J.Crew's First Quarter Fiscal 2013 Results

J.Crew recently shared their results for the latest quarter (for the three months ended May 4, 2013). The following are some highlights from the investors call (click here to read the Seeking Alpha article in its entirety):

• Total revenues increased 12% in the first quarter, with the total company comparable sales increasing 3% on a realigned basis. This was on top of a 23% total revenue increase in the first quarter last year and a 16% increase in total company comparable sales.
• Total revenues increased 12% to $564 million.
• Our store sales increased 7% to $380 million, with net square footage increasing 9% versus last year, driven by 8 new store openings during the first quarter.
• Direct sales increased 23% and includes our J. Crew Factory and Madewell direct businesses.
• Gross profit was $252 million, with gross profit margin of 44.7% compared to 47.6% last year. The results reflect a promotional environment that we saw during the quarter, which led to a 280 basis point reduction in our merchandise margin year-over-year.
• Our inventory balance was $308 million at the end of the first quarter compared to $251 million at the end of the first quarter last year. Inventory increased 23% versus last year or 13% on a per square foot basis. 
• ...we are preparing for the opening of our first store in London on Regent Street prior to the holiday, which represents an exciting milestone for us in our international expansion efforts.

There was also a Q&A time with the J.Crew executives. The following two questions I thought were the most interesting:

• Question: When we look at the promotional environment and the hit on gross margin, I mean, do you feel that, that was driven by the need to clear out some of that more let's say cold-weather inventory? And how do you feel that that's going to trend going forward?
  Answer (from Libby Wadle): ...I don't really -- it really doesn't have to do with clearing through, I'd say, cold-weather inventory. I think a few things going on: a tough sort of macro environment out there. I think everyone was feeling the pressure. And with J.Crew specifically, we have a very tough full price comparison, so had some pressure there. And we had to change really how we had planned to do business based on the environment, and we did have to be more promotional. But it wasn't really about sort of leftover inventory as much as it was about sort of navigating through the environment in the healthiest way we could with the inventory we owned.
   
• Question: I am certainly not much of a fashionista, but can you talk a little bit about your fashion trends and how you feel about this summer's versus last year, whether there's enough newness that's going to get consumers shopping, anything you could provide there?
  Answer (from Libby Wadle): Of course. We feel good about our product and our fashion and our newness. What I will say is that, to be frank, we had a lot of competition on our franchise items at much lower price points this year. So what we did really well last year and we had been doing, we invented a lot of great franchise businesses. We saw a lot of that out there in the market and less expensive. So we are -- we remain focused really on innovation, moving forward, inventing new franchises and looking ahead, we feel good about our fashion. So that would be my answer about how we feel about our fashion.

Overall, our favorite retailer is still performing well. Although I am not too surprised to hear about the inventory / increased promotion situation. We have all seen how many {wonderful} back-to-back promotions J.Crew has been offering in the past few months. Plus, it does seem like the Sale section is plentiful right now. I can't really complain except for my spending has increased because of it! ;)

I did find it interesting that J.Crew's competition is starting to impact them though. For the longest time they seemed kind of invincible to the alternative offerings at lower price points. I guess it finally caught up with them. For example, how many of J.Crew's jewelry pieces are getting knocked off for a fraction (and I do mean, a fraction) of the price? 

What are your thoughts on this latest news? Any points you found interesting?