Jo-Ann sinks after cutting 2009 outlook

CHICAGO - Shares of Jo-Ann Stores Inc. tumbled Thursday, a day after the sewing-and-crafting retailer posted better-than-expected third-quarter profits but lowered its 2009 financial outlook.

Soleil Securities Group analyst Jeffery Stein lowered is raging on the Hudson, Ohio-based chain to "Hold" from "Buy," citing his concern that greater-than-expected fourth-quarter markdowns would affect results.

He also slashed his price target on the company's shares by 36 percent to $16 from $25 per share. That price target implies upside of 16 percent over its closing price Wednesday.

"The sharp decline in retail traffic has produced a markdown risk to 4Q greater than we had expected," he wrote to investors in a research note. "Given the importance of 4Q, (Jo-Ann) now becomes a 'wait till next year' story, and we see no immediate catalyst to drive the shares appreciably higher."

Late Wednesday, Jo-Ann said it earned $10.2 million, or 40 cents per share, in the third quarter, up 27 percent from last year's profit of $8 million, or 32 cents per share.

Sales were nearly flat at $480.1 million, compared with $480.2 million, last year.

Analysts surveyed by Thomson Reuters expected Jo-Ann to earn a more modest 32 cents per share on revenue of $495.3 million.

And same-store sales, an important retail industry metric of sales in stores open at last year, fell 1.5 percent.

Meanwhile, Jo-Ann cut its 2009 guidance, saying it expects to earn 75 cents to 85 cents per share in 2009. That's down from its previous estimate of 95 cents to $1.05 per share.

The company also expected same-store sales to remain flat in 2009, instead of its previously forecast growth of 2 to 3.5 percent, blaming "an increasingly challenging retail environment and uncertain economic conditions."

Jo-Ann shares fell $1.07, or 7.8 percent, to close Thursday at $12.72.

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