HUDSON, OH-Jo-Ann Stores Inc. ended fiscal 2006 in the red, prompting chairman and CEO Alan Rosskamm to describe the year as “difficult and disappointing” during the chain’s earnings conference call. Net loss for the year was $23 million, or $1.01 loss per diluted share, compared with net income of $46.2 million, or $2.02 per diluted share in fiscal 2005.

Net sales for fiscal 2006 increased 3.9% to $1.88 billion from $1.81 billion in fiscal 2005. Fiscal year 2006 same-store net sales decreased 0.8% versus a same-store sales increase of 3.2% in the prior year.Rosskamm said that fiscal 2005 was a record year for the chain and encouraged the management team to make decisions that negatively impacted the business.

“We were overly optimistic,” he admitted. Moreover, during the fourth quarter, the chain saw negative trends of declining traffic and softening customer demand gain momentum, Rosskamm said. Specifically, the industry experienced its worst slowdown in sewing since the 1990s, he noted.

During the fourth quarter, net loss was $18 million, or 78 cents per diluted share, compared with net income of $32.3 million, or $1.40 per diluted share in the prior year. Although net sales for the fourth quarter increased 2.7% to $604.1 million from $588.2 million a year ago, same-store net sales decreased 3% for the quarter, versus a same-store sales increase of 4.3% in the fourth quarter last year.

Unfortunately, gross margins for the fourth quarter decreased to 41.9% of net sales from 45.4% in the fourth quarter last year, due to higher promotional activity and markdowns compared to a year ago. Despite efforts to get rid of excess inventory, the chain ended the year with $50 million in overstocked merchandise.

During fiscal 2006, the chain opened 44 stores and one new distribution center before it realized the downturn in the market. The year-end store count was 684 traditional stores and 154 superstores, for a total of 838 stores.

Rosskamm has since introduced a “repair plan,” which includes four key strategies: inventory reduction, gross margin restoration, sales improvements and expense controls.

In addition to market uncertainties, the chain is suffering its own internal upheaval. Rosskamm resigned as chairman, president and CEO late last year and the search for his replacement has been ongoing. “It’s taking longer than expected,” he said.

Jo-Ann has cut its store expansion program almost in half and plans to open only 26 stores in fiscal 2007, he said, and plans to close as many as 60 units. The chain will also reduce its advertising expenditures, Rosskamm said. As part of the cost saving measures, Jo-Ann expects significant losses during the first half of fiscal 2007 including a same-store sales decline of 4% to 5%, but will improve during the second half of fiscal 2007.

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