J.Crew Descend Total Revenues

J.Crew Group, Inc. is an internationally recognized omni-channel retailer of women’s, men’s and children’s apparel, shoes and accessories. As of June 4, 2015, the Company operates 283 J.Crew retail stores, 88 Madewell stores, jcrew.com, jcrewfactory.com, the J.Crew catalog, madewell.com, the Madewell catalog, and 143 factory stores.

During the first quarter, the Company experienced a further significant reduction in the profitability of its J.Crew reporting unit, primarily driven by performance of women’s apparel and accessories, which the Company expects to continue at least through fiscal 2015. As a result of current and expected future operating results, the Company concluded that the carrying value of the J.Crew reporting unit exceeded its fair value and recorded an estimated non-cash goodwill impairment charge of $341 million.

There has been no deterioration of the excess of fair value over the carrying value of its Madewell reporting unit.  Additionally, the Company recorded a non-cash impairment charge of $190 million to write down the intangible asset related to the J.Crew trade name.

After recording the non-cash goodwill charge of $341 million, the carrying value of goodwill is $676 million in the J.Crew reporting unit and $108 million in the Madewell reporting unit.  After recording the non-cash intangible asset charge of $190 million, the carrying value of the J.Crew trade name is $550 million.

In fiscal 2014, the Company recorded non-cash impairment charges of $562 million and $145 million to write down goodwill and the intangible asset related to the J.Crew trade name. If operating results continue to decline below the Company’s expectations, additional impairment charges may be recorded in the future.

These impairment charges do not have an effect on the Company’s operations, liquidity or financial covenants, and do not change management’s long-term strategy, which includes its plans to drive disciplined growth across its brands.

During First Quarter total revenues decreased 2% to $581.8 million. Comparable company sales decreased 8% following a decrease of 2% in the first quarter last year. J.Crew sales decreased 5% to $508.7 million. J.Crew comparable sales decreased 10% following a decrease of 3% in the first quarter last year.  Madewell sales increased 33% to $61.9 million.

Madewell comparable sales increased 12% following an increase of 13% in the first quarter last year.  Gross margin was 37.2% compared to 38.6% in the first quarter last year.  Selling, general and administrative expenses were $203.8 million, or 35.0% of revenues, compared to $194.2 million, or 32.8% of revenues in the first quarter last year. Operating loss was $520.6 million compared with operating income of $34.0 million in the first quarter last year.

The operating loss includes pre-tax, non-cash impairment charges of $533.4 million. Net loss was $462.4 million compared to a net loss of $30.1 million in the first quarter last year. This year reflects the impact of non-cash impairment charges. The first quarter last year reflects the impact of a loss on refinancing. Adjusted EBITDA was $44.8 million compared to $64.8 million in the first quarter last year. An explanation of the manner in which the Company uses adjusted EBITDA and a reconciliation to GAAP measures are included in Exhibit.