EXHIBIT 99.2
EARNINGS RELEASE
FOR IMMEDIATE RELEASE
CONTACT: Brian Carney Investor Relations:
Executive Vice President, CFO Don Tomoff
Jo-Ann Stores, Inc. Vice President, Finance
330/656-2600 Jo-Ann Stores, Inc.
http://www.joann.com 330/463-6815
JO-ANN STORES ANNOUNCES FINANCIAL RESULTS FOR THE
FIRST QUARTER OF FISCAL 2004
- FIRST QUARTER EARNINGS OF $0.20 PER SHARE
- ADOPTS SFAS NO. 123 AND INITIATES THE EXPENSING OF STOCK OPTIONS
- COMPLETES DEBT REPURCHASES OF $46 MILLION
HUDSON, OH, May 19, 2003 -- Jo-Ann Stores, Inc. (NYSE: JAS.A and JAS.B) today
announced financial results for its fiscal 2004 first quarter. Net income for
the quarter totaled $4.1 million, or $0.20 per diluted share, compared with net
income of $8.7 million, or $0.43 per diluted share in fiscal 2003.
First quarter financial results include a non-cash pre-tax charge for stock
based compensation expense of $1.2 million as a result of the adoption of
Statement of Financial Accounting Standards ("SFAS") No. 123 and a $3.4 million
pre-tax charge related to the early redemption of $46 million in long-term debt,
as described further below. Excluding the stock based compensation expense and
the charge associated with the redemption of the notes, first quarter diluted
earnings per share were within the Company's prior guidance for the quarter.
Net sales for the first quarter increased 0.6% to $374.8 million from $372.4
million in the prior year. Same-store sales increased 2.6% compared to a 13.5%
same-store sales increase for the same period in the prior year.
Review of Operating Results
Operating profit for the first quarter was $11.6 million, compared with an
operating profit of $20.4 million for the prior year's first quarter. Operating
profit in the current quarter includes the $4.6 million in charges highlighted
above, as well as $1.2 million in incremental store pre-opening and closing
costs.
Gross margins for the quarter decreased as a percentage of sales to 48.2% from
48.5% in the first quarter of last year. Lower selling margins, due to more
promotional and clearance activity, were partially offset by improvements in
store shrink rates.
Selling, general and administrative expenses, excluding other expenses
separately identified in the statement of operations, totaled $153.1 million for
the quarter, or 40.8% of sales versus $150.3 million or 40.4% of sales last
year. Store payroll and distribution expenses, as a percentage of sales,
increased slightly in the current quarter versus the prior year, with normal
inflationary increases in these areas outpacing the overall sales growth rate.
Alan Rosskamm, Chairman of the Board and CEO commented, "We are pleased that we
achieved positive sales comparisons in the first quarter of this year versus our
strongest same-store sales quarter in the prior year. Despite a relatively
lackluster quarter for retailers, and our more aggressive promotional and
clearance activities, we were able to deliver operating results within our
earnings guidance range."
In the first quarter, the Company opened three superstores and one traditional
store, converted two large traditional stores to the new superstore format and
closed six traditional stores.
Debt Repurchases
During the first quarter the Company repurchased approximately $46 million of
its 10-3/8% senior subordinated notes ("Notes"), leaving $77.0 million of the
Notes outstanding. In connection with these repurchases, the Company recorded a
pre-tax charge of $3.4 million in the first quarter to recognize the premium
paid and to write-off the related deferred finance charges. These repurchases
will result in annual interest savings, based on current LIBOR rates, estimated
to be $3.7 million pre-tax. Interest savings in the second through fourth
quarters of fiscal year 2004 are estimated to be $2.7 million pre-tax.
SFAS No. 123 - Accounting for Stock-Based Compensation
Effective this quarter, the Company adopted the fair-value based method of
recording stock options under SFAS No. 123, "Accounting for Stock-Based
Compensation". The Company had historically applied APB Opinion No. 25,
"Accounting for Stock Issued to Employees," for its stock option plans. Under
APB Opinion No. 25, the Company did not recognize compensation expense for stock
option grants in its income statement, but provided pro forma disclosure in its
notes to financial statements. The Company adopted SFAS No. 123 under the
modified-prospective method allowed under the transition provisions provided for
in SFAS No. 148. The non-cash charge for expensing the cost of stock options was
$1.2 million in the first quarter. The Company expects the non-cash charge for
the balance of the fiscal year related to expensing of stock options to be
approximately $4.0 million.
Fiscal 2004 Outlook
The Company is updating its previously stated earnings guidance of $2.45-$2.50
per share due to the adoption of SFAS No. 123, the repurchase of the Notes, and
the reclassification proposal for dual class shares, which was announced
separately today. The Company now expects fiscal 2004 earnings per share to be
in the range of $2.00 to $2.10 due to the following adjustments:
- Estimated pre-tax interest savings of $2.7 million for the remainder
of the year from the debt repurchases completed in the first
quarter.
- Pre-tax charges of $3.4 million recorded in the first quarter to
recognize the premium paid for the Notes and the write-off related
to deferred finance charges.
- Non-cash pre-tax charges of $4.0 million for the remainder of the
fiscal year relating to stock based compensation expense. In the
first quarter, the Company recorded pre-tax expense of $1.2 million.
- Approximately $1.2 million in pre-tax costs related to the
reclassification proposal announced separately today.
- Approximately 8% additional diluted shares outstanding assuming the
reclassification proposal for dual class shares announced today is
approved by shareholders in August. The reclassification proposal
will increase diluted shares outstanding by an estimated 1.6 million
shares, to approximately 22.3 million diluted shares for fiscal year
2004.
For the second quarter, historically the Company's weakest quarter of the year,
the Company expects to lose between $0.15 to $0.20 per diluted share. The second
quarter performance is expected to be impacted by $1.4 million of stock based
compensation expense, approximately $1.2 million in costs related to the
reclassification proposal for dual class shares, and approximately $1.5 million
in incremental store pre-opening costs.
In the second quarter, the Company plans to open an additional eight stores, all
but one of which are superstores.
Mr. Rosskamm concluded, "While we have indicated in the past that we expected
fiscal 2004 to be a year of transition, the first half of the year is proving to
be more challenging than anticipated. While our outlook remains cautious for the
second quarter, we remain more optimistic regarding the second half of fiscal
2004. We believe our plans will allow us to improve overall margins as we
anniversary less challenging same-store sales and gross margin comparisons in
the second half of the year and leverage many of the initiatives we are now
putting in place."
Conference Call on the Web
Investors will have the opportunity to listen to the first quarter earnings
conference call at 4:30 p.m. ET today. The Company will also discuss the share
reclassification and corporate initiatives it is undertaking. The call can be
accessed via the Internet through Streetevents at http://www.streetevents.com
and on our Web site at http://www.joann.com (go to the top of our home page and
click on "About Jo-Ann Stores," click on "Our Company" click on "Investor
Relations," then click on the Conference Call icon). To listen to the live call,
please go to the Web site at least 10 minutes before the call begins to
register, download and install any necessary audio software. For those who
cannot listen to the live broadcast, a replay will be available shortly after
the call and will be archived until Monday, May 26th. The replay may be accessed
at http://www.joann.com and at http://www.streetevents.com or by phone at
800-642-1687, conference ID #9828057.
Jo-Ann Stores, Inc. (http://www.joann.com), the leading national fabric and
craft retailer with locations in 48 states, operates 840 traditional stores and
77 superstores.
This press release contains forward-looking statements that are subject to
certain risks and uncertainties. Our actual results, performance or achievements
may materially differ from those expressed or implied in the forward-looking
statements. Risks and uncertainties that could cause or contribute to such
material differences include, but are not limited to, general economic
conditions, changes in customer demand, changes in trends in the fabric and
craft industry, seasonality, the availability of merchandise, changes in the
competitive pricing for products, and the impact of our and our competitors
store openings and closings, fuel and energy costs, changes in tariff and
freight rates, consumer debt levels, other capital market and geo-political
conditions.. Other important factors that may cause actual results to differ
materially from those expressed in the forward-looking statements are discussed
in the Company's Securities and Exchange Commission filings.
(tables to follow)
JO-ANN STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THIRTEEN WEEKS ENDED
--------------------------
MAY 3, MAY 4,
2003 2002
---- ----
(Dollars in millions, except per share data)
Net sales $ 374.8 $ 372.4
Cost of sales 194.3 191.6
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Gross margin 180.5 180.8
Selling, general and administrative expenses 153.1 150.3
Store pre-opening and closing costs 2.1 0.9
Depreciation and amortization 9.1 9.2
Stock based compensation expense 1.2 --
Debt repurchase expenses 3.4 --
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Operating profit 11.6 20.4
Interest expense 5.0 6.4
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Income before income taxes 6.6 14.0
Income tax provision 2.5 5.3
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Net income $ 4.1 $ 8.7
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Net income per common share - basic $ 0.21 $ 0.46
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Net income per common share - diluted $ 0.20 $ 0.43
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Average shares and equivalents outstanding (millions)
Basic 19.7 18.7
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Diluted 20.1 20.0
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TOHER INFORMATION
Number of stores open at period end:
Traditional stores 840 881
Superstores 77 70
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917 951
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Square footage at period end (000's):
Traditional stores 12,105 12,523
Superstores 3,321 3,181
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15,426 15,704
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Average square footage per store:
Traditional stores 14,400 14,200
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Superstores 43,100 45,400
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- more -
JO-ANN STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
-------------------
MAY 3, MAY 4, FEBRUARY 1,
2003 2002 2003
---- ---- ----
(Dollars in millions)
ASSETS
Current assets:
Cash and temporary cash investments $ 26.0 $ 19.8 $ 63.2
Inventories 369.1 400.1 363.1
Other current assets 45.1 47.9 45.4
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Total current assets 440.2 467.8 471.7
Property, equipment and leasehold improvements, net 183.5 203.9 190.3
Goodwill, net 26.5 26.5 26.5
Other assets 15.1 18.2 16.0
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Total assets $ 665.3 $ 716.4 $ 704.5
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 136.0 $ 142.4 $ 129.9
Other current liabilities 59.9 75.4 75.9
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Total current liabilities 195.9 217.8 205.8
Long-term debt 124.9 223.5 162.9
Other liabilities 46.8 32.0 46.4
Shareholders' equity 297.7 243.1 289.4
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Total liabilities and shareholders' equity $ 665.3 $ 716.4 $ 704.5
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