Jo-Ann Stores (NYSE:JAS) is one of those companies I love to watch despite -- no, because of -- the fact that most other people have no interest in it. For the uninitiated, this is a fabric and sewing supply store, a denizen of easily overlooked strip malls in the kind of suburbs where I find my digs.
A sewing store? With good, inexpensive togs available at the likes of Gap (NYSE:GPS) and styling home furnishings at Target (NYSE:TGT), why risk a stitch? Well, sewing may not be a necessity, but companies can still profit from a small band of the perpetually crafty. Just look at what Michaels Stores (NYSE:MIK) does with the glue and googly-eye set. Jo-Ann and competitor Hancock Fabrics (NYSE:HKF) pack the kind of materials and expertise that you just can't get from bigger, diversified competition such as Wal-Mart (NYSE:WMT).
Enough of the sermon. Jo-Ann's second-quarter earnings release reveals a company that's still moving through a tough transition but gaining ground. Investors seemed particularly impressed, bidding the stock up nearly 10%.
The firm managed to weave $0.02 per share on the bottom line, bettering last year's red ink of a dime per stub. But, without a $1.9 million benefit from an early lease termination, the bottom line would have been in the red. The earnings came atop a slim 3.3% revenue increase. Sales were $371 million. If you're wondering why investors put on the party hats for that kind of performance -- and you should -- consider that the thin revenue rise came as the firm operated 46 fewer stores in the current year period, because continued store closings and remodeling are a key part of Jo-Ann's turnaround plans.
Success depends on doing more with less, and the company appears to be delivering on that, posting comps growth of 3.1% for the quarter. (It weathered a tough May and June in admirable fashion.) Fewer price cuts helped gross margins improve by nearly 1%.
Management felt confident enough about the firm's performance to lift full-year guidance by a nickel, to around $2.28 per share. Today's price pegs shares at 12 times earnings expectations. That seems fair, given the modest growth stitched into those numbers. Whether Jo-Ann turns out to be a longer-term value, as investors seemed to think today, would require a bit more digging into planned capital expenditures and expectations for the firm's often-absent free cash flow.
Fresh Fool Seth Jayson has been known to take stabs at his thumb with a threaded needle, but he has no position in any company mentioned. View his Fool profile here.
