Stock of the Week: GameStop

STOCK OF THE WEEK GME 19.95 PER SHARE

GameStop Corp. (NYSE:GME) located in Grapevine, TX is the nation's largest video game and entertainment software specialty retailer. GameStop sells the most popular new software, hardware and game accessories for the PC and next generation video game systems from Sony ,Nintendo, and Microsoft. GameStop is the industry's largest reseller of used video games.

In addition, the company sells computer and video game magazines, strategy guides, action figures, and related merchandise to more than 30 million customers. The company operates 1,746 retail stores throughout 49 states, Puerto Rico and Ireland, primarily under the GameStop brand. The stores are located within shopping malls and strip centers. Complementing the retail stores, the company operates a website at www.gamestop.com and publishes Game Informer, one of the industry’s largest circulation multi-platform video game magazines, with over 1,500,000 subscribers. One visit to the web site is all it takes to appreciate the extent of the offerings available.

Since going public in Feb 12, 2002, GameStop has had an impressive showing over the last couple of years. Sales have exceeded projections each quarter. On Nov. 21, 2002 GameStop Corp. announced the opening of its 1,200th retail store. "While reaching 1,200 stores is an exciting milestone for GameStop, it is also just a step on the way to the continued rapid expansion of our company," said R. Richard Fontaine, Chairman & CEO. "We are on pace to open over 200 stores this year; and, given the growth of the video game business, and the success we have had serving very diverse demographics, we plan to grow even faster in the coming years."

Third Quarter 2004 was no exception. GameStop sales increased 28% to $416.7 million from $326.0 million. Video game software sales were exceptionally strong, growing 36%, with leading titles such as "Madden NFL 2005" from Electronic Arts Inc, "Grand Theft Auto: San Andreas" from Take-Two, and "Fable" from Microsoft, Inc. Video game hardware sales were robust with the launch of the newly redesigned PSTwo and the Xbox holiday bundle. Comparable store sales increased a strong 11.8% during the quarter.

On November 9th 2004, GameStop set a one days sales record when Microsoft released "Halo 2". "Halo 2" sold over 525,000 units in 24 hours. "Our initial projections for a strong holiday season seem to be justified by the exceptional acceptance of the video games released thus far in the season, and we are looking forward to an exciting few months and beyond", reported CEO Fontaine. Here is the BUT.

Depending on others for success can cause one to ask, "Why Do Bad Things Happen to Good Companies?" December sales were ready to surge but didn't. The headlines read- Hardware Shortage Impact Fourth Quarter Sales and Earnings.

Mr. Fontaine, commented, "After a very strong November, when GameStop's comparable store sales rose 23% driven by significant demand across all major platforms, we were well positioned for a strong holiday season. Unfortunately, severe hardware shortages of Sony's PlayStation 2, Microsoft's Xbox, and Nintendo's Dual Screen, have taken a toll. Not only did we lose the tie-in software sales that generally accompany hardware gifts, but due to the shortage affecting the total market, we lost the 'downstream' sales that historically have come our way regardless of where hardware is sold. In all of my years in the video game business, I have never seen shortages of this duration or magnitude. There is no question that there was demand for the product, but not hardware product to satisfy demand. As the season progressed, we expected hardware inventories to improve, and, as the season developed very late, we felt that much of the lost holiday sales could be rescued with more hardware in the last weeks of the season, but the shipments did not materialize."

He also said, "To put into perspective the impact of not being able to secure the hardware we needed, our December month-end inventory was $33 million lower than the previous year even though we had over 300 added stores. It became very clear as the month went on, and hardware shortages continued, that there was a significant effect on store traffic”.

"While we were frustrated by the supply shortfall, we view this as a temporary problem, as we know that our hardware manufacturers will aggressively work to expand the user base that is so obviously ready to purchase the product. Our disappointment at not having the product to sell is, to some degree, tempered by our enthusiasm for the fact that in the fourth and fifth holiday season for Xbox and PlayStation2, demand was phenomenal".

GameStop's numbers are sensational. The company has grown from 1,039 stores in 2002 to 1,746 stores; an increase of 707 stores in 2 ½ years. The industry is growing, the company is growing, but the supply problem zapped fourth quarter reults. The business is competiive with “big boys" such as Wal-Mart offering price pressur. The company does not pay a dividend.
See More

Selecting this company as the Stock of the Week, takes Moxie. (As the saying goes, a lot of Moxie). Selecting a company whose largest competitor is Best Buy (BBY), a company that sells a product that is a major category for the likes of EBAY and AMZN, a company that competes in an area where large firms such as Blockbuster Video have failed might prove to be foolish.

In other articles, I have written how "long-tailed" products are being distributed more and more through low cost online channels. Games at first appear to be "long-tailed" products. There are thousands of older games wasting away on shelves everywhere. Should NFLX enter the business, it might be able to squeeze more value out of old games. However, innovations continue to destroy the value of old games. The new Sony machine is expected to be a huge success and most of the old games will not play on the latest machines.

I have never suggested that NFLX would put movie theaters or producers out of business. People follow the crowd and buy what is "hot". Movie producers and game producers are addept at creating "hot products". Producers must collect millions of revenues to justify the costs required to make a movie. Producers win big on some and lose on others. A major part of their success comes from the DVD after-market but 100's of millions are made by making and promoting the "hot new product".

The game rental business and the movie business are similar. One can purchase or rent an old game or an old movie cheaply. Never-the-less, consumers go to the theater, pay $8 to see the show and spend almost as much on a box of popcorn and a large coke. The parents of young folks are willing to drop kids off at the mall to "hang-out". In flocks the kids go to the game stores to purchase the hot new game at a $40 price.

Note the difference in the purchase of a game and the rental of a video from Blockbuster. Blockbuster stores are normally located in a high traffic location but not inside high priced mall space. Games are bought spontaneously. After-all, the rental of a movie is likely to be made by someone who has a drivers license who drove to the store for the purpose of renting a movie. The point is that GameStop has identified a niche. Most of us do not go to the mall to buy ice cream, cookies or a game but many of us will not pass the smell of a good chocolate chip. GameStop stocks a high dollar inventory and turns it fast. The price to sales ratio is only .59. The forward P/E is under 15 times.

Bill Miller of Legg Mason Wood Walker, Sumner Redstone of Viacom and other very smart investors have invested in game stocks. My family owns shares in Electronic Arts (ERTS). Playing games on a privately owned machine is acutally relatively cheap entertainment. In the old days, game players spent one quarter at a time. In today's dollars, those quarters would be at least $1 at a time. Spending $40 on the latest game is the equivalent of 40 games. Some of the players play one game thousands of times.

After the design and production costs are covered, the manufacturing costs per game are minute relative to the sales price. To be successful, producers need a distribution channel to quickly convert the latest product to a "must have product". GameStop is the 800 pound gorilla that can make or break the latest edition.

Finally, the demographics are interesting. Gamers do not stop playing when they "grow up". Thirty and forty year old men and women who played Donkey Kong as kids now challenge players from around the world. They play new games or new versions of old games from the comfort of their living rooms. New technology allows gamers to carry on conversations or to "video-conference" with competitors from around the world. The situation reminds me of the "progress" made in personal computers over the years. A PC without an internet connection is nothing but a fancy typewriter. As soon as the latest innovation is on the market, all those old games are obsolete.

Should you decide to invest, you do so at your own risk. Should you invest, we suggest that you risk 5% or less of your capital on any one security.

Miller and Kupsky

STOCK OF THE WEEK: Jo Ann's

Martin Luther King weekend of 2005, the Asbury Sunday School Class at Maple Springs United Methodist Church enjoyed a long weekend at Myrtle Beach SC. The weather was not the greatest but the company was the finest. The homeowners association had contracted for renovations to the buildings hallways, few people other than class members and family were in the building so we took advantage and turned the long hallway into a bocci ball court.

We had a great time, playing games, taking walks on the beach and visiting restaurants, outlet malls and other venues in the area. Better still, we got to know one another all the better. The most enjoyable time was a joint Sunday School session. We sat where we could watch the waves roll into the beach while participating in a wide-open discussion. The young and old participated. As a sentimental old fool, I cried.

Chuck and Sandra Kupsky made the trip with their delightful daughters Emily and Megan. Instead of a long introduction, I will simply state that these are "good folks"; the kind of people you want to get to know better.

Sandra and I learned of our mutual intense interest in investing. We both hunger to do as well as we can and we know we need to learn all we can. Sandra was thrilled to know that I have been writing about the market. She really liked my idea to post a "Stock of the Week" as a way to build a monitored portfolio on the web. We decided to work together to learn more and to share what we learn.

In the weeks after the Myrtle Beach trip, Sandra and I have been working. We have spent much time screening, re-screening and re-screening for the best stocks. The criteria we used included criteria that has worked for us in the past and criteria that is supported as valid by volumes of research. After a little trial and error, we have decided that I should do the screening until we get down to a list of 40 to 50 selections and that Sandra will do the "nitty-gritty" work required to choose the final weekly selection.

The following article represents much work. We have not invested in the company, but we expect to buy shares. We confess to be amateurs. We study the markets because we enjoy learning. We write for educational and entertainment purposes only. Nothing we write should be considered investment advice. Should you invest, the risk is yours and yours alone.

Is Decorating A Nightmare? Help is Here!

Turn on the Home & Garden Network any time of day or night to get tips on all your decorating needs. Program after program help a novice decorator like me in their creative decorating endeavors. That got me thinking, I can watch a variety of Home Decorating Shows on how to "set the mode" of my home, but where do I go to find the "stuff" I need. In searching for a "Stock of the Week" (SOW) I discovered Jo-Ann Stores (JAS). JAS is celebrating its 60th anniversary. It is the Nation's Largest Fabric and Craft Retailer with locations in 47 states.

Jo-Ann Store was founded on a single retail store in 1943. As of January 31, 2005 the retailer operates 851 stores, 114 are superstores. Averaging 35,000 square feet, the- "Create-It-Yourself" Superstore generates almost four times the revenue of their traditional store and houses a variety of competitively priced merchandise used in home decorating, sewing and crafting projects, including fashion & decorative fabrics, notions, frames, scrap booking material, florals, home décor items and seasonal merchandise. The company offers customers like me the choice, quality, style and support needed to pursue the passion of creating beautiful things. For additional information, visit Joann's.

When Alan Rosskamm was 10 years old, he spent his spare time in his Grandmother Hilda's store, straightening thread racks and folding fabric remnants. Today he is president and CEO of the nation's leading fabric and crafts retailer. He is the third generation involved in Jo-Ann stores, Inc., continuing the legacy of vision, quality & service.

The year 1995 marked a turning point when Jo-Ann opened a 45,000-square-foot test store, adjacent to its Cleveland headquarters, stocked with every imaginable creative item to "serve and inspire creativity." The store became the pilot for the larger format Jo-Ann Superstores. Their traditional stores average approximately 14,400 square feet. The Superstores offer an expanded and more comprehensive product assortment than their traditional stores and generate four times the revenue and approximately 30 percent higher sales per square foot. The current Superstore prototype averages 35,000 square feet. Management believes their Superstore concept represents significant opportunity for future sales growth.

With the Fourth Quarter earnings released Monday March 7th, Alan Rosskamm believes they are on the right track. The stock has been trading near its annual high of $30.18. He is pleased with performance in a year when the focus was on the long term strategy of converting to the Superstore format. Seventy-two traditional stores were closed or a total of 1,036,800 square feet compared with the opening of 29 Superstores or 1,015,000 square feet. Assuming the Superstores generate 4 X's the revenue and approximately 30% higher sales, 40 new Superstores planned this year should deliver continued earnings growth. Rosskamm is planning a more aggressive program of Superstore conversions in future years.

On January 13th, Jo-Ann announced plans for the third distribution center to support continued growth. Ground will break in March on a 700,000-square foot center in Opelika, AL to support the key southern states of Florida, Georgia and Texas. The distribution center is expected to begin shipping to stores April 2006. The new center will create about 425 jobs, making Jo-Ann one of the largest employers in Opelika, a city located just outside of Auburn, Ala.

Tony Dissinger, senior vice president supply chain management and logistics said the
Alabama center will reduce transportation costs and will speed delivery to the southern stores. The other two distribution centers are located in Visalia, CA and Hudson, OH.

Joann.com gives customers 24-hour-a-day access to creative projects and products. The site is designed to be a resource for sewing and crafting enthusiasts and offers content that is informational, trendy, inspiring and fun.

I also like the company because they demonstrate strong moral values. For example, Jo-Ann Stores, Inc. partners with customers and employees to raise hundreds of thousands of dollars annually to donate to national federated social service and charitable organizations such as Save the Children Save the Children.

From one 1400-square-foot store in 1943 to almost 900 United States locations today-employing more than 20,000 people-Jo-Ann Stores, Inc., has not only witnessed a creative explosion in sewing and crafts, it has helped inspire it. With 60 years experience, I believe Jo-Ann Stores is a company that strives hard to enrich our lives with the latest high-quality products from around the world, by helping us find and express our creativity every day, and by providing the ideas, inspiration and advice to help our projects succeed.

It would have been nice to have gotten our report finished last week before the earnings announcement, but we took the time to select the company we like the best. Besides, who can complain about the outstanding quarter. Earnings rose 21% to 32.4 million dollars, $1.40 per share.

Note also that we selected a contrary play. You will find few brokerage houses "pushing" retail stocks at the current time. Just remember that Barauk was correct when he said about a 100 years ago that the best time to buy your straw hats is in the winter time.

Also please note that same store sales were up 4.3%! In retail, same store sales is the metric you want to be strong.

Happy decorating!

Stock of the Week: GameStop

STOCK OF THE WEEK GME 19.95 PER SHARE

GameStop Corp. (NYSE:GME) located in Grapevine, TX is the nation's largest video game and entertainment software specialty retailer. GameStop sells the most popular new software, hardware and game accessories for the PC and next generation video game systems from Sony ,Nintendo, and Microsoft. GameStop is the industry's largest reseller of used video games.

In addition, the company sells computer and video game magazines, strategy guides, action figures, and related merchandise to more than 30 million customers. The company operates 1,746 retail stores throughout 49 states, Puerto Rico and Ireland, primarily under the GameStop brand. The stores are located within shopping malls and strip centers. Complementing the retail stores, the company operates a website at www.gamestop.com and publishes Game Informer, one of the industry’s largest circulation multi-platform video game magazines, with over 1,500,000 subscribers. One visit to the web site is all it takes to appreciate the extent of the offerings available.

Since going public in Feb 12, 2002, GameStop has had an impressive showing over the last couple of years. Sales have exceeded projections each quarter. On Nov. 21, 2002 GameStop Corp. announced the opening of its 1,200th retail store. "While reaching 1,200 stores is an exciting milestone for GameStop, it is also just a step on the way to the continued rapid expansion of our company," said R. Richard Fontaine, Chairman & CEO. "We are on pace to open over 200 stores this year; and, given the growth of the video game business, and the success we have had serving very diverse demographics, we plan to grow even faster in the coming years."

Third Quarter 2004 was no exception. GameStop sales increased 28% to $416.7 million from $326.0 million. Video game software sales were exceptionally strong, growing 36%, with leading titles such as "Madden NFL 2005" from Electronic Arts Inc, "Grand Theft Auto: San Andreas" from Take-Two, and "Fable" from Microsoft, Inc. Video game hardware sales were robust with the launch of the newly redesigned PSTwo and the Xbox holiday bundle. Comparable store sales increased a strong 11.8% during the quarter.

On November 9th 2004, GameStop set a one days sales record when Microsoft released "Halo 2". "Halo 2" sold over 525,000 units in 24 hours. "Our initial projections for a strong holiday season seem to be justified by the exceptional acceptance of the video games released thus far in the season, and we are looking forward to an exciting few months and beyond", reported CEO Fontaine. Here is the BUT.

Depending on others for success can cause one to ask, "Why Do Bad Things Happen to Good Companies?" December sales were ready to surge but didn't. The headlines read- Hardware Shortage Impact Fourth Quarter Sales and Earnings.

Mr. Fontaine, commented, "After a very strong November, when GameStop's comparable store sales rose 23% driven by significant demand across all major platforms, we were well positioned for a strong holiday season. Unfortunately, severe hardware shortages of Sony's PlayStation 2, Microsoft's Xbox, and Nintendo's Dual Screen, have taken a toll. Not only did we lose the tie-in software sales that generally accompany hardware gifts, but due to the shortage affecting the total market, we lost the 'downstream' sales that historically have come our way regardless of where hardware is sold. In all of my years in the video game business, I have never seen shortages of this duration or magnitude. There is no question that there was demand for the product, but not hardware product to satisfy demand. As the season progressed, we expected hardware inventories to improve, and, as the season developed very late, we felt that much of the lost holiday sales could be rescued with more hardware in the last weeks of the season, but the shipments did not materialize."

He also said, "To put into perspective the impact of not being able to secure the hardware we needed, our December month-end inventory was $33 million lower than the previous year even though we had over 300 added stores. It became very clear as the month went on, and hardware shortages continued, that there was a significant effect on store traffic”.

"While we were frustrated by the supply shortfall, we view this as a temporary problem, as we know that our hardware manufacturers will aggressively work to expand the user base that is so obviously ready to purchase the product. Our disappointment at not having the product to sell is, to some degree, tempered by our enthusiasm for the fact that in the fourth and fifth holiday season for Xbox and PlayStation2, demand was phenomenal".

GameStop's numbers are sensational. The company has grown from 1,039 stores in 2002 to 1,746 stores; an increase of 707 stores in 2 ½ years. The industry is growing, the company is growing, but the supply problem zapped fourth quarter reults. The business is competiive with “big boys" such as Wal-Mart offering price pressur. The company does not pay a dividend.
See More

Selecting this company as the Stock of the Week, takes Moxie. (As the saying goes, a lot of Moxie). Selecting a company whose largest competitor is Best Buy (BBY), a company that sells a product that is a major category for the likes of EBAY and AMZN, a company that competes in an area where large firms such as Blockbuster Video have failed might prove to be foolish.

In other articles, I have written how "long-tailed" products are being distributed more and more through low cost online channels. Games at first appear to be "long-tailed" products. There are thousands of older games wasting away on shelves everywhere. Should NFLX enter the business, it might be able to squeeze more value out of old games. However, innovations continue to destroy the value of old games. The new Sony machine is expected to be a huge success and most of the old games will not play on the latest machines.

I have never suggested that NFLX would put movie theaters or producers out of business. People follow the crowd and buy what is "hot". Movie producers and game producers are addept at creating "hot products". Producers must collect millions of revenues to justify the costs required to make a movie. Producers win big on some and lose on others. A major part of their success comes from the DVD after-market but 100's of millions are made by making and promoting the "hot new product".

The game rental business and the movie business are similar. One can purchase or rent an old game or an old movie cheaply. Never-the-less, consumers go to the theater, pay $8 to see the show and spend almost as much on a box of popcorn and a large coke. The parents of young folks are willing to drop kids off at the mall to "hang-out". In flocks the kids go to the game stores to purchase the hot new game at a $40 price.

Note the difference in the purchase of a game and the rental of a video from Blockbuster. Blockbuster stores are normally located in a high traffic location but not inside high priced mall space. Games are bought spontaneously. After-all, the rental of a movie is likely to be made by someone who has a drivers license who drove to the store for the purpose of renting a movie. The point is that GameStop has identified a niche. Most of us do not go to the mall to buy ice cream, cookies or a game but many of us will not pass the smell of a good chocolate chip. GameStop stocks a high dollar inventory and turns it fast. The price to sales ratio is only .59. The forward P/E is under 15 times.

Bill Miller of Legg Mason Wood Walker, Sumner Redstone of Viacom and other very smart investors have invested in game stocks. My family owns shares in Electronic Arts (ERTS). Playing games on a privately owned machine is acutally relatively cheap entertainment. In the old days, game players spent one quarter at a time. In today's dollars, those quarters would be at least $1 at a time. Spending $40 on the latest game is the equivalent of 40 games. Some of the players play one game thousands of times.

After the design and production costs are covered, the manufacturing costs per game are minute relative to the sales price. To be successful, producers need a distribution channel to quickly convert the latest product to a "must have product". GameStop is the 800 pound gorilla that can make or break the latest edition.

Finally, the demographics are interesting. Gamers do not stop playing when they "grow up". Thirty and forty year old men and women who played Donkey Kong as kids now challenge players from around the world. They play new games or new versions of old games from the comfort of their living rooms. New technology allows gamers to carry on conversations or to "video-conference" with competitors from around the world. The situation reminds me of the "progress" made in personal computers over the years. A PC without an internet connection is nothing but a fancy typewriter. As soon as the latest innovation is on the market, all those old games are obsolete.

Should you decide to invest, you do so at your own risk. Should you invest, we suggest that you risk 5% or less of your capital on any one security.

Miller and Kupsky

#

STOCK OF THE WEEK: Jo Ann's

Martin Luther King weekend of 2005, the Asbury Sunday School Class at Maple Springs United Methodist Church enjoyed a long weekend at Myrtle Beach SC. The weather was not the greatest but the company was the finest. The homeowners association had contracted for renovations to the buildings hallways, few people other than class members and family were in the building so we took advantage and turned the long hallway into a bocci ball court.

We had a great time, playing games, taking walks on the beach and visiting restaurants, outlet malls and other venues in the area. Better still, we got to know one another all the better. The most enjoyable time was a joint Sunday School session. We sat where we could watch the waves roll into the beach while participating in a wide-open discussion. The young and old participated. As a sentimental old fool, I cried.

Chuck and Sandra Kupsky made the trip with their delightful daughters Emily and Megan. Instead of a long introduction, I will simply state that these are "good folks"; the kind of people you want to get to know better.

Sandra and I learned of our mutual intense interest in investing. We both hunger to do as well as we can and we know we need to learn all we can. Sandra was thrilled to know that I have been writing about the market. She really liked my idea to post a "Stock of the Week" as a way to build a monitored portfolio on the web. We decided to work together to learn more and to share what we learn.

In the weeks after the Myrtle Beach trip, Sandra and I have been working. We have spent much time screening, re-screening and re-screening for the best stocks. The criteria we used included criteria that has worked for us in the past and criteria that is supported as valid by volumes of research. After a little trial and error, we have decided that I should do the screening until we get down to a list of 40 to 50 selections and that Sandra will do the "nitty-gritty" work required to choose the final weekly selection.

The following article represents much work. We have not invested in the company, but we expect to buy shares. We confess to be amateurs. We study the markets because we enjoy learning. We write for educational and entertainment purposes only. Nothing we write should be considered investment advice. Should you invest, the risk is yours and yours alone.

Is Decorating A Nightmare? Help is Here!

Turn on the Home & Garden Network any time of day or night to get tips on all your decorating needs. Program after program help a novice decorator like me in their creative decorating endeavors. That got me thinking, I can watch a variety of Home Decorating Shows on how to "set the mode" of my home, but where do I go to find the "stuff" I need. In searching for a "Stock of the Week" (SOW) I discovered Jo-Ann Stores (JAS). JAS is celebrating its 60th anniversary. It is the Nation's Largest Fabric and Craft Retailer with locations in 47 states.

Jo-Ann Store was founded on a single retail store in 1943. As of January 31, 2005 the retailer operates 851 stores, 114 are superstores. Averaging 35,000 square feet, the- "Create-It-Yourself" Superstore generates almost four times the revenue of their traditional store and houses a variety of competitively priced merchandise used in home decorating, sewing and crafting projects, including fashion & decorative fabrics, notions, frames, scrap booking material, florals, home décor items and seasonal merchandise. The company offers customers like me the choice, quality, style and support needed to pursue the passion of creating beautiful things. For additional information, visit Joann's.

When Alan Rosskamm was 10 years old, he spent his spare time in his Grandmother Hilda's store, straightening thread racks and folding fabric remnants. Today he is president and CEO of the nation's leading fabric and crafts retailer. He is the third generation involved in Jo-Ann stores, Inc., continuing the legacy of vision, quality & service.

The year 1995 marked a turning point when Jo-Ann opened a 45,000-square-foot test store, adjacent to its Cleveland headquarters, stocked with every imaginable creative item to "serve and inspire creativity." The store became the pilot for the larger format Jo-Ann Superstores. Their traditional stores average approximately 14,400 square feet. The Superstores offer an expanded and more comprehensive product assortment than their traditional stores and generate four times the revenue and approximately 30 percent higher sales per square foot. The current Superstore prototype averages 35,000 square feet. Management believes their Superstore concept represents significant opportunity for future sales growth.

With the Fourth Quarter earnings released Monday March 7th, Alan Rosskamm believes they are on the right track. The stock has been trading near its annual high of $30.18. He is pleased with performance in a year when the focus was on the long term strategy of converting to the Superstore format. Seventy-two traditional stores were closed or a total of 1,036,800 square feet compared with the opening of 29 Superstores or 1,015,000 square feet. Assuming the Superstores generate 4 X's the revenue and approximately 30% higher sales, 40 new Superstores planned this year should deliver continued earnings growth. Rosskamm is planning a more aggressive program of Superstore conversions in future years.

On January 13th, Jo-Ann announced plans for the third distribution center to support continued growth. Ground will break in March on a 700,000-square foot center in Opelika, AL to support the key southern states of Florida, Georgia and Texas. The distribution center is expected to begin shipping to stores April 2006. The new center will create about 425 jobs, making Jo-Ann one of the largest employers in Opelika, a city located just outside of Auburn, Ala.

Tony Dissinger, senior vice president supply chain management and logistics said the
Alabama center will reduce transportation costs and will speed delivery to the southern stores. The other two distribution centers are located in Visalia, CA and Hudson, OH.

Joann.com gives customers 24-hour-a-day access to creative projects and products. The site is designed to be a resource for sewing and crafting enthusiasts and offers content that is informational, trendy, inspiring and fun.

I also like the company because they demonstrate strong moral values. For example, Jo-Ann Stores, Inc. partners with customers and employees to raise hundreds of thousands of dollars annually to donate to national federated social service and charitable organizations such as Save the Children Save the Children.

From one 1400-square-foot store in 1943 to almost 900 United States locations today-employing more than 20,000 people-Jo-Ann Stores, Inc., has not only witnessed a creative explosion in sewing and crafts, it has helped inspire it. With 60 years experience, I believe Jo-Ann Stores is a company that strives hard to enrich our lives with the latest high-quality products from around the world, by helping us find and express our creativity every day, and by providing the ideas, inspiration and advice to help our projects succeed.

It would have been nice to have gotten our report finished last week before the earnings announcement, but we took the time to select the company we like the best. Besides, who can complain about the outstanding quarter. Earnings rose 21% to 32.4 million dollars, $1.40 per share.

Note also that we selected a contrary play. You will find few brokerage houses "pushing" retail stocks at the current time. Just remember that Barauk was correct when he said about a 100 years ago that the best time to buy your straw hats is in the winter time.

Also please note that same store sales were up 4.3%! In retail, same store sales is the metric you want to be strong.

Happy decorating!

#