J. Crew Denies Reported Cost-Shifting Claim

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J. Crew denied an allegation reported yesterday in The New York Post made by a former employee in a letter to the Securities and Exchange Commission that the company is using retail accounts to pay catalog expenses.

Charles Sayler, named by the tabloid as a complainant and a former J. Crew order consultant, reportedly said that Texas Pacific Group, identified as "the leveraged buyout firm that controls J. Crew," would potentially have an interest in making expenses look lower at the catalog unit to impress investors looking for a turnaround there.

A call from DM News resulted in a "no comment" from an SEC spokesman who said, "It is our policy not to report on communications between private parties and the agency."

The Post reported Sayler's complaint as stating, "There is concern among employees that J. Crew might inappropriately be shifting expenses between company divisions which, if true, would give investors in the company's securities misleading information about the relative performance in the company's retail vs. catalog and Internet division."

J. Crew e-mailed a statement to DM News immediately after being contacted.

"The charges made against J. Crew by [a] former employee are irrelevant and baseless," the statement said. "Anyone who understands our business knows that we do not report profitability by division. Equally important, no cost shifting has occurred, and there would be no advantage to the company in doing so for the reason stated above.

"Perhaps not surprisingly, the company has not received any notice from the SEC about any potential claim or investigation."

The Post also reported that, according to Sayler, employees at the company's catalog telemarketing facility in Asheville, NC, received paychecks with "J. Crew, Inc." while W-2 tax forms and bank statements detailing direct deposits came from "Grace Holmes, Inc.," which the newspaper described as a "J. Crew subsidiary doing business under the name 'J. Crew Retail Stores,' not the catalog division, according to J. Crew's annual report for the fiscal year that ended Feb. 2, 2002."

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