Jo-Ann Stores Announces First Quarter Results

Jo-Ann Stores, Inc announced its first quarter 2011 financial results on May 26th. The quarter ended on May 1st, 2010.

Net income from the quarter was $18.2 million ($.66 per diluted share) compared with 2010's first quarter of $8.6 million ($.33 per diluted share).

First quarter net sales were up 4.4%, from $460.0 million last year to $480.3 million this year. Same-store sales saw a 4.1% increase, compared to a 1% in the first quarter last year.

Here are the company's sales broken down by store type:

• Large format stores: Net sales increased 3.9% over the same period last year, to $257.2 million. Same-store sales increased 1.9% for the period after being down .6% in the period last year.
• Small format stores: Net sales were up 4.9% to $212.8 million over the same period last year. Same-store sales were up 6.9%, after being up 3% for the same quarter last year.
• Online: Sales were up 8.4% over the same period last year to $10.3 million. According to Jo-Ann Stores executives in the conference call announcing the results, Joann.com only accounts for 2.1% of the company's sales, although there are 33% more SKUs available online now than this time last year.

Gross margin increased in the first quarter to 50.5%, up from 48.5% in the same quarter last year. The company attributes this increase to "global sourcing efforts, improved inventory management of seasonal and clearance merchandise, and promotional markdown optimization." Company executives stressed in the earnings call that the company cannot continue this rate of improvement in their gross margin.

The company had no debt outstanding at the end of the quarter, and their average debt load during the quarter was $14 million. At the end of the first quarter of last fiscal year, the company had $50.5 million in debt. Their average debt load during the previous year's same quarter was $55 million. The company's cash position also improved to $160.7 million, up $75.7 million from the previous year's same quarter.

For the current fiscal year, the company expects to open 30 new stores, close 25 stores, and remodel 40 stores. In the first quarter, the company opened ten stores (two large format & eight small format) and closed six small format stores. It also remodeled 12 stores, including transitioning one store from small to large format.

Other interesting points from the earnings call:

• 53% of the company's sales come from the sewing department
• The food department is emerging as a strong category
• Transactions are up 2.9% over last year same quarter; Ticket amount is also up.
• The company is keeping lower inventory levels than it has historically.
• The company says consumers are realizing that retailers are keeping tight inventories on seasonal items so they aren’t delaying those purchases which helps sell-through and margin on those items.
• Scrapbooking as a category was not mentioned at all in the earnings call.

One of the company's major competitors is Walmart, which is accelerating the pace of store remodels that are removing fabric departments from many stores. Walmart's planogram reset in June will be a key indicator of whether they intend to reduce footage in the crafts department. According to the Jo-Ann Stores earnings call, a previous reset showed vendor consolidation and a reduction in SKUs but no reduction in the linear footage of the department.

Darrell Webb, chairman and chief executive officer stated, "Our team delivered record financial results in the first quarter of fiscal 2011. Sales remained strong, even as we began to cycle positive sales results from the previous year. Our seasonal merchandise and custom framing categories, which struggled through the recession, delivered positive sales trends for the first time in two years. I was also pleased with our continuing progress on global sourcing and inventory management which contributed to our gross margin improvement." Webb concluded, "We believe Jo-Ann Stores is positioned for sustainable sales and margin growth as we execute our strategic initiatives."