A.C. Moore Arts & Crafts Inc. (ACMR) filed Quarterly Report for the period ended 2009-10-03.
A.C. Moore Arts & Crafts Inc. is a rapidly growing operator of arts and crafts superstores that offer a vast assortment of traditional and contemporary arts and crafts merchandise for a wide range of customers. The company's business strategy is to provide the broadest and deepest selection of high quality merchandise at the lowest prices in an inviting attractive superstore environment with superior customer service. The company's objective is to become the leading arts and crafts retailer in each of its markets. A.c. Moore Arts & Crafts Inc. has a market cap of $107.3 million; its shares were traded at around $4.34 with and P/S ratio of 0.2.
Highlight of Business Operations:
Net Sales. Net sales decreased $10.6 million, or 9.1 percent, to $106.1 million in the three months ended October 3, 2009 from $116.7 million during the three months ended September 30, 2008. This decrease is comprised of (i) a comparable store sales decrease of $8.7 million, or 7.7 percent, (ii) a net increase of $1.0 million from stores not included in the comparable store base and e-commerce sales, and (iii) net sales of $2.9 million from stores closed since September 30, 2008. The decline in comparable store sales was primarily due to softness in the macroeconomic and retail environment combined with weakness in our scrapbooking, seasonal and ready made frame categories.
Store Pre-Opening and Closing Expenses. Store pre-opening costs are expensed as incurred and include the direct incremental costs to prepare a store for opening, including labor and travel, rent and occupancy costs from the date we take possession of the property. Store closing costs include severance, inventory liquidation costs, asset related charges, lease termination payments and the net present value of future rent obligations less estimated sub-lease income. Store pre-opening and closing expenses of $0.3 million are comprised of costs related to the two new stores that will open and the one store that will relocate in the fourth quarter of Fiscal 2009 and ongoing costs from stores previously closed. In the third quarter of Fiscal 2008, we incurred store pre-opening expenses of $0.3 million for the one store opened in the third quarter of 2008 and the one store that opened later in 2008. Store closing costs for the third quarter of 2008 were $1.0 million which included $0.5 million in fixed asset write-offs, $0.2 million in inventory liquidation costs and $0.2 million in payroll related costs.
Net Sales. Net sales decreased $50.5 million, or 13.7 percent, to $319.2 million in the nine months ended October 3, 2009 from $369.6 million in the comparable 2008 period. This decrease is comprised of (i) a comparable store sales decrease of $41.2 million, or 11.7 percent, (ii) an increase in net sales of $5.1 million from stores not included in the comparable store base and e-commerce sales, and (iii) net sales of $14.4 million from stores closed since the comparable period last year. The decline in comparable store sales was primarily due to softness in the macroeconomic and retail environment, combined with weakness in our seasonal, ready made frame and scrapbooking categories. Categories that performed better than the Company average included cake and candy making and kid’s activities.
In the first nine months of 2009, store pre-opening and closing expense totaled $0.9 million for the one store we opened, the one store we relocated, the two new stores which are scheduled to open and the one store scheduled to relocate in the fourth quarter of 2009 and ongoing costs for stores previously closed. In the first three quarters of 2008, we incurred store pre-opening expenses for the eight stores opened during the first nine months of 2008 and the store that opened later in 2008 totaling $1.5 million. Store closing costs for the first nine months of 2008 were $1.7 million, which included $0.5 million of fixed asset write-offs, $0.2 million of inventory liquidation costs, $0.2 million in payroll related expenses and a $0.4 million reduction in estimated sub-lease income for a store that closed in 2006.
At October 3, 2009 and January 3, 2009, our working capital was $89.6 million and $102.1 million, respectively. Cash used in operations was $35.1 million for the nine months ended October 3, 2009. This was principally the result of a net loss of $25.4 million and a $23.9 million seasonal increase in the net investment in inventory (increase in inventory net of change in accounts payable), which was partially offset by $12.1 million in depreciation expense. For the nine months ended September 30, 2008, cash used in operations was $13.7 million which was primarily the result of a $22.1 million increase in the net investment in seasonal inventory and new store inventory partially offset by a $7.0 million refund of federal income taxes which is included in the $13.0 million reduction of prepaid expenses and other current assets.
On January 15, 2009, the Company terminated the Wachovia Loan Agreement and interest rate swap and entered into a new credit agreement with Wells Fargo Retail Finance, LLC (“WFRF Loan Agreement”). Upon closing of the WFRF Loan Agreement, the Company borrowed $19.0 million under the line of credit and, combined with $13.2 million of its own funds, repaid all outstanding obligations under the Wachovia Loan Agreement, including $18.9 million of principal and interest to satisfy the mortgages, $10.0 million to repay an advance under the line of credit and $2.8 million to terminate the interest rate swap. Borrowings under this agreement are for revolving periods of up to three months. In addition, $6.9 million in stand-by letters of credit were issued at closing. As of the end of the third quarter of Fiscal 2009 there were $6.4 million in stand-by letters of credit and $0.9 million in trade letters of credit outstanding. As of October 3, 2009, the Company had availability under the line of credit of $33.7 million. Subject to availability, there is no debt service requirement during the term of this agreement.
ACMR is in the portfolios of Arnold Schneider of Schneider Capital Management.
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