Fabric and craft specialty retailer Jo-Ann Stores
Two areas of concern are same-store sales, down 0.9% for the quarter despite an increase in the average ticket of 4%, and profits, down 39% from previous-year levels. But the company's management offered good explanations for both of these developments -- and none of them had any thing to do with hurricanes. Last year's earnings were boosted by a special 60th-year anniversary promotion in August 2003, and in this year's quarter there was lower customer traffic due to a shift in the company's promotional calendar.
I think the real story with Jo-Ann Stores is the company's fair valuation. While the price-to-sales ratio of 0.33 may look cheap, it goes hand in hand with a low-single-digit profit margin and a stock that trades at 18.5 times trailing free cash flow. A comparison of forward P/E with the forecast five-year growth rate -- they currently appear to be equal -- paints a similar picture. Finally, the company's balance sheet shows $200 million in debt sitting next to just $34 million in cash. However, the debt load does vary significantly throughout the year and is at its annual high point: While this level of liability isn't ideal, it's not crushing either.
While the company may provide some spark for investors with its new 35,000-square-foot superstore prototype that appears to be doing well, I would wait until market volatility gives investors a larger discount or until the superstore concept offers more proof of the possibility to boost margins and sales. With related outfits like Michaels Stores
Fool contributor Marko Djuranovic does not own shares in any companies mentioned in this article.