Jo-Ann Stores, Inc. 8-K


Ohio		34-0720629
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

5555 Darrow Road, Hudson, Ohio		44236
(Address of principal executive offices)		(Zip Code)

The information contained in this Current Report on Form 8-K, including the exhibit attached hereto, is being furnished to the Securities and Exchange Commission and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. Furthermore, the information contained in this Current Report on Form 8-K shall not be deemed to be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended.

On May 17, 2004, Jo-Ann Stores, Inc. issued a press release announcing, among other information, its earnings for the period ended May 1, 2004. A copy of the press release is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			JO-ANN STORES ANNOUNCES FIRST QUARTER EARNINGS

	•		*EPS increases 58% to $0.30 from first quarter last year*

	•		*Operating margins improve on a 6.6% same-store sales gain*

	•		*Debt repurchase and financing initiatives completed*

HUDSON, OH – May 17, 2004 — Jo-Ann Stores, Inc. (NYSE: JAS) today announced financial results for its fiscal 2005 first quarter ended May 1, 2004. Net income for the quarter totaled $6.7 million, or $0.30 per diluted share, versus net income of $4.1 million, or $0.19 per diluted share last year.

Both fiscal years include costs related to the early redemption of debt. These costs negatively impacted pre-tax earnings by $4.2 million in the first quarter of fiscal 2005, and $3.4 million in the first quarter of fiscal 2004. The fiscal 2005 charge represents the premium paid to retire the Company’s 10-3/8% senior subordinated notes and write-off the remaining deferred debt costs on that debt.

The Company has now completed its financing initiatives for the foreseeable future. The issuance of $100 million of 7.5% senior subordinated notes was completed early in the first quarter, which enabled the Company to repurchase the remaining $64.4 million of its 10-3/8% senior subordinated notes, resulting in the $4.2 million charge discussed earlier. In addition, on April 16, 2004, the Company amended its $365 million bank credit facility, extending the term until May 2009 and reducing the commitment to $350 million.

Net sales for the first quarter increased 8.0% to $404.9 million from $374.8 million in the prior year. Same-store net sales increased 6.6% versus 2.6% for the same period last year.

Operating profit for the first quarter was $15.0 million versus $11.6 million in the prior year’s first quarter. Operating profit represented 3.7% of sales compared to 3.1% a year ago. The primary contributor to the improvement in the operating margin was a 90 basis point increase in gross margin to 49.1% of sales versus 48.2% of sales in the first quarter of fiscal 2004. The improvement in the gross margin rate resulted from a less

promotional pricing strategy, a strategy that the Company began executing in the second-half of fiscal 2004. This is the third consecutive quarter the Company has driven margin rate improvement while maintaining positive same-store sales growth.

Selling, general and administrative expenses, excluding other expenses separately identified in the statement of operations, held constant at 40.8% of sales in both periods as improvements in store expense leverage were offset by higher distribution center expenses.

Operating profit for the quarter includes $1.5 million of incremental expenses related to store pre-opening and closing costs and stock-based compensation expense.

Alan Rosskamm, chairman and chief executive officer said, “We are pleased with our financial results for the first quarter and the ongoing strategic and operational development of the Company. While we still have a lot to accomplish, particularly in the third and fourth quarters, it is satisfying to start strong. Furthermore, finalizing our financing initiatives during the first quarter further strengthens the Company’s financial platform allowing us to focus on our growth initiatives. With the opening of eight new superstores in the first quarter, we are on schedule with our fiscal 2005 planned openings of 30 superstores.”

In the first quarter, the Company opened eight superstores, one traditional store and closed 27 traditional stores.

Based on the strength of first quarter 2005 results, the Company is increasing its expectations for fiscal 2005 earnings per diluted share to $2.20 to $2.25, from its earlier stated guidance of $2.18 to $2.22 per diluted share.

Included in management’s fiscal 2005 earnings guidance per diluted share is approximately $8.5 to $9.0 million for the pre-tax cost of expensing stock options, as well as other equity compensation expense, which the Company reports separately in the line-item “stock-based compensation expense” in the statement of operations.

Fiscal 2005 earnings guidance for the full year excludes the pre-tax charge of $4.2 million recorded in the first quarter related to the Company’s subordinated debt refinancing.

For the second quarter, historically the Company’s weakest quarter of the year, the Company is projecting a loss of $0.02 to $0.07 per share, an improvement over last year’s second quarter loss of $0.10 per share.

Investors will have the opportunity to listen to the first quarter earnings conference call at 4:30 p.m. ET today. The call can be accessed via the Internet through Streetevents at http://www.streetevents.com and on our Web site at http://www.joann.com (go to the top of our home page and click on “About Jo-Ann Stores,” click on “Our Company” click on “Investor Relations,” then click on the Conference Call icon). To listen to the live call, please go to the Web site at least 10 minutes before the call begins to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available shortly after the call. The replay may be accessed at http://www.joann.com and at http://www.streetevents.com or by phone at 800-642-1687, conference ID # 6515422.

Jo-Ann Stores, Inc. (http://www.joann.com), the leading national fabric and craft retailer with locations in 47 states, operates 780 Jo-Ann Fabrics and Crafts traditional stores and 94 Jo-Ann superstores.

This press release contains forward-looking statements that are subject to certain risks and uncertainties. Our actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, changes in customer demand, changes in trends in the fabric and craft industry, seasonality, the availability of merchandise, changes in the competitive pricing for products, the impact of our and our competitors store openings and closings, fuel and energy costs, changes in tariff and freight rates, consumer debt levels, and other capital market and geo-political conditions. Other important factors that may cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company’s Securities and Exchange Commission filings.


	(Unaudited)
	Thirteen Weeks Ended
	May 1,		May 3,
	2004		2003
(Dollars in millions, except per share data)
Net sales	$	404.9	$	374.8
Cost of sales		205.9		194.3

Gross margin		199.0		180.5

Selling, general and administrative expenses		165.2		153.1
Store pre-opening and closing costs		2.9		2.1
Depreciation and amortization		9.7		9.0
Stock-based compensation expense		2.0		1.3
Debt repurchase expenses		4.2		3.4

Operating profit		15.0		11.6
Interest expense		4.1		5.0

Income before income taxes		10.9		6.6
Income tax provision		4.2		2.5

Net income	$	6.7	$	4.1


Net income per common share – basic	$	0.31	$	0.19


Net income per common share – diluted	$	0.30	$	0.19


Average shares and equivalents outstanding (millions)
Basic		21.8		21.3

Diluted		22.7		21.6


OTHER INFORMATION

Number of stores open at period end:
Traditional stores		780		840
Superstores		94		77

		874		917


Square footage at period end (000’s):
Traditional stores		11,325		12,105
Superstores		4,016		3,321

		15,341		15,426


Average square footage per store:
Traditional stores		14,500		14,400

Superstores		42,700		43,100


	(Unaudited)
	May 1,		May 3,		January 31,
	2004		2003		2004
(Dollars in millions)
Assets
Current assets:
Cash and temporary cash investments	$	15.2	$	26.0	$	17.4
Inventories		420.1		369.1		404.6
Deferred income taxes		24.8		28.1		25.0
Prepaid expenses and other current assets		24.1		17.0		23.5

Total current assets		484.2		440.2		470.5

Property, equipment and leasehold improvements, net		201.5		183.5		203.2
Goodwill, net		26.5		26.5		26.5
Other assets		10.1		15.1		7.5

Total assets	$	722.3	$	665.3	$	707.7


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	142.3	$	136.0	$	122.0
Other current liabilities		61.2		59.9		76.1

Total current liabilities		203.5		195.9		198.1

Long-term debt		106.6		124.9		113.7
Deferred income taxes		39.3		37.2		39.4
Other long-term liabilities		11.0		9.6		10.3
Shareholders’ equity		361.9		297.7		346.2

Total liabilities and shareholders’ equity	$	722.3	$	665.3	$	707.7


	Item 12. Results of Operations and Financial Condition.
SIGNATURE
EXHIBIT INDEX
Exhibit 99.1 Press Release


	JO-ANN STORES, INC. (Registrant)



Date: May 18, 2004	By: /s/ Brian P. Carney

	Name:	Brian P. Carney
	Title:	Executive Vice President
		and Chief Financial Officer


Exhibit Number		Description

99.1		Press Release of Jo-Ann Stores, Inc., dated May 17, 2004.


CONTACT:	Brian Carney	Investor Relations:
	Executive Vice President, CFO	Don Tomoff
	Jo-Ann Stores, Inc.	Vice President, Finance
	330/656-2600	Jo-Ann Stores, Inc.
	http://www.joann.com	330/463-6815

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