"It'll Be Great, Just Wait!" Says CEO Rick Lepley of A.C. Moore

As a result of A.C. Moore’s (ACMR-$3.41) weak overall performance in fiscal 2008, competitive pressures, and the current economic recession, the specialty retailer of arts, crafts, and home floral merchandise has determined for fiscal 2009 to not increase base salaries or offer incentive bonuses for its executive officers, according to its 2009 proxy statement. As the specialty retailer has failed to meaningfully improve store profitability for four successive years running, this suspension in reward compensation is little more than a decorative attempt to mollify disenfranchised stockholders, and reflects the board of director’s feigned commitment to good corporate governance.

And I could be good, and I would - if I knew I was understood
And itll be great, just wait - or is it too little too late?

To his credit, Rick Lepley, anointed chief executive officer in June 2006, has taken steps to make the business more profitable, such as the shuttering of 11 stores in two years, installing up-to-date inventory software programs, and expanding merchandise (beyond traditional craft and art and scrapbooking categories) to attract kids – parents with child hobby activities, such as wood-model kits (boats, planes, drag racing cars) and the newest trends in paint crafts and pen sets.

How many times can a person water a houseful of plastic plants purchased at A.C. Moore’s before the owner realizes that she has no need for a gardener? Despite the endless rewind of initiatives, Lepley’s track record as executive steward has been abysmal: income from operations plummeted from $913,000 in 2006 to a loss of $(23.7) million in 2008 ended January 4, 2009; net sales declined 24.4% to $177 per square-foot by 2008 and average net sales per store fell 25.1% to $4,407 in the same period; and, the stock price during Lepley’s tenure has declined almost 81 percent!

One day, this embarrassment will fade behind me
And that day I could think of things that wont remind me
But these days its unbearable for both of us
We cant discuss it this way.

As for that hackneyed aphorism that the goals of Named Executive Officers’ compensation packages are to “motivate executives and align the interests of senior management with those of the shareholders,” the 10-Q Detective says rubbish!

On June 1, 2006, Mr. Lepley received a cash sign-on lump sum retention bonus of $280,000 and guaranteed cash bonus of $320,000, payable by March 31, 2007—in addition to the usual stock options, grants, and stock appreciation rights showered upon new chief executives. Adding further insult to injury, Lepley’s original employment agreement articulated limits to his relocation benefits:

1. For up to six months, Company shall pay for temporary housing for Executive and spouse in the vicinity of the Company's headquarters and for storage of household goods;
2. Company shall reimburse Executive for standard out-of-pocket relocation and moving expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses; and,
3. For house hunting and relocation investigation for up to six-months, Company shall pay for monthly round trip travel for each of Executive and his spouse.

In addition to being reimbursed $40,091 for relocation expenses in 2006 and 2007, a read of the 2009 proxy statement discloses the company paid its CEO $114,995 related to the sale of his house in Florida (per his “employment agreement”). Brushing aside the fact that Lepley continued to receive housing benefits beyond six-months, no where in the three filed regulatory amendments to Lepley’s employment agreement was any mention made of sale-related benefits owed to Lepley.

Oh—as for belt tightening—and “feeling the pain” of common stockholders, the compensation board rewarded Lepley with another $550,000 special retention bonus in April 2008, complementing a 4.5% base salary wage increase, too. [Ed. Note. Other senior exexcutives received pay hikes ranging from 8.6 percent to almost 10 percent and special retention awards equivalent to 100 percent of their base salaries!]

If I knew I was understood
And itll be great, just wait -Or is it too little too late? ~ Barenaked Ladies (“Too Little Too Late”)

Commenting on Moore’s dismal first quarter 2009 results, Lepley said the specialty retailer “did nor expect any meaningful improvement before the second half of this year.”

It will be great, just wait—especially if you are an A.C. Moore executive collecting on guaranteed bonuses!

Editor David J Phillips does not hold a financial interest in any stocks mentioned n this article. The 10Q Detective has a Full Disclosure Policy.