Good day and welcome to the A.C. Moore fourth quarter 2009 earnings conference call. Today's conference is being recorded. At this time, I like to turn the conference over to Mr. Dave Stern, Chief Financial Officer. Please go ahead sir.

Thank you, and good morning. Before we begin, I would like to remind you that any forward-looking statements made during this call are subject to certain risks and uncertainties, which may cause actual results to differ materially from our current expectations. These risks and uncertainties that are most likely to cause our results to differ materially from our current expectations are (inaudible) in the press release issued this morning, as well as in our periodic filings with the SEC. Now, I will turn the call over to Rick Lepley, chief executive officer.

Thanks Dave. This morning in addition to Dave Stern, I am joined by Joe Jeffries, our Chief Operating Officer; and by David Abelman, our Chief Marketing and Merchandizing Officer. Dave will take you through our financial performance for the quarter, and for the year, and Joe will discuss our operational initiatives in 2009 and 2010, followed by David who will outline our activities in merchandizing and marketing. I would first like to take a few remarks about the third quarter and last year in general. For the 2009 fiscal year, our total sales declined 12.3% from the same period a year earlier, and was same-store sales declined by 10.8%. For the fourth quarter, our total sales declined 9.3%, while our same-store sales declined 8.8%. Obviously, we are not pleased with that nor are we pleased with our financial performance for last year. But we do believe that we made significant progress on many of our strategic initiatives during 2009. The initiatives I especially want to highlight are several that we believe will contribute to a better performance in 2010. In 2009, we completed the installation of our automated replenishment systems ahead of schedule. In the fourth quarter we made great progress on cross stocking, and in fact a few weeks ago we actually began to implement cross stocking in Q1 of this year. Also in the fourth quarter, we moved forward with the implementation and use of an additional inventory management tool, forecasting an allocation. Last year, we worked very hard on our customer service scores, and we improved them dramatically with many stores finishing with record years. We completed a chain wide roll-out of our A.C. Moore rewards and loyalty program. And we began an initiative to convert our traditional stores to the new Nevada class prototype format. We…

Thank you Rick. I will start with a review of results for the quarter followed by our full year results, a review of inventory, cash and debt positions at year-end, and finish by providing some insight into our assumptions for 2010. Sales for the quarter were $149.7 million a decrease of 9.3% compared to sales of $165.0 million during the fourth quarter of last year. This decline was primarily due to a decrease in comparable stores sales of 8.8% and the operation of fewer stores during the quarter. Comparable store sales decrease was composed of 2.9% decrease in transactions and a 5.9% decrease in the average ticket. Gross margin for the quarter was 37.8%, a 120 basis point increase from the fourth quarter of last year. Selling, General and Administrative expenses for the quarter were $59.0 million, a reduction of $6.6 million or 7.1% compared to last year. This decrease was primarily the result of reductions in pay roll, occupancy expense, and reduced store operating costs, partially offset by increased advertising expense. Included in SG&A is a non-cash asset impairment charge of 4.3 million. In the fourth quarter of 2008 we reported a impairment charge of 4.2 million. Selling, General and Administrative expenses were 39.4% of sales compared to 39.8% of sales in the fourth quarter of last year. Although SG&A expenses decreased by 6.6 million, the decrease as a percentage of sales was only 40 basis points due to the de-leveraging expenses over a lower sales base. Depreciation and amortization for the quarter was $4.1 million compared to $3.9 million for the same period last year. Store pre-opening and closing expenses were $3.5 million for the quarter, and consisted of cost related to two store openings, and $3.4 million increase in the reserves related to stores closed in prior…

Thank you, Dave, and good morning. I would like to begin my comments by elaborating on our year-end inventory levels, providing greater insight and logic. The increase in the inventory is concentrated in a few select departments, and is a mix of strategic purchases and higher than anticipated residual from key category purchases. In order to maximize the Q1 2010 business, we landed seasonal receipts earlier than in 2008 so that we can have our stores set earlier. This decision impacted our inventory position by $1.5 million. We also moved purchases forward into 2009 from 2010 that would have been impacted by a 9% increase in tariffs. This impacted our inventory levels by roughly $3 million. We increased our investment in home décor and home fragrance categories to re-energize this space in our stores in Q4, and in preparation for 2010, and ended heavier than expected on go forward basic product. This product is accounted for in our sales and purchase plans in 2010, impacting our inventory position by $6.5 million. Finally, we invested heavily in our kids business to fuel Q4 sales. However, we did not achieve our sales expectations, and we did end with higher go forward residual in everyday inventory levels, impacting our inventory position by $5.7 million. As we move into 2010 with the conversion to automated replenishment, implementation of our forecasting and allocation tool and the improved inventory reporting forwarded to us by our data warehouse, we had better visibility and control of our inventory than ever before. We are actively managing inventory by composition, moving to reduce discontinued, clear seasonal in a timely manner, and maximize our inventory investment on our basic programs. The outcome of these efforts, combined with our recent organizational changes within the supply chain and inventory management departments, will assist…

Thank you Joe. I'm going to touch on both merchandising and marketing progress for the company in Q4 2009, and for the year, and provide you with insight on progress we have made in stabilizing and growing some of our key businesses. But our overall comp sales continued to trend negative, several of our important destination categories experienced growth, and we continued to make strides to improve our margins. We did experience gross margin rate improvement of 120 basis points over the same period last year which we are pleased with in a very competitive environment. Also important to note that this is a nice improvement over the margin erosion we experienced during Q3 2009, which I discussed during our last call. Let us touch upon sales. We are not pleased with our comp sales loss of minus 8.8% in Q4, much of our loss did occur during a difficult November and a very challenging Black Friday. But we rebounded nicely in December, and even light of the storm, the first major strong the hit the Saturday before Christmas, our comp sales and transaction count were virtually flat. Our customers are in fact still loyal and shopping in our stores with our comp transaction trend continuing to showing improvement in the back half of the year, but as Dave mentioned average basket continues to lag. Our comp sales on advertised products was up 16.7% during Q4, continuing our improved performance we experienced in the second half of the year. For the year, ad sales were down 3.7% much better than overall sales, as the consumer was value focused and driven by promotions in 2009. Several destination departments had positive comps in Q4, while some of our other categories improve their trend over prior quarters. Our best performing departments in Q4…

Okay. Thank you David. Operator, I think this should be a good time to take some questions.

(Operator instructions) We will take our first question from Bill Armstrong with C.L. King & Associates. Please go ahead.

Good morning. I had a couple of questions, on the seasonal exposure that you had that caused you know, a big piece of the comp decline. I thought that you were buying less seasonal going into the holidays to reduce your exposure. You know, could you talk about that maybe you know, what the outlook for seasonal is up to 2010? We are hearing that, you know, some of your competitors may have the feeling that seasonal may finally be bottoming out here.

Yes, this is David, and I’ll take this question. I think our mix was not as deep, but it was broader and we actually had great reception to the product. But as we've experienced the last few years, the business just continues to come later and later, which caused some carryover and more markdowns than we anticipated. We think the balance moving into 2010 will be significantly improved based upon our learnings.

Okay, we’re hearing that Wal-Mart may be looking to you know, either reduce their craft assortments or maybe exit the category. Are you either hearing any of that from you know, maybe some of your vendors or seeing that in the field?

It seems to change from week to week. You hear they are getting in, you hear they are getting out. Of course we all know what they are doing with fabric, but generally I don't think we know anything here that you don't know.

Okay. The tax benefits during the quarter, was that cash or will that be something that will turn into cash?

This is Dave Stern. I’ll take that. Yes, we actually received the cash during the quarter.

You did, okay.

Yes.

Okay, that’s all I had. Thanks.

Thank you.

We’ll move on to our next question from Eric Cha with Brown Advisory. Please go ahead.

Hi, the non-cash charges, were they – what's the pre-tax value of those non-cash charges?

Well, given our current situation as we replied since the third quarter of ’08, we don't report tax benefit and obviously not the tax expense. We reported an allowance against our tax benefits. So pre-and post-tax in those cases are the same.

Okay.

(Operator instructions) Our next question comes from Karru Martinson with Deutsche Bank. Please go ahead.

Karru, are you there?

Hi, can you hear me?

Yes, can hear you.

Sorry about that. Some of your competitors have talked about recently taking market share, you know, saying that they are better in stock, you know, more aggressive on promotion. How do you see that evolving here through 2010, I mean, do you feel that market share is coming from you guys or is that coming more from the independents as they struggle?

We think our market share is improving, and actually we've been picking up ground in several of our key markets. There are not good figures unfortunately on the independents, but by some measures anywhere from 2,500 to 4,000 independents have gone out in the last 12 to 18 months when you look at beading shops, scrap booking, yarn shops. So we think the share is coming from the small independents, and not so much from the larger big boxes.

I would add to that that it could vary market by market as well.

Okay. And I'm sorry I got on the call a little bit late, and I don't know if you touched on this but what are you seeing in terms of product inflation coming out of Asia for 2010?

This is David again. I think we're actually seeing a lot of stabilization in deflation more than inflation. We've been very successful in cost concessions as of late.

Okay, glad to hear that. And in terms of you know, product categories of some of the older stronger categories like paper crafting have weakened. You know, what do you see kind of picking up that slack or areas of growth as we go forward into 2010, 2011 and beyond?

Yes, I guess to start on the comment on paper crafting, we think that business has stabilized, and has opportunity for growth. In fact, we did some market tests in the latter part of the year with great success. So we are encouraged about the opportunities in paper crafting. We think do-it-yourself activities with mom and their kids like cake and candy making continues to show some strong growth and a lot of positive outlook in that category, some new product introductions hitting in May. So we are exited about that category and basic categories like yarn continue to perform very well. So throughout the store between kids craft activities, yarn, cake and candy, there is growth opportunities in many of our key categories actually.

On the cake and candy, is that being driven by kind of the Wilton classes or what do you feel is driving that?

Well, the Wilton classes are absolutely a key part of our mix. We think shows like cake box, the interest in reality television have really fueled growth in that category, and Wilton certainly is one of our largest suppliers in that area. And there is also exciting new product introductions coming in that area that we think will fuel further growth.

Just lastly on framing, it has been a weak category for the industry. What do you feel that you guys are doing differently to kind of capture share there?

Are you talking in terms of –

Of the cost of framing, correct, yes.

As Joe mentioned earlier, we believe our visualization software that we have, we have a wizard connect back [ph] system in many of our stores, which is differentiated, and the training and discipline we have in stores along with a fantastic supplier that keeps our assortment fresh in both molding and adding glass choices, we continue to see growth in that area. We are very excited about the category.

Thank you very much guys.

Our next question comes from Michael Corelli with Barry Vogel & Associates. Please go ahead.

Hi, good morning.

Good morning.

Good morning, Michael.

What is the total tax refund that you received, because I think you got one earlier in the year also last year.

No, we received in fourth quarter of 2009. We received $5.7 million.

All right, so that will be the full year refund you received.

That’s correct.

And is there anything expected this year?

No, we expect as we stated previously with the exception of this one item that given our current position, we reported full evaluation allowance against the tax benefits that we generate. So that will have a very marginal tax impact.

Okay, and then as far as the guidance is concerned, you made a comment about expecting you know, larger loss in the first quarter and then you know, doing better in the back half, what's kind of – what is I guess behind the larger loss in the first quarter?

Sure, a couple of things. It was anticipated as we went into looking at the plan for 2010 that we knew we were going to bump up advertising, focus on clearance items, and then of course what we didn't anticipate was the weather. You know, all of those came from national companies before. We always knew that you know, if it is bad weather in one area, it is going to be offset by nice weather in another area, here being more regional player it had a larger impact on us, and so of course we will get into more detail of that in Q1 during the Q1 call.

Okay, you know, obviously a lot of different retailers have been talking about, you know, pretty significantly improve sales trends, you know, some of them I know are more national and so you know, the weather has a bigger impact, but I mean can you say on the days that you’re not having bad weather that you're seeing, you know, a significant change in sales trends at this point?

We saw – with the exception – January – I'm sorry, as David mentioned, December was essentially flat. If we exclude the impact of the snow that we had in December, we would have been up by about 2% on comp store sales. January, we are pleased with, February we had pretty big impact on due to the snow, which again we’ll expand on that during the Q1 call.

Okay, and just one more macro, I guess a more competitive environment type question. Obviously I mentioned on previous calls that your performance versus the competition has been a little bit disappointing. I know there has been a number of things that you pointed out some of which you know has been outside of your control or some changes that are happening that favor them competitively or things that are expanding you know, in relation to some of the categories that you're in. And one of the things I had heard was that you know, a few years back A.C. Moore’s competitive advantage was its pricing, and that’s, you know, because obviously you are smaller in size and you know, versus your competition, both as far as your store base where you are regionally and things like that and maybe with, you know, flexibility to pursue things, and I've heard that, you know, the company has moved towards higher pricing over the last few years, and that has taken away what was really their competitive advantage versus those bigger players. Have you, you know, seen that as a problem yourself and is there any you know, thoughts about changing that if that in fact is the case?

This is David and great question, and we explore that very issue and we speak with our customer and the overall craft consumer in a fairly regular basis and just completed a survey. And we touched on that very issue, and in fact the price perception, we are still perceived in the marketplace as being very competitive on our pricing both every day and promotionally. And we think with the tools we have in place to understand the traffic drivers and have the right mix of product that we could hang in there and compete effectively in the marketplace and still hit our margin goals.

Okay, I mean is there anything you could do I guess, you know, to improve your competitiveness with some of these you know, larger players or things that you're planning you know, going forward.

I guess we feel we are very competitive in our advertising today, and we continue to look at everything happening in the marketplace and make sure we're positioned appropriately.

We think it's important to be unique and different as well.

And so is that – as far as being unique and different, are you talking about product offerings or other things?

You know, I absolutely – well, to some extent the environment in the store of course and the service level is important, but we also think we need a unique and different product offering within the same categories that are essential to arts and crafts.

Okay. All right. Thank you.

Thank you.

Our next question comes from Jeff Kobylarz with Stone Harbor Investment. Please go ahead.

Good morning.

Good morning.

To follow up on that point that you all were talking about, can you say what percentage of your SKUs do you think are unique relative to your peers?

I think -- this is David again, I think when we look at our unique differentiated product, it will be more perception in hero [ph] type of items and we don't see that part of the mix being more than 5% to 7%, but this is really hitting on the categories where our customers are demanding differentiation. At treasure hunt, the reason they are going to five or six stores, and we think those areas are really what we're concentrating on unique part of our assortment. They're never going to be our top velocity items, but having those unique finds help drive the basic business as well, but I think 5% will be a fair number.

Okay, that's what you kind of were in the fourth quarter and is that what you expect to be going forward, is that right?

I think, I think it's where we were, where we’ll continue to be and it's not the same 5%. It's continually changing that mix and offering something new on a regular basis to our core customers.

All right, okay, and then the Nevada stores. I think you said that their comps were down 2.5% in this fourth quarter?

That's correct.

And what was their comp performance in the fourth quarter last year if you know?

Yes, I don’t have that handy with us.

Also, we got very few. These are the ten optimized Nevadas that we worked on throughout the year in late ‘08 going into ‘09 where we actually brought them to a level that we feel was go forward. Those were the ten that we referenced and called out.

Okay, can you say what the comps for the entire year?

We haven’t stated that.

No, these are cycled in during the year, and so it wouldn’t be a fair comp. Again these are those that we've got -- just to give you some background on this, Jeff, we've got 24 Nevadas in total, 13 of which we consider to be the final iteration or the optimized version, 10 of those finals came into the comp store base. And so these are new for us, so we don't have them cycling year-over-year. Just to give you some perspective of these being down 2.5%, our traditional stores for the quarter were down 9.6% as so it was about 710 basis points spread between these optimized Nevadas and our traditional store base.

So Jeff, to give you some perspective, it's possible that some of these stores were not open earlier in 2008. So we may not have a full your comp on it. That's why we’re looking at third-quarter versus fourth-quarter.

Understood, okay. And these optimized Nevada stores, what is their seasonal percentage of sales or how did the seasonal category perform for them in the fourth quarter?

No, we don’t have that, do we?

No, it's not something we have shared. But it was in-line with the rest of the chain.

Okay, so –

(inaudible) David has mentioned. There's no question about that.

Okay, all right, and then do you have a feel what the craft industry overall, what do you think the industry sales would be in 2010, percentage change?

No, but I think that we all believe it’s stabilizing. I don't know if it's going to be up or down. I don't think it will be anywhere back to the strength it was a few years ago, but I also don't think it's really going to continue to comp down. I think we're pretty stable right now.

Okay, all right, thank you.

Thank you.

Okay operator, I don't see any other questions listed in the queue. So I think we'll just wrap up here, and I'd like to close by saying that our management team here at the store support center appreciates the efforts of our corporate associates, and our store teams all of whom are working hard to improve our operations. Thanks so much for joining us today and thanks for your continued interest in A.C. Moore.

Ladies and gentlemen that concludes today's presentation. Thanks for your participation.