Retailer J Crew Group Inc has lowered its full-year outlook after markdowns and higher inventory cut into third quarter profit.

For the three months to 1 November, net income fell 29% to $19.0m, or $0.30 per share, from $26.8m, or $0.42 per share, a year earlier.

Revenues rose 9% to $363.1m. Store sales (retail and factory) increased 7% to $250.9m, with comparable store sales falling 3%. Direct sales (Internet and phone) rose by 13% to $101.8m.

Gross margin fell to 41.6% of revenues, from 45.6% of revenues last time.

Operating income was down 32% to $32.5m, or 9.0% of revenues, compared to $47.7m, or 14.3% of revenues, in the prior year. This year's quarter incurred costs of $6m related to an upgrade of its Direct channel systems, the company said.

In its guidance for fiscal 2008, J Crew expects earnings per share in the range of $1.11 to $1.16, down from earlier estimates of $1.44 to $1.54 and fiscal 2007 earnings per share of $1.52.

This is based on comparable store sales declining high single digits in the year.

J Crew operates 226 retail stores (including 5 Crewcuts and 10 Madewell stores), the J Crew catalogue business, and 74 factory outlet stores.