In a sign that consumers are out and about compared to last year, Joann on Thursday said that second quarter net sales fell 29.8% year over year to $496.9 million.
Comps sales fell 29.9%, though they were up by 8.1% from 2019, according to a company press release.
Gross margin expanded by 410 basis points year over year and by 460 basis points over two years, Chief Financial Officer Matt Susz told analysts, according to a Motley Fool transcript of the earnings call. Net income fell 96.5% to $5.2 million, though that was a gain of $173 million compared to 2019, per the release.
The pandemic is proving to be a mixed bag for Joann. The sewing and crafts retailer had benefited from people being stuck at home and looking for things to do but also gained sales as people headed back to stores once the pandemic appeared to wane.
The second quarter tends to be Joann's lowest in terms of sales and earnings, typically representing 10% or less of annual adjusted EBITDA, CEO Wade Miquelon said last week. "Last year was, of course, an exception as we had unprecedented sales growth due to peak levels of spending [on] PPE by consumers, as well as the temporary closure by one of our major competitors across all of their store locations. As a result, our total comparable sales increased by 54% in Q2 of last year."
But rather than repeating the stay-at-home crafting trend, the mutation of the coronavirus is hurting, Miquelon also said. "[T]he delta variant is suppressing a couple of hundred basis points of growth," he said.
As at other retailers, supply chain disruption and freight costs are taking a toll, forcing the retailer to strategize its inventory. "[G]lobal supply chains are disrupted beyond belief," Miquelon said. "I think that was definitely part of our decision to really go after margin versus being more aggressive on sales. There's really no point in promoting any more than we have to just end up having an out-of-stock or a whole for a product in the back half."
Still, last year's crafting trend gained the company new customers who are sticking around, he also said. Plus, several initiatives have the potential to offset the present challenges, at least somewhat. For example, the company expanded internationally via e-commerce and is now shipping to 29 countries. Recent store remodels are exceeding the company's financial targets, and net promoter scores at those locations "are meaningfully outperforming our store fleet overall," Miquelon said.
Thanks to such initiatives, on balance, the retailer is poised to endure, according to Wells Fargo analysts led by Zachary Fadem.
"While we can't sugar coat the disappointment, ... we continue to see [long term] value in JOAN's stable/improving category, company initiatives (digital, refreshes, international, etc.)," they said in emailed comments.