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CLN Newsbrief: Jo-Ann's
The quarterly report and the conference call.
by Mike Hartnett (August 21, 2006)
Jo-Ann's Losses Grow.
For the second quarter ended July 29, there was a net loss of
$21.2 million ($0.90/share), compared with a net loss of $5.1
million ($0.23) a year ago. Analysts had expected the loss to be
$0.84. Operating losses for the quarter were $29.5 million, versus a
$5.7 million loss a year ago.
Net sales were $363.2 million, down 5.4%, and same-store sales
were down 8.4%. Execs blamed the problem on more clearance
merchandise at a lower price than was sold a year ago, and temporary
out-of-stocks caused by the implementation of certain "repair
Net sales for the year are down 2.1% to $787.9 million and
same-store sales have declined 6.0%.
Gross margins for the quarter declined from 48.2% to 47.4% of net
sales, due primarily to greater markdowns. Selling, general, and
administrative expenses increased to 51.5% from 46.0% of net sales,
due in part to the same-store sales and higher operating expenses.
These include costs related to the separation of the former CEO,
costs related to the opening of a new distribution center, and
higher fixed-cost store expenses, due to the larger number of
The company reaffirmed its previous outlook for fiscal 2007.
Execs expect year-over-year improvement in the second half of the
year, based upon management's operating assumptions, which include
anticipated benefits of certain repair plan initiatives recently
Key considerations for understanding the company's outlook for
the remainder of fiscal 2007 include A) same-store sales will
decline, although improve slightly from the results in the first
half of the year; B) gross margin will improve pre-fiscal
2006 rates; C) Selling, general, and administrative expenses,
excluding the former CEO separation expenses, will increase, but not
quite return to the level in fiscal 2006; D) capital spending
for the full year remains at $45-$50 million, primarily for opening
26 new stores; E) strengthening of the balance sheet through
inventory reduction of $45-$50 million by the end of the fiscal
year, which will reduce debt by the end of the fiscal year by
During the quarter Jo-Ann's opened six superstores and two
traditional stores, expanded a traditional store into a superstore,
and closed 16 traditional stores. Year-to-date, Jo-Ann's has opened
15 superstores and five traditional stores, expanded a traditional
store into a superstore, and closed 40 traditional stores and one
superstore. For the balance of the year, the company expects to open
five superstores and close 18 traditional stores. The current store
count is 648 traditional stores and 169 superstores.
Jo-Ann's Conference Call.
Highlights of a a conference call following the release of the
1. Separation expenses for former CEO Alan Rosskamm were $4.4
2. Sales were hurt by a softening of home dec fabrics,
fleece, yarn, and paper crafting. Customer traffic was about the
same, but there were fewer transactions.
3. Execs are pleased with the initial results of the expanded
jewelry and kids crafts. A beefed up marketing plan will launch
later this summer to inform consumers about the new departments.
4. Jo-Ann's continues to employ Lehman Bros. for a variety of
5. The debt level is up to $199 million, but the credit line
still contains $122 million of "excess availability."
6. Store inventory levels are down about 13%
Comments from the new CEO Darrell Webb, on the job only three
1. Is still learning the industry. His first goals are
filling a strong exec team, which he feels has been completed, and
meeting with Jo-Ann's personnel and vendors. Will unveil additional
plans early in the next fiscal year.
2. Committed to being much more competitive in the craft
3. Pleased with the repair plan already in place.
4. Complimented Michaels on its basic plan-o-gram integrity,
inventory replenishment systems, and how the company has scaled back
on high-risk seasonal goods.
5. Feels "pretty good" about the macro-competitive
environment: if the rumor of Wal-Mart dropping by-the-yard fabric is
true, Jo-Ann's should benefit, and could also benefit if the
Michaels acquisition requires the company to service high debt
6. Feels the keys to profitable growth are a strong team,
good assortments, solid inventory management, and providing a
pleasant shopping experience. Believes the existing IT systems are
7. Does not anticipate any massive store closures.