Brett Favre is the king of threading a needle, often risking an interception by zipping the ball between defenders. Football teams looking for a quarterback who takes fewer risks may want to put their dollar on Tom Brady. Both are winners, and both have proved that there's more than one way to win a Super Bowl.
Investors looking for an enterprise that knows a thing or two about threading needles need look no further than Jo-Ann Stores
As Fool contributor Marko Djuranovic highlighted earlier, Jo-Ann's operation threads water with its profit margins. In Jo-Ann's first-quarter results, its operating profit margins were 2.1%. This time last year, they were 3.6%, or 71% higher. The company blamed increased advertising costs, as well as higher store pre-opening and closing costs.
CEO Alan Rosskamm was disappointed by the increased expenses and lower-than-anticipated revenues. Jo-Ann's sales were $420.7 million, up a meager 3.6% compared with the same period a year ago. Same-store sales crept up 0.6% for the quarter compared, with a 6.6% gain last year.
While revenue growth was insignificant, the company continues to grow, with plans to add at least 40 new superstores in fiscal 2006. At this rate, Jo-Ann would increase its superstore count by a robust 30%.
Because of the company's poor sales and margin pressure, net income for the period declined by 37.4% to $4.2 million. Jo-Ann earned $0.18 per share, missing Street estimates by $0.03, and also lowered guidance for its second quarter, forecasting a loss compared with the expected break-even results. The Street punished the shares today, sending them down by over 11% to around $24.92 each.
At this price, Jo-Ann's stock appears fully valued, trading at nearly 13 times the midpoint of the firm's projected current-year earnings. Investors looking to start a position in this company are not getting much margin of safety at this price. Then again, if Favre is your style of quarterback, perhaps you can stomach the added risk.
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Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.