KeyBanc Cuts Jo-Ann Stores to Underweight
KeyBanc downgraded Jo-Ann Stores (JAS ) to underweight from hold, saying that the company's quarterly results revealed unwise spending and not enough performance in business lines like apparel sewing and quilting.
Analyst Charles Ceranosky says he had forecast breakeven for the quarter, but the sewing and craft retailer's gross margins fell 217 basis points as a result of excessive promotional and markdown activity. He noted that the company's Selling, General and Administrative Expenses were up as well, making matters worse. Meanwhile the company's sewing categories (apparel, quilting, and home decor) have all weakened with no rebound in sight. He noted that year to date performance suggests the company will use $125 million in cash this fiscal year, which will curtail capital expansion for fiscal year 2007. He cut his 85 cents fiscal year 2006 (ending January) earnings per share estimate to 23 cents and his $1.30 fiscal year 2007 estimate to 85 cents.