1:00PM New York – J Crew earnings beat the expectations of investors in the second quarter. Stock fell on lower than expected same store sales.

Clothing retailer, J Crew Group Inc. reported second quarter revenue surged 13% to $304.7 million from a year ago and were 18% up at $602 million during the first six months to August 4, 2007. Net attributable earnings rose to $20.6 million or $0.32 per diluted share versus a net loss of $2.8 million from a year ago. Second quarter operating income jumped 38% to $37.1 million, or 12.2% of revenue. In the comparative period in 2006, operating income stood at $26.8 million or 10% of turnover.

The group said that second quarter retail and factory sales increased 11% to $219.6 million with comparable store sales rising 4%, down from 16% from a year ago. Comparable store sales would rise 6% during the quarter under review, if the 2007 calendar weeks were to be adjusted to consistency with the 2006’s figures, said J.Crew. Direct sales including Internet and Catalogue sales at $74.5 million, were up 19% from a year ago when they increase of 7%.

For the first half, J. Crew notched 48% growth in operating income to $81.5 million or 14% or revenue against $55.1 million or 11% of revenue from a year ago. Net income available to common stockholders was $45.3 million, or $0.71 per diluted share, compared to a net income of $1.7 million, or $0.05 per diluted share, in the first six months of 2006. First half gross margins rose 140 basis points to 45.1% of turnover, marginally up from 44% of revenues reported in the same period last year. Over the review period, store sales gained 15% to $421 million.

The increase in stores and direct sales in the second quarter of 2007 was primarily driven by an increase in sales of women's apparel. J. Crew said the rise was largely driven by sales of knits, sweaters and shorts. Sales of men's apparel and accessories also increased during the period. The number of crewcuts shops, children’s wear outlets, had risen to 26 at the end of the first week in August of this year from 12 a year ago.

Other revenues, which consist primarily of shipping and handling fees and royalties, increased to $10.6 million in review period from $8.9 million in the comparable period last year, helped by firmer shipping and handling fees.

Going forward, J. Crew predicts single-digit growth in comparable store sales in the medium to long term while direct sales growth and net square footage expansion is expected to rise in the range 7% to 9%. Diluted earnings per share are likely to grow in excess of 20%.

At end of August 2007, the multi-channel retailer of women’s and men’s outfits operated 189 retail stores, the J.Crew catalogue business, jcrew.com and 55 factory outlet stores.

J. Crew stock has traded in the range $27.82 and $57.71 in the previous year. Price to earnings ratio stood at 23.30 times earnings and market capitalisation at $2.6 billion. Consensus analyst estimate for the current quarter is 37 cents per share and for the year ending in January 2008 is $1.48 per share according to Thomson Financial survey of earnings estimates.