Jo-Ann sees turnaround in fourth quarter

HUDSON, OH — Building sales, reducing debt and hacking away at interest expense, specialty fabric and crafts retailer Jo-Ann Stores cemented a hard-won turnaround, pushing fourth-quarter profits up by more than a third, to $25.3 million from $18.9 million last year.

Sales at the nation's largest fabric retailer rose by 5.5 percent, to $525.8 million from $498.2 million, despite the closing during the year of more than 40 stores. Same-store sales climbed even faster, rising by 6.9 percent.

Fueling the bottom-line growth, in addition to stronger sales and lower expense, Jo-Ann put behind it litigation and restructuring charges that penalized year-before profits by $6.5 million on a pre-tax basis during the 2001 fourth quarter and by $26.2 million for all of last year.

In a big lift to the bottom line, Jo-Ann pared its debt load and slashed its interest expense by 28.0 percent during the closing quarter, to $5.9 million from $8.2 million last year, generating a cash savings of $2.3 million.

But an aggressively promotional holiday season weakened margins and put a squeeze on profits, the retailer said. During the all-important Christmas quarter, Jo-Ann said it "aggressively promoted Christmas seasonal product in response to a relatively weak consumer-spending environment. Despite success at driving strong same-store net sales results, the consequent reduction in gross margins adversely impacted operating margins for the fourth quarter." Under the markdown pressure, average gross margin thinned by 90 basis points, to 43.3 percent of sales from 44.2 percent the preceding year.

Looking ahead, Jo-Ann said it's forecasting lower same-store sales growth during the first half of the year; but it predicted growth of 2 percent to 4 percent for all of 2003 as business picks up during the second half. About 20 new stores will be opened during the year, and about 20 others closed.