The Michaels Companies Reports Fourth Quarter and Full Year Fiscal 2018 Results

  • Fourth quarter comparable store sales decreased 0.4%; on a calendar shifted basis, comparable store sales increased 1.4%
  • Fourth quarter GAAP diluted EPS of $1.15; adjusted diluted EPS of $1.44
  • Fiscal 2018 comparable store sales increased 0.8%
  • Fiscal 2018 GAAP diluted EPS of $1.86; adjusted diluted EPS of $2.35

IRVING, Texas--(BUSINESS WIRE)-- The Michaels Companies, Inc. (NASDAQ: MIK) today reported diluted earnings per share for the fourth quarter of fiscal 2018 of $1.15, an increase of 3.6% compared to $1.11 per diluted share in the fourth quarter of fiscal 2017. Excluding $0.29 of restructure charges (net of taxes) primarily related to the previously announced closure of 36 Pat Catan’s stores in the fourth quarter of fiscal 2018, and $0.08 of tax adjustments related to the Tax Cuts and Jobs Act of 2017 (“Tax Act”) in the fourth quarter of fiscal 2017, adjusted diluted earnings per share for the fourth quarter of fiscal 2018 was $1.44, compared to adjusted diluted earnings per share of $1.19 in the fourth quarter of 2017, an increase of 21.0%. A reconciliation of non-GAAP financial measures to the respective GAAP measures is included in this release.

“A few weeks ago, I joined The Michaels Companies, a retailer I have long admired as a customer,” said Mark Cosby, Interim CEO. “While I am still getting to know the customer, the operations and the team, I am excited about the long-term opportunities we have to engage with makers of all experience levels and expand our leadership position within the arts and crafts retail industry.”

Impact of the 53rd Week in Fiscal 2017

The Company’s fiscal year ends on the Saturday closest to January 31st. Fiscal 2017 ended on February 3, 2018, resulting in an extra week in the fourth quarter of fiscal 2017 (“53rd week” or “extra week”) as compared to fiscal 2018. The 53rd week contributed approximately $79 million in sales, approximately $27 million in operating income, approximately $16 million in net income, and approximately $0.09 in diluted income per share.

Fourth Quarter Highlights

“As expected, we saw nice momentum in the quarter resulting from investments we made earlier in the year, including enhancements made to Michaels.com and the Michaels app; the launch of buy online, pick up in store in all U.S. stores; a new promotional tool to help us manage discounts more effectively; and the conversion of 238 additional stores to our flexible merchandising area format. On a calendar shifted basis, comparable store sales increased 1.4%, our best performance of the year, and adjusted operating profit, adjusted net income and adjusted diluted earnings per share were all within the guidance range we provided for the quarter. Excluding the extra week in fiscal 2017, adjusted operating income increased 1.8% to $333.2 million, adjusted net income increased 12.9% to $227.1 million, and adjusted diluted earnings per share increased 30.3% to $1.44,” said Denise Paulonis, Executive Vice President and Chief Financial Officer.

Net sales were $1,789.1 million, compared to $1,890.6 million in the fourth quarter of fiscal 2017. The decrease in net sales in the fourth quarter of fiscal 2018 was primarily due to the extra week in the fourth quarter of fiscal 2017, the closure of all 94 full-size Aaron Brothers stores in the first quarter of fiscal 2018, and a 0.4% decline (flat on a constant currency basis) in comparable store sales. The sales decrease was partially offset by sales from the operation of 20 additional Michaels stores (net of closures) during the quarter. During the quarter, the Company opened three new Michaels stores, closed one Michaels store, relocated one Michaels store, and closed 36 Pat Catan’s stores.

Operating income was $273.2 million, compared to $354.3 million in the fourth quarter of fiscal 2017. The decrease in operating income was due to $60.0 million of restructure charges primarily related to the closure of 36 Pat Catan’s stores and the extra week in the fourth quarter of fiscal 2017. Excluding the restructure charges, adjusted operating income for the fourth quarter of fiscal 2018 was $333.2 million. (See additional information in this release for a reconciliation of non-GAAP financial measures to the respective GAAP measures.)

Interest expense increased $2.8 million to $37.6 million, from $34.8 million in the fourth quarter of fiscal 2017, due to higher LIBOR rates associated with the Company’s variable rate Amended Term Loan Credit Facility and settlement payments associated with the Company’s interest rate swaps.

The effective tax rate was 22.9%, compared to 36.6% in the fourth quarter of fiscal 2017. The lower effective tax rate was due to a decrease in the federal statutory tax rate from 35% to 21%.

Net income was $181.4 million, compared to $203.0 million in the fourth quarter of fiscal 2017. Excluding the restructure charges (net of taxes) in the fourth quarter of fiscal 2018 and tax adjustments related to the Tax Act in the fourth quarter of fiscal 2017, adjusted net income was $227.1 million, compared to adjusted net income of $217.5 million in the fourth quarter of fiscal 2017, an increase of 4.4%. (See additional information in this release for a reconciliation of non-GAAP financial measures to the respective GAAP measures.)

Fiscal 2018 Highlights

Net sales were $5,271.9 million, compared to $5,362.0 million in fiscal 2017. The decrease in net sales was primarily due to the closure of all 94 full-size Aaron Brothers stores in the first quarter of fiscal 2018 (approximately $110 million in net sales in fiscal 2017) and the extra week in the fourth quarter of fiscal 2017. The decrease in net sales was partially offset by the operation of 20 additional Michaels stores (net of closures) during the year and a 0.8% increase (0.9% on a constant currency basis) in comparable store sales. At the end of fiscal 2018, the Company operated 1,258 Michaels stores.

Operating income was $563.6 million, compared to $735.4 million in fiscal 2017. The decrease in operating income was primarily due to $104.2 million of restructure charges primarily related to the closure of the Aaron Brothers and Pat Catan’s retail chains, higher distribution-related costs, an adverse sales mix, the extra week in fiscal 2017, and higher inventory shrink. The negative impact of these factors was partially offset by benefits from the Company’s ongoing sourcing initiatives and a decrease in expenses related to the Aaron Brothers store closures. Excluding the restructure charges and an inventory write-down related to a third-party product which did not meet the Company’s quality standards, adjusted operating income for fiscal 2018 was $671.7 million. (See additional information in this release for a reconciliation of non-GAAP financial measures to the respective GAAP measures.)

Interest expense increased $18.0 million to $147.1 million, from $129.1 million in fiscal 2017, due to higher LIBOR rates associated with the Company’s variable rate Amended Term Loan Credit Facility and settlement payments associated with the Company’s interest rate swaps.

The effective tax rate was 23.4%, compared to 35.5% in fiscal 2017. The lower effective tax rate was due to a decrease in the federal statutory tax rate from 35% to 21%.

Net income was $319.5 million, compared to $390.5 million in fiscal 2017. Excluding the restructure charges (net of taxes), an inventory write-down (net of taxes), losses on early extinguishments of debt and refinancing costs (net of taxes), and tax adjustments related to the Tax Act in fiscal 2018 and in fiscal 2017, adjusted net income for fiscal 2018 was $404.2 million, compared to adjusted net income of $405.1 million in fiscal 2017. (See additional information in this release for a reconciliation of non-GAAP financial measures to the respective GAAP measures.)

Earnings per diluted share was $1.86, compared to $2.10 per share in fiscal 2017. Excluding the restructure charges (net of taxes), an inventory write-down (net of taxes), losses on early extinguishments of debt and refinancing costs (net of taxes), and tax adjustments related to the Tax Act in fiscal 2018 and in fiscal 2017, adjusted diluted earnings per share for fiscal 2018 was $2.35, compared to adjusted diluted earnings per share of $2.17 in fiscal 2017, an increase of 8.3%. (See additional information in this release for a reconciliation of non-GAAP financial measures to the respective GAAP measures.)

Total merchandise inventory at the end of fiscal 2018 decreased 1.3% to $1,108.7 million compared to $1,123.3 million at the end of fiscal 2017. Average Michaels inventory on a per store basis, inclusive of distribution centers, inventory in-transit and inventory for the Company’s e-commerce site, increased 2.7% to $832,000 compared to $810,000 at the end of fiscal 2017.

During fiscal 2018, the Company purchased 24.6 million shares, or $451.9 million, under its share repurchase authorization. The total remaining authorization for future repurchases is approximately $398 million. The share repurchase program does not have an expiration date, and the timing and number of repurchase transactions under the program will depend on market conditions, corporate considerations, debt agreements, and regulatory requirements.

Fiscal Year 2019 Outlook:

The Company’s guidance for fiscal 2019 excludes any restructuring charges related to the Pat Catan’s store closures and any expenses associated with the transition of the Company’s Chief Executive Officer.

For fiscal 2019, the Company expects:

  • net sales will be between $5.19 billion and $5.24 billion;
  • comparable store sales to increase between 0% and 1%;
  • to open 24 new Michaels stores, inclusive of up to 12 Pat Catan’s stores the Company plans to rebrand and reopen, and relocate 13 Michaels stores;
  • adjusted operating income will be in the range of $640 million to $665 million;
  • interest expense will be approximately $155 million;
  • the effective tax rate will be between 23% and 24%;
  • adjusted diluted earnings per share will be between $2.34 and $2.46, based on diluted weighted average shares of approximately 158 million; and
  • capital expenditures will be approximately $135 million.

For the first quarter of fiscal 2019, the Company expects:

  • comparable store sales will decrease in the low-single-digit range;
  • to open four new Michaels stores and relocate five Michaels stores;
  • adjusted operating income will be between $96 million and $106 million;
  • interest expense will be approximately $38 million;
  • the effective tax rate will be between 23% and 24%; and
  • adjusted diluted earnings per share will be between $0.28 and $0.33, based on diluted weighted average shares of 158 million.

The Company does not provide a reconciliation of adjusted guidance to the comparable GAAP guidance because, without unreasonable effort, the Company is unable to predict with reasonable certainty the precise amounts or timing of the recognition of expenses associated with the closing activity and CEO transition. These items are uncertain, depend on various factors, and could have a material impact on GAAP diluted earnings per share in future periods.

Conference Call Information

A conference call to discuss fiscal 2018 financial results is scheduled for today, March 19, 2019, at 8:00 am central time. Investors who would like to join the conference call are encouraged to pre-register for the conference call using the following link: http://dpregister.com/10128894. Callers who pre-register will be given a phone number and a unique PIN to gain immediate access to the call and bypass the live operator. Participants may pre-register at any time, including up to and after the call start time.

Investors without internet access or who are unable to pre-register can join the call by dialing (844) 340-4762 or (412) 717-9617.

The conference call will also be webcast at https://investors.michaels.com/news-events/events. To listen to the live call, please go to the website at least 15 minutes before the call is scheduled to begin to register and download any necessary audio software. The webcast will be accessible for 30 days after the call. Additionally, a telephone replay will be available until April 2, 2019, by dialing (877) 344-7529 or (412) 317-0088, access code 10128894.

Non-GAAP Information

This press release includes non-GAAP measures including operating income excluding restructuring charges (net of income from Aaron Brothers operations) and an inventory write-down related to a third-party product which did not meet the Company’s quality standards (“Adjusted operating income”); net income excluding restructuring charges (net of income from Aaron Brothers operations), net of related income taxes, an inventory write-down related to a third-party product which did not meet the Company’s quality standards, net of related income taxes, losses on early extinguishments of debt and refinancing costs, net of related income taxes, and adjustments related to the Tax Act (“Adjusted net income”); and diluted earnings per share excluding restructuring charges (net of income from Aaron Brothers operations), net of related income taxes, an inventory write-down related to a third-party product which did not meet the Company’s quality standards, net of related income taxes, losses on early extinguishments of debt and refinancing costs, net of related income taxes, and adjustments related to the Tax Act (“Adjusted diluted earnings per share”). The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in a table accompanying this release. The Company believes that these non-GAAP financial measures not only provide its management with comparable financial data for internal financial analysis but also provide meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of the Company's business and facilitate a meaningful evaluation of its quarterly and fiscal 2018 diluted earnings per share and actual results on a comparable basis with its quarterly and fiscal 2017 results.

This press release also includes expected operating income excluding an estimated range for a restructuring charge related to the Pat Catan’s store closures and expenses related to the transition of the Company’s Chief Executive Officer in the first quarter of fiscal 2019 (“Adjusted operating income”) and expected diluted earnings per share excluding an estimated range for a restructuring benefit related to the Pat Catan’s store closures, net of related income taxes, and expenses related to the transition of the Company’s Chief Executive Officer in the first quarter of fiscal 2019, net of related income taxes (“Adjusted diluted earnings per share”), which are non-GAAP measures. The Company does not provide an expected GAAP operating income range or an expected GAAP diluted earnings per share range or a reconciliation of Adjusted operating income or Adjusted diluted earnings per share range with a GAAP diluted earnings per share range because, without unreasonable effort, the Company is unable to predict with reasonable certainty the precise amount or timing of the recognition of expenses associated with the closing activity and the transition of the Company’s Chief Executive Officer in the first quarter of fiscal 2019. These items are uncertain, depend on various factors, and could have a material impact on GAAP diluted earnings per share in future periods.

In evaluating these non-GAAP financial measures, investors should be aware that in the future the Company may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. The Company's presentation of non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. The Company has provided this information as a means to evaluate the results of its ongoing operations. Other companies in the Company's industry may calculate these items differently than it does. Each of these measures is not a measure of performance under GAAP and should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

Forward-Looking Statements

This news release includes forward-looking statements which reflect management's current views and estimates regarding the Company's industry, business strategy, goals, and expectations concerning its market position, future operations, margins, profitability, capital expenditures, share repurchases, liquidity and capital resources, and other financial and operating information. The words "anticipate", "assume", "believe", "continue", "could", "estimate", "expect", “forecast”, "future", “guidance”, “imply”, "intend", "may", “outlook”, "plan", "potential", "predict", "project", and similar terms and phrases are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The Company cannot assure investors that future developments affecting the Company will be those that it has anticipated. Actual results may differ materially from these expectations due to risks relating to the effect of economic uncertainty; substantial changes to fiscal and tax policies; our reliance on foreign suppliers; regulatory changes; the seasonality of our business; changes in customer demand; damage to the reputation of the Michaels brand or our private and exclusive brands; unexpected or unfavorable consumer responses to our promotional or merchandising programs; our failure to adequately maintain security and prevent unauthorized access to electronic and other confidential information; increased competition including internet-based competition from other retailers; and other risks and uncertainties including those identified under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC"), which is available at www.sec.gov, and other filings that the Company may make with the SEC in the future. If one or more of these risks or uncertainties materialize, or if any of the Company's assumptions prove incorrect, the Company's actual results may vary in material respects from those projected in these forward-looking statements.

Any forward-looking statement made by the Company in this news release speaks only as of the date on which the Company makes it. Factors or events that could cause the Company's actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. The Company does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

About The Michaels Companies, Inc.:

The Michaels Companies, Inc. is North America's largest specialty provider of arts, crafts, framing, floral, wall décor, and seasonal merchandise for Makers and do-it-yourself home decorators. The Company operates more than 1,200 Michaels stores in 49 states and Canada. Additionally, the Company serves customers through a variety of digital platforms including Michaels.com, consumercrafts.com and aaronbrothers.com. The Michaels Companies, Inc., also owns Artistree, a manufacturer of high quality custom and specialty framing merchandise, and Darice, a premier wholesale distributor in the craft, gift and decor industry. For a list of store locations or to shop online, visit www.michaels.com or download the Michaels app.

         
 
The Michaels Companies, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
       
Quarter Ended Fiscal Year Ended
February 2, February 3, February 2, February 3,
(in thousands, except per share data) 2019

2018(1)

2019

2018(1)

Net sales $ 1,789,109 $ 1,890,608 $ 5,271,944 $ 5,361,960
Cost of sales and occupancy expense   1,074,285     1,116,072     3,248,276     3,233,171  
Gross profit 714,824 774,536 2,023,668 2,128,789
Selling, general and administrative 381,211 419,839 1,351,401 1,390,400
Restructure charges 59,960 104,238
Store pre-opening costs   423     407     4,417     2,999  
Operating income 273,230 354,290 563,612 735,390
Interest expense 37,592 34,810 147,085 129,116
Losses on early extinguishments of debt and refinancing costs 1,835
Other expense (income), net   283     (417 )   (2,362 )   533  
Income before income taxes 235,355 319,897 417,054 605,741
Income taxes   53,952     116,929     97,509     215,243  
Net income $ 181,403   $ 202,968   $ 319,545   $ 390,498  
 
Other comprehensive income, net of tax:
Foreign currency translation adjustment and other   (7,668 )   6,310     (10,898 )   10,564  
Comprehensive income $ 173,735   $ 209,278   $ 308,647   $ 401,062  
 
Earnings per common share:
Basic $ 1.15 $ 1.12 $ 1.87 $ 2.11
Diluted $ 1.15 $ 1.11 $ 1.86 $ 2.10
Weighted-average common shares outstanding:
Basic 157,593 180,826 170,610 184,281
Diluted 157,879 182,264 171,378 185,566
 
 
The following table sets forth the percentage relationship to net sales of each line item of our unaudited consolidated statements of comprehensive income:
Quarter Ended Fiscal Year Ended
February 2, February 3, February 2, February 3,
2019

2018(1)

2019

2018(1)

Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales and occupancy expense   60.0     59.0     61.6     60.3  
Gross profit 40.0 41.0 38.4 39.7
Selling, general and administrative 21.3 22.2 25.6 25.9
Restructure charges 3.4 2.0
Store pre-opening costs           0.1     0.1  
Operating income 15.3 18.7 10.7 13.7
Interest expense 2.1 1.8 2.8 2.4
Losses on early extinguishments of debt and refinancing costs
Other expense (income), net                
Income before income taxes 13.2 16.9 7.9 11.3
Income taxes   3.0     6.2     1.8     4.0  
Net income   10.1 %   10.7 %   6.1 %   7.3 %
 

(1)The quarter and year ended February 3, 2018 included 14 weeks and 53 weeks, respectively.

 

       
The Michaels Companies, Inc.
Consolidated Balance Sheets
(Unaudited)
 
February 2, February 3,
(in thousands, except per share data) 2019 2018
ASSETS
Current Assets:
Cash and equivalents $ 245,887 $ 425,896
Merchandise inventories 1,108,715 1,123,288
Prepaid expenses and other 98,659 97,830
Accounts receivable, net 57,328 26,207
Income taxes receivable   4,935     3,761  
Total current assets   1,515,524     1,676,982  
Property and equipment, net 439,077 420,020
Goodwill 112,069 119,074
Other intangible assets, net 17,238 21,769
Deferred income taxes 25,005 34,538
Other assets   19,423     27,832  
Total assets $ 2,128,336   $ 2,300,215  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 485,004 $ 483,002
Accrued liabilities and other 378,742 370,457
Current portion of long-term debt 24,900 24,900
Income taxes payable   43,907     79,586  
Total current liabilities   932,553     957,945  
Long-term debt 2,681,000 2,701,764
Other liabilities   140,978     150,001  
Total liabilities   3,754,531     3,809,710  
 
Stockholders’ Deficit:

Common Stock, $0.06775 par value, 350,000 shares authorized; 157,774 shares issued and outstanding at February 2, 2019; 181,919 shares issued and outstanding at February 3, 2018

10,594

12,206
Additional paid-in-capital 5,954 21,740
Accumulated deficit (1,628,185 ) (1,539,781 )
Accumulated other comprehensive loss   (14,558 )   (3,660 )
Total stockholders’ deficit   (1,626,195 )   (1,509,495 )
Total liabilities and stockholders’ deficit $ 2,128,336   $ 2,300,215  
 

       
The Michaels Companies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
Fiscal Year Ended
February 2, February 3,
(in thousands) 2019

2018(1)

Cash flows from operating activities:
Net income $ 319,545 $ 390,498
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 124,271 118,912
Share-based compensation 27,082 24,264
Debt issuance costs amortization 4,997 5,098
Accretion of long-term debt, net (518 ) (505 )
Restructure charges 104,238
Deferred income taxes 8,131 4,348
Losses on early extinguishments of debt and refinancing costs 1,835
Changes in assets and liabilities:
Merchandise inventories (63,890 ) 5,281
Prepaid expenses and other 3,576 (7,785 )
Accounts receivable (14,100 ) (2,992 )
Other assets (1,497 ) (1,765 )
Accounts payable (10,461 ) (38,025 )
Accrued interest (691 ) (12,040 )
Accrued liabilities and other (17,225 ) 3,174
Income taxes (44,532 ) 28,388
Other liabilities   3,495     6,759  
Net cash provided by operating activities   444,256     523,610  
 
Cash flows from investing activities:
Additions to property and equipment   (145,387 )   (127,830 )
Net cash used in investing activities   (145,387 )   (127,830 )
 
Cash flows from financing activities:
Common stock repurchased (456,585 ) (253,752 )
Payments on term loan credit facility (24,900 ) (31,125 )
Borrowings on asset-based revolving credit facility 355,400 382,200
Payments on asset-based revolving credit facility (355,400 ) (382,200 )
Payment of debt refinancing costs (1,117 )
Payment of dividends (317 ) (408 )
Proceeds from stock options exercised   4,041     16,588  
Net cash used in financing activities   (478,878 )   (268,697 )
 
Net change in cash and equivalents (180,009 ) 127,083
Cash and equivalents at beginning of period   425,896     298,813  
Cash and equivalents at end of period $ 245,887   $ 425,896  
 

(1)The year ended February 3, 2018 included 53 weeks.

 

 
The Michaels Companies, Inc.
Earnings per Share
(in thousands, except per share data)
(Unaudited)
                 
The following table sets forth the computation of basic and diluted earnings per share:
 
Quarter Ended Fiscal Year Ended
February 2, February 3, February 2, February 3,
2019

2018(1)

2019

2018(1)

Basic earnings per common share:
Net income $ 181,403 $ 202,968 $ 319,545 $ 390,498
Less income related to unvested restricted shares   (214 )   (605 )   (595 )   (1,519 )
Income available to common shareholders - Basic $ 181,189   $ 202,363   $ 318,950   $ 388,979  
 
Weighted-average common shares outstanding - Basic   157,593     180,826     170,610     184,281  
Basic earnings per common share $ 1.15 $ 1.12 $ 1.87 $ 2.11
 
Diluted earnings per common share:
Net income $ 181,403 $ 202,968 $ 319,545 $ 390,498
Less income related to unvested restricted shares   (213 )   (600 )   (593 )   (1,508 )
Income available to common shareholders - Diluted $ 181,190   $ 202,368   $ 318,952   $ 388,990  
 
Weighted-average common shares outstanding - Basic 157,593 180,826 170,610 184,281
Effect of dilutive stock options and restricted stock units   286     1,438     768     1,285  
Weighted-average common shares outstanding - Diluted   157,879     182,264     171,378     185,566  
Diluted earnings per common share $ 1.15 $ 1.11 $ 1.86 $ 2.10
 
(1)The quarter and year ended February 3, 2018 included 14 weeks and 53 weeks, respectively.
 

 
The Michaels Companies, Inc.
Reconciliation of Adjusted EBITDA
(Unaudited)
                 
Quarter Ended Fiscal Year Ended
February 2, February 3, February 2, February 3,
(in thousands) 2019

2018(1)

2019

2018(1)

Net cash provided by operating activities $ 418,442 $ 417,183 $ 444,256 $ 523,610
Depreciation and amortization (34,338 ) (32,680 ) (124,271 ) (118,912 )
Share-based compensation (6,302 ) (6,032 ) (27,082 ) (24,264 )
Debt issuance costs amortization (1,238 ) (1,275 ) (4,997 ) (5,098 )
Accretion of long-term debt, net 133 126 518 505
Restructure charges (59,960 ) (104,238 )
Deferred income taxes (421 ) (3,819 ) (8,131 ) (4,348 )
Losses on early extinguishments of debt and refinancing costs (1,835 )
Changes in assets and liabilities   (134,913 )   (170,535 )   145,325     19,005  
Net income 181,403 202,968 319,545 390,498
Interest expense 37,592 34,810 147,085 129,116
Income taxes 53,952 116,929 97,509 215,243
Depreciation and amortization 34,338 32,680 124,271 118,912
Interest income   (775 )   (882 )   (3,160 )   (1,326 )
EBITDA 306,510 386,505 685,250 852,443
Adjustments:
Losses on early extinguishments of debt and refinancing costs 1,835
Share-based compensation 6,302 6,032 27,082 24,264
Restructure charges 59,960 104,238
Severance costs 412 902 1,274
Store pre-opening costs 423 407 4,417 2,999
Store remodel costs 74 372 5,153 1,773
Foreign currency transaction (gains) losses 672 394 (278 ) 1,486
Store closing costs (187 ) (740 ) 3,134 1,382
Other(2)   880     469     2,916     2,920  
Adjusted EBITDA $ 374,634   $ 393,851   $ 834,649   $ 888,541  
 
(1)The quarter and year ended February 3, 2018 included 14 weeks and 53 weeks, respectively.
(2)Other adjustments primarily relate to items such as moving and relocation expenses, franchise taxes and sign on bonuses
 

 
The Michaels Companies, Inc.
Reconciliation of GAAP basis to Adjusted operating income, Adjusted net income and Adjusted earnings per share
(Unaudited)
                 
Quarter Ended Fiscal Year Ended
February 2, February 3, February 2, February 3,
(In thousands, except per share) 2019

2018(1)

2019

2018(1)

Operating income $ 273,230 $ 354,290 $ 563,612 $ 735,390
Restructure charges and other (a) 59,960 103,935
Inventory write-down (b)           4,104      
Adjusted operating income $ 333,190   $ 354,290   $ 671,651   $ 735,390  
 
Net income $ 181,403 $ 202,968 $ 319,545 $ 390,498
Restructure charges and other (a) 59,960 103,935
Inventory write-down (b) 4,104
Losses on early extinguishments of debt and refinancing costs 1,835
Tax adjustment for above items (c) (14,245 ) (26,224 )
The Tax Act – adjustments for repatriation taxes and the revaluation of deferred tax assets (d)       14,557     987     14,557  
Adjusted net income $ 227,118   $ 217,525   $ 404,182   $ 405,055  
 
Earnings per common share, diluted $ 1.15 $ 1.11 $ 1.86 $ 2.10
Restructure charges and other (a) 0.38 0.60
Inventory write-down (b) 0.02
Losses on early extinguishments of debt and refinancing costs 0.01
Tax adjustment for above items (c) (0.09 ) (0.15 )
The Tax Act – adjustments for repatriation taxes and the revaluation of deferred tax assets (d)       0.08     0.01     0.08  
Adjusted earnings per common share, diluted $ 1.44 $ 1.19 $ 2.35 $ 2.17

(a)

 

Excludes restructure charges primarily related to the closure of 36 Pat Catan's stores, the closure of all 94 full-size Aaron Brothers stores and $0.3 million of operating income in the first quarter of fiscal 2018 from the operation of Aaron Brothers (prior to closing).

(b)

Excludes an inventory write-down related to a product purchased from a third-party which did not meet the Company’s quality standards.

(c)

Adjusts for the tax impact of restructure charges, the inventory write-down and losses on early extinguishments of debt and refinancing costs.

(d)

Excludes adjustments related to repatriation taxes for accumulated earnings of foreign subsidiaries and the revaluation of deferred tax assets resulting from the enactment of the Tax Act.

 

 
The Michaels Companies, Inc.
Summary of Operating Data
(Unaudited)
               
The following table sets forth certain of our unaudited operating data:
 
Quarter Ended Fiscal Year Ended
February 2, February 3, February 2, February 3,
2019 2018 2019 2018
Michaels stores:
Open at beginning of period 1,256 1,237 1,238 1,223
New stores 3 1 24 17
Relocated stores opened 1 21 12
Closed stores (1 ) (4 ) (2 )
Relocated stores closed   (1 )       (21 )   (12 )
Michaels stores open at end of period   1,258     1,238     1,258     1,238  
 
Aaron Brothers stores:
Open at beginning of period 98 97 109
Closed stores       (1 )   (97 )   (12 )
Aaron Brothers stores open at end of period       97         97  
 
Pat Catan's stores:
Open at beginning of period 36 36 36 35
New stores 1
Closed stores   (36 )       (36 )    
Pat Catan's stores open at end of period       36         36  
 
Total store count at end of period   1,258     1,371     1,258     1,371  
Total selling square footage at end of period (thousands)   22,339     23,749     22,339     23,749  
 
Other Operating Data:
Average inventory per Michaels store (in thousands)(1) $ 832 $ 810 $ 832 $ 810
Comparable store sales (0.4 ) % 2.5 % 0.8 % 0.9 %
Comparable store sales, at constant currency % 2.0 % 0.9 % 0.7 %
 
(1)Excludes Aaron Brothers and Pat Catan's stores.
 

Investor Contact:
Kiley F. Rawlins, CFA
972.409.7404
Kiley.Rawlins@michaels.com

ICR, Inc.
Farah Soi
203.682.8200
Farah.Soi@icrinc.com

or

Financial Media Contact:
ICR, Inc.
Jessica Liddell / Julia Young
203.682.8200
Michaels@icrinc.com

Source: The Michaels Companies, Inc.

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