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It looks like Mickey Drexler is back in fashion.
The CEO of J.Crew Group (JCG, news, msgs) presided over a successful IPO this week, with the new shares gaining 28% in their first day of trading -- proof that investors are willing to pay a steep mark-up for the preppy retailer, and that master merchant Drexler has returned to Wall Street's good graces.
J.Crew lost its fashion and financial footing in 1997, after buyout firm Texas Pacific took it private. But following a makeover tailored by Drexler, the fashion gods are smiling on the retailer's colorful and classic styles.
Can Drexler's plans for the company keep the New York-based retailer fashion forward? Trendsetters come and go, and in the eyes of some analysts that makes J.Crew a risky bet.
"In the fashion business, it is very difficult, very hard to continuously come up with new things," says Kurt Barnard of Barnard's Retail Consulting Group.
Drexler, 61, shunned the press at the company's initial public offering, but his story is well documented. He turned The Gap (GPS, news, msgs) into the nation's biggest specialty retailer, though the last two years of his 18-year reign were marked by declining sales. Prior to joining the Gap he revitalized AnnTaylor Stores (ANN, news, msgs).
At J.Crew, Drexler has improved the quality and style of the clothes and revamped the chain's 167 stores. He has also introduced new merchandise categories, like J.Crew's wedding collection.
The result: Sales are climbing, and the retailer posted net income of $3.8 million last year compared with a loss of $100 million in 2004. Revenue jumped to $953 million from $804 million a year earlier. Earlier this month, sales at stores open at least a year rose 12% compared with a 37% increase a year earlier.
Still, analysts say that Drexler has a lot of work to do.
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"I think the next thing for Mickey Drexler and J.Crew is to continue to implement the growth strategy, to continue to open new stores and accelerate that rate of new store openings and (the introduction) of new concepts," says Dana Telsey of Telsey Advisory Group.
One new concept that Drexler has introduced is the crewcuts line for kids. And this summer he's launching a chain of casual women's clothing stores called Madewell, with lower prices than its J. Crew stores. By expanding its customer base, J.Crew becomes less dependent on fickle teens, less exposed to competition from trendy retailers like H&M, and able to hone its focus on customers looking for quality with flair.
"I think the core customer base for J.Crew can essentially be almost anyone, whether it be 18- to 20-year-olds up all the way to 40- to 60-year-olds," Telsey says. "It's more of a lifestyle aesthetic rather than just an age demographic. And given the assortment of basics and fashion, there is a lot of mix-and-match going on."
Video: J.Crew's makeover
While the matching of Drexler with J.Crew appears to be a good mix so far, some question whether Drexler runs the risk of turning the retailer into another Gap, which was fashionable once but is now floundering.
Gap was criticized for expanding too much, but so far, J.Crew has modest growth plans, says James Fallon, editor of Women's Wear Daily. "Is (Drexler) a brilliant CEO at managing a multi-divisional group like the Gap? Probably not. But he is a wonderful merchant at managing a brand," Fallon says.
Drexler is doing for J.Crew what he did for the Gap it its heyday, says Fallon. "Basically, Mickey revolutionized the way America dresses. He brought denim to the masses, he casualized the United States -– chinos, white shirts, think of those iconic Gap ads of the '80s and '90s. Mickey is all about the product."
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