Arts and crafts, sticks and stones. Both can hurt you if you're investing in A.C. Moore
Despite Christmas being an important season for A.C. Moore, revenues were only up 5% for the quarter. The profit picture was worse. Net income slid 39% from the year-ago period down to $6.6 million. The $0.33 per share figure missed analyst expectations by more than half as inventory reductions took their toll.
Management said on its conference call that in some of their stores, the storage areas were so full of merchandise that they couldn't use their loading docks. That forced them to liquidate the stockrooms beginning around Halloween and continuing throughout the rest of the year. A.C. Moore held huge clearance sales with discounts of as much as 75% to 90% which subsequently resulted in gross margins declining 220 basis points for the quarter. Management has admitted its inventory controls are simply out of control.
Even so, same-store sales, a closely watched metric for retailers, declined 3% for the quarter. Getting customers to return to its stores has been a problem. Management tried new advertising campaigns but reported the results were mixed, particularly for stores open for a year or more. A.C. Moore is trying to grow its store base so that advertising is more cost-effective, and management says that until it figures out the right mix, its not looking at comps as an important measure right now. Management is looking to streamline operations to make for a smoother shopping experience.
The arts-and-crafts retail segment has not been kind. Jo-Ann Stores
With Michaels gone private, let's compare A.C. Moore to Jo-Ann Stores. Both have an enterprise value-to-EBITDA ratio of 14.8, though the latter is more attractively priced on several measures including price-to-book and price-to-sales. A.C. Moore has fallen a long way since it was a high flyer trading in the mid-$30 range. It's improved its debt position and has added more cash to its bank account, but is still struggling to find the right mix of glue, paper, and string to hold it all together.
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