- Diluted EPS Increases 57.1% to $0.33 -
- Net Income Increases 58.6% -
IRVING, Texas, May 25 /PRNewswire-FirstCall/ -- Michaels Stores, Inc.
(NYSE: MIK) today reported unaudited financial results for its first quarter
ended April 30, 2005. Net income for the quarter increased $17.2 million to
$46.5 million, up 58.6% versus $29.3 million for the same quarter last year.
Diluted earnings per share increased 57.1% for the quarter to $0.33 versus
$0.21 in the first quarter of 2004.
Michael Rouleau, Chief Executive Officer, said, "We are very pleased with
our record sales and earnings performance for the first quarter. Our strong
same-store sales were largely driven by leveraging our new Perpetual Inventory
and Automated Replenishment merchandising systems. These systems enable us to
maintain higher store-level merchandise in-stocks and to maximize our
promotional programs, our feature item merchandising, and our high growth
trend businesses. These systems also enable us to redeploy our investment in
inventory to categories with the strongest growth potential and reduce our
investment in slow moving products, thereby improving the overall quality of
our inventory and enhancing our gross margin performance over the long term.
In addition, our continued focus on operational efficiencies and cost controls
during the quarter allowed us to further leverage our strong sales growth and
expand our operating margin to a record first quarter level."
Operating Performance
Total sales for the quarter increased 13.1% to $821.0 million from
$725.9 million for the same period last year. Same-store sales for the
quarter increased 7.8% on a 2.2% increase in average ticket, a 4.9% increase
in transactions, and a 0.7% increase in custom frame deliveries. A favorable
currency translation, due to the stronger Canadian dollar, contributed
approximately 0.4% to the average ticket increase for the quarter. The best
performing geographic regions were the Pacific, Southeast, and Northern zones,
and our best departmental performances came in our Paper Crafting, General
Crafts, Wedding & Ribbon, and Kids Crafts categories with strong Yarn
department sales contributing solidly to overall same-store sales for the
quarter.
For the quarter, the Company's operating income increased 48.9% to
$77.5 million and to 9.4% of sales from $52.0 million and 7.2% of sales for
the same period last year. Gross margin expanded approximately 130 basis
points from 35.8% of sales in the first quarter of last year to 37.1% in the
first quarter of fiscal 2005, due to improved merchandising margins, partially
offset by higher occupancy costs. These merchandise margin improvements were
partly driven by the shift in timing of the majority of merchandise plan-o-
gram resets and related markdowns into the second quarter of fiscal 2005
versus the first quarter of 2004 as well as a favorable comparison against
last year's accelerated clearance program.
Selling, general, and administrative expenses increased 9.1% and supported
a 13.1% increase in sales, with expenses as a percent of sales declining to
27.4% from 28.3% in the first quarter of last year. Strong cost management
efforts in payroll and related personnel costs generated the majority of the
expense leverage.
Balance Sheet
The Company's cash balance at the end of the quarter was $558.5 million,
an increase of $177.1 million over last year's first quarter ending balance of
$381.4 million. Average inventory per Michaels store at the end of the first
quarter, inclusive of distribution centers, increased 0.9% year over year to
$1.035 million. During the first quarter, the Perpetual Inventory and
Automated Replenishment merchandising systems enabled investments in inventory
to be redeployed from slow growth to higher growth categories. Incremental
inventory investments, primarily in the Yarn category, were largely offset by
inventory reductions in other categories. During the quarter, the Company
opened 14, relocated eight and closed one Michaels store, opened one Aaron
Brothers store, opened one Star Wholesale store, and opened one Recollections
store.
The Company also announced that it has repurchased an additional
1,474,200 shares of the Company's common stock since the end of fiscal 2004
under its stock repurchase plans at an average price of $35.52 per share. As
of May 25, 2005, under the repurchase plans, the Company is authorized to
repurchase approximately 3.4 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. In addition, the Company has
previously announced that it has called for the redemption of its
$200 million, 9 1/4% Senior Notes in July 2005, which would result in a pre-
tax charge to earnings of $12.1 million to be recognized in the second
quarter, representing a combination of a call premium and the unamortized debt
costs associated with the notes.
Outlook
The Company currently forecasts same-store sales for the second quarter of
fiscal 2005 to increase 5% to 7% with operating margin expanding approximately
100 basis points, driving an increase of approximately 25% to 30% in operating
income versus the second quarter of fiscal 2004. Gross margin as a percent of
sales in the second quarter is expected to contract approximately 40 basis
points versus the prior year due to the timing of merchandise plan-o-gram
resets and the related markdowns. For the first half of fiscal 2005, gross
margin as a percent of sales is currently forecast to expand approximately
50 basis points due to improved merchandising margins, partially offset by
higher occupancy costs as a percent of sales. Selling, general, and
administrative expenses as a percent of sales for the second quarter are
expected to decline approximately 140 basis points, primarily due to a
favorable comparison to the prior year second quarter when incremental
expenses were recognized to reflect the deteriorating financial condition of a
previous insurance carrier.
Diluted earnings per share for the second quarter of 2005 are currently
expected to range from $0.20 to $0.22, including the redemption costs of
approximately $12.1 million described above.
For the second half of fiscal 2005, same-store sales are expected to
increase 3% to 5% over the second half of fiscal 2004. Operating margin is
expected to expand by approximately 150 basis points in the second half of
fiscal 2005 versus the second half of fiscal 2004, largely driven by gross
margin expansion. Gross margins are expected to improve primarily due to
anticipated increases in merchandising margins and the absence of the lease
accounting correction recorded in the fourth quarter of last year. As
compared to the second half of fiscal 2004, operating income is expected to
increase over the prior year by 20% to 25% in the second half with net income
and diluted earnings per share increasing 30% to 35% in the third quarter and
20% to 25% in the fourth quarter.
For fiscal 2005, the Company now expects same-store sales to increase 4%
to 6% and total sales to increase 9% to 11%. Operating margin is expected to
grow approximately 150 basis points driven by both gross margin expansion and
selling, general, and administrative expense leverage. Diluted earnings per
share for 2005 are expected to increase 25% to 30% over fiscal 2004 results.
The Company will host a conference call at 4:00 p.m. central time today to
discuss its first quarter 2005 earnings results and outlook for fiscal 2005.
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 5446577.
The Company plans to release its 2005 second quarter sales on Thursday,
August 4, 2005, 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 retailer of arts, crafts,
framing, floral, wall decor, and seasonal merchandise for the hobbyist and do-
it-yourself home decorator. As of May 25, 2005, the Company owns and operates
860 Michaels stores in 48 states and Canada, 165 Aaron Brothers stores,
located primarily on the West Coast, nine Recollections, 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 29, 2005, 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, margin
performance, 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 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, 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 29, 2005, 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 30, May 1,
2005 2004
Net sales $821,016 $725,852
Cost of sales and occupancy expense 516,336 465,628
Gross profit 304,680 260,224
Selling, general, and administrative
expense 224,470 205,701
Store pre-opening costs 2,739 2,483
Operating income 77,471 52,040
Interest expense 5,090 5,328
Other (income) and expense, net (2,680) (789)
Income before income taxes 75,061 47,501
Provision for income taxes 28,528 18,169
Net income $46,533 $29,332
Earnings per common share:
Basic $0.34 $0.21
Diluted $0.33 $0.21
Weighted average shares outstanding:
Basic 136,018 136,562
Diluted 139,233 139,692
Dividends per common share $0.07 $0.06
Michaels Stores, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
April 30, January 29, May 1,
Subject to reclassification 2005 2005 2004
ASSETS
Current assets:
Cash and equivalents $558,546 $535,852 $381,352
Short-term investments --- 50,379 ---
Merchandise inventories 964,177 936,395 906,655
Prepaid expenses and other 26,999 26,613 40,031
Deferred income taxes 22,027 22,032 20,990
Total current assets 1,571,749 1,571,271 1,349,028
Property and equipment, at cost 936,091 913,174 825,928
Less accumulated depreciation (525,555) (506,193) (434,257)
410,536 406,981 391,671
Goodwill 115,839 115,839 115,839
Other assets 17,434 17,569 14,850
133,273 133,408 130,689
Total assets $2,115,558 $2,111,660 $1,871,388
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $269,684 $256,266 $214,454
Accrued liabilities and other 227,053 242,682 190,040
Income taxes payable 6,155 12,992 ---
Total current liabilities 502,892 511,940 404,494
9 1/4% Senior Notes due 2009 200,000 200,000 200,000
Deferred income taxes 26,848 30,355 28,241
Other long-term liabilities 79,359 72,200 38,184
Total long-term liabilities 306,207 302,555 266,425
809,099 814,495 670,919
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
135,293,468 at April 30, 2005,
135,726,717 at January 29, 2005,
and 137,173,338 at May 1, 2004 13,529 13,573 13,717
Additional paid-in capital 420,954 451,449 503,684
Retained earnings 863,800 826,821 681,477
Accumulated other comprehensive
income 8,176 5,322 1,591
Total stockholders' equity 1,306,459 1,297,165 1,200,469
Total liabilities and stockholders'
equity $2,115,558 $2,111,660 $1,871,388
Michaels Stores, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Subject to reclassification Quarter Ended
April 30, May 1,
2005 2004
Operating activities:
Net income $46,533 $29,332
Adjustments:
Depreciation 23,680 21,678
Amortization 99 98
Other 254 291
Changes in assets and liabilities:
Merchandise inventories (27,782) (13,732)
Prepaid expenses and other (386) (10,833)
Deferred income taxes and other (3,446) (461)
Accounts payable 13,418 41,746
Accrued liabilities and other (12,614) (6,660)
Income taxes payable 512 3,588
Other long-term liabilities 6,982 1,380
Net cash provided by operating
activities 47,250 66,427
Investing activities:
Additions to property and equipment (27,488) (25,834)
Purchases of short-term investments (226) ---
Sales of short-term investments 50,605 ---
Net proceeds from sales of
property and equipment --- 9
Net cash provided by (used in)
investing activities 22,891 (25,825)
Financing activities:
Cash dividends paid to stockholders (9,559) (8,220)
Repurchase of Common Stock (52,363) (7,798)
Proceeds from stock options exercised 13,262 14,236
Proceeds from issuance of Common
Stock and other 1,213 707
Net cash used in financing activities (47,447) (1,075)
Net increase (decrease) in cash and
equivalents 22,694 39,527
Cash and equivalents at beginning of
period 535,852 341,825
Cash and equivalents at end of period $558,546 $381,352
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 30, May 1,
2005 2004
Net sales 100.0 % 100.0 %
Cost of sales and occupancy expense 62.9 64.2
Gross profit 37.1 35.8
Selling, general, and administrative
expense 27.4 28.3
Store pre-opening costs 0.3 0.3
Operating income 9.4 7.2
Interest expense 0.6 0.8
Other (income) and expense, net (0.3) (0.1)
Income before income taxes 9.1 6.5
Provision for income taxes 3.4 2.5
Net income 5.7 % 4.0 %
The following table sets forth certain of our unaudited operating data
(dollar amounts in thousands):
Quarter Ended
April 30, May 1,
2005 2004
Michaels stores:
Retail stores open at beginning of
period 844 804
Retail stores opened during the
period 14 14
Retail stores opened (relocations)
during the period 8 12
Retail stores closed during the
period (1) ---
Retail stores closed (relocations)
during the period (8) (12)
Retail stores open at end of
period 857 818
Aaron Brothers stores:
Retail stores open at beginning of
period 164 158
Retail stores opened during the
period 1 ---
Retail stores open at end of
period 165 158
Recollections stores:
Retail stores open at beginning of
period 8 2
Retail stores opened during the
period 1 ---
Retail stores open at end of
period 9 2
Star Wholesale stores:
Wholesale stores open at beginning
of period 3 3
Wholesale stores opened during the
period 1 ---
Wholesale stores open at end of
period 4 3
Total store count at end of period 1,035 981
Other operating data:
Average inventory per Michaels
store (A) $1,035 $1,026
Comparable store sales increase (B) 7.8% 5.9%
(A) Average inventory per Michaels store calculation excludes Aaron
Brothers, Recollections, and Star Wholesale stores.
(B) 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.
SOURCE Michaels Stores, Inc.
 back to top
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
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 Thomas A. Melito,
Assistant Treasurer, +1-972-409-1527, both of Michaels Stores,
Inc.
|
