updated 5/2/2006 6:11:27 PM ET 2006-05-02T22:11:27

Millard Drexler, who was formerly CEO of Gap and is revitalizing J. Crew Group Inc. as its chairman and CEO, is developing a new chain of casual women’s clothing stores called Madewell.

J. Crew officials confirmed a Women’s Wear Daily report published Tuesday that the New York-based clothier will be unveiling the first Madewell store in August in Dallas, followed by another store in Los Angeles. The company is seeking to open a third location this year, according to Margot Brunelle, a J. Crew spokeswoman. She declined to say how many stores the company envisions.

“We see Madewell and J. Crew complementing each other, not competing with each other,” said Brunelle, noting that she expects Madewell will cater to the younger female customer because of its lower prices and style.

The Madewell store in Dallas will be about 3,000 square feet, less than half the size of a typical J. Crew store. Unlike J. Crew, which offers lifestyle clothing, from wedding dresses to weekend wear and swimwear, Madewell’s offerings will focus on key fashion items like jeans, chinos, T-shirts and fleece tops. Prices on Madewell items will be about 20 percent to 30 percent less than what can be found at J. Crew. At Crew, pants sell for about $78 and up, while T-shirts are priced at about $18 and up, Brunelle said.

J. Crew has been quietly working on the new brand for the past year and has about 10 people on its team, all based here, Brunelle said.

According to J. Crew’s Securities and Exchange Commission report filed last week, Drexler — who purchased the defunct Madewell label right before he joined J. Crew in January 2003 — entered into a 30-year trademark licensing pact late last year with J. Crew whereby he receives royalties of $1 per year for leasing the name. Madewell was a New Bedford, Mass.-based manufacturer of high-quality workwear clothes like chinos and utility pants.

The launch of Madewell comes as J. Crew is seeking to grow the company amid a revival of its brand following years of struggling with an identity crisis and a string of executive defections. Under the stewardship of Drexler, J. Crew, which launched a wedding collection in 2004, unveiled a children’s collection called “crewcuts” this year.

For the year ended Jan. 28, J.Crew, which operates 164 stores, a catalog business, jcrew.com and 43 factory names, earned a profit of $4 million compared to a loss of $100 million in the year-ago period. Consolidated revenues rose by 19 percent to $953 million. Total sales at stores rose 16 percent to $670 million, fueled by a same-store sales increase of 13 percent. Direct sales rose by 28 percent to $254 million.

J. Crew is privately held but its debt is publicly traded. Private-equity firm Texas Pacific Group, which owns a majority stake in J. Crew, filed last year an initial public offering of as much as $200 million in common stock. The retail said last year it plans to postpone its initial public offering to this year.

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