bleonard

The Short Case On Jo-Ann Stores

Your article is well written and mostly factual, although I have a few things I would like to point out.

1- I believe they have made great strides in the turnaround in Q3. Inventory was down 18% and GM was up 180 bp's on a negative 5.4% comp! You claim they have significant inventory that needs to be cleared. I disagree with this totally. You must think they are lying.

2- They have dramatically reduced debt levels.

3 - Superstore comps were hurt by less seasonal, less clearance and fewer inserts. The sales were artificially boosted in the prior period by all of these. Once they get past this y/y problem, SS will do better. I will admit that the superstores are not performing as well as expected or hoped.

4- Your claim that D. Webb whose " background was in groceries, where sales are not driven by changes in trends and tastes" is also faulty. What industry has gone through a more difficult period than grocery. What do you think Wal-Mart has done to this industry over the last decade? Or Target, Costco? How about Whole Foods, Wild Oats, Trader Joe's, Fresh Market, etc. Grocery stores have been squeezed on both ends. Losing the low income shopper to WMT and the high end shopper to the organic/natural food stores.

I do agree that the stock has already priced in a lot of this, maybe all of it. I believe it is likely that JAS will earn near 2/share in 2007. Estimates will be raised quicly, probably after the next call. If JAS can only get to 2/share, it is fairly, maybe fully valued. But if they can continue to improve margins, which is a big question, the stock will move much higher. WMT exiting the cut fabric business, will certainly help. Sales may only benefit 3-5%, but margins may benefit much more.