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Jo-Ann Prepares to Seize the Day

Jo-Ann Stores Inc. is looking to clobber Wal-Mart in the fabric business as the latter continues to remodel domestic units and pare the fabric department in the process from the new layout.

"We expect to capture new customers and gain market share as result of this," said Darrell Webb, chairman, president and ceo, during the fabric and craft chain's first quarter earnings call last week. He estimated nearly 700 revamped Wal-Mart units will be without fabric departments by end of this year.

Jo-Ann's fabric and sewing notion sales are already showing positive signs from reduced competition.

Its sewing business represented 52% of sales volume and increased 2.6% on a same-store-sales basis during the period. By comparison, the retailer's non-sewing business represented 48% of first quarter sales volume and was down 8% on a same-store-sales basis due to declines in seasonal category sales. Excluding seasonal, non-sewing would have been comparable with the sewing side of the business.

In the big picture, Jo-Ann was "pleased" with its overall first-quarter results.

"Same store sales increased 1%, gross margin expanded by 210 basis points, earnings per share more than doubled to $0.33, and long-term debt net of cash improved by $77 million versus last year," Webb said.

Net income nearly tripled to $8.6 million, or $0.33 per diluted share, compared with net income of $3.0 million, or 12 cents per diluted share, for the first quarter last year.

Sales rose 3.1% to $460.0 million.

Customer transactions during the quarter increased by 3.3%, "representing the strongest increase in customer traffic we've enjoyed in seven quarters," Webb boasted. The caveat: traffic contribution to same store sales was partially offset by a lower average ticket.

The chain, which operates 220 large format and 543 small format stores in 47 states, is increasingly looking to expand the count and relevance of its smaller units as it sees shoppers respond more favorably to them.

Same store sales in small format stores increase 3% for first quarter versus an increase of 5.8% in the same period last year. By comparison, same store sales for large format stores decreased 0.6% for the period compared to an increase of 3.3% in 2008.

Just as Wal-Mart is shrinking its fabric business as part of its store remodeling project, Jo-Ann Stores is ramping up its small format store remodels, or what it calls its "optimization projects," to hone in on its fabric offerings at the expense of weaker seasonal product sales.

"Our small format store optimization projects are showing positive results," Webb said. "They require relatively small investments in fixtures and labor to re-merchandise stores with the objective of increasing craft merchandise and reducing space for seasonal merchandise."

He added that the 248 optimization projects completed last fiscal year "are delivering a sales increase of 150 basis points above small formats without remodel or optimization activity." Based on those results, Jo-Ann has scheduled 148 more optimization projects for the second and third quarters, which will result in more than 430 optimized stores lined up in advance of the critical fourth quarter holiday selling season.

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