Positive customer response to Jo-Ann sewing & craft merchandise

03 Dec '09

5 min read

Operating Results

Gross margins for the third quarter increased approximately 200 basis points to 51.0% compared to the same period last 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 1.3% to $202.0 million compared to the same period last year. Selling, general and administrative expenses as a percentage of net sales improved by approximately 190 basis points to 39.7% of net sales compared to the same period last year due to expense leverage from the increase in sales as well as continued efforts to control expenses.

Operating profit for the third quarter was $41.5 million versus $17.3 million for the same period last year.

Store Openings, Closings and Remodels

During the third quarter of fiscal 2010, the company opened three large-format stores and one small-format store and closed one large-format store and three small-format stores. During the first nine months of the year, the company opened 15 large-format and four small-format stores and closed two large-format and 23 small-format stores. For fiscal 2010, the company expects to open approximately 20 new stores and close approximately 30 stores. For fiscal 2011, the company expects to open approximately 30 new stores and close approximately 30 stores.

During the third quarter of fiscal 2010, the company remodeled 13 stores of which four were transitioned from a small-format to a large-format layout. During the first nine months of the year, the company remodeled 26 stores, of which five were transitioned from a small-format to a large-format layout. The company expects to remodel approximately 30 stores during the year, of which six are expected to transition from a small-format to a large-format layout. For fiscal 2011, the company expects to remodel at least 40 stores during the year.

Fiscal 2010 Outlook

The company is maintaining its same-store sales and earnings per diluted share expectations for fiscal 2010. The company is also updating other key assumptions for the full year. Based upon the company's year-to-date results and management's operating assumptions for the remainder of the year, the company's expectations for fiscal 2010 include:

• Same-store sales increase of approximately 2.3% to 2.7% for the year;
• Gross margin rate improvement for the year greater than the company's trend for the first nine months of the year;
• Selling, general and administrative expenses, as a percentage of net sales, improvement for the year, but less than the company's trend for the first nine months of the year;
• Capital expenditures, net of landlord allowances, for the full year of approximately $30 million;
• Earnings per diluted share in the range of $1.95 to $2.05 for the year (excluding any gains on debt purchases);
• Free cash flow in the range of $88 to $91 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 26.5 million shares for the year.

Jo-Ann Stores Inc

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