Jo-Ann profits up two-thirds

Don Hogsett, May 24, 2004

Helped by stronger same-store sales, rising margins and lower interest costs; fabric and crafts specialty retailer Jo-Ann Stores Inc. boosted first-quarter profits almost two-thirds, up 63.4 percent, to $6.7 million from $4.1 million last year.

Sales increased 8 percent, to $404.9 million from $374.8 million, helped by stronger comps and new store openings. The crucial gauge of same-store sales climbed 6.6 percent, improving on a smaller year-ago gain of 2.6 percent.

For a third straight fiscal quarter, the retailer strengthened its margins, this time 90 basis points, or nine-tenths of a percentage point, to 49.1 percent from 48.2 percent a year ago. Margin growth "resulted from a less promotional pricing strategy," the company said.

Costs were unchanged at 40.8 percent of sales, Jo-Ann said, as "improvements in store expense leverage were offset by higher distribution expenses."

In a lift to the bottom line, the retailer whittled interest expense 18 percent, to $4.1 million from $5 million, generating a cash savings of $900,000.

Eating into the company's cash, inventories climbed faster than the rate of sales, increasing 13.8 percent, to $420.1 million from $369.1 million last year, compared with 8 percent sales growth.

Alan Rosskamm, chairman and CEO, commented, "We are pleased with our financial results for the first quarter and the strategic and operational development of the company. While we still have a lot to accomplish, particularly in the third and fourth quarters, it is satisfying to start strong."

Building a stronger financial platform, Jo-Ann issued $100 million of senior subordinated notes, paying 7.5 percent, and used the proceeds to retire its higher-cost 10.4 percent senior subordinated notes. The company amended its $365 million bank credit facility, extending the term until May 2009, and reducing the commitment to $350 million.

Jo-Ann Stores Inc.

Qtr. 5/1 (x000) 2004 2003 % chg
a-First-quarter results include $2.9 million in store opening and closing costs, up from $2.1 million during the same period a year ago; $2 million in stock-based compensation expense, compared with $1.3 million last year; and debt repurchase expenses of $4.2 million, compared with $3.4 million the year before.
Sales $404,900 $374,800 8.0
Oper. income (EBIT) 33,800 27,400 23.4
Net income 6,700a 4,100a 63.4
Per share (diluted) 0.30 0.19 57.9
Average gross margin 49.1% 48.2%
SG&A expenses 40.8% 40.8%

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