This summary is based on the fourth quarter fiscal 2009 earnings call conducted by Jo-Anne Stores Inc. (JAS) on March 11, 2009.
Management:
President, Chairman and CEO: Darrell Webb
EVP and CFO: James Kerr
Director, IR: Tim Ryan
Key Investor Issues:
- Full year net income was $21.9 million versus $15.4 million last year.
- Full year net sales were $1.901 billion compared with $1.879 billion in the past year.
- Quarter-to-quarter operating profit decreased from $46.8 million to $32.5 million.
Fourth Quarter Financial Highlights:
Same store sales were down 2.9% in the fourth quarter compared with a 1.5% decrease in the third quarter.
- Customer transactions and average ticket were both down versus the prior year.
- Q4 sales and earnings were negatively affected by the magnitude of seasonal merchandise sold during the holidays.
Seasonal category sales have been very soft during the current recession.
- However, in the core sewing business, fleece, quilting and flannel fabrics enjoyed strong sales during the fourth quarter.
- Yarn, kids crafts and food crafting performed well on the non-sewing side of the business.
The small format stores performed better than the larger stores.
- This was due to the benefit of remodels in the small stores.
- The superior performance was also a result of the presence of more seasonal merchandise in the large format stores.
The company opened six new stores in the fourth quarter taking the total number of store openings to 21 for fiscal year 2009.
- The management also made progress in revitalizing the existing store base by finishing one more remodel in the quarter.
- The total number of remodels for the year was 29.
Among key initiatives for fiscal year 2010, the management believes margin expansion provides the most significant opportunity to improve financial results.
- Several factors give the management confidence in delivering the improvement.
- The percentage of product that can be sourced directly from Asia will increase again this year.
- The inflationary pressure experienced a year ago on product sourced from Asia has sharply reversed and product cost deflation is now common.
- Freight expense has decreased along with the price of oil which reduces cost of sourcing products both globally and domestically.
- The company will again buy significantly less fashion and seasonal merchandise in fiscal year 2010 which will reduce exposure to promotional and clearance markdowns.
- The new store systems rolled out last year will provide additional tools for managing markdowns and will give new promotional capabilities that enhance margins.
The management is also focused on a number of initiatives to drive sales and further enhance the customer shopping experience.
- The company will modify marketing content to deliver a stronger value message.
- The management will also enhance industry leading education and in store demonstration programs.
- The craft retailer will also expand the product offering and functionality on the JoAnn.com website.
- The management intends to reduce capital spending by approximately 50% from last year to between $30 million and $32 million.
- The new store and remodel activity will be comparable to fiscal 2009 with approximately 20 new stores and 30 remodels.
- The company has already opened eight of these new stores in the first five weeks of this new fiscal year.
- The company has 110 leases expiring in fiscal year 2010.
- Given the current market conditions, the management believes there are opportunities to improve the lease terms in a number of these locations going forward.
The current quarter net income includes a $1.3 million net after tax gain or 5 cents per share.
- This is related to the repurchase of the portion of senior subordinated notes.
- Excluding this gain, earnings for the fourth quarter were 74 cents per share.
For the full year, net income was $21.9 million or 86 cents per share versus net income of $15.4 million or 62 cents per share in the prior year.
- The full year includes a $2.6 million net after tax gain or 10 cents per share related to the repurchase of a portion of senior subordinated notes.
- Excluding this gain earnings for the full year were 76 cents per share.
