Here’s a major challenge facing the scrapbook category: According to the Photo Marketing Assn.’s 2010 U.S. Camera/Camcorder Digital Imaging Survey, only 61% of digital camera owners made paper prints in 2009. Furthermore, U.S. households that made prints were most likely to print fewer than 10% of the pictures they saved, stored, or kept.

Yes, there’s digital scrapbooking, but in general, if consumers don’t print photos, they won’t buy many supplies to scrap them. What can we do about that? Send your ideas to me at mike@clnonline.com and I’ll share them with the readers.

NEW COLUMNS THIS ISSUE

Category Reports. A long-time veteran of the needlework business gives a brief, personal look at the history of the industry’s trends and her predictions for the future.

Scene & Heard. Ellie Joos compares the design and color trends from the recent, successful Quilt Market and the New York Stationery show. Industry veteran Doxie Keller’s report on the Society of Decorative Painters’ annual convention and show in Wichita.

Business-Wise. The notes about Mike Dupey keep coming, from the couple who made the first Michaels sign with him, and from his sister.

Kizer & Bender. Practical, simple ways to separate yourself – and protect yourself – from the competition.

Industry Research. Information about the new Quilting in America™ 2010 study.

(Note: To read the columns, click on the column title in the left-hand column. If it's not the column you expected, click the Reload or Refresh button of your browser.)

TAKE THE CLN POLL: PREDICTING THE SECOND HALF

 CLN voters had a very mixed view of the first months of 2010. What are your expectations for the second half of 2010? Will your business be up, down, or flat? To vote, click on Industry Polls in the right-hand column or click HERE.

CLN POLL: EVALUATING THE FIRST HALF

CLN voters are almost equally divided about how the year has been thus far. Only 15.2% believe the first half of 2010 has been much better than expected, while 9.1% think it has been much worse. Another 12.1% believe it has been somewhat better, but 27.3% say it has been somewhat worse. The remainder, 36.4%, believe the year has gone as expected.

MICHAELS: PROFITS TRIPLE

For the quarter ended May 1, Michaels reported net income of $13 million, a $9 million improvement from net income of $4 million a year ago. Operating income increased from $64 million to $105 million, caused by stronger sales, better margins, more effective promotions, and closely controlled expenses

Total sales rose 5.7% to $901 million, and same-store increased 4.9% of which 160 basis points were related to the positive impact of foreign exchange rates. There was a 3.7% increase in average ticket and a 1.2% increase in transactions.

CEO John Menzer said, “We were pleased with the strengthening sales trends and the improvement of our operations during the first quarter. A number of key categories performed well during the first quarter, including Custom Framing, Bakeware, and Jewelry. Michaels continues to make significant improvements in the customer shopping experience, particularly with expanded classroom programs and in-store events. These programs create excitement and drive increased store traffic. Strong product offerings, increased classroom participation, and a strengthening retail environment all contributed to the increase in our comparable store sales performance.”

The gross margin rate rose 230 basis points to 39.3%, thanks to an increase in imports, and improved management of promotional and clearance markdowns. Selling, general and administrative expense as a percent of sales improved 170 basis points to 27.2%.

Interest expense for the quarter was $68 million, an increase of $5 million due to a higher interest rate margin. Adjusted EBITDA was $138 million (15.3% of sales), compared to $107 million, (12.6% of sales) a year ago. Average Michaels store inventory, inclusive of distribution centers, was $803,000, down 3.6%.

Debt levels totaled $3.695 billion, down approximately $262 million from the prior year. By the end of the first quarter Michaels had $79 million in cash and approximately $651 million available under its revolving credit facility.

JO-ANN: SALES UP, PROFITS DOUBLE

For the quarter ended May 1, net income was $18.2 million ($0.66/diluted share), more than double the net income of $8.6 million ($0.33) a year ago. The prior year first quarter net income includes a $0.7 million ($0.03) after-tax gain related to the purchase of a portion of the company’s senior subordinated notes. Excluding this gain, net income for the prior year first quarter was $7.9 million ($0.30).

Analysts polled by Thomson Reuters expected the company to earn 44 cents per share on revenue of $479.7 million, Forbes reported. Shortly after the earnings announcement, the stock price rose 4.7%.

As a result of the improved earnings, the company increased its expectations for its earnings/diluted share for the year from $2.75-$2.90 to $2.95-$3.10. In a conference call with analysts after the earnings release, Webb said the sewing business represented 53% of sales and same-store sales rose 5.5%. Strong-performing categories were quilting, fleece, and notions. Home dec fabric sales were slightly negative. Non-sewing same-store sales rose 3.2%. Strong categories were florals, kids crafts and food crafting. Seasonal merchandise and custom framing showed positive sales trends for the first time in two years.

Net sales for the quarter increased 4.4% to $480.3 million and same-store sales rose 4.1%. Large-format store sales increased 3.9% to $257.2 and same-store sales rose 1.9%. Small-format store sales increased 4.9% to $212.8 million and same-store sales rose 6.9%. Joann.com e-commerce sales increased 8.4% to $10.3 million.

Chair/CCO Darrell Webb said, “Our team delivered record financial results in the first quarter of fiscal 2011. Sales remained strong, even as we began to cycle positive sales results from the previous year. Our seasonal merchandise and custom framing categories, which struggled through the recession, delivered positive sales trends for the first time in two years. I was also pleased with our continuing progress on global sourcing and inventory management, which contributed to our gross margin improvement."

Gross margins for the quarter increased to 50.5% from 48.5% due to global sourcing efforts, improved inventory management of seasonal and clearance merchandise, and promotional markdown optimization. Selling, general and administrative expenses for the quarter increased 2.6% to $195.4 million, 40.7% of sales. Operating profit increased to $30.6 million from $14.9 million a year ago.

The cash balance increased $75.7 million to $160.7 million. The company had no debt outstanding at the end of the quarter, a reduction of $50.5 million compared to a year ago.

During the quarter, Jo-Ann opened two large-format and eight small-format stores, closed six small-format stores, and remodeled 12 stores. Because of the positive results, the company cancelled plans to close five stores. For the year, the company expects to open approximately 30 new stores, close approximately 25 stores, and remodel at least 40 stores.

In addition to increasing its expected earnings, management expects same-store sales will increase 2.5%-3.5% for the year; the gross margin rate to improve 40-70 basis points, rather than the previously announced range of 20-50 basis points; and selling, general and administrative expenses as a percentage of net sales to increase 30-60 basis points, rather than the previously announced range of 20-50 basis points.

Webb concluded, “We believe Jo-Ann Stores is positioned for sustainable sales and margin growth as we execute our strategic initiatives.”

HANCOCK: SALES, PROFITS DOWN

Net sales for its first quarter ended May 1 were $63.1 million, down from $64.1 million a year ago, and same-store sales decreased 2.2%. E-commerce sales rose 9.9%. Operating income was $17,000, down from $0.6 million last year. The decline was the result of a 0.8% decrease in transaction count and a 0.9% decline in average ticket. In a filing with the SEC, the company said, “Sales were adversely impacted by the aggressive discounting of slower moving seasonal fashion merchandise and the continued economic downturn, which has hindered the sales of home dec fabrics and accessories.”

The net loss was $1.3 million ($0.07/share), compared to a loss of $0.9 million ($0.05) a year ago. Adjusted EBITDA (cash flow) for the quarter was $1.6 million, down  $0.6 million, but the amount of cash generated from operations before reorganization activities increased by $146,000 to $2.1 million during the quarter.

Inventories have been reduced by $7.6 million compared to the same period last year, ending the quarter at $93.0 million.

By the end of the quarter, Hancock had outstanding borrowings under its revolving line of credit of $13.7 million and outstanding letters of credit of $7.7 million. The company increased its borrowings by $102,000 during the quarter. Additional amounts available to borrow under its revolving line of credit totaled $43.5 million.

Gross margin was down to 43.9% from 45.1% due to increases in merchandise and freight costs, offset by improvements in sourcing and warehousing expenses. Selling, general and administrative expenses declined by $0.6 million to $26.6 million (42.2% of sales) from $27.2 million (42.4% of sales).

During the quarter Hancock opened one store and remodeled 11 locations. The current store count is 266.

President/CEO Jane Aggers said, “While our results for the quarter were below our expectations, we made significant progress in remedying merchandising and inventory issues carried forward from last year. This resulted in a temporary impact on gross margins for the quarter. Store revenues began the quarter slowly but have steadily increased through the end of the quarter and this trend has continued into the second quarter.”

SO WHAT DO THESE QUARTERLY REPORTS TELL US?

1. Consumers are feeling more confident. Michaels and Jo-Ann both finally cited improved sales in custom framing. Readymade frames are far less expensive. But the economy is still hurting the housing market, which doesn’t help home dec fabric sales.

2. Consumers may be more confident these days, but apparently when they stayed home and made projects with their families they enjoyed the experience and have continued to do so.

3. Jo-Ann and Hancock announced better margins than Michaels, probably because they sell fabric and Michaels does not.

4. Retailers continue to cite increased direct importing as a reason for better margins. During the conference call with analysts, Michaels CEO John Menzer said 35% of the stores’ inventory was now private label. That’s not all direct imports, but a good proportion probably is.

5. Scrapbooking, while still maintaining substantial amounts of shelf space, was not cited as a leading performer.

6. The latest CHA Attitude & Usage study indicated industry sales were relatively flat, yet Michaels and Jo-Ann are doing well, as is Hobby Lobby from all reports. How can all this be true? Possibly because Wal-Mart is not the industry player it once was.

MICHAELS’ STORE MANAGERS EVENT

Michaels is having an event in Dallas in August which all store managers will attend. The company did not respond to CLN’s questions concerning the specifics, but CLN understands vendors are being invited to pay $10,000 for a 10’x10’ booth, although no ordering will be allowed.

One vendor told CLN, “There are two ways to look at this: 1. The chance to get face-to-face with 1,100 store managers at one time, people who make things happen at store level (or can make you or break you at store level) is very valuable. In some ways, it’s better than standing around a convention center for four days hoping someone will stop by. 2. It’s just a way for Michaels to get the vendors to pay for their store managers meeting.”

“Sounds like a $10,000 gift to Michaels,” another industry veteran said.

The event also raises the questions about the CHA summer show in July. “It could affect this year’s show if companies have tightened their budgets and can't afford an extra show,” the vendor said. “Something has to give.” Others believe too many commitments have been made for the show and vendors will not drop the summer show. But if this becomes an annual event, it might affect vendors’ plans for the summer show in 2011.

HIGHLIGHTS OF THE NEW QUILT STUDY  

The Quilting in America™ 2010 survey, the sixth such study conducted since 1994, was conducted by Quilts Inc., sponsor of the Quilt Markets and Festivals, and Quilters Newsletter, published by Creative Crafts Group. Some results:

1. The size of the quilt market is almost $3.6 billion, up 9% since the last survey in 2006.

2. The number of U.S. households with a “Dedicated Quilter” (one spending $600+ annually on quilting supplies) is up 13% to just over one million.

3. The average Dedicated Quilter spends $2442/year, up 10%.

4. The total number of quilting households in the U.S. is 16.38 million, down 14% from 2006, but the average yearly expenditure among all quilting households is up 27%.

For more information about the study, click HERE or email pubs@quilts.com.

 MAY SALES: TEPID

The Int. Council of Shopping Centers same-store sales index rose only 2.6%, and that was in comparison with May 2009 when sales had declined 4.6%. Based on 28 retailers tracked by Thomson Reuters, same-store sales rose 2.5%, lower than Wall Street predicted, Reuters reported.

Analysts cited a number of possible causes: the Gulf oil disaster, the Greek financial crisis, and the stock market’s miserable May no doubt made consumers more cautious. Then add cool weather and a late Memorial Day weekend and the result was a mixed – at best – sales performance.

"These results are disappointing, especially considering where the estimates have come down since the earnings calls from retailers in the latter part of May," Wall Street Strategies analyst Brian Sozzi told Reuters.

A sampling of same-store sales results: BJ's Wholesale Club, +11.3% … Costco, +9.0% … Saks, +5.8% … Limited Brands. +5.0% … Macy’s, +1.4% … Target, +1.3% …  Gap, +1.0% … J.C. Penney, -1.8% … Abercrombie & Fitch, -3.0% … American Eagle, -3.0%. (Note: Our industry’s chains only report quarterly sales.)

THE BEAD&BUTTON SHOW IS ALMOST HERE

Those who think the bead category is simply what they see at trade shows and in craft stores should attend the upcoming Bead&Button show in Milwaukee June 11-13. Consider: 14,000+ attendees; 600+ classes, some of which are as early as June 6; 120,000 sq.-ft. show floor for 370 exhibitors, most of whom do not exhibit at our industry’s trade shows.

Another unique feature: The show could be much larger – there’s a waiting list of 300 companies. By keeping the show the same size, and not selling booths to everyone who wants one, show sponsor Kalmbach Publishing virtually guarantees the show will be crowded, bustling, and upbeat, and companies who do exhibit will have a good show. For info, visit www.bead&buttonshow.com.

THE BIG GUYS 1, THE LITTLE GUYS 0

Let’s see if we have this straight: According to the Associated Press, six recalls by Mattel for excessive lead paint (approximately six million toys) were a major inspiration for the Consumer Product Safety Improvement Act. While the legislation was being considered, Mattel spent about $1.5 million to have the law include a provision giving the Consumer Product Safety Commission the power to grant vendors permission to use their own labs.

The CPSIA has proven to be vague, confusing, and expensive for many industry vendors who have to send their new products to certified testing labs. Now the CPSC voted unanimously to allow Mattel to use its own labs.

“It’s a little bit like the fox guarding the henhouse,” Don Mays, Sr. Director of Product Safety for Consumer Union, publisher of Consumer Reports, told the AP.

“If Mattel had done its job right in the first place,” a vendor told CLN, “We wouldn’t have had this mess.” 

PUBLISHERS: THE FUTURE IS (ALMOST) HERE

 Many magazines have suffered declines in revenue as advertisers devote more of their marketing budget to new media forms, but the iPad will change that. Consider the June issue of Vanity Fair, as described by New York Times blogger Stephanie Clifford.

Readers can buy an “app” at the iTunes store for $4.99, same as the hard-cover cover price. But advertisers can do more than a hard-copy ad, and the iPad readers receive much more.

One advertiser, Aveeno, includes several videos with its ad for hair care products. Another, Clinique, embedded its Facebook page in its ad. An ad for a movie included a trailer for the film. There were videos for the editorial, too, including a behind-the-scenes look at photographer Annie Leibovitz preparing for a photo shoot of World Cup soccer players.

Consider the possibilities: A bead vendor could include a video in the ad, or a yarn company could have a mini-fashion show; all advertisers could have a direct, immediate link to their websites; a how-to project could include a video of the designer explaining why she designed in the way she did, or demonstrate a particular step in the process.

UPDATE: SHOWS & EVENTS

PAPER. Industry pro Julie McGuffee reports on the recent Great American Scrapbook Convention on her blog at www.juliemcguffee.blogspot.com.

TNNA. Is offering a series of excellent, free mini-seminars in the lounge in the middle of the Columbus show floor. Topics include using social media, color and fashion trends, e-newsletters, inventory management, etc. The show is next weekend. To see the list, click HERE. … The Stitch N’ Pitch program is off and running again with fans able to buy discounted tickets to major and minor league games, sit together, and stitch as they watch the game. Visit HERE.

DEADLINE. At least five of the show hotels for the CHA trade and consumer shows in Rosemont next month are sold out. Visit www.chashow.org. …CHA has extended the deadline for submitting new products for the Summer Show’s Innovations Showcase to June 14. Visit www.chashow.org.

SCRAPBOOKING. Scrapbook Expo reports the recent event in New Jersey had a 20% increase in attendance over last year’s show.

YARN. Knit Maine 2010 is a two-day event showcasing and supporting Maine’s independent needlework stores, teachers, designers, and local farms/producers of yarn. A wide variety of events are planned for the event Aug. 28-29 in Freeport. It’s supported in part by donations and sponsorships by local businesses and local and national suppliers of needlework products. For more, call Phyllis Howe (917-847-7377) or Lisa Evans (207-409-6293).

PHOTOS. The Photo Marketing Assn.’s press release reporting on its recent show in Anaheim talked about how good the show was, but gave no statistics on the size of the show or number of attendees. Now PMA announced next year’s show is moving from the first quarter of the year to September (8-10) in Las Vegas, because of “changes in industry buying cycles and technology developments.”

STATIONERY. Gifts & Decorative Accessories published a positive report on the recent National Stationery Show in New York, but reports from vendors talking to CLN weren’t nearly as positive. One trend G&DA noticed: “…vendors who ‘downsized’ their booth space last year because of the economy and maintained the same this year, when they realized that they could manage just as well in a more compact space.”

SEWING. On a recent episode of Oprah, actress Julia Roberts reported she has taken up sewing and has made pillows and pants for her husband. A few years ago Roberts told the media if she wasn’t an actress she’d want to open a craft store.

NEEDLEPOINT. A needlepoint trade show – online – begins June 12 and runs through June 30. Visit www.destinationneedlepoint.com. (Comment: It will be interesting to see if this online event affects attendance at the TNNA show in Columbus June 12-14.)

KNITTING. The fifth series of Knitting Daily uploads July 18 to PBS stations. It’s produced by KS Inc. Productions in conjunction with Aspire Media and is hosted by Eunny Jang, Shay Pendray, and Kristen Omdahl. Segments include “Getting Started,” “Crochet Corner,” “Designer Spotlight,” “How To,” and “Knit Along.”

RANDOM NOTES, RANDOM THOUGHTS 

1. The owners of Toys“R”Us filed a preliminary registration statement with the Securities and Exchange Commission related to a proposed initial public offering of its common stock. One of those owners is Bain Capital, part owner of Michaels. I suspect that’s the plan for Michaels someday, too.

2. Here’s the latest example of how technology is changing our world. The current issue of GQ magazine includes “augmented reality” ads for Calvin Klein underwear. According to a report in DM News, readers can go to xmarkyourspot.com and hold up the ads to webcams to see videos of the campaign models. I’m not rushing out to buy a webcam so I can watch videos of underwear models, but this concept may be a harbinger of the future. Visit HERE.

MISCELLANEOUS NEWS: RETAIL

FATHER’S DAY. Michaels is hosting a series of Saturday free and under $3 Father’s Day gift-making events featuring unique projects such as Duck Tape® wallets, foam can hugs, T-shirts, picture frames, and more. To see more projects, visit www.michaels.com/fathersday. ... Jo-Ann will host a free make-it/take-it event in every store on Sat., June 19 from 1 to 3 p.m. Children will have the opportunity to make cards for Dad or Grandpa. … According to the National Retail Federation’s 2010 Father’s Day Consumer Intentions and Actions Survey, the average person will spend $94.32 on dad this year, up from $90.89 last year. Total Father’s Day spending is expected to reach $9.8 billion.

SHOWS. CHA issued a press release announcing that Michaels will partner with CHA to promote the Craft SuperShow in Rosemont July 30-31. Michaels will conduct in-store show promos and provide consumers with special discount codes for the show. Michaels will also exhibit at the show.

JO-ANN. Is sponsoring Kids' Camp!(R) for children five and older. The Camp will teach various sewing and craft projects. There is a preview of the Camp this Saturday – and July 10 – at all stores. More information is available at www.Joann.com.

WEDDINGS. Darice is granting Jo-Ann exclusive retail distribution rights for a new line of wedding products developed for Darice by leading lifestyle expert David Tutera. Joann will carry a 4’ high-profile section of accessories, embellishments and décor, all designed by Tutera.  This section contains stylish, fashion-forward items for both the wedding ceremony and the reception. Tutera is the author of four books; is the host of WE TV’s series, My Fair Wedding with David Tutera; and has received the “Best Celebrity Wedding Planner” award. The new line will be in stores in early 2011. 

PAPER. A.C. Moore has revamped its papercrafting department with new brands and 1,500+ new items.

WAL-MART. The company’s quarterly report was clearly mixed. Total sales rose 6% to $99.1 billion, but sales in U.S. stores rose only 1.1%, and same-store sales actually declined 1.4%. … To reduce shipping costs, the company notified suppliers it will take over deliveries in instances where Wal-Mart can haul the products to distribution centers and stores more cheaply and efficiently than the vendors. In return, Wal-Mart will want lower prices. That, however, may increase vendors’ costs to ship to other retailers. … CEO Mike Duke said in the company’s annual report that growth in the U.S. will be generated by “innovative new formats.” Look for the company to test smaller stores in urban centers. … An Anderson, CA Wal-Mart employee who rescues and cares for abused goats won $2 million on a scratch-off lottery ticket, CBS13 TV station reported. Beverly Evens said she’ll use the money to continue her work with goats – and keep working at Wal-Mart.

PRODUCT SAFETY. As if vendors and retailers didn’t have enough headaches with the Consumer Product Safety Improvement Act, now state legislatures are getting into the act by trying to pass their own requirements. The Toy Industry Assn. recently helped defeat such legislation in Connecticut, and is now mobilizing to stop efforts by the New York legislature from banning “chemicals of concern” in children’s products. To read more, visit HERE.

E-COMMERCE. A number of states have formed a coalition to lobby Congress to pass legislation allowing states to collect sales tax on all online and catalog purchases. The National Conference of State Legislatures says that would eliminate 13% of the states’ combined budget gaps. A bill is expected to be introduced this summer.

STOCKS. A.C. Moore: $2.68, down $0.67 ... Hancock: $0.45, down $0.48 ... Jo‑Ann: $42.81, up $0.17 ... Wal‑Mart: $50.40, down $1.72 ... Dow Jones: 9,931.97, down 6.5%. (Note: All changes in price are since 5/14 and are exclusive of dividends.)

[ top ]

MISCELLANEOUS NEWS

MERGERS. Negotiations between CHA and the Canadian Craft & Hobby Assn. are progressing. A final document will be prepared and presented to the CCHA board by the end of this month with a presentation date to members and a final vote taking place during the summer. “The terms discussed are in line with the original points put forward to the members,” the CCHA newsletter reported. The target date for this merger is September 1.

CONSUMERS. For the third month in a row, the Consumer Confidence Index rose in May to 63.3 from 57.7 in April, although it’s still weak from a historical perspective (1985=100).

TV. Recently actress Betty White was a huge hit as host of Saturday Night Live at age 88. Back in 1954 she appeared on one of the earliest TV shows, The Al Jarvis Show, with none other than Aleene Jackson, the founder of Aleene’s Tacky Glue. To see a photo of them on the show, visit HERE.

LOEW-CORNELL. Is increasing its marketing efforts. It introduced veteran painter/author Gisele Pople as its spokesperson, revamped/enhanced its website, and launched a new pay-for-publication program. To learn more, visit www.loew-cornell.com.

LOGO. Jacquard Products introduced an impressive new logo and “wave” graphic to show the artistic nature of its product lines. The company will integrate the new branding into existing products and update their packaging to create a uniform look. It will be featured on new product packaging and has been updated on existing kits. New products include Jewel Tones Tie Dye Kits, the Mehndi Glitter Kit, and Camo (camouflage) Tie Dye Kits. Visit www.jacquardproducts.com.

INTERNET. Flower Soft and Katy Sue Designs have launched Flower Soft TV, a scrapbook, cardmaking, and general craft series. The professionally filmed weekly series can be watched on demand. Each week a new half-hour program will be uploaded. The shows will cover the basics, plus new ideas for more advanced crafters. And each month retailers will receive “As seen on Flower Soft TV” specials or promotions in advance so they can capitalize on the increased interest in the featured product lines. Free “As Seen On TV” graphics will be available through the digital download section of the website. There will also be competitions and special downloads available every month. Visit www.flower-soft.tv.

ROLODEX. Clover Needlecraft is moving to a new facility. As of June 28 the address will be 1441 S. Carlos Ave., Ontario, CA 91761. New phone: 909-218-2160; new fax: 909-218-2161. The toll-free number (800-233-1703); emails (cni@clover-usa.com and customercare@clover-usa.com); and website (www.clover-usa.com) remain the same.

CREATIVE MEMORIES. Announced it was laying off 30 employees, 6% of its payroll, and the resignation of CEO Asha Morgan Moran. COO Chris Veit becomes CEO.

[ top ]

THE CREATIVE NETWORK: JOB OPENINGS

To see the latest listings by the only personnel recruitment firm specializing in our industry, click on Jobs in the left-hand column or click HERE.

[ top ]

THE WORLD’S WORST COMPANY SLOGAN

American Airlines’ slogan is, “We Know Why You Fly.” Oh? Here’s why we fly: Because we have to.

[ top ]