gross-up payments of $5,145,000 were made on behalf of senior executives
     relating to restricted stock grants.

                                      F-18
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31,1998


(20) Segment Information

     On January 1, 1998, the Company adopted SFAS 131, "Disclosure About
     Segments of An Enterprise and Related Information". This statement does not
     affect the Company's financial position or results of operations.

     The Company designs, contracts to manufacture and markets men's, women's,
     and children's apparel, accessories and home furnishings primarily under
     Company owned brand names. The brands are marketed through various channels
     of distribution including retail and factory outlet stores, catalogs, the
     Internet and licensing arrangements with third parties. These operations
     have been aggregated into three reportable segments based on brand
     identification: J. Crew, Clifford & Wills and Popular Club Plan.
     Management evaluates the results of operations of its segments based on
     income from operations.

     All of the Company's identifiable assets are located in the United States.
     Export sales are not significant.

     During 1998, the Company sold PCP to The Fingerhut Companies, Inc. and
     decided to discontinue the operations of its C&W brand. The revenues and
     operating income of PCP are included through October 30, 1998 and through
     January 30, 1999 for C&W.

     Income from operations relating to Clifford & Wills for fiscal 1998
     includes a noncash write-down of $13,300,000 relating to the discontinuance
     of C&W operations and $1,700,000 of fourth quarter charges to write off
     deferred catalog costs. Fiscal 1999 includes an additional charge of
     $4,000,000 to write down inventories to net realizable value. (See note 2
     to the consolidated financial statements).

                                      F-19
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

       Years ended January 29, 2000, January 30, 1999 and January 31,1998

Corporate and other expenses include expenses incurred by the corporate office
and certain non-recurring expenses that are not allocated to specific business
units.  Corporate and other expenses in fiscal 1999 include the write off of
impaired software development costs. Corporate and other expenses in fiscal 1998
include tax gross-up payments related to restricted stock grants and employee
contract termination costs. Corporate and other expenses in fiscal 1997 include
a one-time bonus expense related to the employment of a senior executive and
non-recurring consulting fees incurred as a result of the Recapitalization.

Segment assets represent the assets used directly in the operations of each
business unit such as inventories and property and equipment. Corporate assets
consist principally of investments, deferred financing costs and certain
capitalized software.

The accounting policies used for segment reporting are consistent with those
described in the summary of significant accounting policies.

                                                     [$ in thousands]
Revenues                                       1999        1998        1997
                                               ----        ----        ----

J. Crew                                      $716,624    $625,897    $577,594
Clifford & Wills                                  ---      74,303      72,063
PCP                                               ---     124,058     184,374
                                             --------    --------    --------
                                              716,624     824,258     834,031
                                             ========    ========    ========

Income from operations

J. Crew                                        41,052      34,736       8,393
Clifford & Wills                               (4,000)    (16,694)     (1,186)
PCP                                                --      (2,701)      7,550
Corporate and other expenses                   (7,869)     (9,560)     (5,705)
                                             --------    --------    --------
Income from operations                         29,183       5,781       9,052
                                             --------    --------    --------

Interest expense, net                         (38,861)    (39,323)    (20,494)
Gain on sale of PCP                             1,000      10,000           -
Expenses incurred in connection with the
 Recapitalization                                   -        ----     (20,707)
                                             --------    --------    --------

Loss before income taxes                     $ (8,678)   $(23,542)   $(32,149)
                                             ========    ========    ========

Depreciation and amortization
J. Crew                                      $ 19,051    $ 14,455    $ 13,645
Clifford & Wills                                  ---         327         199
PCP                                               ---       1,015       1,279
Corporate                                         190         175         132
                                             --------    --------    --------
                                             $ 19,241    $ 15,972    $ 15,255
                                             ========    ========    ========

                                      F-20
<PAGE>

                            J. CREW GROUP, INC. AND
                                  SUBSIDIARIES

                   Notes to Consolidated Financial Statements

      Years ended January 29, 2000, January 30, 1999 and January 31, 1998


                                                     [$ in thousands]
Identifiable assets                          1999          1998       1997
                                             ----          ----       ----

J. Crew                                    $305,552      $324,949   $314,186
Clifford & Wills                              8,927        17,377     29,078
PCP                                             ---            --     57,811
Corporate                                    59,125        34,004     20,803
                                           --------      --------   --------
                                           $373,604      $376,330   $421,878
                                           ========      ========   ========

Capital expenditures (net of disposals)

J. Crew                                    $ 39,435      $ 34,084   $ 41,149
Clifford & Wills                                 --           (59)       (98)
PCP                                              --         5,264      2,058
Corporate                                     9,249         1,888         25
                                           --------      --------   --------
                                           $ 48,684      $ 41,177   $ 43,134
                                           ========      ========   ========

                                      F-21
<PAGE>

SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>

                                            beginning     charged to cost    charged to other                      ending
                                             balance       and expenses          accounts          deductions      balance
<S>                                         <C>         <C>                  <C>                <C>               <C>

                                                                             ($ in thousands)
Allowance for doubtful accounts
-------------------------------
 (deducted from accounts receivable)

fiscal year ended:
        January 29, 2000                    $---------       $---------            $---------      $-----------   $--------
                                                                                                      (5,486)(a)
        January 30, 1999                         5,438            5,627                  ----         (5,579)(c)        ---
        January 31, 1998                         4,357            7,343                  ----         (6,262)(a)      5,438

Inventory reserve
-----------------
 (deducted from inventories)

fiscal year ended:
January 29, 2000                                $6,122           (1,675)(b)        $---------                --      $4,447
                                                                                                      (2,200)(c)
January 30, 1999                                 4,400            4,929(b)               ----         (1,007)(d)      6,122
January 31, 1998                                 3,289            1,111(b)               ----              ----       4,400

Allowance for sales returns
---------------------------
 (included in other current liabilities)

fiscal year ended:
January 29, 2000                                $3,473            1,538(b)               ----                        $5,011
                                                                                                         500(c)         ---
January 30, 1999                                 3,529              844(b)               ----            400(d)       3,473
January 31, 1998                                 2,406            1,123(b)               ----              ----       3,529
</TABLE>

(a) accounts deemed to be uncollectible
(b) The inventory reserve and allowance for sales returns are evaluated at the
    end of each fiscal quarter and adjusted (plus or minus) based on the
    quarterly evaluation. During each period inventory write-downs and sales
    returns are charged to the statement of operations as incurred.
(c) charged to gain on sale of Popular Club Plan, Inc.
(d) reclassified to net assets held for disposal (relating to discontinuance of
    Clifford & Wills operation)

                                      F-22
<PAGE>

                                 EXHIBIT INDEX

Exhibit
  No.                           Description
  --                            -----------

3.2(a)  By-laws of J. Crew Group, Inc. (incorporated by reference to Exhibit 3.2
        to the Registration Statement)

3.2(b)  By-laws amendment adopted June 1, 1998 (incorporated by reference to
        Exhibit 3.2(b) to the Registrant's Annual Report on Form 10-K for the
        fiscal year ended January 30, 1999 ("1999 Form 10-K"))

3.2(c)  By-laws amendment adopted January 27, 2000

4.1     Indenture, dated as of October 17, 1997, between J. Crew Group, Inc., as
        issuer, and State Street Bank and Trust Company, as trustee, relating to
        the Debentures (the "Indenture") (incorporated by reference to Exhibit
        4.3 to the Registration Statement)

4.2(a)  Credit Agreement, dated as of October 17, 1997 ("Credit Agreement"),
        among J. Crew Group, Inc., J. Crew Operating Corp., the Lenders Party
        thereto, the Chase Manhattan Bank, as Administrative Agent, and
        Donaldson, Lufkin & Jenrette Securities Corporation, as Syndication
        Agent (incorporated by reference to Exhibit 4.5 to Amendment No. 1 to
        the Registration Statement, filed February 6, 1998 (the "Amendment No.
        1"))

4.2(b)  Amendment dated as of November 23, 1998 to the Credit Agreement
        (incorporated by reference to Exhibit 4.2(b) of the 1999 Form 10-K)

4.2(c)  Amendment dated as of March 18, 1998 to the Credit Agreement
        (incorporated by reference to Exhibit 4.2(c) of the 1999 Form 10-K)

4.2(d)  Amendment and Restatement Agreement dated as of April 20, 1999 relating
        to the Credit Agreement (incorporated by reference to Exhibit 4.2(d)
        of the 1999 Form 10-K)

4.3     Guarantee Agreement dated as of October 17, 1997, among J. Crew Group,
        Inc., the subsidiary guarantors of J. Crew Operating Corp. that are
        signatories thereto and The Chase Manhattan Bank (incorporated by
        reference to Exhibit 4.6 to the Registration Statement)

4.4     Indemnity, Subrogation and Contribution Agreement dated as of October
        17, 1997, among J. Crew Operating Corp., the subsidiary guarantors of J.
        Crew Operating Corp. that are signatories thereto and The Chase
        Manhattan Bank (incorporated by reference to Exhibit 4.7 to the
        Registration Statement)

4.5     Pledge Agreement, dated as of October 17, 1997 among J. Crew Operating
        Corp., J. Crew Group, Inc., the subsidiary guarantors of J. Crew
        Operating Corp. that are signatories thereto and The Chase Manhattan
        Bank (incorporated by reference to Exhibit 4.8 to the Registration
        Statement)

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<PAGE>

Exhibit
  No.                           Description
  --                            -----------

4.6       Security Agreement, dated as of October 17, 1997 among J. Crew
          Operating Corp., J. Crew Group, Inc., the subsidiary guarantors of J.
          Crew Operating Corp. that are signatories thereto and The Chase
          Manhattan Bank (incorporated by reference to Exhibit 4.9 to the
          Registration Statement)

4.7       Registration Rights Agreement, dated as of October 17, 1997 by and
          among J. Crew Group, Inc., Donaldson, Lufkin & Jenrette Securities
          Corporation and Chase Securities Inc. (incorporated by reference to
          Exhibit 4.10 to the Registration Statement)

          NOTE:  Pursuant to the provisions of paragraph (b)(4)(iii) of Item 601
          of Regulation S-K, the Registrant hereby undertakes to furnish to the
          Commission upon request copies of the instruments pursuant to which
          various entities hold long-term debt of the Company or its parent or
          subsidiaries, none of which instruments govern indebtedness exceeding
          10 percent of the total assets of the Company and its subsidiaries on
          a consolidated basis.

10.1(a)+  Employment Agreement, dated October 17, 1997, among J. Crew Group,
          Inc., J. Crew Operating Corp., TPG Partners II, L.P. (only with
          respect to Section 2(c) therein) and Emily Woods (the "Woods
          Employment Agreement") (incorporated by reference to Exhibit 10.1 to
          the Registration Statement)

10.1(b)+  Letter Agreement, dated February 4, 2000, between J. Crew Group, Inc.
          and Emily Woods

10.2+     J. Crew Operating Corp. Senior Executive Bonus Plan (included as
          Exhibit A to the Woods Employment Agreement filed as Exhibit 10.1)

10.3+     Stock Option Grant Agreement, made as of October 17, 1997 between J.
          Crew Group, Inc. and Emily Woods (time based) (incorporated by
          reference to Exhibit 10.3 to the Registration Statement)

10.4+     Stock Option Grant Agreement, made as of October 17, 1997 between J.
          Crew Group, Inc. and Emily Woods (performance based) (incorporated by
          reference to Exhibit 10.4 to the Registration Statement)

10.5(a)   Employment Agreement, dated May 3, 1999, between J.Crew Group, Inc.
          and Mark Sarvary (incorporated by reference to Exhibit 10.1 to
          Registrant's Quarterly Report on Form 10-Q for the period ended May 1,
          1999).

10.5(b)+  Letter Agreement, dated August 9, 1999, between Mark Sarvary and J.
          Crew Operating Corp.

10.6+     Letter Agreement, dated September 30, 1999, between J. Crew Operating
          Corp. and Carol Sharpe

10.7      Stockholders' Agreement, dated as of October 17, 1997, among J. Crew
          Group, Inc. and the Stockholder signatories thereto (incorporated by
          reference to Exhibit 4.1 to the Registration Statement)

10.8      Stockholders' Agreement, dated as of October 17, 1997, among J. Crew
          Group, Inc., TPG Partners II, L.P. and Emily Woods (included as
          Exhibit B to the Woods Employment Agreement filed as Exhibit 10.1)

10.9      J. Crew Group, Inc. 1997 Stock Option Plan (incorporated by reference
          to Exhibit 10.13 to the Registration Statement)

10.10     Contract Carrier Agreement, between J. Crew Group, Inc. and United
          Parcel Service, Inc. (incorporated by reference to Exhibit 10.6 to the
          Registration Statement)

                                       2
<PAGE>

Exhibit
  No.                           Description
  --                            -----------

10.11     Agreement dated August 14, 1997 between R.R. Donnelley & Sons Company
          and J. Crew Inc. (incorporated by reference to Exhibit 10.11 to the
          Registration Statement)

21.1      Subsidiaries of J. Crew Group, Inc.

27.1      Financial Data Schedule
__________
+Management contract or compensatory plan or arrangement.

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