Madewell Nears IPO As J.Crew Continues to Struggle

The future of the J.Crew brand has been in question since sister label Madewell began the process of an anticipated split from parent company J.Crew Group Inc.

The holding firm announced on Friday that it had filed for an initial public offering for Madewell through J.Crew Group’s owner, Chinos Holdings Inc., which will become Madewell Group Inc. before the IPO is completed. J.Crew Group and its wholly owned subsidiaries were acquired in March 2011 through a merger with a subsidiary of Chinos Holdings, which was formed by investment funds affiliated with TPG Capital LP and Leonard Green & Partners LP.) The number of shares and target price range for Madewell’s proposal have yet to be determined.

In the filing, J.Crew Group said it expects to raise $100 million, revealing plans to use the money “to repay indebtedness and to support our general corporate purposes.” The firm had been considering Madewell’s spinoff for five months, as it sought to reduce its debt load of nearly $1.7 billion, with only $27.2 million left in cash.

For years, Madewell has been outshining its parent company’s flagship brand: In 2018, it posted full-year revenues of $614 million. The first half of 2019 has already seen a 15% gain to $272.6 million in the brand’s sales, with second-quarter revenues up 15% to $139.7 million and same-store sales increasing 10%.

On the other hand, J.Crew has been struggling with declining profits: It widened its Q2 losses to $44.2 million, from a $6.2 million loss in the previous year period. Revenues also declined almost 7% to $399.1 million and same-store sales decreased 4%.

At the end of Q2 on Aug. 3, Madewell had 132 stores versus J.Crew’s 365 outposts. Online sales accounted for 40% of the former’s direct-to-consumer revenues in the first half of 2019.

J.Crew has also suffered its share of executive upheaval, seeing the departure of CEO James Brett in November after just over a year in the role. Four senior executives then stepped up to replace the chief in an office of the CEO. In April, one of those four execs, president and COO Michael Nicholson, took on the title of interim CEO. Another of the four leaders, president and chief experience officer Adam Brotman, exited the company that same month.

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