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Friday, January 30, 2009

Investing; Arts-and-Crafts Stores Defy Retailing's Slump

Hi there,
I found this interesting articles about recession and craft business. Eventhough this article's written in 2002, I think that it still apply to us now in 2009. The whole world is facing financial turmoil and everyone is getting panicky. Getting lots and lots of stress. But, relax. be still and see the opportunity before our eyes unfolding. Only the calm shall see it..only those with peace in their heart can see. If only you BELIEVE in JESUS.

Ok. Without further delay...please continue reading..

By ELIZABETH KELLEHER
Published: January 13, 2002

WHILE much of the rest of the retailing industry faltered, art-and-crafts retailers enjoyed double-digit sales gains last fall, and their shares moved up as well.

Crafts are not recession-proof, but stores have been busy for the three retailers most widely recommended by analysts -- Michaels Stores, based in Irving, Tex.; A. C. Moore Arts and Crafts of Blackwood, N.J.; and Jo-Ann Stores of Hudson, Ohio.

The stores, which sell beads, supplies for scrapbooks, artificial flowers, picture frames and many other products favored by hobbyists, resemble Bed, Bath and Beyond stores in size and layout: they have racetrack floor plans that lead customers along an aisle that circles the store, with merchandise in central and perimeter areas. The average shopper spends $18 each visit, said Laura Richardson, an analyst at Adams, Harkness & Hill, an investment firm in Boston.

Sales appear to have been bolstered by the stay-at-home trend that followed the Sept. 11 terrorist attacks. For the third quarter, sales grew 16 percent at Michaels, 25 percent at A. C. Moore and 14 percent at Jo-Ann, compared with the period a year earlier. At A. C. Moore, the only chain to report on the fourth quarter, sales increased 31.5 percent compared with the previous year.

Michaels Stores, with 840 stores in 48 states, including its Aaron Brothers art supply subsidiary, is a favorite among analysts. Its shareholders have been rewarded with 30 percent growth in annual earnings per share, on average, since 1997, and share prices, while fluctuating, have increased more than 400 percent.

''In the last four years, we've performed with the best of retail,'' the chief executive, R. Michael Rouleau, said. ''Yet our stock is undervalued; we should be valued like a Lowe's or Home Depot.'' Ms. Richardson agreed, citing price-to-earnings ratios of 35 for Lowe's, 40 for Home Depot and a mere 22 for Michaels.

Mark Mandel, an analyst at SunTrust Robinson Humphrey in New York, said that Michaels plans to open 75 stores a year for the next four to five years, and that it is moving upscale in ambience and upgrading its inventory management system. ''It's a long turnaround story,'' he said, starting in 1996, when Mr. Rouleau joined the company.

But Michaels has had significant problems. In 1998, it was named one of America's worst-governed companies by the California Public Employees' Retirement System, or Calpers, the huge pension fund. It said the board was dominated by the family of the chairman, Sam Wyly, a Texas billionaire -- four of five directors were relatives. The family's control of a compensation committee led to ''golden parachutes for directors and repricing of stock options to protect them from loss during Michaels' less-stellar years,'' Calpers said three years ago.

In July, changes were made to bolster the accountability of the Michaels board. That occurred during an unsuccessful proxy fight by Mr. Wyly for control of Computer Associates International of Islandia, N.Y., in which he said that company's management had not been accountable to shareholders. ''He was a man in a glass house who shouldn't throw stones,'' said William R. Armstrong, an analyst at C. L. King & Associates, a brokerage firm in Albany.

Sam Wyly stepped down as chairman, switching places with his brother, Charles J. Wyly Jr. Today, they are the only family members on the board. Calpers sees significant improvements at Michaels. ''Has Sam Wyly reformed? My opinion is yes,'' said Ted White, the director for corporate governance at Calpers.

Mr. Wyly would not comment directly, but Eric Andrus, a company spokesman, said: ''Michaels is now a model of good corporate governance practices, shareholder accountability and outstanding management team performance.''

The stock, which climbed 170 percent last year, closed on Friday at $30.14. Mr. Armstrong has a $38 price target on the stock for the next 12 months, and Mr. Mandel said he expects 23 percent growth in earnings per share each year over the next five years.

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