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Jo-Ann records 4Q loss after shutting stores

HUDSON, OH -Picking up a hefty tab to shut down stores, write off $60 million worth of unproductive inventory and extricate itself from a money-losing internet operation, fabric retailer Jo-Ann Stores posted a fourth-quarter loss of $9.7 million, compared with a prior-year profit of $20.2 million.

Dragging down the bottom line, the nationwide fabric chain rang up one-time, pre-tax charges totaling $29.7 million, including $6.7 million to shut down 42 of its smaller, traditional stores, and a $23.0 million charge to writedown about $60 million worth of discontinued inventory.

As if that weren't enough, the retailer also recorded a $4.4 million after-tax loss as it wrote off the balance of its investment in IdeaForest, an Internet startup. Taking some of the sting out of all those charges, the company managed a $3.2 million income-tax benefit vs. a tax bill last year of $20.2 million.

Getting a lift from new superstores, sales advanced by 8.8 percent, to $496.4 million from $456.3 million last year. But same-store sales were virtually flat in a stalled-out retail environment, edging up a skimpy 0.2 percent.

For all of last year, Jo-Ann recorded a loss of $13.6 million, set back by costs tied to the store closings, inventory writedown and losses from the Internet venture. Twelve-month sales moved up by 7.4 percent, to $1.5 billion from $1.4 billion last year. But the crucial gauge of same-store sales ticked up a modest 1.3 percent.

Alan Rosskamm, chairman and ceo, said, "Excluding the impact of the one-time charges, our performance in the fourth quarter was in line with the lower expectations that we communicated at the end of November. Unfortunately, out-of-stocks stemming from our enterprise-wide systems installation were further exacerbated by a weak economic environment in the second half of the year, resulting in an operating performance substantially below our historical trends."

He added, "Our operations are clearly not performing where they need to be. As a result, I have placed on hold any new commitments for future store growth in order to more acutely focus our organization on improving the productivity of our existing asset base and maximizing our free cash flow to reduce debt."

JO-ANN STORES INC.


Qtr. 2/3 (x000) 2001 2000 %CHG

Sales

$496,400

$456,300

8.8

Oper. income (EBIT)

22,400

40,000

-44.0

Net income

(9,700)a

20,200

-

Per share (diluted)

0.53

1.11

-

Average gross margin

41.8%b

42.7%

-

SG & A expenses

35.3%

32.0%

-

12 months

2001

2000

%CHG

Sales

1,483,300

1,381,500

7.4

Oper. income (EBIT)

40,600

67,400

-39.8

Net income

(13,600)c

25,600

-

Per share (diluted)

(0.75)

1.38

-

Average gross margin

45.0%b

45.8%

-

SG & A expenses

39.7%

38.6%

-


( ): Denotes loss

a-Fourth-quarter results include one-time, pre-tax charges of $29.7 million including $6.7 million in closing costs related to 42 units to be shut this year; a $23 million writedown of $60 million of unproductive inventory. Results also include a $4.4 million loss and after-tax writeoff on the balance of the company's investment in an Internet operation. Partially offsetting the one-time items was an income-tax benefit of $3.2 million.

b-Average gross margin excluding the impact of a $23 million writedown of $60 million of unproductive inventory.

c-12-month results include the $23 million inventory reduction charge, store closing costs, a $6.5 million loss on the Internet investment and an income-tax benefit of $4.3 million.

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