Jo-Ann Stores, Inc. (JAS)
Q4 2009 Earnings Call Transcript
March 11, 2009 4:30 p.m. ET

Executives

Tim Ryan – Director of Investor Relations
Darrell Webb - Chairman of the Board, President, and Chief Executive Officer
James Kerr - Chief Financial Officer and Executive Vice President

Analysts

William Armstrong – C. L. King & Associates, Inc.
Jeff Stein – Soleil Securities
Anthony Lebiedzinski – Sidoti & Company, LLC
Joan Storms – Wedbush Morgan Securities
Michael Corelli – Barry Vogel & Associates

Presentation

Operator

Good afternoon. My name is Christy and I will be your conference operator today. At this time, I would like to welcome everyone to the Jo-Ann Stores fiscal year 2009 fourth quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. If you would like to ask a question during that time, please press “*” and the number “1” on your telephone keypad. If you would like to withdraw your question press the “#” key. I now turn the call over to Mr. Tim Ryan, Director of Investor Relations.

Tim Ryan

Thank you and welcome everybody to the Jo-Ann Stores fiscal 2009 fourth quarter conference call. In just a minute Darrell Webb, our Chairman, President and Chief Executive Officer and Jim Kerr, our Chief Financial Officer will review the fourth quarter and full-year results and discuss our guidance for the full year fiscal 2010. They will then respond to your questions.

After the market closed this afternoon we issued our fourth quarter earnings release. If you’ve not received it you may obtain a copy from the Investor Relations section of our website at www.joann.com. This conference call is being recorded and is available through Wednesday, March 18th by dialing 1-800-642-1687. The conference ID number to access this call is 85905136.

In addition, this call is being webcast over the Internet and can be accessed through the website mentioned earlier by selecting Investor Relations at the bottom of the website. For those with access, it is also available through StreetEvents.com. A replay will be available shortly after the call. The replay may be accessed at JoAnn.com and at StreetEvents.com.

Before we begin, I would like to remind you that any forward-looking comments made during this call are subject to certain risks and uncertainties which may cause results to differ materially from our current expectations. The risks and uncertainties that are most likely to cause our results to differ materially from our current expectations are included in the press release issued this afternoon and also in our periodic filings with the SEC. Now, I’ll turn the call over to Darrell.

Darrell Webb

Thank you Tim and good afternoon everyone. We achieved solid earnings and cash flow improvements in fiscal year 2009 at Jo-Ann Stores. Our key initiatives succeeded in growing sales, controlling expenses and managing inventory thanks to the hard work of our 22,000 team members. Our store remodel and optimization programs continued to generate incremental sales while our core sewing and craft business delivered consistent sales growth throughout the year even as the economy was deteriorating.

We achieved SG&A expense leverage on most major line items including labor, administrative overhead and distribution expenses and we ended fiscal 2009 with 9% less inventory than the prior year. More importantly, our quality of inventory is better than ever and we’ve maintained strong in stocks at our distribution centers and at store level.

As we anticipated, the fourth quarter business was very challenging. Same store sales were down 2.9% in the fourth quarter compared to a 1.5% decrease in the third quarter. Customer transactions and average ticket were both down versus the prior year. Our fourth quarter sales and earnings were negatively affected by the magnitude of seasonal merchandise sold during the holidays.

As a number of retailers have pointed out seasonal category sales have been very soft during this recession. However, in our core sewing business, fleece, quilting and flannel fabrics enjoyed strong sales during the fourth quarter while yarn, kid’s crafts and food crafting performed well on the non-sewing side of the business. Our small format stores performed better than the larger stores due to the benefit of remodels in the small stores and due to the presence of more seasonal merchandise in the large format stores.

Strong inventory management disciplines allowed us to begin the new fiscal year exceptionally clean with no seasonal carryover. However, our gross margin rate declined by 150 basis points in the fourth quarter as we elected to take earlier and deeper pricing action on seasonal products to ensure a reasonable sell through. By tightly controlling expenses and inventory in this challenging sales environment, we were able to strengthen our balance sheet during the fourth quarter. We bought back additional subordinated notes during the quarter and we ended the year with more cash on hand than long-term debt.

Turning to capital spending, we opened six new stores in the fourth quarter taking the total number of store openings to 21 for fiscal year 2009. We also made progress in revitalizing our existing store base by finishing one more remodel in the quarter bringing our total to 29 remodels for the year. As we look ahead to fiscal 2010, we are hopeful that the economy will begin to improve in the second half of the year but we believe it is prudent to expect and plan for negative trends in both customer transactions and average ticket in the near term. Therefore, we have not assumed any improvement in sales trends for the year so we will continue to focus on those elements of our business that we can control including expenses, inventory and the customer experience. And, we will continue to optimize free cash flow to further strengthen our balance sheet.