Jo-Ann Stores posts $2M profit in 2Q

Don Hogsett, September 9, 2002

Rebounding sharply from a year-ago loss, Jo-Ann Stores Inc. parlayed stronger sales, improved margins and lower interest costs into a $2.0 million second-quarter profit, climbing back from last year's $16.1 million deficit.

Drawing in sewers and do-it-yourselfers in a spotty economic environment, Jo-Ann pushed sales up by 7.1 percent, to $353.7 million from $330.2 million last year. The crucial gauge of same-store sales jumped up by 7.7 percent, modestly off the pace of a 9.7 percent gain in the same period last year.

Average gross margin swelled by 630 basis points, to 48.5 percent from 42.2 percent the prior year. Gross margin dollars increased by 23.2 percent, to $171.6 million from $139.2 million a year ago. Strengthened margins, the retailer said, were the product of a reduced promotional merchandising strategy; the absence of clearance sales associated with last year's inventory reduction program; and lower store shrinkage expense.

Operating costs were pared by 100 basis points, or 1.0 percentage points, to 43.3 percent of sales from 44.3 percent the prior year.

In another big lift to the bottom line, the company paid down long-term debt, sharply reducing its interest expense. Interest costs were pared by 24.1 percent, to $6.6 million from $8.7 million a year ago, a cash savings of $2.1 million.

Alan Rosskamm, chairman and ceo, said the strong quarter "represents the first time in over 20 years that Jo-Ann Stores has generated a profit during its second quarter, historically our lowest sales volume quarter."

Jo-Ann gained, he said, "not only from the improvements we are making in our business, but also from the overall strength of our industry. The entire sewing and craft sector is performing extremely well, benefiting from a long-term trend toward home-based activities."

During the period, the company closed six units while relocating two others. For the balance of the years, the company plans to close another 20 to 25 smaller stores, mostly during the fourth quarter, as it continues to focus on its larger, more profitable, superstores.

Jo-Ann Stores Inc.

Qtr. 8/3 (x000) 2002 2001 % chg
( ): Denotes loss
a-Second-quarter results in 2001 include an income-tax benefit of $9.9 million. Six-month 2001 results include an income-tax benefit of $13.4 million and a $600,000 after-tax loss stemming from the early retirement of debt.
Sales $353,700 $330,200 7.1
Oper. income (EBIT) 9,900 8,700 24.1
Net income 2,000 (16,100)a
Per share (diluted) 0.10 (0.88)
Average gross margin 48.5% 42.2%
SG&A expenses 43.3% 44.3%
Six months 2002 2001 % chg
Sales 726,100 659,100 10.2
Oper. income (EBIT) 30,300 (19,400)
Net income 10,700 (22,500)a
Per share (diluted) 0.53 (1.23)
Average gross margin 48.5% 44.0%
SG&A expenses 41.9% 44.0%

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