CLN Reports Large Craft Retailer Profits Rise

CHA Member, Mike Hartnett, Editor of Creative Leisure News issued the following newsbrief regarding the performance of some of the craft industry’s largest retailers.  See below for complete story.  Thanks for the news Mike…
Creative Leisure News – Newsbrief
December 2, 2009


Here is some late-breaking news:


Highlights of the earnings report for third quarter ended Oct. 31:

Net income rose to $15 million, compared to a $20 million loss a year ago. For the first nine months of the fiscal year, there is a net income of $21 million versus a $70 million net loss a year ago.

CEO John Menzer cited a strong Halloween season and categories that had been reset – bakeware, bead and jewelry making, and impulse – being top performers.

Net sales for the quarter, up 2.5% to $929 million; same-store sales, up 1.3%, due to a 4.7% increase in transactions, a 3.5% decrease in average ticket, and a positive 0.1% impact from deferred custom framing revenue. Canadian currency translation positively affected same-store sales for the second quarter by approximately 20 basis points.

Gross margin, up 180 basis points to 37.3% … Selling, general, and administrative expense, up $12 million to $259 million. … Operating income, up $16 million to $84 million (9.0% of sales) from 7.5% a year ago.

Interest expense, down $15 million, due to a lower average interest rate and lower average debt levels. … Adjusted EBITDA (cash flow), up 5.4% to $118 million … Debt levels, down $272 million to $3.911 billion. … Average inventory per Michaels store, inclusive of distribution centers, down 5.0% to $971,000.

The complete earnings report is available at To listen to a recording of the conference call Michael execs held after the report was released, visit the website or call 800-642-1687, PIN #79813922.


For the third quarter ended Oct. 31, net income was $24.1 million ($0.90/diluted share), versus $10.2 million ($0.40) a year ago, which included $1.3 million after-tax gain ($0.05), related to the purchase of a portion of the company’s senior subordinated notes.

As CLN reported, net sales for the quarter rose 6.0% to $509.1 million and same-store sales rose 4.3%. Large-format store’s sales rose 8.7% to $272.0 million and same-store sales increased 2.3%. Small-format store’s sales increased 3.0% to $228.5 million and same-store sales rose 6.7%. Sales at increased 6.2% to $8.6 million. (To read more of Jo-Ann’s sales, see the current issue of CLN at

Chair/President/CEO Darrell Webb stated, “We achieved strong sales, margin, and earnings improvement in the third quarter, with our financial results exceeding original expectations. Positive customer response to our core sewing and craft merchandise continues to drive sales growth, while our sourcing, inventory management, and expense control initiatives allowed us to achieve gross margin expansion and expense leverage.

“As a result of our solid financial position and the favorable commercial real estate leasing environment,” Webb added, “we plan to increase our new store development and remodeling activity next fiscal year.”

For the quarter, gross margins increased approximately 200 basis points to 51.0% due to reduced product costs from global sourcing initiatives, lower clearance levels, and reduced freight costs. Selling, general, and administrative expenses increased 1.3% to $202.0 million; as a percentage of net sales it improved approximately 190 basis points to 39.7%. Operating profit for the quarter was $41.5 million, versus $17.3 million a year ago.

The cash balance for the quarter improved by $72.9 million to $97.7 million compared to a year ago. Long-term debt was $47.5 million, down $65.2 million. This $138 million improvement in cash, net of debt, was primarily the result of cash generated from operations and improvements in working capital.

During the quarter the company opened three large-format stores and one small-format store and closed one large-format store and three small-format stores. For fiscal 2010, the company expects to open approximately 20 new stores and close approximately 30 stores. For fiscal 2011, the company expects to open approximately 30 new stores and close approximately 30 stores. The current store count is 228 large-format stores and 531 small-format stores.

The company remodeled 13 stores of which four were transitioned from a small-format to a large-format layout. During the first nine months of the year, the company remodeled 26 stores, of which five were transitioned from a small-format to a large-format layout. The company expects to remodel approximately 30 stores during the year, of which six are expected to transition from a small-format to a large-format layout. For fiscal 2011, the company expects to remodel at least 40 stores during the year.

For the year, the company expects a same-store sales increase of 2.3% – 2.7%; the gross margin rate to improve even more than it has in the first nine months of the year; selling, general, and administrative expenses, as a percentage of net sales, to improve, but less than the it was for the first nine months; and capital expenditures, net of landlord allowances, to be approximately $30 million. As previously announced, the company expects earnings/diluted share to be $1.95 – $2.05 (excluding any gains on debt purchases).

The complete report is available at and a replay of the exec’s conference call with analysts is available by calling 800-642-1687, ID #40533836.


Net sales for the quarter were $72.7 million, up from $70.6 million a year ago, and same-store sales increased 4.0%. Operating income increased $3.6 million as a result of a $4.5 million profit  compared to a $0.9 million profit in the previous year’s third quarter.

Net income was $3.0 million ($0.16/share), compared to a net loss of $0.3 million ($0.02) a year ago. EBITDA for the quarter was $6.1 million, an increase of $3.5 million. Inventories have been reduced by $10.0 million compared to the same period last year.

At quarter’s end, Hancock had outstanding borrowings under its revolver loan of $25 million and outstanding letters of credit of $6 million.

Year-to-date, net sales were $196.4 million, compared with $198.2 million a year ago, and same-store sales increased 0.9%. Operating income increased by $8 million. Net loss was $0.1 million ($0.01), compared to a net loss of $16.5 million ($0.87). EBITDA was $9.2 million, an increase of $7.8 million over the same period last fiscal year.

President/CEO Jane Aggers said “We are beginning to experience meaningful top line improvement in combination with significant operating cost reductions. Our strong quarter and year-to-date results are a testament to the hard work of all of our associates and management team. We are cautiously optimistic that we can continue to execute our business plan throughout the remainder of the year and into 2010.”

Gross margin for the quarter was 46.5%, up 350 basis points, due to a 220-basis-point reduction in merchandise cost, a 50-basis-point reduction in freight costs, and an 80-basis point reduction in sourcing and warehousing. Year-to-date, gross margin improved by 210 basis points to 45.8%.

Selling, general, and administrative expenses for the quarter decreased to $28.2 million (38.8% of sales) from $28.3 million (40.1% of sales) in the prior year. Year-to-date, selling, general, and administrative expenses have been reduced by $4.6 million to $82.3 million (41.9% of sales) from $86.9 million (43.9% of sales). Third quarter reductions were driven by increased labor efficiency, reductions in current quarter ad expenses offset by certain incremental retail operating costs.

During the fiscal year, the company opened 3 stores, closed 1, remodeled 5, and ended the quarter with 265 stores.

Hancock will a conference call tomorrow, Thurs,.10:00 CST. To participate, call 800-599-9816 and give the operator #81066171. A replay will be available: call 888-286-8010 use Pin #80450652. The replay will be available approximately 1:00 p.m. CST on Thurs.,  and will remain available through Thurs. Dec. 17.


How universal is it? This Sunday the season finale of the E! Network’s Girls Next Door will be about scrapbooking, highlighting the hobby, the supplies, the joys of scrapping with friends, and the pleasure of having and giving the final product. Where is it filmed? The Playboy Manor in California. Turns out Hugh Hefner and his, uh, girlfriends are hardcore scrapbookers. Check your local listings.

Products used in the segment, according to a friend who saw an advance screening, were from K&Co., WeRMemory Keepers, Bazzil, Zig Memory System, Stickles, Adhesive 3L, and Fiskars.

Best wishes,



 Mike Hartnett
Creative Leisure News

Creative Leisure News, a twice-monthly report with the latest news and analysis that affects your business.  You can susbscribe to the report at .


Do you think we’ve turned a corner? How is your retail store performing?  Let us know.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s