Jo-Ann Stores Gets House in Order, Trims Loss
September 1, 2008-- Home Textiles Today,
Coming off its eighth consecutive quarter of year-over-year earnings improvement, Jo-Ann Stores continued to project some softness in its home décor and seasonal categories during the fall season — but meanwhile trimmed its loss as sales grew.
Net loss for the quarter ended Aug. 2 was $11.7 million, or 47 cents per share, vs. a net loss of $18.4 million, or 76 cents per share for the same quarter last year. Sales of $403.0 million were up 3.7% from $388.5 million last year. Same-store sales increased 3.3% — and that was against the strong comparison of a 7.0% increase one year ago.
During the 768-unit fabric and crafts chain's second-quarter earnings call last week, chairman, president and ceo Darrell Webb lauded Jo-Ann's new fall assortment. "Our team continues to bring in better quality, better looking, and more compelling fall seasonal merchandise. I think fall looks a lot better compared to fall a year ago."
Jo-Ann Stores' "reservations" for the home décor and seasonal fall categories, he said, are based on the "consumer's behavior. With the economy being how it is, I think [these are among] the first categories — seasonal and home décor merchandise — that people can defer until a future date."
There were bright spots related to home in Q2. Fabrics and sewing notion goods, especially those related to quilting, resulted in positive same store sales. Jo-Ann's sewing business — representing 51% of the company's sales volume in the quarter — increased 4.5% on a same-store sales basis. Its non-sewing business represented 49.1% of total sales for the period and grew 1.3% on a comp basis.
At the store level, Jo-Ann's key initiatives going forward include "revitalizing our store portfolio," Webb said. That means larger-format stores — albeit with reduced square footage from the prototype — are on pace to grow.
Currently, Jo-Ann Stores operates 201 large-format stores and 567 small-format stores. In the second quarter, Jo-Ann opened three new large-format stores and remodeled 11. Such activity "ramps up" this quarter when it will open 13 more new large format stores and complete most of the work on five additional doors that will open early in the fourth quarter – boosting total new store openings for the year to 21, while lowering their dimensions to an average size of 26,000 square feet. This compares to only six new stores overall last year, at an average of 34,000 square feet.
Also in the queue are seven more remodels this quarter, bringing the total for the year to 29 compared to 26 last year.
In addition, Jo-Ann is set to complete approximately 200 small-format store optimization projects during the third quarter. This effort involves remerchandising stores which are too small or have a shorter lease and therefore would not qualify for full remodel projects. "This allows us to better utilize the existing square footage in these stores, add a number of new fixtures and expand our craft assortment," Webb said. "All of these initiatives — open new large format stores, remodel small format stores, and the store optimization project — allow us to expand our craft assortments in more markets and continue to capture additional market share in the craft business."
To more aggressively compete against Wal-Mart in this category, Jo-Ann is improving the quality and selection of its fabrics assortment, "as Wal-Mart has removed fabric from many of its stores," he said, which helps Jo-Ann capture additional market share in the sewing segment.
Wal-Mart's recently launched Martha Stewart branded crafts program was a point of discussion toward the end of the conference call. Webb responded to an analyst's question of Jo-Ann's competitive approach in its craft category.
"We are very much aware of the product line, and in fact we walked it in the Wal-Mart stores the week it was set," Webb said. "Wilton is the manufacturer — the same people who make the Wilton cake decorating supplies we carry in our stores. We actually had the vendor in our building today and had a meeting with them. And our sense is that [the Martha Stewart crafts program at Wal-Mart] is not performing extraordinarily well for them."
Our business in cake decorating and food crafting continues to perform extraordinarily well, so we think it's more about having the right product and the right selection, and not necessarily about Martha's name and the higher cost you are going to pay for having her name on it," he concluded.
Potential product pricing increases was another topic touched upon by an analyst. But Webb assured, "It will be quite some time before prices go up on our cost of goods." Like other retailers, Jo-Ann Stores has "seen some inflation on costs for goods coming out of China and domestically as well," Webb continued, adding that this increase tends to be on items that are tied to petroleum like plastics and "high-cube" items like foam and fiber, "which cost more to transport."
On such items, Jo-Ann Stores is seeing a cost increase in the neighborhood of about 8%. "But it's not like we are seeing cost increases on every sku," he said. "It's still a relatively small percentage of our overall assortment."
When the time does come to hike prices on its merchandise, Jo-Ann will do so but "will not treat it with a broad brush," Webb noted. "We'll look at each item individually, at the sales velocity of each item, [and] consider magic price points."
Related Content By Author
Previewing Heimtextil 2017