##### Table of Contents



United States Securities and
Exchange Commission
 WASHINGTON, D.C. 20549
 
 Form10 - Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended May 5, 2007
 Commission File No. 1-6695
 
 Jo-Ann Stores, Inc.
  Ohio
(State or other jurisdiction of 
incorporation or organization)
    
    34-0720629
(I.R.S. Employer Identification No.)5555 Darrow Road, Hudson, Ohio
(Address of principal executive offices)
    
    44236
(Zip Code)
 (330) 656-2600
 þ o
  o þ o
 o þ




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##### 



Jo-Ann Stores, Inc.
Form 10-Q Index
For the Quarter Ended May 5, 2007
 Page NumbersPart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  May 5, 2007 (Unaudited),
April 29, 2006 (Unaudited) and February 3, 2007
    
    
    1Unaudited Consolidated Statements of Operations for the Thirteen
Weeks Ended May 5, 2007 and April 29, 2006
    
    
    2Unaudited Consolidated Statements of Cash Flows for the
Thirteen Weeks Ended May 5, 2007 and April 29, 2006
    
    
    3Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operation
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    18Part II. Other InformationItem 1. Legal Proceedings
    
    
    18Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19Signatures
    
    
    20EX-31.1EX-31.2EX-32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Jo-Ann Stores, Inc.
 
 Consolidated Balance Sheets
 (Unaudited)
    
    
    (Unaudited)May 5,
    
    
    April 29,
    
    
    February 3,2007
    
    
    2006
    
    
    2007(Dollars in millions, except share and per share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    19.9
    
    
    $
    26.1
    
    
    $
    18.4Inventories
    
    
    434.9
    
    
    
    463.0
    
    
    
    453.4Deferred income taxes
    
    
    28.7
    
    
    
    38.0
    
    
    
    32.0Prepaid expenses and other current assets
    
    
    27.7
    
    
    
    26.8
    
    
    
    30.4Total current assets
    
    
    511.2
    
    
    
    553.9
    
    
    
    534.2Property, equipment and leasehold improvements, net
    
    
    306.4
    
    
    
    333.9
    
    
    
    311.8Other assets
    
    
    10.1
    
    
    
    10.2
    
    
    
    10.7Total assets
    
    $
    827.7
    
    
    $
    898.0
    
    
    $
    856.7Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    134.5
    
    
    $
    131.7
    
    
    $
    147.5Accrued expenses
    
    
    62.4
    
    
    
    76.6
    
    
    
    74.8Total current liabilities
    
    
    196.9
    
    
    
    208.3
    
    
    
    222.3Long-term debt
    
    
    117.8
    
    
    
    190.0
    
    
    
    125.3Deferred income taxes
    
    
    14.4
    
    
    
    23.2
    
    
    
    14.2Lease obligations and other long-term liabilities
    
    
    84.6
    
    
    
    82.4
    
    
    
    85.1Shareholders equity:Preferred stock, no par value, 5,000,000 shares authorized, none issued
    
    
    
    
    
    
    
    
    
    
    Common stock, stated value $0.05 per share; 150,000,000 authorized,
issued 27,921,041; 27,148,372 and 27,400,347 shares, respectively
    
    
    1.4
    
    
    
    1.4
    
    
    
    1.4Additional paid-in capital
    
    
    185.3
    
    
    
    166.5
    
    
    
    176.9Retained earnings
    
    
    271.4
    
    
    
    270.0
    
    
    
    274.7458.1
    
    
    
    437.9
    
    
    
    453.0Treasury stock, at cost, 3,569,214; 3,644,439 and 3,542,885 shares, respectively
    
    
    (44.1
    )
    
    
    (43.8
    )
    
    
    (43.2
    )Total shareholders equity
    
    
    414.0
    
    
    
    394.1
    
    
    
    409.8Total liabilities and shareholders equity
    
    $
    827.7
    
    
    $
    898.0
    
    
    $
    856.7
  1




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##### Table of Contents



Jo-Ann Stores, Inc.
 
 Consolidated Statements of Operations  (Unaudited)
 Thirteen Weeks EndedMay 5,
    
    
    April 29,2007
    
    
    2006(Dollars in millions, exceptshare and per share data)Net sales
    
    $
    424.2
    
    
    $
    424.7Cost of sales (exclusive of depreciation and amortization
shown separately
below)
    
    
    223.6
    
    
    
    226.7Gross margin
    
    
    200.6
    
    
    
    198.0Selling, general and administrative expenses
    
    
    185.5
    
    
    
    189.7Store pre-opening and closing costs
    
    
    2.4
    
    
    
    5.5Depreciation and amortization
    
    
    12.6
    
    
    
    11.6Operating profit (loss)
    
    
    0.1
    
    
    
    (8.8
    )Interest expense, net
    
    
    2.7
    
    
    
    3.5Loss before income taxes
    
    
    (2.6
    )
    
    
    (12.3
    )Income tax benefit
    
    
    (0.9
    )
    
    
    (4.7
    )Loss before cumulative effect of accounting change
    
    
    (1.7
    )
    
    
    (7.6
    )Cumulative effect of change in accounting principle, net of tax
    
    
    
    
    
    
    1.0Net loss
    
    $
    (1.7
    )
    
    $
    (6.6
    )Loss per common share  basic:Loss before cumulative effect of accounting change
    
    $
    (0.07
    )
    
    $
    (0.32
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    0.04Net loss
    
    $
    (0.07
    )
    
    $
    (0.28
    )Loss per common share  diluted:Loss before cumulative effect of accounting change
    
    $
    (0.07
    )
    
    $
    (0.32
    )Cumulative effect of change in accounting principle
    
    
    
    
    
    
    0.04Net loss
    
    $
    (0.07
    )
    
    $
    (0.28
    )Weighted average shares outstanding (in thousands):Basic
    
    
    24,039
    
    
    
    23,316Diluted
    
    
    24,039
    
    
    
    23,316
  2




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Jo-Ann Stores, Inc.
 
 Consolidated Statements of Cash Flows  (Unaudited)
 Thirteen Weeks EndedMay 5,
    
    
    April 29,2007
    
    
    2006(Dollars in millions)Net cash flows provided by operating activities:Net loss
    
    $
    (1.7
    )
    
    $
    (6.6
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    12.6
    
    
    
    11.6Deferred income taxes
    
    
    3.5
    
    
    
    Stock-based compensation expense
    
    
    1.2
    
    
    
    1.3Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (1.0
    )Amortization of deferred financing costs
    
    
    0.2
    
    
    
    0.2Loss on disposal of fixed assets
    
    
    0.2
    
    
    
    0.3Changes in operating assets and liabilities:Decrease in inventories
    
    
    18.5
    
    
    
    51.7Decrease in prepaid expenses and other current assets
    
    
    2.7
    
    
    
    8.4Decrease in accounts payable
    
    
    (13.0
    )
    
    
    (14.9
    )Decrease in accrued expenses
    
    
    (14.0
    )
    
    
    (18.1
    )Increase in lease obligations, net
    
    
    0.3
    
    
    
    2.4(Decrease) increase in other long-term liabilities
    
    
    (0.8
    )
    
    
    0.2Other, net
    
    
    0.4
    
    
    
    (0.9
    )Net cash provided by operating activities
    
    
    10.1
    
    
    
    34.6Net cash flows used for investing activities:Capital expenditures
    
    
    (7.4
    )
    
    
    (14.1
    )Net cash used for investing activities
    
    
    (7.4
    )
    
    
    (14.1
    )Net cash flows used for financing activities:Net change in revolving credit facility
    
    
    (7.5
    )
    
    
    (13.7
    )Proceeds from stock-based compensation plans
    
    
    6.0
    
    
    
    1.2Tax benefits in excess of recognized compensation cost for stock-based
awards
    
    
    1.2
    
    
    
    Other, net
    
    
    (0.9
    )
    
    
    0.2Net cash used for financing activities
    
    
    (1.2
    )
    
    
    (12.3
    )Net increase in cash and cash equivalents
    
    
    1.5
    
    
    
    8.2Cash and cash equivalents at beginning of period
    
    
    18.4
    
    
    
    17.9Cash and cash equivalents at end of period
    
    $
    19.9
    
    
    $
    26.1Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    4.4
    
    
    $
    5.1Income taxes, net of refunds
    
    
    
    
    
    
    4.4
  3




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Jo-Ann Stores, Inc
 
 Notes to Consolidated Financial Statements (Unaudited)
 Note 1  Basis of Presentation
     Note 2  Loss Per Share
   Thirteen Weeks EndedMay 5,
    
    April 29,2007
    
    2006Weighted average shares outstanding:Basic common shares
    
    
    24,039
    
    
    
    23,316Incremental shares from assumed exercise of stock options
    
    
    
    
    
    
    Incremental restricted shares
    
    
    
    
    
    
    Diluted common shares
    
    
    24,039
    
    
    
    23,316
  4




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Note 3  Shareholders Equity
  CommonNet
    
    
    
    
    
    
    Stock
    
    Additional
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Treasury
    
    
    Stated
    
    Paid-In
    
    Retained
    
    Treasury
    
    ShareholdersShares
    
    Shares
    
    
    Value
    
    Capital
    
    Earnings
    
    Stock
    
    Equity(Shares in thousands)
    
    
    (Dollars in millions)Balance, February 3, 2007
    
    
    23,857
    
    
    
    3,543
    
    
    
    $
    1.4
    
    
    $
    176.9
    
    
    $
    274.7
    
    
    
    ($43.2
    )
    
    $
    409.8Change in accounting principle
(Note 4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    (1.6
    )Adjusted balance at February 3, 2007
    
    
    23,857
    
    
    
    3,543
    
    
    
    $
    1.4
    
    
    $
    176.9
    
    
    $
    273.1
    
    
    
    ($43.2
    )
    
    $
    408.2Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    (1.7
    )Exercise of stock options
    
    
    303
    
    
    
    (16
    )
    
    
    
    
    
    
    
    4.8
    
    
    
    
    
    
    
    
    
    
    
    4.8Tax benefits in excess of recognized
compensation cost for stock-based
awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2Stock-based compensation
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2Purchase of common stock
    
    
    (42
    )
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.9
    )
    
    
    (0.9
    )Associate stock ownership plan
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2Year-to-date activity
    
    
    495
    
    
    
    26
    
    
    
    
    
    
    
    
    8.4
    
    
    
    (1.7
    )
    
    
    (0.9
    )
    
    
    5.8Balance, May 5, 2007
    
    
    24,352
    
    
    
    3,569
    
    
    
    $
    1.4
    
    
    $
    185.3
    
    
    $
    271.4
    
    
    
    ($44.1
    )
    
    $
    414.0
  Note 4  Income Taxes
  5




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Note 5  Recent Accounting Pronouncements
 Statement of Financial Accounting Standards No. 157, Fair Value Measurements
  Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities
  Note 6  Consolidating Financial Statements (Unaudited)
   6




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Note 6  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Balance Sheets
May 5, 2007
 GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    (7.3
    )
    
    $
    27.2
    
    
    $
    
    
    
    $
    19.9Inventories
    
    
    203.9
    
    
    
    231.0
    
    
    
    
    
    
    
    434.9Deferred income taxes
    
    
    20.4
    
    
    
    8.3
    
    
    
    
    
    
    
    28.7Prepaid expenses and other current assets
    
    
    19.8
    
    
    
    7.9
    
    
    
    
    
    
    
    27.7Total current assets
    
    
    236.8
    
    
    
    274.4
    
    
    
    
    
    
    
    511.2Property, equipment and leasehold improvements,
net
    
    
    146.8
    
    
    
    159.6
    
    
    
    
    
    
    
    306.4Other assets
    
    
    8.6
    
    
    
    1.5
    
    
    
    
    
    
    
    10.1Investment in subsidiaries
    
    
    45.9
    
    
    
    
    
    
    
    (45.9
    )
    
    
    Intercompany receivable
    
    
    332.6
    
    
    
    
    
    
    
    (332.6
    )
    
    
    Total assets
    
    $
    770.7
    
    
    $
    435.5
    
    
    $
    (378.5
    )
    
    $
    827.7Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    123.4
    
    
    $
    11.1
    
    
    $
    
    
    
    $
    134.5Accrued expenses
    
    
    63.3
    
    
    
    (0.9
    )
    
    
    
    
    
    
    62.4Total current liabilities
    
    
    186.7
    
    
    
    10.2
    
    
    
    
    
    
    
    196.9Long-term debt
    
    
    117.8
    
    
    
    
    
    
    
    
    
    
    
    117.8Deferred income taxes
    
    
    (1.3
    )
    
    
    15.7
    
    
    
    
    
    
    
    14.4Lease obligations and other long-term liabilities
    
    
    53.5
    
    
    
    31.1
    
    
    
    
    
    
    
    84.6Intercompany payable
    
    
    
    
    
    
    332.6
    
    
    
    (332.6
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Additional paid-in capital
    
    
    185.3
    
    
    
    
    
    
    
    
    
    
    
    185.3Retained earnings
    
    
    271.4
    
    
    
    45.9
    
    
    
    (45.9
    )
    
    
    271.4458.1
    
    
    
    45.9
    
    
    
    (45.9
    )
    
    
    458.1Treasury stock, at cost
    
    
    (44.1
    )
    
    
    
    
    
    
    
    
    
    
    (44.1
    )Total shareholders equity
    
    
    414.0
    
    
    
    45.9
    
    
    
    (45.9
    )
    
    
    414.0Total liabilities and shareholders equity
    
    $
    770.7
    
    
    $
    435.5
    
    
    $
    (378.5
    )
    
    $
    827.7
 7




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Note 6  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Balance Sheets
February 3, 2007
 GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    (8.8
    )
    
    $
    27.2
    
    
    $
    
    
    
    $
    18.4Inventories
    
    
    200.8
    
    
    
    252.6
    
    
    
    
    
    
    
    453.4Deferred income taxes
    
    
    25.6
    
    
    
    6.4
    
    
    
    
    
    
    
    32.0Prepaid expenses and other current assets
    
    
    20.7
    
    
    
    9.7
    
    
    
    
    
    
    
    30.4Total current assets
    
    
    238.3
    
    
    
    295.9
    
    
    
    
    
    
    
    534.2Property, equipment and leasehold improvements,
net
    
    
    149.6
    
    
    
    162.2
    
    
    
    
    
    
    
    311.8Other assets
    
    
    9.2
    
    
    
    1.5
    
    
    
    
    
    
    
    10.7Investment in subsidiaries
    
    
    50.3
    
    
    
    
    
    
    
    (50.3
    )
    
    
    Intercompany receivable
    
    
    358.1
    
    
    
    
    
    
    
    (358.1
    )
    
    
    Total assets
    
    $
    805.5
    
    
    $
    459.6
    
    
    $
    (408.4
    )
    
    $
    856.7Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    144.2
    
    
    $
    3.3
    
    
    $
    
    
    
    $
    147.5Accrued expenses
    
    
    73.2
    
    
    
    1.6
    
    
    
    
    
    
    
    74.8Total current liabilities
    
    
    217.4
    
    
    
    4.9
    
    
    
    
    
    
    
    222.3Long-term debt
    
    
    125.3
    
    
    
    
    
    
    
    
    
    
    
    125.3Deferred income taxes
    
    
    (1.5
    )
    
    
    15.7
    
    
    
    
    
    
    
    14.2Lease obligations and other long-term liabilities
    
    
    54.5
    
    
    
    30.6
    
    
    
    
    
    
    
    85.1Intercompany payable
    
    
    
    
    
    
    358.1
    
    
    
    (358.1
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Additional paid-in capital
    
    
    176.9
    
    
    
    
    
    
    
    
    
    
    
    176.9Retained earnings
    
    
    274.7
    
    
    
    50.3
    
    
    
    (50.3
    )
    
    
    274.7453.0
    
    
    
    50.3
    
    
    
    (50.3
    )
    
    
    453.0Treasury stock, at cost
    
    
    (43.2
    )
    
    
    
    
    
    
    
    
    
    
    (43.2
    )Total shareholders equity
    
    
    409.8
    
    
    
    50.3
    
    
    
    (50.3
    )
    
    
    409.8Total liabilities and shareholders equity
    
    $
    805.5
    
    
    $
    459.6
    
    
    $
    (408.4
    )
    
    $
    856.7
 8




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##### Table of Contents



Note 6  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Operations
Thirteen Weeks Ended May 5, 2007 and April 29, 2006
 May 5, 2007GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net sales
    
    $
    233.1
    
    
    $
    275.9
    
    
    $
    (84.8
    )
    
    $
    424.2Cost of sales (exclusive of depreciation and amortization shown separately below)
    
    
    128.3
    
    
    
    180.1
    
    
    
    (84.8
    )
    
    
    223.6Gross margin
    
    
    104.8
    
    
    
    95.8
    
    
    
    
    
    
    
    200.6Selling, general and administrative expenses
    
    
    93.3
    
    
    
    92.2
    
    
    
    
    
    
    
    185.5Store pre-opening and closing costs
    
    
    0.9
    
    
    
    1.5
    
    
    
    
    
    
    
    2.4Depreciation and amortization
    
    
    6.2
    
    
    
    6.4
    
    
    
    
    
    
    
    12.6Operating profit (loss )
    
    
    4.4
    
    
    
    (4.3
    )
    
    
    
    
    
    
    0.1Interest expense, net
    
    
    1.2
    
    
    
    1.5
    
    
    
    
    
    
    
    2.7Income (loss) before income taxes
    
    
    3.2
    
    
    
    (5.8
    )
    
    
    
    
    
    
    (2.6
    )Income tax provision (benefit)
    
    
    0.5
    
    
    
    (1.4
    )
    
    
    
    
    
    
    (0.9
    )Income (loss) before equity income (loss)
    
    
    2.7
    
    
    
    (4.4
    )
    
    
    
    
    
    
    (1.7
    )Equity loss from subsidiaries
    
    
    (4.4
    )
    
    
    
    
    
    
    4.4
    
    
    
    Net loss
    
    $
    (1.7
    )
    
    $
    (4.4
    )
    
    $
    4.4
    
    
    $
    (1.7
    )
 April 29, 2006GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net sales
    
    $
    235.2
    
    
    $
    300.2
    
    
    $
    (110.7
    )
    
    $
    424.7Cost of sales (exclusive of depreciation and amortization shown separately below)
    
    
    135.3
    
    
    
    202.1
    
    
    
    (110.7
    )
    
    
    226.7Gross margin
    
    
    99.9
    
    
    
    98.1
    
    
    
    
    
    
    
    198.0Selling, general and administrative expenses
    
    
    94.7
    
    
    
    95.0
    
    
    
    
    
    
    
    189.7Store pre-opening and closing costs
    
    
    2.6
    
    
    
    2.9
    
    
    
    
    
    
    
    5.5Depreciation and amortization
    
    
    6.0
    
    
    
    5.6
    
    
    
    
    
    
    
    11.6Operating loss
    
    
    (3.4
    )
    
    
    (5.4
    )
    
    
    
    
    
    
    (8.8
    )Interest expense, net
    
    
    1.5
    
    
    
    2.0
    
    
    
    
    
    
    
    3.5Loss before income taxes
    
    
    (4.9
    )
    
    
    (7.4
    )
    
    
    
    
    
    
    (12.3
    )Income tax benefit
    
    
    (1.9
    )
    
    
    (2.8
    )
    
    
    
    
    
    
    (4.7
    )Loss before equity income
    
    
    (3.0
    )
    
    
    (4.6
    )
    
    
    
    
    
    
    (7.6
    )Equity loss from subsidiaries
    
    
    (4.6
    )
    
    
    
    
    
    
    4.6
    
    
    
    Loss before cumulative effect
    
    
    (7.6
    )
    
    
    (4.6
    )
    
    
    4.6
    
    
    
    (7.6
    )Cumulative effect of accounting change, net of
tax
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Net loss
    
    $
    (6.6
    )
    
    $
    (4.6
    )
    
    $
    4.6
    
    
    $
    (6.6
    )
 9




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##### Table of Contents



Note 6  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Cash Flows
Thirteen Weeks Ended May 5, 2007 and April 29, 2006
 May 5, 2007GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net cash provided by operating activities
    
    $
    4.8
    
    
    $
    5.3
    
    
    $
    
    
    
    $
    10.1Net cash flows used for investing activities:Capital expenditures
    
    
    (2.1
    )
    
    
    (5.3
    )
    
    
    
    
    
    
    (7.4
    )Net cash used for investing activities
    
    
    (2.1
    )
    
    
    (5.3
    )
    
    
    
    
    
    
    (7.4
    )Net cash flows used for financing activities:Net change in revolving credit facility
    
    
    (7.5
    )
    
    
    
    
    
    
    
    
    
    
    (7.5
    )Proceeds from stock-based compensation plans
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    6.0Tax benefits in excess of recognized compensation cost
for stock-based awards
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2Other, net
    
    
    (0.9
    )
    
    
    
    
    
    
    
    
    
    
    (0.9
    )Net cash used for financing activities
    
    
    (1.2
    )
    
    
    
    
    
    
    
    
    
    
    (1.2
    )Net increase in cash and cash equivalents
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5Cash and cash equivalents at beginning of period
    
    
    (8.8
    )
    
    
    27.2
    
    
    
    
    
    
    
    18.4Cash and cash equivalents at end of period
    
    $
    (7.3
    )
    
    $
    27.2
    
    
    $
    
    
    
    $
    19.9
 April 29, 2006GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net cash provided by operating activities
    
    $
    21.3
    
    
    $
    13.3
    
    
    $
    
    
    
    $
    34.6Net cash flows used for investing activities:Capital expenditures
    
    
    (1.9
    )
    
    
    (12.2
    )
    
    
    
    
    
    
    (14.1
    )Net cash used for investing activities
    
    
    (1.9
    )
    
    
    (12.2
    )
    
    
    
    
    
    
    (14.1
    )Net cash flows used for financing activities:Net change in revolving credit facility
    
    
    (13.7
    )
    
    
    
    
    
    
    
    
    
    
    (13.7
    )Proceeds from stock-based compensation plans
    
    
    1.2
    
    
    
    
    
    
    
    
    
    
    
    1.2Other, net
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Net cash used for financing activities
    
    
    (12.3
    )
    
    
    
    
    
    
    
    
    
    
    (12.3
    )Net increase in cash and cash equivalents
    
    
    7.1
    
    
    
    1.1
    
    
    
    
    
    
    
    8.2Cash and cash equivalents at beginning of period
    
    
    15.5
    
    
    
    2.4
    
    
    
    
    
    
    
    17.9Cash and cash equivalents at end of period
    
    $
    22.6
    
    
    $
    3.5
    
    
    $
    
    
    
    $
    26.1
 10




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
  General Overview
    Executive Overview
   
    
    Improve the customer shopping experience;
    
    Enhance our marketing and merchandising offers; and
    
    Refine our new store and remodel programs.
  11




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##### Table of Contents




    
    Net sales decreased 0.1% to $424.2 million from $424.7 million last year.
Same-store sales increased 1.8% versus a 3.9% same-store sales decrease for the first
quarter last year.
    
    Our gross margin rate increased by 70 basis points, to 47.3% of net sales
this quarter versus 46.6% for the first quarter last year. The increase is primarily due
to reduced sales of clearance inventory.
    
    Our selling, general and administrative expenses (SG&A), excluding those
expenses separately identified in the statement of operations, decreased 100 basis points
to 43.7% of net sales from 44.7% of net sales in the first quarter last year. The
improvement in SG&A expenses as a percentage of sales was due to our continued efforts to
control expenses as well as the impact of additional logistics costs incurred in the first
quarter last year related to the opening of the Opelika, Alabama distribution center.
    
    Store pre-opening and closing costs decreased $3.1 million for the first
quarter of fiscal 2008 to $2.4 million, compared with $5.5 million in the first quarter
last year, primarily due to the lower level of store opening and closing activity
year-over-year.
    
    First quarter net loss was $1.7 million or $0.07 loss per diluted share, versus
net loss of $6.6 million or $0.28 loss per diluted share last year. Last year first quarter
results were positively impacted by $0.04 per diluted share due to the cumulative effect
of the change in accounting principle related to adoption of Statement of Financial
Accounting Standards No.123 (revised 2004), Share-Based Payment, (SFAS No. 123R).
 Recent Developments and Business Update
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##### Table of Contents




    
    Same-store sales improving to positive for the year;
    
    Gross margin rate improvement for the year;
    
    SG&A expenses flat for the year, as a percentage of net sales;
    
    Capital spending for the full year of $32 to $38 million; and
    
    Earnings per diluted share in the range of $0.55 to $0.65 for the year.
 Results of Operations
  Percentage of Net SalesThirteen Weeks EndedMay 5, 2007
    
    April 29, 2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %Gross margin
    
    
    47.3
    %
    
    
    46.6
    %Selling, general and administrative expenses
    
    
    43.7
    %
    
    
    44.7
    %Store pre-opening and closing costs
    
    
    0.6
    %
    
    
    1.3
    %Depreciation and amortization
    
    
    3.0
    %
    
    
    2.7
    %Operating profit (loss)
    
    
    0.0
    %
    
    
    (2.1
    )%
 Comparison of the Thirteen Weeks Ended May 5, 2007 to April 29, 2006
 Net Sales .
   13




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##### Table of Contents



Gross Margin.
 Selling, general and administrative expenses.
 Store pre-opening and closing costs.
 Depreciation and amortization.
 Interest expense.
 Income taxes.
 14




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##### Table of Contents



Cumulative effect of change in accounting principle.
 Liquidity and Capital Resources
   Dollars in millions
    
    2008
    
    2007Net cash provided by operating activities
    
    $
    10.1
    
    
    $
    34.6Net cash used for investing activities
    
    
    (7.4
    )
    
    
    (14.1
    )Net cash used for financing activities
    
    
    (1.2
    )
    
    
    (12.3
    )Net increase in cash and cash equivalents
    
    $
    1.5
    
    
    $
    8.2Ending cash and cash equivalents
    
    $
    19.9
    
    
    $
    26.1
 Net cash provided by operating activities
  Net cash used for investing activities
  15




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##### Table of Contents



Thirteen Weeks EndedMay 5,
    
    
    April 29,Dollars in millions
    
    2007
    
    
    2006Cash
    
    $
    4.5
    
    
    $
    6.2Cash - landlord reimbursed
    
    
    2.9
    
    
    
    7.9Total
    
    $
    7.4
    
    
    $
    14.1
    Net cash used for financing activities
   Off-Balance Sheet Transactions
  Seasonality and Inflation
   16




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##### Table of Contents



Critical Accounting Policies
  Contractual Obligations
  Cautionary Statement Concerning Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 17




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##### Table of Contents



Item 4. Controls and Procedures
    
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases of Equity Securities by Jo-Ann Stores, Inc.
 Total Number of
    
    Maximum NumberShares Purchased
    
    of Shares that MayTotal Number
    
    Average
    
    as Part of Publicly
    
    Yet Be Purchasedof Shares
    
    Price Paid
    
    Announced Plans
    
    Under the Plans orPurchased
    
    per Share
    
    or Programs
    
    ProgramsFebruary 4  March 3, 2007
    
    
    17,018
    
    
    $
    22.15
    
    
    
    923,460
    
    
    
    1,226,540March 4 - April 7, 2007
    
    
    24,904
    
    
    $
    18.12
    
    
    
    948,364
    
    
    
    1,201,636April 8 - May 5, 2007
    
    
    407
    
    
    $
    30.30
    
    
    
    948,771
    
    
    
    1,201,229Total
    
    
    42,329
    
    
    $
    19.86
    
    
    
    948,771
    
    
    
    1,201,229
  18




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibits
 31.1
    
    Section 302 Certification By Chief Executive Officer31.2
    
    Section 302 Certification By Chief Financial Officer32.1
    
    Section 906 Certification of Principal Executive Officer and
Principal Financial Officer
 19




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##### Table of Contents



SIGNATURES
  JO-ANN STORES, INC.
 DATE:  June 14, 2007
    /s/ Darrell WebbDarrell WebbPresident and Chief Executive Officer/s/ James KerrJames KerrExecutive Vice President and Chief Financial Officer 20