Joann (JOAN) Q2 Wrap: Delta and Supply Chain Issues Cloud Near Term but LT Intact
In JOANN’s second quarter as a public company, management has dealt with the Delta variant complicating social sewing events and supply chain challenges driving up costs. The net effect in Q2 was that revenue of $496.9 million missed by almost $36 million and adjusted EPS of -$0.20 missed by $0.06.
A double miss is never a good thing and in this case some investors may easily interpret the 30% contraction in sales as compared to Q2 2020 as indicative of a flailing company. That’s not exactly true. Last year was insane as a mask making frenzy and hard-core crafting drove sales way above anything in the realm of normal (Q2 2020 revenue was up nearly 40% over Q2 2019).
That might sound like an excuse. But it is worth noting that the two-year growth rate in Q2 is 8%, which is still well above the average growth rate in this industry. That shows that JOANN, which is the only remaining public company in the space, is doing things well. Despite that, and especially now, JOAN trades at a steep discount to even the cheapest retailers. This is how this stock should be viewed.
With that perspective – and this is why we bought the stock – JOAN is a full-on small-cap value stock. With shares selling off today it remains attractive.
We’ve seen stocks that miss expectations get hammered. But in many cases, they recover some of their lost ground over the month following the initial sell off. I expect the same here. Therefore, I’m keeping JOAN at buy. We may certainly change our rating depending on how the next couple of months go, but as mentioned in my original research report, part of our thesis is that crafting activity will remain strong heading into fall and winter, that JOANN has the right strategy to grow faster than peers, and that the stock is dirt cheap and will pull in value investors. BUY