A.C. Moore Arts & Crafts, Inc. (ACMR)

Q1 2010 Earnings Call Transcript

May 6, 2010 08:30 a.m. ET

Executives

David Stern - EVP and CFO

Joe Jeffries - Acting CEO

David Abelman - EVP and Chief Marketing and Merchandizing Officer

Analysts

Michael Corelli - Barry Vogel & Associates

Bill Armstrong - C.L. King & Associates

Joan Storms - Wedbush

Presentation

Operator

Good day and welcome to the A.C. Moore first quarter 2010 earnings conference call. At this time, I would like to turn the conference over to Mr. David Stern.

David Stern

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 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 referred to in the press release issued this morning as well as in our periodic filings with the SEC.

Now I'll turn the call over to Joe Jeffries, Acting CEO.

Joe Jeffries

Thanks, Dave. This morning, in addition to Dave Stern, I am joined by David Abelman, our Chief Marketing and Merchandizing Officer. I'll begin by commenting on our performance and discuss some operational initiatives in the first quarter. Dave Stern will take you through our financial performance for the quarter. And then David Abelman will touch upon some of our activities in merchandizing and marketing.

For the first quarter 2010, total sales declined 3% from the same period a year earlier and our same-stores sales declined by 4.7%. Our gross margin ended at 43.2%, which is a 30 basis points improvement year-over-year.

I do want to note that we were more promotional during the quarter compared to last year. We were forced to be more aggressive with our seasonal markdowns because of the February weather impact to traffic and sales.

Our inventory level increased by $9.1 million, ending the quarter at $122 million. We continue to optimize our inventory level, and we feel confident that we will finish the year at a per-store level equal to a 6.5% decline, ending the year at $115 million. This performance is not acceptable; however, it is in line with our expectations and guidance we provided during our last call.

During the quarter, we saw our level of execution improve throughout our organization. This type of execution is a requirement going forward as we are focused on our strategic plan and returning the company to being a merchandise-driven and customer-focused on a daily basis. Our strategic plan is designed to grow the business profitably going forward, as most of the IT foundation is now in place and our operational improvements at store level are firmly rooted.

At this time, I'd like to discuss some of our accomplishments made during the quarter. In the first quarter, we opened one new store and relocated two. We remodeled two stores during the quarter, converting them to our Nevada class model, and we are on track to convert 30% of the change to this model prior to the Q4 selling season.

In the first quarter, we made good progress with our cross-stocking project, and we are on schedule to have more than 80% of our store-directed vendors converted by late summer. An additional 4,000 SKUs were added to automated replenishment, primarily in everyday floral and short lifecycle seasonal items, driving our in-stock position up across all departments.

Also in the first quarter, preparations again in several merchandizing sets, transitioning out older products, making room for new merchandise, focusing on those departments that have been the majority of our sales loss.

As I mentioned at the start of the call, we are completely focused on our level of execution as it pertains to driving top-line profitable revenue through a renewed merchandizing focus and commitment across the entire organization.

Most of our system initiatives are 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 to truly become a merchandise-driven organization focused on driving traffic, increasing average ticket and expanding market.

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

David Stern

Thanks, Joe. I'll start with a review of results for the quarter, followed by a review of the cash and inventory positions as of April 3, 2010. Sales for the quarter were $105.4 million, a decrease of 3.0% compared to sales of $108.6 million during the first quarter of last year. This decline is primarily due to a decrease in comparable store sales of 4.7%, partially offset by the operation of additional stores during the quarter.

The comparable sales decrease was composed of a 5.7% decrease in transactions, partially offset by 1.0% increase in the average ticket. As a regional operator, our sales and transaction count were significantly impacted by the storms this winter. Excluding their impact, we estimate comparable store sales would have been a decrease of 3.4%.

At the end of the quarter, there were 136 stores in operation compared to 132 for the comparable point last year. Gross margin for the quarter was 33.2%, a 30 basis point increase from first quarter of last year. Merchandise margins remained essentially flat despite a more promotional environment.

Selling, general and administrative expenses for the quarter were $52.7 million, an increase of $2.8 million or 5.7% compared to last year. This increase was primarily the result of the operation of four additional stores, expenses related to the retirement of the former CEO and increased advertising spend. Selling, general and administrative expenses were 50.0% of sales compared to 45.9% of sales in the first quarter of last year.

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