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

Q2 2011 Earnings Call Transcript

August 3, 2011 8:30 a.m. ET

Executives

David Stern - Chief Financial Officer

Joe Jeffries - Chief Executive Officer

David Abelman - Chief Marketing and Merchandising Officer

Analysts

Bernard Sosnick - Gilford Securities

Jack Balos - Focus Research

Mark Mandel - ThinkEqiuty

Russ Silvestri - Skiritai Cap

Richard Mansouri - Ridge Road Asset Management

Jeff Kobylarz - Stone Harbor Investments

Mark Mandel - ThinkEquity

Harsha Gada - Blue Shore Capital

Presentation

Operator

Good day, everyone, and welcome to the A.C. Moore second quarter 2011 earnings conference call. Today’s conference is being recorded. At this time, I would like to turn the conference to David Stern. Please go ahead, sir.

David Stern

Welcome to the A.C. Moore second quarter 2011 conference call. Before we begin, I will remind you that 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.

The risks and uncertainties that are most likely to cause actual results to differ materially from our current expectations are described in our filings with the SEC. A.C. Moore undertakes no obligations to update or revise any forward-looking statement in the future.

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

Joe Jeffries

This morning, in addition to David Stern, I’m joined by David Abelman, our Chief Marketing and Merchandising Officer. I will 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 merchandising and marketing.

For the second quarter 2011, total sales decline 0.8% from the same period a year earlier, and our same-store sales declined by 0.7%. As referenced on the prior call, Easter occurred three weeks later in 2011 than in 2010. This change caused a shift in Easter related sales for the three weeks preceding Easter from the first quarter in 2010 to the second quarter in 2011.

Our gross margin ended at 43.8%, which is a 0.6 percentage point improvement, year over year. Shifting our attention towards our merchandizing departments and inventory management efforts, we had several departments perform well during beginning with cake and candy.

It’s important to point out that we conducted a rather extensive merchandising expansion of cake and candy during the quarter. We are very encouraged with the early results, and expect this category to continue to deliver strong positive sales growth for the remainder of the year.

Other departments that performed well were floral, driven by everyday stem program, as well as floral accessories and designer made arrangements. Needle crafts which contains yarn continued to perform well, as our customers responded well to our selection, in-stock and promotions. David Abelman will discuss the merchandising performance in more detail during his portion of today’s call.

Inventory ended down 1.6% at 116.5 million at cost, a reduction of 1.9 million. The composition of our inventory continues to improve, as we move to change the ratio of warehouse to store inventory.

In summary, inventory is down overall, and has been shifted to the stores leading to better in-stocks. We ended the quarter three with improved in-stock positions and equally important, we are set and prepared much earlier this year in our fall harvest seasonal programs, as well as our early fall and Christmas craft programs.

Now I’d like to quickly recap our store opening, closing and remodel activity. During the quarter, we remodeled three stores, and prepared to close one store in the third quarter. We had no openings, relocations or closures during the second quarter.

Additionally in anticipation of questions about the company’s February 15 announcement of the Board of Directors is exploring strategic alternatives, the company does not intend to disclose any developments regarding this process, and so the Board has something definitive to share.

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

Dave Stern

I will start with a review of the results for the second quarter and first six months of the year, followed by a review of the cash and inventory positions as of July 2, 2011, and finish by providing some insights regarding our expectations for the 2011 fiscal year.

Sales for the quarter were 99.0 million, a decrease of 0.8% compared to sales of 99.9 million during the second quarter of last year. This decline is primarily due to a decrease in comparable store sales of 0.7%.

The comparable store sales decrease was composed of a 1.1% decrease in transactions and a 0.4% increase in the average ticket. As Joe referenced, second quarter sales were positively impacted by the Easter shift this year.

At the end of the second quarter in both 2011 and 2010, there are 135 stores in operation. Gross margin for the quarter was 43.8%, a 0.6 percentage point increase from the second quarter of last year.

This increase is primarily the result of supply chain efficiencies and improvements in inventory control and security, partially offset by a decline in merchandise margins.

Selling and General administrative expenses for the quarter were 51.0 million, essentially flat or a 0.1 million decrease compared to last year. This is primarily due to (inaudible) advertising spend partially offset by increased store payroll [stance]. Selling, general and administrated expenses were 51.5% of sales, compared to 51.2% of sales in the second quarter of last year.

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