Presentation to Ad Hoc Group Exhibit 99.2 Subject to Confidentiality Agreements To Be Used for The Sole Purpose of Evaluating A Potential Recapitalization of This J.Crew Business
Disclaimer By accepting this presentation, recipients acknowledge that they have read, understood and accepted the terms of this Disclaimer. This presentation is subject to the confidentiality provision set forth in the recipients’ applicable Non‐Disclosure Agreement. This presentation is the property of, and contains the proprietary and confidential information of J. Crew Group, Inc. and its subsidiaries (collectively, the "Company"), as well as proprietary and confidential information regarding the Company’s business related to its Madewell brand (“Madewell”) and the businesses of the Company other than Madewell (“J. Crew”), each on a standalone basis. This presentation is being provided for informational purposes only and is intended solely to facilitate a discussion regarding a potential restructuring of the Company’s indebtedness. 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These summaries do not constitute, and cannot be relied upon for, legal, tax, investment or other advice and the Company accepts no responsibility or liability whatsoever for the accuracy or sufficiency thereof or for any errors, omissions or misstatements, negligent or otherwise, relating thereto. Recipients should read the terms of the instruments, agreements or other documentation underlying such summaries in their entirety. 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This presentation should not be considered as a recommendation by the Company or any affiliate or other person in relation to the Company or any of its subsidiaries, nor does it constitute an offer to sell or a solicitation for an offer to buy the securities, assets or business of the Company, J. Crew or Madewell nor shall there be any sale of securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction or pursuant to an exemption therefrom. This presentation shall not form the basis of any contract. Any references to any particular transaction are for illustrative purposes only. THIS PRESENTATION MAY CONTAIN MATERIAL, NON‐PUBLIC INFORMATION WITHIN THE MEANING OF THE UNITED STATES FEDERAL SECURITIES LAWS WITH RESPECT TO THE COMPANY AND ITS SUBSIDIARIES AND THEIR RESPECTIVE SECURITIES. All amounts in this presentation are in USD unless otherwise stated. Cautionary Note Regarding Forward‐Looking Information, Forecasts and Projections This presentation contains forward‐looking statements, including forecasts and projections, that are subject to risks, uncertainties and other factors. All statements other than statements of historical fact or relating to present facts or current conditions included in this presentation are forward‐looking statements. Forward‐looking statements include projections and forecasts relating to the Company’s, J. Crew’s and/or Madewell’s financial condition, results of operations, plans, objectives, future performance and business. You can identify forward‐looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “seek,” “plan,” “intend,” “believe,” “contemplate,” “assume,” “will,” “may,” “could,” “would,” “continue,” “likely,” “should,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events but not all forward‐ looking statements contain these identifying words. There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward‐looking statements contained in this report. Important factors that could cause our actual results to differ include, but are not limited to, our substantial indebtedness, our substantial lease obligations, our ability to anticipate and timely respond to changes in trends and consumer preferences, the strength of the global economy, competitive market conditions, our ability to attract and retain key personnel, our ability to successfully develop, launch and grow our newer concepts and execute on strategic initiatives, product offerings, sales channels and businesses, our ability to implement our growth strategy, material disruption to our information systems, compromises to our data security, our ability to maintain the value of our brands and protect our trademarks, our ability to implement our real estate strategy, changes in demographic patterns, adverse or unseasonable weather or other interruptions in our foreign sourcing, customer call, order fulfillment or distribution operations, increases in the demand for or prices of raw materials used to manufacture its products, trade restrictions or disruptions and other factors as set forth in the Company’s annual report on Form 10‐K for the fiscal year ended February 2, 2019. WE DO NOT, AS A MATTER OF COURSE, PUBLICLY DISCLOSE PROJECTIONS AS TO OUR FUTURE REVENUES, EARNINGS OR CASH FLOWS. SOLELY IN CONNECTION WITH OUR CONSIDERATION OF A POTENTIAL TRANSACTION, CERTAIN PROJECTIONS OF OUR FUTURE FINANCIAL PERFORMANCE OF OUR OPERATING BUSINESSES WERE PREPARED AND INCLUDED HEREIN. ACCORDINGLY, WE DO NOT INTEND TO REVIEW, UPDATE OR OTHERWISE REVISE THE PROJECTIONS. THE PROJECTIONS SET FORTH HEREIN WERE NOT PREPARED TO CONFORM WITH PUBLISHED GUIDELINES OF THE SEC, ANY STATE SECURITIES COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PREPARATION AND PRESENTATION OF PROSPECTIVE FINANCIAL INFORMATION. THE COMPANY’S INDEPENDENT ACCOUNTANTS HAVE NOT COMPILED, EXAMINED OR PERFORMED ANY PROCEDURES WITH RESPECT TO THE PROJECTIONS, NOR HAVE THEY EXPRESSED ANY OPINION OR ANY OTHER FORM OF ASSURANCE WITH RESPECT THERETO OR THEIR ACHIEVABILITY. ALL FORWARD‐LOOKING INFORMATION, INCLUDING THE PROJECTIONS, REFLECT NUMEROUS ASSUMPTIONS AND ESTIMATES, ALL MADE BY MANAGEMENT WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS, ECONOMIC, MARKET AND FINANCIAL CONDITIONS AND OTHER MATTERS, ALL OF WHICH ARE DIFFICULT TO PREDICT AND SUBJECT TO THE RISKS AND UNCERTAINTIES DESCRIBED ABOVE, AND MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. THERE CAN BE NO ASSURANCE THAT THE ASSUMPTIONS AND ESTIMATES MADE IN PREPARING THE FORWARD‐LOOKING INFORMATION AND PROJECTIONS SET FORTH HEREIN WILL PROVE ACCURATE. ALL FORWARD‐LOOKING INFORMATION, BY ITS NATURE, IS INHERENTLY UNCERTAIN. THE FORWARD‐LOOKING INFORMATION CONTAINED HEREIN HAS BEEN PROVIDED FOR INDICATIVE PURPOSES ONLY, IS PRELIMINARY, IS NOT A GUARANTEE OF FINANCIAL PERFORMANCE AND REMAINS SUBJECT TO CHANGE, INCLUDING DUE TO THE VARIOUS SIGNIFICANT RISKS, UNCERTAINTIES ANY OTHER FACTORS DESCRIBED ABOVE. ACCORDINGLY, FOR THESE REASONS, WE CAUTION YOU AGAINST RELYING ON ANY FORWARD‐ LOOKING INFORMATION. All information herein speaks only as of (1) the date hereof, in the case of information about the Company, J. Crew or Madewell, (2) the date of such information, in the case of information from persons other than the Company. The Company does not undertake any duty to update or revise the information contained herein, publicly or otherwise. The historical financial information in this presentation includes information that is not presented in accordance with U.S. Generally Accepted Accounting Principles (GAAP). Non‐GAAP financial measures may be considered in addition to GAAP financial information, but should not be used as substitutes for the corresponding GAAP measures. Non‐GAAP measures in this presentation may be calculated in ways that are not comparable to similarly titled measures reported by other companies.
Key Drivers of Q4’18A Performance The Company’s Q4’18A underperformance was driven by the deployment of certain strategies for the J.Crew business that were ultimately unsuccessful; in response, Management has taken immediate and decisive actions to refocus J.Crew’s strategy and position it for long-term profitability and growth Substantial inventory investment across all categories led to excessive promotional activities and write- down of inventory in Q4’18A Estimated $79 million total impact on Gross Margin in Q4’18A Inventory balance of $390 million at FY’18A, a ~33% increase from $292 million at FY’17A INVENTORY MANAGEMENT BRANDING & MERCHANDISING STRATEGY INCREASED MARKETING & OVERHEAD EXPENSE J.CREW PERFORMANCE DRIVER ACTIONS TAKEN IN RESPONSE The launch of a sub-brand strategy resulted in confusion for customers Testing of an everyday low price strategy with the Factory brand did not produce a strong customer response Accelerated marketing spend and overhead investments were made in connection with the sub- branding strategy Quickly moving its excess and slow- moving product in order to right- size its inventory position Managing inventory with increased discipline is a top priority in FY’19E and is expected to result in significant gross margin improvement Eliminating sub-brands introduced in 2018 including Mercantile, Nevereven, and the Home business Rationalizing assortment to focus on key franchises Factory brand has reverted back to the value-based pricing model in 2019 The decision to eliminate sub- brands and discontinue other branding initiatives will reduce complexity and provide cost-saving opportunities Aggressively managing expenses is a top priority in 2019 Source: J.Crew Group Inc. FY’18 10-K, earnings release, and earnings call transcript.
J.Crew Standalone — Business Plan Strategy & Key Initiatives Standalone J.Crew is focused on pursuing various strategic initiatives to best position the J.Crew brand for long‐term success and growth Reimagine Product & Assortment Strategy Refocus & Clarify our Brand Strategy and Positioning Create new reasons to buy by infusing loved franchises with newness in fabric, fit and design Introduce new franchise items that are on‐trend extensions of our most popular heritage items Reduce underperforming products from our product mix to focus on our core performers Rebalance the fashion pyramid to increase penetration of core and seasonal styles, while decreasing fashion Return of Chris Benz as SVP of Design to provide a fresh design perspective and improved product assortment Listen to our customers to meet their fit and quality preferences Refresh cross‐channel brand expression to focus on product, quality and style Improve customer acquisition and retention through coordinated, proactive marketing campaigns Elimination of sub‐ brands in FY’19B to reduce customer confusion and go‐ to‐market as focused brand Increase customer engagement and brand awareness through digital marketing and increased online presence Use Data to Inform Decisions Shift Footprint to a More Digital Direct Model Continue investment in loyalty program to increase customer engagement, drive customer acquisition, and provide the Company with valuable customer data − Acquisition of customer data provides insight that informs marketing and purchasing strategy − Introduction of personalized content delivery and targeted offers to loyalty members Use customer inputs to support product development and optimize inventory investments Utilize data to understand customer purchasing behavior and enable personalized experiences Ensure holistic approach to evolving and modernizing J.Crew operating model to capitalize on momentum in online sales Streamline product assortment, marketing strategies, and online purchasing process Continue to opportunistically rationalize store footprint to reduce fixed costs and increase profitability Invest in opportunities to increase efficiency in distribution and fulfillment to improve service levels for DTC customers Continue development of the “store of the future” vision to offer customers convenient, service‐focused, and digitally‐integrated in‐ person shopping experiences
$46 $94 $77 $109 $120 $126 5% 6% 6% 7% 7% S A L E S (1) E B I T D A (1) J.Crew Brand Standalone — Management Financial Forecast Note: Standalone projections pro forma for separation, including TSA. These projections are forward‐looking, are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of J. Crew and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results may vary and these variations may be material. Financials presented on an internal management reporting basis where certain items in sales, gross margin and expense are classified differently with no impact to EBITDA as compared to an external financial view. Primary differences internally include customer shipping income excluded from sales, and Buying and Occupancy and handling expense (portion of DC labor) excluded from gross margin. For comparative purposes, J.Crew Brand FY’17A and FY’18A gross margin was 49.9% and 43.3%, respectively. Includes J.Crew and J.Crew Factory. EBITDA includes impact of annual cost savings. $769 $710 $643 $590 $563 $543 $896 $918 $984 $1,054 $1,129 $1,209 $1,816 Total Brand Comp Total Store Count Retail Online Wholesale ($ in millions, unless otherwise noted) J.Crew (including Factory) is projected to generate EBITDA improvements driven primarily by cost savings initiatives and continued growth in the online channel $1,731 $1,681 $1,683 $1,702 $1,753 $65 $53 $56 $58 $61 $64 EBITDA Margins Annual Cost Savings (2) Gross Margin 2019B 2020E 2021E 2022E 2023E 2024E 2019B 2020E 2021E 2022E 2023E 2024E (2.2%) 2.4% 3.5% 3.8% 4.1% 4.4% $10.1 $33.0 $42.8 $54.0 $54.0 $54.0 344 316 302 291 289 285 45.4% 46.2% 46.3% 46.2% 46.2% 46.0% 3%
$602 $526 $469 $646 $701 $690 $694 $745 $798 $855 $916 $1,224 $1,189 $1,202 $1,221 $1,267 $1,325 $386 $347 $301 $268 $241 $225 $212 $198 $207 $593 $560 J . C r e w ( e x c l . F a c t o r y ) S a l e s F a c t o r y S a l e s J.Crew Brand Standalone — J.Crew vs. Factory Sales Forecast Breakdown ($ in millions, unless otherwise noted) Note: Standalone projections pro forma for separation, including TSA. These projections are forward‐looking, are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of J. Crew and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results may vary and these variations may be material. Financials presented on an internal management reporting basis where certain items in sales, gross margin and expense are classified differently with no impact to EBITDA as compared to an external financial view. Primary differences internally include customer shipping income excluded from sales, and Buying and Occupancy and handling expense (portion of DC labor) excluded from gross margin. $65 $53 $56 $58 $61 $64 Total Store Count Gross Margin Retail Online Wholesale Total Store Count Gross Margin Retail Online $507 $491 $481 $482 $486 $491 $213 $206 $223 $239 $256 $274 $294 $1,273 $1,277 $25 $50 FY'17A FY'18A FY'19B FY'20E FY'21E FY'22E FY'23E FY'24E FY'17A FY'18A FY'19B FY'20E FY'21E FY'22E FY'23E FY'24E 235 203 176 162 157 147 146 144 176 174 168 154 145 144 143 141 50.8% 43.5% 46.2% 47.2% 47.3% 47.3% 47.5% 47.3% 48.0% 42.9% 43.6% 43.8% 43.8% 43.3% 42.8% 42.3%
J.Crew Brand Standalone — Cash Flow Projections ($ in millions) J.Crew (including Factory) is projected to generate positive cash flow from FY’19B – FY’24E Note: Standalone projections pro forma for separation, including TSA. These projections are forward‐looking, are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of Madewell and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results may vary and these variations may be material. All presented figures include J.Crew and J.Crew Factory, except where noted otherwise. Before impact of cost savings initiatives, a portion of which would be applicable to items other than Corporate SG&A. J.CREW — STANDALONE CASH FLOW PROJECTIONS (1) Annual FY' 19B FY' 20E FY' 21E FY' 22E FY' 23E FY' 24E J.Crew EBITDA $ 46 $77 $94 $109 $120 $126 % Margin 2.7% 4.6% 5.6% 6.4% 6.9% 6.9% (‐) Change in Working Capital $12 $2 ($6) ($2) ($3) ($1) (‐) Cash Taxes Paid (1) (1) (5) (16) (19) (34) (‐) CapEx (28) (21) (23) (25) (27) (29) (‐) Other Items (5) (7) (3) (5) ‐‐ ‐‐ Unlevered Free Cash Flow $ 24 $50 $57 $60 $71 $61 Memo: Inventory $260 $248 $253 $257 $267 $278 Corporate SG&A (Net of TSA Revenue)(2) 176 180 193 201 208 216