- Fiscal 2004 Diluted EPS Increases 19% to $1.51 -
- Net Income Increases 18% -
IRVING, Texas, March 2 /PRNewswire-FirstCall/ -- Michaels Stores, Inc.
(NYSE: MIK) today reported preliminary unaudited financial results for its
fourth quarter and fiscal year 2004. Net income for the quarter increased
$16.7 million to $111.2 million, up 18% versus $94.6 million for the same
quarter last year. Diluted earnings per share increased $0.12, or 18% for the
quarter to $0.80 in 2004 versus $0.68 in 2003.
Net income for the year was $209.8 million, an 18% increase compared to
last year's net income of $177.8 million. Diluted earnings per share
increased $0.24 or 19%, to a record $1.51 per share versus $1.27 per share in
2003.
Michael Rouleau, Chief Executive Officer, said, "The implementation of our
automated replenishment system completed this past June, in conjunction with
last year's implementation of our perpetual inventory system, puts in place
the most significant sales and profit generating tools ever for Michaels
Stores. These new systems will be a driving force of change and will serve as
a catalyst for accelerating same-store sales growth and gross margin
expansion."
Rouleau concluded, "Fiscal 2004 is our eighth straight year of record
sales and operating income. With our new perpetual inventory and automated
replenishment systems, combined with the experience of our organization, we
are well positioned to deliver to our shareholders our ninth straight year of
record performance in fiscal 2005."
Operating Performance
Total sales for the fourth quarter increased 11% to $1.185 billion from
$1.063 billion for the same period last year. Same-store sales for the
quarter grew 7%. Customer traffic was up 6% and average ticket increased 2%.
A custom frame promotion late in the month of January shifted additional
revenue recognition of deliveries into February, reducing overall fourth
quarter same-store sales by 1%. For the quarter, the Company's best
performing departments were Needlework and Yarn, Scrapbooking, Custom Framing,
and Kids Crafts, and the best performing zones were the Pacific, Southeast and
Central.
Total sales for 2004 were $3.393 billion, a 10% increase over last year's
$3.091 billion while same-store sales were up 5%. Year-to-date, customer
traffic increased 4% and average ticket was up 1%. The Company's best-
performing departments for the year were Needlework and Yarn, Scrapbooking,
Frames, and Kids Crafts, and the best performing zones were the Central,
Pacific, and Northeast.
For the quarter, the Company's operating income increased 17% to
$180.0 million or 15.2% of sales compared to operating income of
$154.2 million or 14.5% of sales for the same period last year. Operating
income for the year increased 16% to $352.3 million or 10.4% of sales compared
to $302.8 million or 9.8% of sales in 2003. Fiscal 2004 operating income
includes $4.1 million in pre-tax expense related to the establishment of
insurance reserves reflecting the financial difficulties of one of the
Company's insurance carriers. Operating income in fiscal 2004 also includes
incremental costs related to several previously announced initiatives: our
expanded store relocation program, our distribution center realignment
project, and our relocation of Aaron Brothers headquarters to the Dallas area.
Expenses related to these projects were $2.5 million in the fourth quarter and
$12.1 million year-to-date.
Balance Sheet
The Company's cash balance as of the end of fiscal 2004, was
$586.2 million, an increase of $244.4 million over last year's ending balance
of $341.8 million. Average inventory per Michaels store at the end of fiscal
2004, inclusive of distribution centers, decreased 3% to $1.010 million from
$1.045 million last year.
In the fourth quarter, the Company repurchased 380,000 shares of its
common stock at an average price of $27.68 per share. Year-to-date, the
Company repurchased 3,970,500 shares of its common stock at an average price
of $26.47 per share. As of March 2, 2005, under its repurchase plans, the
Company is authorized to repurchase approximately 1.9 million shares plus such
additional shares as may be repurchased with proceeds from the future exercise
of options under the Company's 2001 General Stock Option Plan.
The Company also stated that during the year it amended the terms of its
$200 million Revolving Credit Agreement to extend the maturity date from
April 30, 2005 to April 30, 2006, and to permit the planned prepayment of its
$200 million 9 1/4% Senior Notes on the first available call date in
July 2005.
Lease-Related Accounting Adjustments
The Company has performed a review of its accounting practices surrounding
leases and lease-related items in response to a letter recently posted on the
SEC's website discussing certain lease accounting issues. Like many other
retailers and restaurant chains that are correcting these lease accounting
practices, the Company will change the way it accounts for its leases, and
expects to record non-cash adjustments to its financial statements.
In prior periods, and consistent with industry practice, the Company had
recognized the straight line expense for leases beginning on the commencement
date of the lease, which had the effect of excluding the pre-opening period of
its stores from the calculation of the period over which it expenses rent. In
addition, amounts received as tenant allowances were reflected on the balance
sheet as a reduction to store leasehold improvement costs instead of being
classified as deferred lease credits.
The Company is currently evaluating the impact of the cumulative effect of
these adjustments, the majority of which is expected to relate to periods
prior to fiscal 2003. The Company currently believes that the annual impact
to net income and diluted EPS in fiscal 2003 and 2004 will be insignificant.
The Company has not yet reached a final decision as to whether these matters
will require a restatement of its previously issued annual and interim
financial statements or whether the adjustments will all be reflected in the
fiscal year 2004 financial statements.
Outlook
For fiscal 2005, the Company expects same-store sales to increase 3% to 5%
and total sales to increase 8% to 10%. Operating margin is expected to grow
60 to 80 basis points driven by both gross margin expansion and selling,
general, and administrative expense leverage. Diluted earnings per share are
expected to increase 15% to 20% over fiscal 2004 results, excluding the
anticipated non-cash expense related to the implementation of Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment.
For the first quarter, same-store sales are trending toward the high-end
of previous guidance of a 3% to 5% increase. Operating margin is expected to
expand by approximately 100 basis points in the first quarter, mostly driven
by gross margin expansion. The strong gross margin performance expected in
the quarter is primarily due to lower clearance levels and the timing of our
major merchandise resets and related markdowns, the majority of which are
scheduled to occur in the second quarter of this year. Diluted earnings per
share for the first quarter are expected to increase 25% to 30% versus fiscal
2004 first quarter results.
For the second quarter of fiscal 2005, same store sales versus the prior
year are expected to increase from 3% to 5% and operating margin is forecast
to expand 40 to 50 basis points, driving an increase of approximately 15% in
operating income versus the second quarter of fiscal 2004. Diluted earnings
per share for the second quarter of 2005 is expected to be relatively flat
year over year, as the Company is expected to incur costs of approximately
$12 million primarily related to the call premium for the early retirement of
our $200 million, 9 1/4% Senior Notes on the first available call date in
July 2005.
The Company will host a conference call at 4:00 p.m. CST today to discuss
fourth quarter and fiscal 2004 earnings results, and fiscal 2005 outlook.
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 replay 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 4758962.
The Company plans to release its 2005 first quarter sales on Thursday,
May 5, 2005, at 6:30 a.m. CT. Any interested party may view the Company's
press release at http://www.michaels.com .
Michaels Stores, Inc. is the world's largest retailer of arts, crafts,
framing, floral, wall decor, and seasonal merchandise for the hobbyist and
do-it-yourself home decorator. As of March 2, 2005, the Company owns and
operates 845 Michaels stores in 48 states and Canada, 165 Aaron Brothers
stores, located primarily on the West Coast, eight Recollections, and three
Star Wholesale operations.
This document contains 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 31, 2004, and in our Quarterly
Reports on Form 10-Q for the quarters ended May 1, 2004, July 31, 2004, and
October 30, 2004. Specific examples of forward-looking statements include,
but are not limited to, forecasts of same-store sales growth, total sales,
operating margin, operating income, and diluted earnings per share, as well as
our expectation to redeem our outstanding $200 million, 9 1/4% Senior Notes in
July 2005. Our actual results could differ materially from those discussed in
these forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to: changes in accounting
principles; 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 cost
increases and currency fluctuations; financial difficulties of any of our
insurance providers, key vendors, or suppliers; and other factors as set forth
in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004,
particularly in "Critical Accounting Policies" 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 ).
-- Tables Follow --
Michaels Stores, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
Fourth Quarter Fiscal Year
2004 2003 2004 2003
Net sales $1,184,560 $1,063,106 $3,393,251 $3,091,256
Cost of sales and
occupancy expense 738,610 674,466 2,134,102 1,957,273
Gross profit 445,950 388,640 1,259,149 1,133,983
Selling, general, and
administrative expense 265,097 233,420 898,445 823,161
Store pre-opening costs 823 1,026 8,357 8,071
Operating income 180,030 154,194 352,347 302,751
Interest expense 4,995 5,078 20,434 20,262
Other (income) and
expense, net (1,861) (1,201) (4,604) (2,701)
Income before income taxes 176,896 150,317 336,517 285,190
Provision for income taxes 65,652 55,756 126,707 107,345
Net income $111,244 $94,561 $209,810 $177,845
Earnings per common share:
Basic $0.82 $0.70 $1.54 $1.32
Diluted $0.80 $0.68 $1.51 $1.27
Weighted average shares
outstanding:
Basic 135,086 135,288 135,875 134,356
Diluted 138,295 139,662 139,016 139,858
Dividends per common share $0.07 $0.05 $0.26 $0.15
Michaels Stores, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
January 29, January 31,
2005 2004
ASSETS
Current assets:
Cash and equivalents $586,231 $341,825
Merchandise inventories 936,395 892,923
Prepaid expenses and other 26,613 29,198
Deferred and prepaid income taxes 22,032 19,426
Total current assets 1,571,271 1,283,372
Property and equipment, at cost 878,343 808,230
Less accumulated depreciation (489,327) (420,313)
389,016 387,917
Goodwill 115,839 115,839
Other assets 17,569 14,519
133,408 130,358
Total assets $2,093,695 $1,801,647
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $256,266 $172,708
Accrued liabilities and other 241,003 194,395
Income taxes payable 12,992 2,377
Total current liabilities 510,261 369,480
9 1/4% Senior Notes due 2009 200,000 200,000
Deferred income taxes 35,186 28,241
Other long-term liabilities 43,082 36,628
Total long-term liabilities 278,268 264,869
788,529 634,349
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.10 par value,
2,000,000 shares authorized, none issued --- ---
Common Stock, $0.10 par value,
350,000,000 shares authorized; shares
issued and outstanding of
135,726,717 at January 29, 2005 and
135,995,134 at January 31, 2004 13,573 13,600
Additional paid-in capital 451,449 489,110
Retained earnings 834,822 660,365
Accumulated other comprehensive
income 5,322 4,223
Total stockholders' equity 1,305,166 1,167,298
Total liabilities and stockholders'
equity $2,093,695 $1,801,647
Michaels Stores, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Fiscal Year
2004 2003
Operating activities:
Net income $209,810 $177,845
Adjustments:
Depreciation 88,876 83,472
Amortization 394 397
Other 1,288 1,115
Changes in assets and liabilities:
Merchandise inventories (43,472) (83,505)
Prepaid expenses and other 2,585 (10,559)
Deferred income taxes and other 6,637 11,503
Accounts payable 83,558 77,944
Income taxes payable 39,699 13,287
Accrued liabilities and other 38,443 18,007
Net cash provided by
operating activities 427,818 289,506
Investing activities:
Additions to property and equipment,
net of landlord reimbursements (90,906) (103,110)
Net proceeds from sales of property
and equipment 133 105
Net cash used in
investing activities (90,773) (103,005)
Financing activities:
Cash dividends paid to stockholders (25,867) (20,145)
Repurchase of Common Stock (105,099) (75,499)
Proceeds from stock options
exercised 35,494 30,724
Proceeds from issuance of Common
Stock and other 2,833 2,213
Payment of other long-term liabilities --- ---
Net cash (used in) provided by
financing activities (92,639) (62,707)
Net increase in cash and equivalents 244,406 123,794
Cash and equivalents at beginning of
period 341,825 218,031
Cash and equivalents at end of period $586,231 $341,825
Michaels Stores, Inc.
Summary of Operating Data
The following table sets forth the percentage relationship to net sales
of each line item of our unaudited consolidated statements of income:
Fourth Quarter Fiscal Year
2004 2003 2004 2003
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales and occupancy expense 62.4 63.4 62.9 63.3
Gross profit 37.6 36.6 37.1 36.7
Selling, general, and administrative
expense 22.4 22.0 26.5 26.6
Store pre-opening costs 0.0 0.1 0.2 0.3
Operating income 15.2 14.5 10.4 9.8
Interest expense 0.4 0.5 0.6 0.7
Other (income) and expense, net (0.2) (0.1) (0.1) (0.1)
Income before income taxes 15.0 14.1 9.9 9.2
Provision for income taxes 5.5 5.2 3.7 3.4
Net income 9.5 % 8.9 % 6.2 % 5.8 %
The following table sets forth certain of our unaudited operating data
(dollar amounts in thousands):
Fourth Quarter Fiscal Year
2004 2003 2004 2003
Michaels stores (A):
Retail stores open at beginning of
period 849 808 804 754
Retail stores opened during the
period --- --- 45 55
Retail stores opened (relocations)
during the period --- --- 30 16
Retail stores closed during the
period (5) (4) (5) (5)
Retail stores closed (relocations)
during the period --- --- (30) (16)
Retail stores open at end of period 844 804 844 804
Aaron Brothers stores:
Retail stores open at beginning of
period 164 158 158 148
Retail stores opened during the
period --- --- 7 10
Retail stores opened (relocations)
during the period --- --- 1 ---
Retail stores closed during the
period --- --- (1) ---
Retail stores closed (relocations)
during the period --- --- (1) ---
Retail stores open at end of period 164 158 164 158
Recollections stores:
Retail stores open at beginning of
period 8 2 2 ---
Retail stores opened during the
period --- --- 6 2
Retail stores opened at end the
period 8 2 8 2
Star Wholesale stores (A):
Wholesale stores open at beginning
of period 3 3 3 2
Wholesale store opened during the
period --- --- --- 1
Wholesale stores open at end of
period 3 3 3 3
Total store count at end of period 1,019 967 1,019 967
Other operating data:
Average inventory per Michaels
store $1,010 $1,045 $1,010 $1,045
Comparable store sales increase 7% 4% 5% 2%
(A) Opening store counts reflect a reclassification of our Los Angeles
combination wholesale-retail store from a Michaels store to a Star
Wholesale store. Beginning in fiscal 2004, our Los Angeles
wholesale-retail store is being managed as part of our Star
Wholesale concept.
SOURCE Michaels Stores, Inc.
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Related links:
http://www.michaels.com
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AP Archive: http://photoarchive.ap.org
PRN Photo Desk, photodesk@prnewswire.com
Company News On-Call:
http://www.prnewswire.com/comp/115769.html
CONTACT:
Jeffrey N. Boyer, Executive Vice President -
Chief Financial Officer, +1-972-409-1581, or Christopher J.
Holland, Vice President - Finance, +1-972-409-1667, both of
Michaels Stores, Inc.
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