Arts-and-crafts supplier A.C. Moore (NASDAQ:ACMR) will cobble together first-quarter 2007 financial results on Monday, May 7.

What analysts say:

  • Buy, sell, or waffle? Six of the eight analysts who follow the company have constructed a buy recommendation for A.C. Moore, while the remainer say "hold."
  • Revenues. Revenues are expected to growth 6% to $140.8 million.
  • Earnings. Profits, on the other hand, are forecast to turn into losses of $0.02 per share.

What management says:
The end of the year is often the time when people take stock of how well they're doing. It's no different for businesses, and when A.C. Moore took stock of itself, it found that it was, um, overstocked. Hobby-shop storerooms were filled to the brim, and the company needed inventory reductions. That led to big markdowns and a subsequent decline in margins, as shown below. With the aisles cleared now, the retailer needs to focus on ways to get customers back into its stores, as declining same-store sales remains a concern. Rival Jo-Ann Stores (NYSE:JAS) posted improved revenue and profits last month and raised guidance as well. This might signal that consumers are getting into a more crafty, which could rub off on A.C. Moore.

What management does:
While there's more elbow room now in the public markets, with Hancock Fabric filing for bankruptcy, A.C. Moore still has to contend with privately held Michael's, The Rag Shop, and small specialty stores for business, along with the ever-present Wal-Mart (NYSE:WMT). The hobby haven has been undergoing a transition for the past year, and with a new management team in place, it foresees more change in 2007. It's still trying to find the right mix of products, employees, and advertising to generate sales and profits. With sales growth steadily declining, and profits dripping down, don't expect too much change too soon.

Margin

12/05

03/06

06/06

09/06

12/06

Gross

39.5%

39.7%

39.8%

39.9%

39.1%

Operating

3.1%

2.8%

2.8%

2.7%

1.9%

Net

1.9%

1.6%

1.3%

1.1%

0.4%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Despite poor performance throughout most of the year, A.C. Moore's stock actually rose 47% in 2006. That explains why CEO Rick Lepley was given a bonus that equaled 87% of his base salary. Combine this with stock options, and his total compensation nearly tripled. Even though the company's directors said the bonus was based on various internal criteria, it's hard to reconcile that with operating income last year that was half of what it had been the year before; sales that grew less than 10% (while administrative expenses rose 12%); lower comps; and profits that have otherwise been ephemeral. The company did recognize that it needed to do something to stop the unraveling, but it's too early to tell whether the stitching will hold.

Related Foolishness:

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Fool contributor Rich Duprey owns shares of Wal-Mart, but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.