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Skus slashed, Jo-Ann still reels

With margins under pressure as it sold off discontinued goods in widespread clearance sales, and nicked by $1.4 million in severance charges in connection with a recent downsizing, Jo-Ann Fabrics recorded a sharply widening loss of $16.1 million, compared with a $10.0 million year-ago deficit.

Boosted by the previously announced sku-reduction drive to sell off obsolete product, sales climbed higher at a double-digit pace, rising by 10.4 percent, to $330.2 million from $299.0 million last year. Same-store sales shot up 9.7 percent.

Clearance sales began in May and contributed about $17 million in sales during the quarter — but at a zero gross margin, the company reported. Weakened by the markdowns, average gross margin fell by 330 basis points, to 44.0 percent from 46.2 percent the prior year. But lifted by the stronger sales, gross margin dollars notched up by 2.4 percent, to $139.2 million from $135.9 million last year.

Bolstered by the double-digit sales gain, the expense ration improved by 60 basis points, to 44.3 percent from 44.9 percent. But measured in absolute dollars, operating costs rose by 9.1 percent, to $146.4 million from $134.2 million — hurt by a $1.4 million pre-tax severance charge rung up in a corporate down-sizing.

Alan Rosskamm, chairman and ceo, commented, "Overall, our performance in the second quarter was better than our internal expectations. Historically, the second quarter [is] our weakest quarter, which typically results in a net loss." Complicating the seasonal downturn this year, said Rosskamm, "We expected this year's second quarter to be especially difficult given the zero margin sales from our sku-reduction initiative, the temporary operation of three distribution centers and the deterioration in store shrink trends we had identified in the first quarter."

Jo-Ann Stores Inc.

Qtr. 8/4 (x000) 2001 2000 % CHG
(loss)
a-Second-quarter results include a $9.9 million income-tax benefit, compared with a year-ago tax benefit of $5.5 million. The year-before quarter included a $1 million loss from the company's minority interest in a joint venture.
b-Six-month results include an income-tax benefit of $13.4 million vs. $3.6 million last year; and a one-time loss of $600,000 stemming form the early retirement of debt. Results in the prior-year period include a $1 million loss from Jo-Ann's interest in a joint venture.
Sales $330,200 $299,000 10.4
Oper. income (EBIT) (17,300) (8,200)
Net income (16,100)a (10,000)a
Per share (diluted) (0.88) (0.55)
Average gross margin 42.2% 45.5%
SG&A expenses 44.3% 44.9%
Six months
Sales 659,100 624,400
Oper. income (EBIT) (19,400) 3,600
Net income (22,500)b (7,000)b
Per share (diluted) (1.23) (0.39)
Average gross margin 44.0% 46.2%
SG&A expenses 44.0% 42.6%


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