NEW YORK, United Sates — J.Crew Group Inc.'s Madewell brand is still driving growth at the struggling retailer, giving its push for a spin-off some fresh momentum.

Madewell sales rose 13 percent to almost $152 million in the third quarter, the company reported in a filing, while sales at the parent company declined.

As part of plans to take Madewell public, J.Crew reached a deal with its debtholders to separate the businesses.

The company also plans to exchange a portion of its term loans for new, senior secured notes, according to the filing. The debt swap would also include shares of the new parent company, Chinos Holdings Inc. The ad-hoc creditors can withdraw their support if the deal isn’t completed by March 18, according to the terms of the transaction support agreement.

With an agreement in place, “we expect both J.Crew and Madewell to have sustainable capital structures and to deliver enhanced value for our stakeholders,” Interim Chief Executive Michael J. Nicholson said in a statement.

J.Crew is relying on the Madewell deal to raise capital amid a heavy debt load. The company listed its outstanding long-term debt at almost $1.7 billion as of November 2.

Fierce Competition

The transaction could shore up J.Crew’s junk-rated balance sheet, which includes some debts quoted at about 82 cents on the dollar. The company carries a CCC- rating from S&P Global Ratings, which in September cast doubt on the prospect for a turnaround because of competition from fast-fashion chains, e-commerce, big-box discounters and falling mall traffic.

While overall revenue declined, things appear to be stabilising at the namesake J.Crew brand. Its same-store sales, a key measure for retailers, were flat in the latest quarter after two straight periods of declines.

Madewell comparable sales rose 10 percent in the period, the same pace of growth as the past two quarters.

J.Crew also made headway on profitability: its gross margin, the percentage of sales left after deducting the cost of production, increased by more than 2 percentage points from a year earlier. Its net loss, however, more than tripled to $19.9 million.

The company said it expects to open 10 Madewell stores and one J.Crew store this fiscal year, while closing about 20 locations.

By Jonathan Roeder and Katherine Doherty; editors: Anne Riley Moffat, Lisa Wolfson and Rick Green