IRVING, Texas, May 24 /PRNewswire-FirstCall/ -- Michaels Stores, Inc.
(NYSE: MIK) today reported unaudited financial results for the first
quarter ended April 29, 2006. Net income for the first quarter of fiscal
2006 was $50.6 million and diluted earnings per share was $0.38. For the
first quarter of fiscal 2005, the Company reported a loss of ($35.9)
million and diluted loss per share of ($0.26). First quarter fiscal 2005
results include the cumulative effect of accounting change, net of tax, of
$88.5 million, for the Company's change in inventory accounting policy from
a retail method to the weighted average cost method. The Company also
adopted SFAS 123(R) as of the beginning of fiscal 2005. All periods
presented reflect merchandise inventories reported under the weighted
average cost method and include expenses associated with share based
compensation. Income before the cumulative effect of accounting change was
$50.6 million in the first quarter of fiscal 2006, down 3.7% versus $52.6
million for the same quarter last year. Diluted earnings per share before
cumulative effect of accounting change was $0.38 for the first quarter of
both fiscal 2005 and fiscal 2006.
Operating Performance
Total sales for the first quarter were $832.5 million, a 1.4% increase
over last year's first quarter sales of $821.0 million. Same-store sales
for the quarter decreased (3.0%) on a 1.6% increase in average ticket, a
(5.0%) decrease in transactions, and a 0.4% increase in custom frame
deliveries. A favorable Canadian currency translation added approximately
0.4% to the average ticket increase for the quarter.
As previously reported, same-store sales for the quarter were affected
by a significant decline in Yarn category sales, increased business
disruption due to a higher level of merchandise plan-o-gram resets, and
lower inventory levels, particularly discontinued and clearance inventory.
Yarn sales declined 38% versus the same period a year ago. During the first
quarter of fiscal 2006, the Company completed 15 merchandise category
resets; no merchandise categories were reset during the previous year
period. Clearance and discontinued inventory per store was approximately
19% below year ago levels at the end of the first quarter, and total
inventory per store, including distribution centers, finished the quarter
at approximately 10% below prior year first quarter levels.
For the first quarter, the Southeast, Southwest, and Pacific zones
delivered the strongest relative same-store sales performances. The
Company's strongest domestic departmental performances were in General
Crafts (primarily Jewelry and Beads), Custom Floral, Apparel Crafts, and
Kids Crafts.
For the first quarter of fiscal 2006, operating income decreased $9.9
million, or 11.4%, to $77.3 million from $87.2 million in fiscal 2005. As a
percent of sales, reported operating income decreased 130 basis points from
10.6% in the first quarter of 2005 to 9.3% in the first quarter of 2006.
The decrease in operating margin is primarily due to the de-leveraging of
fixed expenses from lower sales growth for the first quarter of fiscal 2006
over the prior year period.
Merchandise margins increased approximately 30 basis points versus the
prior year period. Improvement in merchandise margins was primarily due to
higher margin rates for both regular and promotional sales over the prior
year period, as well as improved sourcing. In addition, a higher percentage
of merchandise was sold at regular price. An increase in inventory shrink
expense, as a percent of sales, partially offset these improvements. Total
gross margin rate, which includes occupancy costs, contracted approximately
20 basis points during the first quarter relative to the prior year period
due to the de-leveraging of occupancy expense and the incremental costs
related to our remodel program totaling 50 basis points of impact for the
quarter.
Selling, general, and administrative expense increased 6.1% on a 1.4%
increase in total sales. As a result, selling, general, and administrative
expense as a percent of sales increased 120 basis points from 27.8% in the
first quarter of fiscal 2005 to 29.0% in the first quarter of this year.
Included in first quarter fiscal 2006 selling, general, and administrative
expense is $4.7 million, or approximately 60 basis points as a percent of
sales, related to the Company's on-going review of strategic alternatives
and retirement benefits for the former CEO.
Pre-opening costs declined approximately $1.3 million from the prior
year first quarter due to the timing of new store spending.
Interest expense for the quarter declined $4.9 million primarily due to
the Company's early redemption of its 9 1/4% Senior Notes in July 2005.
Balance Sheet
The Company's cash balances at the end of the quarter were $442
million, a decrease of $117 million over last year's first quarter ending
balances of $559 million. This reduction is attributable to the Company's
early redemption of its $200 million, 9 1/4% Senior Notes in July 2005 and
its ongoing share repurchase and dividend programs, partially offset by
cash generated from operations. Over the past twelve months, the Company's
dividend payments totaled $53.8 million, and the Company repurchased
5,872,700 shares at an average price, including commissions, of $34.78 per
share for a total cost of $204.3 million. In the first quarter of fiscal
2006, the Company repurchased 1,931,500 shares of its common stock at an
average price, including commissions, of $34.26 per share. As of May 24,
2006, under its repurchase plans, the Company is authorized to repurchase
approximately 2.6 million additional shares plus such shares as may be
repurchased with proceeds from the future exercise of options under the
Company's 2001 General Stock Option Plan.
Average inventory per Michaels store, at the end of the first quarter
of fiscal 2006, inclusive of distribution centers, decreased 9.7% to
$821,000 from $909,000 last year, on the comparable weighted average cost
inventory method, primarily due to the combined impact of our accelerated
markdown program initiated in fiscal 2005 and the liquidation of a portion
of our fashion yarn inventory. Clearance and discontinued inventory per
store was approximately 19% below year ago levels at the end of the first
quarter of fiscal 2005.
Capital spending for the quarter totaled $38.9 million, with $19.7
million attributable to our store activities, such as new, relocated, and
remodeled stores. Spending for the store standardization/remodel program
was approximately $9.5 million as the Company began its chain-wide rollout,
converting 27 existing stores to the more productive layout. In addition,
during the first quarter, the Company opened 17, relocated three, and
closed three Michaels stores, and it also closed one Aaron Brothers store.
Outlook
For the second quarter of fiscal 2006, same-store sales versus the
prior year are now expected to increase approximately 1% to 3%, with total
sales increasing between 5% and 7%. Operating income is expected to remain
flat versus second quarter fiscal 2005 operating income of approximately
$40 million. The operating income forecast for the second quarter includes
$3.8 million for estimated store remodel expenses for the store
standardization program and $4.6 million of costs related to the Company's
review of strategic alternatives. Diluted earnings per share for the second
quarter of fiscal 2006 is estimated to be $0.19 to $0.21, a 58% to 75%
increase over fiscal 2005 second quarter results of $0.12 due to lower
interest expense and the absence of expenses associated with the early
redemption of the 9 1/4% Senior Notes in the second quarter of fiscal 2005.
The Company currently expects same-store sales for the second half of
fiscal 2006 to increase from 3% to 5% versus the prior year period, with
total sales expected to be up approximately 10% to $2.3 billion. Operating
results for the second half include the Company's 53rd week for fiscal
2006. Operating income as a percent of sales for the second half of fiscal
2006 is expected to increase approximately 120 to 130 basis points over the
prior year period to approximately 12.6%. In the fourth quarter of fiscal
2005, the Company refined its calculation for deferring costs related to
preparing inventory for sale and for vendor allowance recognition and
recorded an adjustment to cost of sales of $23.9 million. Diluted earnings
per share are forecast to be approximately $1.35 to $1.40, representing a
23% to 27% improvement over second half 2005 diluted earnings per share
before the cumulative effect of accounting change of $1.10.
For fiscal 2006, the Company expects total sales to increase
approximately 7% to 8% over fiscal 2005, driven by a forecasted same-store
sales increase of approximately 2% to 3%, new store sales growth of
approximately 4% and an estimated 1.5% increase for the additional 53rd
week of business in fiscal 2006. Operating margin is expected to grow
approximately 50 to 60 basis points over the fiscal 2005 operating margin
of 9.9%, driven primarily by gross margin expansion. Currently included in
the fiscal 2006 forecast is $17.7 million for expenses related to the
Company's review of strategic alternatives. Operating income is expected to
range from $405 to $415 million, an increase of approximately 11% to 14%
over the fiscal 2005 operating income of $364 million. Interest expense is
expected to decline $21 million primarily due to the absence of the
interest expense on our 9 1/4% Senior Notes that were redeemed in 2005. Net
income for 2006 is estimated to range from $260 to $265 million, an 18% to
20% increase over fiscal 2005 net income before cumulative effect of
accounting change of $220 million. Diluted earnings per share is currently
expected to range from $1.92 to $1.98, representing a 21% to 25% increase
over the comparable fiscal 2005 diluted earnings per share before
cumulative effect of accounting change of $1.59.
During fiscal 2006, the Company expects to open 40 to 45 new stores,
relocate and/or expand approximately 20 stores, remodel 70 stores and
continue construction of the Centralia, Washington distribution center.
As previously announced, the Company will host a conference call at
4:00 p.m. central time today, hosted by Michaels Stores President and Chief
Financial Officer, Jeffrey 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
6885485.
The Company plans to release its 2006 second quarter sales on Thursday,
August 3, 2006, at 6:30 a.m. central time. Any interested party may view
the Company's press release at http://www.michaels.com .
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 May 24, 2006, the Company
owns and operates 899 Michaels stores in 48 states and Canada, 165 Aaron
Brothers stores, 11 Recollections stores, and four Star Decorators
Wholesale operations.
This document 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.
Specific examples of forward-looking statements include, but are not
limited to, forecasts of same- store sales growth, operating income, and
diluted 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:
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
suppliers due to vendor payment delays associated with recently implemented
systems or 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; 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 ).
-- Tables Follow --
Michaels Stores, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Quarter Ended
April 29, April 30,
2006 2005 (A)
Net sales $832,481 $821,016
Cost of sales and occupancy expense 512,041 503,204
Gross profit 320,440 317,812
Selling, general, and administrative
expense 241,736 227,894
Store pre-opening costs 1,437 2,739
Operating income 77,267 87,179
Interest expense 172 5,089
Other (income) and expense, net (4,196) (2,680)
Income before income taxes and
cumulative effect of accounting
change 81,291 84,770
Provision for income taxes 30,687 32,216
Income before cumulative effect of
accounting change 50,604 52,554
Cumulative effect of accounting change,
net of income tax of $54.2 million --- 88,488
Net income $50,604 $(35,934)
Basic earnings (loss) per common share:
Income before cumulative effect of
accounting change $0.38 $0.39
Cumulative effect of accounting
change, net of income tax --- (0.65)
Net income $0.38 $(0.26)
Diluted earnings (loss) per common share:
Income before cumulative effect of
accounting change $0.38 $0.38
Cumulative effect of accounting
change, net of income tax --- (0.64)
Net income $0.38 $(0.26)
Weighted average shares outstanding:
Basic 132,399 136,018
Diluted 134,617 138,435
Dividends per common share $0.10 $0.07
Michaels Stores, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
Subject to reclassification April 29, January 28, April 30,
2006 2006 2005 (A)
ASSETS
Current assets:
Cash and equivalents $441,843 $452,449 $558,546
Merchandise inventories 795,047 784,032 835,765
Prepaid expenses and other 43,431 44,042 26,999
Deferred and prepaid income taxes 34,156 34,125 64,669
Total current assets 1,314,477 1,314,648 1,485,979
Property and equipment, at cost 1,046,956 1,011,201 936,091
Less accumulated depreciation (611,495) (586,382) (525,555)
435,461 424,819 410,536
Goodwill 115,839 115,839 115,839
Other assets 23,082 20,249 19,136
138,921 136,088 134,975
Total assets $1,888,859 $1,875,555 $2,031,490
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $267,154 $193,595 $269,684
Accrued liabilities and other 226,541 282,499 227,053
Income taxes payable 14,610 20,672 ---
Total current liabilities 508,305 496,766 496,737
9 1/4% Senior Notes due 2009 --- --- 200,000
Deferred income taxes 2,791 2,803 26,848
Other long-term liabilities 89,098 88,637 79,359
Total long-term liabilities 91,889 91,440 306,207
600,194 588,206 802,944
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;
134,841,303 shares issued and
132,074,903 shares outstanding at
April 29, 2006, 133,821,417 shares
issued and 132,986,517 shares
outstanding at January 28, 2006,
and 135,293,468 shares issued and
outstanding at April 30, 2005 13,484 13,382 13,529
Additional paid-in capital 416,052 386,627 425,432
Retained earnings 945,134 907,773 781,333
Treasury Stock (2,766,400 shares at
April 29, 2006, 834,900 shares
at January 28, 2006, and none at
April 30, 2005) (94,127) (27,944) ---
Accumulated other comprehensive
income 8,122 7,511 8,252
Total stockholders' equity 1,288,665 1,287,349 1,228,546
Total liabilities and stockholders'
equity $1,888,859 $1,875,555 $2,031,490
Michaels Stores, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Thirteen Weeks Ended
Subject to reclassification April 29, April 30,
2006 2005 (A)
Operating activities:
Net income (loss) $50,604 $(35,934)
Adjustments:
Depreciation 27,341 23,680
Amortization 115 99
Share-based compensation 5,352 4,478
Tax benefits from stock options
exercised (8,203) (7,349)
Non-cash charge for the cumulative
effect of accounting change --- 142,723
Other 2 254
Changes in assets and liabilities:
Merchandise inventories (11,015) (41,972)
Prepaid expenses and other 277 (386)
Deferred income taxes and other (2,932) (5,148)
Accounts payable 60,874 13,418
Accrued liabilities and other (19,615) (3,128)
Income taxes payable 2,141 (48,330)
Other long-term liabilities 1,526 6,982
Net cash provided by
operating activities 106,467 49,387
Investing activities:
Additions to property and equipment (38,920) (27,488)
Purchases of short-term investments --- (226)
Sales of short-term investments --- 50,605
Net proceeds from sales of property
and equipment 6 ---
Net cash (used in) provided by
investing activities (38,914) 22,891
Financing activities:
Cash dividends paid to stockholders (26,625) (19,045)
Repurchase of Common Stock (66,182) (52,363)
Proceeds from stock options exercised 14,876 13,262
Tax benefits from stock options
exercised 8,203 7,349
Proceeds from issuance of Common
Stock and other 1,095 1,213
Change in cash overdraft (9,526) ---
Net cash used in
financing activities (78,159) (49,584)
Net (decrease) increase in cash and
equivalents (10,606) 22,694
Cash and equivalents at beginning of
period 452,449 535,852
Cash and equivalents at end of period $441,843 $558,546
Michaels Stores, Inc.
Summary of Operating Data
(Unaudited)
The following table sets forth the percentage relationship to net sales
of each line item of our unaudited consolidated statements of income:
Quarter Ended
April 29, April 30,
2006 2005 (A)
Net sales 100.0 % 100.0 %
Cost of sales and occupancy expense 61.5 61.3
Gross profit 38.5 38.7
Selling, general, and administrative
expense 29.0 27.8
Store pre-opening costs 0.2 0.3
Operating income 9.3 10.6
Interest expense 0.0 0.6
Other (income) and expense, net (0.5) (0.3)
Income before income taxes and
cumulative effect of accounting change 9.8 10.3
Provision for income taxes 3.7 3.9
Income before cumulative effect of
accounting change 6.1 6.4
Cumulative effect of accounting
change, net of income tax --- 10.8
Net income 6.1 % (4.4)%
The following table sets forth certain of our unaudited operating data
(dollar amounts in thousands):
Quarter Ended
April 29, April 30,
2006 2005
Michaels stores:
Retail stores open at beginning of period 885 844
Retail stores opened during the period 17 14
Retail stores opened (relocations)
during the period 3 8
Retail stores closed during the period (3) (1)
Retail stores closed (relocations)
during the period (3) (8)
Retail stores open at end of period 899 857
Aaron Brothers stores:
Retail stores open at beginning of period 166 164
Retail stores opened during the period --- 1
Retail stores closed during the period (1) ---
Retail stores open at end of period 165 165
Recollections stores:
Retail stores open at beginning of period 11 8
Retail stores opened during the period --- 1
Retail stores open at end of period 11 9
Star Decorators Wholesale stores:
Wholesale stores open at beginning of period 4 3
Wholesale stores opened during the period --- 1
Wholesale stores open at end of period 4 4
Total store count at end of period 1,079 1,035
Other operating data:
Average inventory per Michaels store (B) $821 $909
Comparable store sales (decrease) increase (C) (3.0)% 7.8%
Michaels Stores, Inc.
Footnotes to Financial and Operating Data Tables
(Unaudited)
(A) In the fourth quarter of the fiscal year ended January 28, 2006, the
Company changed its method of accounting for merchandise inventories
from a retail inventory method to the weighted average cost method,
effective as of the beginning of that fiscal year. As a result, the
Company recorded a cumulative effect of accounting change, net of
tax, of $88.5 million in the first quarter of fiscal 2005. In
addition, the Company elected to early adopt the provisions of
Statement of Financial Accounting Standards No. 123(R), Accounting
for Stock Based Compensation, which requires all share-based
payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair
value over the requisite service period. The Company applied the
modified retrospective transition method as permitted by SFAS No.
123(R) from the beginning of fiscal 2005. Thus, the previously
reported results for the quarter ended April 30, 2005 have been
adjusted to reflect the adoption of the weighted average cost method
and the impact of share based compensation expense under the
provisions of SFAS No. 123(R).
(B) Average inventory per Michaels store calculation excludes Aaron
Brothers, Recollections, and Star Decorators Wholesale stores.
(C) Comparable store sales increase represents the increase in net sales
for stores open the same number of months in the indicated period
and the comparable period of the previous year, including stores
that were relocated or expanded during either period. A store is
deemed to become comparable in its 14th month of operation in order
to eliminate grand opening sales distortions. A store temporarily
closed more than 2 weeks due to a catastrophic event is not
considered comparable during the month it closed. If a store is
closed longer than 2 weeks but less than 2 months, it becomes
comparable in the month in which it reopens, subject to a mid-month
convention. A store closed longer than 2 months becomes comparable
in its 14th month of operation after its reopening.
SOURCE Michaels Stores, Inc.
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http://www.michaels.com
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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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