Joann looks to private labels to help cut costs, boost sales

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May 11, 2023

Joann looks to private labels to help cut costs, boost sales

Joann Q1 net sales fell 4% year over year to $478.1 million, with online sales

Joann Q1 net sales fell 4% year over year to $478.1 million, with online sales down 1%. E-commerce was 11.8% of revenue, a 30-basis point increase over last year.

Gross margin expanded by 380 basis points to 52.1%. Margins were hurt by shrink in stores, which was 20 basis points higher year over year but down from the previous quarter, CFO Scott Sekella told analysts Monday.

Cost cuts yielded $89 million in free cash flow, and executives also noted a benefit from lower freight expenses. Net loss widened to $54.2 million from $35.1 million a year ago.

Joann needed freight costs to come down in order to achieve the $200 million in annual savings announced in January, and those are coming through. Otherwise the sewing and crafts retailer is betting on private label to help cut costs and boost sales, Chief Customer Officer Christopher DiTullio told analysts Monday.

As seen at Bed Bath & Beyond, which is in the midst of liquidating despite (or possibly because of) an accelerated private label push, that carries no guarantee. But owned brands at Joann already represent nearly half of its total sales, and outperformed Q1 total company sales by nearly 500 basis points, DiTullio said.

Their gross margin impact in the quarter was also between 400 to 600 basis points higher than the balance of the retailer's merchandise, he also said. Owned brand penetration increased 2% in the period, and that's expected to grow in the back half of the fiscal year.

"A significant piece of this strategy is a continued investment in our owned brands," DiTullio said.

DiTullio and Sekella have stepped into the CEO role left open by the retirement last month of Wade Miquelon while the board searches for a replacement. The vacancy adds to the uncertainty at Joann, Wells Fargo analysts led by David Lantz said in a Monday research note.

"Progress on cost savings initiatives is evident, but we remain sidelined owing to a potentially noisy CEO transition, low demand visibility and macro uncertainty," they said.