ACMR ACM Research Inc-A

Operator

Good day, and welcome to the A.C. Moore Fourth Quarter 2010 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. David Stern, Chief Financial Officer. Please go ahead sir.

David Stern

Thank you, Launda [ph]. Good morning and welcome to the A.C. Moore fiscal 2010 year end conference call. Before we begin, I will remind you that statements contained in this conference call that are not historical facts constitute forward-looking statements within the meaning of Securities Laws. These statements are subject to risks and uncertainties, which may cause results to differ materially from our current expectations, expressed or implied by such statements. The risks and uncertainties that are most likely to cause actual results to differ materially from our current expectations are described in our filings with the SEC. A.C. Moore undertakes no obligations to update or revise any forward-looking statement in the future. Now, I’ll turn the call over to Joe Jeffries, CEO.

Joe Jeffries

Thank you, Dave. This morning, in addition to David Stern, I’m joined by David Abelman our Chief Marketing and Merchandising Officer. Dave will take you through our financial performance for the quarter and for the year and then David will discuss certain topics related to our merchandising and marketing performance. I’d first like to make a few remarks about the fourth quarter’s performance. For the fourth quarter, our total sales declined 4.4%, while our same-store sales declined 4.3%. The fourth quarter for us was highly competitive and started later than expected in many seasonal gifts and decor-related categories. The majorities of our sales declines were isolated in four departments, seasonal, home decor, scrap booking and fashion crafts. It was also important for us to not have any carryover of undesirable holiday decor items allowing our merchant team the opportunity to enter 2011 with a cleaner composition and the purchasing focus on new trend-right items and/or programs. David Abelman will speak more specifically regarding the merchandising performance during his portion of today’s call. For the fiscal year, total sales declined 4.4% from the same period one year earlier and our same-store sales declined by 5.4%. Our gross margin in 2010 was 41.3%, an increase of 140 basis points due to improvements in our everyday and promotional price management as well as improvements in inventory, security and control. We believe that we made significant progress on our strategic initiatives during fiscal 2010 and that these initiatives will have a positive impact in fiscal 2011. I would like to spend a few minutes discussing some of the operational achievements made during 2010. We implemented the four-hour order point solution in quarter one of fiscal 2010, a replenishment forecasting application that determines optimal inventory order levels on a weekly basis, balancing lost sales and inventory carrying costs for all of our 4.5 million SKU store combinations. We increased the percent of merchandise managed by automated replenishment from 52% to 75% providing better control of inventory levels across the chain. All of this was achieved while at the same time we delivered a total inventory reduction of 10.8 million, or 8.2% on a per store basis, while improving the store level overall in-stock position by more than 500 basis points. We remodeled 12 stores in 2010.Stores remodeled to our Nevada format generated over a 400 basis point improvement versus our traditional stores on a comp basis while delivering a respectable return on investment. With regard to 2011, we expect to convert four to six traditional stores to the Nevada model. Currently, we do not have any stores planned for relocation in 2011. We opened two new stores, one in an existing market and one in an adjacent market while closing one store during the first quarter of 2011. We will continue to evaluate new store opportunities and we may open additional new stores in fiscal 2011 beyond the two opened during the first quarter. Depending upon negotiations with landlords on lease terms and/or lease expirations, it is possible that we may choose to close additional stores during 2011. After spending a significant amount of time and attention towards building a solid infrastructure and foundation, the company’s full attention is on regaining our market share in the areas in which we do business. We believe that our systems are firmly rooted. We are pleased that approximately one-third of our store portfolio has been converted to our new Nevada model and that our inventory composition is in better condition than in the past several years with little to no seasonal carryover. We believe that we are positioned firm improved performance in 2011. Now, I’d like to turn the call over to Dave Stern who will update you further on our financial performance. Dave?

David Stern

Thank you, Joe. I’ll start with a review of results for the fourth quarter and full year all by review of the cash and inventory positions as of January 1, 2011 and finish by providing some insight regarding our assumptions for the 2011 fiscal year. Sales for the quarter were 143.2 million, a decrease of 4.4% compared to sales of 149.7 million during the fourth quarter of last year. This decline was primarily due to a decrease in comparable store sales of 4.3%. The comp store sales decrease was composed of a 3.4% decrease in transaction and a 0.9% decrease in the average ticket. At the end of the quarter, there are 134 stores in operation, compared to 135 at the comparable point last year. Gross margin for the quarter was 37.7% essentially flat or 0.1 percentage point decrease from the fourth quarter of last year. Selling, general and administrative expenses for the quarter were 57.6 million, a decrease of 1.4 million or 2.4% compared to last year. This decrease is primarily due to reduced asset impairment expense partially offset by an increase in payroll during the quarter. Selling, general and administrative expenses were 40.2% of sales, compared to 39.4% of sales for the fourth quarter of last year. Depreciation and amortization expense was 4.8 million and 4.1 million for the fourth quarter of 2010 and 2009 respectively. Store pre-opening and closing costs for the fourth quarter of 2010 were 1.0 million and were primarily related to the costs for the stores that were closed in prior years, the one store that closed in the quarter and the two stores that opened in the first quarter of 2011. Fiscal 2009 fourth quarter expenses of 3.6 million were primarily related to two new stores and 3.4 million related to the increase in reserves associated with stores closed in prior years. The loss from operations during the fourth quarter of 2010 was 4.6 million compared to a 6.1 million loss for the comparable period of last year. Net interest expense was 0.3 million for the fourth quarter of 2010 and 0.2 million for the fourth quarter of 2009. The income tax benefit of 0.1 million in the fourth quarter of 2010 was related to the resolution of a prior audit. The income tax benefit of 5.7 million recorded in the fourth quarter of 2009 was due to legislation that extended the carry back of operating losses from two years to five years. The net loss for the fourth quarter was 4.8 million, or $0.20 per share, compared to a net loss of 0.5 million or $0.02 per share for the fourth quarter of 2009. Fourth quarter 2010 results included a non-cash fixed asset impairment charge of $0.04 per share and closed store expenses of $0.03 per share. Fourth quarter fiscal 2009 results included non-cash fixed asset impairment charge of $0.17 per share, closed store expenses of $0.14 per share and an income tax benefit of $0.24 per share. For the fourth quarter of 2010, capital expenditures of 1.2 million compared to 2.6 million last year. Now, I’ll move to results for the year ended January 1, 2011. Sales were 448.1 million, a decrease of 4.4%, compared to sales of 468.9 million during the comparable period last year. This decline was primarily due to a decrease in comparable store sales of 5.4%, partially offset by the operation of additional stores during the period. Gross margin for the year was 41.3%, a 1.4 percentage point increase from the comparable period last year. This increase is primarily the result of improvements in everyday and promotional price management and inventory security and control. Selling, general, administrative expenses for the year were 211.4 million, a decrease of 1.9 million, or 0.9% compared to last year. This decrease is primarily driven by reduced asset impairment charges and advertising costs partially offset by an increase in severance benefits. SG&A expenses were 47.2% of sales compared to 45.5% of sales for last year. Depreciation and amortization expense was 16.7 million and 16.2 million for 2010 and 2009 respectively. Store pre-opening and closing costs for 2010 were 2.6 million. Pre-opening expenses related to the two new stores and the three relocated stores were 0.4 million and expenses related to the three stores that closed in 2010 and revisions for the estimated net obligations related to stores closed in prior years was 2.2 million. In 2009, pre-opening and closing expenses were 4.5 million. Pre-opening expenses related to three new stores and two relocated stores were 0.5 million and the cost associated with revisions to the net estimated obligation related to stores that closed in prior years was 4.0 million. Net loss from operations in 2010 was 28.8 million compared to the 2009 loss from operations of 30.5 million. Net interest expense was 0.9 million for 2010 and 1.1 million for 2009. Prior year results included 0.4 million expense related to the termination of an interest rate swap. For 2010 the net income tax expense was 0.5 million. For 2009 the net income tax benefit was 5.7 million. As previously discussed the benefits recognized in 2009 was primarily due to legislation that extended the allowed loss carry-back period from two years to five years. The net loss for 2010 was 30.2 million or $1.23 per share compared to the net loss in 2009 of 25.9 million or $1.15 per share. Fiscal 2010 results included a non-cash fixed asset impairment charge of $0.04 per share, closed store expenses of $0.09 per share and income tax expense of $0.02 per share. Fiscal 2009 results included non-cash fixed asset impairment charge of $0.19 per share, closed store expenses of $0.18 per share and an income tax benefit of $0.25 per share. For 2010 capital expenditure grew 9.4 million compared to 10.3 million in 2009. During the fourth quarter, we closed one store. During 2010, we opened two new stores, relocated three stores, closed three stores and remodeled 12 stores. Subsequent to yearend, we opened two new stores one in Pottstown, Pennsylvania and one in Williston, Vermont and closed one store. As a result, approximately 30% of the store base is now in the Nevada model. Stores remodeled to the Nevada format generated improvement in comparable store sales of over 400 basis points. Moving to the balance sheet, at the end of 2010 cash was $40.0 million or a decrease of $6.0 million from last yearend. Availability under our credit facility was $37.8 million at the end of the year. On March 4, 2011 the company amended its credit agreement with Wells Fargo and renewed the facility for five years through March 4, 2016. The terms and conditions were comparable to the pre-amended terms and conditions with some modifications detailed in the 8-K issued on March 10. As of January 1, 2011 inventory is $111.3 million or $10.8 million lower than the end of last year. Total inventory on a per store basis was down 8.2%. Importantly all of this decrease was in the distribution center. Overall inventory in the stores was higher at yearend than at the prior year. As announced on February 15, the company is exploring strategic alternatives and did not intend to disclose developments regarding this process unless and until the Board has approved a specific transaction. Given the announcement on February 15, it is appropriate to limit specific metrics contained in forward-looking statements to those provided last year at this time. For the first quarter of 2011 we anticipate a net loss greater than that in the first quarter of 2010. The majority of this increase in net loss is due to the shift in the Easter selling season this year. With Easter falling three weeks later in 2011 a majority of the Easter selling season has shifted to the second quarter in 2011 from the first quarter in 2010. Looking to full year 2011, we anticipate generating lower net loss than in 2010. In 2011 we plan to open the two stores previously referenced, to remodel 46 stores and our capital expenditures in the range of $8 million to $9 million. We project the 2011 year-end inventory to be lower than that at 2010 year-end. We believe we will end the year with approximately $30 million in cash and we will close two stores through lease expirations. We opened additional stores during the year, where are able to negotiate advantageous early lease terminations for underperforming stores that include exit or closure fees, those additional new store openings or lease terminations could effect our projected net loss and cash position. Now I will turn the call over to David Abelman, Chief Marketing and Merchandising Officer.

David Abelman

Thank you, Dave. I will share our merchandising progress for Q4 2010 than touch upon full year results for fiscal 2010.After my merchandising comments, I will provide brief update on marketing. Our overall same store sales in Q4 declined 4.3%. It was an improvement over our comp sales trend in prior quarters in 2010. In Q4, 2010, eight departments experienced comp sales growth, increases included cake decorating and candy making, yarn and readymade frames. Our comp sales loss was heavily concentrated in four areas: home decor, scrapbooking, fashion crafts and seasonal. Seasonal floral and decor alone accounted for 40% of our total comp sales loss. We entered the key Q4 selling season with a significant portion of our seasonal inventory comprised carryover merchandise from 2009. This substantially limited our investment in new purchases Q4, 2010. Although we successfully sell through majority of our carryover merchandise from 2009, we experienced significant losses in both comp sales and margin in December. Our stores sold out of the majority of our new purchases for 2010 by end of November and poor selling of carryover product from 2009 created excessive markdowns. Gross margin for the quarter was down 10 basis points from Q4, 2009 primarily due to aggressive markdowns on seasonal merchandise along with a highly promotional competitive environment. Moving on the fiscal year 2010, our same-store sales declined 5.4%. Categories had experience same-store sales increases for the year included cake decorating and candy making, everyday floral and our checkout and impulse series. Our comp sales loss was concentrated in three areas: scrapbooking, fashion crafts and seasonal. These businesses accounted for 70% of our comp sales loss for the year. Let’s briefly touch upon advertising and marketing. We remain focused on improving the productivity and efficiency of our marketing spend. For an advertising, which is primary circulars is the largest component of our marketing investment. We continue to improve the productivity of our current advertising, while investing in an integrated marketing and advertising program based on our knowledge of our customer and the craft consumer. Our marketing mix is now well diversified and includes social media, our rewards frequent shopper program, and local marketing initiatives. I’ll turn the call back over to Joe.

Joe Jeffries

Thanks, David. Operator, I think this would be a good time to take some questions.

Operator

(Operator instructions). We will hear first from Bernard Sosnick with Gilford Securities.

Bernard Sosnick

Good morning. Hi, to a degree, there is – congratulations, you lowered some of the loss factors, but obviously there is disappointment. And I’m wondering as you look forward, particularly with respect to expenses, you said that you expect to lower loss in the New Year what are your thoughts with regard to managing expenses?

David Stern

Well, obviously it’s important to start to deliver some positive leverage on our SG&As in totality. The organization has done a great job over the past few years of bringing the raw dollar amount on the per store basis. However, with the decompression in the top line Bernie, as you see we get the negative leverage there. So we’re managing all of our expenses rather closely, but at the same time, we are investing back in parts of the business that makes sense, so that we can turnaround our performance on the top line.

Bernard Sosnick

In the last year, you reduced your expenses by some $2 million, do you think that it will likely be or do you plan there to be a decrease in the dollar amount of expenses?

David Stern

Yeah, I’m not going to comment on a raw dollar amount how much we are going to bring it down as I stated earlier, I think it’s important for us as a management team to intelligently invest in our business to grow the business in 2011 and improve it.

Bernard Sosnick

Okay. With regard to home decor, it was a problem in the fourth quarter, but not one of the three categories that dropped comp store sales for the full year. What do the fourth quarter was so special about home decor that it was a flop to the extent that it was?

David Abelman

Yeah, our home decor, this is David, our home decor number in Q4 contains a very large seasonal component and home decor is well – had significant carryover from prior year, that would explain large part of the loss.

Bernard Sosnick

Okay. Well, thank you very much and good luck in the New Year.

David Abelman

Thanks Bernie.

Operator

We’ll take our next question from Mark Mandel with ThinkEquity.

Mark Mandel

Thank you. Good morning everyone.

David Stern

Good morning, Mark.

Mark Mandel

I was just wondering what is your sales assumption that you’re basing these overall – the overall guidance on, would you looking for same-store sales Q1 or for the full year?

David Stern

Right. Mark, this is Dave. Given the announcement that we made on February 15 regarding the exploration of strategic alternatives, at this point, it’s appropriate to limit the specific metrics contained in our forward-looking statements to those that we provided last year at this time, and so, we’re not providing specific comp store sales assumptions for 2011.

Mark Mandel

Okay. In terms of the fourth quarter, you did note that you sold out a certain products at the end of November can you give us some idea on how the comps trended during the quarter?

David Abelman

This is David. As I mentioned on the seasonal area, one area that we feel very good about is the validation that our move forward strategy on seasonal is on point. We had a very limited pie for both Halloween and for Christmas in 2010 due to the carryover we had from the prior year. We knew our product sold through extremely well, well over 90% of our sell-through. And as I mentioned, it slowed down dramatically in December as we had carryover merchandise that was not well-received by our customer, which really forced us to have excessive markdown and slowed some of our momentum.

Mark Mandel

Okay. Just one point of clarification, if you would please on the Nevada performance, was that a 400 basis point improvement relative to the rest of the chain or was it actually up 400 basis points on a same-store basis?

David Stern

Sure, Mark. With that specific metric that we referenced was related to remodels. And so we look at it relative to the rest of the chain and we go through a fairly rigorous process as you can tell with our CapEx, we’re pretty constrained where we spend money. So we test those stores before the remodel relative to the rest of the chain – during the remodel and that post remodel promotional period and in the post promotional period. And so it’s really the first and last stage as we assess the stores and the impact of the Nevada. So it’s relative to the rest of the chain.

Mark Mandel

So, where those stores that were remodeled during 2010 or during and before 2010?

David Stern

During and before Q3, 2010.As you may recall, we had a large number of remodels that took place in Q3 of 2010.And at that call, at the Q3 call, we did not give specific information regarding the impact of those remodels because they were simply too new. We didn’t enough history behind us to get what we felt was an accurate read. So having a little bit more time behind us, we are comfortable with those numbers.

Mark Mandel

So if you look at the Nevada class as a whole, 30% of the store base, can you give us some quantification on how that broader group performed relative to the chain?

David Stern

We’re very pleased with that performance. That broader group would include both those remodels that we discussed as well as the stores that were built round up as a remodel as well as relocations. And so while we haven’t given the specific numbers around that previously, we’re obviously very pleased with the Nevada concept. All of our remodels relocation to the new stores, going forward, will be in that model. And I think we give a little bit – we’re very pleased with those results. But the truest impact or measure of the impact of Nevada is the remodels because you don’t have the other things associated which when it goes to relocation, you got the impact of a Nevada plus the benefit of a better location, same thing with new stores. And so we think that giving the impact of the comp store sales on Nevada provides the best measure of performance.

Mark Mandel

All right, thank you. Good luck.

David Stern

Thanks Mark.

David Abelman

Thanks Mark.

Operator

(Operator instructions). At this time, we’ll hear next from Jack Balos with Focus Research.

Jack Balos

Regarding expenses in the fourth quarter of last year, when your comps were down 4.3%, I just wanted to clarify did you say that your payroll at the stores was up?

David Stern

We did, we did.

Jack Balos

What is that? Why were they up at the time when comp sales are running down?

David Abelman

Well, we made some decisions to invest in certain areas of our business to ensure that we were prepared for the customer increase in traffic and to handle the inbound freight that we had and it was the strategic decision that we made uncertain markets within the organization to invest. We’ve done an awful good job of reducing our payroll expenses going back to 2005 and 2006 before any of us arrived there was an enormous amount of payroll they moved from the company. And we thought it made some sense to reinvest so that we could start to improve our service levels in the fourth quarter and into 2011 as well at a very low level.

Jack Balos

What do you expect the daily comparison between comp store sales in 2011 and comp store payroll?

David Stern

Jack, it’s Dave. Yeah, we’ve given the announcement that we made on February 15 regarding the strategic alternative exploration. It’s not appropriate at this time to provide guidance that differs from the guidance that we provided last year at this time. And so, we’re not giving specific comp store projections. But further as we look at the cost structure, if you look at total SG&A per store for 2010 you’ll see it’s lower than it has been in this company going back at least 10 years. So, there has been an extreme focus on reducing costs. And because of our strong liquidity and our strong cash position, we also took the decision that we don’t want to just cut cost at any rate, but cut costs where it makes sense.

Jack Balos

Sure.

David Stern

And do not cut costs where over the long-term it wouldn’t be beneficial.

Jack Balos

Regarding the carryover of merchandise, what percent of your merchandise was carried over in the fourth quarter of last year and what percent does carryover merchandise represent of your merchandise currently?

David Abelman

Sure, this is David. Our carryover in – from 2009 to 2010 was 60% to 65% of the total inventory we had available in our stores in 2010.In 2010, the closed year on new merchandise was sold through over 90% and overall between 85 and 95% depending upon the season Halloween fall or Christmas.

Jack Balos

Well, I assume that…

David Abelman

Yeah, much better shape…

Jack Balos

That you would not want to have much carryover merchandise period, right? And with that percentage…

David Abelman

The goal is – absolutely, the goal is to come out as clean as possible, but if we hit a point with good quality move for merchandise, we make the determination based on carrying costs, whether it’s better packet [ph] away or discounted after the season.

Jack Balos

So right now, what is the percentage of carryover merchandise to the total right now?

David Abelman

For Q4?

Jack Balos

No, I’m talking about first quarter of ‘11?

David Abelman

For first quarter ‘11?

Jack Balos

Yes.

David Abelman

On new purchases for this year 2011.

Jack Balos

Now, what percentage of your current inventory is carryover?

David Abelman

They are very, very little. We really work throughout the year of 2010 at being very responsible for inventory and our number came down considerably $10.8 million versus 2009 by balancing our inventory investing in the areas that we think we’ll get best return and ultimately drive comp store sales.

Jack Balos

So are you saying that you’re starting 2011 with fresh merchandise?

David Abelman

Much better shape, absolutely. An example of that would be our garden program in our seasonal department. If you were in our stores today Jack, you would see a seasonal presentation related to garden and garden decor significantly better than we’ve had in the past two years broader, deeper on the right items, with trend-right products as well, all new to our assortment in 2011.

Jack Balos

Regarding your strategic alternatives, I did a calculation that the book value per share is about $5.35, which is above your stock market value. I would hope with your exploring strategic alternatives that if anything occurred, it should be an excess of book value per share. That’s just an opinion. Thank you.

David Abelman

Thank you, Jack.

Operator

We’ll take our next question from Michael Corelli with Barry Vogel & Associates.

Michael Corelli

Hi, good morning.

Company Representative

Hi, Mike.

Michael Corelli

Can you discuss strategy of having carried over so much seasonal inventory, I mean, obviously I knew there was a risk of that product was not going to sell well in the following year, since it was aged product, why did you make the decision last year not to be more aggressive in clearing that. So, you wouldn’t have been in the situation that you were this year.

David Abelman

Yeah, I guess, this is David. Our seasonal merchandize is primarily direct source .I joined the company in May 2009 as Head of Merchant. The buy was already complete for 2009.So, from an advertising marketing, in-store merchandizing perspective, we look at the merchandize that was purchased and did our best to, we had a lot of confidence that we could sell it through. A lot of the assortment moving in the 2009 was the first to come, the customer had seen the merchandise but not well-received and we did our best to sell it through. We ended the year with a lot of carryover. Moving into 2010, we complemented that volume with items we knew were core to our customer that complemented our assortment and we validated the strategy that’s in place now with virtually a 100% sell through of those products.

Michael Corelli

Well, because obviously it’s been frustrating over the last several years and it seems to be another reason why the company’s results come out disappointing and along those lines. I mean, you had negative comp store sales while you think you’re relatively flat one year, but over the last six years almost 38% combined and we saw and been able to get to positive comps. I know you’re talking about improved results this year. Is there anything you’re seeing to-date in the results of this year that is making you feel that you’re going to have improved results or what is going to be the driver behind those improved results since we really haven’t seen that for a long period of time now?

David Abelman

We can’t – as we stated before we’re not going to give a lot of guidance related to this year’s performance. We do expect improvements happening throughout the remainder of the year. The Easter shift is a significant shift for us right now. But we are highly confident as a team here that we’re on the right track. And I know, and I agree with you regarding the disappointment in results and then in the frustration. We feel that is, well we’re focused on getting through it, putting that behind us and marching forward with the strategic plan that we’ve built as a team and we feel fairly certain that we’re on the right track here. And obviously it’s all about results. We have to deliver the top and the bottom line for the organization, for our share holders. There’s no doubt about that.

Michael Corelli

Okay, thank you.

David Abelman

You’re welcome.

Operator

Our next question comes from Joan Storms with Wedbush.

Joan Storms

Hi, good morning.

David Stern

Hi, Joan.

Joan Storms

Hi, a couple of questions just related to and I was hoping you guys might be able to quantify this, the minus 4.3% comp for the fourth quarter, could you quantify how much of that might have been attributed to weather given 75% of your store base is located in the northeast and in the Atlantic, and there is a lot of weather around the holiday.

David Stern

Yes, there was weather Joan, but it didn’t have, at that particular time it didn’t seem to have a significant impact on our top line. I think the way David described our disappointment in seasonal was really the driver of the business results. That carryover product that David talked about we could get as aggressive as we could the year before, we carried it back over. We even tried to sell some items off season and had a little bit of success there with some third-party agencies. That really drove the larger impact, but the positive side of it though is that the new products that David’s team was able to purchase were extremely well received during the quarter and we were happy about that and our seasonal programs marching through 2011 are engineered and geared with fresh products and I feel very confident that our seasonal departments going to deliver for us this year.

Joan Storms

Okay, well that being said as well, I mean obviously, I mean in the first quarter you started January with heavy amount of weather as well, so.

Dave Stern

We did, we did.

Joan Storms

Right, so is that part of the combining (indiscernible) and weather to say that that will be a challenge?

Dave Stern

Well, it is, but here is the funny thing in 2010 in February we had weather that had a negative impact on us and so we comp those days in February this year. So, we had some weather problems in January and we picked up a little bit of steam in February comping some of the previous year’s weather dates. So, there is a little bit of weather impact, but the majority of the shift which I think more especially retailers are dealing with right now is the Easter shift. It’s the largest shift I think in 40 years if I remember correctly.

Joan Storms

Okay, that’s fair enough. And on the – so that being said, so you were working on bringing in, starting I guess second half last year more inspiration back into the store. I was wondering if that was a contributing factor obviously plus some of the New Year holiday merchandize to sort of a sequential improvement in comps from the previous couple of quarters.

Dave Stern

Well, I think I’m a believer in finished samples and inspirational goods on our end caps in line where appropriate. We walked away from that as a company several years ago and we need to inspire our consumers that are new to the crafting world and our stores have done a remarkable job bringing back some of that lost magic that made A.C. Moore unique in years past and we have ramped up our efforts as a company with our great vendor partners to ensure we are delivering inspirational merchandizing both in line and promotional space in 2011. And of course we believe that’s going to be one of the factors as we move forward to focusing on improving our results.

Joan Storms

Okay. And then could you comment also on the, you sort of realigned the store management and operations towards the end of last year, trying to really bring crafts back down to the store level and I was wondering how you are pleased with that progress and what department?

David Abelman

That’s been a success for us. The restructuring of our field operations team, the efforts that we put in place to improve span and control. We have created two divisions. The gentlemen that run those divisions for us have significant years of craft experience both with us and other folks that were in the craft industries in years past. We did bring a couple of people from the field and closer to our merchandizing team in 2010.They have significant craft knowledge and not only they had an impact at the field level, but I’d tell you that I think they’ve had an equally as good of an impact at the corporate level and creating better lines of communications with our merchant marketers on a daily basis and really part of the decision-making process upstream. So, I’m very happy with that and I think we are going to continue to yield benefits going forward because of that realignment.

Joan Storms

Okay, and then just lastly with regard to the CapEx, it seems sort of similar to last year, so you had more remodels and I was thinking with the remodel that are comping so much better the chain average that I was surprised to hear that you’re only going to do four to six, where is the extra CapEx going and why you make that trail?

David Stern

CapEx is lower year-over-year as you probably know. A couple of new stores obviously the four to six remodels and then the rest of it is just basic maintenance type programs both in the support center and across the organization. As it relates to our Nevada model and why we are not remodeling more storage, we are careful with our capital expenditures as you can tell. We base the decision to remodel at given store based on many factors, the condition and performance, our long-term plans for the sites, lease expirations and renewals play a major role as we look at expected allowances with landlords. Given these factors the numbers of remodels could change, but right now we are staying within that range that we have talked about today.

Joan Storms

Okay. Thank you very much.

David Abelman

You’re welcome Joan.

Operator

We’ll take our next question from Tamas Eisenberger with BlueShore.

Tamas Eisenberger

Good morning, guys.

David Abelman

Hey, Tamas. How are you?

Tamas Eisenberger

Fine, thank you. So, one thing that we’re not getting this – first of all, we’ve been shareholders for a while, we’re one of your top 15 shareholders. One thing we’re not getting on this call is the sense of desperation from your side because all we see is that no money is being made and one problem we have is there are companies out there that are selling goods that people don’t even want, like CDs, DVDs, etcetera and they managed to show profit last year. So, as we get closer to the top of this business cycle and the failure of you guys to show profit, it’s making us scared that if this economy does turn down where we, what are we left with. It’s – we’re also worried the fact that you guys are focused on growth when you’re unable to turn up profit on what you have right now. So, when do we expect to see some money from this company. It’s really disturbing as one of our earlier colleagues said, 38% drop in same-store sales over the priors, I guess, so six years when are we going to see something positive?

David Stern

Sure. Tamas, this is Dave. You mentioned a couple of items I’ll just adjust your last point first regarding the decline in comp store sales. We are obviously frustrated with that, however, if you look through the industry you’ll see it is really more of a regression to the mean. We don’t expect sales to go back to what they were in this company previously, because it’s a different landscape that we’re operating in, the continued losses we share your frustration with that, but you look at both us as well as our P&L and our balance sheet, you’ll see we just had a $6 million cash burn rate last year. Last year, we spent a lot of time as David and Joe had mentioned of moving through inventory that had been purchased previously and we came into 2010 with a significant amount of carry-over and we took responsibility for it and to be gone through the detriment of it both in sales and gross margin to clean up the inventory and start 2011 with a clean inventory days. I think your third point was regarding our focus on growth. We’ve actually restrained that we’ve got lower projected CapEx in 2011 than we did in 2010, fewer store openings, and fewer remodel. And so we are very focused as indicated by our 2010 results on conserving cash and spending it judiciously. The other area, where we saw [ph] conservative is bringing down the cost structure of the company. SG&A on a first store basis is extremely low. On a percentage basis, we deleveraged unfortunately because of that decline in comp store sales, but on a dollar basis, it’s lower than it has been.

Tamas Eisenberger

Yeah so, but why is there any growth if you was telling me that reverting to the mean in the business and the industry as a whole, I would think that the best strategy would be to rationalize the model, make it profitable, before we even consider opening a single store. So the question is, if we look at last year and we consider how positive the year was for most retailers and most companies out there and how it wasn’t for A.C. Moore, what is the next step, especially if this year and the following year become much harder economically speaking? And just in addition to that, we also agree with our earlier colleague who mentioned the book value as the starting point for discussion, so we want to get your view on that too?

David Stern

Sure, I’ll address your first point first regarding rationalizing the network. We agree with you. Rationalizing the network as we closed stores in 2010, we indicated we’re going to close stores in 2011. We also indicated we’ll continue to work with landlords to move beyond what we have. But also it doesn’t mean putting an end to profitable growth. We want to shed some of the stores that are underperforming, but we also want to take advantage of opportunities as they arise. We’ve got a very strong cash position. We got a very strong liquidity position, and with that, we don’t need to make short-term decisions. We’re looking at just from a long-term to be able to grow it, to achieve some of the results that you mentioned. I’m sorry, Tamas what was your other question?

Tamas Eisenberger

It was in regards to your approach in strategic alternatives we agree with the earlier call – the earlier person who said book value is the starting point, so we just wanted to get an idea or any color on what’s going on because it sounds to us that if the industry is mean reverting as you say consolidation is required?

David Stern

As you know, we can’t talk about that since it’s in process, but we’ll certainly take your comments under advisement.

Tamas Eisenberger

Great, thank you very much.

David Stern

Thank you, Tamas.

Operator

We’ll take our next question from (indiscernible) with Cole Capital.

Unidentified Analyst

I am all said, thank you very much.

Operator

Thank you. Moving to our next question from Sam Burger [ph] with Caryn International.

Unidentified Analyst

Yeah, you had mentioned if I heard you correctly that quarter one loss this year would be bigger than last year basically because of the timing of the Easter holiday. But looking forward for the whole year, I mean last year the working capital was $96 million or so, this year it ended up being at 73 and the debt to equity ratio keeps getting worse. Do you have any forecast for any profitable quarters this year?

David Stern

As you mentioned earlier Sam with the process that is in place currently, it’s not appropriate to give guidance at this point that we didn’t give at a comparable point last year. And so we’re restrained as far as what would be appropriate to say looking forward through the rest of 2011 beyond what we mentioned previously regarding the net loss, capital expenditures, cash position, real estate closures, and inventory.

Unidentified Analyst

But you are saying basically the cash is going to be lower at the end of this year 2011 and the loss will be lower, but is there any kind of forecast to make some money? I mean what is the company, I understand the company is cutting its inventory, it’s cutting its some expenses, it’s closing unprofitable stores. But is there anything new or exciting that the company is looking to do or get into that can make some money?

David Stern

Hey, there are several things that we’re doing across the organization from a merchandizing and marketing perspective of businesses. But obviously we’re addressing the core businesses that drove the comps down in 2010 and those fixes are in play and in motion and we are expecting them to provide the positive returns that we have. There’s been some other lines that we’ve introduced into the organization that are somewhat unique to what we do in the craft business. I’m not going to get into details on the phone today because of the competitive disadvantages that provides us and we’re going to steer away from that. And as far as providing any guidance, I just want to jump in for a second here about that, I know you’re looking to hear us tell you that we’re going to be positive in certain quarters this year and we can’t do that today for the reasons that we’ve stated several times on the call. Please know that we have the same intentions as you do and that’s to see the top line return and our operating and net profit improve within this organization. And our strategies and our plans are designed from a roadmap perspective to lead us down the path where we will show that we’re turning the company around and improving its performance overall.

Unidentified Analyst

Okay. Thank you.

David Stern

Operator, we’ve got time for one more question.

Operator

Certainly. We’ll take our final question today from – a follow-up from Bernard Sosnick with Gilford Securities.

Bernard Sosnick -

Thank you. The inventory reduction as I calculate the amount of owned inventory came down around $17 million at year end versus a year earlier which accounts for the fact that the burn rate of cash was relatively low given the extent of the loss. You’re not prepared to give inventory numbers. But I am wondering you said that the amount of cash on hand was significant for business of your size, what is the amount of cash that you need to operate the business on an ongoing basis just to run the stores?

David Stern

Bernard, this is Dave. The change in inventory was 10.8 million during the year.

Bernard Sosnick -

Plus the amount that you also increased your accounts payable.

David Stern

I was looking into that, that’s correct. We achieved positive leverage at the end of 2010.

Bernard Sosnick -

I am wondering about the amount of cash that you’re going to need because if you are running at loss, so even if you cut into half, you would have a negative of $15 million right there?

David Abelman

We’re very comfortable with our cash position. We ended the year with 40 million in cash. During 2010, we had a $6 million burn rate. We just renewed the credit facility for another five years that will terminate in March of 2016. We have no plans at this point to jaw upon that, if not, we’re seeing that will need it. And if you look at our projection of past versus our projected capital expenditures, I give you a pretty good framework that we’re in a strong liquidity position.

Bernard Sosnick -

Okay, let me just ask finally, there are lot of questions about how you get the profitability focused on the merchandising side of the business. And I asked the question to begin with on expenses, your expense – your expenses for the year as a percent of sales were 47% compared with 41 leaving aside the fractions for gross margin. There’s no business that I know that operates at 47% expense ratio. And you cannot expect to get your gross margin up close to what your expense level is, ratio is. So what are the dynamics here? Expenses have to come down, gross margins have to come up, gross profit dollars have to come up. And I didn’t get the sense that you have the ability to reduce expenses, because your answer with respect to the fourth quarter payroll seemed to imply that you’d gotten down to skeleton levels at the store. So could you address the dynamics between the expense ratio, gross margin, and how you get the profitability?

David Abelman

Sure.Concurrent with the changes that we’ve – the decrease in the cost structure that we’ve achieved over the past several years, certainly, the low hanging fruit is gone within the cost side. However, it’s a continual process as you’re well aware and we’ll continue to bring the focus on bringing down costs. And the other component of that as you pointed out is gross margin dollars, which are a component, of course, of driving top line sales and driving margin rate and that’s where we’re focused on going into 2011.

Bernard Sosnick -

Good fortune. I wish you the best of luck.

David Abelman

Thank you, Bernie.

David Stern

Thanks Bernie.

David Stern

Okay, in closing, I’d like to say that our management team here at this store support center appreciates the efforts of all of our corporate associates and our store teams. All of whom are working hard and committed to improving our performance on a daily basis. I want to thank you for joining us today and for your continued interest in A.C. Moore. Have a great day. I thank you much.

Operator

That does conclude today’s conference. Thank you all for your participation and have a wonderful day.