A.C. Moore Arts & Crafts, Inc. (Nasdaq:ACMR) (the "Company”)
today announced preliminary selected results for the three and nine
months ended September 30, 2007. These preliminary results may be
affected by the Company’s current internal
review of its inventory accounting methods as discussed below. Although
management believes that the Company's income statements for the first
three quarters of 2007 and 2006 will not be materially affected, the
preliminary results of this review indicate that the Company's inventory
balances for all prior periods are overstated and will result in the
restatement of prior years' financial statements, as well as the
Company's balance sheets and cash flow statements for the first two
quarters of 2007.
Preliminary Results for the Three and Nine Months Ended September
30, 2007 Three months ended September 30,
Nine months ended September 30,
(dollars in millions, except per share amounts)
2007(a)
2006(a)
2007(a)
2006(a)
$
% toSales
$
% toSales
$
% toSales
$
% toSales
Net sales
122.6
128.9
382.4
391.7
Gross margin
53.0
43.2
53.0
41.1
161.1
42.1
158.9
40.6
Selling, general and administrative expenses
52.8
43.1
55.4
42.9
160.1
41.9
160.4
40.9
Net loss
(0.4
)
(0.4
)
(2.6
)
(2.1
)
(0.2
)
(0.1
)
(4.2
)
(1.1
)
Net loss per share
(0.02
)
(0.13
)
(0.01
)
(0.21
)
For the three months ended September 30, 2007, the gross margin rate
improved by 210 basis points(a) over the same
period in 2006. Net loss for the third quarter of 2007 was $0.4 million(a),
$0.02(a) per share, versus a net loss of $2.6
million(a), $0.13 per share(a),
during the same period in 2006. The Company’s
cash position was $43.1 million(a), an
improvement of $20.9 million(a) over the same
period in 2006. Sales for the third quarter of 2007 were $122.6 million(a),
a decrease of 4.9%(a) over sales of $128.9
million(a) during the third quarter of 2006.
Same store sales decreased by 10.0%(a) versus
the same period in 2006.
Net loss for the nine months ended September 30, 2007 was $0.2 million(a),
$0.01 per share(a), versus a net loss of $4.2
million(a), $0.21 per share(a),
in the same period in 2006. Results for the nine months ended September
30, 2007 include $0.4 million(a), $0.01 per
share(a), related to changes in management, and
$0.03 per share(a) related to a one-time legal
settlement. Results for the same period in 2006 included costs of $2.9
million(a), $0.09 per share(a),
for changes in management. Sales for the nine months ended September 30,
2007 were $382.4 million(a), a decrease of 2.4%(a)
versus sales of $391.7 million(a) in the same
period in 2006. Same store sales decreased by 8.3%(a)
for the nine month period.
(a) Amounts are subject to change in connection
with the completion of the inventory review and preparation of financial
statements.
Rick A. Lepley, Chief Executive Officer, stated, "We
are pleased with our continued progress in improving margins and EPS and
our reduced SG&A
Dollar expenditure. We believe our focus on improving
store profitability must continue to be our top priority at this time.” Inventory Accounting Review
Historically, the Company has valued store inventory on the retail
inventory method ("RIM”)
at each year end. Inventory balances calculated under RIM approximate
inventory balances that would have been obtained if every item of
inventory had been valued at the Company’s
purchase price through the use of a specific costing method ("SCM").
The Company has used RIM to determine year-end inventory balances
because the Company’s systems did not allow
for scanning of each stock-keeping unit ("SKU") during
year-end counting of physical inventories at the Company's stores. For
the first three quarters of each year, the Company used a SCM for
purposes of determining cost of sales. Through its point of sale
systems, the Company is able to assign a SKU-specific cost to every item
sold. Using this data along with estimated inventory shrinkage factors,
the Company estimates interim cost of sales and inventory. Because a SCM
was used during these periods, management believes it is unlikely that
results of operations for the first three quarters of 2007 and 2006 will
be materially affected by this matter. Inventory held in the Company’s
distribution center has historically been and is currently valued for
all periods during the year using a SCM.
As disclosed in the Company’s SEC filings,
the Company is in the process of developing a perpetual inventory system
for more effective tracking of inventory at the store-SKU level. During
the third quarter of 2007, as part of initial testing for the planned
transition to a perpetual inventory system, the Company valued inventory
at a sample of stores using both RIM and the SCM. Based upon this
sample, the Company determined that the inventory at the sampled stores
valued under the SCM was significantly less than the value as determined
when using the Company’s current RIM
calculation. In analyzing the difference, management has determined that
there was an error in the formula used to value inventory under the
Company’s current RIM calculation. While the
Company’s internal review is ongoing, to date
management believes that this error in the RIM calculation was
inadvertent and has occurred since at least 2002. Based on preliminary
data, management estimates that total inventory for all periods between
December 31, 2004 and June 30, 2007 may be overstated in the range of
$15.0 million to $25.0 million.
The Company continues to analyze the difference in order to understand
if there are additional errors in the Company's previously reported
inventory balances and financial statements. Management’s
estimate is based solely on current preliminary data and is subject to
completion of its internal review of its inventory accounting.
Management believes that the estimated overstatement accumulated
gradually over many years, with a substantial part of the overstatement
occurring prior to 2005. Management does not expect that this non-cash
reduction in the inventory balance will impact the underlying retail
value of the Company’s inventories or future
financial performance.
The Company currently expects to adopt a change in accounting principle
from RIM to SCM inventory accounting for stores effective as of January
1, 2008. As part of the 2007 year-end audit, for the first time in the
Company’s history, the Company will take
SKU-level inventories at all stores. Management believes that the
SKU-specific cost method of accounting will allow for more accurate
reporting of inventory balances and will enable management to manage
inventory more effectively. Additionally, the Company is continuing its
efforts to implement a perpetual inventory system on or about January 1,
2008.
In connection with this internal review of the Company's inventory
accounting, management is assessing the effectiveness of the Company's
internal control over financial reporting. Although management has not
completed its assessment, upon completion management will likely
conclude that this error in the RIM calculation, singularly or in
combination with any other errors identified as part of the internal
review, was a material weakness.
As the Company is devoting considerable internal and external consulting
resources to analyzing this matter and determining the effects on its
prior financial statements, the Company will not be able to file its
Form 10-Q for the quarter ended September 30, 2007 on the due date of
November 9, 2007. The Company anticipates that it will be able to file
the third quarter 2007 Form 10-Q and any prior financial statements
requiring restatement during the first quarter of 2008, subject to
completion of the year-end inventory, internal inventory accounting
review and restatement process.
Conference Call Information
The Company will host a conference call on Friday, October 26, 2007
beginning at 8:30 a.m., Eastern Time, to discuss third quarter 2007
preliminary results. To participate in the conference call, please call
973-582-2700 and provide the operator with passcode # 9383494. If you
are unable to access the live call, please dial 973-341-3080 and enter
pin # 9383494 to access the taped digital replay. The replay will be
available at approximately 10:00 a.m. ET on October 26, 2007 and will
remain available until November 9, 2007 at 11:59 p.m.
A simultaneous webcast of the conference call may be accessed at www.acmoore.com.
Go to "Investor Relations”
and click on "Corporate Profile.”
To listen to the live call via webcast, please go to the Company’s
website at least 15 minutes early to register, download and install any
necessary audio software. An archive of the conference call will be
available approximately two hours after the conference call ends on the
Company’s website.
About A.C. Moore:
A.C. Moore operates arts and crafts stores that offer a vast assortment
of traditional and contemporary arts and crafts merchandise for a wide
range of customers. The Company operates 129 stores in the Eastern
United States from Maine to Florida. For more information about the
Company, visit our website at www.acmoore.com.
This press release contains statements that are forward-looking
within the meaning of applicable federal securities laws and are based
on A.C. Moore’s current expectations and
assumptions as of this date. The Company undertakes no obligation to
update or revise any forward-looking statement whether the result of new
developments or otherwise. These statements are subject to a number of
risks and uncertainties that could cause actual results to differ
materially from those anticipated. Factors that could cause actual
results to differ from those anticipated include, but are not limited
to, the Company’s ability to implement its
business and operating initiatives to improve profitability, customer
demand and trends in the arts and crafts industry, inventory risks, the
effect of economic conditions and gasoline prices, the impact of
unfavorable weather conditions, the impact of competitors’
locations or pricing, the availability of acceptable real estate
locations for new stores, difficulties with respect to new system
technologies, difficulties in implementing measures to reduce costs and
expenses and improve margins, supply constraints or difficulties, the
effectiveness of and changes to advertising strategies, the costs
associated with a change in management, difficulties in determining the
outcome and impact of litigation, the impact of the threat of terrorist
attacks and war, the Company’s ability to
maintain an effective system of internal control over financial
reporting, the results of the Company’s
review of its inventory accounting practices and other risks detailed in
the Company’s Securities and Exchange
Commission filings.
