Outperform - Price 24.42 on Aug. 24
by Boenning & Scattergood

Amid an improving competitive landscape, with Wal-Mart removing fabric from stores and Michael's slower growth, [craft-store company] JAS has four initiatives expected to drive sales and margin this year, including new systems...to improve inventory-management and target-marketing; new, larger stores/rolled out remodels and optimization programs, all of which ...add incrementally to sales and profits; dramatic reduction of its debt and hence... interest expense; and gross margins' continuing to benefit from increased sourcing in Asia as well as and lower inventory commitment to seasonal merchandise. JAS... is trading at a discount relative to the specialty retail group. [It has a price-earnings-growth ratio of] 1.1 times, and 6.1 times [enterprise value]/Ebitda...the specialty-retail group is trading at 1.3 times and 7.9 times, respectively. Our 28 target, which assumes JAS [at] closer to the industry average PEG. Market cap: $644 million.

Also nominated for Best Picture is the loose adaptation of F. Scott Fitzgerald's short story "The Curious Case of Benjamin Button." In the film version, star Brad Pitt ages in reverse, born an old man and reverting to infancy. Anti-aging favorite Botox is made by Allergan (AGN), which closed down 49 cents, or 1.2%, at $40.16. And for a play on the buttons of the movie's title, take a look at crafts retailer Jo-Ann Stores (JAS), down 2.8%, or 36 cents, at $12.45.

3-12-08 transcript 4 stars

Nymph's Take: Historically these stores did good during Recessions, better same store sales..also, Walmart is starting to drop Fabric in some of their stores.

CEO D. Webb- Year ago was going to improve...they invested in people and tight control of expenses and inventory. Same Store Sales up 3.3% this qtr...it's working. Fabric and Sewing biz up, Website made margins flat...if not included up 50 basis points..btw website 2% of sales. This year 12-15 new stores and 25-30 remodels. Steady performance of sewing and craft in PREVIOUS RECESSIONS looking at 1991 and 2001. 1.10 v 1.05 eps, Net earnings 15.4M v -1.9M yoy. Total sales dropped 2.5 % but that was because last year had an extra week. If 13 wk..then up 3.3%. Decreasing Debt. Walmart is stopping fabric sales in some of their stores..may decrease more. BIG THING!!! THEY NORMALLY DON'T TALK ABOUT THE CURRENT QTR....BUT due to the economy...wanted to let people know comps are positive!!! Half stores are large format and 1/2 stores small format. They had less mark downs and JUNE 30th a Hand Made Prom Dress contest...btw Hancock fabric had to many Christmas Items which hurt them.

0.30 to 0.60

--jo-ann stores

hot tip

like them

Martha Stewart Living Omnimedia (MSO) will sell the line's hundreds of products on marthastewart.com. But customers who prefer browsing at a bricks-and-mortar store will find them exclusively at the privately held Michaels Stores -- not exactly good news for rival retailers like Jo-Ann Stores (JAS) and A.C. Moore (ACMR).

The fabric industry stinks.

Shorting this bankruptcy canditate -- limited growth potential and rising debts and little real assets.