ACMR ACM Research Inc

Berlin, New Jersey-based A.C. Moore Arts & Crafts, Inc (ACMR) reported a loss of 32 cents in the second quarter of 2011, below the Zacks Consensus Estimate of a loss of 28 cents, but above the year-ago quarter's loss of 40 cents. The company continues to report a deficit due to poor sales.

Total revenue of the specialty retailer of arts, crafts and floral merchandise fell 0.8% year over year to $99.0 million in the reported quarter attributable to a 0.7% plunge in same-store sales. Same-store sales remained soft due to a 1.1% dip in transactions, and 0.4% decrease in average ticket.

The gross profit for the quarter inched up 0.4% year over year to $43.3 million and gross margin inched up 60 basis points (bps) to 43.8%. The upside in gross margin was driven by supply chain efficiencies and improvements in inventory control and security, partially offset by the plunge in merchandise margin.

Selling, general and administrative expenses dropped 0.2% year over year to $51.0 million in the second quarter due to reduced advertising expenses, partially offset by an upside in payroll during the quarter. However, selling, general and administrative expenses, as a percentage of revenue, were up 30 bps to 51.5%.

Stores Update

During the quarter, A.C. Moore opened no new stores but remodeled 3 stores. The company currently operates 135 stores and plans to open no more stores in 2011. A.C. Moore expects to close one store in the third quarter of 2011.

Financial Position

A.C. Moore ended the quarter with cash and cash equivalents of $16.2 million and shareholders’ equity of $117.1 million.

The company expects cash and cash equivalents of approximately $30 million for fiscal 2011.

Outlook

For 2011, the company anticipates a lower net loss compared to 2010.

Our Take

The company continues to undertake various initiatives to drive traffic and improve profitability but  A.C. Moore has a long way to go. Hence, we expect a downward movement in estimates over the coming days. The Zacks Consensus Estimates for 2011 and 2012 are pegged at a loss of 66 cents and 36 cents, respectively.

On February 15, A.C. Moore reported that the board of directors is exploring strategic alternatives. This process is still in progress and the company does not plan to comment unless an option is approved.

A.C. Moore competes mainly with Cash America International, Inc (CSH) and Hot Topic Inc. (HOTT). A.C. Moore currently retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. We are also maintaining our long-term “Neutral” recommendation on the stock.

 
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