A.C. Moore's Sorry Picture: No Gain, More Pain

Knitting, scrap-booking and floral supplies might not seem like a cut-throat business proposition, but don't tell that to A.C. Moore (ACMR). The New Jersey-based retailer, which has 135 arts-and-crafts stores in the eastern U.S., is fighting to hold its own against two bigger rivals. And right now, it's losing ground.

The company turned in a rough fourth quarter, with a $500,000 net loss; sales at stores open at least a year fell 8.8 percent. And that was an improvement over the entire fiscal year, during which A.C. Moore lost $25.9 million and recorded a 10.8 percent same-store sales plunge.

Meanwhile, 756-unit competitor Jo-Ann Stores (JAS) had a great fourth quarter, with net income rising 72 percent, to $37.1 million and a 4.4 percent same-store sales gain. Michaels Stores, the privately-held leader in the category with just over 1,000 stores, showed a marked improvement, bouncing back from a net loss and recording a same-store sales gain.

So what's wrong at A.C. Moore? Management said during its fourth-quarter conference call that competition in the sale of seasonal goods accounted for most of its same-store sales declines. Holiday spending is key in the arts and crafts sector. If consumers are curbing their shopping at A.C. Moore during those periods, the company is in for more pain. Also, a recent Wedbush Morgan report questioned whether management can return the company to profitability and execute a turnaround strategy.

The good news is that systems are now upgraded, and executives are hoping for improved inventory management and promotional activity as a result. In addition, the company is renovating its stores, with 24 locations in its portfolio completed and 12 on tap in the coming year. Most importantly, management expects to have $35 million in cash by the end of the year, enough to sustain more troubled times ahead. Still, it is predicting another loss this quarter.

In other big-box sectors, the stronger have muscled the weaker into oblivion - think of the late Circuit City and Linens 'n Things. If A.C. Moore does not begin to craft some better numbers, it could join that sad crew.