A view of the industry through the
eyes of a chain buyer.
May 8 - June 2, 2006.
by Mike Hartnett (June 5, 2006)
MAY SALES FIGURES
Jo-Ann's reported today that overall sales for the month
decreased 4.2% to $109.8 million and the same-store sales figure was
worse: sales in stores open more than a year dropped 7.6%.
Year-to-date, net sales decreased 0.1% to $534.5 million and
same-store sales were down 4.7%.
The situation was much better for Hancock. Overall May sales rose
5.4% and same-store sales increased 5.9%, the first positive numbers
in recent months.
Michaels and A.C. Moore report sales on a quarterly basis rather
than by month.
Wal-Mart had a tough month Ė for Wal-Mart. Same-store sales in
the U.S. rose only 2.0%. "Fuel prices continue to be a top
concern for our customers," said Wal-Mart Exec VP/CFO Tom
Schoewe. Wal-Mart predicted same-store sales in June would grow only
1%-3%. Meanwhile, Target's same-store sales rose 5.7%.
A sampling of other stores same-store sales: J.C. Penney, +11.1%
... Duckwall-ALCO, +8.8% ... Norstrom, +7.8% ... Family Dollar,
+4.5% ... Pier 1, -6.6%.
JO-ANN'S RESPONDS TO RUMORS
While some investment companies are circling around Michaels,
others are quietly buying substantial chunks of Jo-Ann's stock.
According to filings with the Securities and Exchange Commission,
this month Reed Conner & Birdwell of Los Angeles and Tennenbaum
Capital Partners of Santa Monica have purchased millions of shares,
although not a majority.
Meanwhile, CNBC reportedly announced that Jo-Ann's was up for
sale, and StreetInsider, a business news website, reported analysts
are saying JoAnn's has hired Lehman Bros. to look at strategic
options. Both reports predicted the most likely buyer will be a
private equity firm such as those looking at Michaels.
Chair/CEO Alan Rosskamm told CLN: "We don't comment
on rumors of this kind, but I can tell what we said to the financial
community on our earnings call on May 15. Trading volume has been
high with a number of new investors accumulating substantial
positions. Public (13D) filings occurred in December and again this
month, and in January we began working with a financial advisor to
provide ongoing counsel during this period of volatility.
"I am focused on our business repair plan," Rosskamm
added, "and feel we are making real progress. Although we've
indicated that results in the first half will be difficult, we
except to show improved results in the second half of the year. We
are ahead of schedule on our efforts to liquidate unproductive
inventory, and expect to achieve significant debt reduction by year
MICHAELS: A PROFITABLE FIRST QUARTER
For the quarter ended Apr. 29, net income was $50.6 million
($0.38/diluted share), which met Wall Street estimates. A year ago,
the company reported a loss of $35.9 million (-$0.26), which
included the cumulative effect of accounting changes.
As CLN previously reported, sales rose 1.4% to $832.5
million, but same-store sales decreased 3.0%, on a 1.6% increase in
average ticket, a 5.0% decrease in transactions, and a 0.4% increase
in custom frame deliveries. A favorable Canadian currency
translation added approximately 0.4% to the average ticket increase
for the quarter. Declining yarn sales (38% from a year ago) and 15
merchandise plan-o-gram resets compared to none the previous year
were cited as the culprits. Clearance and discontinued inventory per
store was approximately 19% below year-ago levels.
The Southeast, Southwest, and Pacific zones were the strongest;
the top categories were General Crafts (primarily Jewelry and
Beads), Custom Floral, Apparel Crafts, and Kids Crafts.
Margins improved approximately 30 basis points due to higher
margin rates for regular and promotional sales, improved sourcing,
and a higher percentage of merchandise sold at regular prices. There
was more inventory shrinkage as a percent of sales, however.
Average inventory/store, including distribution centers, dropped
9.7% to $821,000 due to an accelerated markdown program and the
liquidation of some fashion yarn inventory.
Execs expect same-store sales for the second quarter to increase
1%-3%, with total sales increasing 5%-7% and operating income to
remain flat versus last year. The income forecast includes $3.8
million for store remodeling expenses and $4.6 million related to
the company's review of strategic alternatives, but earnings/share
are estimated to be $0.19-$0.21, a 58%-75% increase over the prior
The company opened 17, relocated three, and closed three Michaels
stores, and closed one Aaron Brothers store. For the year, look for
Michaels to open 40-45 new stores, relocate and/or expand
approximately 20 stores, remodel 70 stores, and continue
construction of the Centralia, WA distribution center. As of May 24,
the store count is 899 Michaels stores, 165 Aaron Brothers stores,
11 Recollections stores, and four Star Decorators wholesale
HDA & MICHAELS: FACTS & RUMORS
As CLN reported this morning, Home Design Alternatives (HDA) is
taking over the distribution of books and magazines in Michaels
stores. The change has caused a great deal of consternation and
confusion on the part of various publishers. In response to numerous
emails and phone calls by publishers to CLN, we talked to key
Michaels execs this morning. Some highlights:
1. Michaels has been dissatisfied with its book sales for
years and decided to make major changes. Execs analyzed five
distributors, then three, and finally chose HDA. Together, the
companies devised "an aggressive plan to drive sales,"
said Co-President Greg Sandfort.
Sandfort pointed out that the current store position for
hardcover books and magazines was self-defeating; consumers didn't
really see them until after they had checked out. Instead, some
magazines will be merchandised in checkout racks, and books and
magazines will be displayed in a new island fixture which will sit
in the main drive aisle in most stores.
2. Michaels is NOT de-emphasizing leaflets nor moving all
print media to one "library." However, if Michaels decides
to reduce the size of a particular department, the number of
adjacent supporting books will be reduced accordingly.
3. Regarding terms between HDA and publishers, Michaels execs
believe that Robinson-Patman lawsuits in the publishing industry
require that the terms have to be consistent across all segments.
One remaining question regards the books currently in Michaels.
One publisher told CLN, "[HDA]'s insisting we take back our
books that are currently in Michaels, even though we (a) didnít
sell them to Michaels; (b) have no such agreement with Michaels or
HDA; and (c) have a no-return agreement with Leisure [Arts], who
sold the books to Michaels in the first place."
Michaels officials believe this can be resolved with improved
communication and suggested publishers contact Michaels if
necessary. All in all, they are enthusiastic about the changes.
"This should improve sales immeasurably," said Susan
JO-ANN'S REPORTS LOSS
Jo-Ann's reported a net loss for the first quarter ended Apr. 29
of $6.6 million ($0.28/diluted share). A year ago the company
reported a net income of $4.2 million ($0.18). According to
MarketWatch, analysts polled by Thomson First Call had expected a
per-share loss of 33 cents. The cumulative effect of an accounting
change increased earnings by $1.0 million ($0.04).
Sales increased 1.0% to $424.7 million but same-store sales
decreased 3.9%. The effort to sell excess and discontinued inventory
hurt gross margins, which decreased from 48.7% to 46.6% of net
sales. Selling, general and administrative expenses increased to
44.7% of sales from 42.9% due to the lack of leverage resulting from
the same-store sales performance, logistics costs related to the
opening of the Opelika distribution center, and increases in
operating expenses, primarily driven by increases in store fixed
expenses and advertising, resulting from the larger number of
Chair/CEO Alan Rosskamm said, "As expected, our sales growth
and gross margin rate remain challenged as we execute on our repair
plan against a backdrop of soft industry conditions with lower
customer demand. Although not evident in the numbers, we continue to
make progress on our key repair plan initiatives, particularly in
the areas of inventory reduction and expense control, as we
implement better disciplines, which we expect will benefit our
results as we progress through the year.
"Our new Opelika, AL distribution center now serves
approximately 170 of our stores," Rosskamm added, "and we
expect it to enhance the performance of our logistics network. Also,
we are making substantial progress on our merchandise assortment
project. This project should be completed by the beginning of the
third quarter and will bring new, fresh merchandise to our stores
which should help drive the business improvement we expect in the
second half of fiscal 2007. I am confident that we are focused on
the correct initiatives, which I expect will enable us to end the
year as a more disciplined organization with a much stronger balance
sheet and a significantly reduced debt balance."
(Note: To read previous "Benny" entries, click
on the headlines in the right-hand column. To comment on any
industry issue, email CLN at email@example.com.)