The Michaels Companies Announces Third Quarter Fiscal 2020 Results

  • Net Sales increase of 15.1% to $1.406 billion; Comparable Store Sales increase of 16.3%; including e-commerce growth of 128.0%
  • Operating Income increase of 161.6% to $199.0 million; Adjusted Operating Income increase of 71.7% to $201.6 million
  • Net Cash Flow from Operations of $413.1 million for the quarter; Free Cash Flow of $380 million for the quarter and $633 million on a year-to-date basis
  • Company announces special bonus to be paid in the fourth quarter for team members totaling approximately $10 million

IRVING, Texas--(BUSINESS WIRE)-- The Michaels Companies, Inc. (NASDAQ: MIK) today announced financial results for the third quarter fiscal 2020 ended October 31, 2020.

Ashley Buchanan, Michaels Chief Executive Officer commented, “Michaels delivered strong third quarter results highlighted by comparable store sales growth of 16.3%, which was driven by robust consumer demand, improved retail execution and continued progress against our strategic initiatives. Our expanded omni channel capabilities, Maker-centric branding, and increasingly personalized marketing resonated well with customers. We also benefited from progress we made on our ongoing efforts around strategic inventory management, streamlined store operations and a disciplined approach to pricing and promotions. Importantly, we strengthened our balance sheet by paying down $150 million in debt and increased our financial flexibility by refinancing and significantly extending the maturity of our term loan.”

Mr. Buchanan added, “Our Maker strategy underpins the work we are doing to innovate and elevate the customer experience as we transform Michaels into a leading omnichannel specialty retailer. We have strengthened our core business and put Michaels in a much stronger position today - operationally, financially, and strategically - than at the start of this year and I would like to extend my gratitude to every single Michaels team member whose hard work has enabled these results. While the operating environment continues to evolve, we look forward to building on our progress as we continue to drive toward sustainable growth over the long term.”

 

 

13 Weeks Ended
October 31, 2020

13 Weeks Ended
November 2, 2019

39 Weeks Ended
October 31, 2020

39 Weeks Ended
November 2, 2019

Net Sales

$1,406.2M

$1,222.0M

$3,354.3M

$3,349.4M

Comp. Store Sales

16.3%

(2.2%)

0.6%

(1.7%)

Operating Income

$199.0M

$76.0M

$191.5M

$240.1M

Net Income

$111.1M

$28.7M

$39.9M

$90.9M

Diluted Earnings per Share

$0.74

$0.19

$0.27

$0.58

Adjusted Operating Income1

$201.6M

$117.4M

$246.6M

$294.0M

Adjusted Net Income 1

$129.3M

$60.1M

$97.7M

$138.7M

Adjusted Diluted Earnings per Share1

$0.86

$0.40

$0.66

$0.89

1 See additional information in this release for a reconciliation of non-GAAP financial measures to the respective GAAP measures.

Key Highlights

  • Michaels delivered a 16.3% increase in third quarter comparable store sales, driven by strong demand in both stores and e-commerce.
  • Third quarter e-commerce growth of more than 128% year over year was driven by enhanced and expanded omnichannel capabilities including curbside pick-up, same day delivery, ship from store, buy online, pick-up in store, or BOPIS, in-app purchases and more. Year-to-date e-commerce growth totaled 249%.
  • Improved capital structure with successful refinancing of term loan, extending maturity dates to 2027 and $150 million in debt pay down.

Third Quarter Fiscal 2020 (13 weeks ended October 31, 2020):

  • The 15.1% increase in sales for the third quarter of fiscal 2020 compared to the same period in the prior year was due to a 16.3% increase in comparable store sales and sales related to additional stores opened (net of closures) since the end of the third quarter of fiscal 2019, partially offset by a sales decline due to the closure of our wholesale business.
  • Operating income was $199.0 million, an increase of 162% when compared to operating income of $76.0 million in the third quarter of fiscal 2019. Adjusted operating income for the third quarter of fiscal 2020 increased 72% to $201.6 million from $117.4 million in the third quarter of fiscal 2019. A full reconciliation of adjusted operating income is available within the tables of this press release.

Balance sheet and liquidity highlights:

  • The Company generated $380 million in free cash flow (defined as cash flow from operating activities less capital expenditures) during the third quarter and $633 million on a year-to-date basis.
  • The Company ended the third quarter of fiscal 2020 with a cash balance of $852 million and full access to an undrawn revolving credit facility.

Special Bonus for Team Members:

The company announced that during the fourth quarter it will pay approximately $10 million in one-time holiday bonuses to both full-time and part-time team members as a thank you for their extraordinary work this year during unprecedented times.

Mr. Buchanan commented, “We want to show our gratitude to all of our team members who have continued to deliver incredible customer service and are a critical element to our ongoing success this year during such trying times for our communities.”

Outlook:
Given the continued uncertainty due to the COVID-19 pandemic, including a dynamic and uncertain outlook for consumer spending patterns and associated government policies, the Company is not providing any formal guidance at this time.

Conference Call Information
A conference call to discuss second quarter financial results is scheduled for today, December 3, 2020, 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: https://dpregister.com/sreg/10149320/dbb27dd898. Callers who pre-register will be given a phone number and a unique PIN to bypass the live operator and gain immediate access to the call. 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.

A live webcast of the conference call, together with certain supplemental presentation materials, will be available online at http://investors.michaels.com/. 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 3 months after the call. Additionally, a telephone replay will be available until December 19, 2020, by dialing (877) 344-7529 or (412) 317-0088, access code 10149320.

Non-GAAP Information

This press release includes non-GAAP measures including adjusted operating income, adjusted net income, adjusted diluted earnings per share, EBITDA and adjusted EBITDA. 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 2020 results on a comparable basis with its quarterly and fiscal 2019 results.

The Company has provided this information as a means to evaluate the results of its ongoing operations. 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. 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. Other companies in the Company's industry may calculate these items differently than it does.

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, including with respect to liquidity and capital resources, the introduction of new capabilities, our ability to navigate the COVID-19 pandemic and the opening of stores following temporary closures, expected costs of the closure of Darice operations 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 the adverse effect of the ongoing COVID-19 outbreak; 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; the impact of tariffs on certain products that we import from China and other risks and uncertainties including those identified under the heading “Risk Factors” in the Company’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, each of which are filed with the Securities and Exchange Commission ("SEC") and 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 1,272 Michaels stores in 49 states and Canada. Additionally, the Company serves customers through digital platforms including Michaels.com and Canada.michaels.com. The Michaels Companies, Inc., also owns Artistree, a manufacturer of high-quality custom and specialty framing merchandise. 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)
 
13 Weeks Ended 39 Weeks Ended
October 31, November 2, October 31, November 2,
(in thousands, except per share data)

2020

2019

2020

2019

Net sales $

1,406,212

$

1,222,021

$

3,354,270

 

$

3,349,430

 

Cost of sales and occupancy expense

824,496

780,387

2,208,220

 

2,123,171

 

Gross profit

581,716

441,634

1,146,050

 

1,226,259

 

Selling, general and administrative

373,193

322,807

943,587

 

933,478

 

Restructure and impairment charges

9,388

41,376

9,388

 

48,332

 

Store pre-opening costs

184

1,402

1,528

 

4,370

 

Operating income

198,951

76,049

191,547

 

240,079

 

Interest expense

37,370

38,781

112,233

 

116,274

 

Losses on early extinguishments of debt and refinancing costs

22,044

161

22,044

 

1,316

 

Other expense (income), net

131

78

(1,426

)

2,931

 

Income before income taxes

139,406

37,029

58,696

 

119,558

 

Income taxes

28,284

8,324

18,836

 

28,615

 

Net income $

111,122

$

28,705

$

39,860

 

$

90,943

 

 
Other comprehensive income, net of tax:
Foreign currency and cash flow hedges

3,910

1,230

(1,466

)

(8,358

)

Comprehensive income $

115,032

$

29,935

$

38,394

 

$

82,585

 

 
Earnings per common share:
Basic $

0.75

$

0.19

$

0.27

 

$

0.58

 

Diluted $

0.74

$

0.19

$

0.27

 

$

0.58

 

Weighted-average common shares outstanding:
Basic

147,402

150,877

147,188

 

155,299

 

Diluted

150,292

150,925

148,796

 

155,342

 

 
The following table sets forth the percentage relationship to net sales of each line item of our unaudited consolidated statements of comprehensive income:
13 Weeks Ended 39 Weeks Ended
October 31, November 2, October 31, November 2,

2020

2019

2020

2019

Net sales

100.0

%

100.0

%

100.0

%

100.0

%

Cost of sales and occupancy expense

58.6

63.9

65.8

63.4

Gross profit

41.4

36.1

34.2

36.6

Selling, general and administrative

26.5

26.4

28.1

27.9

Restructure and impairment charges

0.7

3.4

0.3

1.4

Store pre-opening costs

0.1

0.1

Operating income

14.1

6.2

5.7

7.2

Interest expense

2.7

3.2

3.3

3.5

Losses on early extinguishments of debt and refinancing costs

1.6

0.7

Other expense (income), net

0.1

Income before income taxes

9.9

3.0

1.7

3.6

Income taxes

2.0

0.7

0.6

0.9

Net income

7.9

%

2.3

%

1.2

%

2.7

%

 
The Michaels Companies, Inc.
Consolidated Balance Sheets
(Unaudited)
 
October 31, November 2,
(in thousands, except per share data)

2020

2019

ASSETS
Current Assets:
Cash and equivalents $

851,996

 

$

118,387

 

Merchandise inventories

1,170,504

 

1,423,367

 

Prepaid expenses and other

69,663

 

73,223

 

Accounts receivable, net

24,232

 

26,968

 

Total current assets

2,116,395

 

1,641,945

 

Property and equipment, at cost

1,772,473

 

1,733,717

 

Less accumulated depreciation and amortization

(1,356,945

)

(1,301,785

)

Property and equipment, net

415,528

 

431,932

 

Operating lease assets

1,542,059

 

1,613,527

 

Goodwill

94,290

 

94,290

 

Other intangible assets, net

58,666

 

5,043

 

Deferred income taxes

18,825

 

38,075

 

Other assets

17,558

 

20,267

 

Total assets $

4,263,321

 

$

3,845,079

 

 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $

895,200

 

$

658,182

 

Accrued liabilities and other

452,669

 

374,120

 

Current portion of operating lease liabilities

321,868

 

303,023

 

Current portion of long-term debt

16,700

 

24,900

 

Income taxes payable

48,064

 

22,520

 

Total current liabilities

1,734,501

 

1,382,745

 

Long-term debt

2,483,702

 

2,649,756

 

Long-term operating lease liabilities

1,314,987

 

1,374,555

 

Other liabilities

120,061

 

69,853

 

Total liabilities

5,653,251

 

5,476,909

 

 
Stockholders’ Deficit:
Common Stock, $0.06775 par value, 350,000 shares authorized; 147,546 shares issued and outstanding at October 31, 2020; 146,770 shares issued and outstanding at November 2, 2019.

9,908

 

9,850

 

Additional paid-in-capital

22,956

 

1,245

 

Accumulated deficit

(1,398,497

)

(1,620,009

)

Accumulated other comprehensive loss

(24,297

)

(22,916

)

Total stockholders’ deficit

(1,389,930

)

(1,631,830

)

Total liabilities and stockholders’ deficit $

4,263,321

 

$

3,845,079

 

 
The Michaels Companies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
39 Weeks Ended
October 31, November 2,
(in thousands)

2020

2019

Cash flows from operating activities:
Net income $

39,860

 

$

90,943

 

Adjustments to reconcile net income to net cash provided by operating activities:
Non-cash operating lease expense

241,040

 

244,258

 

Depreciation and amortization

95,382

 

94,025

 

Share-based compensation

19,759

 

18,664

 

Debt issuance costs amortization

2,757

 

3,509

 

Loss on write-off of investment

 

5,036

 

Accretion of long-term debt, net

480

 

(195

)

Restructure and impairment charges

9,388

 

48,332

 

Impairment of intangible assets

3,500

 

 

Deferred income taxes

(289

)

(9,984

)

Gain on sale of building

(101

)

 

Losses on early extinguishments of debt and refinancing costs

22,044

 

1,316

 

Changes in assets and liabilities:
Merchandise inventories

(74,009

)

(316,220

)

Prepaid expenses and other

(7,377

)

(14,445

)

Accounts receivable

13,368

 

30,684

 

Other assets

790

 

(4,728

)

Operating lease liabilities

(207,334

)

(225,951

)

Accounts payable

414,286

 

162,222

 

Accrued interest

11,217

 

8,441

 

Accrued liabilities and other

97,539

 

(10,471

)

Income taxes

3,660

 

(18,318

)

Other liabilities

26,900

 

(751

)

Net cash provided by operating activities

712,860

 

106,367

 

 
Cash flows from investing activities:
Additions to property and equipment

(79,545

)

(89,632

)

Proceeds from sale of building

875

 

 

Net cash used in investing activities

(78,670

)

(89,632

)

 
Cash flows from financing activities:
Common stock repurchased

(1,103

)

(107,908

)

Payments on term loan credit facility

(541,775

)

(18,675

)

Payment of 2020 senior subordinated notes

 

(510,000

)

Issuance of senior notes

 

500,000

 

Issuance of senior secured notes

375,000

 

 

Borrowings on asset-based revolving credit facility

600,000

 

11,100

 

Payments on asset-based revolving credit facility

(600,000

)

(11,100

)

Payment of debt refinancing costs

(24,267

)

(8,158

)

Proceeds from stock options exercised

105

 

506

 

Other financing activities

(118

)

 

Net cash used in financing activities

(192,158

)

(144,235

)

 
Net change in cash and equivalents

442,032

 

(127,500

)

Cash and equivalents at beginning of period

409,964

 

245,887

 

Cash and equivalents at end of period $

851,996

 

$

118,387

 

 
 
The Michaels Companies, Inc.
Reconciliation of Adjusted EBITDA
(Unaudited)
 
13 Weeks Ended 39 Weeks Ended
October 31, November 2, October 31, November 2,
(in thousands)

2020

2019

2020

2019

Net cash provided by operating activities $

413,111

 

$

108,475

 

$

712,860

 

$

106,367

 

Non-cash operating lease expense

(79,498

)

(81,397

)

(241,040

)

(244,258

)

Depreciation and amortization

(31,292

)

(31,295

)

(95,382

)

(94,025

)

Share-based compensation

(6,571

)

(6,658

)

(19,759

)

(18,664

)

Debt issuance costs amortization

(875

)

(970

)

(2,757

)

(3,509

)

Loss on write-off of investment

 

 

 

(5,036

)

Accretion of long-term debt, net

(349

)

(67

)

(480

)

195

 

Restructure and impairment charges

(9,388

)

(41,376

)

(9,388

)

(48,332

)

Impairment of intangible assets

 

 

(3,500

)

 

Deferred income taxes

(2,690

)

10,023

 

289

 

9,984

 

Gain on sale of building

 

 

101

 

 

Losses on early extinguishments of debt and refinancing costs

(22,044

)

(161

)

(22,044

)

(1,316

)

Changes in assets and liabilities

(149,282

)

72,131

 

(279,040

)

389,537

 

Net income

111,122

 

28,705

 

39,860

 

90,943

 

Interest expense

37,370

 

38,781

 

112,233

 

116,274

 

Income taxes

28,284

 

8,324

 

18,836

 

28,615

 

Depreciation and amortization

31,292

 

31,295

 

95,382

 

94,025

 

Interest income

(144

)

(297

)

(1,426

)

(2,012

)

EBITDA

207,924

 

106,808

 

264,885

 

327,845

 

Adjustments:
COVID-19 expense (1)

632

 

 

19,158

 

 

Losses on early extinguishments of debt and refinancing costs

22,044

 

161

 

22,044

 

1,316

 

Share-based compensation

6,571

 

6,658

 

19,759

 

18,664

 

Restructure and impairment charges

9,388

 

41,376

 

9,388

 

48,332

 

Darice liquidation charges

(6,775

)

 

45,711

 

 

Severance costs

667

 

1,683

 

5,537

 

5,175

 

Store pre-opening costs

184

 

1,402

 

1,528

 

4,370

 

Store remodel costs

1,226

 

174

 

1,675

 

242

 

Foreign currency transaction losses (gains), net

8

 

192

 

(322

)

659

 

Store closing costs

96

 

478

 

907

 

(469

)

Consulting costs

9,240

 

 

14,149

 

 

CEO severance costs

 

 

 

5,569

 

Other(2)

1,981

 

1,788

 

7,644

 

4,489

 

Adjusted EBITDA $

253,186

 

$

160,720

 

$

412,063

 

$

416,192

 

 
(1) Includes costs attributable to the COVID-19 pandemic including hazard pay for team members, costs associated with furloughed employees, certain inventory charges and sanitation supplies.
(2)Other adjustments primarily relate to items such as moving and relocation expenses, franchise taxes, sign-on bonuses, director's fees, search costs and the support center move.
 
 
The Michaels Companies, Inc.
Reconciliation of GAAP basis to Adjusted operating income, Adjusted net income and Adjusted earnings per share
(Unaudited)
 
13 Weeks Ended 39 Weeks Ended
October 31, November 2, October 31, November 2,
(In thousands, except per share)

2020

2019

2020

2019

Operating income $

198,951

 

$

76,049

 

$

191,547

 

$

240,079

 

Restructure and impairment charges (a)

9,388

 

41,376

 

9,388

 

48,332

 

Darice liquidation (income) charges (b)

(6,775

)

 

45,711

 

 

CEO severance costs

 

 

 

5,569

 

Adjusted operating income $

201,564

 

$

117,425

 

$

246,646

 

$

293,980

 

 
Net income $

111,122

 

$

28,705

 

$

39,860

 

$

90,943

 

Restructure and impairment charges (a)

9,388

 

41,376

 

9,388

 

48,332

 

Darice liquidation (income) charges (b)

(6,775

)

 

45,711

 

 

CEO severance costs

 

 

 

5,569

 

Write-off of investment (c)

 

 

 

5,036

 

Losses on early extinguishments of debt and refinancing costs

22,044

 

161

 

22,044

 

1,316

 

Interest on 2020 senior subordinated notes (d)

 

 

1,748

 

Tax adjustment for above items (e)

(6,489

)

(10,139

)

(19,348

)

(14,232

)

Adjusted net income $

129,290

 

$

60,103

 

$

97,655

 

$

138,712

 

 
Earnings per common share, diluted $

0.74

 

$

0.19

 

$

0.27

 

$

0.58

 

Restructure and impairment charges (a)

0.06

 

0.27

 

0.06

 

0.31

 

Darice liquidation (income) charges (b)

(0.05

)

 

0.31

 

 

CEO severance costs

 

 

 

0.04

 

Write-off of investment (c)

 

 

 

0.03

 

Losses on early extinguishments of debt and refinancing costs

0.15

 

 

0.15

 

0.01

 

Interest on 2020 senior subordinated notes (d)

 

 

 

0.01

 

Tax adjustment for above items (e)

(0.04

)

(0.07

)

(0.13

)

(0.09

)

Adjusted earnings per common share, diluted $

0.86

 

$

0.40

 

$

0.66

 

$

0.89

 

 
(a) Fiscal 2020 excludes impairment of operating lease assets and leasehold improvements related to the relocation of our support center. Fiscal 2019 excludes 2019 exclude charges related to the closure of our Pat Catan's stores and impairment charges recorded as a result of lower than expected operating performance in our wholesale business.
(b) Excludes (income) charges related to the closure of the Darice wholesale business.
(c) Excludes the write-off of an investment in a liquidated business.
(d) Excludes interest paid on our 2020 Senior Subordinated notes during the period between the issuance of our 2027 Senior Notes and when the proceeds from that issuance were used to redeem the 2020 Senior Subordinated Notes.
(e) Adjusts for the tax impact of the restructure and impairment charges, the Darice liquidation (income) charges, the CEO severance costs, the write-off of an investment in a liquidated business, early extinguishments of debt and refinancing costs and interest on a portion of our 2020 senior subordinated notes.
 
The Michaels Companies, Inc.
Summary of Operating Data
(Unaudited)
 
 
The following table sets forth certain of our unaudited operating data:
13 Weeks Ended 39 Weeks Ended
October 31, November 2, October 31, November 2,

2020

2019

2020

2019

 
Store open at beginning of period

1,275

 

1,262

 

1,274

 

1,258

 

New stores

1

 

13

 

6

 

21

 

Relocated stores opened

1

 

5

 

7

 

13

 

Closed stores

(3

)

(1

)

(7

)

(5

)

Relocated stores closed

(2

)

(5

)

(8

)

(13

)

Store open at end of period

1,272

 

1,274

 

1,272

 

1,274

 

 
 
 
Other Operating Data:
Average inventory per store (in thousands)

$ 916

 

$ 1,069

 

$ 916

 

$ 1,069

 

Comparable store sales

16.3

%

(2.2

)%

0.6

%

(1.7

)%

Comparable store sales, at constant currency

16.3

%

(2.1

)%

0.8

%

(1.4

)%

 

 

Investor Contact:
Jim Mathias
972.409.1393
James.Mathias@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.

View All Press Releases