Copies of CLN Newsbriefs that were emailed to subscribers between regular issues of CLN.

December 3, 2008

JO-ANN'S PROFITS RISE

Net income for the third quarter ended Nov. 1 was $10.2 million ($0.40/diluted share), up 27.5% versus a year ago. The current quarter net income includes a $1.3 million after-tax gain ($0.05) related to the repurchase of a portion of the company�s senior subordinated notes. Excluding this gain, net income was $8.9 million ($0.35).

The company has lowered its full-year guidance from $0.95-$1.05/share to $0.75-$0.85 due to flat same-store sales compared to the previously announced gain of 2.0%-3.5%. However, the gross margin rate and selling, general, and administrative expense as a percentage of net sales are expected to improve.

Net sales for the quarter were $480.1 million, essentially equal to the $480.2 million sales a year ago. Same-store sales decreased 1.5%. Large-format store net sales decreased 2.1% to $247.2 million, and same-store sales decreased 3.8%. Small-format store net sales decreased 1.2% to $224.8 million and same-store sales rose 1.2%.

Net sales for the first three quarters were $1.33 billion versus $1.29 billion a year ago, and same-store sales increased 1.9%. Large-format store sales increased 1.7% to $687.5 million, and same-store sales increased 0.3%. Small-format store net sales rose slightly to $618.3 million, and same-store sales increased 3.7%.

Chair/President/CEO Darrell Webb said, "Strong execution in the areas of our business that we can control enabled Jo-Ann Stores to deliver earnings growth in the third quarter despite the challenging economic environment. Our balance sheet continued to strengthen as we generated improvements in both debt and inventory positions. Prudent inventory management also helped us achieve gross margin expansion in the quarter. Our core sewing and craft businesses remained stable, as our sales decline was primarily due to weakness in seasonal merchandise and higher ticket categories." Mr. Webb concluded, "We remain committed to our long-term strategic plan and will continue to proactively manage our business to optimize results through the current economic conditions."

Gross margins for the quarter increased approximately 1 percentage point to 49.0%, due to reduced sales of clearance merchandise and lower costs from global sourcing initiatives, particularly on fabrics.

Selling, general and administrative expenses for the quarter increased to $199.5 million from $199.1 million � up slightly at 41.6% of net sales compared with 41.5% due to de-leveraging of net sales and training costs related to the new point-of-sale system, offset to a large extent by initiatives to manage operating costs.

Operating profit for the quarter was $17.3 million, up from $16.7 million a year ago. During the third quarter the company repurchased $20.4 million of its senior subordinated notes at a discount of approximately 12% to par value, and recorded a $2.1 million pre-tax gain including the write-off of deferred finance charges.

During the third quarter of fiscal 2009, the company opened six new large-format stores and six small-format stores and closed 12 small-format stores. Year-to-date, the company has opened nine large-format stores and six small-format stores and closed two large-format stores and 19 small-format stores. For the entire fiscal year the company expects to open 21 new stores, close approximately 30 stores, and remodel 129 stores. (28 have already been remodeled.) The current store count is 208 large-format stores and 560 small-format stores.

The official press release will be available at www.joann.com and a replay of today's conference call will be available at www.joann.com and at http://www.streetevents.com or by phone at 800-642-1687, conference ID # 69142549.

December 2, 2008

MICHAELS: SALES, EARNINGS, EBITDA DOWN

Michaels reported a net loss for the third quarter ended Nov. 1 of $20 million, compared to an $18 million loss a year ago. However, the net loss for the first three quarters is $70 million, compared to $85 million a year ago.

Net sales declined 3.0% to $906 million, and same-store sales fell 6.5%, due to a 2.8% decrease in average ticket, a 3.9% decline in transactions, and a 0.2% increase in custom frame deliveries.

Fiscal year to date, sales are down 0.5% to $2.549 billion, and same-store sales are down 4.1%, due to a 1.2% drop in average ticket and a 2.9% drop in transactions.

CEO Brian Cornell said, "We continue to face difficult economic conditions, and the results for the quarter reflect the softness in spending on higher ticket items, particularly within the seasonal and home decor categories. However, we were encouraged by the relative strength of our core arts and crafts business which declined only slightly for the quarter While our long-term strategic initiatives remain a priority, in order to manage through near-term challenges, our immediate focus is on delivering a value message through our merchandising and marketing efforts, controlling expenses, and preserving liquidity."

(Note: The softness in seasonal and home dec sales is similar to what Bob Ferguson reported in his article, "Why Industry Sales Are Down" in the current issue of Business-Wise. Visit www.clnonline.com and click on Business-Wise in the left-hand column.)

The gross margin rate for the quarter declined to 35.5% from 36.7% primarily due to "a deleveraging in occupancy costs partly offset by a 10 basis point increase in merchandise margin. Year to date, the decline was driven by "a deleveraging in occupancy costs and a 40basis point reduction in merchandise margin."

Other highlights of the quarter: Selling, general, and administrative expense fell 5.4%, or $14 million, due to a reversal of year-to-date bonus accruals. ... Operating income increased approximately $1 million to $68 million (7.5% of sales) from $67 million (7.2% of sales). The increase was due primarily to lower selling, general and administrative expense and transaction expenses, partly offset by the reduction in gross profit. ... Interest expense was lower by $18 million ($54 million less for the first nine months) due to a lower average interest rate on the company's floating rate debt and lower average debt levels.

Adjusted EBITDA for the third quarter was down to $112 million (12.4% of sales), versus $118 million (12.6% of sales) a year ago. Year-to-date, it's down to $282 million (11.1% of sales) from $321 million (12.5% of sales).

(Note: For more on EBITDA, return to www.clnonline.com and click on Kate's Collage in the left-hand column to read "So, What IS EBITDA?")

Third quarter debt levels totaled $4.183 billion, largely flat compared to last year's $4.181 billion. During the quarter, the company made a $5.9 million amortization payment on its Senior Secured Term Loan. At the end of the third quarter, Michaels had $92 million in cash and $510+ million of availability under its revolving credit facility, compared to $57 million in cash and $509 million of availability a year ago. As of Dec. 1, availability under the credit facility increased to approximately $630 million.

Year to date, capital spending is down to $66 million versus $86 million a year ago. "In light of the current economic environment, the Company will be evaluating its capital expenditure plan for 2009 and currently expects its real estate activity to be significantly reduced by scaling back the new store opening program and focusing on the best opportunities available in the marketplace."

Year to date, the company opened 50 new Michaels stores, relocated nine stores, and remodeled 11 stores. It also relocated one and closed three Aaron Brothers stores.

The complete earnings release is available on the Michael's website, www.michaels.com

November 20, 2008

MICHAELS SALES DROP

Michaels reported total sales for the third quarter were $906 million, down 3.0%, and same-store sales declined 6.5%. Same-store sales were lower because of a 2.8% decrease in average ticket, a 3.9% decrease in transactions, and a 0.2% increase in custom frame deliveries.

For the first three quarters, sales have decreased 0.5% to $2.549 billion, and same-store sales are down 4.1%. � thanks to a 1.2% decrease in average ticket and a 2.9% decrease in transactions. Canadian currency translation reduced the average ticket for the third quarter by approximately 0.7% and added approximately 0.3% for the first nine months of fiscal 2008.

The company also announced that its cash position at the end of the third quarter was approximately $92 million. In addition to its cash balance, the company has an asset-based revolving credit facility, which provides senior secured liquidity of up to $1.0 billion subject to a borrowing base as described in the company's annual 10K report. As of the end of the third quarter, the company had borrowings outstanding under this credit facility of $407 million and had additional $510 million of availability.

In the current issue, CLN reported A.C. Moore's third quarter sales declined 4.9% to $116.7 million, and same-store sales decreased 9.4%. Jo-Ann reported third quarter sales were flat at $480.1 million, and same-store sales decreased 1.5%;

Michaels will release its third quarter results on Tues., Dec. 2.

July 21, 2008

THE CHA SUMMER SHOW

The show was smaller in terms of exhibitors, booths, and buyers, but larger than CLN expected, given the state of the economy and reports of substantial declines at the Atlanta and Dallas gift shows. This morning there was a report that even convention attendance in Las Vegas is down 10%. CLN should have specific show numbers in the next issue.

Despite the smaller size, a member of Sierra Pacific Crafts, the industry's most successful group of independent retailers, told CLN that SPC members who attended all reported finding exciting new products for their stores. Buyers were was cautious, but definitely placed orders.

Scrapbooking is down, but leveling. One key scrapbook vendor told CLN, "Attendance was down, but the market is where it should be. We no longer have retailers rushing in, placing a big order, then going out of business in six months."

There were three major topics of conversation.

1. Inflation. Some vendors seemed almost in a state of shock as they told CLN how the cost of their raw materials has skyrocketed. Double-digit increases two and three times this year were not uncommon� and warnings that more increases were on the way.

"If there is any good news in all this," a major vendor told CLN, "it's that the retailers finally realize we have to pass along some of these increases. For a long time they wouldn't accept any increase; now they finally are beginning to understand."

Part of the chains' more-understanding attitude is that they are feeling it first hand. As they attempt more direct importing, they are seeing price increases as inflation increases in China. The products cost more, as does the shipping.

2. Recession. Every retailer CLN talked to said sales were down. In some cases traffic was up, but the average sale was lower. One craft retailer told CLN, "I sell Yankee candles. One of the more expensive candles is a half-tank of gas. Customers are thinking like that these days."

3. Orlando. The '09 Summer Show is moving to Orlando, on a Tues., Wed., Thursday in late July, followed by a two-day consumer show. (As CLN understands it, trade exhibitors will not be required to exhibit at the consumer show.) The majority of attendees CLN talked to opposed the move, but that might be because they could drive to Chicago. The next issue of CLN will include an opportunity for you to vote on the move.

Many of the specific issues of the consumer show � who can exhibit, who can sell, how will the show be promoted, etc., have not been completed, but that didn't stop the rumors from spreading like wildfire. (Advice: Withhold judgment about the consumer show until all of the details have been determined.)

May 28, 2008

CRUNCH TIME FOR THE ORPHAN WORKS BILLS

Next week (June 4-5) a group of concerned citizens opposed to the Orphan Works bills in Congress will lobby members of the Senate and House of Representatives. The organizations officially opposed to the legislation are the Craft & Hobby Assn., The National NeedleArts Assn., the Society of Decorative Painters, and a wide range of groups representing artists, designers, photographers, illustrators, and cartoonists.

CLN has learned from David Brog, former Chief of Staff for Senator Arlen Specter (R, PA), that to get the attention of a member of Congress, the magic number of communications (phone calls, letters, emails, postcards, etc.) is 1,000.

It would be particularly helpful if there were 1,000 or more communications received by the time the lobbying group meets with Senators.

All of the members of the House and Senate have an easy, quick way to email them through their websites. Fax and phone numbers will be on the site, too. (If you call, make sure the staffer writes down your name/address.)

To send a postcard to your Senator, all you need write is "Please vote NO on S-2913," and your name and address. However, do NOT send it to his/her office in Washington, DC, where it takes as long as two weeks (because of scanning and screening) before it's delivered to the Senator's office. Instead, go to www.senate.gov and click on "Find Your Senator" in the upper right-hand corner. That will lead you to your Senators' websites. There look for the address of a district office (one in your home state) and mail the postcard there.

The procedure is similar for contacting members of the House. Go to www.house.gov to be directed to your House member's website. The House version of the bill is H.R. 5889. Again, send it to a local office, not Washington, DC.

The two Senators who introduced the Senate version are Orrin Hatch (R, UT, http://hatch.senate.gov/public) and Patrick Leahy (D, VT, http://leahy.senate.gov).

Want to join the lobbying effort in Washington in person? (Appointments have been made with various Senators.) For info about the trip and how you can participate, call Joanne Fink or Marisa Shapiro at 407-330-4465 or email graphics@lakeside-design.com.

To learn more about the harm the Orphan Works bills would cause: 1. Go to CLN's site, www.clnonline.com, and read "More on the Orphan Works Bills" in the current issue. 2. Click on Designing Perspectives in the left-hand column. 3. Click on Newsbriefs, also in the left-hand column, and read the May 8 issue.

May 8, 2008

ORPHAN WORKS BILLS TO PASS?

The Orphan Works bills are moving through Congress. These bills (H.R. 5889 in the House of Representative and S. 2913 in the Senate) could do serious harm to the industry, making it impossible for designers and manufacturers to protect their designs. The House version passed unanimously in a subcommittee and the Senate version is being considered now by a subcommittee.

To read an explanation of the harm these bills could do to the industry, visit www.clnonline.com and click on Designing Perspectives in the left-hand column.

To read the current status of the bills, visit http://capwiz.com/illustratorspartnership/home. The site also makes it remarkably easy (less than five minutes) to email your House and Senate representatives.

Brenda Pinnick of Brenda Pinnick Designs and a member of the CHA Designer Council and on the Professional Advisory Committee for the Art Institute of Atlanta, summed up the problem:

"In my wildest imagination, I cannot imagine how a designer/artist will be able to continue offering art and design for this industry. People who have spent all their lives and devoted their professional expertise to this industry will be left without protection and a livelihood. EVERYTHING will become "clip art" and it will put the art into the hands of people who can and will, claim it as their own."

JO-ANN: STRONG FIRST-QUARTER SALES

Jo-Ann reported net sales for the first quarter ended May 3, increased 5.2% to $446.1 million from $424.2 million in the prior year. Same-store sales increased 4.5%. The company will report earnings for its first quarter on May 28.

APRIL SALES: BETTER THAN EXPECTED, SORT OF

According to Thomson Financial, 19 retailers beat same-store sales estimates, while nine missed.

Thomson Reuters said more than two-third of the 33 reporting retailers exceeded estimates, while one-third missed, MarketWatch reported. However, "More retailers discount more heavily than in the past," warned Sherif Mityas, a partner at consultant A.T. Kearney. "What they are picking up in sales they are giving back in margins. This is not a fundamental shift that we've hit bottom and now all is rosy."

The annual problem with evaluating March and April same-store sales is the ever-shifting date of Easter. Plus, because of a quirk in the calendar, this April had one extra shopping day compared to a year ago. Combining March/April sales and comparing them with 2007 figures, the overall growth was only 1.5% percent, in line with the average sales growth since the beginning of the industry's fiscal year, the Associated Press reported.

According to PR Newswire, Jo-Ann's same store sales rose 4.5%.

April same-store sales figures from a sampling of retailers: Sam's Club, +6.6% ...Costco, +5% ... Family Dollar, +4.3% ... Kohl's, +3.5% ... Wal-Mart, +3.2% ... Target, +3.1% ... J.C. Penney, -1.7% ... Nieman Marcus, -1.9% ... Nordstrom, -3.8% (Reminder: Michaels, Hobby Lobby, and A.C. Moore do not report monthly sales figures.)

A number of retailers reported disappointing sales of jewelry. (Perhaps this could be a prime time for consumers to save money by making their own?)

March 19, 2008

MICHAELS' FOURTH QUARTER EARNINGS

Total sales for the quarter declined 4.4% to $1.301 billion from the fiscal 2006 fourth quarter, which was a 14-week quarter. The extra week a year ago accounted for $59 million. Same-store sales decreased 3.4%.

The gross margin rate is down to 40.0% versus 41.8% a year ago, due primarily to "lower sell-through of seasonal products and a de-leveraging of occupancy costs due to negative comparable-store sales performance," the company said. Selling, general, and administrative expenses (SG&A) as a percentage of sales were flat. Operating income increased to 15.4% of sales from 3.1% a year ago, primarily due to the absence of $218 million in merger-related, transaction, and related party expenses in the prior year, partly offset by a $22 million goodwill impairment charge related to the company's Aaron Brothers division.

Net income increased $120 million, from a net loss of $67 million to a net income of $53 million, primarily due to the absence of merger-related expenses. Adjusted EBITDA for the quarter was $266 million or 20.4% of sales.

CEO Brian Cornell said, "Sales performance in the fourth quarter was below the company's expectations as customer traffic was softer than planned and Christmas and holiday categories underperformed. While discretionary spending was down significantly on higher ticket, seasonal items, we experienced solid performance in many of our core business lines."

"In the face of a challenging fourth quarter sales environment," Cornell added, "we continued to operate prudently. Through aggressive efforts across the company, we were able to control costs, reduce our average store inventory levels, and strengthen our financial position, with a reduction in our debt level of approximately $100 million since last year and nearly $400 million since our peak post-closing level.

"Most importantly," Cornell concluded, "we continued to make significant progress on our key strategic initiatives, particularly the global sourcing and consumer insights programs. As a result, we are confident in our approach to drive long-term profitable growth as we capitalize on significant margin enhancement opportunities and begin to transition into a more consumer focused organization."

MICHAELS' FISCAL YEAR EARNINGS

Sales for the year rose 0.5% to $3.862 billion, but same-store sales decreased 0.7%. The gross margin rate decreased from 38.5% in fiscal 2006 to 38.3% in fiscal 2007, primarily due to the "de-leveraging of occupancy expense, which increased by 50 basis points as a percentage of sales," the company reported..

SG&A expenses as a percent of sales increased 50 basis points to 27.1%, primarily due to consulting fees and higher advertising expense. Operating income as a percent of sales increased from 5.4% to 9.2%, due to the absence of significant merger-related expenses.

Net income decreased $73 million from $41 million to a net loss of $32 million. Adjusted EBITDA was $587 million or 15.2% of sales, compared to $620 million or 16.1% a year ago.

The cash balance at the end of the year was $29 million, down $1 million from the previous year. Average inventory/Michaels store at the end of the fourth quarter, inclusive of distribution centers, was down 4.5% to $830,000, primarily due "to appropriate management of inventory in light of the challenging sales environment," the company said..

For the year, net cash provided by operating activities was up $111 million to $268 million. Capital spending was down $43 million to $100 million.

The debt level at year's end is down $96 million to $3.863 billion, and $392 million lower than the peak post-closing borrowing level of $4.255 billion on Nov. 9, 2006.

During the year the company opened 45 new Michaels stores, relocated 11, and closed three; it opened two and closed two Aaron Brothers stores; and closed its 11 Recollections and three Star Decorators' Wholesale stores. The current store count is 972 Michaels stores and 164 Aaron Brothers stores.

For this year same-store sales are expected to be flat and net cash from operations and Adjusted EBITDA are expected to be consistent with fiscal 2007 levels.

MICHAELS' CFO RESIGNS

Michaels also reported President/CFO Jeffrey Boyer will resign effective April 4. The company will conduct an internal and external search for a CFO; in the interim, Michaels named Sr. VP-Finance and Treasurer Lisa Klinger to be Acting CFO and VP Finance and Corporate Controller Richard Jablonski to be principle accounting officer.

February 17, 2008

CHA WINTER SHOW REPORT

If a trade show is produced and marketed effectively, then the show becomes an accurate reflection of the state of the industry. The Anaheim extravaganza was just such an event.

The show was smaller than last year. Some returning exhibitors took fewer booths and scrapbooking is not generating as many new vendors as it did a few years ago. Attendance was down, too. While final figures are not yet available, the number of buyers was down about 15%, due to the economy and a smaller number of scrapbook retailers. There was a large group of international buyers � not surprising given the weak U.S. dollar.

Mood. Better than expected: a) The national recession that's apparently looming on the horizon does not frighten our industry's independents; b) Many independents seemed to have a better holiday season than national chains such as Wal-Mart, Macy's, etc.; c) They were relatively pleased with January sales, too.

Scrapbooking. The aisles weren't as crowded, but a number of exhibitors said attendees placed larger orders than usual. ... At a CHA task force luncheon for scrapbook retailers, the consensus was that the category's top, crucial priority must be attracting new scrappers. ... Most attendees agreed scrapbooking seemed to be slipping. ... The Two Peas message boards are filled with positive, enthusiastic reports and photos from the show, while the Scrapsmack blog is filled with its typical negative, snide comments about the people and the products.

Crafts. Very little order writing, as usual. Many vendors to the chains are worried by the chains' increasing attempts to go direct to the Orient, particularly Michaels and A.C. Moore. To maintain relationships with the chains, U.S. vendors and importers will have to add value to their product lines. ... The extensive Crafty Chica line from Duncan was the most unique new line CLN saw at the show � the first attempt by a large vendor to address the growing Hispanic population. ... There seemed to be an increase in beads, wearable art, and basic products.

Miscellaneous. The industry is going green. There were enough new eco-friendly products to provide a year's worth of material for Creative Home Arts magazine's new column, "Make It Green." ... Those looking for "the next big thing" didn't find it. ... There was lots of talk about the Summer Show.

Summary. As is true at every show, most vendors who introduced appealing new products had a good show; those who didn't, didn't.

February 7, 2008

JANUARY RETAIL SALES: UH OH

National retailers generally reported disappointing sales last month, perhaps symbolized by Wal-Mart, which reported a 0.5% gain in same-store sales. Analysts surveyed by Thomson Financial had expected a 2.0% increase, the Associated Press reported. Same-store sales in U.S. Wal-Marts rose only 0.2% and the company predicted same-store sales in February would be flat to +2.%. Target's same-store sales declined 1.1%.

Industry retailers such as Michaels, Jo-Ann, and A.C. Moore do not report monthly sales figures.

Retailers blamed the economy, citing cases of consumers using gift cards to purchase necessities, the AP concluded. Wal-Mart said staples such as groceries remained strong, but home furnishing sales were weak. One of the few retailers to exceed analysts' expectations was Costco, which reported a 7.0% gain in same-store sales.

"Clearly, this is a reflection of a very difficult environment for the consumer," Ken Perkins, president of the research company RetailMetrics, told the AP. "It looks like consumer spending is stalling."

For the next several months traffic at the nation�s major retail container ports will see weak growth or a decline compared with last year due to the nation�s economic slowdown, according to the monthly Port Tracker report released by the National Retail Federation and Global Insight.

JO ANN REPORTS 4TH QUARTER, FISCAL YEAR SALES

Net sales for the fourth quarter ended Feb. 2 decreased 2.5% to $585.9 million but the previous year included a 53rd week, which added $28.8 million to last year's net sales results. On a comparable 13-week basis, fourth quarter same-store sales increased 3.3% versus a same-store sales decrease of 6.0% last year.

Net sales for fiscal year increased 1.5% to $1.879 billion. On a comparable 52-week basis, same-store sales increased 3.5% versus a same-store sales decrease of 5.9% last year. Jo-Ann will report its fourth quarter and full-year results Mar. 12.

December, 2007

HOME SEWING ASSOCIATION SHUTS DOWN

Creative Leisure News received the following press release from HSA:

We regret to advise you that after 80+ years of service to the sewing industry, the Home Sewing Association will officially close its doors at the end of the year.

As your elected representatives, we have endeavored to keep the Association operating to fulfill its mission to "Get People Sewing!" Recent marketing programs � including Sew Trendy, Trained Sewing Educator and the Girl Scout kit promotion have shown great promise. In addition, members and sewers alike have benefited from our informative newsletters and website, together with our range of industry and consumer services.

However, we have not been able to absorb the costs � and potential liabilities � of a wrongful termination lawsuit which was filed against the Home Sewing Association in 1996. The lawsuit was tried before a jury in the state of New York in October 2006 and an unfavorable verdict was rendered against HSA.

The Board has engaged in a year-long assessment of the options available to deal with this unfavorable judgment and the additional cost of an award for plaintiff�s attorney�s fees in the case. It is our determination that the Association can no longer provide a viable level of industry service given this enormous financial burden.

Therefore, the Board of Directors of the Home Sewing Association has made the difficult decision to cease operations as of December 31, 2007. The dissolution of the Association and its remaining assets, such as the National Sewing Show, will be managed under the guidance of a chapter 7 bankruptcy of the Court of New York. Updates will be provided when information becomes available from the Trustee on the disposition of assets. We will be filing a bankruptcy petition for HSA in that court shortly.

We wish to thank you for your membership support and wish you continued success in your sewing industry endeavors in the years ahead.

Sincerely,

Dan Covitt, A.E. Nathan & Co.
Stephanie Dell�Olio, Marcus Fabrics
Martin Favre, Bernina of America
Jim Hankins, Textile Creations
Eric Herman, Air-Lite Manufacturing
Peter Isaacson, Fabric Place
Eric McMaster, Kwik Sew Pattern Co., Inc.
June Mellinger, Brother International
Johan Starrenburg, Prym Consumer USA, Inc.
Dale Sutherland, Coats & Clark
Andrew Sylvia, Cranston

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