J.Crew Investors: Conference Call Transcript

The transcript to today's conference call (refer to "J.Crew Investors: Conference Call Today" post) is now available in its entirety here.

There are some interesting points to mention:

• The executives at J.Crew felt the upgrade to the website was not optional: "It was mandatory... these upgrades provide the ability to operate separate websites for new concepts such as Made Well and Crew Cuts. This was not possible under our old system..."
• They recognize the impact of the system upgrade but are hopeful that its just temporary: "...we should have been more conservative in our plans regarding the length and extent of the disruption caused by these upgrades... we expect to have our direct systems and operations stabilized over the course of the third quarter..."
• There have been some positive areas that are doing well like direct business: "our direct business, which includes our catalog and online, achieved a 12% sales increase in the second quarter on top of a 19% increase last year despite the issues with our direct systems upgrade"
• They are planning to open 42 more stores this year {yey!}
• Madewell stores are doing well and there are plans to open 15 more Madewell stores in 2009; however the Madewell e-commerce site is delayed until early next year (because of the system upgrade)
  
• The system upgrade unexpectedly impacted how they handle inventories, which lead to an increase in compensating customers w/ free shipping and additional markdowns in stores: "... a 150-basis point decline in merchandise margin... deterioration resulted from unplanned customer accommodations related to the direct system initiatives in the form of free and upgraded shipping, increased markdown activity as a result of our inability to transfer store markdowns to the direct channel, and increased freight expenses as a result of transferring inventory between stores..."
• Sale customers are recognized by J.Crew {yey!}: "we know at the end of the day, there’s a big sale customer out there and there’s a big regular priced customer so we’re balancing that with maintaining integrity through this period..."
• J.Crew purposely tried to cut back on having sales through their website by reducing some marketing incentives: "We drive the business everyday through e-mails, marketing, special events, free shipping. We just dramatically pulled back... and the risk, of course, was obviously a little less sales but less pissed off customers..."
  

P.S. "Thanks!" to KatherineD who also listed highlights of the conference call (in "J.Crew Investors: Conference Call Today" post).