Jo-Ann Stores Reports Financial Results for 1Q

In a release on May 27, the company noted that net income for the first quarter of fiscal 2010 was $8.6 million, or $0.33 per diluted share, compared with net income of $3.0 million, or $0.12 per diluted share for the first quarter last year. The current quarter net income includes a $0.7 million after-tax gain, or $0.03 per diluted share, related to the purchase of a portion of the company's senior subordinated notes. Excluding this gain, net income for the first quarter was $7.9 million, or $0.30 per diluted share.

Net sales for the first quarter increased 3.1 percent to $460.0 million from $446.1 million for the same period last year. Same-store sales increased 1.0 percent compared with a 4.5 percent same-store sales increase for the first quarter last year.

Large-format store net sales for the quarter increased 5.8 percent to $244.1 million compared to the same period last year. Same-store sales for large-format stores decreased 0.6 percent compared with an increase of 3.3 percent in last year's first quarter. Small-format store net sales decreased 0.3 percent to $206.4 million compared to the same period last year. Same-store sales for small-format stores increased 3.0 percent compared with an increase of 5.8 percent for the same period last year. Internet sales through Joann.com were $9.5 million in the first quarter of fiscal 2010 compared to $8.2 million for the same period last year.

Darrell Webb, chairman, president and chief executive officer said, "During the first quarter of fiscal 2010, Jo-Ann Stores delivered solid operating results as we grew sales, expanded margins, improved earnings, and continued to reduce our debt. As the challenging economy persists, Jo-Ann's product offering is resonating with consumers seeking affordable, family-oriented activities. I am pleased with the growth we are seeing in our core sewing and craft categories, while seasonal and high ticket product sales continue to be challenging."

"We are benefiting from our sharp focus on controlling costs and generating operating efficiencies and we expect to further leverage these improvements as the economy rebounds. I am pleased with our strong start to the year, but we still have the majority of the year ahead of us and limited visibility into the timing of a sustained retail recovery," Webb concluded.

Operating Results

Gross margins for the first quarter increased approximately 210 basis points to 48.5 percent from 46.4 percent in the first quarter of the prior year 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 to $190.4 million from $184.5 million for the same period last year. Selling, general and administrative expenses as a percentage of net sales remained flat at 41.4 percent as the company continues to manage operating costs.

Operating profit for the first quarter was $14.9 million versus $7.4 million for the prior year's first quarter.

Balance Sheet

The cash balance for the quarter ended May 2, of $85.0 million was an increase of $27.1 million versus the end of the first quarter last year. Long-term debt totaled $50.5 million, a reduction of $49.5 million compared to the end of the first quarter last year. The improvements in cash and debt balances were primarily the result of cash generated from operations and improvements in working capital.

During the first quarter the company purchased $15.5 million of its senior subordinated notes at an average discount of approximately 9 percent to par value, and recorded a $1.2 million pre-tax gain including the write-off of deferred financing costs.

Store Openings, Closings and Remodels

During the first quarter of fiscal 2010, the company opened 11 large-format stores and one small-format store and closed one large-format store and 12 small-format stores. For fiscal 2010, the company expects to open approximately 20 new stores and close approximately 30 stores.

During the first quarter of fiscal 2010, the company remodeled two stores. In fiscal 2010, the company expects to remodel approximately 30 stores.

Fiscal 2010 Outlook

The company is reaffirming its previously announced outlook for fiscal 2010. Based upon management's operating assumptions and current economic conditions, the company's key considerations underlying its outlook for fiscal 2010 include:

- Same-store sales decline of 2 percent to 4 percent for the year;

- Gross margin rate improvement for the year;

- Higher selling, general and administrative expenses as a percentage of net sales for the year;

- Capital expenditures, net of landlord allowances, for the full year of $30 to $32 million;

- Earnings per diluted share in the range of $0.70 to $0.85 for the year (excluding any gains on debt purchases);

- Free cash flow in the range of $50 to $58 million for the year; (free cash flow defined as net income plus depreciation and amortization, stock-based compensation expense and changes in working capital, less capital expenditures);

- Weighted-average diluted share count of approximately 26 million shares for the year.

Jo-Ann Stores, Inc. is a national fabric and craft retailer with locations in 47 states, operates 220 large-format stores and 543 small-format stores.

((Comments on this story may be sent to health@closeupmedia.com))

For full details on (JAS.A) JAS.A. (JAS.A) has Short Term PowerRatings at TradingMarkets. Details on (JAS.A) Short Term PowerRatings is available at This Link.