At this time I’d like to welcome everyone to the A.C. Moore Fourth Quarter 2007 Earnings Conference Call. (Operator Instructions) I’ll now turn the call over to Mr. Rick Lepley.

Good morning everyone. Before we get started today I would like to review with you our safe harbor statement. Today’s discussion may contain forward looking statements as such term is defined in the Securities and Exchange Act of 1934 and the regulations there under including without limitation statements as to the company’s financial condition, results of operation and liquidity and capital resources and statements as to managements beliefs, expectations or opinions. Such forward looking statements are subject to risks and uncertainties and may be affected by various factors which may cause actual results to differ materially from those in forward looking statements. Certain of these risks, uncertainties and other factors as and when applicable are discussed in the company’s filings with the Securities and Exchange Commission including its Form 10-K to be filed later this week. On the call today I’m joined by Marc Katz our Chief Financial Officer, Joe Jeffries our Executive Vice President of Operations and Craig Davis our Senior Vice President of Marketing and Merchandising. Marc will talk to you about our financial performance for the quarter and for the year and he’ll also have some remarks about the restatements we will be filing later this week. At the outset I would like to thank him and his entire team for all the work they put in to quantifying the errors and completing the restatements of our financials. They have had a very, very busy six months and the entire organization appreciates their hard work. I cannot possibly tell you just how glad we all are to be at the point where we can finally file. After Marc’s comment Joe Jeffries will have some remarks about our overall operations and Craig will have some specific remarks about merchandising and marketing. Before they do that I’d like to…

Good morning. Before I discuss our results for the quarter I would like to make a few comments regarding our recently completed financial restatement. We have concluded that our cumulative inventory overstatement through 2006 was $24.3 million at the high end of our previously estimated range. The pre-tax impact to 2006 was $4 million. Each of the first three quarters of 2006 was impacted by $0.02 per share with the largest impact in Q4 of $0.08 per share. Each of the first three quarters of 2007 was only impacted by $0.01 per share. The restated inventory amount at the end of 2007 calculated under the revised retail inventory method is within 2% of weighted average costs. This will be recorded as a change in accounting principle on January 1, 2008. We incurred approximately $650,000 in costs associated with the inventory restatement. From a tax point of view we have already begun the process to obtain a refund for overpayment of taxes. We anticipate being able to take a deduction on our 2007 Federal Tax Return which will result in a refund of approximately $7 million. While the timing on actual collection is not known at this time we believe we will collect this refund during the 2008 calendar year. I will now highlight financial performance for the quarter and year. Two thousand six financial results will be discussed on a restated basis. Sales for the quarter were $177.3 million a decrease of 10.4% over sales of $197.8 million during the fourth quarter of last year. Same store sales decreased 14.5%. Gross margin for the quarter was 38.7% up 340 basis points in 2006. The increase is primarily related to the mix of merchandise sold which was positively impacted by favorable vendor pricing and higher initial mark up on import merchandise.…

Good morning. As many of you know I recently arrived at A.C. Moore and have been in position since late November 2007. I’m excited to be part of the organization that Rick has assembled and to be part of what I see as a unique opportunity to create a very special and successful retail story. During the past three plus months I’ve taken the opportunity to get immersed in all aspects of the business. During this time I’ve recognized opportunity across all fronts with many improvement plans already in motion and some that are additional that we’ve instituted. Our objective is to transform the corporate support center into a store centric support organization. It’s our belief that when we focus on our thinking, planning and efforts with our store team’s top of money we position them for success that creates improved levels of execution on a daily basis. The realization of the store centric model will translate into a superior level of customer service. Because of improved execution, more available and knowledgeable associates positively impacting the customer experience. Beginning with the merchandizing division we have begun the process of implementing category management planning designed to optimize sales, expand gross margins and lower our inventory investment. Supporting this new process we are also restructuring our merchandising department creating three merchandise divisions led by specific divisional merchandise managers supported by merchandise planners, inventory allocation managers and visual merchandisers. This combined effort will position A.C. Moore to better manage seasonality, planogram execution and speed to market with new merchandise and service offerings. Let’s turn to advertising, as you know last year considerable time was spent analyzing the effectiveness and productivity of our insert program. This work has yielded success in most markets and some fine tuning in select markets is underway. Phase two…

Good morning everyone. I would like to start my comments today with a review of sales. As was previously mentioned we are not pleased with our sales performance during the quarter. Several key factors previously mentioned contributed to the results. First a challenging macro retail market, second a very difficult year for seasonal décor merchandise and third a less than acceptable in stock position at shelf edge. We saw strength in several of our core crafting departments that performed well during the quarter. First silk floral, Q4’s positive performance was driven by Christmas stems, bushes and garlands. Margins improved year over year the result of lower acquisition costs and improved ad performance. Second, wicker, positive performance is the result of new content added into the basic planogram as well as new home décor items. Margins in wicker improved versus last year this was driven by lower acquisition costs. Third, cake and candy making, the area continued its relative positive performance driven by cup cake making as well as a couple of key items driven by the revitalized class program. Fourth, several new home décor programs added during Q3 performed well during the quarter. All of these programs delivered incremental sales to last year and at higher than chain margins. We continue to monitor and leverage these new programs. Let me now address our seasonal business. Christmas seasonal décor had a very difficult season. We experienced the same difficulty in this area that others in retail and specifically in our channel experienced. Due to long lead times required for planning, buying and receiving imported products commitments were made back in March 2007 to significantly increase the buy and floor space committed to this category at the expense of every day traditional programs. As the quarter progressed and the severity of the…

Before we go to questions there are a few more things that I’d like to add perhaps in anticipation of some of your questions that may not be related to our financials. First of all we’ve said a number of times we view this as a marathon and not a sprint. It’s very important for us to stay focused on what’s good for the company in the long run and not on what might appear to be best quarter by quarter. Beginning about a year ago we outlined a three year plan. We said that in 2007 we needed to assemble a team at the corporate level and begin to centralize some of the decision making processes. We said that in 2008 we needed to begin to introduce to the stores some of the process improvements and refinements that new systems and advances would allow. We said that if everything went well we expected to see growth again beginning as early as 2009. Today you have the results of the first full year. We fully expect the next few quarters to be equally as challenging as the last one as we deal with the changes in the macro environment and continue working on our own internal restructuring issues. In short we have not seen nor have we experienced anything which would lead us to believe that we could accomplish any of the things we set out to do in less time than the original plan we outlined. We know that there is some sentiment that arts and crafts retailers may come through a recessionary period unscathed. In the last economic down turn wherein expendable income was less of a factor than peer of travel specifically in 2001 and 2002 our industry did grow and prosper and indeed we hope that…

(Operator Instructions) Your first question comes from the line of Seth Basham with Credit Suisse.

A couple questions, since you talked about the outlook for 2008 Rick maybe you could give us a broad overview of why you are expecting down comps relative to your competition, Michaels in particular, that is expecting flat comps? What’s different about your business versus theirs?

I didn’t say we were expecting to comp down for the year what I said was we were not building a comp increase for the year.

So flattish. Since you went down that path would you be willing to talk about where you expect margins to be flowing throughout the year?

No we wouldn’t. I would say simply that we hope to continue doing what we’ve been doing and we hope that leads to some improvement again this year. In terms of how much I really wouldn’t want to say.

One other question on in stock, it sounds like you guys have really studied the issues and are taking a lot of action. At what point in 2008 or beyond do you think that the issue will be fully resolved to your satisfaction.

As it relates to out of stocks that you mentioned we recognize when visiting stores ordered this year that was a problem. We’ve put a full court press on that I’ve talked about initially coming back working with Marc and Dennis Hodgson we made some really, really strategic changes here to make a material difference this year. We are seeing week after week when we scan our outs we are seeing the number improve. I’d like to think that when we come out of Q2 that we are going to be in much, much better position in in stock at shelf edge. Everybody in the organization is purely focused on this.

Two things that I would add to it, one of the issues is caused by what we call lack of planogram integrity. In other words, every store doesn’t have exactly the same planogram and that leads to some challenges but now at least we know what every store has in stock so that will help. The second one is we mentioned earlier Joe alluded to it is changing vendors in some cases that left us with some period where the old vendor wasn’t supplying us and the new vendor wasn’t supplying us yet either. That also hurt us.

Have the merchandising category resets has that process been improved so that’s not causing out of stocks any more.

It’s not good enough yet. As you look at the whole comp issue we are getting better at that but we are still not world class by a long shot. We are not where we need to be.

One last question, have you seen any change in terms from some of your important vendors?

Not at this point but we are expecting that there are going to be some increases from global resource products.

In terms of price because of inflation?

Yes, exactly, because of the weakness of the Dollar and what’s been happening in China.

No one is requiring you to pay more quickly?

No, we haven’t seen that yet.

Your next question comes from the line of Greg McKinley with Dougherty.

Could you run through a general, I think you mentioned the fourth one off items in Q4 that hit earnings $0.02, $0.02, $0.03 and $0.01 what were those again please?

Greg, $0.02 for inventory restatement, $0.02 for closing two stores, $0.03 related to taking the sku level physical inventories and that one will become a cost of doing business in the future and then $0.01 was related to a one time interest charge.

In terms of us better understanding the out of stock issue can you give us a sense for how you measure the stock positions and where that had been historically versus what you experienced in the December quarter?

I can’t speak for the historical accuracy of the reporting what I can tell you today is our systems are good but they’re not best in class yet. Today our store managers actually take the RF guns and scan their outs after they’ve done a drop and fill holes. They are self reporting their outs therefore that’s the number we take in totality, I’m able to see across all vendor partners and then we are able to analyze it and take actions even down to the sku level to make sure we are getting back in stock. I’m happy to say that each time that we do the scan outs process we are seeing a significant improvement. We just completed one this past Saturday and I’m expecting to see another significant drop in the numbers. As we progress further with the Oracle retail merchandizing systems I’m going to be able to see the outs per planogram of active sku on a daily basis. Once that happens we will really see an improved condition in stores. I think the future holds a much, much better in stock position for us across stores.

So I can better understand where did the stock outs occur? It sounds like to me you in hindsight over invested in seasonal so I’m assuming that wasn’t an out of stock issue in that category. Where did it really hurt you guys from a category standpoint?

Two points I would make, historically we always took the tact that if we maintained really high inventories at the store level we could cover out of stocks. That worked so as we begin to bring inventory down throughout the year we could see that there was more and more of a problem to stay in stock. Most of the out of stocks and Joe may even know the percentage but most of the out of stocks are from EDI vendors, they are not from our preferred sourcing vendor and they are not from our warehouse, most from EDI vendors.

Your next question comes from Michael Corelli with Barry Vogel & Associates.

Does the company have a share repurchase authorization in place?

No it does not right now.

Is there any stock to sell at the six to seven year low here its about three and a half times trailing EBITDA well below book its almost 40% of your stock price is net cash. Are there any thoughts about possibly instituting a program?

The board is always looking at those kinds of issues.

A question about the fourth quarter and the seasonal bed, I know you explained obviously that you had made this decision well in advance of the fourth quarter. Some of your competition had announced over the last couple of years that they thought that those categories were just becoming too competitive and they had been pulling back on those categories even before they saw signs of the economic weakness. How come your company didn’t see some of those same signs or do some of those same things?

Research that was done in the market prior to going into that planning cycle indicated that there was a favorable disposition for our customer base to increase their purchases from us versus competition. The perception was that there was a natural opportunity to add to the transaction value by being able to sell more of that type of product to our existing customer base. Two things transpired, one was the overall difficult macro market for the product. It was traded off for space with some of the basic business that we traditionally have been stronger in during that selling period.

Your next question comes from Bill Armstrong with CL King & Associates

You indicated that you had overbought on some basic holiday seasonal merchandise through the year. Where do you stand with those inventory levels currently?

I will tell you that I’m not going to share with you exactly what the value is I will tell you that on the items that we did not want to have as part of our go forward assortment next year that the inventory levels that we have are not material to our overall inventory ownership.

You are comfortable with your inventory position in those categories?

Yes, there are two other things to realize as we go into this next planning cycle that we didn’t have previously. It’s been mentioned several times the importance perpetual inventory and knowing the ownership at store level by sku. Even as recent as last years planning cycle that visibility of knowing what was owned by store was not available. We’ve taken all of this carry over inventory into account into next years plan.

Earlier in your opening comments you mentioned that you needed an auxiliary warehouse that you probably will need throughout 2008 for direct imports. Did I hear you mentioned that these products take up more space?

In sense that when we unload a container we break it down by store, we do need more space in order to do that. We have to set, for example you are unloading 50 containers and you need to set up 132 pallets to send out to 132 stores. You need staging space. In that sense they do require more floor space.

How does that differ from domestically sourced merchandise?

A lot of domestically sources merchandise is broken down by store by the vendor and shipped directly from the vendor; it doesn’t necessarily come through here. The total amount would be the difference because in the past a lot of our imported products were essentially purchased from local vendors not necessarily local in the sense that are close to here but already in the US who purchased them overseas.

For the first half of this year obviously comps are going to be negative. Are you attributing that pretty much to the economy or are there still inventory issues that you are working through that will contribute to that?

I think it would be too simplistic to attribute it to the economy. If you really want a detailed analysis it comes in three buckets. One is caused by things that we did and we did those things intentionally and we knew that they would have an adverse affect on comps but we believed that they would improve our profitability. For example throughout the year we reduced our advertising reach and frequency and changed the timing. We expected that that might have an adverse impact on comps in the short term. We reduced labor at stores; we reduced our inventory throughout the year at the store level. We reduced the number of coupons that we put out in the market place. We went from three warehouse deliveries each week to two. All of those things we did with our eye on saving costs and we expected that they might have an adverse impact on comps but we thought it was worth doing them. We still do I believe. In the second bucket I think there is probably four things that we either did or didn’t do that were disruptive to comps sales. One was as we’ve mentioned inefficient and untimely resets of categories and seasonal. Two, we mentioned there was a lack of planogram integrity that led to outs. Three would be changing sourcing that led to outs. If you don’t have the product it’s going to hurt your comps. The fourth one is that throughout the year we are insufficient new products or categories or services introductions like for example custom framing. It wasn’t anything new. That’s another bucket that I think impacts comp sales. The third bucket you would have to include competitive openings because if they are close to you for the first year or so you…

Thank you for the detail. A quick follow up on that. In that first bucket I knew about that impacting your ’07 comps. Have you pretty much cycled against that or will that continue to have an impact through the first half of 2008.

I think it will have an impact but what we are hoping is that as each quarter goes by it will be less and less of an impact. We hoped that would happen in the fourth quarter too, but it didn’t. That’s our hope that it will have less of an impact as we move forward.

Your next question comes from Karru Martinson with Deutsche Bank.

In terms of the economic headwinds that you reference here continuing through the quarter, I was wondering if you could provide some color on the impact on traffic versus the average basket?

No, the only thing I would say in general is our average basket is up a little bit. We won’t give details but our baskets are up a little bit. So obviously our traffic is down.

You mentioned less promotional going forward does this take the place of fewer coupons, less advertising or how are you going to go about that? Rick Lepley We did do fewer coupons. It’s probably more the breadth of the assortment that’s discounted at one time, for example. In other words if you had 50% off all of some categories maybe it will be 50% off part of the category or something like that.

In terms of the price inflation coming out of China or other markets what’s your ability to price offset that?

That’s the unknown. Craig do you have a comment on that?

As part of category management one of the strong elements is the ability to monitor gross margin performance and we really take a look at three areas to ensure that we are monitoring that performance. The first is we have a system in place where we regularly monitor retail prices not only in our channel but in retail in general so that we get a sense of where things are moving. So much is made at retail out of China anyways so the ability to watch other retailers is important. We use a product life cycle approach as we move in and out of items and products and programs so that we better understand that impact on margin. Of course we continue to develop our global and vendor sourcing strategy where we will be better able to leverage our purchasing power as we move forward. Certainly we are seeing increases and anticipate increases from mid digits to mid teens as we go forward. We’ve not seen much of it yet but we believe that the other things will work aggressively and I can’t give you an idea as to where it will go but we constantly work to improve our margins.

Seasonal was weak but in terms of category you felt you had strength in the outlook for the year. Are there any new trends or new categories where you feel that the consumer is responding?

I had mentioned in my opening comments several areas that were of strength for us in core categories. I believe that those will continue as we go forward. We are also aggressively looking at new categories to be able to add new comps to our business.

(Operator Instructions) We have no further questions at this time.

Before we sign off I’d like to express my gratitude to our entire organization, in particular our field staff and our store managers up and down the East Coast. In the past year we have really accomplished a lot. We’ve gotten perpetual inventory up and running, we’ve started to work on the automatic order replenishment initiative. We have a functioning website business that’s growing. We’ve made steady progress bringing some of our costs in line at the store level and in improving store profitability. We’ve rebuilt the management team and brought some very talented people on board and more will be joining us as we invest in future growth. We’ve improved our margins and we think that can continue. We’ve developed a new store prototype incorporating a store within store concept that we think will be the fundamental basis for our craft store of the future. We continue to adjust and experiment with our advertising effectiveness in order to get the very best result out of each dollar that we spend. We’ve instituted a new orientation of providing first class service to our stores because without that the stores cannot in turn deliver first class experience to our customers. I’m very proud of our team and the way that they’ve dedicated themselves to these endeavors and to a number of other issues in which we didn’t expect to be spending any of our time in. Everybody’s adapted to the work at hand; everyone remains committed to making this company a really great place for our associates to work and to making it a better place for our shareholders to invest. Thanks so much for joining us this morning; we appreciate your interest in A.C. Moore.

Thank you for participating in today’s conference call. You may now disconnect.