##### Table of Contents



United StatesSecurities and Exchange Commission
 WASHINGTON, D.C. 20549
 
 Form
10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF 
THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended May 1, 2010
 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 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 Yes o No þ




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##### 



Jo-Ann Stores, Inc.
Form 10-Q Index
For the Quarter Ended May 1, 2010
 Page NumbersPart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  May 1, 2010 (Unaudited), May 2, 2009 (Unaudited) and January 30, 2010
    
    
    1Unaudited Consolidated Statements of Operations for the Thirteen Weeks Ended May 1, 2010 and May 2, 2009
    
    
    2Unaudited Consolidated Statements of Cash Flows for the Thirteen Weeks Ended May 1, 2010 and May 2, 2009
    
    
    3Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    7Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17Part 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
    
    
    18Item 4. Reserved
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    18Signatures
    
    
    19Exhibit 31.1Exhibit 31.2Exhibit 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)May 1,
    
    
    May 2,
    
    
    January 30,2010
    
    
    2009
    
    
    2010(Dollars in millions, except share and per share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    160.7
    
    
    $
    85.0
    
    
    $
    217.1Inventories
    
    
    405.0
    
    
    
    406.6
    
    
    
    416.8Deferred income taxes
    
    
    21.6
    
    
    
    19.6
    
    
    
    22.3Prepaid expenses and other current assets
    
    
    28.2
    
    
    
    28.5
    
    
    
    29.9Total current assets
    
    
    615.5
    
    
    
    539.7
    
    
    
    686.1Property, equipment and leasehold improvements, net
    
    
    294.3
    
    
    
    307.0
    
    
    
    293.7Goodwill
    
    
    11.6
    
    
    
    11.6
    
    
    
    11.6Other assets
    
    
    8.3
    
    
    
    8.4
    
    
    
    9.0Total assets
    
    $
    929.7
    
    
    $
    866.7
    
    
    $
    1,000.4Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    145.4
    
    
    $
    135.6
    
    
    $
    151.1Accrued expenses
    
    
    94.6
    
    
    
    84.4
    
    
    
    128.6Senior subordinated notes  short term
    
    
    
    
    
    
    
    
    
    
    47.5Total current liabilities
    
    
    240.0
    
    
    
    220.0
    
    
    
    327.2Long-term debt
    
    
    
    
    
    
    50.5
    
    
    
    Long-term deferred income taxes
    
    
    3.9
    
    
    
    1.7
    
    
    
    2.2Lease obligations and other long-term liabilities
    
    
    106.0
    
    
    
    106.7
    
    
    
    105.4Commitments and contingencies (Note 5)Shareholders 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 30,681,031; 29,188,133 and 29,989,966 shares, respectively
    
    
    1.5
    
    
    
    1.5
    
    
    
    1.5Additional paid-in capital
    
    
    249.6
    
    
    
    214.2
    
    
    
    234.7Retained earnings
    
    
    395.2
    
    
    
    319.0
    
    
    
    377.0646.3
    
    
    
    534.7
    
    
    
    613.2Treasury stock, at cost; 4,226,518; 3,744,482 and 3,773,890 shares, respectively
    
    
    (66.5
    )
    
    
    (46.9
    )
    
    
    (47.6
    )Total shareholders equity
    
    
    579.8
    
    
    
    487.8
    
    
    
    565.6Total liabilities and shareholders equity
    
    $
    929.7
    
    
    $
    866.7
    
    
    $
    1,000.4
   1




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##### Table of Contents



Jo-Ann Stores, Inc.
 
 Consolidated Statements of Operations
 (Unaudited)
 Thirteen Weeks EndedMay 1,
    
    
    May 2,2010
    
    
    2009(Dollars in millions, except shareand per share data)Net sales
    
    $
    480.3
    
    
    $
    460.0Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    237.9
    
    
    
    237.1Gross margin
    
    
    242.4
    
    
    
    222.9Selling, general and administrative expenses
    
    
    195.4
    
    
    
    190.4Store pre-opening and closing costs
    
    
    2.2
    
    
    
    3.6Depreciation and amortization
    
    
    14.2
    
    
    
    14.0Operating profit
    
    
    30.6
    
    
    
    14.9Gain on purchase of senior subordinated notes
    
    
    
    
    
    
    (1.2
    )Interest expense, net
    
    
    0.9
    
    
    
    1.6Income before income taxes
    
    
    29.7
    
    
    
    14.5Income tax provision
    
    
    11.5
    
    
    
    5.9Net income
    
    $
    18.2
    
    
    $
    8.6Net income per common share  basic
    
    $
    0.69
    
    
    $
    0.34Net income per common share  diluted
    
    $
    0.66
    
    
    $
    0.33Weighted average shares outstanding (in thousands):Basic
    
    
    26,312
    
    
    
    25,303Diluted
    
    
    27,375
    
    
    
    25,844
   2




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Jo-Ann Stores, Inc.
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Thirteen Weeks EndedMay 1,
    
    
    May 2,2010
    
    
    2009(Dollars in millions)Net cash flows provided by operating activities:Net income
    
    $
    18.2
    
    
    $
    8.6Adjustments
to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    14.2
    
    
    
    14.0Deferred income taxes
    
    
    2.4
    
    
    
    2.4Stock-based compensation expense
    
    
    2.0
    
    
    
    1.6Amortization of deferred financing costs
    
    
    0.3
    
    
    
    0.2Loss on disposal of fixed assets
    
    
    0.3
    
    
    
    0.5Gain on purchase of senior subordinated notes
    
    
    
    
    
    
    (1.2
    )Changes in operating assets and liabilities:Decrease in inventories
    
    
    11.8
    
    
    
    22.8Decrease in prepaid expenses and other current assets
    
    
    1.7
    
    
    
    3.2Decrease in accounts payable
    
    
    (5.7
    )
    
    
    (9.5
    )Decrease in accrued expenses
    
    
    (34.0
    )
    
    
    (18.5
    )Increase in other long-term liabilities
    
    
    0.6
    
    
    
    0.5Other, net
    
    
    0.3
    
    
    
    0.6Net cash provided by operating activities
    
    
    12.1
    
    
    
    25.2Cash flows used for investing activities:Capital expenditures
    
    
    (15.0
    )
    
    
    (6.6
    )Cash used for investing activities
    
    
    (15.0
    )
    
    
    (6.6
    )Net cash flows used for financing activities:Purchase of senior subordinated notes
    
    
    (47.5
    )
    
    
    (14.1
    )Proceeds from stock-based compensation plans
    
    
    7.5
    
    
    
    1.3Purchase of common stock
    
    
    (18.9
    )
    
    
    (1.1
    )Excess tax benefit (deficit) on stock-based compensation
    
    
    5.4
    
    
    
    (0.3
    )Net cash used for financing activities
    
    
    (53.5
    )
    
    
    (14.2
    )Net (decrease) increase in cash and cash equivalents
    
    
    (56.4
    )
    
    
    4.4Cash and cash equivalents at beginning of period
    
    
    217.1
    
    
    
    80.6Cash and cash equivalents at end of period
    
    $
    160.7
    
    
    $
    85.0Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    2.1
    
    
    $
    2.8Income taxes, net of refunds
    
    
    15.2
    
    
    
    7.7
   3




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Notes to Consolidated Financial Statements (Unaudited)
 Jo-Ann Stores, Inc
 Note 1  Basis of Presentation
          4




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##### Table of Contents



Note 2  Earnings Per Share
   Thirteen Weeks EndedMay 1,
    
    
    May 2,2010
    
    
    2009Weighted average shares outstanding:Basic common shares
    
    
    26,312
    
    
    
    25,303Incremental shares from assumed exercise of stock options
    
    
    456
    
    
    
    60Incremental restricted shares
    
    
    607
    
    
    
    481Diluted common shares
    
    
    27,375
    
    
    
    25,844
   Note 3  Shareholders Equity
  Common
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    
    Treasury
    

    Stock Stated
    
    
    Paid-In
    
    
    Treasury
    
    
    Retained
    
    
    ShareholdersShares
    
    
    Shares
    

    Value
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    Equity(Shares in thousands)
    

    (Dollars in millions)Balance, January 30, 2010
    
    
    26,216
    
    
    
    3,774
    

    $
    1.5
    
    
    $
    234.7
    
    
    $
    (47.6
    )
    
    $
    377.0
    
    
    $
    565.6Net income
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    18.2
    
    
    
    18.2Exercise of stock options
    
    
    394
    
    
    
    
    
    

    
    
    
    
    6.6
    
    
    
    
    
    
    
    
    
    
    
    6.6Excess tax benefits on
stock-based compensation
    
    
    
    
    
    
    
    
    

    
    
    
    
    5.4
    
    
    
    
    
    
    
    
    
    
    
    5.4Stock-based compensation
    
    
    258
    
    
    
    
    
    

    
    
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    2.0Purchase of common stock
    
    
    (453
    )
    
    
    453
    
    

    
    
    
    
    
    
    
    
    (18.9
    )
    
    
    
    
    
    
    (18.9
    )Associate Stock Ownership Plan
    
    
    39
    
    
    
    
    
    

    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    0.9Year-to-date activity
    
    
    238
    
    
    
    453
    
    

    
    
    
    
    14.9
    
    
    
    (18.9
    )
    
    
    18.2
    
    
    
    14.2Balance, May 1, 2010
    
    
    26,454
    
    
    
    4,227
    

    $
    1.5
    
    
    $
    249.6
    
    
    $
    (66.5
    )
    
    $
    395.2
    
    
    $
    579.8
  5




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Note 4  Financing
   Note 5  Commitments and Contingencies
  Note 6   Subsequent Events
  Note 7  Segment Reporting
    6




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Large-format
    
    
    Small-format(Dollars in millions)
    
    Stores
    
    
    Stores
    
    
    Other
    
    
    ConsolidatedThirteen Weeks Ended May 1, 2010Net sales
    
    $
    257.2
    
    
    $
    212.8
    
    
    $
    10.3
    
    
    $
    480.3Store pre-opening and closing costs
    
    
    0.3
    
    
    
    1.9
    
    
    
    
    
    
    
    2.2Depreciation and amortization
    
    
    7.5
    
    
    
    2.8
    
    
    
    3.9
    
    
    
    14.2Operating profit (loss)
    
    
    30.8
    
    
    
    31.5
    
    
    
    (31.7
    )
    
    
    30.6Capital expenditures
    
    
    3.3
    
    
    
    8.2
    
    
    
    3.5
    
    
    
    15.0Property, equipment and leasehold
improvements, net
    
    
    147.2
    
    
    
    62.2
    
    
    
    84.9
    
    
    
    294.3Thirteen Weeks Ended May 2, 2009Net sales
    
    $
    247.6
    
    
    $
    202.9
    
    
    $
    9.5
    
    
    $
    460.0Store pre-opening and closing costs
    
    
    1.8
    
    
    
    1.8
    
    
    
    
    
    
    
    3.6Depreciation and amortization
    
    
    7.9
    
    
    
    2.6
    
    
    
    3.5
    
    
    
    14.0Operating profit (loss)
    
    
    21.9
    
    
    
    25.6
    
    
    
    (32.6
    )
    
    
    14.9Capital expenditures
    
    
    3.6
    
    
    
    0.8
    
    
    
    2.2
    
    
    
    6.6Property, equipment and leasehold
improvements, net
    
    
    166.3
    
    
    
    49.4
    
    
    
    91.3
    
    
    
    307.0
 
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  General Overview
    7




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Executive Overview
            8




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Recent Developments and Business Update
 Outlook for Fiscal 2011
  
    
    Same-store sales increase of approximately 2.5% to 3.5% for the year;
 
    
    Gross margin rate improvement of 40 to 70 basis points for the year versus the
previously announced range of approximately 20 to 50 basis points;
 
    
    SG&A, as a percentage of net sales, improvement of 30 to 60 basis points for the
year versus the previously announced range of approximately 20 to 50 basis points;
 
    
    Capital expenditures, net of landlord allowances, for the full year of
approximately $50 million;
 
    
    Earnings per diluted share in the range of $2.95 to $3.10 for the year versus the
previously announced range of $2.75 to $2.90;
 
    
    Free cash flow in the range of $80 to $85 million for the year (free cash flow defined
as net income plus depreciation and amortization, stock-based compensation expense and
changes in working capital, less capital expenditures, net of landlord allowances);
 
    
    Weighted-average diluted share count of approximately 27.4 million shares for the year.
 Results of Operations
  Percentage of Net SalesThirteenWeeks EndedMay 1,
    
    
    May 2,2010
    
    
    2009Net sales
    
    
    100.0
    %
    
    
    100.0
    %Gross margin
    
    
    50.5
    %
    
    
    48.5
    %Selling, general and administrative expenses
    
    
    40.7
    %
    
    
    41.4
    %Store pre-opening and closing costs
    
    
    0.5
    %
    
    
    0.8
    %Depreciation and amortization
    
    
    2.9
    %
    
    
    3.1
    %Operating profit
    
    
    6.4
    %
    
    
    3.2
    %
  9




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Net Sales .
 Consolidated Net Sales
 Thirteen Weeks EndedMay 1,
    
    
    May 2,
    
    
    Percentage(Dollars in millions)
    
    2010
    
    
    2009
    
    
    ChangeConsolidated net sales
    
    $
    480.3
    
    
    $
    460.0
    
    
    
    4.4
    %Increase from prior year
    
    $
    20.3Same-store sales percentage change
    
    
    4.1
    %
    
    
    1.0
    %
 Comparison of the Thirteen Weeks Ended May 1, 2010 to May 2, 2009
    Sales by Segment:
 Thirteen Weeks EndedMay 1,
    
    
    May 2,
    
    
    Percentage(Dollars in millions)
    
    2010
    
    
    2009
    
    
    ChangeLarge-format storesNet sales
    
    $
    257.2
    
    
    $
    247.6
    
    
    
    3.9
    %Increase from prior year
    
    $
    9.6Same-store sales percentage change
    
    
    1.9
    %
    
    
    (0.6
    )%Small-format storesNet sales
    
    $
    212.8
    
    
    $
    202.9
    
    
    
    4.9
    %Increase from prior year
    
    $
    9.9Same-store sales percentage change
    
    
    6.9
    %
    
    
    3.0
    %OtherNet sales
    
    $
    10.3
    
    
    $
    9.5
    
    
    
    8.4
    %Increase from prior year
    
    $
    0.8
  10




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Comparison of the Thirteen Weeks Ended May 1, 2010 to May 2, 2009
      Gross Margin.
 Gross Margin:
 Thirteen Weeks EndedMay 1,
    
    
    May 2,
    
    
    Percentage(Dollars in millions)
    
    2010
    
    
    2009
    
    
    ChangeGross margin
    
    $
    242.4
    
    
    $
    222.9
    
    
    
    8.7
    %Increase from prior year
    
    $
    19.5Percentage of consolidated net sales
    
    
    50.5
    %
    
    
    48.5
    %
   11




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Selling, general and administrative expenses.
  Selling, General and Administrative Expenses:
 Thirteen Weeks EndedMay 1,
    
    
    May 2,
    
    
    Percentage(Dollars in millions)
    
    2010
    
    
    2009
    
    
    ChangeSelling, General and Administrative Expenses
    
    $
    195.4
    
    
    $
    190.4
    
    
    
    2.6
    %Increase from prior year
    
    $
    5.0Percentage of consolidated net sales
    
    
    40.7
    %
    
    
    41.4
    %
  Store pre-opening and closing costs.
 Store pre-opening and closing costs:
 Thirteen Weeks EndedMay 1,
    
    
    May 2,
    
    
    Percentage(Dollars in millions)
    
    2010
    
    
    2009
    
    
    ChangeStore pre-opening and closing costs
    
    $
    2.2
    
    
    $
    3.6
    
    
    
    38.9
    %Decrease from prior year
    
    $
    (1.4
    )Percentage of consolidated net sales
    
    
    0.5
    %
    
    
    0.8
    %Store pre-opening costs
    
    $
    1.7
    
    
    $
    1.9
    
    
    
    10.5
    %Decrease from prior year
    
    $
    (0.2
    )Stores opened
    
    
    10
    
    
    
    12Store closing costs
    
    $
    0.5
    
    
    $
    1.7
    
    
    
    70.6
    %Decrease from prior year
    
    $
    (1.2
    )Stores closed
    
    
    6
    
    
    
    13
  12




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Depreciation and amortization.
 Operating Profit:
 Thirteen Weeks EndedMay 1,
    
    
    May 2,
    
    
    Percentage(Dollars in millions)
    
    2010
    
    
    2009
    
    
    ChangeOperating profit
    
    $
    30.6
    
    
    $
    14.9
    
    
    
    105.4
    %Increase from prior year
    
    $
    15.7Percentage of consolidated net sales
    
    
    6.4
    %
    
    
    3.2
    %
  Operating Profit (Loss) by Segment:
 Thirteen Weeks EndedMay 1,
    
    
    May 2,
    
    
    Percentage(Dollars in millions)
    
    2010
    
    
    2009
    
    
    ChangeLarge-format storesOperating profit
    
    $
    30.8
    
    
    $
    21.9
    
    
    
    40.6
    %Increase from prior year
    
    $
    8.9Small-format storesOperating profit
    
    $
    31.5
    
    
    $
    25.6
    
    
    
    23.0
    %Increase from prior year
    
    $
    5.9OtherOperating loss
    
    $
    (31.7
    )
    
    $
    (32.6
    )
    
    
    2.8
    %Decrease from prior year
    
    $
    0.9
 Comparison of the Thirteen Weeks Ended May 1, 2010 to May 2, 2009
   13




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Gain on purchase of senior subordinated notes.
 Interest expense.
  Income taxes .
 Liquidity and Capital Resources
   Dollars in millions
    
    2011
    
    2010Net cash provided by operating activities
    
    $
    12.1
    
    
    $
    25.2Cash used for investing activities
    
    
    (15.0
    )
    
    
    (6.6
    )Net cash used for financing activities
    
    
    (53.5
    )
    
    
    (14.2
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (56.4
    )
    
    $
    4.4Ending cash and cash equivalents
    
    $
    160.7
    
    
    $
    85.0
  14




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Net cash provided by operating activities
  Cash used for investing activities
  Thirteen Weeks EndedMay 1,
    
    
    May 1,Dollars in millions
    
    2010
    
    
    2009Cash
    
    $
    12.0
    
    
    $
    1.8Cash  landlord reimbursed
    
    
    3.0
    
    
    
    4.8Total
    
    $
    15.0
    
    
    $
    6.6
  Net cash used for financing activities
     15




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Off-Balance Sheet Transactions
  Seasonality and Inflation
   Critical Accounting Policies
  Contractual Obligations
   16




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Cautionary Statement Concerning Forward-Looking Statements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.
    
    Controls and Procedures
     17




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##### Table of Contents



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
    
    
    ProgramsJanuary 31  February 27,
2010
    
    
    522
    
    
    $
    36.87
    
    
    
    1,214,469
    
    
    
    935,531February 28  April 3, 2010
    
    
    351,995
    
    
    $
    41.48
    
    
    
    1,566,464
    
    
    
    583,536April 4  May 1, 2010
    
    
    100,111
    
    
    $
    42.65
    
    
    
    1,666,575
    
    
    
    483,425Total
    
    
    452,628
    
    
    $
    41.73
    
    
    
    1,666,575
    
    
    
    483,425
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Reserved
 
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 Exhibits
 No.
    
    Exhibit Description31.1
    
    
    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
  18




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##### Table of Contents



SIGNATURES
  JO-ANN STORES, INC.DATE: June 10, 2010
    /s/ Darrell WebbDarrell Webb,Chief Executive Officer/s/ James KerrJames Kerr,Executive Vice President and Chief Financial Officer  19