IRVING, Texas, June 07, 2016 (GLOBE NEWSWIRE) -- The Michaels Companies, Inc. (NASDAQ:MIK) today announced financial results for the first quarter ended April 30, 2016.
“I am pleased with our overall financial performance for the first quarter,” said Chuck Rubin, Chairman and Chief Executive Officer. “From a comparable store sales standpoint, the quarter got off to a strong start. We saw a very positive customer response to our Easter and Spring assortment before trends softened in April, resulting in a comp shortfall for the quarter versus our initial expectations. Despite this, we expanded gross margins and leveraged expenses in the core Michaels business, driving adjusted earnings per share to the upper end of our guidance range, representing a 12.5% increase over the prior year. In addition we made progress against each of our initiatives, including the integration of Lamrite West, and we continued to make strategic investments in support of our Vision 2020 strategy.”
First Quarter Highlights
Executive Management Update
The Company announced today that Charles M. Sonsteby has been named to the newly created role of Vice Chairman of The Michaels Companies, Inc. Mr. Sonsteby currently serves as Chief Administrative Officer and Chief Financial Officer. In this new role, Mr. Sonsteby will assume executive responsibility for the growth and continued integration of Lamrite West, in addition to his current responsibilities. The Company has launched a search for a new Chief Financial Officer. Mr. Sonsteby will continue to serve as Chief Financial Officer until a successor has been named.
Second Quarter and Fiscal Year 2016 Outlook:
"As we turn to the balance of the year, we’ve seen nothing that warrants a change in our annual outlook,” concluded Mr. Rubin. “While we face some unique, but anticipated, headwinds in the second quarter, we continue to expect to see the beneficial results of our strategic investments on profitability as we move through the second half of fiscal 2016.”
For fiscal 2016, the Company continues to expect:
For the second quarter of fiscal 2016, the Company expects:
The outlook for fiscal 2016 includes approximately $0.015 of favorable earnings per share impact related to 2.3 million shares repurchased in the first quarter of fiscal 2016 and includes the impact of unfavorable Canadian exchange rates.
Conference Call Information
A conference call to discuss first quarter financial results is scheduled for today, June 7, 2016, at 8:00 am Central Time. Investors and analysts interested in participating in the call are invited to dial (877) 303-9132, conference ID# 95862042, approximately 10 minutes prior to the start of the call. The conference call will also be webcast at http://investors.michaels.com/. To listen to the live call, please go to the website at least 15 minutes early to register and download any necessary audio software. The webcast will be accessible for 30 days after the call. A telephone replay will be available until June 14, 2016, by dialing (855) 859-2056, conference ID# 95862042.
Non-GAAP Information
This press release includes non-GAAP measures including Adjusted EBITDA, operating income excluding integration benefits and costs and non-recurring, inventory-related purchase accounting entries related to the acquisition of Lamrite West (“Adjusted operating income”), net income excluding integration benefits and costs and non-recurring, inventory-related purchase accounting entries related to the acquisition of Lamrite West (“Adjusted net income”), and earnings per share excluding integration benefits and costs and non-recurring, inventory-related purchase accounting entries related to the acquisition of Lamrite West (“Adjusted 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 2016 diluted earnings per common share and actual results on a comparable basis with its quarterly and fiscal 2015 results.
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, risks associated with our substantial outstanding indebtedness of $2.8 billion, changes in customer demand, risks relating to 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, risks relating to our reliance on foreign suppliers, risks relating to how well we manage our business, risks related to our ability to open new stores and increase comparable store sales growth, damage to the reputation of the Michaels brand or our private and exclusive brands, risks associated with executing or integrating an acquisition, a business combination or major business initiative, and other risks and uncertainties including those identified under the heading “Risk Factors” in the Company’s 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 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 the hobbyist and do-it-yourself home decorator. As of April 30, 2016, the Company owned and operated 1,352 stores in 49 states and Canada under the brands Michaels, Aaron Brothers, and Pat Catan’s. 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 gift and decor industry. The Michaels Companies, Inc. produces a number of exclusive private brands including Recollections®, Studio Decor™, Bead Landing®, Creatology®, Ashland®, Celebrate It®, Art Minds®, Artist’s Loft®, Craft Smart®, Loops & Threads®, Make Market®, Foamies®, LockerLookz®, and Sticky Sticks®. Learn more about Michaels at www.michaels.com.
Investor Contact:
Kiley F. Rawlins, CFA
972.409.7404
Kiley.Rawlins@michaels.com
ICR, Inc.
Farah Soi/Anne Rakunas
203.682.8200
Farah.Soi@icrinc.com/Anne.Rakunas@icrinc.com
or
Financial Media Contact:
ICR, Inc.
Michael Fox/ Jessica Liddell
203.682.8200/ 203.682.8208
Michaels@icrinc.com
The Michaels Companies, Inc. | |||||||
Consolidated Statements of Comprehensive Income | |||||||
(Unaudited) | |||||||
13 Weeks Ended | |||||||
April 30, | May 2, | ||||||
(in thousands, except per share data) | 2016 | 2015 | |||||
Net sales | $ | 1,158,880 | $ | 1,077,600 | |||
Cost of sales and occupancy expense | 694,129 | 635,803 | |||||
Gross profit | 464,751 | 441,797 | |||||
Selling, general and administrative | 317,800 | 295,571 | |||||
Store pre-opening costs | 1,626 | 2,244 | |||||
Operating income | 145,325 | 143,982 | |||||
Interest expense | 32,219 | 37,816 | |||||
Other expense, net | 446 | 195 | |||||
Income before income taxes | 112,660 | 105,971 | |||||
Provision for income taxes | 41,895 | 39,233 | |||||
Net income | $ | 70,765 | $ | 66,738 | |||
Other comprehensive income, net of tax: | |||||||
Foreign currency translation adjustment and other | 14,209 | 4,316 | |||||
Comprehensive income | $ | 84,974 | $ | 71,054 | |||
Earnings per common share: | |||||||
Basic | $ | 0.34 | $ | 0.32 | |||
Diluted | $ | 0.34 | $ | 0.32 | |||
Weighted-average common shares outstanding: | |||||||
Basic | 206,994 | 205,632 | |||||
Diluted | 208,973 | 209,050 | |||||
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 | |||||||
April 30, | May 2, | ||||||
2016 | 2015 | ||||||
Net sales | 100.0 | % | 100.0 | % | |||
Cost of sales and occupancy expense | 59.9 | 59.0 | |||||
Gross profit | 40.1 | 41.0 | |||||
Selling, general and administrative | 27.4 | 27.4 | |||||
Store pre-opening costs | 0.1 | 0.2 | |||||
Operating income | 12.5 | 13.4 | |||||
Interest expense | 2.8 | 3.5 | |||||
Other expense, net | 0.0 | 0.0 | |||||
Income before income taxes | 9.7 | 9.8 | |||||
Provision for income taxes | 3.6 | 3.6 | |||||
Net income | 6.1 | % | 6.2 | % |
The Michaels Companies, Inc. | |||||||||||||||
Consolidated Balance Sheets | |||||||||||||||
(Unaudited) | |||||||||||||||
April 30, | January 30, | May 2, | |||||||||||||
(in thousands, except per share data) | 2016 | 2016 | 2015 | ||||||||||||
ASSETS | |||||||||||||||
Current Assets: | |||||||||||||||
Cash and equivalents | $ | 171,870 | $ | 409,391 | $ | 272,568 | |||||||||
Merchandise inventories | 1,057,642 | 1,002,607 | 985,376 | ||||||||||||
Prepaid expenses and other | 76,696 | 77,000 | 74,621 | ||||||||||||
Accounts receivable, net | 24,890 | 9,484 | 9,177 | ||||||||||||
Income tax receivables | 7,150 | 1,231 | — | ||||||||||||
Total current assets | 1,338,248 | 1,499,713 | 1,341,742 | ||||||||||||
Property and equipment, at cost | 1,712,074 | 1,661,234 | 1,607,156 | ||||||||||||
Less accumulated depreciation and amortization | (1,309,312 | ) | (1,282,727 | ) | (1,219,266 | ) | |||||||||
Property and equipment, net | 402,762 | 378,507 | 387,890 | ||||||||||||
Goodwill | 119,074 | 94,290 | 94,290 | ||||||||||||
Other intangible assets, net | 24,251 | 471 | 522 | ||||||||||||
Deferred income taxes | 44,390 | 40,399 | 43,905 | ||||||||||||
Other assets | 9,958 | 9,897 | 6,630 | ||||||||||||
Total assets | $ | 1,938,683 | $ | 2,023,277 | $ | 1,874,979 | |||||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | |||||||||||||||
Current Liabilities: | |||||||||||||||
Accounts payable | $ | 373,492 | $ | 457,704 | $ | 367,587 | |||||||||
Accrued liabilities and other | 351,805 | 377,606 | 330,402 | ||||||||||||
Current portion of long-term debt | 24,900 | 24,900 | 203,303 | ||||||||||||
Income taxes payable | 36,402 | 44,640 | 4,758 | ||||||||||||
Total current liabilities | 786,599 | 904,850 | 906,050 | ||||||||||||
Long-term debt | 2,740,064 | 2,744,942 | 2,906,833 | ||||||||||||
Other liabilities | 95,378 | 97,580 | 93,410 | ||||||||||||
Total liabilities | 3,622,041 | 3,747,372 | 3,906,293 | ||||||||||||
Stockholders’ Deficit: | |||||||||||||||
Common Stock, $0.06775 par value, 350,000 shares authorized; 207,725 shares issued and outstanding at April 30, 2016; 208,996 shares issued and outstanding at January 30, 2016; and 207,466 shares issued and outstanding at May 2, 2015 | 13,898 | 13,979 | 13,914 | ||||||||||||
Additional paid-in-capital | 549,124 | 592,420 | 566,873 | ||||||||||||
Treasury stock | (860 | ) | — | — | |||||||||||
Accumulated deficit | (2,237,673 | ) | (2,308,438 | ) | (2,604,612 | ) | |||||||||
Accumulated other comprehensive loss | (7,847 | ) | (22,056 | ) | (7,489 | ) | |||||||||
Total stockholders’ deficit | (1,683,358 | ) | (1,724,095 | ) | (2,031,314 | ) | |||||||||
Total liabilities and stockholders’ deficit | $ | 1,938,683 | $ | 2,023,277 | $ | 1,874,979 |
The Michaels Companies, Inc. | ||||||||||
Consolidated Statements of Cash Flows | ||||||||||
(Unaudited) | ||||||||||
13 Weeks Ended | ||||||||||
April 30, | May 2, | |||||||||
(in thousands) | 2016 | 2015 | ||||||||
Cash flows from operating activities: | ||||||||||
Net income | $ | 70,765 | $ | 66,738 | ||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||
Depreciation and amortization | 29,470 | 27,945 | ||||||||
Share-based compensation | 3,129 | 2,720 | ||||||||
Debt issuance costs amortization | 1,974 | 2,277 | ||||||||
Accretion of long-term debt, net | (62 | ) | (33 | ) | ||||||
Deferred income taxes | (3,991 | ) | 5,104 | |||||||
Losses on disposition of property and equipment | 32 | — | ||||||||
Excess tax benefits from share-based compensation | (4,599 | ) | (10,199 | ) | ||||||
Changes in assets and liabilities, excluding acquired net assets: | ||||||||||
Merchandise inventories | 28,982 | (27,117 | ) | |||||||
Prepaid expenses and other | 1,467 | (2,467 | ) | |||||||
Accounts receivable | 6,888 | 3,574 | ||||||||
Other assets | (320 | ) | (87 | ) | ||||||
Accounts payable | (108,337 | ) | (70,307 | ) | ||||||
Accrued interest | 6,675 | 10,430 | ||||||||
Accrued liabilities and other | (43,905 | ) | (71,989 | ) | ||||||
Income taxes | (9,558 | ) | (8,731 | ) | ||||||
Other liabilities | (2,473 | ) | 265 | |||||||
Net cash used in operating activities | (23,863 | ) | (71,877 | ) | ||||||
Cash flows from investing activities: | ||||||||||
Additions to property and equipment | (14,664 | ) | (34,964 | ) | ||||||
Acquisition of Lamrite West, net of cash acquired | (144,600 | ) | — | |||||||
Net cash used in investing activities | (159,264 | ) | (34,964 | ) | ||||||
Cash flows from financing activities: | ||||||||||
Payments on restated term loan credit facility | (6,225 | ) | (6,225 | ) | ||||||
Payment of dividends | (317 | ) | (317 | ) | ||||||
Change in cash overdraft | (137 | ) | 769 | |||||||
Proceeds from stock options exercised | 8,664 | 16,114 | ||||||||
Excess tax benefits from share-based compensation | 4,599 | 10,199 | ||||||||
Common stock repurchased | (60,978 | ) | (19,426 | ) | ||||||
Net cash (used in) provided by financing activities | (54,394 | ) | 1,114 | |||||||
Net change in cash and equivalents | (237,521 | ) | (105,727 | ) | ||||||
Cash and equivalents at beginning of period | 409,391 | 378,295 | ||||||||
Cash and equivalents at end of period | $ | 171,870 | $ | 272,568 |
The Michaels Companies, Inc. | ||||||||
Summary of Operating Data | ||||||||
(Unaudited) | ||||||||
The following table sets forth certain of our unaudited operating data: | ||||||||
13 Weeks Ended | ||||||||
April 30, | May 2, | |||||||
2016 | 2015 | |||||||
Michaels stores: | ||||||||
Open at beginning of period | 1,196 | 1,168 | ||||||
New stores | 11 | 10 | ||||||
Relocated stores opened | 6 | 10 | ||||||
Closed stores | (3 | ) | (1 | ) | ||||
Relocated stores closed | (6 | ) | (10 | ) | ||||
Michaels stores open at end of period | 1,204 | 1,177 | ||||||
Aaron Brothers stores: | ||||||||
Open at beginning of period | 117 | 120 | ||||||
Closed stores | (2 | ) | (2 | ) | ||||
Aaron Brothers stores open at end of period | 115 | 118 | ||||||
Pat Catan's stores: | ||||||||
Acquired stores | 32 | — | ||||||
New stores | 1 | — | ||||||
Pat Catan's stores open at end of period | 33 | — | ||||||
Total store count at end of period | 1,352 | 1,295 | ||||||
Other Operating Data: | ||||||||
Average inventory per Michaels store (in thousands) | $ | 787 | $ | 810 | ||||
Comparable store sales | 0.9 | % | 0.3 | % | ||||
Comparable store sales, at constant currency | 1.4 | % | 1.4 | % |
The Michaels Companies, Inc. | ||||||||||
Reconciliation of Adjusted EBITDA | ||||||||||
(Unaudited) | ||||||||||
13 Weeks Ended | ||||||||||
April 30, | May 2, | |||||||||
(in thousands) | 2016 | 2015 | ||||||||
Net cash used in operating activities | $ | (23,863 | ) | $ | (71,877 | ) | ||||
Depreciation and amortization | (29,470 | ) | (27,945 | ) | ||||||
Share-based compensation | (3,129 | ) | (2,720 | ) | ||||||
Debt issuance costs amortization | (1,974 | ) | (2,277 | ) | ||||||
Accretion of long-term debt, net | 62 | 33 | ||||||||
Deferred income taxes | 3,991 | (5,104 | ) | |||||||
Losses on disposition of property and equipment | (32 | ) | — | |||||||
Excess tax benefits from share-based compensation | 4,599 | 10,199 | ||||||||
Changes in assets and liabilities | 120,581 | 166,429 | ||||||||
Net income | 70,765 | 66,738 | ||||||||
Interest expense | 32,219 | 37,816 | ||||||||
Provision for income taxes | 41,895 | 39,233 | ||||||||
Depreciation and amortization | 29,470 | 27,945 | ||||||||
Interest income | (280 | ) | (123 | ) | ||||||
EBITDA | 174,069 | 171,609 | ||||||||
Adjustments: | ||||||||||
Share-based compensation | 3,129 | 2,720 | ||||||||
Severance costs | 746 | 860 | ||||||||
Store pre-opening costs | 1,629 | 2,263 | ||||||||
Store remodel costs | (81 | ) | 660 | |||||||
Foreign currency transaction losses (gains) | 936 | (37 | ) | |||||||
Store closing costs | 1,098 | (693 | ) | |||||||
Lamrite integration costs | 4,145 | — | ||||||||
Other (a) | 778 | 1,027 | ||||||||
Adjusted EBITDA | $ | 186,449 | $ | 178,409 | ||||||
(a) Other adjustments primarily relate to items such as moving and relocation expenses, franchise taxes, sign | ||||||||||
bonuses and certain legal expenses. |
The Michaels Companies, Inc. | |||||||||||
Reconciliation of GAAP basis to Adjusted operating income, Adjusted net income and Adjusted earnings per share | |||||||||||
(Unaudited) | |||||||||||
13 Weeks Ended | |||||||||||
April 30, | May 2, | ||||||||||
(In thousands, except per share) | 2016 | 2015 | |||||||||
Operating income | $ | 145,325 | $ | 143,982 | |||||||
Add: Non-recurring, inventory-related purchase accounting adjustments (a) | 3,577 | — | |||||||||
Add: Non-recurring integration expenses (b) | 4,145 | — | |||||||||
Adjusted operating income | $ | 153,047 | $ | 143,982 | |||||||
Net income | $ | 70,765 | $ | 66,738 | |||||||
Add: Non-recurring, inventory-related purchase accounting adjustments (a) | 3,577 | — | |||||||||
Add: Non-recurring integration expenses (b) | 4,145 | — | |||||||||
Less tax adjustment for above add-backs (c) | (2,942 | ) | — | ||||||||
Adjusted net income | $ | 75,545 | $ | 66,738 | |||||||
Earnings per common share, diluted | $ | 0.34 | $ | 0.32 | |||||||
Adjusted earnings per common share, diluted | $ | 0.36 | $ | 0.32 | |||||||
(a) Excludes non-recurring, inventory-related purchase accounting adjustments related to the acquisition of Lamrite West. | |||||||||||
(b) Excludes non-recurring integration expenses related to the acquisition of Lamrite West. | |||||||||||
(c) Adjusts for the tax impact of integration costs and purchase accounting adjustments related to the acquisition of Lamrite West. | |||||||||||