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Hancock and Jo-Ann: Fourth Quarter, Fiscal Year Results

Profits are up!

by Staff Report (March 15, 2010)

Hancock Fabrics

Net sales for the year were $274.1 million compared with $276.4 million in the previous year, and same-store sales increased 0.2%. Operating income increased by $4.6 million to $7.7 million from $3.1 million. The previous year's fourth quarter included a retirement plan curtailment gain of $6.2 million. Excluding this gain in the prior year, operating income increased $10.8 million.

Net income was $1.8 million ($0.09/share) compared to a net loss of $12.4 million (-$0.65) a year ago. Adjusted EBITDA, which excludes the $6.2 million retirement plan curtailment gain recorded in the prior year, was $13.8 million, up $10.3 million. Inventories, now at $91.5 million, are down $12.7 million.

At year's end, Hancock had outstanding borrowings under its revolving line of credit of $13.6 million and outstanding letters of credit of $6.0 million. The company paid down $18.4 million of gross debt during the year. Additional amounts available to borrow under its revolving line of credit at fiscal year-end were $42.9 million.

Net sales for the quarter were $77.7 million, down from $78.2 million a year ago, and same-store sales decreased 1.3%. Operating income for the quarter decreased by $3.3 million as a result of a $3.3 million profit in this quarter compared to a $6.6 million profit a year ago. Excluding the retirement plan curtailment gain of $6.2 million in the prior year, operating income increased $2.9 million over the previous year.

Net income was $1.9 million ($0.10) compared to income of $4.2 million ($0.22) a year ago. Adjusted EBITDA for the quarter was $4.6 million, up $2.5 million.

President/CEO Jane Aggers commented, "While our top line results are indicative of the challenging environment in which we operate, the significant improvements that have been made in earnings is evidence that our operational plan is gaining traction. We will continue to deleverage the balance sheet as we look at various alternatives for growth."

For the year, gross margin improved by 110 basis points to 44.4%, driven by lower merchandise and freight costs; those were partially offset by an increase in sourcing and warehousing costs. Gross margin for the fourth quarter of 40.8% down from 42.1% a year ago.

For the year, selling, general, and administrative expenses have been reduced by $2.4 million to $109.7 million (40.0% of sales) from $112.1 million (40.6% of sales). For the quarter, expenses increased to $27.4 million (35.2% of sales) from $25.2 million (32.2% of sales). The expense of the fourth quarter of the prior year included a retirement plan curtailment gain of $6.2 million. Excluding this curtailment gain, selling, general, and administrative expenses for the fourth quarter decreased $4.0 million and for the year decreased $8.6 million.

During the current fiscal year, the company opened 3 stores, closed 1 store, and remodeled 9 locations. The current store count is 266 stores.

To read the complete earnings release and/or to listen to a replay of a conference call Hancock execs had with analysts, click HERE.

Jo-Ann Fabrics and Crafts

Net income for the fourth quarter ended Jan. 20 was $37.1 million ($1.36/diluted share), versus $20.4 million ($0.79) a year ago. The prior year fourth quarter net income included a $1.3 million after-tax gain ($0.05), related to the purchase of a portion of the company’s senior subordinated notes. Excluding this gain, net income for the prior year fourth quarter was $19.1 million ($0.74).

Net income for the year was $66.6 million ($2.51), compared with $21.9 million ($0.86) in the prior year. The current fiscal year includes a $0.8 million ($0.03) after-tax gain related to the purchase of a portion of the company’s senior subordinated notes. Excluding this gain, net income was $65.8 million ($2.48). The prior year's income included a $2.6 million ($0.10) after-tax gain related to the purchase of a portion of the company’s notes. Excluding this gain, net income for the prior fiscal year was $19.3 million ($0.76).

Net sales for the quarter increased 5.3% to $602.2 million and same-store sales increased 4.4%. Large-format store sales increased 7.9% to $323.8 million and same-store sales increased 3.1%. Small-format store sales increased 2.6% to $266.1 million and same-store sales increased 6.1%. Internet sales through Joann.com of $12.3 million were flat.

Net sales for the year increased 4.7% to $1.99 billion and same-store sales increased 3.1%. Large-format store sales increased 7.5% to $1.07 billion and same-store sales increased 1.4%. Small-format store sales increased 1.4% to $879.9 million and same-store sales increased 5.1%. Internet sales increased 6.2% to $37.9 million.

Chair/CEO Darrell Webb stated, "During fiscal year 2010, the Jo-Ann team effectively executed our strategic objectives. These included: revitalizing our store base, expanding our gross margin rate, capitalizing on changes in the competitive environment, and leveraging our new systems capabilities. We achieved all of this while maintaining tight control of our expenses, inventory, and capital spending, which allowed us to report significant expansion of operating margin and record earnings."

Gross margins for the quarter increased approximately 410 basis points to 47.6% due to reduced product costs from global sourcing initiatives, lower clearance levels, and reduced freight costs. Selling, general, and administrative expenses for the quarter increased 4.1% to $207.9 million, but improved as a percentage of sales by approximately 40 basis points to 34.5%. Operating profit for the quarter was $61.1 million versus $32.5 million a year ago.

The cash balance for the fiscal year improved by $136.5 million to $217.1 million compared to year-end last year. Outstanding debt was $47.5 million, down $18.5 million from a year ago. This $155 million improvement in cash, net of debt, was primarily the result of cash generated from operations and improvements in working capital.

Subsequent to year-end, the company retired the remaining $47.5 million outstanding principal on its senior subordinated notes at par value.

In the fiscal year the company opened 15 large-format and five small-format stores, and closed three large-format and 35 small-format stores, and remodeled 30 stores, of which six were transitioned from a small- to a large-format layout.. For fiscal 2011, the company expects to open approximately 30 new stores, close approximately 30, and remodel at least 40 stores.

This year the company expects same-store sales to increase 2.5%-3.5%; the gross margin rate to improve 20-50 basis points; and selling, general, and administrative expenses as a percentage of net sales to improve 20-50 basis points.

Capital expenditures, net of landlord allowances, for the full year of approximately $50 million. Earnings/diluted share should be in the $2.75-$2.90 range.

To read the complete report click HERE



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