- Same-store Sales Increase 1.2% for Holidays -
- Merchandise Margins Expand Over 200 bps -
- President & CFO to speak at JPMorgan High Yield Conference -
IRVING, Texas, Jan. 17 /PRNewswire/ -- Michaels Stores, Inc. today
reported on holiday business performance with solid same-store sales growth
and significantly improved margin performance as the Company continues its
focus on improving overall profitability and further strengthening
financial returns.
Quarter-to-date same-store sales for the nine weeks ended December 30,
2006 increased 1.2% and total sales increased 4.2% over the corresponding
period of fiscal 2005. Strong December same-store sales increase of 3.7%
over the prior period were offset by early November sales softness,
primarily due to changes to the Company's Veteran's Day promotion. Domestic
Michaels stores' same-store sales for the combined November and December
holiday selling season were strongest in the Northeast, Southwest and
Southeast regions of the country. The best performing categories included
Framing, Impulse, General Crafts, and Christmas. Weakness in the Company's
Yarn category during this nine-week period reduced overall same-store sales
by approximately (2.4%). For the combined November and December period,
average ticket increased 2.0%, customer transactions decreased (0.9%), and
custom framing deliveries increased 0.1%. A favorable Canadian currency
translation added approximately 0.3% to the average ticket increase.
Quarter-to-date merchandise margins expanded approximately 240 basis
points, primarily due to ongoing product sourcing initiatives, improved
seasonal sell-through and enhancements to pricing and promotion execution.
Outlook
For the remainder of the quarter, the Company will continue to focus on
profitability, which includes eliminating a lower profit custom framing
promotional offer during the month of January. The Company currently
expects same-store sales for the comparable 13 weeks of the fourth quarter
of Fiscal 2006 to increase 0.5% over the same period last year. Total sales
for the 14- week Fiscal 2006 fourth quarter are expected to increase 7.5%,
including 4.5% for growth from the additional week in fiscal 2006 over the
13-week Fiscal 2005 fourth quarter. Merchandise margins are expected to be
up approximately 300 basis points for the fourth quarter of fiscal 2006
over the prior year period, which included certain accounting items, and we
expect to generate net cash provided by operating activities of nearly $240
million for the quarter. Based on expected fourth quarter sales
performance, improved gross margins and strong operating cash flows, the
Company is estimating a year-end debt level of approximately $3.875
billion, a reduction of $325 million during the fourth quarter.
Additionally, the Company expects to generate EBITDA of approximately $40
million and Adjusted EBITDA of approximately $275 million for the fourth
quarter of fiscal 2006.
For fiscal 2006, full year same-store sales are expected to increase
0.2% and total sales are expected to increase approximately 5.0%, with
approximately 1.5% of the increase attributable to the 53rd week. For the
full year, merchandise margins are expected to expand by nearly 150 basis
points over the prior year, and the company expects to generate net cash
provided by operating activities of nearly $260 million, EBITDA of
approximately $290 million, and Adjusted EBITDA of $590 million.
Reconciliations of third quarter actual results, and fourth quarter and
full year forecasted results, to EBITDA and Adjusted EBITDA, which are non-
GAAP measures, are included at the end of this press release.
The Company also announced that on January 23, 2007, Jeffrey N. Boyer,
President and Chief Financial Officer, will present at the JPMorgan High
Yield Conference in Miami, Florida. A copy of Mr. Boyer's presentation will
also be made available on our corporate web site at http://www.michaels.com
under Investor Relations.
The Company plans to release its fourth quarter and full year fiscal
2006 earnings results on Wednesday, March 7, 2007, and will conduct a
conference call at 4:00 p.m. CT on that date, hosted by Mr. Boyer, and
President and Chief Operating Officer, Gregory Sandfort. Those who wish to
participate in the call may do so by dialing 973-633-6740. Any interested
party will also have the opportunity to access the call via the Internet at
http://www.michaels.com . To listen to the live call, please go to the
website at least fifteen minutes early to register and download any
necessary audio software. For those who cannot listen to the live
broadcast, a recording will be available for 30 days after the date of the
event. Recordings may be accessed at http://www.michaels.com or by phone at
973-341- 3080, PIN 6885493.
Michaels Stores, Inc. is the world's largest specialty retailer of
arts, crafts, framing, floral, wall decor, and seasonal merchandise for the
hobbyist and do-it-yourself home decorator. As of January 16, 2007, the
Company owns and operates 923 Michaels stores in 48 states and Canada, 165
Aaron Brothers stores, 11 Recollections stores and four Star Wholesale
operations.
This news release may contain forward-looking statements that reflect
our plans, estimates, and beliefs. Any statements contained herein
(including, but not limited to, statements to the effect that Michaels or
its management "anticipates," "plans," "estimates," "expects," "believes,"
and other similar expressions) that are not statements of historical fact
should be considered forward-looking statements and should be read in
conjunction with our consolidated financial statements and related notes in
our Annual Report on Form 10-K for the fiscal year ended January 28, 2006,
and in our Quarterly Reports on Form 10-Q for the quarters ended April 29,
2006, July 29, 2006 and October 28, 2006. Specific examples of
forward-looking statements include, but are not limited to, forecasts of
same-store sales growth, operating income, and forecasts of other financial
performance. Our actual results could materially differ from those
discussed in these forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to: our
substantial leverage, as well as the restrictions and financial exposure
associated with the same; our ability to service the interest and principal
payments of our debt; restrictions contained in our various debt agreements
that limit our flexibility in operating our business; the finalization of
our fiscal year end closing process including the accounting for the merger
transaction; our ability to remain competitive in the areas of merchandise
quality, price, breadth of selection, customer service, and convenience;
our ability to anticipate and/or react to changes in customer demand;
changes in consumer confidence; unexpected consumer responses to changes in
promotional programs; unusual weather conditions; the execution and
management of our store growth and the availability of acceptable real
estate locations for new store openings; the effective maintenance of our
perpetual inventory and automated replenishment systems and related impacts
to inventory levels; delays in the receipt of merchandise ordered from our
suppliers due to delays in connection with either the manufacture or
shipment of such merchandise; transportation delays (including dock strikes
and other work stoppages); changes in political, economic, and social
conditions; commodity, energy and fuel cost increases, currency
fluctuations, and changes in import duties; our ability to maintain the
security of electronic and other confidential information; financial
difficulties of any of our insurance providers, key vendors, or suppliers;
lawsuits asserted by our previous stockholders or others challenging the
merger transaction; and other factors as set forth in our Annual Report on
Form 10-K for the fiscal year ended January 28, 2006, particularly in
"Critical Accounting Policies and Estimates" and "Risk Factors," and in our
other Securities and Exchange Commission filings. We intend these
forward-looking statements to speak only as of the time of this release and
do not undertake to update or revise them as more information becomes
available.
This press release is also available on the Michaels Stores, Inc. website
(http://www.michaels.com ).
Forecast of
fourth Forecast of
Third fiscal fiscal fiscal
quarter quarter year 2006
ended ending ending
Oct. 28, Feb. 3, Feb. 3,
2006 2007 2007
(in millions)
Cash flows from operating activities $(22.5) $238.1 $257.2
Depreciation and amortization (28.4) (31.5) (116.5)
Share-based compensation (4.7) (119.1) (134.7)
Tax benefit from stock options
exercised 4.7 59.8 80.6
Loss from early exinguishment of
debt --- --- ---
Other (0.1) (2.8) (3.0)
Changes in assets and liabilities 87.0 (203.0) (33.1)
Net income 36.1 (58.5) 50.3
Interest expense 0.2 104.5 105.1
Interest income (2.7) 0.7 (8.9)
Income tax provision (A) 21.9 (35.5) 30.5
Depreciation and amortization 28.4 31.0 116.0
EBITDA 83.9 42.2 293.1
Adjustments:
Share-based compensation (B) 4.7 119.1 134.7
Strategic alternatives and other
legal (C) 11.3 108.5 136.8
Store pre-opening costs (D) 1.7 1.0 5.6
Multi-year initiatives (E) 3.8 1.4 13.4
Other (F) 2.6 4.2 6.4
Adjusted EBITDA $108.0 $276.4 $590.1
Notes:
(amounts in table may not foot due to rounding)
(A) The company is currently evaluating the tax benefit associated with
the transaction costs incurred in connection with our recently
completed Merger. The income tax provision amounts shown above
assume a 37.75% effective tax rate, which includes the tax benefits
of transaction costs. The extent of any tax benefits for the
payment of transaction costs will be determined during the fiscal
year-end closing process and will be recorded in the fourth
quarter. As such, our effective tax rate may materially change
from the 37.75% effective rate assumed herein.
(B) Reflects share-based compensation expense recorded under the
provisions of SFAS No. 123 (R), Share-Based Payment.
(C) Reflects legal, investment banking and other costs incurred in
connection with our strategic alternatives process, as well as CEO
post-employment benefits and costs associated with the review of
our historical stock option practices and responses to governmental
inquiries.
(D) The company opened 15 stores in the third quarter of fiscal 2006,
four stores in the fourth quarter of fiscal 2006, and 43 stores
during the 2006 fiscal year. We expense all start-up activity costs
as incurred, which primarily include store pre-opening costs. Rent
expense incurred prior to a store opening is recorded in cost of
sales and occupancy expense on our consolidated income statement.
(E) Reflects costs associated with multi-year initiatives related to
the company's hybrid distribution network and store
standardization/remodel program. Under the hybrid initiative, the
company incurred approximately $1.0 million in the third quarter,
and expects to incur approximately $0.8 million in the fourth
quarter and $2.8 million for the full year, of abnormal costs as
a result of consolidation and repositioning of merchandise
inventories in our distribution centers. The company expects this
consolidation to be substantially complete in fiscal 2007. Under
our store standardization/remodel initiative the company is
changing store layouts to enhance the in-store experience. To date,
the company has completed remodeling 67 stores in fiscal 2006 under
this program. Total costs expensed under our store
standardization/remodel program were $2.8 million in the third
quarter, and the company expects to incur approximately $0.5
million in the fourth quarter, and $10.6 million for the full year.
(F) Reflects other adjustments required in calculating debt covenant
compliance. Positive adjustments to the calculation consist
primarily of costs we identified as related to our former public
company status (partially reduced by costs incurred under our
new ownership structure), franchise and similar taxes, employee
severance and relocation costs, and closed store expense.
These favorable adjustments are reduced by foreign currency
translation gains on our intercompany debt.
Michaels Stores, Inc.
Supplemental Disclosures Regarding Non-GAAP Financial Information
The following tables set forth the Company's Earnings before Interest,
Taxes, Depreciation and Amortization ("EBITDA"). The Company defines EBITDA
as net income before interest, income taxes, depreciation and amortization.
Additionally, the tables present Adjusted Earnings before Interest, Taxes,
Depreciation and Amortization ("Adjusted EBITDA"). The Company defines
Adjusted EBITDA as EBITDA adjusted for certain defined amounts that are
added to or subtracted from EBITDA in accordance with the Company's credit
agreements (collectively, "the Adjustments"). The Adjustments are described
in further detail in the footnotes to the tables below.
The Company has presented EBITDA and Adjusted EBITDA in this press
release to provide investors with additional information to evaluate our
operating performance and our ability to service our debt. The Company uses
EBITDA, among other things, to evaluate operating performance, to plan and
forecast future periods' operating performance, and as an incentive
compensation target for certain management personnel. This measure is an
indicator of the Company's operational strength and performance as it
provides a link between profitability and operating cash flow. The Company
uses Adjusted EBITDA in the calculation of various financial covenants that
the Company is subject to under its current credit agreements. On October
31, 2006, the Company entered into various credit agreements with lenders,
including a $1.0 billion Revolving Credit Facility and a $2.4 billion Term
Loan Facility. Contained in those agreements are covenants that require the
maintenance of financial ratios tied to Adjusted EBITDA. Under the
Company's Revolving Credit Facility, a Fixed Charge Ratio covenant requires
the maintenance of a ratio of certain fixed charges, such as interest
expense and principal payments, to Adjusted EBITDA of 1.1 to 1. However,
testing for such covenant compliance is not required unless availability
falls below $75 million. As of January 16, availability was over $600
million and the Company does not currently believe it is reasonably likely
that the covenant will require testing in the foreseeable future. Under the
Term Loan facility, a Secured Debt Ratio covenant requires the maintenance
of certain total indebtedness to Adjusted EBITDA.
As EBITDA and Adjusted EBITDA are not measures of operating performance
or liquidity calculated in accordance with U.S. GAAP, these measures should
not be considered in isolation of, or as a substitute for, net income, as
an indicator of operating performance, or net cash provided by operating
activities as an indicator of liquidity. Our computation of EBITDA and
Adjusted EBITDA may differ from similarly titled measures used by other
companies. As EBITDA and Adjusted EBITDA exclude certain financial
information compared with net income and net cash provided by operating
activities, the most directly comparable GAAP financial measures, users of
this financial information should consider the types of events and
transactions which are excluded. As required by the SEC, the Company
provides below a reconciliation of EBITDA and Adjusted EBITDA to net
earnings and net cash provided by operating activities.
SOURCE Michaels Stores, Inc.
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Related links:
http://www.michaels.com
Photo Notes:http://www.newscom.com/cgi-bin/prnh/20040804/DAMICHAELSLOGO
AP Archive: http://photoarchive.ap.org PRN Photo Desk
photodesk@prnewswire.com
http://www.prnewswire.com/comp/115769.html /
CONTACT:
Lisa K. Klinger, Vice President - Treasurer
and Investor Relations of Michaels Stores, Inc., +1-972-409-1528,
or klingerl@michaels.com
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