IRVING, Texas, March 15 /PRNewswire-FirstCall/ -- Michaels Stores, Inc.
(NYSE: MIK) announced today that it is making a one-time, non-cash, after-tax
adjustment of $8.0 million to its results in the fourth fiscal quarter of 2004
to reflect the cumulative impact of a correction of its accounting practices
related to leased properties. The Company has completed its evaluation,
announced in its press release of March 2, 2005, of the impact of the
cumulative effect of this adjustment. The adjustment reduces the Company's
previously announced fiscal fourth quarter diluted earnings per share from
$0.80 to $0.75 and its fiscal year 2004 diluted earnings per share by $0.06
from $1.51 to $1.45. Of the $0.06 reduction in diluted earnings per share
recorded in the fourth quarter, there is no net impact on diluted earnings per
share attributable to fiscal years 2004 or 2003. The decrease of $0.06 is
attributable to the net impact on diluted earnings per share of prior periods,
the majority of which relates to periods prior to fiscal year 2000.
This correction of accounting practices was made in light of the views of
the Office of the Chief Accountant of the Securities and Exchange Commission
expressed in a letter of February 7, 2005 to the American Institute of
Certified Public Accountants regarding the application of generally accepted
accounting principles to operating lease accounting matters. Consistent with
industry practices, in prior periods the Company had reported its straight
line expenses for leases beginning on the earlier of the store opening date or
the commencement date of the lease, which had the effect of excluding the pre-
opening or build-out period of its stores from the calculation of the period
over which it expenses rent. In addition, amounts received as tenant
allowances were reflected in the balance sheet as a reduction to store
leasehold improvement costs instead of being classified as deferred lease
credits. The adjustment required to correct these practices will not affect
historical or future net cash flows or the timing of payments under related
leases. The Company believes that the new lease accounting practices will not
have a material effect on future diluted earnings per share and is not
changing its earnings guidance of diluted earnings per share for fiscal 2005
of $1.74 to $1.81, excluding the anticipated impact of non-cash expense
related to the implementation of Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment.
In the past, the Company has followed lease accounting principles using
methods that have been common practice in the retail and restaurant
industries. In its March 2, 2005 earnings release, the Company stated that it
had not made a decision whether to reflect the change in lease accounting
practices in the 2004 financial results or in restatements of previously
issued annual and interim financial statements. Upon completion of its
evaluation, the Company decided to reflect the change in its 2004 financial
results. Prior years' financial results will not be restated as these issues
were not material to previously reported results for any prior year.
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 March 14, 2005, the Company owns and
operates 847 Michaels stores in 48 states and Canada, 165 Aaron Brothers
stores, eight Recollections stores, and four 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 earnings per share. 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 ).
Michaels Stores, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
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 751,442 674,466 2,146,934 1,957,273
Gross profit 433,118 388,640 1,246,317 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 167,198 154,194 339,515 302,751
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 164,064 150,317 323,685 285,190
Provision for income taxes 60,821 55,756 121,876 107,345
Net income $103,243 $94,561 $201,809 $177,845
Earnings per common share:
Basic $0.76 $0.70 $1.49 $1.32
Diluted $0.75 $0.68 $1.45 $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)
(Unaudited)
January 29, January 31,
Subject to Reclassification 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 913,174 808,230
Less accumulated depreciation (506,193) (420,313)
406,981 387,917
Goodwill 115,839 115,839
Other assets 17,569 14,519
133,408 130,358
Total assets $2,111,660 $1,801,647
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $256,266 $172,708
Accrued liabilities and other 242,682 194,395
Income taxes payable 12,992 2,377
Total current liabilities 511,940 369,480
9 1/4% Senior Notes due 2009 200,000 200,000
Deferred income taxes 30,355 28,241
Other long-term liabilities 72,200 36,628
Total long-term liabilities 302,555 264,869
814,495 634,349
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 826,821 660,365
Accumulated other comprehensive
income 5,322 4,223
Total stockholders' equity 1,297,165 1,167,298
Total liabilities and stockholders'
equity $2,111,660 $1,801,647
Michaels Stores, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Subject to Reclassification Fiscal Year
2004 2003
Operating activities:
Net income $201,809 $177,845
Adjustments:
Depreciation 105,742 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 1,806 11,503
Accounts payable 83,558 77,944
Income taxes payable 39,699 13,287
Accrued liabilities and
other 69,240 18,007
Net cash provided by
operating activities 462,649 289,506
Investing activities:
Additions to property and
equipment, net of landlord
reimbursements (125,737) (103,110)
Net proceeds from sales of
property and equipment 133 105
Net cash used in
investing activities (125,604) (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 63.4 63.4 63.3 63.3
Gross profit 36.6 36.6 36.7 36.7
Selling, general, and administrative
expense 22.4 22.0 26.5 26.6
Store pre-opening costs 0.1 0.1 0.2 0.3
Operating income 14.1 14.5 10.0 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 13.9 14.1 9.5 9.2
Provision for income taxes 5.2 5.2 3.6 3.4
Net income 8.7 % 8.9 % 5.9 % 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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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 Chris Holland, Vice
President - Finance, +1-972-409-1667, both of Michaels Stores,
Inc.
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