United States
Securities 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 August 2, 2008
 Commission File No. 1-6695
 Jo-Ann
Stores, Inc.
  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)
 (330) 656-2600
 þ o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




---



##### 



Jo-Ann Stores, Inc.
Form 10-Q Index
For the Quarter Ended August 2, 2008
 Page NumbersPart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  August 2, 2008 (Unaudited),
August 4, 2007 (Unaudited) and February 2, 2008
    
    
    1Unaudited Consolidated Statements of Operations for the Thirteen
and Twenty-Six Weeks Ended August 2, 2008 and August 4, 2007
    
    
    2Unaudited Consolidated Statements of Cash Flows for the
Twenty-Six Weeks Ended August 2, 2008 and August 4, 2007
    
    
    3Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22Part II. Other InformationItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    23Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    24Signatures
    
    
    25




---



##### 



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Jo-Ann
Stores, Inc.
 
 Consolidated Balance Sheets
 (Unaudited)August 2,
    
    
    August 4,
    
    
    February 2,2008
    
    
    2007
    
    
    2008(Dollars in millions, except share and per share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    41.2
    
    
    $
    16.7
    
    
    $
    25.4Inventories
    
    
    472.6
    
    
    
    507.9
    
    
    
    472.2Deferred income taxes
    
    
    25.6
    
    
    
    39.2
    
    
    
    26.4Prepaid expenses and other current assets
    
    
    26.4
    
    
    
    25.0
    
    
    
    23.8Total current assets
    
    
    565.8
    
    
    
    588.8
    
    
    
    547.8Property, equipment and leasehold improvements, net
    
    
    304.6
    
    
    
    307.7
    
    
    
    297.5Goodwill
    
    
    11.8
    
    
    
    
    
    
    
    11.8Other assets
    
    
    12.4
    
    
    
    10.0
    
    
    
    12.3Total assets
    
    $
    894.6
    
    
    $
    906.5
    
    
    $
    869.4Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    171.1
    
    
    $
    178.5
    
    
    $
    145.3Accrued expenses
    
    
    93.1
    
    
    
    70.8
    
    
    
    97.1Total current liabilities
    
    
    264.2
    
    
    
    249.3
    
    
    
    242.4Long-term debt
    
    
    100.0
    
    
    
    159.0
    
    
    
    100.0Long-term deferred income taxes
    
    
    
    
    
    
    14.5
    
    
    
    Lease obligations and other long-term liabilities
    
    
    91.3
    
    
    
    84.0
    
    
    
    87.0Shareholders 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 28,594,867; 27,999,434 and 28,072,032 shares, respectively
    
    
    1.4
    
    
    
    1.4
    
    
    
    1.4Additional paid-in capital
    
    
    203.5
    
    
    
    189.7
    
    
    
    194.6Retained earnings
    
    
    279.8
    
    
    
    253.0
    
    
    
    288.5484.7
    
    
    
    444.1
    
    
    
    484.5Treasury stock, at cost; 3,657,758; 3,581,809 and 3,586,872 shares, respectively
    
    
    (45.6
    )
    
    
    (44.4
    )
    
    
    (44.5
    )Total shareholders equity
    
    
    439.1
    
    
    
    399.7
    
    
    
    440.0Total liabilities and shareholders equity
    
    $
    894.6
    
    
    $
    906.5
    
    
    $
    869.4
  1




---



##### 



Jo-Ann Stores, Inc.
 
 Consolidated Statements of Operations
(Unaudited)
 Thirteen Weeks Ended
    
    Twenty-Six Weeks EndedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,2008
    
    2007
    
    2008
    
    2007(Dollars in millions, except share and per share data)Net sales
    
    $
    403.0
    
    
    $
    388.5
    
    
    $
    849.1
    
    
    $
    812.7Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    211.2
    
    
    
    211.1
    
    
    
    450.5
    
    
    
    434.7Gross margin
    
    
    191.8
    
    
    
    177.4
    
    
    
    398.6
    
    
    
    378.0Selling, general and administrative expenses
    
    
    191.6
    
    
    
    188.1
    
    
    
    376.1
    
    
    
    373.6Store pre-opening and closing costs
    
    
    3.5
    
    
    
    2.7
    
    
    
    5.3
    
    
    
    5.1Depreciation and amortization
    
    
    13.2
    
    
    
    12.8
    
    
    
    26.3
    
    
    
    25.4Operating loss
    
    
    (16.5
    )
    
    
    (26.2
    )
    
    
    (9.1
    )
    
    
    (26.1
    )Interest expense, net
    
    
    2.2
    
    
    
    2.7
    
    
    
    4.6
    
    
    
    5.4Loss before income taxes
    
    
    (18.7
    )
    
    
    (28.9
    )
    
    
    (13.7
    )
    
    
    (31.5
    )Income tax benefit
    
    
    (7.0
    )
    
    
    (10.5
    )
    
    
    (5.0
    )
    
    
    (11.4
    )Net loss
    
    $
    (11.7
    )
    
    $
    (18.4
    )
    
    $
    (8.7
    )
    
    $
    (20.1
    )Net loss per common share  basic
    
    $
    (0.47
    )
    
    $
    (0.76
    )
    
    $
    (0.35
    )
    
    $
    (0.83
    )Net loss per common share  diluted
    
    $
    (0.47
    )
    
    $
    (0.76
    )
    
    $
    (0.35
    )
    
    $
    (0.83
    )Weighted average shares outstanding (in thousands):Basic
    
    
    24,794
    
    
    
    24,346
    
    
    
    24,668
    
    
    
    24,175Diluted
    
    
    24,794
    
    
    
    24,346
    
    
    
    24,668
    
    
    
    24,175
  2




---



##### 



Jo-Ann Stores, Inc.
 
 Consolidated Statements of Cash Flows
(Unaudited)
 Twenty-Six Weeks EndedAugust 2,
    
    
    August 4,2008
    
    
    2007(Dollars in millions)Net cash flows provided by (used for) operating activities:Net loss
    
    $
    (8.7
    )
    
    $
    (20.1
    )Adjustments to reconcile net loss to net cash provided
by (used for) operating activities:Depreciation and amortization
    
    
    26.3
    
    
    
    25.4Deferred income taxes
    
    
    (0.7
    )
    
    
    2.7Stock-based compensation expense
    
    
    5.1
    
    
    
    4.7Amortization of deferred financing costs
    
    
    0.5
    
    
    
    0.5Loss on disposal of fixed assets
    
    
    0.3
    
    
    
    0.5Changes in operating assets and liabilities:Increase in inventories
    
    
    (0.4
    )
    
    
    (54.5
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    (2.6
    )
    
    
    5.4Increase in accounts payable
    
    
    25.8
    
    
    
    31.0Decrease in accrued expenses
    
    
    (4.0
    )
    
    
    (15.2
    )Increase (decrease) in lease obligations, net
    
    
    4.4
    
    
    
    (0.5
    )Decrease in other long-term liabilities
    
    
    (0.1
    )
    
    
    (0.6
    )Other, net
    
    
    0.9
    
    
    
    0.4Net cash provided by (used for) operating activities
    
    
    46.8
    
    
    
    (20.3
    )Net cash flows used for investing activities:Capital expenditures
    
    
    (33.7
    )
    
    
    (21.8
    )Net cash used for investing activities
    
    
    (33.7
    )
    
    
    (21.8
    )Net cash flows provided by financing activities:Net change in revolving credit facility
    
    
    
    
    
    
    33.7Proceeds from stock-based compensation plans
    
    
    3.0
    
    
    
    6.6Other, net
    
    
    (0.3
    )
    
    
    0.1Net cash provided by financing activities
    
    
    2.7
    
    
    
    40.4Net increase (decrease) in cash and cash equivalents
    
    
    15.8
    
    
    
    (1.7
    )Cash and cash equivalents at beginning of period
    
    
    25.4
    
    
    
    18.4Cash and cash equivalents at end of period
    
    $
    41.2
    
    
    $
    16.7Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    4.1
    
    
    $
    4.9Income taxes, net of refunds
    
    
    2.8
    
    
    
    0.9
  3




---



##### 



Notes to Consolidated Financial Statements (Unaudited)
Jo-Ann Stores, Inc
 Note 1  Basis of Presentation
     Note 2  Earnings (Loss) Per Share
   Thirteen Weeks Ended
    
    Twenty-Six Weeks EndedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,2008
    
    2007
    
    2008
    
    2007Weighted average shares outstanding:Basic common shares
    
    
    24,794
    
    
    
    24,346
    
    
    
    24,668
    
    
    
    24,175Incremental shares from assumed
exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Incremental restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted common shares
    
    
    24,794
    
    
    
    24,346
    
    
    
    24,668
    
    
    
    24,175
 4




---



##### 



Note 3  Shareholders Equity
  Common
    
    Additional
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Treasury
    
    
    Stock Stated
    
    Paid-In
    
    Retained
    
    Treasury
    
    ShareholdersShares
    
    Shares
    
    
    Value
    
    Capital
    
    Earnings
    
    Stock
    
    Equity(Shares in thousands)
    
    
    (Dollars in millions)Balance, February 2, 2008
    
    
    24,485
    
    
    
    3,587
    
    
    
    $
    1.4
    
    
    $
    194.6
    
    
    $
    288.5
    
    
    $
    (44.5
    )
    
    $
    440.0Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.7
    )
    
    
    
    
    
    
    (8.7
    )Exercise of stock options
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    2.0Tax on equity compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8Stock-based compensation
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    5.1Purchase of common stock
    
    
    (71
    )
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.1
    )
    
    
    (1.1
    )Associate Stock Ownership
Plan
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Year-to-date activity
    
    
    452
    
    
    
    71
    
    
    
    
    
    
    
    
    8.9
    
    
    
    (8.7
    )
    
    
    (1.1
    )
    
    
    (0.9
    )Balance, August 2, 2008
    
    
    24,937
    
    
    
    3,658
    
    
    
    $
    1.4
    
    
    $
    203.5
    
    
    $
    279.8
    
    
    $
    (45.6
    )
    
    $
    439.1
  Note 4  Segment Reporting
    5




---



##### 



Large-format
    
    Small-format(Dollars in millions)
    
    Stores
    
    Stores
    
    Other
    
    ConsolidatedThirteen Weeks Ended August 2, 2008Net sales
    
    $
    209.0
    
    
    $
    186.9
    
    
    $
    7.1
    
    
    $
    403.0Store pre-opening and closing costs
    
    
    1.5
    
    
    
    2.0
    
    
    
    
    
    
    
    3.5Depreciation and amortization
    
    
    7.8
    
    
    
    2.3
    
    
    
    3.1
    
    
    
    13.2Operating profit (loss)
    
    
    5.5
    
    
    
    12.3
    
    
    
    (34.3
    )
    
    
    (16.5
    )Capital expenditures
    
    
    6.5
    
    
    
    7.3
    
    
    
    6.6
    
    
    
    20.4Thirteen Weeks Ended August 4, 2007Net sales
    
    $
    202.8
    
    
    $
    185.7
    
    
    $
    
    
    
    $
    388.5Store pre-opening and closing costs
    
    
    0.9
    
    
    
    1.8
    
    
    
    
    
    
    
    2.7Depreciation and amortization
    
    
    7.8
    
    
    
    2.2
    
    
    
    2.8
    
    
    
    12.8Operating profit (loss)
    
    
    (2.0
    )
    
    
    7.2
    
    
    
    (31.4
    )
    
    
    (26.2
    )Capital expenditures
    
    
    5.3
    
    
    
    5.6
    
    
    
    3.5
    
    
    
    14.4Twenty-Six Weeks Ended August 2, 2008Net sales
    
    $
    439.2
    
    
    $
    394.6
    
    
    $
    15.3
    
    
    $
    849.1Store pre-opening and closing costs
    
    
    2.7
    
    
    
    2.6
    
    
    
    
    
    
    
    5.3Depreciation and amortization
    
    
    15.6
    
    
    
    4.5
    
    
    
    6.2
    
    
    
    26.3Operating profit (loss)
    
    
    21.0
    
    
    
    37.2
    
    
    
    (67.3
    )
    
    
    (9.1
    )Capital expenditures
    
    
    11.0
    
    
    
    8.1
    
    
    
    14.6
    
    
    
    33.7Property, equipment and leasehold
improvements, net
    
    
    161.1
    
    
    
    35.2
    
    
    
    108.3
    
    
    
    304.6Twenty-Six Weeks Ended August 4, 2007Net sales
    
    $
    422.1
    
    
    $
    390.6
    
    
    $
    
    
    
    $
    812.7Store pre-opening and closing costs
    
    
    1.8
    
    
    
    3.3
    
    
    
    
    
    
    
    5.1Depreciation and amortization
    
    
    15.4
    
    
    
    4.4
    
    
    
    5.6
    
    
    
    25.4Operating profit (loss)
    
    
    8.8
    
    
    
    28.6
    
    
    
    (63.5
    )
    
    
    (26.1
    )Capital expenditures
    
    
    11.7
    
    
    
    6.1
    
    
    
    4.0
    
    
    
    21.8Property, equipment and leasehold
improvements, net
    
    
    173.4
    
    
    
    38.8
    
    
    
    95.5
    
    
    
    307.7
 Note 5  Consolidating Financial Statements (Unaudited)
   6




---



##### 



Consolidating Balance Sheets
August 2, 2008
 GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    15.5
    
    
    $
    25.7
    
    
    $
    
    
    
    $
    41.2Inventories
    
    
    207.1
    
    
    
    265.5
    
    
    
    
    
    
    
    472.6Deferred income taxes
    
    
    18.6
    
    
    
    7.0
    
    
    
    
    
    
    
    25.6Prepaid expenses and other current assets
    
    
    18.7
    
    
    
    7.7
    
    
    
    
    
    
    
    26.4Total current assets
    
    
    259.9
    
    
    
    305.9
    
    
    
    
    
    
    
    565.8Property, equipment and leasehold improvements,
net
    
    
    156.0
    
    
    
    148.6
    
    
    
    
    
    
    
    304.6Goodwill
    
    
    11.8
    
    
    
    
    
    
    
    
    
    
    
    11.8Other assets
    
    
    18.5
    
    
    
    (6.1
    )
    
    
    
    
    
    
    12.4Investment in subsidiaries
    
    
    70.2
    
    
    
    
    
    
    
    (70.2
    )
    
    
    Intercompany receivable
    
    
    344.5
    
    
    
    
    
    
    
    (344.5
    )
    
    
    Total assets
    
    $
    860.9
    
    
    $
    448.4
    
    
    $
    (414.7
    )
    
    $
    894.6Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    164.8
    
    
    $
    6.3
    
    
    $
    
    
    
    $
    171.1Accrued expenses
    
    
    97.3
    
    
    
    (4.2
    )
    
    
    
    
    
    
    93.1Total current liabilities
    
    
    262.1
    
    
    
    2.1
    
    
    
    
    
    
    
    264.2Long-term debt
    
    
    100.0
    
    
    
    
    
    
    
    
    
    
    
    100.0Lease obligations and other long-term liabilities
    
    
    59.7
    
    
    
    31.6
    
    
    
    
    
    
    
    91.3Intercompany payable
    
    
    
    
    
    
    344.5
    
    
    
    (344.5
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Additional paid-in capital
    
    
    203.5
    
    
    
    
    
    
    
    
    
    
    
    203.5Retained earnings
    
    
    279.8
    
    
    
    70.2
    
    
    
    (70.2
    )
    
    
    279.8484.7
    
    
    
    70.2
    
    
    
    (70.2
    )
    
    
    484.7Treasury stock, at cost
    
    
    (45.6
    )
    
    
    
    
    
    
    
    
    
    
    (45.6
    )Total shareholders equity
    
    
    439.1
    
    
    
    70.2
    
    
    
    (70.2
    )
    
    
    439.1Total liabilities and shareholders equity
    
    $
    860.9
    
    
    $
    448.4
    
    
    $
    (414.7
    )
    
    $
    894.6
 7




---



##### 



Note 5  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Balance Sheets
February 2, 2008
 GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    (1.0
    )
    
    $
    26.4
    
    
    $
    
    
    
    $
    25.4Inventories
    
    
    208.5
    
    
    
    263.7
    
    
    
    
    
    
    
    472.2Deferred income taxes
    
    
    20.1
    
    
    
    6.3
    
    
    
    
    
    
    
    26.4Prepaid expenses and other current assets
    
    
    17.8
    
    
    
    6.0
    
    
    
    
    
    
    
    23.8Total current assets
    
    
    245.4
    
    
    
    302.4
    
    
    
    
    
    
    
    547.8Property, equipment and leasehold improvements,
net
    
    
    142.8
    
    
    
    154.7
    
    
    
    
    
    
    
    297.5Goodwill
    
    
    11.8
    
    
    
    
    
    
    
    
    
    
    
    11.8Other assets
    
    
    12.8
    
    
    
    (0.5
    )
    
    
    
    
    
    
    12.3Investment in subsidiaries
    
    
    70.9
    
    
    
    
    
    
    
    (70.9
    )
    
    
    Intercompany receivable
    
    
    355.5
    
    
    
    
    
    
    
    (355.5
    )
    
    
    Total assets
    
    $
    839.2
    
    
    $
    456.6
    
    
    $
    (426.4
    )
    
    $
    869.4Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    151.6
    
    
    $
    (6.3
    )
    
    $
    
    
    
    $
    145.3Accrued expenses
    
    
    96.5
    
    
    
    0.6
    
    
    
    
    
    
    
    97.1Total current liabilities
    
    
    248.1
    
    
    
    (5.7
    )
    
    
    
    
    
    
    242.4Long-term debt
    
    
    100.0
    
    
    
    
    
    
    
    
    
    
    
    100.0Long-term deferred income taxes
    
    
    (5.2
    )
    
    
    5.2
    
    
    
    
    
    
    
    Lease obligations and other long-term liabilities
    
    
    56.3
    
    
    
    30.7
    
    
    
    
    
    
    
    87.0Intercompany payable
    
    
    
    
    
    
    355.5
    
    
    
    (355.5
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Additional paid-in capital
    
    
    194.6
    
    
    
    
    
    
    
    
    
    
    
    194.6Retained earnings
    
    
    288.5
    
    
    
    70.9
    
    
    
    (70.9
    )
    
    
    288.5484.5
    
    
    
    70.9
    
    
    
    (70.9
    )
    
    
    484.5Treasury stock, at cost
    
    
    (44.5
    )
    
    
    
    
    
    
    
    
    
    
    (44.5
    )Total shareholders equity
    
    
    440.0
    
    
    
    70.9
    
    
    
    (70.9
    )
    
    
    440.0Total liabilities and shareholders equity
    
    $
    839.2
    
    
    $
    456.6
    
    
    $
    (426.4
    )
    
    $
    869.4
 8




---



##### 



Note 5  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Operations
Thirteen Weeks Ended August 2, 2008 and August 4, 2007
 August 2, 2008GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net sales
    
    $
    215.2
    
    
    $
    304.2
    
    
    $
    (116.4
    )
    
    $
    403.0Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    121.2
    
    
    
    206.4
    
    
    
    (116.4
    )
    
    
    211.2Gross margin
    
    
    94.0
    
    
    
    97.8
    
    
    
    
    
    
    
    191.8Selling, general and administrative expenses
    
    
    99.0
    
    
    
    92.6
    
    
    
    
    
    
    
    191.6Store pre-opening and closing costs
    
    
    2.2
    
    
    
    1.3
    
    
    
    
    
    
    
    3.5Depreciation and amortization
    
    
    6.7
    
    
    
    6.5
    
    
    
    
    
    
    
    13.2Operating loss
    
    
    (13.9
    )
    
    
    (2.6
    )
    
    
    
    
    
    
    (16.5
    )Interest expense, net
    
    
    0.9
    
    
    
    1.3
    
    
    
    
    
    
    
    2.2Loss before income taxes
    
    
    (14.8
    )
    
    
    (3.9
    )
    
    
    
    
    
    
    (18.7
    )Income tax benefit
    
    
    (5.7
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    (7.0
    )Loss before equity loss
    
    
    (9.1
    )
    
    
    (2.6
    )
    
    
    
    
    
    
    (11.7
    )Equity loss from subsidiaries
    
    
    (2.6
    )
    
    
    
    
    
    
    2.6
    
    
    
    Net loss
    
    $
    (11.7
    )
    
    $
    (2.6
    )
    
    $
    2.6
    
    
    $
    (11.7
    )
 August 4 , 2007GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net sales
    
    $
    211.3
    
    
    $
    301.5
    
    
    $
    (124.3
    )
    
    $
    388.5Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    121.5
    
    
    
    213.9
    
    
    
    (124.3
    )
    
    
    211.1Gross margin
    
    
    89.8
    
    
    
    87.6
    
    
    
    
    
    
    
    177.4Selling, general and administrative expenses
    
    
    94.6
    
    
    
    93.5
    
    
    
    
    
    
    
    188.1Store pre-opening and closing costs
    
    
    1.3
    
    
    
    1.4
    
    
    
    
    
    
    
    2.7Depreciation and amortization
    
    
    6.3
    
    
    
    6.5
    
    
    
    
    
    
    
    12.8Operating loss
    
    
    (12.4
    )
    
    
    (13.8
    )
    
    
    
    
    
    
    (26.2
    )Interest expense, net
    
    
    1.3
    
    
    
    1.4
    
    
    
    
    
    
    
    2.7Loss before income taxes
    
    
    (13.7
    )
    
    
    (15.2
    )
    
    
    
    
    
    
    (28.9
    )Income tax benefit
    
    
    (4.2
    )
    
    
    (6.3
    )
    
    
    
    
    
    
    (10.5
    )Loss before equity loss
    
    
    (9.5
    )
    
    
    (8.9
    )
    
    
    
    
    
    
    (18.4
    )Equity loss from subsidiaries
    
    
    (8.9
    )
    
    
    
    
    
    
    8.9
    
    
    
    Net loss
    
    $
    (18.4
    )
    
    $
    (8.9
    )
    
    $
    8.9
    
    
    $
    (18.4
    )
 9




---



##### 



Note 5  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Operations
Twenty-Six Weeks Ended August 2, 2008 and August 4, 2007
 August 2, 2008GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net sales
    
    $
    453.8
    
    
    $
    640.8
    
    
    $
    (245.5
    )
    
    $
    849.1Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    260.8
    
    
    
    435.2
    
    
    
    (245.5
    )
    
    
    450.5Gross margin
    
    
    193.0
    
    
    
    205.6
    
    
    
    
    
    
    
    398.6Selling, general and administrative expenses
    
    
    187.4
    
    
    
    188.7
    
    
    
    
    
    
    
    376.1Store pre-opening and closing costs
    
    
    3.1
    
    
    
    2.2
    
    
    
    
    
    
    
    5.3Depreciation and amortization
    
    
    13.2
    
    
    
    13.1
    
    
    
    
    
    
    
    26.3Operating
(loss) income
    
    
    (10.7
    )
    
    
    1.6
    
    
    
    
    
    
    
    (9.1
    )Interest expense, net
    
    
    2.0
    
    
    
    2.6
    
    
    
    
    
    
    
    4.6Loss before income taxes
    
    
    (12.7
    )
    
    
    (1.0
    )
    
    
    
    
    
    
    (13.7
    )Income tax benefit
    
    
    (4.7
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (5.0
    )Loss before equity loss
    
    
    (8.0
    )
    
    
    (0.7
    )
    
    
    
    
    
    
    (8.7
    )Equity loss from subsidiaries
    
    
    (0.7
    )
    
    
    
    
    
    
    0.7
    
    
    
    Net loss
    
    $
    (8.7
    )
    
    $
    (0.7
    )
    
    $
    0.7
    
    
    $
    (8.7
    )
 August 4, 2007GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net sales
    
    $
    444.4
    
    
    $
    577.4
    
    
    $
    (209.1
    )
    
    $
    812.7Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    249.8
    
    
    
    394.0
    
    
    
    (209.1
    )
    
    
    434.7Gross margin
    
    
    194.6
    
    
    
    183.4
    
    
    
    
    
    
    
    378.0Selling, general and administrative expenses
    
    
    187.9
    
    
    
    185.7
    
    
    
    
    
    
    
    373.6Store pre-opening and closing costs
    
    
    2.2
    
    
    
    2.9
    
    
    
    
    
    
    
    5.1Depreciation and amortization
    
    
    12.5
    
    
    
    12.9
    
    
    
    
    
    
    
    25.4Operating loss
    
    
    (8.0
    )
    
    
    (18.1
    )
    
    
    
    
    
    
    (26.1
    )Interest expense, net
    
    
    2.5
    
    
    
    2.9
    
    
    
    
    
    
    
    5.4Loss before income taxes
    
    
    (10.5
    )
    
    
    (21.0
    )
    
    
    
    
    
    
    (31.5
    )Income tax benefit
    
    
    (3.7
    )
    
    
    (7.7
    )
    
    
    
    
    
    
    (11.4
    )Loss before equity loss
    
    
    (6.8
    )
    
    
    (13.3
    )
    
    
    
    
    
    
    (20.1
    )Equity loss from subsidiaries
    
    
    (13.3
    )
    
    
    
    
    
    
    13.3
    
    
    
    Net loss
    
    $
    (20.1
    )
    
    $
    (13.3
    )
    
    $
    13.3
    
    
    $
    (20.1
    )
 10




---



##### 



Note 5  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Cash Flows
Twenty-Six Weeks Ended August 2, 2008 and August 4, 2007
 August 2, 2008GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net cash provided by operating activities
    
    $
    42.4
    
    
    $
    4.4
    
    
    $
    
    
    
    $
    46.8Net cash flows used for investing activities:Capital expenditures
    
    
    (28.6
    )
    
    
    (5.1
    )
    
    
    
    
    
    
    (33.7
    )Net cash used for investing activities
    
    
    (28.6
    )
    
    
    (5.1
    )
    
    
    
    
    
    
    (33.7
    )Net cash flows provided by financing activities:Proceeds from stock-based compensation plans
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    3.0Other, net
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Net cash provided by financing activities
    
    
    2.7
    
    
    
    
    
    
    
    
    
    
    
    2.7Net increase (decrease) in cash and cash equivalents
    
    
    16.5
    
    
    
    (0.7
    )
    
    
    
    
    
    
    15.8Cash and cash equivalents at beginning of period
    
    
    (1.0
    )
    
    
    26.4
    
    
    
    
    
    
    
    25.4Cash and cash equivalents at end of period
    
    $
    15.5
    
    
    $
    25.7
    
    
    $
    
    
    
    $
    41.2
 August 4, 2007GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net cash (used for) provided by operating activities
    
    $
    (32.8
    )
    
    $
    12.5
    
    
    $
    
    
    
    $
    (20.3
    )Net cash flows used for investing activities:Capital expenditures
    
    
    (8.5
    )
    
    
    (13.3
    )
    
    
    
    
    
    
    (21.8
    )Net cash used for investing activities
    
    
    (8.5
    )
    
    
    (13.3
    )
    
    
    
    
    
    
    (21.8
    )Net cash flows provided by financing activities:Net change in revolving credit facility
    
    
    33.7
    
    
    
    
    
    
    
    
    
    
    
    33.7Proceeds from stock-based compensation plans
    
    
    6.6
    
    
    
    
    
    
    
    
    
    
    
    6.6Other, net
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Net cash provided by financing activities
    
    
    40.4
    
    
    
    
    
    
    
    
    
    
    
    40.4Net decrease in cash and cash equivalents
    
    
    (0.9
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    (1.7
    )Cash and cash equivalents at beginning of period
    
    
    (8.8
    )
    
    
    27.2
    
    
    
    
    
    
    
    18.4Cash and cash equivalents at end of period
    
    $
    (9.7
    )
    
    $
    26.4
    
    
    $
    
    
    
    $
    16.7
 Note 6  Subsequent Event
  11




---



##### 



12




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  General Overview
    Executive Overview
     13




---



##### 



Recent Developments and Business Update
  
    
    Same-store sales growth of 2.0% to 3.5% for the year versus the previously announced
range of 1% to 3%;
    
    Gross margin rate improvement for the year;
    
    SG&A expense leverage improvement as a percentage of net sales for the year;
    
    Capital expenditures for the full year of approximately $60 million versus our previous
estimate of $50 to $55 million;
    
    Earnings per diluted share in the range of $0.95 to $1.05 for the year versus the
previously announced range of $0.75 to $0.85; and
 
 14




---



##### 




    
    Weighted-average diluted share count of approximately 25.5 million shares for the year.
 Results of Operations
  Percentage of Net SalesThirteen
    
    Twenty-Six WeeksWeeks Ended
    
    EndedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,2008
    
    2007
    
    2008
    
    2007Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross margin
    
    
    47.6
    %
    
    
    45.7
    %
    
    
    46.9
    %
    
    
    46.5
    %Selling, general and administrative
expenses
    
    
    47.5
    %
    
    
    48.4
    %
    
    
    44.3
    %
    
    
    46.0
    %Store pre-opening and closing costs
    
    
    0.9
    %
    
    
    0.7
    %
    
    
    0.6
    %
    
    
    0.6
    %Depreciation and amortization
    
    
    3.3
    %
    
    
    3.3
    %
    
    
    3.1
    %
    
    
    3.1
    %Operating loss
    
    
    (4.1
    )%
    
    
    (6.7
    )%
    
    
    (1.1
    )%
    
    
    (3.2
    )%
 Comparison of the Thirteen Weeks Ended August 2, 2008 to August 4, 2007
 Net Sales.
     15




---



##### 



Gross Margin.
 Selling, general and administrative expenses.
 Store pre-opening and closing costs.
  Depreciation and amortization.
 Operating loss.
 16




---



##### 



Interest expense.
 Income taxes.
 Comparison of the Twenty-Six Weeks Ended August 2, 2008 to August 4, 2007
 Net Sales.
     17




---



##### 



Gross Margin.
 Selling, general and administrative expenses.
  Store pre-opening and closing costs.
   Depreciation and amortization.
 18




---



##### 



Operating loss.
   Interest expense.
 Income taxes.
 Liquidity and Capital Resources
   Dollars in millions
    
    2009
    
    2008Net cash provided by (used for) operating activities
    
    $
    46.8
    
    
    $
    (20.3
    )Net cash used for investing activities
    
    
    (33.7
    )
    
    
    (21.8
    )Net cash provided by financing activities
    
    
    2.7
    
    
    
    40.4Net increase (decrease) in cash and cash equivalents
    
    $
    15.8
    
    
    $
    (1.7
    )Ending cash and cash equivalents
    
    $
    41.2
    
    
    $
    16.7
 Net cash provided by (used for) operating activities
  19




---



##### 



Net cash used for investing activities
  Twenty-Six Weeks 
EndedAugust 2,
    
    
    August 4,Dollars in millions
    
    2008
    
    
    2007Cash
    
    $
    30.9
    
    
    $
    17.7Cash  landlord reimbursed
    
    
    2.8
    
    
    
    4.1Total
    
    $
    33.7
    
    
    $
    21.8
  Net cash provided by financing activities
    20




---



##### 



Off-Balance Sheet Transactions
  Seasonality and Inflation
   Critical Accounting Policies
  Contractual Obligations
  Cautionary Statement Concerning Forward-Looking Statements
  21




---



##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
    22




---



##### 



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
    
    ProgramsMay 4  31, 2008
    
    
    1,400
    
    
    $
    18.91
    
    
    
    1,086,945
    
    
    
    1,063,055June 1  July 5, 2008
    
    
    802
    
    
    $
    23.91
    
    
    
    1,087,747
    
    
    
    1,062,253July 6  August 2, 2008
    
    
    10,068
    
    
    $
    22.16
    
    
    
    1,097,815
    
    
    
    1,052,185Total
    
    
    12,270
    
    
    $
    21.90
    
    
    
    1,097,815
    
    
    
    1,052,185
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
 a)
    
    Our Annual Meeting of Shareholders was held on June 11, 2008.b)
    
    Eight directors were elected to serve on the Board of Directors until
the 2009 Annual Meeting of Shareholders and until a successor is elected and
qualified. In addition, directors whose terms in office as directors continued
after the 2008 Annnual Meeting were Scott Cowen and Alan Rosskamm.
 23




---



##### 



c)
    
    The nominees for Directors as listed in the proxy statement were
elected with the following vote:
 Nominee
    
    Votes For
    
    
    Votes WithheldJoseph DePinto
    
    
    21,863,633
    
    
    
    250,850Ira Gumberg
    
    
    17,605,299
    
    
    
    4,509,184Patricia Morrison
    
    
    18,263,236
    
    
    
    3,851,247Frank Newman
    
    
    17,802,327
    
    
    
    4,312,156David Perdue
    
    
    21,894,149
    
    
    
    220,334Beryl Raff
    
    
    17,845,083
    
    
    
    4,269,400Tracey Travis
    
    
    18,407,100
    
    
    
    3,707,383Darrell Webb
    
    
    17,989,358
    
    
    
    4,125,125
 d)
    
    To ratify the selection of Ernst & Young LLP to serve as our independent
registered public accountants for the fiscal year ending January 31, 2009.
 Votes For
    
    Votes Against
    
    Abstentions22,100,182
    
    5,859
    
    8,441
 e)
    
    To approve a new Incentive Compensation Plan.
 Votes For
    
    Votes Against
    
    Abstentions13,559,386
    
    6,510,438
    
    29,592
 f)
    
    To approve a new Associate Stock Ownership Plan.
 Votes For
    
    Votes Against
    
    Abstentions19,967,123
    
    103,960
    
    28,334
 
 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
 24




---



##### 



SIGNATURES
  JO-ANN STORES, INC.DATE: September 11, 2008
    /s/ Darrell WebbDarrell Webb,President and Chief Executive Officer/s/ James KerrJames Kerr,Executive Vice President and Chief Financial Officer 25