Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Dave Stern – EVP and CFO

Rick Lepley – President and CEO

Joe Jeffries – EVP and COO

David Abelman – EVP, Chief Marketing and Merchandizing Officer

Analysts

Bill Armstrong – C.L. King & Associates

Eric Cha – Brown Advisory

Karru Martinson – Deutsche Bank

Michael Corelli – Barry Vogel & Associates

Jeff Kobylarz – Stone Harbor Investment

A.C. Moore Arts & Crafts, Inc. (ACMR) Q4 2009 Earnings Call Transcript March 17, 2010 8:30 PM ET

Operator

Good day and welcome to the A.C. Moore fourth quarter 2009 earnings conference call. Today's conference is being recorded. At this time, I like to turn the conference over to Mr. Dave Stern, Chief Financial Officer. Please go ahead sir.

Dave Stern

Thank you, and good morning. Before we begin, I would like to remind you that any forward-looking statements made during this call are subject to certain risks and uncertainties, which may cause actual results to differ materially from our current expectations. These risks and uncertainties that are most likely to cause our results to differ materially from our current expectations are (inaudible) in the press release issued this morning, as well as in our periodic filings with the SEC.

Now, I will turn the call over to Rick Lepley, chief executive officer.

Rick Lepley

Thanks Dave. This morning in addition to Dave Stern, I am joined by Joe Jeffries, our Chief Operating Officer; and by David Abelman, our Chief Marketing and Merchandizing Officer. Dave will take you through our financial performance for the quarter, and for the year, and Joe will discuss our operational initiatives in 2009 and 2010, followed by David who will outline our activities in merchandizing and marketing.

I would first like to take a few remarks about the third quarter and last year in general. For the 2009 fiscal year, our total sales declined 12.3% from the same period a year earlier, and was same-store sales declined by 10.8%. For the fourth quarter, our total sales declined 9.3%, while our same-store sales declined 8.8%. Obviously, we are not pleased with that nor are we pleased with our financial performance for last year. But we do believe that we made significant progress on many of our strategic initiatives during 2009.

The initiatives I especially want to highlight are several that we believe will contribute to a better performance in 2010. In 2009, we completed the installation of our automated replenishment systems ahead of schedule. In the fourth quarter we made great progress on cross stocking, and in fact a few weeks ago we actually began to implement cross stocking in Q1 of this year.

Also in the fourth quarter, we moved forward with the implementation and use of an additional inventory management tool, forecasting an allocation. Last year, we worked very hard on our customer service scores, and we improved them dramatically with many stores finishing with record years.

We completed a chain wide roll-out of our A.C. Moore rewards and loyalty program. And we began an initiative to convert our traditional stores to the new Nevada class prototype format. We are very encouraged by the comparable store sales performance of the new prototype. Our optimized Nevada stores had a comp store sales performance that showed 710 basis points improvement over the comp store sales performance of our traditional store base during the fourth quarter.

Dave, Joe and David will talk in much more detail about our strategic initiatives and our performance in 2009 in just a few minutes. With regard to 2010, we expect to convert 12 traditional stores to the Nevada prototype. And of course we will continue to work toward eventually converting the entire chain to the Nevada model.

We are currently planning to relocate three stores and open one store during 2010, and of course all of these activities will involve stores that are of the new Nevada format. We continue to evaluate new store opportunities and the number of new store openings for 2010 may increase. Depending upon negotiations with landlords and/or lease term expirations it is possible that we may also choose to close a couple of stores during 2010.

After three years of focusing our time, attention and people resources on building a foundation, and on enhancing the customer experience via a new store prototype, we are now ready to focus externally. For 2010, with many of our systems initiatives completed and in place we have a better understanding of the needs and desires of our customers.

Our goal is simply to execute better and truly become a merchandise driven organization focused on driving traffic, increasing average ticket and expanding margin. We believe that with our systems now in place, and our confidence in the future of our new Nevada stores, our goals are more achievable now than ever before.

Now, I like to turn the call over to Dave Stern, who will update you on our financial performance. Dave.

Dave Stern

Thank you Rick. I will start with a review of results for the quarter followed by our full year results, a review of inventory, cash and debt positions at year-end, and finish by providing some insight into our assumptions for 2010.

Sales for the quarter were $149.7 million a decrease of 9.3% compared to sales of $165.0 million during the fourth quarter of last year. This decline was primarily due to a decrease in comparable stores sales of 8.8% and the operation of fewer stores during the quarter.

Comparable store sales decrease was composed of 2.9% decrease in transactions and a 5.9% decrease in the average ticket. Gross margin for the quarter was 37.8%, a 120 basis point increase from the fourth quarter of last year.

Selling, General and Administrative expenses for the quarter were $59.0 million, a reduction of $6.6 million or 7.1% compared to last year. This decrease was primarily the result of reductions in pay roll, occupancy expense, and reduced store operating costs, partially offset by increased advertising expense. Included in SG&A is a non-cash asset impairment charge of 4.3 million. In the fourth quarter of 2008 we reported a impairment charge of 4.2 million.

Selling, General and Administrative expenses were 39.4% of sales compared to 39.8% of sales in the fourth quarter of last year. Although SG&A expenses decreased by 6.6 million, the decrease as a percentage of sales was only 40 basis points due to the de-leveraging expenses over a lower sales base.

Depreciation and amortization for the quarter was $4.1 million compared to $3.9 million for the same period last year. Store pre-opening and closing expenses were $3.5 million for the quarter, and consisted of cost related to two store openings, and $3.4 million increase in the reserves related to stores closed in prior years.

Although we did not close any stores in 2009, we did revive the estimates for the future rent obligations related to stores that were closed in prior years. In the fourth quarter of 2008, pre-opening and closing costs were $5.5 million, and consisted of cost related to the one store that opened in the fourth quarter of last year, and for a store that closed during 2008.

Net interest expense was $0.2 million for fourth quarter of 2009 and was $2.5 million for the comparable period of 2008. During the fourth quarter of 2008 the company recorded interest expense of $2.4 million related to adjusting an interest rate swap to fair market value, since it is no longer qualified for cash flow hedge accounting treatment.

The loss before tax for the quarter was $6.3 million compared to a loss before tax of $13.2 million for the comparable period last year. During the fourth quarter of 2009, the company recorded a net tax benefit of 5.7 million. During the quarter, legislation was passed that extended the carry back of operating losses from two years to five years, and as a result we filed for a refund.

Other than this, as we stated previously and have applied consistently since the third quarter of 2008, we recorded full valuation allowance against our net tax asset. The net loss for the fourth quarter was $0.5 million or $0.02 per share compared with a net loss of $13.0 million or $0.64 per share in the fourth quarter of 2008.

For the fourth quarter of 2009, capital expenditures were 2.6 million compared to 3.1 million last year.

Moving to results for the year ended January 2, 2010 sales were $468.9 million or a decrease of 12.3% compared to fiscal 2008. The decline was caused by a decrease in comparable store sales of 10.8% and the operation of fewer stores during the year. Gross margin for the year was 39.9%, a 70 basis point decrease from fiscal 2008.

Selling, general and administrative expenses for 2009 were $213.3 million, a reduction of $19.0 million or 8.2% from 2008. This decrease was primarily the result of reductions in payroll, occupancy and impairment expenses. Selling, general and administrative expenses were 45.5% of sales compared to 43.4% of sales last year. Although SG&A expenses decreased, the increase as a percentage of sales was a result of deleveraging of expenses on a lower sales base.

Depreciation and amortization for 2009 was $16.2 million compared with $15.7 million last year. Store pre-opening and closing cost for 2009 were $4.5 million, which primarily consisted of cost for the three stores that opened and $4.0 million related to stores that closed in prior years. Last year pre-opening and closing costs were $8.7 million, which consisted of costs for the nine stores that opened during the year and $7.4 million for stores that closed.

Net interest expense for 2009 was $1.1 million compared to $3.0 million for 2008. As previously referenced during the fourth quarter of 2008, the company reported interest expense of $2.4 million related to adjusting an interest rate swap to fair market value.

During 2009, the company recorded income tax benefit of $5.7 million, which was primarily driven by the previously referenced fourth-quarter legislation that extended the operating loss carry back period. During 2008, the company recorded an income tax benefit of $0.2 million.

The net loss for fiscal 2009 was $25.9 million or $1.15 per share, compared to a loss of 26.6 million or $1.31 per share for 2008. In 2009, capital expenditures were $10.3 million compared to $15.9 million last year.

Moving to the balance sheet, as of January 2, 2010, inventory was $122.1 million or $12.7 million more than last year. Joe will provide insight regarding the inventory levels and composition during his comments. At the end of the year, cash net of debt was $27.0 million or a decrease of $18.4 million from the comparable period last year. The cash balance was $46.0 million or a decrease of $28.5 million compared to the same period last year and debt was $19 million at the end of the year, or a decrease of $10.1 million from the same period last year. Availability under our line of credit was $36.7 million at the end of fiscal 2009.

I would now like to provide some insight regarding our assumptions for 2010. We anticipate the first quarter loss to be significantly larger than that for the comparable period of last year with year-over-year improvements occurring in the back half of 2010, yielding a loss for the year of less than that incurred for 2009.

We could see this being a pivotal year as we shift from a focus on implementing systems and optimizing the prototype to realizing the benefits. For 2010, we're currently planning 12 remodels, three relocations, and one new store opening. Based on these assumptions, capital expenditures will be relatively flat or in the $10 million range.

We are also assessing the closure of a couple of stores. Regarding inventory, we anticipate returning to a level near our 2008 fiscal year-end level per store or approximately $115 million. Finally, we are projecting a cash year-end balance in excess of $35 million.

Now I would like to turn the call over to Joe Jeffries, Chief Operating Officer.

Joe Jeffries

Thank you, Dave, and good morning. I would like to begin my comments by elaborating on our year-end inventory levels, providing greater insight and logic. The increase in the inventory is concentrated in a few select departments, and is a mix of strategic purchases and higher than anticipated residual from key category purchases.

In order to maximize the Q1 2010 business, we landed seasonal receipts earlier than in 2008 so that we can have our stores set earlier. This decision impacted our inventory position by $1.5 million. We also moved purchases forward into 2009 from 2010 that would have been impacted by a 9% increase in tariffs.

This impacted our inventory levels by roughly $3 million. We increased our investment in home décor and home fragrance categories to re-energize this space in our stores in Q4, and in preparation for 2010, and ended heavier than expected on go forward basic product. This product is accounted for in our sales and purchase plans in 2010, impacting our inventory position by $6.5 million.

Finally, we invested heavily in our kids business to fuel Q4 sales. However, we did not achieve our sales expectations, and we did end with higher go forward residual in everyday inventory levels, impacting our inventory position by $5.7 million. As we move into 2010 with the conversion to automated replenishment, implementation of our forecasting and allocation tool and the improved inventory reporting forwarded to us by our data warehouse, we had better visibility and control of our inventory than ever before.

We are actively managing inventory by composition, moving to reduce discontinued, clear seasonal in a timely manner, and maximize our inventory investment on our basic programs. The outcome of these efforts, combined with our recent organizational changes within the supply chain and inventory management departments, will assist us greatly as we work towards our goal of approaching 2008 year-ending inventory levels on a per store basis by year-end 2010.

Now, I would like to update you on progress made across several strategic margin generating initiatives that have been underway throughout the year finalizing in Q4. During the quarter, implementation continued with two key supply chain system advancements, specifically advance shipment notification cross stocking, and forecasting and allocation.

We completed testing and have initiated our cross stocking system with a small group of vendor. The schedule for ramping up our vendor base is set as we plan to reduce the number of direct to store shipments over the next several months. To ensure data integrity, each vendor is required to complete a certification process of their ASM transactions before they can cross stock orders through our distribution centre.

We have created a web portal that is available for vendors that are not EDI capable. This will allow them to receive purchase orders, send advance shipping notices, print compliant barcode labels, and generate invoices. We are still on schedule with our objective of moving more than 80% of our direct to store vendors to cross stocking, significantly reducing shipping cost, and improve receiving accuracy by August 2010.

As we discussed in the last call, we finished our 2009 rollout of automated replenishment, which converted 30,000 plus SKUs across all departments with the exception of seasonal floor, and front-end checkout merchandise. The floor and checkout departments are on schedule to be converted in the first-half of 2010. We used automated replenishment through Q4, and were pleased with the operation of the system and its results. In stock levels continue to improve in all departments against pre-rollout levels.

Seasonal and short life cycle products that were not originally part of the automated replenishment charter have come up as an opportunity for us to manage centrally, and we will be testing seasonal in Q1 2010. This has the potential to give us better control of seasonal and sensitive inventory between our distribution centre and stores. During the fourth quarter of fiscal 2009, we tested, piloted and implemented our forecasting module. This module calculates the minimum and maximum stock quantities required for each of our locations by (inaudible).

These quantities are used to calculate order points that drive our automated replenishment system to maximize the profitability of our inventory investment by location. We are ahead of schedule and pleased with the impact the forecasting module is having on our in stock position, as we strive to optimize our inventory investment in 2010.

During the fourth quarter, we also completed testing the implementation of a new space planning tool. This tool will provide visibility into SKU [ph] spacings, and capacity of our fixtures based on individual SKU sales and margin generation. Additional advantages include product images and signage for improved store level execution. I would like to update you on some initiatives embarked upon in 2009 within our stores division.

In 2009, our stores began to fully optimize all the re-engineered processes we deployed in 2008, and at the same time transitioned from a manually based ordering system that was very time intensive through our new fully automated process. This transition went well, and I'm very proud of how our leadership and associate teams handled this transition.

Custom framing remained a focus of ours as we look to continue to capitalize on our visualization technology, and what we feel to be the best value proposition in the industry for the consumer. Our offers and execution drove traffic, and this department performed well throughout the year.

During the year we completed one full remodel and the relocation of two stores, both converting to Nevada class prototypes. We opened three new stores, Willow Grove [ph] Pennsylvania and Apex, North Carolina. Two of the three rolled out in the fourth quarter bringing our total number of Nevadas to 24. Our current plan calls for approximately 30% of our chain to be operating as Nevada class stores by the middle of summer 2010.

In summary, we are very pleased with Nevada’s performance since we have applied many merchandising and operational enhancements over the past 16 months. In Q4 2009, our ten optimized Nevadas delivered a comp sales performance of negative 2.5%, which as Rick pointed out is a 710 basis points improvement over our traditional store base.

We will continue to monitor Nevada's overall performance in hopes of being able to accelerate the transition of our other store portfolio through relocations, remodels, and new store opportunities. Now I would like to turn the call over to David Abelman.

David Abelman

Thank you Joe. I'm going to touch on both merchandising and marketing progress for the company in Q4 2009, and for the year, and provide you with insight on progress we have made in stabilizing and growing some of our key businesses. But our overall comp sales continued to trend negative, several of our important destination categories experienced growth, and we continued to make strides to improve our margins.

We did experience gross margin rate improvement of 120 basis points over the same period last year which we are pleased with in a very competitive environment. Also important to note that this is a nice improvement over the margin erosion we experienced during Q3 2009, which I discussed during our last call. Let us touch upon sales.

We are not pleased with our comp sales loss of minus 8.8% in Q4, much of our loss did occur during a difficult November and a very challenging Black Friday. But we rebounded nicely in December, and even light of the storm, the first major strong the hit the Saturday before Christmas, our comp sales and transaction count were virtually flat. Our customers are in fact still loyal and shopping in our stores with our comp transaction trend continuing to showing improvement in the back half of the year, but as Dave mentioned average basket continues to lag.

Our comp sales on advertised products was up 16.7% during Q4, continuing our improved performance we experienced in the second half of the year. For the year, ad sales were down 3.7% much better than overall sales, as the consumer was value focused and driven by promotions in 2009.

Several destination departments had positive comps in Q4, while some of our other categories improve their trend over prior quarters. Our best performing departments in Q4 included custom framing, check out, kids crafts and activities, and celebrations which include cake and candy making supplies, wedding and party supplies, along with (inaudible).

Unfortunately our three weakest departments were responsible for our entire comp sales in Q4, with losses exceeding our overall comp dollar shortfall. The three departments are seasonal, paper craftings, and ready-made frames. Our seasonal business continues to be a challenge due to a broader competitive landscape, and sales continuing to come later in the season, which challenges both sales and margins. Our seasonal business alone accounted for 75% of our comp sales loss during the quarter. Plans are in place to reverse the negative trend in each of these departments.

We are confident that we are on the right track based on testing, customer insight and strategic vendor support that has been in fact completed. As I mentioned, we have several important categories trending much better and gaining momentum throughout Q4, may include categories such as home accents and fine art supplies.

Top departments for 2009 were celebrations, kids’ crafts and activities, custom framing, and check out. Let us talk about (inaudible) margin. Improving (inaudible) is a major focus in our organization. This is being realized with better inventory controls, improved promotional planning and discipline, along with improved everyday price and clearance management.

I mentioned earlier that our ad sales increased 16.7% over the same quarter last year. This obviously puts additional pressure on margin with promotional products delivering margins 30% to 50% lower than regular priced sales. To ensure that we need margin objectives, we have instituted an earned space model, which provides our buyers and planners with better tools to understand sales lift and profitability. With this enhanced processing in place, we are able to continue to be very competitive and balance our mix between regular and promotional merchandise.

Our merchandising team continues to make significant progress in balancing promotional objectives, and managing overall category growth and profitability. With new merchandise planning tools integrated early in 2009, the team is now fully trained, and they understand traffic drivers better than they have in the past and more important had a balanced sales and margin.

Additionally, we recently added a new market basket tool which select the best items and categories to promote, which we believe will contribute significantly to driving more profitable transactions. This tool allows us to understand the key product drivers from promotion and the associated products normally purchased with the advertised product, allowing us not only to analyze incremental sales, but more important what the customer buys along with the advertised product.

Managing promotional activity is also an ongoing challenge in our business due to our seasonal product mix and keeping our assortment fresh. Clearance sales impacted Q4 (inaudible) by 120 basis points due to late selling of seasonal merchandise and markdowns on items discontinued during resells [ph].

We do believe these resets have improved our product mix of a larger assortment of unique and differentiated products available to our customers throughout the store. Crafters love the treasure hunt aspect when they shop. We did deliver in 2009 by continuing to add new products throughout the year with over 35% of our product mix refreshed in 2009.

We believe our assortment and presentation in our stores is resonating with our customers, and we are experiencing a favorable payback in many departments since the resets have been completed.

Moving into 2010, we not only have almost a year of training experience with our new Oracle merchandising suite, but we have a larger more experienced buying and merchandising team. We have had many internal promotions along with external hires in several important positions. We are confident that our investment in our associates, along with our systems have led to more efficiency, and the ability to make better, more profitable positions that will pay off with continued sales and margin improvements.

Let's now move on to advertising and marketing. We are pleased with the progress we have made in our advertising and marketing during the quarter. We continue to be very aggressive with our print and e-circular advertising in terms of vehicles, page count, an item promotion which drive both transactions and sales to our stores.

Our comp transactions for Q4 were down 2.9% with continued improvement versus the first-half of 2009. We continue to have a better understanding of our customer and the right marketing vehicle to drive sales, traffic, and retention. Our mix is more balanced than ever before. With expanded, differentiated and new vehicles such as social media, our rewards loyalty program, A.C. Moore.com, local marketing, and e-mail marketing, we have evolved our mix significantly in 2009, which will lead to better customer engagement and a more productive marketing spend in 2010 and beyond.

As I mentioned earlier in my merchandising comments, our systems improvements and the new market basket tool are benefiting our marketing organization as well. We have strengthened leadership in place with the hiring of new vice president of marketing with experience in the arts and crafts industry during Q4.

We now have better tools and systems in place to connect with our customer better than ever. We are listening and responding to their needs. As a regional player, it is critical that we are differentiated and more nimble than our larger competitors. We believe this is reflected in our merchandising and marketing and our customers are taking notice.

Now I will turn the call back to Rick.

Rick Lepley

Okay. Thank you David. Operator, I think this should be a good time to take some questions.

Question-and-Answer Session

Operator

(Operator instructions) We will take our first question from Bill Armstrong with C.L. King & Associates. Please go ahead.

Bill Armstrong - C.L. King & Associates

Good morning. I had a couple of questions, on the seasonal exposure that you had that caused you know, a big piece of the comp decline. I thought that you were buying less seasonal going into the holidays to reduce your exposure. You know, could you talk about that maybe you know, what the outlook for seasonal is up to 2010? We are hearing that, you know, some of your competitors may have the feeling that seasonal may finally be bottoming out here.

David Abelman

Yes, this is David, and I’ll take this question. I think our mix was not as deep, but it was broader and we actually had great reception to the product. But as we've experienced the last few years, the business just continues to come later and later, which caused some carryover and more markdowns than we anticipated. We think the balance moving into 2010 will be significantly improved based upon our learnings.

Bill Armstrong - C.L. King & Associates

Okay, we’re hearing that Wal-Mart may be looking to you know, either reduce their craft assortments or maybe exit the category. Are you either hearing any of that from you know, maybe some of your vendors or seeing that in the field?

Rick Lepley

It seems to change from week to week. You hear they are getting in, you hear they are getting out. Of course we all know what they are doing with fabric, but generally I don't think we know anything here that you don't know.

Bill Armstrong - C.L. King & Associates

Okay. The tax benefits during the quarter, was that cash or will that be something that will turn into cash?

Dave Stern

This is Dave Stern. I’ll take that. Yes, we actually received the cash during the quarter.

Bill Armstrong - C.L. King & Associates

You did, okay.

Dave Stern

Yes.

Bill Armstrong - C.L. King & Associates

Okay, that’s all I had. Thanks.

Dave Stern

Thank you.

Operator

We’ll move on to our next question from Eric Cha with Brown Advisory. Please go ahead.

Eric Cha - Brown Advisory

Hi, the non-cash charges, were they – what's the pre-tax value of those non-cash charges?

Rick Lepley

Well, given our current situation as we replied since the third quarter of ’08, we don't report tax benefit and obviously not the tax expense. We reported an allowance against our tax benefits. So pre-and post-tax in those cases are the same.

Eric Cha - Brown Advisory

Okay.

Operator

(Operator instructions) Our next question comes from Karru Martinson with Deutsche Bank. Please go ahead.

Rick Lepley

Karru, are you there?

Karru Martinson - Deutsche Bank

Hi, can you hear me?

Rick Lepley

Yes, can hear you.

Karru Martinson - Deutsche Bank

Sorry about that. Some of your competitors have talked about recently taking market share, you know, saying that they are better in stock, you know, more aggressive on promotion. How do you see that evolving here through 2010, I mean, do you feel that market share is coming from you guys or is that coming more from the independents as they struggle?

Rick Lepley

We think our market share is improving, and actually we've been picking up ground in several of our key markets. There are not good figures unfortunately on the independents, but by some measures anywhere from 2,500 to 4,000 independents have gone out in the last 12 to 18 months when you look at beading shops, scrap booking, yarn shops. So we think the share is coming from the small independents, and not so much from the larger big boxes.

Dave Stern

I would add to that that it could vary market by market as well.

Karru Martinson - Deutsche Bank

Okay. And I'm sorry I got on the call a little bit late, and I don't know if you touched on this but what are you seeing in terms of product inflation coming out of Asia for 2010?

David Abelman

This is David again. I think we're actually seeing a lot of stabilization in deflation more than inflation. We've been very successful in cost concessions as of late.

Karru Martinson - Deutsche Bank

Okay, glad to hear that. And in terms of you know, product categories of some of the older stronger categories like paper crafting have weakened. You know, what do you see kind of picking up that slack or areas of growth as we go forward into 2010, 2011 and beyond?

Rick Lepley

Yes, I guess to start on the comment on paper crafting, we think that business has stabilized, and has opportunity for growth. In fact, we did some market tests in the latter part of the year with great success. So we are encouraged about the opportunities in paper crafting. We think do-it-yourself activities with mom and their kids like cake and candy making continues to show some strong growth and a lot of positive outlook in that category, some new product introductions hitting in May.

So we are exited about that category and basic categories like yarn continue to perform very well. So throughout the store between kids craft activities, yarn, cake and candy, there is growth opportunities in many of our key categories actually.

Karru Martinson - Deutsche Bank

On the cake and candy, is that being driven by kind of the Wilton classes or what do you feel is driving that?

Rick Lepley

Well, the Wilton classes are absolutely a key part of our mix. We think shows like cake box, the interest in reality television have really fueled growth in that category, and Wilton certainly is one of our largest suppliers in that area. And there is also exciting new product introductions coming in that area that we think will fuel further growth.

Karru Martinson - Deutsche Bank

Just lastly on framing, it has been a weak category for the industry. What do you feel that you guys are doing differently to kind of capture share there?

Rick Lepley

Are you talking in terms of –

Karru Martinson - Deutsche Bank

Of the cost of framing, correct, yes.

Rick Lepley

As Joe mentioned earlier, we believe our visualization software that we have, we have a wizard connect back [ph] system in many of our stores, which is differentiated, and the training and discipline we have in stores along with a fantastic supplier that keeps our assortment fresh in both molding and adding glass choices, we continue to see growth in that area. We are very excited about the category.

Karru Martinson - Deutsche Bank

Thank you very much guys.

Operator

Our next question comes from Michael Corelli with Barry Vogel & Associates. Please go ahead.

Michael Corelli - Barry Vogel & Associates

Hi, good morning.

Rick Lepley

Good morning.

Dave Stern

Good morning, Michael.

Michael Corelli - Barry Vogel & Associates

What is the total tax refund that you received, because I think you got one earlier in the year also last year.

Dave Stern

No, we received in fourth quarter of 2009. We received $5.7 million.

Michael Corelli - Barry Vogel & Associates

All right, so that will be the full year refund you received.

Dave Stern

That’s correct.

Michael Corelli - Barry Vogel & Associates

And is there anything expected this year?

Dave Stern

No, we expect as we stated previously with the exception of this one item that given our current position, we reported full evaluation allowance against the tax benefits that we generate. So that will have a very marginal tax impact.

Michael Corelli - Barry Vogel & Associates

Okay, and then as far as the guidance is concerned, you made a comment about expecting you know, larger loss in the first quarter and then you know, doing better in the back half, what's kind of – what is I guess behind the larger loss in the first quarter?

Rick Lepley

Sure, a couple of things. It was anticipated as we went into looking at the plan for 2010 that we knew we were going to bump up advertising, focus on clearance items, and then of course what we didn't anticipate was the weather. You know, all of those came from national companies before. We always knew that you know, if it is bad weather in one area, it is going to be offset by nice weather in another area, here being more regional player it had a larger impact on us, and so of course we will get into more detail of that in Q1 during the Q1 call.

Michael Corelli - Barry Vogel & Associates

Okay, you know, obviously a lot of different retailers have been talking about, you know, pretty significantly improve sales trends, you know, some of them I know are more national and so you know, the weather has a bigger impact, but I mean can you say on the days that you’re not having bad weather that you're seeing, you know, a significant change in sales trends at this point?

Rick Lepley

We saw – with the exception – January – I'm sorry, as David mentioned, December was essentially flat. If we exclude the impact of the snow that we had in December, we would have been up by about 2% on comp store sales. January, we are pleased with, February we had pretty big impact on due to the snow, which again we’ll expand on that during the Q1 call.

Michael Corelli - Barry Vogel & Associates

Okay, and just one more macro, I guess a more competitive environment type question. Obviously I mentioned on previous calls that your performance versus the competition has been a little bit disappointing. I know there has been a number of things that you pointed out some of which you know has been outside of your control or some changes that are happening that favor them competitively or things that are expanding you know, in relation to some of the categories that you're in. And one of the things I had heard was that you know, a few years back A.C. Moore’s competitive advantage was its pricing, and that’s, you know, because obviously you are smaller in size and you know, versus your competition, both as far as your store base where you are regionally and things like that and maybe with, you know, flexibility to pursue things, and I've heard that, you know, the company has moved towards higher pricing over the last few years, and that has taken away what was really their competitive advantage versus those bigger players. Have you, you know, seen that as a problem yourself and is there any you know, thoughts about changing that if that in fact is the case?

David Abelman

This is David and great question, and we explore that very issue and we speak with our customer and the overall craft consumer in a fairly regular basis and just completed a survey. And we touched on that very issue, and in fact the price perception, we are still perceived in the marketplace as being very competitive on our pricing both every day and promotionally. And we think with the tools we have in place to understand the traffic drivers and have the right mix of product that we could hang in there and compete effectively in the marketplace and still hit our margin goals.

Michael Corelli - Barry Vogel & Associates

Okay, I mean is there anything you could do I guess, you know, to improve your competitiveness with some of these you know, larger players or things that you're planning you know, going forward.

Rick Lepley

I guess we feel we are very competitive in our advertising today, and we continue to look at everything happening in the marketplace and make sure we're positioned appropriately.

Dave Stern

We think it's important to be unique and different as well.

Michael Corelli - Barry Vogel & Associates

And so is that – as far as being unique and different, are you talking about product offerings or other things?

Dave Stern

You know, I absolutely – well, to some extent the environment in the store of course and the service level is important, but we also think we need a unique and different product offering within the same categories that are essential to arts and crafts.

Michael Corelli - Barry Vogel & Associates

Okay. All right. Thank you.

Rick Lepley

Thank you.

Operator

Our next question comes from Jeff Kobylarz with Stone Harbor Investment. Please go ahead.

Jeff Kobylarz - Stone Harbor Investment

Good morning.

Rick Lepley

Good morning.

Jeff Kobylarz - Stone Harbor Investment

To follow up on that point that you all were talking about, can you say what percentage of your SKUs do you think are unique relative to your peers?

David Abelman

I think -- this is David again, I think when we look at our unique differentiated product, it will be more perception in hero [ph] type of items and we don't see that part of the mix being more than 5% to 7%, but this is really hitting on the categories where our customers are demanding differentiation. At treasure hunt, the reason they are going to five or six stores, and we think those areas are really what we're concentrating on unique part of our assortment. They're never going to be our top velocity items, but having those unique finds help drive the basic business as well, but I think 5% will be a fair number.

Jeff Kobylarz - Stone Harbor Investment

Okay, that's what you kind of were in the fourth quarter and is that what you expect to be going forward, is that right?

David Abelman

I think, I think it's where we were, where we’ll continue to be and it's not the same 5%. It's continually changing that mix and offering something new on a regular basis to our core customers.

Jeff Kobylarz - Stone Harbor Investment

All right, okay, and then the Nevada stores. I think you said that their comps were down 2.5% in this fourth quarter?

Dave Stern

That's correct.

Jeff Kobylarz - Stone Harbor Investment

And what was their comp performance in the fourth quarter last year if you know?

Dave Stern

Yes, I don’t have that handy with us.

Rick Lepley

Also, we got very few. These are the ten optimized Nevadas that we worked on throughout the year in late ‘08 going into ‘09 where we actually brought them to a level that we feel was go forward. Those were the ten that we referenced and called out.

Jeff Kobylarz - Stone Harbor Investment

Okay, can you say what the comps for the entire year?

Rick Lepley

We haven’t stated that.

Dave Stern

No, these are cycled in during the year, and so it wouldn’t be a fair comp. Again these are those that we've got -- just to give you some background on this, Jeff, we've got 24 Nevadas in total, 13 of which we consider to be the final iteration or the optimized version, 10 of those finals came into the comp store base. And so these are new for us, so we don't have them cycling year-over-year. Just to give you some perspective of these being down 2.5%, our traditional stores for the quarter were down 9.6% as so it was about 710 basis points spread between these optimized Nevadas and our traditional store base.

Rick Lepley

So Jeff, to give you some perspective, it's possible that some of these stores were not open earlier in 2008. So we may not have a full your comp on it. That's why we’re looking at third-quarter versus fourth-quarter.

Jeff Kobylarz - Stone Harbor Investment

Understood, okay. And these optimized Nevada stores, what is their seasonal percentage of sales or how did the seasonal category perform for them in the fourth quarter?

Rick Lepley

No, we don’t have that, do we?

Dave Stern

No, it's not something we have shared. But it was in-line with the rest of the chain.

Jeff Kobylarz - Stone Harbor Investment

Okay, so –

Rick Lepley

(inaudible) David has mentioned. There's no question about that.

Jeff Kobylarz - Stone Harbor Investment

Okay, all right, and then do you have a feel what the craft industry overall, what do you think the industry sales would be in 2010, percentage change?

Dave Stern

No, but I think that we all believe it’s stabilizing. I don't know if it's going to be up or down. I don't think it will be anywhere back to the strength it was a few years ago, but I also don't think it's really going to continue to comp down. I think we're pretty stable right now.

Jeff Kobylarz - Stone Harbor Investment

Okay, all right, thank you.

Rick Lepley

Thank you.

Rick Lepley

Okay operator, I don't see any other questions listed in the queue. So I think we'll just wrap up here, and I'd like to close by saying that our management team here at the store support center appreciates the efforts of our corporate associates, and our store teams all of whom are working hard to improve our operations. Thanks so much for joining us today and thanks for your continued interest in A.C. Moore.

Operator

Ladies and gentlemen that concludes today's presentation. Thanks for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: A.C. Moore Arts & Crafts, Inc. Q4 2009 Earnings Call Transcript
This Transcript
All Transcripts