The exceptionally warm weather that seemed to fatigue would-be shoppers from going to arts-and-crafts supplier A.C. Moore (NASDAQ:ACMR) also apparently kept them away from industry leader Michaels (NYSE:MIK). The specialty retailer updated its earnings outlook and said revenues and net income will fall just short of expectations this quarter because of unusually warm weather. It also said that higher gas prices will affect full-year results.

Even so, CEO Michael Rouleau crafted an upbeat message. He said earnings will still reach record levels since each transaction made, though fewer in number than anticipated, was more valuable. Earnings are expected to be in the range of $0.36 to $0.38 per share, a 16% to 23% increase over last year's $0.31 but still below the $0.38 to $0.40 the company had previously forecasted.

The third quarter is an important one for Michaels and other such specialty retailers, since it marks the start of the holiday crafting season. Earnings for Michaels typically come in 50% or higher over the second quarter, and 2005 looks as though it will be no different, with earnings per share slated to check in as much as 72% higher. The fourth quarter, though, is the key, because that's when companies can earn as much as one-third to one-half the year's entire revenue and earnings. Making Styrofoam snowmen is apparently a big hit.

Revenues

FY 06

FY 05

FY 04

Q1

$821.0

$725.9

$656.4

Q2

$745.5

$682.9

$616.5

Q3

N/A

$799.9

$755.2

Q4

N/A

$1,184.6

$1,063.1

Total

N/A

$3,393.3

$3,091.2
Numbers in thousands

Earnings

FY 06

FY 05

FY 04

Q1

$0.33

$0.21

$0.15

Q2

$0.22

$0.19

$0.18

Q3

$0.38*

$0.31

$0.27

Q4

$0.92*

$0.74

$0.68

Total

$1.85*

$1.45

$1.28
*High-end company forecasts

It's essentially the same situation over at A.C. Moore and Jo-Ann Stores (NYSE:JAS), which look to their fourth quarters to make them profitable as well. Yet it's been a tough summer for the crafts set. Just as A.C. Moore anticipates reporting a loss for the quarter, Jo-Ann Stores also announced that it is experiencing lackluster performance and has slashed its earnings guidance. It warned of weak same-store sales and has cut back on its planned opening of new stores. In such a milieu, the retrenchment at Michaels looks almost glowing.

To date, the company has maintained strong and growing margins that are more than twice as large as those at either A.C. Moore or Jo-Ann Stores. Michaels stock has fallen from its early summer highs of $43 a share, though yesterday it rebounded somewhat, jumping more than $2 a share to $33, or about 6%, on the new guidance. With a trailing P/E ratio of 20 and a forward ratio of 14, Michaels looks as though it's still reasonably priced, with good potential for crafting itself as a winning investment.

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. The Motley Fool has a disclosure policy.