Jo-Ann Beats on Higher Bottom Line

Hudson, Ohio-based Jo-Ann Stores Inc.’s (JAS) reported fourth quarter fiscal 2011 adjusted earnings of $1.60, which outpaced the Zacks Consensus Estimate of $1.54. Including one-time expenses related to the pending merger, Jo-Ann recorded a quarterly net income of $40.4 million or $1.53 per share, well above $37.1 million or $1.36 per share recorded in the year-earlier quarter. The better-than-expected results were driven by growth in the top line and improvement in the gross margin.

The company’s full-year income was $93.1 million or $3.46 per share compared with $66.6 million or $2.51 per share in fiscal 2009. Excluding the one-time expense of 7 cents, the earnings in 2010 were $3.53 per share.

Total revenue of the fabric and craft retailer climbed 3.6% year over year to $624.1 million in the reported quarter attributable to a 2.0% rise in the same-store sales. In 2010, revenues were $2.1 billion, representing year-over-year growth of 4.4% driven by higher same-store sales (up 3.5%).

During the quarter, all the segments reported year-over-year revenue growth. Large-format store revenues spiked 1.8% to $330.6 million, Small-format store revenues jumped 4.6% to $277.6 million and Internet sales through Joann.com rose 29.3% to $15.9 million.  Same-store sales inched up 0.7% at Large-format stores and 3.8% at Small-format stores.

The gross margin for the quarter expanded 50 basis points (bps) to 48.1%, driven by efficient inventory management and global sourcing efforts.

Selling, general and administrative expenses as a percentage of revenue spiked 60 bps to 35.1%. Operating income increased to $64.3 million from $61.1 million in the year-ago quarter.

Stores Update

 
During the quarter, Jo-Ann opened one Large-format store. It also opened five Small-format stores but closed eleven of the same. The company also remodeled three stores.

In fiscal 2012, Jo-Ann expects to open 55 to 60 new stores and plans to remodel 60 stores.

Financial Position

Jo-Ann ended the year with cash and cash equivalents of $214.8 million, shareholders’ equity of $614.3 million and no debt in its balance sheet. In 2010, the company repurchased 1.7 million shares at an average price of $42.95.

Our Take

The company reported better-than-expected results despite inclement weather conditions and cost inflation. Hence, we expect an upward movement in estimates over the coming days.

Jo-Ann also announced recently that it will be purchased by an affiliate of the private equity firm, Leonard Green & Partners LP for $61 per share or $1.6 billion in cash. However, the completion of the deal is subject to shareholders’ approval, which is due on March 18. If approved, the transaction is expected to close during the first half of 2011. We believe the association with Leonard Green & Partners LP will definitely set the stage for another milestone for Jo-Ann Stores.

One of Jo-Ann’s primary competitors, First Cash Financial Services Inc. (FCFS - Snapshot Report), reported fourth quarter 2010 adjusted earnings of 59 cents per share, which surpassed the Zacks Consensus Estimate of 54 cents and surged 42% from the year-ago quarter

Read the full analyst report on JAS

Read the full analyst report on FCFS