Jo-Ann Stores, Inc. Q4 2009 Earnings Call Transcript

Mar.11.09 | About: Jo-Ann Stores, (JAS)

Jo-Ann Stores, Inc.(NYSE:JAS)

Q4 2009 Earnings Call

March 11, 2009 4:30 pm ET

Executives

[Tim Ryan] – Director of Investor Relations

Darrell Webb - Chairman of the Board, President, Chief Executive Officer

James Kerr - Chief Financial Officer, Executive Vice President

Analysts

William Armstrong – C. L. King & Associates, Inc.

Jeffrey S. Stein, CFA – Soleil Group

Anthony Lebiedzinski – Sidoti & Company, LLC

Joan Storms – Wedbush Morgan Securities

Michael Corelli – Barry Vogel & Associates

Operator

At this time I would like to welcome everyone to the Jo-Ann Stores fiscal year 2009 fourth quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator Instructions) I now turn the call over to Mr. [Tim Ryan], Director of Investor Relations.

[Tim Ryan]

Welcome to the Jo-Ann Stores fiscal 2009 fourth quarter conference call. In just a minute Darrell Webb, our Chairman, President and Chief Executive Officer and Jim Kerr our Chief Financial Officer will review the fourth quarter and full year results and discuss our guidance for the full year fiscal 2010. They will then respond to your questions.

After the market closed this afternoon we issued our fourth quarter earnings release. If you’ve not received it you may obtain a copy from the investor relations section of our website at www.JoAnn.com. This conference call is being recorded and is available through Wednesday, March 18th by dialing 1-800-642-1687. The conference ID number to access this call is 85905136.

In addition, this call is being webcast over the Internet and can be accessed through the website mentioned earlier by selecting investor relations at the bottom of the website. For those with access, it is also available through StreetEvents.com. A replay will be available shortly after the call. The replay may be accessed at JoAnn.com and at StreetEvents.com.

Before we begin I would like to remind you that any forward-looking comments made during this call are subject to certain risks and uncertainties which may cause results to differ materially from our current expectations. The risks and uncertainties that are most likely to cause our results to differ materially from our current expectations are included in the press release issued this afternoon and also in our periodic filings with the SEC. Now, I’ll turn the call over to Darrell.

Darrell Webb

We achieved solid earnings and cash flow improvements in fiscal year 2009 at Jo-Ann Stores. Our key initiatives succeeded in growing sales, controlling expenses and managing inventory thanks to the hard work of our 22,000 team members. Our store remodel and optimization programs continued to generate incremental sales while our core sewing and craft business delivered consistent sales growth throughout the year even as the economy was deteriorating.

We achieved SG&A expense leverage on most major line items including labor, administrative overhead and distribution expenses and we ended fiscal 2009 with 9% less inventory than the prior year. More importantly, our quality of inventory is better than ever and we’ve maintained strong in stocks at our distribution centers and at store level.

As we anticipated, the fourth quarter business was very challenging. Same store sales were down 2.9% in the fourth quarter compared to a 1.5% decrease in the third quarter. Customer transactions and average ticket were both down versus the prior year. Our fourth quarter sales and earnings were negatively affected by the magnitude of seasonal merchandise sold during the holidays.

As a number of retailers have pointed out seasonal category sales have been very soft during this recession. However, in our core sewing business, fleece, quilting and flannel fabrics enjoyed strong sales during the fourth quarter while yarn, kids crafts and food crafting performed well on the non-sewing side of the business. Our small format stores performed better than the larger stores due to the benefit of remodels in the small stores and due to the presence of more seasonal merchandise in the large format stores.

Strong inventory management disciplines allowed us to begin the new fiscal year exceptionally clean with no seasonal carryover. However, our gross margin rate declined by 150 basis points in the fourth quarter as we elected to take earlier and deeper pricing action on seasonal products to ensure a reasonable sell through. By tightly controlling expenses and inventory in this challenging sales environment, we were able to strengthen our balance sheet during the fourth quarter. We bought back additional subordinated notes during the quarter and we ended the year with more cash on hand than long term debt.

Turning to capital spending, we opened six new stores in the fourth quarter taking the total number of store openings to 21 for fiscal year 2009. We also made progress in revitalizing our existing store base by finishing one more remodel in the quarter bringing our total to 29 remodels for the year. As we look ahead to fiscal 2010, we are hopeful that the economy will begin to improve in the second half of the year but we believe it is prudent to expect and plan for negative trends in both customer transactions and average ticket in the near term.

Therefore, we have not assumed any improvement in sales trends for the year so we will continue to focus on those elements of our business that we can control including expenses, inventory and the customer experience. And, we will continue to optimize free cash flow to further strength our balance sheet. Among our key initiatives for fiscal year 2010, we believe margin expansion provides the most significant opportunity to improve financial results. Margin expansion in this economic environment might seem counter intuitive but several factors give us confidence that we can deliver the improvement.

First, the percentage of product that we source directly from Asia will increase again this year. Second, the inflationary pressure that we experienced a year ago on product sourced from Asia has sharply reversed and we are now seeing product cost deflation. Third, freight expense has decreased along with the price of oil which reduces our cost of sourcing products both globally and domestically.

Fourth, we will again buy significantly less fashion and seasonal merchandise in fiscal year 2010 which will reduce our exposure to promotional and clearance markdowns. Fifth, the new store systems we rolled out last year will provide additional tools for managing markdowns and will give us new promotional capabilities that enhance margins. In addition to this work on gross margin expansion, we are focused on a number of initiatives to drive sales and further enhance our customer shopping experience.

For example, we will modify our marketing content to deliver a stronger value message. We will also enhance our industry leading education and in store demonstration programs and we will again expand the product offering and functionality on the JoAnn.com website. In terms of capital spending we believe it’s important to continue updating our store base but given the economic environment, we intend to reduce capital spending by approximately 50% from last year to between $30 and $32 million.

However, most of that reduction will come from normalizing our investments in information technology following the major store systems upgrade last year. Our new store and remodel activity will actually be comparable to fiscal 2009 with approximately 20 new stores and 30 remodels. I’m pleased to note we have already opened eight of these new stores in the first five weeks of this new fiscal year.

We also have 110 leases expiring in fiscal year 2010 and given the current market conditions we believe there are opportunities to improve the lease terms in a number of these locations going forward. In closing, I’m optimistic that the strength of our core sewing and craft business is a reflection of the changing values and behaviors of consumers which should bode well for our industry and for Jo-Ann Stores over the longer term.

At this point, I’ll turn the call over to Jim Kerr.

James Kerr

First I’ll go through the fourth quarter and full year financial results, then I’ll wrap up with our outlook for fiscal 2010. Net income for the fourth quarter decreased to $20.4 million or $0.79 per share versus net income of $27.5 million or $1.10 per share for the same period last year. The current quarter includes a $1.3 million net after tax gain or $0.05 per share related to the repurchase of the portion of our senior subordinated notes. Excluding this gain, earnings for the fourth quarter were $0.74 per share.

For the full year, net income was $21.9 million or $0.86 per share versus net income of $15.4 million or $0.62 per share in the prior year. The full year includes a $2.6 million net after tax gain or $0.10 per share related to the repurchase of a portion of our senior subordinated notes. Excluding this gain earnings for the full year were $0.76 per share.

Net sales for the fourth quarter were $571.9 million compared to $585.9 million in the prior year. Same store sales decreased 2.9% versus an increase of 3.3% for the same period last year. Same store sales were down due to a combination of both lower average ticket and a reduction in traffic.

Large format stores accounted for 51.8% of total fourth quarter sales and small format stores accounted for 46.1%. Internet sales through JoAnn.com accounted for the remaining 2.1% of sales. Same store sales for large format stores decreased 4.1% for the fourth quarter versus an increase of 2.4% for the same period last year. Large format stores have a greater mix of seasonal product and higher ticket items compared to our small format stores which contributed to the weaker performance during the quarter.

Same store sales in small format stores decreased 1.4% for the fourth quarter versus an increase of 4.2% for the same period last year as sales in our basic sewing and craft categories continued to perform relatively well. Our sewing business represented 49% of our fourth quarter sales volume and increased 2.5% on a same store sales basis. We continued to experience positive same store sales in the majority of our fabric and sewing notions merchandise categories, especially in quilting and fleece.

Our non-sewing business represented 51% of our fourth quarter sales volume and was down 7.6% on a same stores sales basis due to declines in seasonal categories. Excluding seasonal categories, craft same store sales were slightly positive for the quarter and particularly strong in the yarn and basis craft shops.

For the full fiscal year net sales increased 1.2% to $1.9 billion. For the full fiscal year same store sales increased .5% versus a same store sales increase of 3.5% last year. Full year same store sales for large format stores decreased 1% while small format stores decreased by 2.1%. Fourth quarter gross margin rate decreased 150 basis points to 43.5%. The decrease in gross margin rate was primarily due to markdowns taken to sell through seasonal merchandise. The gross margin rate for the full fiscal year remain consistent year-over-year at 46.4%.

Fourth quarter SG&A dollars were down $2.4 million compared to last year as we continued to manage our operating cost. However, as a percentage of net sales SG&A expense of 34.9% was up compared to 34.5% last year due to deleveraging of sales. Full year SG&A expense leverage improved by approximately 40 basis points to 40.8%.

For the full year store preopening and closing costs increased by $3.9 million to $12.3 million. During the year we opened 21 stores and closed 31 stores compared to last year when we opened six stores and closed 33 stores. During the fourth quarter we repurchased $13.6 million of our senior subordinated notes at a discount of approximately 16% to par value and recorded a $2.1 million net pre-tax gain. For the full year we repurchased $34 million of our notes at a discount of approximately 13% to par value and recorded a $4.2 million pre-tax gain.

Interest expense in the fourth quarter decreased by $1 million due to lower average debt levels. Our fourth quarter debt levels improved to an average of $86 million in fiscal 2009 compared to an average of $142 million outstanding for the same period last year. We ended the year with $429.4 million in inventory, a $42.8 million or 9% decrease from last year. Average store level inventory was down 5% with the balance of the inventory reduction coming out of our distribution centers.

As Darrell mentioned, the overall quality of our inventory is very good. We have maintained consistent store in stocks throughout the year and had no holiday merchandise carry over at year end. Year end debt of $66 million represents the remaining balance of our senior subordinated notes. We had no borrowings under our revolving credit facility. We currently have approximately $237 million of availability under this facility.

Subsequent to year-end we have purchased an additional $13.9 million of our notes at a discount of approximately 9% to par value for a net pre-tax gain of $1.1 million which will be recorded in the first quarter of 2010. We currently have $52.1 million of senior subordinated notes outstanding.

Full year capital expenditures were $63.6 million net of landlord allowances of $11.1 million. Capital expenditures for FY ’09 were higher than our previous guidance due to spending on fiscal year ’10 store openings. This additional spending in fiscal year 2009 reduced our planed FY ’10 capital expenditures. Investment in IT and store related expenditures including store remodels and new store openings represented the majority of the capital spending in fiscal 2009. We expect fiscal year 2010 depreciation expense to be approximately $56 million.

Based upon management’s operating assumptions and current economic conditions, the company expects fiscal year 2010 earnings in the range of $0.70 to $0.85 per diluted share. This excludes any gains on debt repurchase. This guidance is based on an expected same store sales decrease of 2% to 4%. You can find other key considerations related to our outlook in the earnings release issued earlier today.

At this time Darrell and I would be happy to address any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from William Armstrong – C. L. King & Associates, Inc.

William Armstrong – C. L. King & Associates, Inc.

I see gross margin was down in Q4 due to markdowns on seasonal. You did have I believe a lower seasonal inventories going in to the holidays so was it an issue of still having too much in there or was this really just unavoidable?

Darrell Webb

It was still an issue of having too much in the sales environment for last year. None of us could have anticipated how tough that holiday season would be so while we bought down double digit in terms of cost going in to the season, it wasn’t enough and we had to take deeper markdowns to sell through.

William Armstrong – C. L. King & Associates, Inc.

How do you feel about your inventories right now going in to the spring especially regarding seasonal categories?

Darrell Webb

We feel very good about our current inventory positions and our sell through on spring seasons is actually in very good shape right now.

William Armstrong – C. L. King & Associates, Inc.

Regarding your guidance, I know you don’t give quarterly but maybe just a little bit of color, I mean are we assuming maybe the first half is going to be worse than the second half in terms of comps and other metrics?

James Kerr

Like you said Bill, we’re not going to give specifics by quarter. We’ll update the full year guidance after each quarter. But, as we look at how the year may play out as we’ve said in our core sewing and craft businesses remain fairly stable. The seasonal business was tough so as we get in to next year we would assume the sewing and craft businesses hopefully will remain fairly stable throughout the year and seasonal businesses we’ll actually plan down. In terms of the overall economy, as Darrell said we didn’t plan for any significant improvements in the economy. We’re taking a conservative approach on the sales side in to our buys.

William Armstrong – C. L. King & Associates, Inc.

Then last question, you mentioned in Asia you’re now actually seeing product cost deflation, the opposite of the situation you had last year. What sort of percentage deflation rates are we seeing?

Darrell Webb

Last year on one of the conference calls we discussed high single digit inflation occurring through most of a year ago and I would say that we’re seeing at least that same level on the downside this year.

William Armstrong – C. L. King & Associates, Inc.

Wow, that’s substantial.

Darrell Webb

It absolutely is. Really, several factors there, labor rates falling again in Asia after the increases a year ago. Some of the tax credits that were taken away a year ago have been reinstated and then thirdly, the transportation, the fuel expense to get the goods across the water is down substantially.

William Armstrong – C. L. King & Associates, Inc.

Does any of that help Q4 or are we really going to see that this year?

Darrell Webb

That is entirely this year, none of it would have helped Q4.

Operator

Your next question comes from Jeffrey S. Stein, CFA – Soleil Group.

Jeffrey S. Stein, CFA – Soleil Group

A couple of questions Darrell, first of all just to follow up on the last question on pricing, if costs coming down are you guys intending to capture that extra margin or are you going to give it back to the customer?

Darrell Webb

We will probably keep a close watch on competitive movement to see what’s going on in the marketplace and not be first to move. My experience shows that just lowering everyday prices in our industry does not drive a lot of extra volume. What really helps drive the volume is being a bit more promotional so you might see us investing some of that savings in more discounting, more couponing to drive additional footsteps in to the stores.

Jeffrey S. Stein, CFA – Soleil Group

Now, there’s a difference between what you’re seeing and what you’re planning. On the fourth quarter, a real tough environment, your core craft business and your fabric business comp’d positively and now you’re indicating kind of negative comps here. So, I’m wondering are you just being conservative with your planning or has the environment deteriorated further from what we saw during Q4?

James Kerr

We hope we’re being more conservative with our planning. We’re not seeing anything that would suggest a significant change in trend. We think we would be foolish to plan very aggressively on sales in this environment.

Jeffrey S. Stein, CFA – Soleil Group

Wondering again, the fourth quarter kind of developed in to an Achilles heel for your company because still it seems you still regardless of having dropped your seasonal inventory double digits for three consecutive years still you’re seeing large declines, it’s almost like it’s too big a piece of the business to get out of yet there doesn’t seem to be any solution here in terms of how to address that. I’m wondering as you look ahead to 2009, I know it’s a long way off but how do you intend to manage your seasonal business in the fourth quarter this year?

Darrell Webb

Well, one way to look at it is two years ago the seasonal business in total over the course of an entire year accounted for well over 12% of our total sales. For last year it was less than 10% and we’ve planned it down again. So the magnitude of our overall business that it represents and the ability of that business to inflict pain on our overall results diminishes each year.

Jeffrey S. Stein, CFA – Soleil Group

But, just kind of curious, what are you replacing this merchandise with because if you scale back your inventories and your selling space that you dedicate to this category I would imagine you want to replace it with something and clearly something that resonates with the customer over holiday.

Darrell Webb

Right. There’s not a single category or single answer to that question. There are a number of things that the merchants have brought in to help fill that space. Certainly, the food crafting area, the Wilton and cooking related projects have done well so we’ve expanded that assortment and brought in more seasonally including cookbooks and related products. Crafting, seasonal craft products have been growing very nicely so we’ve been incorporating more seasonal craft oriented items over into the seasonal space. That’s a couple of examples.

James Kerr

Especially in the same stores when we remodel we’re able to recapture that space with the remodel and as Darrell said that would primarily go to craft product and then stores that we haven’t been able to remodel we’ve done what we call store optimizations which we referred to on the last call in order to better utilize that space and again, it was primarily some of the higher performing craft categories that we put in there.

Jeffrey S. Stein, CFA – Soleil Group

Final question, guys can you update us on any intelligence you’re gathering from Wal-Mart’s exit strategy on the fabric side of the business? How many doors have they pulled out of to date?

Darrell Webb

Sure. Last calendar year Wal-Mart removed fabric from 500 stores and through the end of December that would have been a total of 856 stores to date that they’ve removed fabric from. As we look at this new year, they’ve released some information that says they will be remodeling 700 domestic stores this year. We don’t know if Fabric would come out of all those stores or what percentage of them but that’s how many stores they will be addressing this year.

Operator

Your next question comes from Anthony Lebiedzinski – Sidoti & Company, LLC.

Anthony Lebiedzinski – Sidoti & Company, LLC

My first question is regarding your earnings guidance, is it safe to say that you guys are extrapolating current trends through the rest of the year and assuming that business stays where it is you would do $0.70 to $0.85 in earnings? Is that safe to say?

James Kerr

I think our guidance is primarily driven by the same store sales assumption. If you look at that range and you look at how we preformed and you combine the third and fourth quarters that actual is baked in to next year’s range.

Anthony Lebiedzinski – Sidoti & Company, LLC

Also given that you’re substantially reducing your debt over here, is your guidance already assuming lower interest costs?

James Kerr

Yes, we would expect interest to be reduced by probably over $2 million next year.

Anthony Lebiedzinski – Sidoti & Company, LLC

So, given the free cash flow projection you have given here is it safe to say that you’re going to use that entirely for debt reduction or is there any other usages of cash flow that you forecast?

James Kerr

There’s no significant use and our free cash flow would include the $30 to $32 million of capital spending that we’ll do this year. In terms of debt buyback, we’re comfortable where we sit today like I said in my script, $52 million worth of our senior subordinated notes outstanding as of today. We’re not actively in the market right now and we’ll see how the year plays out and see if we can still pick up some at a discount to par but no significant plans at this point.

Darrell Webb

Anthony, I would just add that at each board meeting we certainly have a robust conversation about plans for free cash flow things ranging from ramping up our store construction to debt buy back, stock buyback, dividends, strategic acquisitions, even international expansion and as you’ve seen thus far the priority has been on the debt buy back side. Beyond that we’ll continue to monitor it and see where we go longer term.

Anthony Lebiedzinski – Sidoti & Company, LLC

Just a couple of more questions, as far as the product sourcing can you quantify what percentage of your product sales you think this year will be driven by the product sourcing versus last year? Can you give us a quantification here?

James Kerr

We’ve been around a third of our overall business we’ve been importing over the past several years and that number has been relatively steady. What’s happened is as we have reduced our seasonal buys we have been doing some direct sourcing on other categories so I would expect that number to stay in the same range, 30% to 33%.

Anthony Lebiedzinski – Sidoti & Company, LLC

Lastly, with respect to rent expenses, you mentioned that you have a number of leases coming up for maturity, have you actually been able to renegotiate some leases this year? And if so, what kind of rent savings are you seeing now?

Darrell Webb

We have in fact been able to successfully reduce some rents and leases this year. I really would prefer not to get in to any specific details and I’m not sure I recall enough specific details to share with you. But, the answer is yes, we are seeing reductions.

Anthony Lebiedzinski – Sidoti & Company, LLC

My last question is what was your cash from operations for this year that you just reported.

James Kerr

I don’t have the cash flow statement in front of me, sorry.

Operator

Your next question comes from Joan Storms – Wedbush Morgan Securities.

Joan Storms – Wedbush Morgan Securities

I wanted to ask about sort of we heard over the holidays that people were making more gifts. It is sort of a low average ticket entertainment value and I was wondering if you could comment did that sort of continue in the post holiday period and what your expectations are in increased homes nesting due to the macro environment? Do you think that would be a beneficiary thing, some continued growth in your core categories?

Darrell Webb

We don’t have any specific research that tells us that’s going on, it’s more individual stories we hear about, we read about so we do believe that trend is taking place but I don’t have research today to back it up.

Joan Storms – Wedbush Morgan Securities

I don’t know if you guys have any update on what’s going on with the whole thing with Project Runway or some of the other Hollywood publicity that’s going on that could positively impact your selling category?

Darrell Webb

We do carry some Project Runway branded merchandise in our stores, sewing notions and related items and they’re doing reasonably well. Not blowing out the doors by any means. We’ve talked to those people about doing some marketing with them but at this point have not put a deal together.

James Kerr

We continue to see interest in our education program. Primarily, as it relates to your question in the sewing classes which I think is a good sign, it kind of ties in to that whole trend and what you see on TV.

Joan Storms – Wedbush Morgan Securities

If you could comment at all about any new categories you may be looking at or specific targets that you may be focusing on for expansion or significant makeovers this year?

Darrell Webb

Some of the categories that are doing real well for us right now, needle work, yarn we’ve mentioned. We have a new line that we just brought in with Deborah Norville as a spokes person and it’s doing very well as the Vanna White did before. Christy Brinkley has a new line of home decorating fabrics that we’ll be rolling out this spring, a number of new basis planograms, a new Foamies planogram that we think is going to do very well.

Also, a new item in the technology area which is called Yudu which is for screen-printing t-shirts and similar items. That got off to a nice start a couple of weeks ago. There are a handful of things that are giving us some confidence that the business will remain stable.

Operator

Your next question comes from Jeffrey S. Stein, CFA – Soleil Group.

Jeffrey S. Stein, CFA – Soleil Group

A question for Jim, Jim I’m wondering does SG&A delever on a -2% to -4% comp?

James Kerr

Yes. As we’ve said before we need around a 2% positive comp to get leverage. This year we’ve achieved significant leverage on only a .5% comp but there’s probably two things that happened this year that will be tough to repeat that level of improvement next year, one is on store payroll we had significant leverage this year, it was the first full year for Ken Haverkost, our EVP of stores, he put a lot of controls and processes in place that helped us lever payroll this year. The other is on the distribution side with the improved inventory flow and the reduction in inventory, we picked up some nice leverage there. Those are both leverage points that we’ll be able to maintain but that level of year-over-year improvement will be tough to repeat.

Operator

Your next question comes from Michael Corelli – Barry Vogel & Associates.

Michael Corelli – Barry Vogel & Associates

Just a question about the remodels, could you tell us how many stores have been remodeled to date? How many kind of you think are still eligible and just talk about considering you obviously have the cash available why not accelerate the program? Is it a manpower issue, what are your thoughts about that?

James Kerr

We’ve remodeled about 60 stores to date. They still continue to give us the results we expect which is about 8% better than the chain average in terms of their comp in that first year after remodel. Also, we’ve been pleasantly surprised we didn’t count on in their second year after their remodel they actually outperformed the chain average as well. Not by as much but they outperformed the chain average.

It’s really not I would say a man power issue or a capital issue. We’re going to do 30 again this year. Where we’re getting the most benefit actually is when we remodel the store and can add craft product and expand the assortment. So, as we get in to some of the smaller stores, it’s going to be a little bit tougher to get the type of returns we’re going to get on the first groups of stores. We continue to look at that and it’s definitely something we’re going to continue to go forward with.

Michael Corelli – Barry Vogel & Associates

How many do you think are left that are eligible?

Darrell Webb

Probably another couple of years worth, 60 to 75 beyond this year.

James Kerr

It really ties in to our store opening strategy. So, our smaller stores would be candidates to relocate or expand therefore that’s where we are also very careful in terms of when we look at candidates to remodel what’s happening in those stores in terms of a potential relocation within that market over the next few years.

Operator

Your next question comes from Joan Storms – Wedbush Morgan Securities.

Joan Storms – Wedbush Morgan Securities

Just a follow up on your initiative to be driving sales in 2010, you talked a little bit about modifying the marketing content I didn’t know if you could provide any more detail there? And also, about the in store promotions or planograms, etc.?

Darrell Webb

Probably not a lot of additional detail I’d like to provide there. The marketing, our overall spend will be roughly equivalent to this year, we’re just doing some things differently in terms of how we’re positioning coupons and some of the messaging on the events and the style of the events that we’re doing this year.

On the education side we’ve changed some of the pricing and the promotional activity that we’re doing around our educational program to drive more footsteps in to the education system. We think that’s good for us, once people understand how to do a craft, how to sew they come back and shop more often and spend more with us. I know that’s fairly vague but I don’t want to give up too much more of our strategic information here.

Joan Storms – Wedbush Morgan Securities

Would we be seeing that in the newspaper inserts right now or will it be coming?

Darrell Webb

It’s coming.

Joan Storms – Wedbush Morgan Securities

Then on the JoAnn.com, what will you be doing different there?

Darrell Webb

A number of things. In terms of what the customer sees we will be adding about 20,000 additional new items this year, also taking off roughly 10,000 older items so a net addition of 10,000 SKUs this year. Some behind the scenes work to relocate where we host the system and upgrading it to the latest so we have fewer interruptions in service, continuing to expand the online community. We have had a tremendous increase in the number of people going to the site, we were up 23% I think it was in the fourth quarter and just the number of people visiting the site. So those folks aren’t always shopping, in many cases their exchanging ideas or looking for inspiration.

James Kerr

We’re also upgrading the overall platform it sits on which will help with navigation and search and those types of things.

Operator

We have no more questions at this time. I now turn the call back over to Mr. Darrell Webb.

Darrell Webb

Thanks for all of you participating in the call today. Have a good afternoon.

Operator

This concludes our conference call for today, you may now disconnect your lines.

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