The Michaels Companies Announces Fourth Quarter and Full Year Fiscal 2020 Results

IRVING, Texas--(BUSINESS WIRE)-- The Michaels Companies, Inc. (NASDAQ: MIK) today announced financial results for the fourth quarter and full year fiscal 2020 ended January 30, 2021.

Key Financial Results:

 

13 Weeks Ended

January 30, 2021

13 Weeks Ended

February 1, 2020

52 Weeks Ended

January 30, 2021

52 Weeks Ended

February 1, 2020

Net Sales

$1,916.8M

$1,722.6M

$5,271.1M

$5,072.0M

Comp. Store Sales

12.9%

-2.4%

4.8%

-1.9%

Operating Income

$342.0M

$275.0M

$533.5M

$515.0M

Net Income

$255.1M

$181.7M

$294.9M

$272.6M

Diluted Earnings per Share

$1.72

$1.24

$1.98

$1.78

Adjusted Operating Income1

$361.0M

$278.6M

$607.6M

$572.6M

Adjusted Net Income 1

$249.3M

$185.1M

$347.0M

$323.8M

Adjusted Diluted Earnings per Share1

$1.69

$1.26

$2.33

$2.11

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


Conference Call

Given the recently announced agreement for Michaels to be acquired by funds affiliated with Apollo Global Management, the Company will not be hosting a conference call to discuss its financial results.

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.

IMPORTANT INFORMATION

The tender offer for the outstanding shares of The Michaels Companies, Inc. (“Michaels”) common stock has not yet commenced. This communication is for informational purposes only and is neither an offer to purchase nor a solicitation of an offer to sell shares of Michaels common stock. The solicitation and offer to buy shares of Michaels common stock will only be made pursuant to the tender offer materials that Magic MergeCo, Inc. (“Merger Sub”) intends to file with the U.S. Securities and Exchange Commission (the “SEC”). Merger Sub is beneficially owned by certain equity funds managed by Apollo Management IX, L.P. At the time the tender offer is commenced, Merger Sub will file a tender offer statement on Schedule TO with the SEC, and Michaels will file a solicitation/recommendation statement on Schedule 14D-9 with respect to the tender offer. MICHAELS’ STOCKHOLDERS ARE ADVISED TO READ THE SCHEDULE TO (INCLUDING AN OFFER TO PURCHASE, A RELATED LETTER OF TRANSMITTAL AND OTHER OFFER DOCUMENTS) AND THE SCHEDULE 14D-9, AS EACH MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BEFORE THEY MAKE ANY DECISION WITH RESPECT TO THE TENDER OFFER BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND THE PARTIES THERETO. Both the tender offer statement and the solicitation/recommendation statement will be mailed to Michaels’ stockholders free of charge. Investors and stockholders may obtain free copies of the Schedule TO and Schedule 14D-9, as each may be amended or supplemented from time to time, and other documents filed by the parties (when available) at the SEC’s web site at www.sec.gov, by contacting Michaels’ Investor Relations either by telephone at 972-409-1393, e-mail at james.mathias@Michaels.com or on Michaels’ website at www.Michaels.com.

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 1,250 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

 

52 Weeks Ended

 

January 30,

 

February 1,

 

January 30,

 

February 1,

(in thousands, except per share data)

2021

 

2020

 

2021

 

2020

Net sales $

1,916,842

 

$

1,722,608

 

$

5,271,112

 

$

5,072,037

 

Cost of sales and occupancy expense

1,106,815

 

1,076,610

 

3,315,035

 

3,199,780

 

Gross profit

810,027

 

645,998

 

1,956,077

 

1,872,257

 

Selling, general and administrative

447,032

 

370,803

 

1,390,620

 

1,304,280

 

Restructure and impairment charges

19,447

 

 

28,835

 

48,332

 

Store pre-opening costs

1,554

 

238

 

3,082

 

4,608

 

Operating income

341,994

 

274,957

 

533,540

 

515,037

 

Interest expense

40,209

 

37,816

 

152,442

 

154,090

 

Losses on early extinguishments of debt and refinancing costs

 

 

22,044

 

1,316

 

Other (income) expense, net

(124

)

(1,671

)

(1,550

)

1,260

 

Income before income taxes

301,909

 

238,812

 

360,604

 

358,371

 

Income taxes

46,834

 

57,161

 

65,669

 

85,776

 

Net income $

255,075

 

$

181,651

 

$

294,935

 

$

272,595

 

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

10,853

 

85

 

9,387

 

(8,273

)

Comprehensive income $

265,928

 

$

181,736

 

$

304,322

 

$

264,322

 

 
Earnings per common share:
Basic $

1.76

 

$

1.24

 

$

2.01

 

$

1.78

 

Diluted $

1.72

 

$

1.24

 

$

1.98

 

$

1.78

 

Weighted-average common shares outstanding:
Basic

144,598

 

146,638

 

146,541

 

153,134

 

Diluted

147,844

 

146,701

 

148,531

 

153,202

 

 
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

 

 

52 Weeks Ended

January 30,

 

 

February 1,

 

 

January 30,

 

 

February 1,

2021

 

 

2020

 

 

2021

 

 

2020

Net sales

100.0

%

100.0

%

100.0

%

100.0

%

Cost of sales and occupancy expense

57.7

 

62.5

 

62.9

 

63.1

 

Gross profit

42.3

 

37.5

 

37.1

 

36.9

 

Selling, general and administrative

23.3

 

21.5

 

26.4

 

25.7

 

Restructure and impairment charges

1.0

 

 

0.5

 

1.0

 

Store pre-opening costs

0.1

 

 

0.1

 

0.1

 

Operating income

17.8

 

16.0

 

10.1

 

10.2

 

Interest expense

2.1

 

2.2

 

2.9

 

3.0

 

Losses on early extinguishments of debt and refinancing costs

 

 

0.4

 

 

Other (income) expense, net

 

(0.1

)

 

 

Income before income taxes

15.8

 

13.9

 

6.8

 

7.1

 

Income taxes

2.4

 

3.3

 

1.2

 

1.7

 

Net income

13.3

%

10.5

%

5.6

%

5.4

%

 
 

The Michaels Companies, Inc.

Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

 

January 30,

 

February 1,

(in thousands, except per share data)

 

2021

 

2020

ASSETS
Current Assets:
Cash and equivalents $

1,194,389

 

$

409,964

 

Merchandise inventories

1,007,043

 

1,097,109

 

Prepaid expenses and other

56,822

 

62,287

 

Accounts receivable, net

14,039

 

30,442

 

Total current assets

2,272,293

 

1,599,802

 

Property and equipment, net

472,563

 

430,432

 

Operating lease assets

1,594,554

 

1,610,013

 

Goodwill

94,290

 

94,290

 

Other intangible assets, net

57,121

 

66,417

 

Deferred income taxes

19,394

 

18,201

 

Other assets

18,190

 

18,940

 

Total assets $

4,528,405

 

$

3,838,095

 

 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $

858,790

 

$

476,298

 

Accrued liabilities and other

488,658

 

347,136

 

Current portion of operating lease liabilities

324,238

 

306,796

 

Current portion of long-term debt

16,700

 

24,900

 

Income taxes payable

27,313

 

41,236

 

Total current liabilities

1,715,699

 

1,196,366

 

Long-term debt

2,480,953

 

2,644,460

 

Long-term operating lease liabilities

1,378,394

 

1,357,821

 

Deferred income taxes

54,200

 

 

Other liabilities

96,329

 

85,912

 

Total liabilities

5,725,575

 

5,284,559

 

 
Stockholders’ Deficit:
Common stock, $0.06775 par value, 350,000 shares authorized; 141,608 shares issued and outstanding at January 30, 2021, 146,803 shares issued and outstanding at February 1, 2020.

9,508

 

9,852

 

Additional paid-in-capital

 

4,872

 

Accumulated deficit

(1,193,234

)

(1,438,357

)

Accumulated other comprehensive loss

(13,444

)

(22,831

)

Total stockholders’ deficit

(1,197,170

)

(1,446,464

)

Total liabilities and stockholders’ deficit $

4,528,405

 

$

3,838,095

 

 
 

The Michaels Companies, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

52 Weeks Ended

 

 

January 30,

 

February 1,

(in thousands)

 

2021

 

2020

Cash flows from operating activities:
Net income $

294,935

 

$

272,595

 

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

308,777

 

325,962

 

Depreciation and amortization

130,303

 

125,499

 

Share-based compensation

25,010

 

22,910

 

Debt issuance costs amortization

3,507

 

4,451

 

Loss on write-off of investment

 

5,036

 

Accretion of long-term debt, net

1,391

 

(129

)

Restructure and impairment charges

28,835

 

48,332

 

Impairment of intangible assets

3,500

 

 

Deferred income taxes

52,114

 

9,455

 

Losses on early extinguishments of debt and refinancing costs

22,044

 

1,316

 

Gain on sale of building

(101

)

 

Changes in assets and liabilities:
Merchandise inventories

88,183

 

9,504

 

Prepaid expenses and other

4,869

 

1,671

 

Accounts receivable

14,627

 

29,516

 

Other assets

198

 

(3,562

)

Operating lease liabilities

(277,375

)

(323,010

)

Accounts payable

389,756

 

(14,787

)

Accrued interest

6,978

 

(2,192

)

Accrued liabilities and other

128,671

 

(36,020

)

Income taxes

(5,323

)

17,647

 

Other liabilities

1,537

 

(1,019

)

Net cash provided by operating activities

1,222,436

 

493,175

 

 
Cash flows from investing activities:
Additions to property and equipment

(162,004

)

(120,545

)

Proceeds from sale of building

875

 

 

Acquisition of intangible assets

 

(58,000

)

Net cash used in investing activities

(161,129

)

(178,545

)

 
Cash flows from financing activities:
Common stock repurchased

(91,118

)

(107,997

)

Payments on term loan credit facility

(545,950

)

(24,900

)

Borrowings on asset-based revolving credit facility

600,000

 

23,200

 

Payments on asset-based revolving credit facility

(600,000

)

(23,200

)

Payment of 2020 senior subordinated notes

 

(510,000

)

Issuance of senior notes

 

500,000

 

Issuance of senior secured notes

375,000

 

 

Payment of debt refinancing costs

(26,812

)

(8,162

)

Proceeds from stock options exercised

12,473

 

506

 

Other financing activities

(475

)

 

Net cash used in financing activities

(276,882

)

(150,553

)

 
Net change in cash and equivalents

784,425

 

164,077

 

Cash and equivalents at beginning of period

409,964

 

245,887

 

Cash and equivalents at end of period $

1,194,389

 

$

409,964

 

 
 

The Michaels Companies, Inc.

Reconciliation of Adjusted EBITDA

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13 Weeks Ended

 

 

52 Weeks Ended

 

 

January 30,

 

February 1,

 

 

January 30,

 

February 1,

(in thousands)

 

2021

 

2020

 

2021

 

2020

Net cash provided by operating activities $

509,576

 

$

386,808

 

$

1,222,436

 

$

493,175

 

Non-cash operating lease expense

(67,737

)

(81,704

)

(308,777

)

(325,962

)

Depreciation and amortization

(34,921

)

(31,474

)

(130,303

)

(125,499

)

Share-based compensation

(5,251

)

(4,246

)

(25,010

)

(22,910

)

Debt issuance costs amortization

(750

)

(942

)

(3,507

)

(4,451

)

Loss on write-off of investment

 

 

 

(5,036

)

Accretion of long-term debt, net

(911

)

(66

)

(1,391

)

129

 

Restructure and impairment charges

(19,447

)

 

(28,835

)

(48,332

)

Impairment of intangible assets

 

 

(3,500

)

 

Deferred income taxes

(52,403

)

(19,439

)

(52,114

)

(9,455

)

Losses on early extinguishments of debt and refinancing costs

 

 

(22,044

)

(1,316

)

Gain on sale of building

 

 

101

 

 

Changes in assets and liabilities

(73,081

)

(67,286

)

(352,121

)

322,252

 

Net income

255,075

 

181,651

 

294,935

 

272,595

 

Interest expense

40,209

 

37,816

 

152,442

 

154,090

 

Income taxes

46,834

 

57,161

 

65,669

 

85,776

 

Depreciation and amortization

34,921

 

31,474

 

130,303

 

125,499

 

Interest income

(144

)

(1,172

)

(1,570

)

(3,185

)

EBITDA

376,895

 

306,930

 

641,779

 

634,775

 

Adjustments:
COVID-19 expense (1)

683

 

 

19,842

 

 

Losses on early extinguishments of debt and refinancing costs

 

 

22,044

 

1,316

 

Share-based compensation

5,251

 

4,246

 

25,010

 

22,910

 

Restructure and impairment charges

19,447

 

 

28,835

 

48,332

 

Darice liquidation charges

(467

)

 

45,244

 

 

Severance costs

3,435

 

431

 

8,972

 

5,607

 

Store pre-opening costs

1,554

 

238

 

3,082

 

4,608

 

Store remodel costs

64

 

94

 

1,739

 

337

 

Foreign currency transaction losses (gains), net

314

 

(383

)

(8

)

276

 

Store closing costs

621

 

313

 

1,528

 

(156

)

Consultant costs

6,476

 

 

20,625

 

 

CEO transition costs(2)

 

3,668

 

 

9,236

 

Other(3)

4,203

 

2,173

 

11,846

 

6,661

 

Adjusted EBITDA $

418,476

 

$

317,710

 

$

830,538

 

$

733,902

 

(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. This amount also includes $8.0 million of wage subsidies resulting form COVID-19 relief legislation.

(2)

CEO transition costs include $5.6 million of severance paid to our previous CEO and a $3.7 million sign-on bonus for our new CEO.

(3)

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

 

52 Weeks Ended

 

 

January 30,

 

February 1,

 

January 30,

 

February 1,

(In thousands, except per share)

 

2021

 

2020

 

2021

 

2020

Operating income $

341,994

 

$

274,957

 

$

533,540

 

$

515,037

 

Restructure and impairment charges (a)

19,447

 

 

28,835

 

48,332

 

Darice liquidation (income) charges (b)

(467

)

 

45,244

 

 

CEO transition costs (c)

 

3,668

 

 

9,237

 

Adjusted operating income $

360,974

 

$

278,625

 

$

607,619

 

$

572,606

 

 
Net income $

255,075

 

$

181,651

 

$

294,935

 

$

272,595

 

Restructure and impairment charges (a)

19,447

 

 

28,835

 

48,332

 

Darice liquidation (income) charges (b)

(467

)

 

45,244

 

 

CEO transition costs (c)

 

3,668

 

 

9,237

 

Write-off of investment (d)

 

 

 

5,036

 

Losses on early extinguishments of debt and refinancing costs

 

 

22,044

 

1,316

 

Interest on 2020 senior subordinated notes (e)

 

 

 

1,748

 

Tax adjustment for above items

(6,358

)

(257

)

(25,706

)

(14,489

)

Tax benefit in connection with the CARES Act

(18,374

)

 

(18,374

)

 

Adjusted net income $

249,323

 

$

185,062

 

$

346,978

 

$

323,775

 

 
Earnings per common share, diluted $

1.72

 

$

1.24

 

$

1.98

 

$

1.78

 

Restructure and impairment charges (a)

0.13

 

 

0.19

 

0.32

 

Darice liquidation (income) charges (b)

(0.00

)

 

0.30

 

 

CEO transition costs (c)

 

0.02

 

 

0.06

 

Write-off of investment (d)

 

 

 

0.03

 

Losses on early extinguishments of debt and refinancing costs

 

 

0.15

 

0.01

 

Interest on 2020 senior subordinated notes (e)

 

 

 

0.01

 

Tax adjustment for above items

(0.04

)

(0.00

)

(0.17

)

(0.09

)

Tax benefit in connection with the CARES Act

(0.12

)

 

(0.12

)

-

 

Adjusted earnings per common share, diluted $

1.69

 

$

1.26

 

$

2.33

 

$

2.11

 

(a)

Fiscal 2020 excludes $19.4 million of impairment charges related to the closure of 13 underperforming stores and $9.4 million of impairment charges related to the relocation of our support center. Fiscal 2019 excludes 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 $5.6 million of severance paid to our previous CEO and a $3.7 million sign-on bonus for our new CEO.

(d)

Excludes the write-off of an investment in a liquidated business.

(e)

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.
 
 

The Michaels Companies, Inc.

Summary of Operating Data

(Unaudited)

 

 

 

 

 

 

 

 

 

The following table sets forth certain of our unaudited operating data:

 

 

13 Weeks Ended

 

52 Weeks Ended

 

 

January 30,

 

February 1,

 

January 30,

 

February 1,

 

 

2021

 

2020

 

2021

 

2020

 
Store open at beginning of period

1,272

 

1,274

 

1,274

 

1,258

 

New stores

-

 

-

 

6

 

21

 

Relocated stores opened

1

 

-

 

8

 

13

 

Closed stores

(18

)

-

 

(25

)

(5

)

Relocated stores closed

(3

)

-

 

(11

)

(13

)

Store open at end of period

1,252

 

1,274

 

1,252

 

1,274

 

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

$ 800

 

$ 816

 

$ 800

 

$ 816

 

Comparable store sales

12.9

%

(2.4

)%

4.8

%

(1.9

)%

Comparable store sales, at constant currency

12.7

%

(2.5

)%

4.8

%

(1.8

)%

 
 
 

 

Investor Contact:
Jim Mathias
972.409.1393
James.Mathias@michaels.com

Source: The Michaels Companies, Inc.

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