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Jo-Ann Grabs Share in Fabric Retailing

Comps, margins and earnings were up in the third quarter for craft and fabric retailer Jo-Ann Stores — but management trimmed back the full-year earnings outlook, reflecting uncertain economic conditions, even as its market share in craft-fabric retailing surges ahead.

Jo-Ann is projecting full-year earnings per diluted share in the range of $0.55 to $0.65, down from the previously communicated range of $0.60 to $0.70.

On the positive side, management cited declining retail competition in sewing- and fabric-related businesses as a contributor to the 785-unit chain's sales growth.

"We continue to capitalize on competitive changes in the market, specifically the closing of Hancock Stores and the liquidation of fabric from selected Wal-Mart stores," said Darrell Webb, chairman, president and ceo of Jo-Ann Stores.

By his count, he said, Hancock has closed 134 stores and Wal-Mart has liquidated fabric in about 153 units located within 10 miles of a Jo-Ann store. The total number of stores from which Wal-Mart has removed fabric is now more than 340, Webb estimated.

"These competitive changes contributed to our sales growth in the quarter, but it is important to note that we also delivered positive same store sales in our stores that were not impacted by competitive changes," he continued.

Further to Jo-Ann's advantage, Webb said, "Based on information that we acquire through the marketplace, we understand [Wal-Mart] is on its way to removing fabric from all but roughly 700 to 750 stores, so it's removing fabric from, call it, 80% of their locations."

Jo-Ann reported quarterly earnings of $8.0 million or $0.32 per diluted share, dramatically up from $0.1 million or $0.00 per share for the year-ago period. Gross margins grew 60 basis points to 48.0% of sales, partly due to the company shifting big markdowns to the second quarter this year.

Sales of $480.2 million were up 4.0%, as same store sales grew 2.4%. For the nine months, sales of $1.3 billion were up 4.0%, while comps have risen 3.5%.

"Our sewing businesses represented 53% of our third-quarter sales volume and increased approximately 3.9% on a same store sales basis for the quarter," said James Kerr, evp, cfo. Among the product lines in that segment at Jo-Ann is home décor fabrics.

Non-sewing businesses represented 40% of third quarter sales volume and increased approximately 0.7% on a same-store sales basis. "We experienced negative results in our home accents and summer categories due to planned reductions in inventory investment," Kerr said.

In the near future, Jo-Ann is optimistic about its holiday, which the company is treating with prudence, having reduced its holiday merchandise mix. Webb said, "I'm comfortable carrying less seasonal merchandise and more basics in this economic environment for lower-risk inventory positions."

As Jo-Ann Stores continues to refine its assortment and store presentation in the new year, it will roll out "a lot more new product coming out of our own design shop" from the retailer's product development team, Webb said.

Jo-Ann has invested "a lot of time and energy" on this effort, he added.

An example will include an expansion of its Debbie Mumm branded offerings, based on the work of this artist whose renderings are popular in home furnishings, and which has performed strongly for holiday.

Jo-Ann's real estate plans going forward include 12 to 15 new units – consisting of a mix of 25,000- and 35,000-square-foot versions – and about 30 remodels of existing stores in 2008.

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