• by Sarah Mahoney  @mahoney_sarah, March 12, 2009

After posting a fourth-quarter loss, J. Crew says it will continue to expand its lower-end merchandise, both at its flagship J. Crew stores and the fledgling Madewell chain.

"Our bestsellers are things that are stylish and fashionable and under 80 or 90 bucks," Millard Drexler, J. Crew's chairman and CEO, said in conference on Wednesday, following its earnings release. "That's where the action is right now. There's been a sea change--customers are hesitant to spend and are shopping differently. The game or the hobby is to get anything for less."

J. Crew also says it's continuing its expansion of Madewell stores--a concept that specializes in younger, hipper and more affordable denims, knits, t-shirts, and scarves--and that it will also scale back price points in those stores. (Drexler purchased the 1930s-era Madewell brand before joining J. Crew several years ago.)

"We're really pleased with the positioning," he says. While few people have heard of these stores yet, "you go in and see mothers and daughters shopping there. I think the t-shirt selection may be the best in the U.S." Currently, there are 12 stores, with plans for an additional eight to open this year.

Drexler is also upbeat about the company's bridal business, and says it is looking for a bridal-salon location in New York City. (The company already sells wedding gowns, as well as bridesmaid and flower-girl outfits, online and in its catalogs.)

But overall, the company's results were grim--including a loss of $13.5 million for the fourth quarter of its fiscal year, compared to net income of $25 million in the same period a year ago. Sales fell 3% to $388 million, and comparable-store sales dropped 13%.

The company--which announced extensive cutbacks last month, including a 10% workforce reduction--says it also pared back marketing spending, reducing the number of catalog pages produced by 18% in the fourth quarter--a level it expects to maintain throughout the year ahead.

When asked about the economy, the near-term outlook "kinda sucks," Drexler candidly conceded. "We're as well-positioned as we can be for if and when things turn around. If our business was only as good as our buzz, we'd be having fun. We're very excited about the way our stores and catalogs look, and we're getting great feedback."

Thanks to the new First Family, J. Crew's designs have constantly been in the headlines, including the white bow tie it made for President Barack Obama, outfits worn by First Lady Michelle Obama in high-profile interviews from David Letterman to Vogue, and the green gloves she wore to the inauguration. (Those are said to have caused a stampede to the company's Web site that actually caused it to crash briefly.)

In a down economy, Drexler said, fashion becomes more important than ever. "Newness is selling, and the last thing we'd want to own right now is basics. Clothes that are like everyone else's are a commodity game. So our t-shirts may have a different shape, a different fabric, a different V. But they're clearly saying, 'I want value at any price.'"