This summary is based on the third quarter fiscal 2009 earnings call conducted by Jo-Ann Stores Inc. (JAS) on December 3, 2008.
Management:
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President and Chief Executive Officer: Darrell Webb
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Chief Financial Officer: James Kerr
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Director of Investor Relations: Tim Ryan
Key Investors Issues
- Net earnings improved to $10.2 million or 40 cents per share, up 28% from $8.0 million, or 32 cents per share in 2007.
- Net sales were $480.1 million, or flat compared to the prior year.
Year to Date Highlights:
- Net sales increased 2.8% to $1.33 billion.
- Net earnings were $1.5 million, or 6 cents per share, versus a net loss of $12.1 million, or 50 cents per share, in the prior year.
- The firm had 15 openings and 21 closings.
Third Quarter Highlights
Net earnings improved to $10.2 million, or 40 cents per share, up 28% from $8.0 million, or 32 cents per share, mainly due to a $1.3 million after-tax gain related to the repurchase of a portion of senior subordinated notes.
- Net sales were $480.1 million, or flat compared to the prior year as same store sales decreased 1.5% versus an increase of 2.4% for the same period last year.
- Same store sales were down primarily due to a reduction in traffic and to a lesser degree, lower average ticket.
- Large-format stores accounted for 51.5% of total sales and small-format stores accounted for 46.8%, while internet sales through JoAnn.com accounted for the remaining 1.7% of sales.
- Same store sales for large-format stores decreased 3.8% versus an increase of 2.4% for the same period last year as these have a greater mix of seasonal product and higher ticket items, which had weak performance.
Same store sales in small-format stores increased 1.2% on top of an increase of 2.4% for the same period last year and sales in basic sewing and craft categories continue to perform fairly well.
- The sewing business represented 54% of sales volume and increased 1.1% on a same-store-sales basis.
- Jo-Ann continues to experience positive same store sales in the majority of its fabric and sewing notions merchandise categories, especially in quilting and fleece while negative categories include home décor fabric and holiday fabric.
- The non-sewing business represented 46% of sales volumes and was down 4.9% on a same-store-sales basis mostly due to declines in seasonal categories and custom framing.
The gross margin rate increased 100 basis points to 49% due to a smaller percentage of clearance sales to total sales this year compared to last year.
- As a percentage of net sales SG&A expense of 41.6% is up slightly compared to 41.5% last year.
- SG&A expense includes incremental store payroll for training related to our store systems roll out.
- The company repurchased $20.4 million of its senior subordinated notes at a discount of approximately 12% to par value and recorded a $2.1 million pre-tax gain.
Interest expense decreased by $1.3 million due to lower average debt levels as debt levels improved from an average of $196.0 million outstanding in fiscal 2008 to an average of $117.0 million in fiscal 2009.
- Total debt was $113.0 million, an $89.0 million decrease from the same time last year and includes $80 million of senior subordinated notes due in March 2012 and $33 million of borrowing under the revolving credit facility.
- Year-to-date capital expenditures were $49.0 million, net of landlord allowances of $6.1 million.
Operational Insights:
- Same store sales decrease of 1.5% was a sharp contrast to the 3.9% increase delivered through the first half of this year due to aslight drop in store traffic.
- Sales in the core sewing and craft categories are actually holding up quite well, quilting, fleece, and sportswear fabric sales were strong while apparel crafts and food crafting remain strong on the non-sewing side of the business.
- However, seasonal merchandise and higher ticket items, including custom framing and home decorating fabrics were very soft.
- This had a negative impact on average ticket and had a disproportionate affect on sales in large-format stores which have more space and more inventory dedicated to those categories.
- The firm opened 12 new stores in the third quarter and opened six more early in this fourth quarter, taking the total number of new store openings to 21 for the year.
- Gross margin increased by 100 basis points due to clearance activities and lower cost from global sourcing initiatives, particularly on fabrics.
- SG&A expenses were up 10 basis points as initiatives to tightly manage operating costs were offset by the deleveraging of sales and training costs related to new point-of-sale system.
Fiscal 2009 Outlook:
- The firm expects full year capital expenditures of approximately $60.0 million.
- It has also adjusted its guidance range to 75 cents to 85 cents per share.
