Good morning, my name is Darrell and I will be your conference operator today. At this time I would like to welcome everyone to the AC Moore second quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator Instructions) Mr. Lepley, you may begin your conference.

Before we get started today I’d 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 Exchange Act of 1934 and the regulations there under including without limitation, statements as to the company’s financial condition, results of operation, liquidity, 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 & Exchange Commission including its most recent Form 10K, a copy of which may be obtained from the company upon request and without charge. Now, this morning I’m joined by Dave Stern, our Chief Financial Officer; Joe Jeffries, our Chief Operating Officer; and by David Abelman, our Chief Marketing and Merchandising Officer. Dave will talk to you about our financial performance for the quarter and Joe will talk about our operational performance. Then, David will comment on merchandising and marketing. But, before they do that I’d like to take a few minutes to touch upon some of the highlights of the second quarter. During the quarter our comp store sales decline was 13.8% not appreciably different than the first quarter and while we are disappointed with the result, it was in line with our expectations as expressed to you during our Q1 call. Some portion of this appears to us to be a continued lower consumer discretionary spending particularly true as it impacts both seasonal and home décor products. Some of this decline is certainly attributable to our reduction in ad spend. As we explained in our…

Sales for the quarter were $104.4 million, a decrease of 17.4% compared to sales of $126.4 million during the second quarter of last year. This decrease was primarily due to a decrease in comparable store sales of 13.8% and the operation of six fewer stores. Gross margin for the quarter was 41.6% a 20 basis point increase over the second quarter of last year. Selling, general and administrative expenses for the quarter were $51.2 million, a reduction of $6.5 million compared to last year. This decrease was primarily the result of reductions in payroll, occupancy, impairment and advertising expenses. Selling, general and administrative expenses were 49.0% of sales compared to 45.6% of sales in the second quarter of last year. This increase was the result of deleveraging of expenses on lower sales. Depreciation and amortization for the quarter was $4.6 million compared with $3.9 million for the same period last year. Store pre-opening and closing costs were $0.3 million which consisted of costs for the one store that opened in the quarter and costs for stores that were previously closed. In the second quarter of last year pre-opening and closing costs were $1.3 million and consisted of costs related to three stores that opened in the quarter, stores that opened later in 2008 and stores that were closed. Net interest expense was $0.1 million for each of the second quarters in 2009 and 2008. The loss before tax for the quarter was $8.1 million compared to a loss before tax of $6.7 million for the comparable period last year. In the third quarter of 2008, the company began recording a valuation allowance against the tax benefits generated from its operating losses. As a result we have not had and do not expect to have any significant tax benefit in fiscal…

I’d like to begin my comments by highlighting the recent progress made during the quarter in both supply chain and IT. The supply chain organization continues to meet or exceed targeted performance levels. The allocation and replenishment team have utilized our new ORACLE automatic replenishment system and new score carding tools to improve both store and DC in stock levels. During the second quarter the distribution center team improved productivity, reduced expenses, meet service level objectives, increased accuracy and reduced OSHA recordable accidents. In addition to our ongoing supply chain initiatives including improving our in stock positions, optimizing inventory levels, increasing merchandise turns and improving distribution efficiencies, we continue to focus on two key projects: automated replenishment and advance shipping notification supported cross dock. We began implementation of automated replenishment in the fall of 2008 with a group of pilot stores and have successfully rolled out complete categories to the entire chain throughout the first half of 2009. Currently, we have approximately 12,000 skews on automated replenishment in all stores and we will ramp to approximately 28,000 skews by October 2009. Initial results, especially in stock metrics are promising. In stocks in departments on automated replenishments for all stores are running in the 93% to 96% range versus the store ordering method baseline of 86% to 90%. We have seen in stock improvement across every department converted to automated replenishment. These improvements have been realized while at the same time decreasing our overall inventory position. Because of the cadence of the roll out from pilot to all stores, sales results are inconclusive at this time but we’ve seen no adverse sales impact from the conversion. This project remains on schedule and is planned to be completed in October 2009. Additional categories may be added in 2010. Our second key project…

I’m pleased to be able to share with you our thoughts on our marketing and merchandising performance during Q2. Having joined the AC Moore team in May, I feel very good about the progress we’ve made in just a few short months. While we believe that we’ve strengthened our programs in the back half of 2009 we’ve made significant enhancements to our 2010 plan. We have an enthusiastic and determined team that’s laser focused on driving profitable traffic and sales. I firmly believe we’re on track for solid improvement in 2010. Let me highlight our Q2 results for merchandising and then we wills share a few of some of our key marketing initiatives. While we’re disappointed with our comp sales decrease of 13.8%, we fully understand the problematic areas and they’ve all been addressed. Over 75% of our comp sales decrease can be attributed to continued weakness in three areas. The first two are paper crafting and readymade frames. The third area, which Rick mentioned earlier, are categories targeting the DIY home enhancement consumer which includes floral, seasonal and home accents. Let me take a minute to address each of these areas. Our scrapbook and paper crafting category has experienced a significant decline of sales due in part to overall industry down trends in this business. The largest factor is that scrapbooking is a highly promotional category and our reduction in advertising hit this area the hardest. We also elected not to reset this department in 2009 which also contributed to sales loss since we had a major reset on this department last year. Readymade frames is yet another highly promotional category. We can contribute much of our sales loss to a reduction in advertising space as well. Lastly, our categories focused on the DIY home enhancement consumer which includes…

Operator, I think we can take questions now and I’ll have a few closing comments a little later.

(Operator Instructions) Your first question comes from Mark Mandel – FTN Equity Capital Markets Corp.

I just wanted to drill down a little bit further on the traffic versus ticket. David, I think you said for the month of June that traffic was flat but the basket was down $0.75. First of all, that $0.75 decline was that for the month of June or was that for the full quarter?

That was for the full quarter.

So if you look at the month of June, were your comps positive for the month of June or at least flat?

Our comps showed improvement over the quarterly trend but they were still down.

As far as the second half, you made some positive comments again, are you anticipating a return to positive comps either in the third or fourth quarters of this year?

I think that it’s too much to expect that we could get back to zero I think in that period. We have a better chance of doing that in the fourth quarter than the third quarter I think. We realize that our competitors are flat which is pretty good in this environment but we’re also doing a lot of other things here obviously at this time than just focusing on trying to drive our comps. So, we expect improvement but I don’t think we would want to give any sort of guidance that we would get back to flat.

With respect to the gross margin and SG&A could you provide some further details? I know the gross margin was up 20 basis points, if you could break that down in any greater detail? And also, if you can quantify the components of the SG&A that you gave on the call I would appreciate it.

Although we haven’t released publically and we continue not to release tremendous detail, there was if you recall from last year’s call a decrease in our gross margin related to clearance activity for stores that were to be closed later in the year. So, we got a little bit of a bump related to that and that was partially offset by deleveraging of our warehousing, purchasing and receiving costs over a lower store sales base.

The sales figure on closing those stores in that quarter last year actually helped us quite a bit. We grew the company in that quarter, in 2008 and that’s another thing that made these comps a little more difficult.

The SG&A pieces, you don’t want to quantify those?

We don’t give that out. As you’ll notice we continue to have SG&A decreases in excess of 10% however, those cost cutting initiatives are spread over a lower store base as it causes as a percentage, the SG&A rate to be slightly higher.

Your next question comes from Holly Guthrie – Boenning & Scattergood, Inc.

Going back to one of Joe’s comments, I just wanted to get some clarification and hopefully some additional information. Joe, I think you said that in stocks in certain categories were 93% to 96%. I was wondering if you could give us more color about what programs, I’m assuming it’s part of the automatic replenishment program but if you could give us more color on that number? And then, you gave us a comparative number that was in the mid 80s, can you go through all those numbers again and maybe give us some more color?

All the departments that are on automated replenishment are running in the range of 93% in stock to 96% in stock versus the store ordering method baseline. What that means is prior to going on the automated replenishment we saw in stock positions of 86% to 90% when they were ordered manually.

How many programs are on auto replenishment?

12,000 plus skews on the program today which is a big number, keeping in mind we started the fall of last year and we anticipate being at 28,000 in change in October of this year. Now, this is every day programs, we will not put seasonal programs on automated replenishment today and I don’t even believe you’ll see us do that in the future. It’s very volatile as you know.

So what’s the total skew count excluding seasonal, is it around 30,000 skews?

It’s right around 40,000 in change.

I was hoping to get some clarification on the tax situation, the valuation allowance, some of the assumptions that went in to the valuation allowance and I think you said that you’re not assuming to get any benefit from that for the rest of the year but I was wondering if I could just get more color on that?

In the third quarter of 2008, we assessed our tax valuation allowance and as you may recall we recorded a valuation allowance against the tax benefits that we had recorded through that point in time. This is strictly to be in compliance with accounting standards which regulate giving up the history over time and there needs to be overwhelming evidence of the change going forward. With that in mind, we were required to record that valuation allowance for what was a receivable at that time and to record a valuation allowance going forward.

That was in the third quarter of last year, correct?

That’s correct.

I was wondering if you could talk, you gave the June statistics, I was wondering if you feel comfortable giving the July statistics for the number of transactions and the average transaction value for the comps?

No, we won’t get in to that kind of detail.

David, you made comments about floral and seasonal having the most significant impact on comps. There was definitely a dramatic change as you move new product in and it looks like it sounds like you’re flowing it differently with different tags on it. Is this one of the categories that is now on auto replenishment? And if so, how has that been performing in the test stores?

It’s two pieces, no it’s not on auto replenishment and you are seeing some different tags. I believe to improve our margins and have some better advertising capabilities we are labeling our different product lines differently than we have in the past where we’re flowing in new products more regularly to keep the assortment fresh and have really improved the way we merchandise those areas.

And the quality, the quality is incredible, it’s outstanding. It hasn’t been set for eight years so you can image as a company what we went through to get that turned over.

Then just a little bit more on scrapbooking if you could. Are you thinking about a reset and if so, when or is it just advertising that you think will drive it in the back half?

We elected not to reset this department in 2009 but we had a considerable amount of what we call line ins line outs to ensure that we keep the section fresh with new product and stay differentiated. We’re going to continue to refresh our mix and work to be a leader in innovation in that category but, at the same time the scrapbook business has been down industry wide and the category is highly promotional whether it’s stickers or papers in the key categories and that is an area with block count or number of items that we promote declined along with a reduction in advertising during the quarter. That’s what we attributed the majority of the losses to. I believe in the back half of the year it will be promoted more frequently as our ad programs is more on line with where we were last year.

Your next question comes from Joan Storms – Wedbush Morgan Securities.

A couple of questions, on the comp I’m trying to figure out in the first half you had lower advertising which definitely was sort of an intentional negative to the comp, are you saying in the back half you’re going to be picking up your ad spend and that’s what gives you confidence in an increased comp trend?

Well, think about it relative to last year, in the first half we spent less and in the second half we’re closer to what we spent last year. We did spend less in the first half consciously, I think it was the right decision. It was a decision that I made, the buck stops here, I don’t think we were getting the return that we wanted on it and it just seemed to me that if you spent a dollar and got a dollar back you might have felt good about taking the risk but it was better to spend a dollar when you thought you could get a $1.25 back. I didn’t feel that was happening, I thought we needed a better message, we had other issues here that we had to deal with and I didn’t see the return. So, we saved the cash and we’ll be back on more of a normal plan for the back half of the year.

Then as far as the categories that had been weak that David Abelman had talked about, what changes do you see there, I know you’ve only been there a short time, to help improve those categories in the back half of ’09?

I’ll let him answer it but he has been here a short time but the good thing is it’s a business he understands pretty well so it doesn’t take him too long to assess it.

As I mentioned in my comments, I think the three areas that contributed 75% of our comp sales loss have all been addressed and while there’s programs that will have a far greater impact in 2010 in terms of product sourcing and refreshing our product mix, some of the promotional activities alone plus some of the product flowing in the fall in terms of fall floral, some of our seasonal product, some of our Christmas and Halloween sets give us optimism that we’re going to have better performance in those areas than we had the first half of the year.

Regarding on the SG&A, you’ve had some charges every quarter now for the last four quarters, are we going to start to anniversary some of that and what are you preview for any potential further asset charges going forward?

The last asset impairment we had was in Q4 of ’08. Which charges?

There’s been line item charges in the SG&A for the last four quarters. I mean you’ve said like it was $0.07 this quarter and I believe last year is when you started recording those and some of those charges were associated with the closed stores.

There’s $0.07 that you’re referring to I think on the release is related to second quarter of ’08. We did not have that this quarter.

There are no more questions at this time Mr. Lepley.

I’ve got a couple of closing comments here and then we’ll end the call. We’ve said repeatedly that turning the company around would be a three year project and sometimes we’ve said that this is more of a marathon than a sprint. We’d be the first to admit that we’d hope our progress would be more apparent now that we’re in the third year of this. This would be much easier in a high growth atmosphere I think that the industry experienced during the first five years of this decade rather than in the industry decline or stagnation that we’ve experienced in the past two years. But, the market is what it is and we’ve got to stay focused on what we can affect and what we can change. That’s why we haven’t deviated and why we’ve stayed so focused no our original plan. As we’ve explained previously our analysis indicates that historically we’ve been the high cost provider in the arts and crafts area and while part of that has to do with scale, the part that we can control has more to do with the lack of systems and process so it’s been with good reason that we’ve focused our attention on improving the back end of our business first and that’s why we have spent so much time on systems enhancements, supply chain refinements, centralizing the decision making process and providing or updating practices and process throughout the organization. We think that we’re closer than ever to having a sound foundation under this business. We expect the results of our efforts to become more evident over the next few quarters. Everyone here at the store support center appreciates the efforts of our store teams all of whom are working hard to improve our operations and our performance. Thanks so much for joining us today and thanks for your continued interest in AC Moore.

This concludes today’s conference call. You may now disconnect.