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J. Crew boosts profit outlook as sales improve

Shoppers still have an appetite for fashion during the recession, as evidenced by apparel retailer J. Crew Group Inc., a favorite of first lady Michelle Obama.
/ Source: The Associated Press

Shoppers still have an appetite for fashion during the recession, as evidenced by apparel retailer J. Crew Group Inc., a favorite of first lady Michelle Obama.

The chain significantly boosted its fiscal third-quarter profit forecast Thursday on better-than-expected sales and margins — two components most retailers have struggled with as consumers continue their discretionary spending clampdown.

The company, which has grown in popularity partly because Obama wears the chain's clothes, saw its stock soar $4.41, or 11.7 percent, to $42.15 in midday trading. The shares hit a fresh 52-week high of $42.94 earlier in the session.

J. Crew has been on a surge of late, with its stock up 37 percent over the past three months. The chain has managed well during the recession by keeping a close eye on its inventory levels while continuously rolling out products that appeal to its customers.

With higher sales and margins than anticipated for the third quarter, the retailer pushed its earnings guidance to a range of 54 cents to 59 cents per share. That's a marked improvement from the 30 cents to 33 cents per share forecast issued in August.

J. Crew expects the good times to roll into the fourth quarter, assuming sales and margin trends continue. The retailer now anticipates a mid- to high single-digit increase in sales at stores open at least a year and a low single-digit rise in direct sales for the fourth quarter ending Jan. 30. The company previously forecast a low single-digit increase in both sales at stores open at least a year and direct sales.

Sales at stores open at least a year are a key indicator of retailer performance since they measure growth at existing stores rather than newly opened ones.

Heading into the holiday season — a critical time for most retailers — BMO Capital Markets analyst John Morris is confident that J. Crew will fare well due to its inventory management efforts and favorable product mix. The analyst reaffirmed an "Outperform" rating in a note to clients, saying he has "great confidence in the company's growth potential."

J. Crew plans to report its third-quarter results the week of Nov. 23. The company ran 242 retail stores and 78 factory outlet stores as of Oct. 22.