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

Q3 2010 Earnings Call

November 9, 2010 8:30 AM ET

Executives

David Stern – Executive Vice President, CAO and CFO

Joe Jeffries – Chief Executive Officer

David Abelman – Chief Marketing and Merchandising Officer

Analysts

Mark Mandel – ThinkEquity

Karru Martinson – Deutsche Bank

Bernard Sosnick – Gilford Securities

Doug Kallis – Focus Research

Bill Armstrong – C.L. King & Associates

Michael Corelli – Barry Vogel & Associates

John Zaro – Bourgeon Capital

Presentation

Operator

Please standby, we are about to begin. Good day, everyone. And welcome to the A.C. Moore Third Quarter 2010 Earnings Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. David Stern. Please go ahead.

David Stern

Thank you, April. Good morning. Before we begin, I would like you to remind you that the statements contained in this conference call that are not historical facts constitute forward-looking statements within the meaning of securities laws. These statements are subject to risks and uncertainties which may cause results to differ materially from current expectations expressed or implied by such statements. These risks and uncertainties are described in our filings with the SEC. A.C. Moore undertakes no obligation to update or revise any forward-looking statement in the future.

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

Joe Jeffries

Thanks, Dave. This morning, in addition to Dave Stern, our CFO, I’m joined by David Abelman, our Chief Marketing and Merchandising Officer. Before I begin my comments regarding our performance and the operational activity that took place in the third quarter, I wanted to inform the listeners that I will not remain on the call after my comments as I’m out of town attending a funeral for a very close friend. The question-and-answer portion of today’s call will be conducted by Mr. Stern and Mr. Abelman.

Now, let’s turn our attention to our operating performance for the third quarter. For the third quarter 2010, total sales declined 6% from the same period a year earlier and our same-store sales declined by 7%.

Our gross margin ended at 42.4%, which is a 4 percentage point improvement or $1.5 million year-over-year. This level of improvement was achieved because of the collective effort of our stores and the store support teams. By better managing our markdowns, promotions and inventory control programs, they delivered a marked improvement.

Our inventory level decreased by 12.8% per store, compared to the same time last year ending the quarter at $122.2 million. We are still confident that we will finish the year with less than $115 million of inventory.

This is especially significant because we have been able to invest in additional inventory in select categories and items that are volume generators. Our replenishment system now one-year-old has improved our ability to recognize possible opportunities in basics as well as upcoming promotional or event activities.

We remodeled nine stores during the quarter, converting them to our Nevada class model. We closed one store in the quarter. As of the end of the quarter, 40 of the 135 stores now operating as Nevada class stores. We have one remaining store to close during the fourth quarter and we recently opened one at the end of the third.

During the quarter, we continued to focus on improving our overall execution as it relates to our merchandising plans, store level execution and recovering from the very slow start to the quarter from a sales perspective.

In summary, even with year-over-year improvements in several important metrics, we are still not pleased with the overall results of the quarter. As I stated before, until we achieve sustained profitability, we will not consider our efforts successful.

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

David Stern

Thank you, Joe. I’ll start with a review of the results for the third quarter and year-to-date followed by a review of the cash inventory positions as of October 2, 2010.

Sales for the quarter were $99.7 million, a decrease of 6.0%, compared to sales of $106.1 million during the third quarter of last year. This decline was primarily due to a decrease in comparable store sales of 7.0%, partially offset by the operation of additional stores during the quarter.

The comparable store sales decrease was composed of a 7.1% decrease in transactions, partially offset by a 0.1% increase in the average ticket. At the end of the quarter, there were 135 stores in operation, compared to 133 at the comparable point last year.

Gross margin for the quarter was 42.4% or a 4.0 percentage point increase from the comparable point last year. This increase is primarily the result of improvements in promotional and everyday price management, and inventory, security and control.

Selling, general and administrative expenses for the quarter were $49.6 million, a decrease of $3.6 million or 6.7% compared to last year. Although additional stores were operated during the quarter, this is more than offset by the decreases in advertising and payroll. Selling, general and administrative expenses were 49.8% of sales, compared to 50.1% of sales in the third quarter of last year.

Depreciation and amortization expense is $4.4 million and $3.9 million for the third quarters of 2010 and 2009, respectively.

Store pre-opening and closing costs for the third quarter totaled $0.6 million and were primarily related to costs for stores that were previously closed, one store that opened during the quarter and one store that closed during the quarter.

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